Condensed Consolidated Balance Sheets - Parenthetical - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Details | ||
| Loans and Leases Receivable, Allowance | $ 35,084 | $ 25,139 |
| Common Stock, Par or Stated Value Per Share | $ 0.01 | $ 0.01 |
| Common Stock, Shares Authorized | 25,000,000 | 25,000,000 |
| Common Stock, Shares, Issued | 9,344,574 | 9,345,339 |
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Comprehensive Income (Loss), Net | $ 9,986 | $ 7,828 |
| Other Comprehensive Income | ||
| Unrealized gains on securities available-for-sale | 179 | 263 |
| Tax expense | (40) | (56) |
| Total other comprehensive income | 139 | 207 |
| Comprehensive income | $ 10,125 | $ 8,035 |
Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands |
Total |
Stockholders' Equity, Total |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Treasury Stock |
AOCI Attributable to Parent |
||
|---|---|---|---|---|---|---|---|---|---|
| Equity Balance at Jun. 30, 2019 | $ 238,392 | $ 93 | $ 94,541 | $ 143,677 | $ (1,166) | $ 1,247 | |||
| Net Income | $ 7,828 | 7,828 | 7,828 | ||||||
| Change in Unrealized Loss on Available for Sale Securities | 207 | 207 | |||||||
| Dividends paid on common stock ($.15 per share) | [1] | (1,382) | (1,382) | ||||||
| Stock option expense | 17 | 17 | |||||||
| Equity Balance at Sep. 30, 2019 | 242,262 | 93 | 94,572 | 150,123 | (3,980) | 1,454 | |||
| Stock Grant Expense | 14 | 14 | |||||||
| Treasury stock purchased | (2,814) | (2,814) | |||||||
| Equity Balance at Jun. 30, 2020 | 258,347 | 93 | 95,035 | 165,709 | (6,937) | 4,447 | |||
| Impact of ASU 2016-13 adoption | (7,151) | (7,151) | |||||||
| Net Income | $ 9,986 | 9,986 | 9,986 | ||||||
| Change in Unrealized Loss on Available for Sale Securities | 139 | 139 | |||||||
| Dividends paid on common stock ($.15 per share) | [1] | (1,369) | (1,369) | ||||||
| Stock option expense | 23 | 23 | |||||||
| Equity Balance at Sep. 30, 2020 | $ 259,975 | $ 93 | $ 95,058 | $ 167,175 | $ (6,937) | $ 4,586 | |||
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Note 1: Basis of Presentation |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Notes | |
| Note 1: Basis of Presentation | Note 1: Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated balance sheet of the Company as of June 30, 2020, has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the three-month period ended September 30, 2020, are not necessarily indicative of the results that may be expected for the entire fiscal year. For additional information, refer to the audited consolidated financial statements included in the Company’s June 30, 2020 Form 10-K, which was filed with the SEC.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Southern Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. |
Note 2: Organization and Summary of Significant Accounting Policies |
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| Note 2: Organization and Summary of Significant Accounting Policies | Note 2: Organization and Summary of Significant Accounting Policies
Organization. Southern Missouri Bancorp, Inc., a Missouri corporation (the Company) was organized in 1994 and is the parent company of Southern Bank (the Bank). Substantially all of the Company’s consolidated revenues are derived from the operations of the Bank, and the Bank represents substantially all of the Company’s consolidated assets and liabilities. SB Real Estate Investments, LLC is a wholly-owned subsidiary of the Bank formed to hold Southern Bank Real Estate Investments, LLC. Southern Bank Real Estate Investments, LLC is a real estate investment trust (REIT) which is controlled by the investment subsidiary, and has other preferred shareholders in order to meet the requirements to be a REIT. At September 30, 2020, assets of the REIT were approximately $877 million, and consisted primarily of loan participations acquired from the Bank.
The Bank is primarily engaged in providing a full range of banking and financial services to individuals and corporate customers in its market areas. The Bank and Company are subject to competition from other financial institutions. The Bank and Company are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation. The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In the normal course of business, the Company encounters two significant types of risk: economic and regulatory. Economic risk is comprised of interest rate risk, credit risk, and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities reprice on a different basis than its interest-earning assets. Credit risk is the risk of default on the Company’s investment or loan portfolios resulting from the borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of the investment portfolio, collateral underlying loans receivable, and the value of the Company’s investments in real estate.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
On July 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses, also known as the current expected credit loss (“CECL”) standard, which created material changes to the existing critical accounting policy that existed at June 30, 2020. Effective July 1, 2020 through September 30, 2020, the significant accounting policy which was considered to be the most critical in preparing the Company’s consolidated financial statements is the determination of the allowance for credit losses (“ACL”) on loans.
Cash and Cash Equivalents. For purposes of reporting cash flows, cash and cash equivalents includes cash, due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less. Interest-bearing deposits in other depository institutions were $4.2 million and $6.9 million at September 30 and June 30, 2020, respectively. The deposits are held in various commercial banks with a total of $303,000 and $319,000 exceeding the FDIC’s deposit insurance limits at September 30 and June 30, 2020, respectively, as well as at the Federal Reserve and the Federal Home Loan Bank of Des Moines and Chicago.
Interest-bearing Time Deposits. Interest bearing deposits in banks mature within seven years and are carried at cost.
Available for Sale Securities. Available for sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income, a component of stockholders’ equity. All securities have been classified as available for sale.
Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method. Realized gains or losses on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
The Company does not invest in collateralized mortgage obligations that are considered high risk.
For AFS securities with fair value less than amortized cost that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections, and is recorded to the ACL, by a charge to provision for credit losses. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired AFS security, or, if it is more likely than not the Company will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.
At adoption, no impairment on AFS securities was attributable to credit. The Company will evaluate impaired AFS securities at the individual level on a quarterly basis, and will consider such factors including, but not limited to: the extent to which the fair value of the security is less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or geographic area; the payment structure of the security and likelihood of the issuer to be able to make payments that may increase in the future; failure of the issuer to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency; and the ability and intent to hold the security until maturity. A qualitative determination as to whether any portion of the impairment is attributable to credit risk is acceptable. There were no credit related factors underlying unrealized losses on AFS securities at September 30, 2020, and June 30, 2020.
Changes in the ACL are recorded as expense. Losses are charged against the ACL when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Federal Reserve Bank and Federal Home Loan Bank Stock. The Bank is a member of the Federal Reserve and the Federal Home Loan Bank (FHLB) systems. Capital stock of the Federal Reserve and the FHLB is a required investment based upon a predetermined formula and is carried at cost.
Loans. Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management’s judgment, the collectability of interest or principal in the normal course of business is doubtful. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL. The Company complies with regulatory guidance which indicates that loans should be placed on nonaccrual status when 90 days past due, unless the loan is both well-secured and in the process of collection. A loan that is “in the process of collection” may be subject to legal action or, in appropriate circumstances, through other collection efforts reasonably expected to result in repayment or restoration to current status in the near future. A loan is considered delinquent when a payment has not been made by the contractual due date. At September 30, 2020, some loans were modified under the terms of the Coronavirus Aid, Relief and Economic Security Act (the CARES Act), which provides that loans modified after March 1, 2020, due to the COVID-19 pandemic, and which were otherwise current at December 31, 2019, need not be accounted for as troubled debt restructurings (TDRs). While these loans may not have met the contractual due dates of payments under their previous terms, so long as they were compliant with the terms of the modification made under the CARES Act, they would not have been reported as delinquent at September 30, 2020. See further disclosure in Note 4: Loans and Allowance for Credit Losses. Interest income previously accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Cash receipts on a nonaccrual loan are applied to principal and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts, whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A nonaccrual loan is generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured, and a consistent record of performance has been demonstrated.
The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans, and is established through provision for credit losses charged to current earnings. The ACL is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management’s analysis of expected cash flows (for non-collateral dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received.
Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Adjustments may be made to historical loss information for differences identified in current loan-specific risk characteristics, such as differences in underwriting standards or terms; lending review systems; experience, ability, or depth of lending management and staff; portfolio growth and mix; delinquency levels and trends; as well as for changes in environmental conditions, such as changes in economic activity or employment, agricultural economic conditions, property values, or other relevant factors. The Company generally assesses past events and current conditions based on the trailing eight quarters of activity, and incorporates a reasonable and supportable forecast period of four quarters, with an immediate reversion to historical averages.
The ACL is measured on a collective (pool) basis when similar risk characteristics exist. For loans that do not share general risk characteristics with the collectively evaluated pools, the Company estimates credit losses on an individual loan basis, and these loans are excluded from the collectively evaluated pools. An ACL for an individually evaluated loan is recorded when the amortized cost basis of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or the fair value, less estimated costs to sell, of the collateral for certain collateral dependent loans. For the collectively evaluated pools, the Company segments the loan portfolio primarily by loan purpose and collateral into 23 pools, which are homogeneous groups of loans that possess similar loss potential characteristics. The Company utilizes the discounted cash flow (“DCF”) methodology for measurement of the required ACL for all loan pools. The DCF model implements probability of default (“PD”) and loss given default (“LGD”) calculations at the instrument level. PD and LGD are determined from the Company’s historical experience over a period of approximately five years. The Company defines a default as an event of charge off, an adverse (substandard or worse) internal credit rating, becoming delinquent 90 days or more, or being placed on nonaccrual status. A PD/LGD estimate is applied to a projected model of the loan’s cashflow, including principal and interest payments, with consideration for prepayment speeds, principal curtailments, and recovery lag. Prepayments, curtailments, and recovery lag have been determined to not have a material impact on estimated credit losses, historically.
Prior to the July 1, 2020, adoption of ASU 2016-13, the allowance for loan and lease losses (ALLL) represented management’s best estimate of probable losses in the existing loan portfolio at the end of the reporting period. Integral to the methodology for determining the adequacy of the ALLL was portfolio segmentation and impairment measurement. Under the Company’s methodology, loans were first segmented into 1) those comprising large groups of homogeneous loans which are collectively evaluated for impairment and 2) all other loans which are individually evaluated. Those loans in the second category were further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends. Loans were considered impaired if, based on current information and events, it was considered probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement, and was generally based on the fair value, less estimated costs to sell, of the loan’s collateral. If the loan was not collateral-dependent, the measurement of impairment was based on the present value of expected future cash flows discounted at the historical effective interest rate, or the observable market price of the loan. Impairment identified through this evaluation process was a component of the ALLL. If a loan was not considered impaired, it was grouped together with loans having similar characteristics (i.e., the same risk grade), and an ALLL was based upon a quantitative factor (historical average charge-offs) and qualitative factors such as changes in lending policies; national, regional, and local economic conditions; changes in mix and volume of portfolio; experience, ability, and depth of lending management and staff; entry to new markets; levels and trends of delinquent, nonaccrual, special mention, and classified loans; concentrations of credit; changes in collateral values; agricultural economic conditions; and regulatory risk.
Prior to the July 1, 2020, adoption of ASU 2016-13, loans acquired in an acquisition that had evidence of credit quality deterioration since origination and for which it was probable that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired (“PCI”). PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial ALLL based on a DCF methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. The difference between the DCFs expected at acquisition and the investment in the loan, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the DCFs expected at acquisition, or the “non-accretable difference,” were not recognized on the balance sheet and did not result in any yield adjustments, loss accruals or valuation allowances. Increases in expected cash flows, including prepayments, subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows were recognized as impairment. ALLL on PCI loans reflected only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately were not to be received).
Subsequent to the July 1, 2020, adoption of ASU 2016-13, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to non-credit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.
Upon adoption of ASU 2016-13, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $434,000 to the ACL. The remaining noncredit discount, based on the adjusted amortized cost basis, will be accreted into interest income at the effective interest rate as of July 1, 2020.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans.
Off-Balance Sheet Credit Exposures. Off-balance sheet credit instruments include commitments to make loans, and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The ACL on off-balance sheet credit exposures is estimated by loan pool on a quarterly basis under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on the Company’s consolidated balance sheets. The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in other non-interest expense in the Company’s consolidated statements of income.
Foreclosed Real Estate. Real estate acquired by foreclosure or by deed in lieu of foreclosure is initially recorded at fair value less estimated selling costs, establishing a new cost basis. Costs for development and improvement of the property are capitalized.
Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value, less estimated selling costs.
Loans to facilitate the sale of real estate acquired in foreclosure are discounted if made at less than market rates. Discounts are amortized over the fixed interest period of each loan using the interest method.
Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation and include expenditures for major betterments and renewals. Maintenance, repairs, and minor renewals are expensed as incurred. When property is retired or sold, the retired asset and related accumulated depreciation are removed from the accounts and the resulting gain or loss taken into income. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment loss recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets.
Depreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally seven to forty years for premises, three to seven years for equipment, and three years for software.
Bank Owned Life Insurance. Bank owned life insurance policies are reflected in the consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value of these policies, as well as a portion of the insurance proceeds received, are recorded in noninterest income in the consolidated statements of income.
Goodwill. The Company’s goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. As of June 30, 2020, there was no impairment indicated, based on a qualitative assessment of goodwill, which considered: the decline in the market value of the Company’s common stock, relative to peers; concentrations of credit; profitability; nonperforming assets; capital levels; and results of recent regulatory examinations. The Company believes there continues to be no impairment of goodwill at September 30, 2020.
Intangible Assets. The Company’s intangible assets at September 30, 2020 included gross core deposit intangibles of $15.3 million with $9.0 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and mortgage servicing rights of $1.3 million. At June 30, 2020, the Company’s intangible assets included gross core deposit intangibles of $15.3 million with $8.7 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and mortgage servicing rights of $1.1 million. The Company’s core deposit intangible assets are being amortized using the straight line method, over periods ranging from five to seven years, with amortization expense expected to be approximately $1.0 million in the remainder of fiscal 2021, $1.4 million in fiscal 2022 through fiscal 2024, and $807,000 million in fiscal 2025, and $328,000 thereafter. As of June 30, 2020, there was no impairment indicated, and the Company believes there continues to be no impairment of other intangible assets at September 30, 2020.
Income Taxes. The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary.
Incentive Plans. The Company accounts for its Management and Recognition Plan (MRP), Equity Incentive Plan (EIP), and Omnibus Incentive Plan (OIP) in accordance with ASC 718, “Share-Based Payment.” Compensation expense is based on the market price of the Company’s stock on the date the shares are granted and is recorded over the vesting period. The difference between the grant-date fair value and the fair value on the date the shares are considered earned represents a tax benefit to the Company that is recorded as an adjustment to income tax expense.
Outside Directors’ Retirement. The Bank adopted a directors’ retirement plan in April 1994 for outside directors. The directors’ retirement plan provides that each non-employee director (participant) shall receive, upon termination of service on the Board on or after age 60, other than termination for cause, a benefit in equal annual installments over a five year period. The benefit will be based upon the product of the participant’s vesting percentage and the total Board fees paid to the participant during the calendar year preceding termination of service on the Board. The vesting percentage shall be determined based upon the participant’s years of service on the Board, whether before or after the reorganization date.
In the event that the participant dies before collecting any or all of the benefits, the Bank shall pay the participant’s beneficiary. No benefits shall be payable to anyone other than the beneficiary, and shall terminate on the death of the beneficiary.
Stock Options. Compensation cost is measured based on the grant-date fair value of the equity instruments issued, and recognized over the vesting period during which an employee provides service in exchange for the award.
Earnings Per Share. Basic earnings per share available to common stockholders is computed using the weighted-average number of common shares outstanding. Diluted earnings per share available to common stockholders includes the effect of all weighted-average dilutive potential common shares (stock options and restricted stock grants) outstanding during each period.
Comprehensive Income. Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation on available-for-sale securities, and changes in the funded status of defined benefit pension plans.
Transfers Between Fair Value Hierarchy Levels. Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date.
The following paragraphs summarize the impact of new accounting pronouncements:
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. ASU 2018-13 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, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for certain removed and modified disclosures. Adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which the Company adopted July 1, 2020. The Update amended guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. For financial assets held at amortized cost basis, Topic 326 eliminated the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The Update affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Adoption was applied on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings. Adoption resulted in an increase to the ACL of $8.9 million, related to the transition from the incurred loss model to the CECL ACI model and an increase of $434,000 related to the transition from PCI to PCD methodology, relative to the ALLL as of June 30, 2020. The Company also recorded an adjustment to the reserve for unfunded commitments recorded in other liabilities of $268,000. The impact at adoption was reflected as an adjustment to beginning retained earnings, net of income taxes, in the amount of $7.2 million. In accordance with the new standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On July 1, 2020, the amortized cost basis of the PCD loans were increased to reflect the addition of $434,000 to the ACL. The adoption of ASU 2016-13 in fiscal 2021 could also impact the Company’s future earnings, perhaps materially.
The following table illustrates the impact of adoption of ASU 2016-13:
The above table includes the impact of ASU 2016-13 adoption for PCD assets previously classified as PCI. The change in the ACL includes $434,000 attributable to residential and commercial real estate loans, and the amortized cost basis of loans receivable was increased for those loans by that total amount.
In March 2020, the CARES Act was signed into law, creating a forbearance program for federally backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the National Emergency, and provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (TDR) for a limited period of time to account for the effects of COVID-19. The Company has elected to not apply ASC Subtopic 310-40 for loans eligible under the CARES Act, based on the modification’s (1) relation to COVID-19, (2) execution for a loan that was not more than 30-days past due as of December 31, 2019, and (3) execution between March 1, 2020, and the earlier of the date that falls 60 days following the termination of the declared National Emergency, or December 31, 2020.
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Note 3: Securities |
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| Note 3: Securities | Note 3: Securities
The amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses, and approximate fair value of securities available for sale consisted of the following:
The amortized cost and estimated fair value of investment and mortgage-backed securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits amounted to $146.2 million at September 30, 2020 and $156.1 million at June 30, 2020. The securities pledged consist of marketable securities, including $77.3 million and $82.0 million of Mortgage-Backed Securities, $34.9 million and $41.9 million of Collateralized Mortgage Obligations, $33.0 million and $32.0 million of State and Political Subdivisions Obligations, and $1.0 million and $200,000 of Other Securities at September 30 and June 30, 2020, respectively.
The following tables show our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for which an ACL has not been recorded at September 30 and June 30, 2020:
Mortgage-backed securities. The unrealized losses on the Company’s investments in mortgage-backed securities were caused by variations in market interest rates since purchase or acquisition. The securities are of high credit quality (AA or higher). Because the Company does not intend to sell these securities and it likely that the Company will not be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.
Other securities. At September 30, 2020 there were two pooled trust preferred securities with an estimated fair value of $654,000 and unrealized losses of $322,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities and a reduced demand for these securities, and concerns regarding the financial institutions that issued the underlying trust preferred securities.
The September 30, 2020, cash flow analysis for these two securities indicated it is probable the Company will receive all contracted principal and related interest projected. The cash flow analysis used in making this determination was based on anticipated default, recovery, and prepayment rates, and the resulting cash flows were discounted based on the yield spread anticipated at the time the securities were purchased. Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality. Assumptions for these two securities included prepayments averaging 1.6 percent, annually, annual defaults averaging 50 basis points, and a recovery rate averaging 10 percent of gross defaults, lagged two years.
One of these two securities has continued to receive cash interest payments in full since the Company’s purchase; the other security received principal-in-kind (PIK), in lieu of cash interest, for a period of time following the recession and financial crisis which began in 2008, but resumed cash interest payments during fiscal 2014. Our cash flow analysis indicates that cash interest payments are expected to continue for both securities. Because the Company does not intend to sell these securities and it is likely that the Company will not be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.
The Company does not believe any other individual unrealized loss as of September 30, 2020, is the result of a credit loss. However, the Company could be required to recognize an ACL in future periods with respect to its available for sale investment securities portfolio.
Credit losses recognized on investments. During fiscal 2009, the Company adopted ASC 820, formerly FASB Staff Position 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” There were no credit losses recognized in income and other losses or recorded in other comprehensive income for the three-month periods ended September 30, 2020 and 2019.
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Note 4: Loans and Allowance for Loan Losses |
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| Note 4: Loans and Allowance for Loan Losses | Note 4: Loans and Allowance for Credit Losses
Classes of loans are summarized as follows:
The Company’s lending activities consist of origination of loans secured by mortgages on one- to four-family residences and commercial and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. At September 30, 2020, the Bank had purchased participations in 22 loans totaling $55.7 million, as compared to 23 loans totaling $58.2 million at June 30, 2020.
Residential Mortgage Lending. The Company actively originates loans for the acquisition or refinance of one- to four-family residences. This category includes both fixed-rate and adjustable-rate mortgage (“ARM”) loans amortizing over periods of up to 30 years, and the properties securing such loans may be owner-occupied or non-owner-occupied. Single-family residential loans do not generally exceed 90% of the lower of the appraised value or purchase price of the secured property. Substantially all of the one- to four-family residential mortgage originations in the Company’s portfolio are located within the Company’s primary lending area. General risks related to one- to four-family residential lending include stability of borrower income and collateral values.
The Company also originates loans secured by multi-family residential properties that are often located outside the Company’s primary lending area but made to borrowers who operate within our primary market area. The majority of the multi-family residential loans that are originated by the Bank are amortized over periods generally up to 25 years, with balloon maturities typically up to ten years. Both fixed and adjustable interest rates are offered and it is typical for the Company to include an interest rate “floor” and “ceiling” in the loan agreement. Generally, multi-family residential loans do not exceed 85% of the lower of the appraised value or purchase price of the secured property. General risks related to multi-family residential lending include rental demand, rental rates, and vacancies, as well as collateral values and borrower leverage.
Commercial Real Estate Lending. The Company actively originates loans secured by owner- and non-owner-occupied commercial real estate including farmland, single- and multi-tenant retail properties, restaurants, hotels, land (improved and unimproved), nursing homes and other healthcare facilities, warehouses and distribution centers, convenience stores, automobile dealerships and other automotive-related services, and other businesses. These properties are typically owned and operated by borrowers headquartered within the Company’s primary lending area, however, the property may be located outside our primary lending area. Risks to owner-occupied commercial real estate lending generally include the continued profitable operation of the borrower’s enterprise, as well as general collateral values, and may be heightened by unique, specific uses of the property serving as collateral. Non-owner-occupied commercial real estate lending risks include tenant demand and performance, lease rates, and vacancies, as well as collateral values and borrower leverage. These factors may be influenced by general economic conditions in the region, or in the United States generally. Risks to lending on farmland include unique factors such as commodity prices, yields, input costs, and weather, as well as farmland values.
Most commercial real estate loans originated by the Company generally are based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to ten years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to seven years. The Company typically includes an interest rate “floor” in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio.
Construction Lending. The Company originates real estate loans secured by property or land that is under construction or development. Construction loans originated by the Company are generally to finance the construction of owner occupied residential real estate, or to finance speculative construction of residential real estate, land development, or owner-operated or non-owner occupied commercial real estate. During construction, these loans typically require monthly interest-only payments, with single-family residential construction loans having maturities ranging from six to twelve months, while multifamily or commercial construction loans typically mature in 12 to 24 months. Once construction is completed, permanent construction loans may be converted to monthly payments using amortization schedules of up to 30 years on residential and generally up to 25 years on commercial real estate. Construction and development lending risks generally include successful timely and on-budget completion of the project, followed by the sale of the property in the case of land development or non-owner-occupied real estate, or the long-term occupancy of the property by the builder in the case of owner-occupied construction. Changes in real estate values or other economic conditions may impact the ability of a borrower to sell property developed for that purpose.
While the Company typically utilizes relatively short maturity periods to closely monitor the inherent risks associated with construction loans for these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity. Such extensions are typically executed in incremental three month periods to facilitate project completion. The Company’s average term of construction loans is approximately eight months. During construction, loans typically require monthly interest only payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment. Additionally, during the construction phase, the Company typically performs interim inspections which further allow the Company opportunity to assess risk. At September 30, 2020, construction loans outstanding included 78 loans, totaling $36.1 million, for which a modification had been agreed to. At June 30, 2020, construction loans outstanding included 77 loans, totaling $48.8 million, for which a modification had been agreed to. In general, these modifications were solely for the purpose of extending the maturity date due to conditions described above. As these modifications were not executed due to financial difficulty on the part of the borrower, they were not accounted for as troubled debt restructurings (TDRs). Under the CARES Act, financial institutions have the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Loans with such modifications in effect at September 30, 2020, included drawn balances of $4.4 million in construction loans which were modified at the borrower’s request due to the current situation of heightened economic uncertainty triggered by the pandemic.
Consumer Lending. The Company offers a variety of secured consumer loans, including home equity, direct and indirect automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary lending area. Usually, consumer loans are originated with fixed rates for terms of up to five years, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.
Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity. Risks related to HELOC lending generally include the stability of borrower income and collateral values.
Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 60 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle. Risks to automobile and other consumer lending generally include the stability of borrower income and borrower willingness to repay.
Commercial Business Lending. The Company’s commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit, including agricultural production and equipment loans. The Company offers both fixed and adjustable rate commercial business loans. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period. Commercial lending risk is primarily driven by the borrower’s successful generation of cash flow from their business enterprise sufficient to service debt, and may be influenced by factors specific to the borrower and industry, or by general economic conditions in the region or in the United States generally. Agricultural production or equipment lending includes unique risk factors such as commodity prices, yields, input costs, and weather, as well as farm equipment values.
Allowance for Credit Losses. The provision for credit losses for the three-month period ended September 30, 2020, was $774,000, relatively low as compared to earlier quarters in calendar year 2020, or as compared to the same period of the prior fiscal year. The charge was based on the estimated required ACL, reflecting management’s estimate of the current expected credit losses in the Company’s loan portfolio at September 30, 2020, and as of that date the Company’s ACL was $35.1 million. The relatively low provision was attributable primarily to the current quarter’s relatively low loan growth and stable credit quality indicators quarter-over-quarter. While uncertainty remains regarding the economic environment resulting from the COVID-19 pandemic and the potential impact on the Company’s borrowers, the Company assesses that the economic outlook is little changed as compared to June 30, 2020. However, there remains significant uncertainty regarding the possible length of the COVID-19 pandemic and the aggregate impact that it will have on global and regional economies, including uncertainty regarding the effectiveness of recent efforts by the U.S. government and the Federal Reserve to respond to the pandemic and its economic impact. Management considered the impact of the pandemic on its consumer and business borrowers, particularly those business borrowers most affected by efforts to contain the pandemic, including our borrowers in the retail and multi-tenant retail industry, restaurants, and hotels. To date, various relief efforts, notably including the availability of forgivable Paycheck Protection Program (PPP) loans to borrowers and deferrals or modifications available as encouraged by banking regulatory authorities and the CARES Act, have resulted in limited impact on the Company’s credit quality indicators, as is true of the industry generally. It is possible that the ongoing adverse effects of the pandemic may not be somewhat offset by future relief efforts, which could cause the outlook for economic conditions and levels and trends of past-due loans to significantly worsen, and require additions to the ACL.
The following tables present the balance in the ACL and the recorded investment in loans (excluding loans in process and deferred loan fees) based on portfolio segment as of September 30 and June 30, 2020, and activity in the ACL and ALLL for the three-month periods ended September 30, 2020 and 2019:
Included in the Company’s loan portfolio are certain loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination, which are considered purchased credit deteriorated (PCD) loans. Prior to the July 1, 2020 adoption of ASU 2016-13, these loans were accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and were described as purchased credit impaired (PCI) loans. Under ASC 310-30, these loans were written down at acquisition to an amount estimated to be collectible, and, unless there was further deterioration following the acquisition, an ALLL was not recognized for these loans. As a result, certain historical ratios regarding the Company’s loan portfolio and credit quality cannot be used to compare the Company to peer companies or to compare the Company’s credit quality over time. The ratios particularly affected by accounting under ASC 310-30 include the allowance as a percentage of loans, nonaccrual loans, and nonperforming assets, and nonaccrual loans and nonperforming loans as a percentage of total loans. For more information about the transition from PCI to PCD status of the Company’s acquired loans, see Note 2: Organization and Summary of Significant Accounting Policies, Loans.
Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Watch, Special Mention, Substandard, or Doubtful. In addition, lending relationships of $3 million or more, exclusive of any consumer or owner-occupied residential loan, are subject to an annual credit analysis which is prepared by the loan administration department and presented to a loan committee with appropriate lending authority. A sample of lending relationships in excess of $1 million (exclusive of single-family residential real estate loans) are subject to an independent loan review annually, in order to verify risk ratings. The Company uses the following definitions for risk ratings:
Watch – Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.
Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.
Substandard – Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.
A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk grades. The primary responsibility for this review rests with loan administration personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by the Company’s internal audit function and applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit continues to share similar risk characteristics with collectively evaluated loan pools, or whether credit losses for the loan should be evaluated on an individual loan basis.
The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of September 30, 2020. This table includes PCD loans, which are reported according to risk categorization after acquisition based on the Company’s standards for such classification:
At September 30, 2020, PCD loans comprised $5.6 million of credits rated “Pass”; $10.1 million of credits rated “Watch”; none rated “Special Mention”; $5.7 million of credits rated “Substandard”; and none rated “Doubtful”.
The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and payment activity as of June 30, 2020. This table includes PCI loans, which were reported according to risk categorization after acquisition based on the Company’s standards for such classification:
At June 30, 2020, PCI loans comprised $5.9 million of credits rated “Pass”; $10.3 million of credits rated “Watch”, none rated “Special Mention”, $5.6 million of credits rated “Substandard” and none rated “Doubtful”.
Past-due Loans. The following tables present the Company’s loan portfolio aging analysis (excluding loans in process and deferred loan fees) as of September 30 and June 30, 2020. These tables include PCD and PCI loans, which are reported according to aging analysis after acquisition based on the Company’s standards for such classification:
Under the CARES Act, financial institutions have the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Loans with such modifications in effect at September 30, 2020, included $93.6 million in loans reported as current in the above table, none of which were past due. Loans with such modifications in effect at June 30, 2020, included $380.1 million in loans reported as current in the above table, while an additional $29,000 of consumer loans and $1,000 in residential real estate loans with such modifications were reported as 30-59 days past due, and $66,000 of commercial loans with such modifications were reported as 60-89 days past due.
At September 30, and June 30, 2020 there were no PCD or PCI loans that were greater than 90 days past due.
Loans that experience insignificant payment delays and payment shortfalls generally are not adversely classified or determined to not share similar risk characteristics with collectively evaluated pools of loans for determination of the ACL estimate. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Significant payment delays or shortfalls may lead to a determination that a loan should be individually evaluated for estimated credit losses.
Collateral-dependent Loans. At September 30, 2020, there were no collateral-dependent loans that were individually evaluated to determine expected credit losses.
Impairment. Prior to the July 1, 2020, adoption of ASU 2016-13, a loan was considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it was probable the Company would be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans included nonperforming loans, as well as performing loans modified in troubled debt restructurings where concessions were granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
The table below presents impaired loans (excluding loans in process and deferred loan fees) as of June 30, 2020. The table includes PCI loans at June 30, 2020 for which it was deemed probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable. In an instance where, subsequent to the acquisition, the Company determined it was probable, for a specific loan, that cash flows received would exceed the amount previously expected, the Company will recalculate the amount of accretable yield in order to recognize the improved cash flow expectation as additional interest income over the remaining life of the loan. These loans, however, continued to be reported as impaired loans. In an instance where, subsequent to the acquisition, the Company determined it was probable, for a specific loan, that cash flows received would be less than the amount previously expected, the Company would allocate a specific allowance under the terms of ASC 310-10-35.
At June 30, 2020, PCI loans comprised $21.8 million of impaired loans without a specific valuation allowance. The following table presents information regarding interest income recognized on impaired loans:
Interest income on impaired loans recognized on a cash basis in the three-month period ended September 30, 2019, was immaterial. For the three-month period ended September 30, 2019, the amount of interest income recorded for impaired loans that represented a change in the present value of cash flows attributable to the passage of time was approximately $83,000.
Nonaccrual Loans. The following table presents the Company’s amortized cost basis of nonaccrual loans segmented by class of loans at September 30 and June 30, 2020. The table excludes performing TDRs.
At September 30, 2020, there were no nonaccrual loans individually evaluated for which no ACL was recorded. Interest income recognized on nonaccrual loans in the three-month periods ended September 30, 2019 and 2020, was immaterial.
Troubled Debt Restructurings. Prior to the July 1, 2020, adoption of ASU 2016-13, loans restructured as TDRs were included in certain loan categories classified as impaired loans, where economic concessions have been granted to borrowers who have experienced financial difficulties. Subsequent to the adoption of ASU 2016-13, TDRs are evaluated to determine whether they share similar risk characteristics with collectively evaluated loan pools, or must be individually evaluated. These concessions typically result from our loss mitigation activities, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. In general, the Company’s loans that have been subject to classification as TDRs are the result of guidance under ASU No. 2011-02, which indicates that the Company may not consider the borrower’s effective borrowing rate on the old debt immediately before the restructuring in determining whether a concession has been granted. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.
During the three-month periods ended September 30, 2020 and 2019, certain loans modified were classified as TDRs. They are shown, segregated by class, in the table below:
Performing loans classified as TDRs and outstanding at September 30 and June 30, 2020, segregated by class, are shown in the table below. Nonperforming TDRs are shown as nonaccrual loans.
Residential Real Estate Foreclosures. The Company may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or in-substance repossession. As of September 30, and June 30, 2020, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $565,000 and $563,000, respectively. In addition, as of September 30 and June 30, 2020, the Company had residential mortgage loans and home equity loans with a carrying value of $329,000 and $435,000, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.
Purchased Credit Deteriorated Loans. Prior to the July 1, 2020, adoption of ASU 2016-13, loans acquired in an acquisition that had evidence of credit quality since origination and for which it was probable that the Company would be unable to collect all contractually required payments receivable were considered PCI. Subsequent to the July 1, 2020, adoption of ASU 2016-13, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. All loans considered to be PCI prior to July 1, 2020, were converted to PCD on that date.
The carrying amount of $21.8 million in PCI loans was included in the balance sheet amount of loans receivable at June 30, 2020, with no associated ACL. In accordance with ASU 2016-13, the Company did not reassess whether the PCI loans met the criteria of PCD loans as of the adoption date. The amortized cost of the PCD loans were adjusted to reflect the addition of $434,000 to the ACL. PCD loans receivable, net of ACL, totaling $20.9 million were included in the balance sheet amount of loans receivable at September 30, 2020.
During the three-month periods ended September 30, 2019 and 2020, the Company did not increase or reverse ALLL or ACL related to PCI or PCD loans.
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NOTE 5: Premises and Equipment |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTE 5: Premises and Equipment | Note 5: Premises and Equipment
Following is a summary of premises and equipment:
Leases. The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2019, using the modified retrospective transition approach whereby comparative periods were not restated. The Company also elected certain relief options under the ASU, including the option not to recognize right of use asset and lease liabilities that arise from short-term leases (leases with terms of twelve months or less). The Company has five leased properties and numerous office equipment lease agreements in which it is the lessee, with lease terms exceeding twelve months.
All of the leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASU 2016-02, these operating leases are now included as a ROU asset in the premises and equipment line item on the Company’s consolidated balance sheets. The corresponding lease liability is included in the accounts payable and other liabilities line item on the Company’s consolidated balance sheets. Because these leases are classified as operating leases, the adoption of the new standard did not have a material effect on lease expense on the Company’s consolidated statements of income.
ASU 2016-02 also requires certain other accounting elections. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. ROU assets or lease liabilities are not to be recognized for short-term leases. The calculated amount of the ROU assets and lease liabilities in the table below are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, the ASU requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception over a similar term. The discount rate utilized was 5%. The expected lease terms range from 18 months to 20 years.
For the three months ended September 30, 2020 and 2019, lease expense was $72,000 and $57,000, respectively. At September 30, 2020, future expected lease payments for leases with terms exceeding one year were as follows:
The Company leases facilities it owns or portions of facilities it owns to other third parties. The Company has determined that all of these lease agreements, in terms of being the lessor, are classified as operating leases. For the three month periods ended September 30, 2020 and 2019, income recognized from these lessor agreements was $75,000 and $82,000, respectively, and was included in net occupancy and equipment expense.
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Note 6: Deposits |
3 Months Ended | ||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||
| Notes | |||||||||||||||||||||||||
| Note 6: Deposits | Note 6: Deposits
Deposits are summarized as follows:
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Note 7: Earnings Per Share |
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note 7: Earnings Per Share | Note 7: Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Options outstanding at September 30, 2020 and 2019, to purchase 50,500, and 15,500 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended September 30, 2020 and 2019, respectively.
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Note 8: Income Taxes |
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Note 8: Income Taxes | Note 8: Income Taxes
The Company and its subsidiary files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to federal and state examinations by tax authorities for tax years ending June 30, 2015 and before. The Company recognized no interest or penalties related to income taxes.
The Company’s income tax provision is comprised of the following components:
The components of net deferred tax assets are summarized as follows:
As of September 30, 2020, the Company had approximately $675,000 and $119,000 in federal and state net operating loss carryforwards, respectively, which were acquired in the July 2009 acquisition of Southern Bank of Commerce, the February 2014 acquisition of Citizens State Bankshares of Bald Knob, Inc., the August 2014 acquisition of Peoples Service Company, and the June 2017 acquisition of Tammcorp, Inc. The amount reported is net of the IRC Sec. 382 limitation, or state equivalent, related to utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
For the three month periods ended September 30, 2020 and 2019, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR).
Tax credit benefits are recognized under the deferral method of accounting for investments in tax credits.
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Note 9: 401(k) Retirement Plan |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Notes | |
| Note 9: 401(k) Retirement Plan | Note 9: 401(k) Retirement Plan
The Bank has a 401(k) retirement plan that covers substantially all eligible employees. The Bank made a “safe harbor” matching contribution to the Plan of up to 4% of eligible compensation, depending upon the percentage of eligible pay deferred into the plan by the employee, and also made additional, discretionary profit-sharing contributions for fiscal 2020; for fiscal 2021, the Company has maintained the safe harbor matching contribution of up to 4%, and expects to continue to make additional, discretionary profit-sharing contributions. During the three-month period ended September 30, 2020, retirement plan expenses recognized for the Plan totaled approximately $457,000, as compared to $381,000 for the same period of the prior fiscal year. Employee deferrals and safe harbor contributions are fully vested. Profit-sharing or other contributions vest over a period of five years. |
Note 10: Subordinated Debt |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Notes | |
| Note 10: Subordinated Debt | Note 10: Subordinated Debt
Southern Missouri Statutory Trust I issued $7.0 million of Floating Rate Capital Securities (the “Trust Preferred Securities”) with a liquidation value of $1,000 per share in March 2004. The securities are due in 30 years, redeemable after five years and bear interest at a floating rate based on LIBOR. At September 30, 2020, the current rate was 3.00%. The securities represent undivided beneficial interests in the trust, which was established by the Company for the purpose of issuing the securities. The Trust Preferred Securities were sold in a private transaction exempt from registration under the Securities Act of 1933, as amended (the “Act”) and have not been registered under the Act. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Southern Missouri Statutory Trust I used the proceeds from the sale of the Trust Preferred Securities to purchase Junior Subordinated Debentures of the Company. The Company used its net proceeds for working capital and investment in its subsidiaries.
In connection with its October 2013 acquisition of Ozarks Legacy Community Financial, Inc. (OLCF), the Company assumed $3.1 million in floating rate junior subordinated debt securities. The debt securities had been issued in June 2005 by OLCF in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. At September 30, 2020, the current rate was 2.70%. The carrying value of the debt securities was approximately $2.7 million at September 30 and June 30, 2020.
In connection with its August 2014 acquisition of Peoples Service Company, Inc. (PSC), the Company assumed $6.5 million in floating rate junior subordinated debt securities. The debt securities had been issued in 2005 by PSC’s subsidiary bank holding company, Peoples Banking Company, in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. At September 30, 2020, the current rate was 2.05%. The carrying value of the debt securities was approximately $5.3 million at September 30, and June 30, 2020.
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Note 11: Fair Value Measurements |
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| Note 11: Fair Value Measurements | Note 11: Fair Value Measurements
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1Quoted prices in active markets for identical assets or liabilities
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities
Recurring Measurements. The following table presents the fair value measurements recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30 and June 30, 2020:
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Available-for-sale Securities. When quoted market prices are available in an active market, securities are classified within Level 1. If quoted market prices are not available, then fair values are estimated using pricing models, or quoted prices of securities with similar characteristics. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Nonrecurring Measurements. The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fell at September 30 and June 30, 2020:
The following table presents losses recognized on assets measured on a non-recurring basis for the three-month periods ended September 30, 2020 and 2019:
The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below.
Foreclosed and Repossessed Assets Held for Sale. Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management’s knowledge and experience with similar assets. Such discounts typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and repossessed assets held for sale are continually evaluated for additional impairment and are adjusted accordingly if impairment is identified.
Unobservable (Level 3) Inputs. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
Fair Value of Financial Instruments. The following table presents estimated fair values of the Company’s financial instruments not reported at fair value and the level within the fair value hierarchy in which the fair value measurements fell at September 30 and June 30, 2020.
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Note 2: Organization and Summary of Significant Accounting Policies: Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies | Organization. Southern Missouri Bancorp, Inc., a Missouri corporation (the Company) was organized in 1994 and is the parent company of Southern Bank (the Bank). Substantially all of the Company’s consolidated revenues are derived from the operations of the Bank, and the Bank represents substantially all of the Company’s consolidated assets and liabilities. SB Real Estate Investments, LLC is a wholly-owned subsidiary of the Bank formed to hold Southern Bank Real Estate Investments, LLC. Southern Bank Real Estate Investments, LLC is a real estate investment trust (REIT) which is controlled by the investment subsidiary, and has other preferred shareholders in order to meet the requirements to be a REIT. At September 30, 2020, assets of the REIT were approximately $877 million, and consisted primarily of loan participations acquired from the Bank.
The Bank is primarily engaged in providing a full range of banking and financial services to individuals and corporate customers in its market areas. The Bank and Company are subject to competition from other financial institutions. The Bank and Company are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation. The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In the normal course of business, the Company encounters two significant types of risk: economic and regulatory. Economic risk is comprised of interest rate risk, credit risk, and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities reprice on a different basis than its interest-earning assets. Credit risk is the risk of default on the Company’s investment or loan portfolios resulting from the borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of the investment portfolio, collateral underlying loans receivable, and the value of the Company’s investments in real estate. |
Note 2: Organization and Summary of Significant Accounting Policies: Principles of Consolidation Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Principles of Consolidation Policy | Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated. |
Note 2: Organization and Summary of Significant Accounting Policies: Use of Estimates Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Use of Estimates Policy | Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
On July 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses, also known as the current expected credit loss (“CECL”) standard, which created material changes to the existing critical accounting policy that existed at June 30, 2020. Effective July 1, 2020 through September 30, 2020, the significant accounting policy which was considered to be the most critical in preparing the Company’s consolidated financial statements is the determination of the allowance for credit losses (“ACL”) on loans. |
Note 2: Organization and Summary of Significant Accounting Policies: Cash and Cash Equivalents, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Cash and Cash Equivalents, Policy | Cash and Cash Equivalents. For purposes of reporting cash flows, cash and cash equivalents includes cash, due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less. Interest-bearing deposits in other depository institutions were $4.2 million and $6.9 million at September 30 and June 30, 2020, respectively. The deposits are held in various commercial banks with a total of $303,000 and $319,000 exceeding the FDIC’s deposit insurance limits at September 30 and June 30, 2020, respectively, as well as at the Federal Reserve and the Federal Home Loan Bank of Des Moines and Chicago. |
Note 2: Organization and Summary of Significant Accounting Policies: Interest Bearing Time Deposits (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Interest Bearing Time Deposits | Interest-bearing Time Deposits. Interest bearing deposits in banks mature within seven years and are carried at cost. |
Note 2: Organization and Summary of Significant Accounting Policies: Marketable Securities, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Marketable Securities, Policy | Available for Sale Securities. Available for sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income, a component of stockholders’ equity. All securities have been classified as available for sale.
Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method. Realized gains or losses on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
The Company does not invest in collateralized mortgage obligations that are considered high risk.
For AFS securities with fair value less than amortized cost that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections, and is recorded to the ACL, by a charge to provision for credit losses. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired AFS security, or, if it is more likely than not the Company will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.
At adoption, no impairment on AFS securities was attributable to credit. The Company will evaluate impaired AFS securities at the individual level on a quarterly basis, and will consider such factors including, but not limited to: the extent to which the fair value of the security is less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or geographic area; the payment structure of the security and likelihood of the issuer to be able to make payments that may increase in the future; failure of the issuer to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency; and the ability and intent to hold the security until maturity. A qualitative determination as to whether any portion of the impairment is attributable to credit risk is acceptable. There were no credit related factors underlying unrealized losses on AFS securities at September 30, 2020, and June 30, 2020.
Changes in the ACL are recorded as expense. Losses are charged against the ACL when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. |
Note 2: Organization and Summary of Significant Accounting Policies: Federal Home Loan Bank and Federal Reserve Bank Stock (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Federal Home Loan Bank and Federal Reserve Bank Stock | Federal Reserve Bank and Federal Home Loan Bank Stock. The Bank is a member of the Federal Reserve and the Federal Home Loan Bank (FHLB) systems. Capital stock of the Federal Reserve and the FHLB is a required investment based upon a predetermined formula and is carried at cost. |
Note 2: Organization and Summary of Significant Accounting Policies: Loans Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Loans Policy | Loans. Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management’s judgment, the collectability of interest or principal in the normal course of business is doubtful. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL. The Company complies with regulatory guidance which indicates that loans should be placed on nonaccrual status when 90 days past due, unless the loan is both well-secured and in the process of collection. A loan that is “in the process of collection” may be subject to legal action or, in appropriate circumstances, through other collection efforts reasonably expected to result in repayment or restoration to current status in the near future. A loan is considered delinquent when a payment has not been made by the contractual due date. At September 30, 2020, some loans were modified under the terms of the Coronavirus Aid, Relief and Economic Security Act (the CARES Act), which provides that loans modified after March 1, 2020, due to the COVID-19 pandemic, and which were otherwise current at December 31, 2019, need not be accounted for as troubled debt restructurings (TDRs). While these loans may not have met the contractual due dates of payments under their previous terms, so long as they were compliant with the terms of the modification made under the CARES Act, they would not have been reported as delinquent at September 30, 2020. See further disclosure in Note 4: Loans and Allowance for Credit Losses. Interest income previously accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Cash receipts on a nonaccrual loan are applied to principal and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts, whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A nonaccrual loan is generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured, and a consistent record of performance has been demonstrated.
The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans, and is established through provision for credit losses charged to current earnings. The ACL is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management’s analysis of expected cash flows (for non-collateral dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received.
Management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Adjustments may be made to historical loss information for differences identified in current loan-specific risk characteristics, such as differences in underwriting standards or terms; lending review systems; experience, ability, or depth of lending management and staff; portfolio growth and mix; delinquency levels and trends; as well as for changes in environmental conditions, such as changes in economic activity or employment, agricultural economic conditions, property values, or other relevant factors. The Company generally assesses past events and current conditions based on the trailing eight quarters of activity, and incorporates a reasonable and supportable forecast period of four quarters, with an immediate reversion to historical averages.
The ACL is measured on a collective (pool) basis when similar risk characteristics exist. For loans that do not share general risk characteristics with the collectively evaluated pools, the Company estimates credit losses on an individual loan basis, and these loans are excluded from the collectively evaluated pools. An ACL for an individually evaluated loan is recorded when the amortized cost basis of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or the fair value, less estimated costs to sell, of the collateral for certain collateral dependent loans. For the collectively evaluated pools, the Company segments the loan portfolio primarily by loan purpose and collateral into 23 pools, which are homogeneous groups of loans that possess similar loss potential characteristics. The Company utilizes the discounted cash flow (“DCF”) methodology for measurement of the required ACL for all loan pools. The DCF model implements probability of default (“PD”) and loss given default (“LGD”) calculations at the instrument level. PD and LGD are determined from the Company’s historical experience over a period of approximately five years. The Company defines a default as an event of charge off, an adverse (substandard or worse) internal credit rating, becoming delinquent 90 days or more, or being placed on nonaccrual status. A PD/LGD estimate is applied to a projected model of the loan’s cashflow, including principal and interest payments, with consideration for prepayment speeds, principal curtailments, and recovery lag. Prepayments, curtailments, and recovery lag have been determined to not have a material impact on estimated credit losses, historically.
Prior to the July 1, 2020, adoption of ASU 2016-13, the allowance for loan and lease losses (ALLL) represented management’s best estimate of probable losses in the existing loan portfolio at the end of the reporting period. Integral to the methodology for determining the adequacy of the ALLL was portfolio segmentation and impairment measurement. Under the Company’s methodology, loans were first segmented into 1) those comprising large groups of homogeneous loans which are collectively evaluated for impairment and 2) all other loans which are individually evaluated. Those loans in the second category were further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends. Loans were considered impaired if, based on current information and events, it was considered probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement, and was generally based on the fair value, less estimated costs to sell, of the loan’s collateral. If the loan was not collateral-dependent, the measurement of impairment was based on the present value of expected future cash flows discounted at the historical effective interest rate, or the observable market price of the loan. Impairment identified through this evaluation process was a component of the ALLL. If a loan was not considered impaired, it was grouped together with loans having similar characteristics (i.e., the same risk grade), and an ALLL was based upon a quantitative factor (historical average charge-offs) and qualitative factors such as changes in lending policies; national, regional, and local economic conditions; changes in mix and volume of portfolio; experience, ability, and depth of lending management and staff; entry to new markets; levels and trends of delinquent, nonaccrual, special mention, and classified loans; concentrations of credit; changes in collateral values; agricultural economic conditions; and regulatory risk.
Prior to the July 1, 2020, adoption of ASU 2016-13, loans acquired in an acquisition that had evidence of credit quality deterioration since origination and for which it was probable that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired (“PCI”). PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial ALLL based on a DCF methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. The difference between the DCFs expected at acquisition and the investment in the loan, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the DCFs expected at acquisition, or the “non-accretable difference,” were not recognized on the balance sheet and did not result in any yield adjustments, loss accruals or valuation allowances. Increases in expected cash flows, including prepayments, subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows were recognized as impairment. ALLL on PCI loans reflected only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately were not to be received).
Subsequent to the July 1, 2020, adoption of ASU 2016-13, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to non-credit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.
Upon adoption of ASU 2016-13, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $434,000 to the ACL. The remaining noncredit discount, based on the adjusted amortized cost basis, will be accreted into interest income at the effective interest rate as of July 1, 2020.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans. |
Note 2: Organization and Summary of Significant Accounting Policies: Off-Balance Sheet Credit Exposures (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Off-Balance Sheet Credit Exposures | Off-Balance Sheet Credit Exposures. Off-balance sheet credit instruments include commitments to make loans, and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The ACL on off-balance sheet credit exposures is estimated by loan pool on a quarterly basis under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on the Company’s consolidated balance sheets. The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in other non-interest expense in the Company’s consolidated statements of income. |
Note 2: Organization and Summary of Significant Accounting Policies: Foreclosed Real Estate Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Foreclosed Real Estate Policy | Foreclosed Real Estate. Real estate acquired by foreclosure or by deed in lieu of foreclosure is initially recorded at fair value less estimated selling costs, establishing a new cost basis. Costs for development and improvement of the property are capitalized.
Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value, less estimated selling costs.
Loans to facilitate the sale of real estate acquired in foreclosure are discounted if made at less than market rates. Discounts are amortized over the fixed interest period of each loan using the interest method. |
Note 2: Organization and Summary of Significant Accounting Policies: Property, Plant and Equipment, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Property, Plant and Equipment, Policy | Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation and include expenditures for major betterments and renewals. Maintenance, repairs, and minor renewals are expensed as incurred. When property is retired or sold, the retired asset and related accumulated depreciation are removed from the accounts and the resulting gain or loss taken into income. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment loss recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets.
Depreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally seven to forty years for premises, three to seven years for equipment, and three years for software. |
Note 2: Organization and Summary of Significant Accounting Policies: Bank Owned Life Insurance Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Bank Owned Life Insurance Policy | Bank Owned Life Insurance. Bank owned life insurance policies are reflected in the consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value of these policies, as well as a portion of the insurance proceeds received, are recorded in noninterest income in the consolidated statements of income. |
Note 2: Organization and Summary of Significant Accounting Policies: Goodwill Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Goodwill Policy | Goodwill. The Company’s goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. As of June 30, 2020, there was no impairment indicated, based on a qualitative assessment of goodwill, which considered: the decline in the market value of the Company’s common stock, relative to peers; concentrations of credit; profitability; nonperforming assets; capital levels; and results of recent regulatory examinations. The Company believes there continues to be no impairment of goodwill at September 30, 2020. |
Note 2: Organization and Summary of Significant Accounting Policies: Intangible Assets, Finite-Lived, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Intangible Assets, Finite-Lived, Policy | Intangible Assets. The Company’s intangible assets at September 30, 2020 included gross core deposit intangibles of $15.3 million with $9.0 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and mortgage servicing rights of $1.3 million. At June 30, 2020, the Company’s intangible assets included gross core deposit intangibles of $15.3 million with $8.7 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and mortgage servicing rights of $1.1 million. The Company’s core deposit intangible assets are being amortized using the straight line method, over periods ranging from five to seven years, with amortization expense expected to be approximately $1.0 million in the remainder of fiscal 2021, $1.4 million in fiscal 2022 through fiscal 2024, and $807,000 million in fiscal 2025, and $328,000 thereafter. As of June 30, 2020, there was no impairment indicated, and the Company believes there continues to be no impairment of other intangible assets at September 30, 2020. |
Note 2: Organization and Summary of Significant Accounting Policies: Income Tax, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Income Tax, Policy | Income Taxes. The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary. |
Note 2: Organization and Summary of Significant Accounting Policies: Share-based Compensation, Option and Incentive Plans Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Share-based Compensation, Option and Incentive Plans Policy | Incentive Plans. The Company accounts for its Management and Recognition Plan (MRP), Equity Incentive Plan (EIP), and Omnibus Incentive Plan (OIP) in accordance with ASC 718, “Share-Based Payment.” Compensation expense is based on the market price of the Company’s stock on the date the shares are granted and is recorded over the vesting period. The difference between the grant-date fair value and the fair value on the date the shares are considered earned represents a tax benefit to the Company that is recorded as an adjustment to income tax expense. |
Note 2: Organization and Summary of Significant Accounting Policies: Outside Directors Retirement Plan Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Outside Directors Retirement Plan Policy | Outside Directors’ Retirement. The Bank adopted a directors’ retirement plan in April 1994 for outside directors. The directors’ retirement plan provides that each non-employee director (participant) shall receive, upon termination of service on the Board on or after age 60, other than termination for cause, a benefit in equal annual installments over a five year period. The benefit will be based upon the product of the participant’s vesting percentage and the total Board fees paid to the participant during the calendar year preceding termination of service on the Board. The vesting percentage shall be determined based upon the participant’s years of service on the Board, whether before or after the reorganization date.
In the event that the participant dies before collecting any or all of the benefits, the Bank shall pay the participant’s beneficiary. No benefits shall be payable to anyone other than the beneficiary, and shall terminate on the death of the beneficiary. |
Note 2: Organization and Summary of Significant Accounting Policies: Stock Option Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Stock Option Policy | Stock Options. Compensation cost is measured based on the grant-date fair value of the equity instruments issued, and recognized over the vesting period during which an employee provides service in exchange for the award. |
Note 2: Organization and Summary of Significant Accounting Policies: Earnings Per Share, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Earnings Per Share, Policy | Earnings Per Share. Basic earnings per share available to common stockholders is computed using the weighted-average number of common shares outstanding. Diluted earnings per share available to common stockholders includes the effect of all weighted-average dilutive potential common shares (stock options and restricted stock grants) outstanding during each period. |
Note 2: Organization and Summary of Significant Accounting Policies: Comprehensive Income (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Comprehensive Income | Comprehensive Income. Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation on available-for-sale securities, and changes in the funded status of defined benefit pension plans. |
Note 2: Organization and Summary of Significant Accounting Policies: Fair Value Transfer Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Fair Value Transfer Policy | Transfers Between Fair Value Hierarchy Levels. Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date. |
Note 2: Organization and Summary of Significant Accounting Policies: New Accounting Pronouncements (Policies) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| New Accounting Pronouncements | The following paragraphs summarize the impact of new accounting pronouncements:
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. ASU 2018-13 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, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for certain removed and modified disclosures. Adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which the Company adopted July 1, 2020. The Update amended guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. For financial assets held at amortized cost basis, Topic 326 eliminated the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The Update affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Adoption was applied on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings. Adoption resulted in an increase to the ACL of $8.9 million, related to the transition from the incurred loss model to the CECL ACI model and an increase of $434,000 related to the transition from PCI to PCD methodology, relative to the ALLL as of June 30, 2020. The Company also recorded an adjustment to the reserve for unfunded commitments recorded in other liabilities of $268,000. The impact at adoption was reflected as an adjustment to beginning retained earnings, net of income taxes, in the amount of $7.2 million. In accordance with the new standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On July 1, 2020, the amortized cost basis of the PCD loans were increased to reflect the addition of $434,000 to the ACL. The adoption of ASU 2016-13 in fiscal 2021 could also impact the Company’s future earnings, perhaps materially.
The following table illustrates the impact of adoption of ASU 2016-13:
The above table includes the impact of ASU 2016-13 adoption for PCD assets previously classified as PCI. The change in the ACL includes $434,000 attributable to residential and commercial real estate loans, and the amortized cost basis of loans receivable was increased for those loans by that total amount.
In March 2020, the CARES Act was signed into law, creating a forbearance program for federally backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the National Emergency, and provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (TDR) for a limited period of time to account for the effects of COVID-19. The Company has elected to not apply ASC Subtopic 310-40 for loans eligible under the CARES Act, based on the modification’s (1) relation to COVID-19, (2) execution for a loan that was not more than 30-days past due as of December 31, 2019, and (3) execution between March 1, 2020, and the earlier of the date that falls 60 days following the termination of the declared National Emergency, or December 31, 2020. |
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Note 3: Securities: Repurchase Agreements, Collateral, Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Repurchase Agreements, Collateral, Policy | The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits amounted to $146.2 million at September 30, 2020 and $156.1 million at June 30, 2020. The securities pledged consist of marketable securities, including $77.3 million and $82.0 million of Mortgage-Backed Securities, $34.9 million and $41.9 million of Collateralized Mortgage Obligations, $33.0 million and $32.0 million of State and Political Subdivisions Obligations, and $1.0 million and $200,000 of Other Securities at September 30 and June 30, 2020, respectively. |
Note 3: Securities: Other Securities Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Other Securities Policy | Other securities. At September 30, 2020 there were two pooled trust preferred securities with an estimated fair value of $654,000 and unrealized losses of $322,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities and a reduced demand for these securities, and concerns regarding the financial institutions that issued the underlying trust preferred securities.
The September 30, 2020, cash flow analysis for these two securities indicated it is probable the Company will receive all contracted principal and related interest projected. The cash flow analysis used in making this determination was based on anticipated default, recovery, and prepayment rates, and the resulting cash flows were discounted based on the yield spread anticipated at the time the securities were purchased. Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality. Assumptions for these two securities included prepayments averaging 1.6 percent, annually, annual defaults averaging 50 basis points, and a recovery rate averaging 10 percent of gross defaults, lagged two years.
One of these two securities has continued to receive cash interest payments in full since the Company’s purchase; the other security received principal-in-kind (PIK), in lieu of cash interest, for a period of time following the recession and financial crisis which began in 2008, but resumed cash interest payments during fiscal 2014. Our cash flow analysis indicates that cash interest payments are expected to continue for both securities. Because the Company does not intend to sell these securities and it is likely that the Company will not be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.
The Company does not believe any other individual unrealized loss as of September 30, 2020, is the result of a credit loss. However, the Company could be required to recognize an ACL in future periods with respect to its available for sale investment securities portfolio. |
Note 3: Securities: Credit Losses Recognized on Investments Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Credit Losses Recognized on Investments Policy | Credit losses recognized on investments. During fiscal 2009, the Company adopted ASC 820, formerly FASB Staff Position 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” There were no credit losses recognized in income and other losses or recorded in other comprehensive income for the three-month periods ended September 30, 2020 and 2019. |
Note 4: Loans and Allowance for Loan Losses: Residential Mortgage Lending Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Residential Mortgage Lending Policy | Residential Mortgage Lending. The Company actively originates loans for the acquisition or refinance of one- to four-family residences. This category includes both fixed-rate and adjustable-rate mortgage (“ARM”) loans amortizing over periods of up to 30 years, and the properties securing such loans may be owner-occupied or non-owner-occupied. Single-family residential loans do not generally exceed 90% of the lower of the appraised value or purchase price of the secured property. Substantially all of the one- to four-family residential mortgage originations in the Company’s portfolio are located within the Company’s primary lending area. General risks related to one- to four-family residential lending include stability of borrower income and collateral values.
The Company also originates loans secured by multi-family residential properties that are often located outside the Company’s primary lending area but made to borrowers who operate within our primary market area. The majority of the multi-family residential loans that are originated by the Bank are amortized over periods generally up to 25 years, with balloon maturities typically up to ten years. Both fixed and adjustable interest rates are offered and it is typical for the Company to include an interest rate “floor” and “ceiling” in the loan agreement. Generally, multi-family residential loans do not exceed 85% of the lower of the appraised value or purchase price of the secured property. General risks related to multi-family residential lending include rental demand, rental rates, and vacancies, as well as collateral values and borrower leverage. |
Note 4: Loans and Allowance for Loan Losses: Commercial Real Estate Lending Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Commercial Real Estate Lending Policy | Commercial Real Estate Lending. The Company actively originates loans secured by owner- and non-owner-occupied commercial real estate including farmland, single- and multi-tenant retail properties, restaurants, hotels, land (improved and unimproved), nursing homes and other healthcare facilities, warehouses and distribution centers, convenience stores, automobile dealerships and other automotive-related services, and other businesses. These properties are typically owned and operated by borrowers headquartered within the Company’s primary lending area, however, the property may be located outside our primary lending area. Risks to owner-occupied commercial real estate lending generally include the continued profitable operation of the borrower’s enterprise, as well as general collateral values, and may be heightened by unique, specific uses of the property serving as collateral. Non-owner-occupied commercial real estate lending risks include tenant demand and performance, lease rates, and vacancies, as well as collateral values and borrower leverage. These factors may be influenced by general economic conditions in the region, or in the United States generally. Risks to lending on farmland include unique factors such as commodity prices, yields, input costs, and weather, as well as farmland values.
Most commercial real estate loans originated by the Company generally are based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to ten years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to seven years. The Company typically includes an interest rate “floor” in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio. |
Note 4: Loans and Allowance for Loan Losses: Construction Lending Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Construction Lending Policy | Construction Lending. The Company originates real estate loans secured by property or land that is under construction or development. Construction loans originated by the Company are generally to finance the construction of owner occupied residential real estate, or to finance speculative construction of residential real estate, land development, or owner-operated or non-owner occupied commercial real estate. During construction, these loans typically require monthly interest-only payments, with single-family residential construction loans having maturities ranging from six to twelve months, while multifamily or commercial construction loans typically mature in 12 to 24 months. Once construction is completed, permanent construction loans may be converted to monthly payments using amortization schedules of up to 30 years on residential and generally up to 25 years on commercial real estate. Construction and development lending risks generally include successful timely and on-budget completion of the project, followed by the sale of the property in the case of land development or non-owner-occupied real estate, or the long-term occupancy of the property by the builder in the case of owner-occupied construction. Changes in real estate values or other economic conditions may impact the ability of a borrower to sell property developed for that purpose.
While the Company typically utilizes relatively short maturity periods to closely monitor the inherent risks associated with construction loans for these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity. Such extensions are typically executed in incremental three month periods to facilitate project completion. The Company’s average term of construction loans is approximately eight months. During construction, loans typically require monthly interest only payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment. Additionally, during the construction phase, the Company typically performs interim inspections which further allow the Company opportunity to assess risk. At September 30, 2020, construction loans outstanding included 78 loans, totaling $36.1 million, for which a modification had been agreed to. At June 30, 2020, construction loans outstanding included 77 loans, totaling $48.8 million, for which a modification had been agreed to. In general, these modifications were solely for the purpose of extending the maturity date due to conditions described above. As these modifications were not executed due to financial difficulty on the part of the borrower, they were not accounted for as troubled debt restructurings (TDRs). Under the CARES Act, financial institutions have the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Loans with such modifications in effect at September 30, 2020, included drawn balances of $4.4 million in construction loans which were modified at the borrower’s request due to the current situation of heightened economic uncertainty triggered by the pandemic. |
Note 4: Loans and Allowance for Loan Losses: Consumer Lending Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Consumer Lending Policy | Consumer Lending. The Company offers a variety of secured consumer loans, including home equity, direct and indirect automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary lending area. Usually, consumer loans are originated with fixed rates for terms of up to five years, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.
Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity. Risks related to HELOC lending generally include the stability of borrower income and collateral values.
Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 60 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle. Risks to automobile and other consumer lending generally include the stability of borrower income and borrower willingness to repay. |
Note 4: Loans and Allowance for Loan Losses: Commercial Business Lending Policy (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Commercial Business Lending Policy | Commercial Business Lending. The Company’s commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit, including agricultural production and equipment loans. The Company offers both fixed and adjustable rate commercial business loans. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period. Commercial lending risk is primarily driven by the borrower’s successful generation of cash flow from their business enterprise sufficient to service debt, and may be influenced by factors specific to the borrower and industry, or by general economic conditions in the region or in the United States generally. Agricultural production or equipment lending includes unique risk factors such as commodity prices, yields, input costs, and weather, as well as farm equipment values. |
Note 4: Loans and Allowance for Loan Losses: Credit Quality Indicators (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Credit Quality Indicators | Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Watch, Special Mention, Substandard, or Doubtful. In addition, lending relationships of $3 million or more, exclusive of any consumer or owner-occupied residential loan, are subject to an annual credit analysis which is prepared by the loan administration department and presented to a loan committee with appropriate lending authority. A sample of lending relationships in excess of $1 million (exclusive of single-family residential real estate loans) are subject to an independent loan review annually, in order to verify risk ratings. The Company uses the following definitions for risk ratings:
Watch – Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.
Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.
Substandard – Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.
A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk grades. The primary responsibility for this review rests with loan administration personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by the Company’s internal audit function and applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit continues to share similar risk characteristics with collectively evaluated loan pools, or whether credit losses for the loan should be evaluated on an individual loan basis. |
NOTE 5: Premises and Equipment: Lessee, Operating Lease, Disclosure (Policies) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Policies | |
| Lessee, Operating Lease, Disclosure | Leases. The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2019, using the modified retrospective transition approach whereby comparative periods were not restated. The Company also elected certain relief options under the ASU, including the option not to recognize right of use asset and lease liabilities that arise from short-term leases (leases with terms of twelve months or less). The Company has five leased properties and numerous office equipment lease agreements in which it is the lessee, with lease terms exceeding twelve months.
All of the leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASU 2016-02, these operating leases are now included as a ROU asset in the premises and equipment line item on the Company’s consolidated balance sheets. The corresponding lease liability is included in the accounts payable and other liabilities line item on the Company’s consolidated balance sheets. Because these leases are classified as operating leases, the adoption of the new standard did not have a material effect on lease expense on the Company’s consolidated statements of income. |
Note 2: Organization and Summary of Significant Accounting Policies: New Accounting Pronouncements: Schedule of Adoption of ASU 2016-30 (Tables) |
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| Schedule of Adoption of ASU 2016-30 |
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Note 3: Securities: Schedule of Available for Sale Securities (Tables) |
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Note 3: Securities: Investments Classified by Contractual Maturity Date (Tables) |
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Note 3: Securities: Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value (Tables) |
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Note 4: Loans and Allowance for Loan Losses: Schedule of Accounts, Notes, Loans and Financing Receivable (Tables) |
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Note 4: Loans and Allowance for Loan Losses: Schedule of Balance in the Allowance for Loan Losses and Recorded Investment (Tables) |
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| Schedule of Balance in the Allowance for Loan Losses and Recorded Investment |
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Note 4: Loans and Allowance for Loan Losses: Financing Receivable Credit Quality Indicators (Tables) |
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| Financing Receivable Credit Quality Indicators |
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Note 4: Loans and Allowance for Loan Losses: Credit Risk Profile (Tables) |
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| Credit Risk Profile |
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Note 4: Loans and Allowance for Loan Losses: Schedule of Loan Portfolio Aging Analysis (Tables) |
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| Schedule of Loan Portfolio Aging Analysis |
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Note 4: Loans and Allowance for Loan Losses: Impaired Loans (Tables) |
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Note 4: Loans and Allowance for Loan Losses: Schedule of Interest Income Recognized on Impaired Loans (Tables) |
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| Schedule of Interest Income Recognized on Impaired Loans |
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Note 4: Loans and Allowance for Loan Losses: Schedule of Financing Receivables, Non Accrual Status (Tables) |
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Sep. 30, 2020 | ||||||||||||||||||||||
| Tables/Schedules | ||||||||||||||||||||||
| Schedule of Financing Receivables, Non Accrual Status |
|
Note 4: Loans and Allowance for Loan Losses: Schedule of Debtor Troubled Debt Restructuring, Current Period (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Debtor Troubled Debt Restructuring, Current Period |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 4: Loans and Allowance for Loan Losses: Performing Loans Classified as Troubled Debt Restructuring Loans (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing Loans Classified as Troubled Debt Restructuring Loans |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 5: Premises and Equipment: Property, Plant and Equipment (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||
| Property, Plant and Equipment |
|
NOTE 5: Premises and Equipment: Calculated Amount of Right of Use Assets and Lease Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||
| Calculated Amount of Right of Use Assets and Lease Liabilities |
|
||||||||||||||||||||||||||||||||||||||||||
NOTE 5: Premises and Equipment: Schedule of Future Minimum Rental Payments for Operating Leases (Tables) |
3 Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||
| Tables/Schedules | |||||||||||||||||
| Schedule of Future Minimum Rental Payments for Operating Leases |
|
Note 6: Deposits: Schedule of Deposit Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||
| Schedule of Deposit Liabilities |
|
Note 7: Earnings Per Share: Schedule of Earnings Per Share, Basic and Diluted (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 8: Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Tables) |
3 Months Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||
| Schedule of Effective Income Tax Rate Reconciliation |
|
||||||||||||||||||
Note 8: Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Deferred Tax Assets and Liabilities |
|
Note 8: Income Taxes: Schedule of Reconciliation of Income Tax Expense at the Statutory Rate to Actual Income Tax (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||
| Schedule of Reconciliation of Income Tax Expense at the Statutory Rate to Actual Income Tax |
|
||||||||||||||||||||||||||||||
Note 11: Fair Value Measurements: Fair Value, Assets Measured on Recurring Basis (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value, Assets Measured on Recurring Basis |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 11: Fair Value Measurements: Fair Value Measurements, Nonrecurring (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements, Nonrecurring |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 11: Fair Value Measurements: Gains (Losses) Recognized on Assets Measured on a Nonrecurring Basis (Tables) |
3 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||
| Gains (Losses) Recognized on Assets Measured on a Nonrecurring Basis |
|
||||||||||||||||||||
Note 11: Fair Value Measurements: Fair Value Option, Disclosures (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Option, Disclosures |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
Note 11: Fair Value Measurements: Schedule of Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Financial Instruments |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 2: Organization and Summary of Significant Accounting Policies: Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Sep. 30, 2020
USD ($)
| |
| Details | |
| Entity Incorporation, State or Country Code | MO |
| Real Estate Investments, Net | $ 877,000 |
Note 3: Securities: Repurchase Agreements, Collateral, Policy (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Security Owned and Pledged as Collateral, Fair Value | $ 146,200 | $ 156,100 |
| US States and Political Subdivisions Debt Securities | ||
| Security Owned and Pledged as Collateral, Fair Value | 33,000 | 32,000 |
| Mortgage-backed Securities, Issued by US Government Sponsored Enterprises | ||
| Security Owned and Pledged as Collateral, Fair Value | 77,300 | 82,000 |
| Collateralized Mortgage Obligations | ||
| Security Owned and Pledged as Collateral, Fair Value | 34,900 | 41,900 |
| Other securities | ||
| Security Owned and Pledged as Collateral, Fair Value | $ 1,000 | $ 200 |
Note 3: Securities: Other Securities Policy (Details) $ in Thousands |
Sep. 30, 2020
USD ($)
|
|---|---|
| Details | |
| Number of Pooled Trust Preferred Securities | 2 |
| Fair Value of Pooled Trust Preferred Securities Held | $ 654 |
| Unrealized Losses on Pooled Trust Preferred Securities in a Continuous Unrealized Loss Position for 12 Months or More | $ 322 |
Note 4: Loans and Allowance for Loan Losses: Schedule of Accounts, Notes, Loans and Financing Receivable (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Loans Receivable Gross | ||
| Loans Receivable | $ 2,290,778 | $ 2,249,915 |
| Loans in process | ||
| Loans Receivable | (101,392) | (78,452) |
| Deferred loan fees, net | ||
| Loans Receivable | (3,839) | (4,395) |
| Allowance for loan losses | ||
| Loans Receivable | (35,084) | (25,139) |
| Loans Receivable | ||
| Loans Receivable | 2,150,463 | 2,141,929 |
| Consumer Loan | ||
| Loans Receivable | 80,906 | 80,767 |
| Commercial Loan | ||
| Loans Receivable | 481,582 | 468,448 |
| Construction Loan Payable | ||
| Loans Receivable | 207,737 | 185,924 |
| Residential Real Estate | ||
| Loans Receivable | 635,718 | 627,357 |
| Commercial Real Estate | ||
| Loans Receivable | $ 884,835 | $ 887,419 |
Note 4: Loans and Allowance for Loan Losses (Details) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
|
Sep. 30, 2020
USD ($)
|
Jun. 30, 2020
USD ($)
|
Sep. 30, 2020
USD ($)
|
|
| Details | |||
| Number of Purchased Participation Loans | 22 | 23 | |
| Purchased Participation Loans | $ 55,700 | $ 58,200 | $ 55,700 |
| Loans and Leases Receivable, Impaired, Interest Income Recognized, Change in Present Value Attributable to Passage of Time | 83 | ||
| Foreclosed residential real estate properties physical possession | 565 | 563 | 565 |
| Residential mortgage loans and home equity loans formal foreclosure proceedings in process | $ 329 | $ 435 | $ 329 |
Note 4: Loans and Allowance for Loan Losses: Construction Lending Policy: Construction Loans Modified for other than TDR (Details) - Construction Loans $ in Thousands |
Sep. 30, 2020
USD ($)
|
Jun. 30, 2020
USD ($)
|
|---|---|---|
| Number of Loans Modified for Other Than TDR | 78 | 77 |
| Amount of Loans Modified for Other Than TDR | $ 36,100 | $ 48,800 |
| COVID-19 | ||
| Amount of Loans Modified for Other Than TDR | $ 4,400 |
Note 4: Loans and Allowance for Loan Losses: Purchased Credit Deteriorated Loans Credit Quality Indicators (Details) $ in Thousands |
Sep. 30, 2020
USD ($)
|
|---|---|
| Pass | |
| Purchased Credit Deteriorated Loans | $ 5,600 |
| Watch | |
| Purchased Credit Deteriorated Loans | 10,100 |
| Special Mention | |
| Purchased Credit Deteriorated Loans | 0 |
| Substandard | |
| Purchased Credit Deteriorated Loans | 5,700 |
| Doubtful | |
| Purchased Credit Deteriorated Loans | $ 0 |
Note 4: Loans and Allowance for Loan Losses: Purchased Credit Impaired Loans Credit Quality Indicators (Details) $ in Thousands |
Jun. 30, 2020
USD ($)
|
|---|---|
| Pass | |
| Purchased Credit Impaired Loans | $ 5,900 |
| Watch | |
| Purchased Credit Impaired Loans | 10,300 |
| Special Mention | |
| Purchased Credit Impaired Loans | 0 |
| Substandard | |
| Purchased Credit Impaired Loans | 5,600 |
| Doubtful | |
| Purchased Credit Impaired Loans | $ 0 |
Note 4: Loans and Allowance for Loan Losses: CARES Act (Details) - COVID-19 - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2020 |
Jun. 30, 2020 |
|
| Financing Receivables Past Due | ||
| Loans With Option to Temporarily suspended loans | $ 0 | |
| Financing Receivables Current | ||
| Loans With Option to Temporarily suspended loans | $ 93,600 | $ 380,100 |
| Financial Asset, 30 to 59 Days Past Due | Residential Real Estate | ||
| Loans With Option to Temporarily suspended loans | 1 | |
| Financial Asset, 30 to 59 Days Past Due | Consumer Loan | ||
| Loans With Option to Temporarily suspended loans | 29,000 | |
| Financial Asset, 60 to 89 Days Past Due | Commercial Loan | ||
| Loans With Option to Temporarily suspended loans | $ 66 |
Note 4: Loans and Allowance for Loan Losses: Schedule of Financing Receivables, Non Accrual Status (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Total Loans | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | $ 8,775 | $ 8,657 |
| Consumer Loan | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | 255 | 196 |
| Commercial Loan | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | 1,129 | 1,345 |
| Construction Loan Payable | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | 0 | 0 |
| Residential Real Estate | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | 4,339 | 4,010 |
| Commercial Real Estate | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | $ 3,052 | $ 3,106 |
Note 4: Loans and Allowance for Loan Losses: Schedule of Debtor Troubled Debt Restructuring, Current Period (Details) $ in Thousands |
3 Months Ended | |
|---|---|---|
|
Sep. 30, 2020
USD ($)
|
Sep. 30, 2019
USD ($)
|
|
| Total Loans | ||
| Number of modifications | 4 | 0 |
| Recorded investment | $ 1,974 | $ 0 |
| Consumer Loan | ||
| Number of modifications | 0 | 0 |
| Recorded investment | $ 0 | $ 0 |
| Commercial Loan | ||
| Number of modifications | 1 | 0 |
| Recorded investment | $ 36 | $ 0 |
| Construction Loan Payable | ||
| Number of modifications | 0 | 0 |
| Recorded investment | $ 0 | $ 0 |
| Residential Real Estate | ||
| Number of modifications | 1 | 0 |
| Recorded investment | $ 98 | $ 0 |
| Commercial Real Estate | ||
| Number of modifications | 2 | 0 |
| Recorded investment | $ 1,840 | $ 0 |
NOTE 5: Premises and Equipment: Property, Plant and Equipment (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Details | ||
| Land | $ 12,514 | $ 12,585 |
| Buildings and improvements | 56,675 | 56,039 |
| Construction in progress | 35 | 435 |
| Furniture, fixtures, equipment and software | 18,276 | 18,109 |
| Automobiles | 120 | 120 |
| Operating leases ROU asset | 1,944 | 1,965 |
| Property, Plant and Equipment, Gross | 89,564 | 89,253 |
| Less accumulated depreciation | 25,134 | 24,147 |
| Premises and equipment, net | $ 64,430 | $ 65,106 |
NOTE 5: Premises and Equipment (Details) |
3 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Operating Lease, Weighted Average Discount Rate, Percent | 5.00% |
| Minimum | |
| Lessee Expected Lease Terms | 18 months |
| Maximum | |
| Lessee Expected Lease Terms | 20 years |
NOTE 5: Premises and Equipment: Calculated Amount of Right of Use Assets and Lease Liabilities (Details) - USD ($) $ in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Jun. 30, 2020 |
|||
| Consolidated Balance Sheet | |||||
| Right of Use Asset, Operating Leases | $ 1,944 | $ 1,965 | |||
| Liability, Operating Leases | 1,944 | $ 1,965 | |||
| Consolidated Statement of Income | |||||
| Operating Lease Costs Classified as Occupancy and Equipment Expense | [1] | 72 | $ 57 | ||
| Supplemental Disclosures of Cash Flow Information | |||||
| ROU assets obtained in exchange for operating lease obligations: | 0 | 2,004 | |||
| Supplemental Disclosures of Cash Flow Information | Cash paid for amounts included in the measurement of lease liabilities | |||||
| Operating Cash Flows from Operating Leases | $ 67 | $ 39 | |||
| |||||
NOTE 5: Premises and Equipment: Operating Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Operating Lease, Expense | $ 72 | $ 57 |
NOTE 5: Premises and Equipment: Schedule of Future Minimum Rental Payments for Operating Leases (Details) $ in Thousands |
Sep. 30, 2020
USD ($)
|
|---|---|
| Details | |
| Operating Leases, Future Minimum Payments, Remainder of Fiscal Year | $ 269 |
| Operating Leases, Future Minimum Payments, Due in Two Years | 243 |
| Operating Leases, Future Minimum Payments, Due in Three Years | 243 |
| Operating Leases, Future Minimum Payments, Due in Four Years | 243 |
| Operating Leases, Future Minimum Payments, Due in Five Years | 242 |
| Operating Leases, Future Minimum Payments, Due Thereafter | 2,134 |
| Operating Lease, Payments | $ 3,374 |
NOTE 5: Premises and Equipment: Lessor Agreements (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Income Recognized From Lessor Agreements | $ 75 | $ 82 |
Note 6: Deposits: Schedule of Deposit Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Details | ||
| Noninterest-bearing Deposit Liabilities | $ 307,023 | $ 316,048 |
| Deposits, Negotiable Order of Withdrawal (NOW) | 789,486 | 781,937 |
| Deposits, Money Market Deposits | 234,948 | 231,162 |
| Deposits, Savings Deposits | 189,218 | 181,229 |
| Interest-bearing Domestic Deposit, Certificates of Deposits | 647,399 | 674,471 |
| Deposits, Domestic | $ 2,168,074 | $ 2,184,847 |
Note 7: Earnings Per Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Net income | $ 9,986 | $ 7,828 |
| Less: distributed earnings allocated to participating securities | (4) | 0 |
| Less: undistributed earnings allocated to participating securities | (26) | 0 |
| Net income available to common shareholders | $ 9,956 | $ 7,828 |
| Weighted-average common shares outstanding, including participating securities | 9,126,866 | 9,232,257 |
| Less: weighted-average participating securities outstanding (restricted shares) | (27,260) | 0 |
| Weighted-average basic common shares outstanding | 9,099,606 | 9,232,257 |
| Effect of dilutive securities, stock options, and awards | 2,191 | 11,891 |
| Denominator for diluted earnings per share | 9,101,797 | 9,244,148 |
| Basic earnings per common share | $ 1.09 | $ 0.85 |
| Diluted earnings per common share | $ 1.09 | $ 0.85 |
Note 7: Earnings Per Share (Details) |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Options Outstanding With An Exercise Price In Excess of the Market Price | 50,500 | 15,500 |
Note 8: Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Current Income Tax Expense (Benefit) | $ 4,750 | $ 1,970 |
| Deferred Income Taxes and Tax Credits | (2,003) | 6 |
| Income tax provision, total | $ 2,747 | $ 1,976 |
Note 8: Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Details | ||
| Deferred Tax Assets Provision for Losses on Loans | $ 8,023 | $ 5,802 |
| Deferred Tax Assets Accrued Compensation and Benefits | 539 | 825 |
| Deferred Tax Assets NOL Carry Forwards Acquired | 136 | 149 |
| Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax | 130 | 130 |
| Deferred Tax Assets Unrealized Loss on Other Real Estate | 187 | 257 |
| Other | 120 | 26 |
| Deferred Tax Assets, Gross | 9,135 | 7,189 |
| Deferred tax liabilities purchase accounting adjustments | 42 | 64 |
| Deferred Tax Liabilities Depreciation | 1,785 | 1,665 |
| Deferred Tax Liabilities FHLB Stock Dividends | 120 | 120 |
| Deferred Tax Liabilities, Prepaid Expenses | 208 | 259 |
| Unrealized gain on available for sale securities | 1,304 | 1,265 |
| Other | 0 | 104 |
| Deferred Tax Liabilities, Net | 3,459 | 3,477 |
| Deferred Tax Assets, Net of Valuation Allowance | $ 5,676 | $ 3,712 |
Note 8: Income Taxes (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Sep. 30, 2020
USD ($)
| |
| Details | |
| Federal Net Operating Loss Carryforwards | $ 675 |
| State Net Operating Loss Carryforwards | $ 119 |
| Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 21.00% |
Note 8: Income Taxes: Schedule of Reconciliation of Income Tax Expense at the Statutory Rate to Actual Income Tax (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Effective Income Tax Rate Reconciliation at Federal Statutory Income Tax Rate, Amount | $ 2,674 | $ 2,059 |
| Other, net | (32) | (26) |
| Income Tax Expense, Actual | 2,747 | 1,976 |
| Increase (reduction) in taxes | ||
| Nontaxable Municipal Income | (103) | (113) |
| Current State and Local Tax Expense (Benefit) | 241 | 109 |
| Cash Surrender Value Of Bank-owned Life Insurance | (59) | (53) |
| Tax Credit Benefits | $ 26 | $ 0 |
Note 9: 401(k) Retirement Plan: 401(k) Retirement Plan (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Details | ||
| Defined Contribution Plan, Administrative Expense | $ 457 | $ 381 |
Note 10: Subordinated Debt (Details) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 12 Months Ended |
|---|---|---|---|
Oct. 31, 2013 |
Sep. 30, 2020 |
Jun. 30, 2020 |
|
| Ozarks Legacy Community Financial, Inc | |||
| Assumed floating rate junior subordinated debt securities | $ 3,100 | ||
| Ozarks Legacy Community Financial, Inc | Reported Value Measurement | |||
| Assumed floating rate junior subordinated debt securities | $ 2,700 | $ 2,700 | |
| Peoples Service Company, Inc | |||
| Assumed floating rate junior subordinated debt securities | $ 6,500 | ||
| Peoples Service Company, Inc | Reported Value Measurement | |||
| Assumed floating rate junior subordinated debt securities | $ 5,300 | $ 5,300 |
Note 11: Fair Value Measurements: Fair Value Measurements, Nonrecurring (Details) - Foreclosed and repossessed assets held for sale - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Fair value on a nonrecurring basis | $ 166 | $ 2,211 |
| Fair Value, Inputs, Level 1 | ||
| Fair value on a nonrecurring basis | 0 | 0 |
| Fair Value, Inputs, Level 2 | ||
| Fair value on a nonrecurring basis | 0 | 0 |
| Fair Value, Inputs, Level 3 | ||
| Fair value on a nonrecurring basis | $ 166 | $ 2,211 |
Note 11: Fair Value Measurements: Gains (Losses) Recognized on Assets Measured on a Nonrecurring Basis (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Foreclosed and repossessed assets held for sale | ||
| Gains (losses) recognized on assets measured on a non-recurring basis | $ (36) | $ (1) |
Note 11: Fair Value Measurements: Fair Value Option, Disclosures (Details) - Fair Value, Inputs, Level 3 - Foreclosed and repossessed assets - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2020 |
Jun. 30, 2020 |
|
| Fair Value Asset Liability Measured On Nonrecurring Basis With Unobservable Inputs | $ 166 | $ 2,211 |
| Third party appraisal | ||
| Fair Value Measurements, Valuation Processes, Description | Third party appraisal | Third party appraisal |
| Third party appraisal | Marketable discount | ||
| Unobservable Measurement Input, Uncertainty, Description | Marketability discount | Marketability discount |
| Fair Value Measurements Nonrecurring Range of discounts Applied | 24.5% - 60.4% | 8.0% - 56.9% |
| Fair Value Measurements Nonrecurring Weighted Average Discount Applied | 41.3% | 15.7% |