Company Quick10K Filing
Sunnyside Bancorp
Price12.50 EPS-0
Shares1 P/E-47
MCap9 P/FCF-137
Net Debt-1 EBIT0
TEV8 TEV/EBIT46
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-14
10-K 2019-12-31 Filed 2020-03-27
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-13
10-K 2018-12-31 Filed 2019-03-28
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-03-28
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-30
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-11
10-K 2015-12-31 Filed 2016-03-25
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-12
10-K 2014-12-31 Filed 2015-03-25
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-12
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-06-28
8-K 2019-06-12 Shareholder Vote, Exhibits
8-K 2018-06-13 Shareholder Vote, Other Events, Exhibits
8-K 2018-03-20 Officers, Exhibits
8-K 2018-03-08 Officers, Exhibits

SNNY 10Q Quarterly Report

Part I. - Financial Information
Item 1.Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32 ex32.htm

Sunnyside Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 form10-q.htm

 
 

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______________ to _______________

 

Commission File No. 000-55005

 

Sunnyside Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   46-3001280

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     
56 Main Street, Irvington, New York   10533
(Address of Principal Executive Offices)   Zip Code

 

(914) 591-8000

(Registrant’s telephone number)

 

N/A

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES [X] NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [X] NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company “ in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   Smaller reporting company [X]
(Do not check if smaller reporting company)   Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [  ] NO [X]

 

As of May 12, 2020, 793,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

 

 

 

   
 

 

Sunnyside Bancorp, Inc.

Form 10-Q

 

Index

 

      Page
   Part I. Financial Information   
       
Item 1.  Condensed Consolidated Financial Statements   
       
   Condensed Consolidated Statements of Financial Condition as of
March 31, 2020 (unaudited) and December 31, 2019
  1
       
   Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited)  2
       
   Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019 (unaudited)  3
       
   Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (unaudited)  4
       
   Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)  6
       
   Notes to Condensed Consolidated Financial Statements (unaudited)  7 – 25
       
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 

26 – 28

       
Item 3.  Quantitative and Qualitative Disclosures about Market Risk  29
       
Item 4.  Controls and Procedures  29
       
  Part II. Other Information   
       
Item 1.  Legal Proceedings  29
       
Item 1A.  Risk Factors  29
       
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  29
       
Item 3.  Defaults upon Senior Securities  29
       
Item 4.  Mine Safety Disclosures  29
       
Item 5.  Other Information  29
       
Item 6.  Exhibits  30
       
   Signature Page  31

 

   
 

 

Part I. – Financial Information

 

Item 1.Financial Statements

 

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

 

   March 31,  December 31,
   2020  2019
       
Assets      
       
Cash and cash equivalents  $2,650,613   $1,820,482 
Certificates of deposit   999,285    999,262 
Securities held to maturity, net; approximate fair value of $442,000 (March 31, 2020) and $441,000 (December 31, 2019)   423,470    424,294 
Securities available for sale   41,017,527    37,978,622 
Loans receivable, net   38,767,854    39,839,882 
Premises and equipment, net   1,026,765    1,052,512 
Federal Home Loan Bank of New York and other stock, at cost   231,700    235,800 
Accrued interest receivable   459,767    503,280 
Cash surrender value of life insurance   2,396,749    2,381,554 
Deferred income taxes   533,726    714,120 
Other assets   256,578    292,709 
           
Total assets  $88,764,034   $86,242,517 
           
Liabilities and Stockholders’ Equity          
           
Liabilities:          
Deposits  $74,003,822   $71,899,432 
Advances from Federal Home Loan Bank of New York   1,658,568    1,749,520 
Advances from borrowers for taxes and insurance   455,209    548,621 
Other liabilities   614,714    640,613 
           
Total liabilities   76,732,313    74,838,186 
           
Commitments and contingencies          
    -    - 
Stockholders’ equity:          
Serial preferred stock;par value $.01, 1,000,000 shares authorized, no shares issued   -    - 
Common stock; par value $.01, 30,000,000 shares authorized and 793,500 shares issued   7,935    7,935 
Additional paid-in capital   7,099,022    7,092,368 
Unallocated common stock held by the Employee Stock Ownership Plan   (394,362)   (399,974)
Retained earnings   5,803,196    5,866,598 
Accumulated other comprehensive (loss)   (484,070)   (1,162,596)
           
Total stockholders’ equity   12,031,721    11,404,331 
           
Total liabilities and stockholders’ equity  $88,764,034   $86,242,517 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 1 
   

  

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Operations

 

   Three Months Ended
   March 31,
   2020  2019
       
Interest and dividend income:          
Loans  $438,380   $469,017 
Investment securities   55,435    26,696 
Mortgage-backed securities   173,498    151,496 
Federal funds sold and other earning assets   16,241    10,795 
           
Total interest and dividend income   683,554    658,004 
           
Interest expense:          
Deposits   192,492    99,337 
Borrowings   9,289    11,827 
           
Total interest expense   201,781    111,164 
           
Net interest income   481,773    546,840 
           
Provision for loan losses   10,876    - 
           
Net interest income after provision for loan losses   470,897    546,840 
           
Non-interest income:          
Fees and service charges   24,064    26,405 
Income on bank owned life insurance   15,195    15,186 
           
Total non-interest income   39,259    41,591 
           
Non-Interest Expense:          
Compensation and benefits   299,329    325,235 
Occupancy and equipment, net   61,733    62,297 
Data processing service fees   73,536    73,875 
Professional fees   101,515    128,030 
Federal deposit insurance premiums   -    4,801 
Advertising and promotion   10,276    11,929 
Other   45,109    42,788 
           
Total non-interest expense   591,498    648,955 
           
Income (loss) before income taxes   (81,342)   (60,524)
           
Income tax expense (benefit)   (17,940)   (14,122)
           
Net income (loss)  $(63,402)  $(46,402)
           
Basic and diluted income (loss) per share  $(0.08)  $(0.06)
Weighted average shares outstanding, basic and diluted   753,577    751,332 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 2 
   

  

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive IncomE (LOSS)

 

   Three Months Ended
   March 31,
   2020  2019
       
Net income (loss)  $(63,402)  $(46,402)
           
Other comprehensive income, before tax:          
           
Defined benefit pension plans:          
Amortization of loss included in net periodic plan cost   14,367    16,851 
Unrealized gains on securities available for sale:          
Unrealized holding gains arising during the period   844,554    332,662 
           
Other comprehensive income, before tax   858,921    349,513 
           
Income tax expense related to items of other comprehensive          
income   180,395    73,399 
           
Other comprehensive income, net of tax   678,526    276,114 
           
Comprehensive income  $615,124   $229,712 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 3 
   

 

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

 

        

Unallocated

Common

     Accumulated   
      Additional  Stock

     Other   
   Common  Paid-in  Held by  Retained  Comprehensive  Total
   Stock  Capital  ESOP  Earnings  Income (Loss)  Equity
                   
Balance at December 31, 2018   7,935    7,064,299         (422,184)   6,204,754    (1,989,692)  $10,865,112 
                               
Net (loss) for the three months ended March 31, 2019   -    -    -    (46,402)   -    (46,402)
                               
ESOP shares allocated or committed to be released   -    1,143    5,552    -    -    6,695 
                               
Restricted stock awards earned   -    5,512    -    -    -    5,512 
                               
Other comprehensive income, net of tax   -    -    -    -    276,114    276,114 
                               
Balance at March 31, 2019  $7,935   $7,070,954   $(416,632)  $6,158,352   $(1,713,578)  $11,107,031 

 

 4 
   

  

        

Unallocated

Common

     Accumulated   
      Additional  Stock     Other   
   Common  Paid-in  Held by  Retained  Comprehensive  Total
   Stock  Capital  ESOP  Earnings  Income (Loss)  Equity
                   
Balance at December 31, 2019  $7,935   $7,092,368   $(399,974)  $5,866,598   $(1,162,596)  $11,404,331 
                               
Net loss for the three months ended March 31, 2020   -    -    -    (63,402)   -    (63,402)
                              
ESOP shares allocated or committed to be released   -    1,141    5,612    -    -    6,753 
                               
Restricted stock awards earned   -    5,513    -    -    -    5,513 
                               
Other comprehensive income (loss), net of tax   -    -    -    -    678,526    678,526 
                               
Balance at March 31, 2020  $7,935   $7,099,022   $(394,362)  $5,803,196   $(484,070)  $12,031,721 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 5 
   

  

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed cONSOLIDATED StatementS of Cash Flows

 

   Three Months Ended
   March 31,
   2020  2019
Cash flows from operating activities:          
Net income (loss)  $(63,402)  $(46,402)
Adjustments to reconcile net income to net cash          
provided by operating activities:          
Depreciation expense   26,847    29,682 
Amortization of premiums and accretion of discounts, net   51,815    29,557 
Amortization of deferred loan fees and costs, net   21,414    23,956 
Provision for loan losses   10,876    - 
Decrease (increase) in accrued interest receivable   43,513    (44,814)
Increase in cash surrender value of life insurance   (15,195)   (15,186)
Net decrease in other assets   36,130    47,078 
Net (decrease) increase in other liabilities   (11,532)   9,809 
Amortization of stock compensation plans   12,266    12,207 
Net cash provided by operating activities   112,732    45,887 
           
Cash flows from investing activities:          
Purchases of securities available for sale   (7,704,833)   (5,140,941)
Repayments and maturities of securities held to maturity   890    826 
Repayments and maturities of securities available for sale   5,458,578    1,060,331 
Loan originations, net of principal repayments   1,039,738    1,055,302 
Purchases of premises and equipment   (1,100)   (3,090)
Redemption of Federal Home Loan Bank and other stock   4,100    168,800 
Net cash used in investing activities   (1,202,627)   (2,858,772)
           
Cash flows from financing activities:          
Net increase in deposits   2,104,390    4,962,689 
Net decrease in advances from borrowers for taxes and insurance   (93,412)   (57,072)
Repayment of long-term borrowings   (90,952)   - 
Net decrease in short-term borrowings   -    (1,100,000)
Net cash provided by financing activities   1,920,026    3,805,617 
           
Net increase in cash and cash equivalents   830,131    992,732 
           
Cash and cash equivalents at beginning of period   1,820,482    1,217,621 
           
Cash and cash equivalents at end of period  $2,650,613   $2,210,353 
           
Supplemental Information:          
           
Cash paid for:          
Interest  $201,945   $109,822 
Income taxes  $2,859   $3,369 

 

 6 
   

 

Sunnyside BANCORP, INC AND SUBSIDIARY

Form 10-Q

 

 

Notes to Condensed Consolidated Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following is a description of the more significant policies used in the presentation of the accompanying consolidated financial statements of Sunnyside Bancorp, Inc. and Subsidiary, (collectively, the “Company”).

 

Principles of Consolidation

 

The consolidated financial statements are comprised of the accounts of Sunnyside Bancorp. Inc., and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside Federal” or the “Association”). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Business

 

Sunnyside Federal is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a significantly lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

 

Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim period.

 

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, 2020, or any other future interim period. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s annual report on Form 10-K.

 

Cash and Cash Equivalents

 

For purposes of reporting cash flows, the Company considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

 

Investment and Mortgage-Backed Securities

 

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings. As of March 31, 2020 and December 31, 2019, the Company had no securities classified as held for trading.

 

The Company conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery. If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

 

 7 
   

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Investment and Mortgage-Backed Securities (Cont’d)

 

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific identification method.

 

Loans Receivable

 

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

 

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when factors indicating doubtful collectability no longer exist.

 

Allowance for Loan Losses

 

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral, and financial condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management’s judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

 

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

 

Federal Home Loan Bank of New York stock

 

As a member of the Federal Home Loan Bank of New York (“FHLB”), Sunnyside Federal is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on Sunnyside Federal’s activities, primarily our outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

 

Premises and Equipment

 

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

 

    Building and improvements 5 to 40 years
    Furniture, fixtures and equipment 2 to 10 years

 

 8 
   

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Bank-Owned Life Insurance

 

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

 

Income Taxes

 

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

 

Employee Benefits

 

Defined Benefit Plans:

 

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

 

401(k) Plan:

 

The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.

 

Employee Stock Ownership Plan:

 

The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions of ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.” The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Association’s contributions over a period of up to 25 years. The Company’s common stock not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants.

 

Equity Incentive Plan:

 

On July 17, 2014, the Board of Directors adopted the Sunnyside Bancorp, Inc. 2014 Equity Incentive Plan (the “Stock Incentive Plan”) which was approved by shareholders at the Company’s 2014 Annual Meeting of Shareholders held on September 16, 2014. Stock options and restricted stock may be granted to directors, officers and other employees of the Company. The maximum number of shares which may be issued upon exercise of the options under the plan cannot exceed 79,350 shares. The maximum number of shares of stock that may be issued as restricted stock awards cannot exceed 23,805.

 

 9 
   

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Employee Benefits (Cont’d)

 

Equity Incentive Plan (Cont’d):

 

The Stock Incentive Plan will remain in effect as long as any awards under it are outstanding; however, no awards may be granted under the Stock Incentive Plan on or after the 10-year anniversary of the effective date of the Stock Incentive Plan or July 17, 2024.

 

On June 16, 2015, the Company granted 10,500 shares of restricted stock to certain executive officers, with a grant date fair value of $10.50 per share. Twenty percent of the shares awarded vest annually. Management recognizes expense for the fair value of those awards on a straight line basis over the requisite service period. For the three months ended March 31, 2020 and March 31, 2019, the Company recognized approximately $5,500 in expense in regard to those restricted stock awards. Expected future expense relating to these non-vested restricted shares at March 31, 2020 is $5,500 over a weighted average period of 0.25 years. There were no stock options outstanding as of March 31, 2020.

 

Comprehensive Income

 

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, and the actuarial gains and losses of the pension plan, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

 

Concentration of Credit Risk and Interest-Rate Risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

 

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company’s interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

 

Advertising Costs

 

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

 

Earnings Per Share

 

Basic earnings per common share, or EPS, are computed by dividing net income by the weighted-average common shares outstanding during the year. The weighted-average common shares outstanding includes the weighted-average number of shares of common stock outstanding less the weighted average number of unallocated shares held by the ESOP and the unvested shares of restricted stock. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options. Potential common shares related to stock options are determined using the treasury stock method.

 

 10 
   

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

 

Subsequent Events

 

The Company evaluated its March 31, 2020 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on its customers, employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may negatively impact the Company’s financial condition or results of operations is uncertain. However, as an SBA lender, the Company is actively participating in the Paycheck Protection Program.

 

Recent Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” This update amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. This update will be effective on January 1, 2021, with early adoption permitted, and is not expected to have a material effect on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” This update modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. This update was effective on January 1, 2020, and did not have a material effect on the Company’s consolidated financial statements.

 

In June, 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In April, 2019, FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”. ASU 2019-04 made amendments to the following categories in ASU 2016-13 which include Accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures and extension and renewal options. In May, 2019, FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief”, ASU 2019-05 allows the Company to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of Topic 326 if the instruments are eligible for the fair value option under authoritative guidance for fair value. The fair value option election does not apply to held-to-maturity debt securities. We are required to make this election on an instrument-by-instrument basis. This ASU will be effective for public business entities that are a smaller reporting company in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Public business entities that are a smaller reporting company should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The adoption of this guidance on January 1, 2021 is not expected to have a material effect on the Company’s consolidated financial statements.

 

 11 
   

 

2. MUTUAL TO STOCK CONVERSION AND LIQUIDATION ACCOUNT

 

On July 15, 2013, the Association completed its mutual-to-stock conversion, and the Company consummated its initial stock offering. The Company sold 793,500 shares of its common stock, including 55,545 shares purchased by the Association’s ESOP, at a price of $10.00 per share, in a subscription offering, for gross offering proceeds of $7,935,000. The cost of conversion and the stock offering were deferred and deducted from the proceeds of the offering. Conversion costs incurred totaled $845,000 resulting in net proceeds of $6.5 million after also deducting the shares acquired by the ESOP.

 

In accordance with applicable federal conversion regulations, at the time of the completion of our mutual-to-stock conversion, the Company established a liquidation account in the Association in an amount equal to the Association’s total retained earnings as of the latest balance sheet date in the final prospectus used in the Conversion. Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Association, and only in such event. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance. The Company may not declare, pay a dividend on, or repurchase any of its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

 

3. CERTIFICATES OF DEPOSIT

 

    March 31,   December 31, 
    2020   2019 
            
Maturing in:           
After five to ten years   $999,285   $999,262 

 

4. SECURITIES

 

   March 31, 2020 
   Amortized   Gross Unrealized   Fair 
   Cost   Gains   Losses   Value 
                 
Securities held to maturity:                    
State, county, and municipal obligations  $346,863   $17,639   $-   $364,502 
Mortgage-backed securities   76,607    855    -    77,462 
                     
   $423,470   $18,494   $-   $441,964 
                     
Securities available for sale:                    
U.S. government and agency obligations  $9,734,903   $49,005   $13,330    9,770,578 
Mortgage-backed securities   30,375,542    879,480    8,073    31,246,949 
                     
   $40,110,445   $928,485   $21,403   $41,017,527 

 

 12 
   

 

4. SECURITIES (Cont’d)

 

   December 31, 2019 
   Amortized   Gross Unrealized  Fair 
   Cost   Gains   Losses   Value 
                 
Securities held to maturity:                    
State, county, and municipal obligations  $346,806   $15,635   $-   $362,441 
Mortgage-backed securities   77,488    1,491    -    78,979 
                     
   $424,294   $17,126   $-   $441,420 
                     
Securities available for sale:                    
U.S. government and agency obligations  $7,832,355   $6,943   $58,764    7,780,534 
Mortgage-backed securities   30,083,739    190,318    75,969    30,198,088 
                     
   $37,916,094   $197,261   $134,733   $37,978,622 

 

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac with amortized costs of $1.5 million, $20.4 million and $8.5 million, respectively, at March 31, 2020 ($1.7 million, $19.5 million, and $9.0 million, respectively, at December 31, 2019).

 

There were no sales or calls of securities held to maturity or available for sale for the three months ended March 31, 2020 and 2019, respectively.

 

The following is a summary of the amortized cost and fair value of securities at March 31, 2020 and December 31, 2019, by remaining period to contractual maturity. Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

 

 

   March 31, 2020 
   Held to Maturity   Available for Sale 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
                 
Within one year  $-   $-   $-   $- 
After one to five years   -    -    1,194,206    1,226,407 
After five to ten years   -    -    1,444,747    1,476,451 
After ten years   423,470    441,964    37,471,492    38,314,669 
   $423,470   $441,964   $40,110,445   $41,017,527 

 

 13 
   

 

4. SECURITIES (Cont’d)

 

   December 31, 2019 
   Held to Maturity   Available for Sale 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
                 
Within one year  $-   $-   $499,851   $499,866 
After one to five years   -    -    1,297,811    1,301,605 
After five to ten years   -    -    1,484,831    1,482,981 
After ten years   424,294    441,420    34,633,601    34,694,170 
   $424,294   $441,420   $37,916,094   $37,978,622 

 

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at March 31, 2020 and December 31, 2019, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

 

   March 31, 2020 
   Under One Year   One Year or More 
       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized 
   Value   Loss   Value   Loss 
                 
Securities available for sale:                
U.S. government and agency obligations  $3,335,738   $13,330   $-   $- 
Mortgage-backed securities   1,280,662    6,140    93,117    1,933 
                     
   $4,616,400   $19,470   $93,117   $1,933 

 

   December 31, 2019 
   Under One Year   One Year or More 
       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized 
   Value   Loss   Value   Loss 
                 
Securities held to maturity:                
State, county, and municipal obligations  $-   $-   $-   $- 
                     
Securities available for sale:                    
U.S. government and agency obligations   6,239,181    46,887    534,559    11,877 
Mortgage-backed securities   7,382,886    45,749    8,082,496    30,220 
                     
    13,622,067    92,636    8,617,055    42,097 
                     
   $13,622,067   $92,636   $8,617,055   $42,097 

 

  

 14 
   

 

4. SECURITIES (Cont’d)

 

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. At March 31, 2020, a total of 7 securities were in an unrealized loss position (30 at December 31, 2019). The Company generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020 and December 31, 2019 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

 

Securities available for sale, with a carrying value of approximately $3.7 million at March 31, 2020 have been pledged to secure advances from the Federal Home Loan Bank of New York.

 

5. LOANS RECEIVABLE, NET

 

   March 31,   December 31, 
   2020   2019 
Mortgage loans:          
Residential 1-4 family  $17,351,754   $17,894,014 
Commercial and multi-family   14,707,483    14,917,754 
Home equity lines of credit   204,204    206,281 
           
    32,263,441    33,018,049 
           
Other loans:          
Student   5,462,522    5,888,955 
Commercial   1,310,554    1,190,944 
Passbook   19,242    - 
           
    6,792,318    7,079,899 
           
Total loans   39,055,759    40,097,948 
           
Less:          
Deferred loan fees (costs and premiums), net   (151,879)   (170,842)
Allowance for loan losses   439,784    428,908 
           
    287,905    258,066 
           
   $38,767,854   $39,839,882 

 

In the ordinary course of business, the Company makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately $129,000 and $132,000 at March 31, 2020 and December 31, 2019, respectively.

 

 15 
   

 

5. LOANS RECEIVABLE, NET (Cont’d)

 

 Activity in the allowance for loan losses is summarized as follows:

 

   Three Months Ended 
   March 31, 
   2020   2019 
         
Balance at beginning of period  $428,908   $407,832 
Provision for loan losses   10,876    - 
           
Balance at end of period  $439,784   $407,832 

 

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. There are no specific allowances as of March 31, 2020 and December 31, 2019. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

 

  1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
     
  2. National, regional, and local economic and business conditions including the value of underlying collateral for collateral dependent loans.
     
  3. Nature and volume of the portfolio and terms of loans.
     
  4. Experience, ability, and depth of lending management and staff and the quality of the Company’s loan review system.
     
  5. Volume and severity of past due, classified and nonaccrual loans.
     
  6. Existence and effect of any concentrations of credit and changes in the level of such concentrations.
     
  7. Effect of external factors, such as competition and legal and regulatory requirements.

 

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

 

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

 

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.

 

 16 
   

  

5. LOANS RECEIVABLE, NET (Cont’d)

 

Loan classifications are defined as follows:

 

  Pass — These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
     
  Special Mention — These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.
     
  Substandard — These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
     
  Doubtful — These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.
     
  Loss — These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

 

One of the primary methods the Company uses as an indicator of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality indicators by portfolio segment and class, at the dates indicated:

 

   March 31, 2020 
   Mortgage Loans             
       Commercial                
   Residential   Real Estate and   Home       Commercial and     
   1-4 Family   Multi-Family   Equity   Student   Other   Total 
   (In thousands) 
                         
Pass  $17,105   $14,137   $198   $5,341   $1,330   $38,111 
Special Mention   247    -    6    -    -    253 
Substandard   -    570    -    122    -    692 
                               
Total  $17,352   $14,707   $204   $5,463   $1,330   $39,056 

 

 17 
   

 

5. LOANS RECEIVABLE, NET (Cont’d)

 

   December 31, 2019 
   Mortgage Loans     
  

Residential

1-4 Family

   Commercial

Real Estate and

Multi-Family

   Home Equity   Student   Commercial

and

Other

   Total 
           (In thousands)         
                         
Pass  $17,653   $14,315   $206   $5,889   $1,191   $39,254 
Special Mention   241    234    -    -    -    475 
Substandard   -    369    -    -   -    369 
                               
 Total  $17,894   $14,918   $206   $5,889   $1,191   $40,098 

 

The following table provides information about loan delinquencies at the dates indicated:

 

   March 31, 2020 
                           90 Days 
   30-59   60-89   90 Days               or More 
   Days   Days   or More               Past Due 
   Past   Past   Past   Total   Current   Total   and 
   Due   Due   Due   Past Due   Loans   Loans   Accruing 
               (In thousands)             
                             
Residential 1-4 family  $3   $-   $247   $250   $17,102   $17,352   $- 
Commercial real estate and multi-family   888    -    234    1,122    13,585    14,707    - 
Home equity lines of credit   -    -    -    -    204    204    - 
Student loans   143    62    122    327    5,136    5,463                   - 
Other loans   -    -    -    -    1,330    1,330    - 
                                    
   $1,034   $62   $603   $1,699   $37,357   $39,056   $- 

 

   December 31, 2019 
                           90 Days 
   30-59    60-89   90 Days                or More 
   Days   Days   or More               Past Due 
   Past   Past   Past   Total   Current   Total   and 
   Due   Due   Due   Past Due   Loans   Loans   Accruing 
               (In thousands)             
                             
Residential 1-4 family  $3   $249   $-   $252   $17,642   $17,894   $- 
Commercial real estate and multi-family   851    54    234    1,139    13,779    14,918    - 
Home equity lines of credit   -    -    -    -    206    206                    - 
Student loans   61    104    -    165    5,724    5,889    - 
Other loans   -    -    -    -    1,191    1,191    - 
                                    
   $915   $407   $234   $1,556   $38,542   $40,098   $- 

 

 18 
   

 

5. LOANS RECEIVABLE, NET (Cont’d)

 

The following is a summary of loans, by loan type, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at the dates indicated:

 

   March 31,   December 31, 
   2020   2019 
   (In thousands) 
         
Residential 1-4 family  $247   $- 
Commercial real estate and multi-family   234    234 
Home equity lines of credit   -    - 
Student loans   122    - 
Other loans        - 
           
 Total non-accrual loans   603    234 
           
Accruing loans delinquent 90 days or more   -    - 
           
 Total non-performing loans  $603   $234 

 

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $11,000 and $2,800 for the three months ended March 31, 2020 and 2019, respectively. The total amount of interest income recognized on non-accrual loans amounted to approximately $2,000 and $0 during the three months ended March 31, 2020 and 2019, respectively.

 

A loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. The Company considers one-to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, does not generally evaluate them for impairment, unless they are considered troubled debt restructurings. All other loans are evaluated on an individual basis.

 

The recorded investment in the one loan modified in a troubled debt restructuring totaled $240,484 and $240,858 at March 31, 2020 and December 31, 2019, respectively. This loan was current at March 31, 2020 and complied with the terms of its restructure agreement. Loans that were modified in a troubled debt restructuring represent concessions made to borrowers experiencing financial difficulties. The Company works with these borrowers to modify existing loan terms usually by extending maturities or reducing interest rates. The Company records an impairment loss, if any, based on the present value of expected future cash flows discounted at the original loan’s effective interest rate or the value of the underlying collateral property. Subsequently, these loans are individually evaluated for impairment.

 

The following table provides information about the Company’s impaired loans at March 31, 2020 and December 31, 2019 (in thousands):

 

March 31, 2020  

Recorded

Investment

  

Unpaid Principal

Balance

  

Related Specific

Allowance

 
                 
1-4 residential   $240   $240   $         - 

 

December 31, 2019  

Recorded

Investment

  

Unpaid Principal

Balance

  

Related Specific

Allowance

 
                 
1-4 residential   $241   $241   $         - 

 

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5. LOANS RECEIVABLE, NET (Cont’d)

 

The following tables provide information about the Company’s impaired loans for the three months ended March 31, 2020 and 2019 (in thousands):

 

    Three Months Ended   Three Months Ended 
    March 31, 2020   March 31, 2019 
    Average Recorded Investment   Interest Income Received   Average Recorded Investment   Interest Income Received 
                      
1-4 residential   $   241   $     3   $247   $         - 

 

During the three months ended March 31, 2020 and 2019, there were no new TDR’s that occurred.

 

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

 

   Three Months Ended 
   March 31, 2020 
   Mortgage Loans                 
      

Commercial

and

                     
   Residential   Multi-                     
   1-4 Family   Family   Home Equity   Student   Other   Unallocated   Total 
           (In thousands)             
                             
Beginning balance  $142   $134   $2   $140   $11   $-   $429 
Provision for loan losses   7    1    -    2    1    -    11 
                                    
Ending Balance  $149   $       135   $2   $142   $12   $                   -   $440 

 

   Three Months Ended 
   March 31, 2019 
   Mortgage Loans     
       Commercial and                     
   Residential   Multi-                     
   1-4 Family   Family   Home Equity   Student   Other   Unallocated   Total 
           (In thousands)             
Beginning balance  $145   $128   $1   $122   $12   $             -   $408 
Provision for loan losses   3    1    -    (4)   -    -    - 
                                    
Ending Balance  $148   $129   $1   $118   $12   $-   $408 

 

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6. ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss included in equity are as follows:

 

   March 31,   December 31, 
   2020   2019 
         
Unrealized net loss on pension plan  $(1,519,799)  $(1,534,166)
Unrealized gain on securities available for sale   907,082    62,528 
           
Accumulated other comprehensive loss before taxes   (612,717)   (1,471,638)
           
Tax effect   128,647    309,042 
           
Accumulated other comprehensive loss  $(484,070)  $(1,162,596)

 

7. REGULATORY CAPITAL

 

The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators, that if undertaken could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices.

 

Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations. As of March 31, 2020 and December 31, 2019, the Association exceeded all capital adequacy requirements to which it was subject (see tables below). There were no conditions or events since March 31, 2020 that management believes have changed the Association’s capital ratings.

 

On January 1, 2015, the final rules implementing the Basel Committee on Banking Supervision capital guidelines for banking organizations (Basel III) regulatory capital framework and related Dodd-Frank Act changes became effective for the Association. These rules supersede the federal banking agencies’ general risk-based capital rules (Basel I). Full compliance with all of the final rule’s requirements was phased in over a multi-year transition period ending on January 1, 2019. Basel III revised minimum capital requirements and adjusted prompt corrective action thresholds. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Association. The rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent, required a minimum ratio of total capital to risk-weighted assets of 8.0 percent, and required a minimum leverage ratio of 4.0 percent. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This conservation buffer was phased in beginning January 1, 2016 at 0.625 percent of risk-weighted assets and increased each subsequent year by an additional 0.625 percent until it reached its final level of 2.5 percent of risk-weighted assets on January 1, 2019. The final rule also revised the definition and calculation of Tier 1 capital, total capital and risk-weighted assets.

 

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The following table presents the Association’s actual capital positions and ratios at the dates indicated:

 

7. REGULATORY CAPITAL (Cont’d)

 

   Actual   Minimum Capital Requirements   To be Well Capitalized Under Prompt Corrective Action Provisions   To be Well Capitalized With Capital Conservation Buffer 
   Amount   Ratio   Amount   Ratio   Amount   Ratio   Amount   Ratio 
           (Dollars in Thousands)                 
March 31, 2020
                                 
Tangible Capital  $11,494    12.98%  $1,329    1.500%    N/A      N/A      N/A      N/A  
Total Risked-based Capital   11,934    27.11%   4,621    10.500%   4,401    10.00%   4,621    10.50%
Common Equity Tier 1 Capital   11,494    26.12%   3,081    7.000%   2,861    6.50%   3,081    7.00%
Tier 1 Risk-based Capital   11,494    26.12%   3,741    8.500%   3,521    8.00%   3,741    8.50%
Tier 1 Leverage Capital   11,494    12.98%   3,543    4.000%   4,429    5.00%    N/A      N/A  
                                         
December 31, 2019
                                         
Tangible Capital   11,653    13.39%   1,305    1.500%    N/A      N/A      N/A      N/A  
Total Risked-based Capital   12,082    26.81%   4,732    10.500%   4,506    10.00%   4,732    10.50%
Common Equity Tier 1 Capital   11,653    25.86%   3,154    7.000%   2,929    6.50%   3,154    7.00%
Tier 1 Risk-based Capital   11,653    25.86%   3,830    8.500%   3,605    8.00%   3,830    8.50%
Tier 1 Leverage Capital   11,653    13.39%   3,480    4.000%   4,350    5.00%    N/A      N/A  

 

8. FAIR VALUE MEASUREMENTS AND DISCLOSURES

 

A. Fair Value Measurements

 

The Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

 

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at March 31, 2020 and

December 31, 2019. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

 

In accordance with ASC Topic 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

 

Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.
   
Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

 

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8. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

A. Fair Value Measurements (Cont’d)

 

Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

 

The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the portfolio.

 

The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019:

 

Description  Carrying Value   Quoted Prices in Active
Markets for Identical
(Level 1)
   Significant Other
Observable Inputs
(Level 2)
   Significant
Unobservable Inputs
(Level 3)
 
                 
March 31, 2020:                
Securities available for sale  $41,017,527   $      -   $41,017,527   $         - 
                     
December 31, 2019:                    
Securities available for sale  $37,978,622   $-   $37,978,622   $- 

 

There were no assets measured at fair value on a non-recurring basis at March 31, 2020 and December 31, 2019.

 

B. Fair Value Disclosures

 

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.

 

Cash and Cash Equivalents

 

For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).

 

Securities

 

The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).

 

FHLB Stock

 

The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).

 

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8. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

B. Fair Value Disclosures (Cont’d)

 

Loans Receivable

 

The net loan portfolio at March 31, 2020 has been valued using an exit price approach incorporating discounts for credit and liquidity. This is not comparable with the fair values used for December 31, 2019, which are based on entrance prices. For December 31, 2019, the loan portfolio was valued using a present value discounted cash flow where market prices are not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk (Level 3).

 

Deposits

 

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level 1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).

 

Short-Term Borrowings

 

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 1).

 

Long-Term Borrowings

 

The fair value of long-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

 

Off-Balance-Sheet Instruments

 

In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

 

The carrying values and estimated fair values of financial instruments are as follows (in thousands):

 

   March 31, 2020   December 31, 2019 
   Carrying   Estimated   Carrying   Estimated 
   Value   Fair Value   Value   Fair Value 
       (In Thousands)     
                 
Financial assets:                
Cash and cash equivalents  $2,651   $2,651   $1,820   $1,820 
Certificates of deposit   999   $971   $999   $997 
Securities held to maturity   424    442    424    441 
Securities available for sale   41,018    41,018    37,979    37,979 
Loans receivable   38,768    38,909    39,840    39,382 
FHLB and other stock, at cost   232    232    236    236 
Accrued interest receivable   460    460    503    503 
                     
Financial liabilities:                    
Deposits   74,004    74,370    71,899    72,224 
Advances from FHLB-NY   1,659    1,699    1,750    1,761 

 

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8. FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

 

B. Fair Value Disclosures (Cont’d)

 

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

 

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

 

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

 

9. CONTINGENCIES

 

The Company has a $5.5 million student loan portfolio of which $3.0 million was insured by ReliaMax Surety Company (“ReliaMax”). The Company has approximately $54,000 in unamortized premiums paid to ReliaMax to insure these student loans. On June 27, 2018, the South Dakota Division of Insurance was granted a petition to place ReliaMax into liquidation. While the Company expects to recover some of these premiums through the liquidation of ReliaMax as well as through a state insurance guarantee fund, we cannot estimate the amount of any loss or recovery at the present time. The Company filed a claim against ReliaMax and we expect to have an estim