UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
(Commission File No.)
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) |
(Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). ☒ NO ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Exchange Act). YES ☐ NO As of August 10, 2021, the number of shares of common stock outstanding was 3,521,814 .
CBM Bancorp, Inc.
Table of Contents
Page No. |
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Part I. Financial Information |
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| Item 1. |
3 | |||||
| 3 | ||||||
| 4 | ||||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| 8 | ||||||
| Item 2. |
34 | |||||
| Item 3. |
44 | |||||
| Item 4. |
44 | |||||
Part II. Other Information |
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| Item 1. |
45 | |||||
| Item1A. |
45 | |||||
| Item 2 |
45 | |||||
| Item 3 |
45 | |||||
| Item 4 |
45 | |||||
| Item 5 |
45 | |||||
| Item 6 |
45 | |||||
| 46 | ||||||
2
PART I – FINANCIAL INFORMATION
ITEM 1 – Consolidated Financial Statements
CBM Bancorp, Inc.
Consolidated Statements of Financial Condition
June 30, 2021 (Unaudited) and December 31, 2020
June 30, 2021 |
December 31, 2020 |
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(Unaudited) |
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Assets |
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Cash and due from banks |
$ | $ | ||||||
Interest-bearing deposits in other banks |
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Cash and cash equivalents |
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Time deposits in other banks |
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Securities available for sale, at fair value |
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Federal Home Loan Bank stock, at cost |
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Loans held for sale |
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Loans, net of unearned fees |
||||||||
Allowance for loan losses |
( |
) | ( |
) | ||||
Net loans |
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Accrued interest receivable |
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Bank-owned life insurance |
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Premises and equipment, net |
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Foreclosed real estate |
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Deferred income taxes |
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Prepaid expenses and other assets |
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Total assets |
$ | $ | ||||||
Liabilities and Stockholders’ Equity |
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Liabilities |
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Noninterest-bearing deposits |
$ | $ | ||||||
Interest-bearing deposits |
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Total deposits |
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Advances by borrowers for taxes and insurance |
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Federal Home Loan Bank advances |
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Accounts payable and other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Retained earnings |
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Unearned common stock held by: |
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Employee Stock Ownership Plan |
( |
) | ( |
) | ||||
2019 Equity Incentive Plan |
( |
) | ( |
) | ||||
Accumulated other comprehensive income |
||||||||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
The notes to consolidated financial statements are an integral part of these consolidated statements.
3
CBM Bancorp, Inc.
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2021 and 2020
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Interest and dividend income |
||||||||||||||||
Interest and fees on loans |
$ | $ | $ | $ | ||||||||||||
Interest and dividends on investments |
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Total interest income |
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Interest expense |
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Interest on deposits |
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Interest on borrowings |
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Total interest expense |
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Net interest income |
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(Reversal of) provision for loan losses |
( |
) | ( |
) | ||||||||||||
Net interest income after (reversal of) provision for loan losses |
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Non-interest income |
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Service fees on deposit accounts |
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Income from bank-owned life insurance |
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Gain on sale of loans held for sale |
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Gain on sale of investment securities |
— | — | ||||||||||||||
Other non-interest income |
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Total non-interest income |
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Non-interest expense |
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Salaries, director fees and employee benefits |
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Premises and equipment |
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Data processing |
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Professional fees |
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FDIC premiums and regulatory assessments |
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Marketing |
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Provision for losses and costs on foreclosed real estate |
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Other operating expenses |
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Total non-interest expense |
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Income before income taxes |
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Income tax expense |
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Net income |
$ | $ | $ | $ | ||||||||||||
Earnings per common share |
||||||||||||||||
Basic |
$ | $ | $ | $ | ||||||||||||
Diluted |
$ | $ | $ | $ | ||||||||||||
The notes to consolidated financial statements are an integral part of these consolidated statements.
4
CBM Bancorp, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
Three and Six Months Ended June 30, 2021 and 2020
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net income |
$ | $ | $ | $ | ||||||||||||
Other comprehensive (loss) income |
||||||||||||||||
Unrealized (loss) gain on investment securities available for sale |
( |
) | ( |
) | ( |
) | ||||||||||
Reclassification adjustment for realized gain on investment securities available for sale included in net income |
— | ( |
) | — | ( |
) | ||||||||||
Total unrealized (loss) gain on investment securities available for sale |
( |
) | ( |
) | ( |
) | ||||||||||
Income tax benefit (expense) relating to investment securities available for sale |
( |
) | ||||||||||||||
Other comprehensive (loss) income |
( |
) | ( |
) | ( |
) | ||||||||||
Total comprehensive income |
$ | $ | $ | $ | ||||||||||||
The notes to consolidated financial statements are an integral part of these consolidated statements.
5
CBM Bancorp, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Three and Six Months Ended June 30, 2021 and 2020
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Unearned ESOP Shares |
Unearned RSA Shares |
Accumulated Other Comprehensive Income |
Total Stockholders’ Equity |
||||||||||||||||||||||
| Balance, April 1, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| ESOP shares to be released |
— | — | — | — | ||||||||||||||||||||||||
| Vesting of restricted stock |
— | ( |
) | — | — | — | — | |||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||
| Stock based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| |
|
|
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|
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|
|
|
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|
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|
|
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| Balance, June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, January 1, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Cash dividends, $ |
— | — | ( |
) | — | — | — | ( |
) | |||||||||||||||||||
| ESOP shares to be released |
— | — | — | — | ||||||||||||||||||||||||
| Vesting of restricted stock |
— | ( |
) | — | — | — | — | |||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||
| Stock based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, April 1, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Cash dividends, $ |
— | — | ( |
) | — | — | — | ( |
) | |||||||||||||||||||
| ESOP shares to be released |
— | — | — | — | ||||||||||||||||||||||||
| Vesting of restricted stock |
— | ( |
) | — | — | — | — | |||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||
| Stock based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
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|
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|
|||||||||||||||
| Balance, January 1, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | |||||||||||||||||||||||
| Cash dividends, $ |
— | — | ( |
) | — | — | — | ( |
) | |||||||||||||||||||
| ESOP shares to be released |
— | — | — | — | ||||||||||||||||||||||||
| Vesting of restricted stock |
— | ( |
) | — | — | — | — | |||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||
| Stock based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
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|
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The notes to consolidated financial statements are an integral part of these consolidated statements.
6
CBM Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2021 and 2020
For the Six Months Ended June 30, |
||||||||
2021 |
2020 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Amortization and accretion of securities |
||||||||
| Gain on sale of loans held for sale |
( |
) | ( |
) | ||||
| Originations of loans held for sale |
( |
) | ( |
) | ||||
| Proceeds from sales of loans held for sale |
||||||||
| Gain on sale of investment securities |
— | ( |
) | |||||
| Amortization of deferred loan origination costs, net of fees |
( |
) | ( |
) | ||||
| (Reversal of) provision for loan losses |
( |
) | ||||||
| Decrease (increase) in accrued interest receivable |
( |
) | ||||||
| Increase in cash surrender value of life insurance |
( |
) | ( |
) | ||||
| Depreciation and amortization |
||||||||
| ESOP compensation expense |
||||||||
| Stock based compensation expense |
||||||||
| Writedown of foreclosed real estate |
— | |||||||
| Loss on sale of foreclosed real estate |
— | |||||||
| Deferred income tax expense (benefit) |
( |
) | ||||||
| Increase in prepaid expenses and other assets |
( |
) | ( |
) | ||||
| Decrease in accounts payable and other liabilities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| |
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Net (purchases) maturities of time deposits in other banks |
( |
) | ||||||
| Purchases of available for sale securities |
( |
) | — | |||||
| Proceeds from maturities, payments and calls of available for sale securities |
||||||||
| Proceeds from sales of investment securities |
— | |||||||
| Redemptions (purchases) of Federal Home Loan Bank stock |
( |
) | ||||||
| Net decrease (increase) in loans |
( |
) | ||||||
| Proceeds from sale of foreclosed real estate |
|
|
|
|
|
|
— |
|
| Purchases of premises and equipment |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Net increase in deposits |
||||||||
| Net increase in advances by borrowers |
||||||||
| Net increase in FHLB advances |
— | |||||||
| Repurchase of common stock |
( |
) | ( |
) | ||||
| Cash dividends on common stock |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by financing activities |
||||||||
| |
|
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|
|||||
| Net increase in cash and cash equivalents |
||||||||
| Cash and cash equivalents, beginning balance |
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| |
|
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|
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| Cash and cash equivalents, ending balance |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental disclosure of cash flows information: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes |
||||||||
The notes to consolidated financial statements are an integral part of these consolidated statements.
7
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
CBM Bancorp, Inc. (“CBM Bancorp” or “Company”) is the holding company for Chesapeake Bank of Maryland (“Bank”) and was formed in connection with the conversion of the Bank from the mutual to the stock form of organization. On September 27, 2018, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. Shares of the Company began trading on the Nasdaq Capital Market on September 28, 2018. The Company is subject to regulation by the Board of Governors of the Federal Reserve System.
CBM Bancorp’s primary business is the ownership and operation of the Bank, a community-oriented federal stock savings bank regulated by the Office of the Comptroller of the Currency. The Bank’s primary business activity is the acceptance of deposits from the general public and using the proceeds for loan originations and investments. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by the regulatory authorities.
In accordance with federal and state regulations, at the time of the conversion from mutual to stock form, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held.
The Company may not pay a dividend on, or repurchase any of, its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements. In addition, the Company is subject to certain other regulations restricting the payment of dividends on, and the repurchase of, its capital stock.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form
10-Q
and Article 8 of Regulation S-X
as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period. For further information, refer to the Bank’s annual audited consolidated financial statements and related notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K
dated March 26, 2021. Principles of Consolidation
The consolidated financial statements include the accounts of CBM Bancorp, Inc. and the Bank, its wholly owned subsidiary. Material intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of deferred tax assets. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties.
8
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies (Continued)
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks and interest-bearing deposits in other banks.
Time Deposits in Other Banks
The Bank uses financial instruments to supplement the investment securities portfolio. Interest income is recognized as earned. Purchase premiums and discounts are recognized as part of interest income using the interest method over the terms of the investments. Realized gains and losses on the sale of time deposits in other banks are included in earnings based on the trade date and are determined using the specific identification method. Time deposits in other banks are not marked to market.
Investment Securities
Management determines the appropriate classification of debt securities at the time of purchase and
re-evaluates
such designation as of each balance sheet date. Securities that the Bank has the positive intent and ability to hold to maturity are classified as held to maturity and are reported at amortized cost. Securities classified as available for sale are carried at fair value and are those securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Unrealized gains and losses are reported as increases or decreases in other comprehensive income. Realized gains and losses, determined on the basis of the cost of the specific securities sold, are included in earnings on a trade date basis. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the terms of the securities. Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary, if any, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Federal Home Loan Bank Stock
Federal Home Loan Bank of Atlanta (“FHLB”) stock is an equity interest in the FHLB, which does not have a readily determinable fair value for purposes of U.S. GAAP related to because its ownership is restricted and it lacks a market. FHLB stock represents the required investment in the common stock of the FHLB according to a predetermined formula. FHLB stock can be sold back at par value of $100 per share and only to the FHLB or another member institution.
Accounting for Certain Investments in Debt and Equity Securities,
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on loan sales are recorded in
non-interest
income, and loan origination fees, net of certain direct origination costs are deferred at origination of the loan and are recognized in non-interest
income upon sale of the loan. The Bank’s current practice is to sell residential mortgage loans on a servicing released basis, and, therefore, it has no intangible asset recorded for the value of such servicing. Interest on loans held for sale is credited to income based on the principal amounts outstanding. The Bank enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitment). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered derivatives. The time period between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 90 days. The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that they buyer/investor has assumed the interest rate risk on the loan. As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates. The fair value of the rate lock commitments was considered immaterial at June 30, 2021 and December 31, 2020 and an adjustment was not recorded. Loans held for sale that are not ultimately sold, but instead are placed into the Bank’s portfolio, are reclassified as loans held for investment and recorded at fair value.
9
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies (Continued)
Loans
Loans are generally carried at the amount of unpaid principal, less the allowance for loan losses and adjusted for deferred loan origination fees and costs, which are recognized over the term of the loan as an adjustment to yield using a method that approximates the interest method. Interest on loans is accrued based on the principal amounts outstanding. It is the Bank’s policy to discontinue the accrual of interest when the principal or interest is delinquent for 90 days or more, or if collection of principal and interest in full is in doubt.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The carrying value of impaired loans is based on the present value of the loan’s expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral.
Impaired loans also include certain loans that have been modified in a troubled debt restructuring (“TDR”) to make concessions to help a borrower remain current on the loan and/or to avoid foreclosure. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Generally, nonaccrual loans that are modified and are considered TDRs are classified as nonperforming at the time of the restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The Bank maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. The evaluation process by portfolio segment includes, among other things, an analysis of delinquency trends,
non-performing
loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience. The establishment of the allowance for loan losses is significantly affected by management’s judgment and uncertainties, and there is likelihood that different amounts would be reported under different conditions or assumptions. The Office of the Comptroller of the Currency as an integral part of its examination process periodically reviews the allowance for loan losses and may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management.
The Bank’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss, are those considered uncollectible and of such little value that their recognition as assets is not justified. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as special mention.
10
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies (Continued)
While the Bank utilizes available information to recognize losses on loans, future additions to the allowances for loan losses may be necessary based on changes in economic conditions, particularly in its’ market area primarily in the state of Maryland. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Actual loan losses may be significantly more than the allowance for loan and lease losses the Bank has established, which could have a material negative effect on our consolidated financial statements.
Bank-Owned Life Insurance (“BOLI”)
The Bank maintains life insurance policies on certain present and former directors. These policies are split-dollar or director insurance policies. Under the split-dollar insurance policies, the Bank pays the premiums and upon the death of the insured, the Bank will receive an amount equal to the premiums paid on the policy from the policy date to the date of death. Any remaining proceeds will be paid to the beneficiary. If the policy is surrendered before the date of death, the Bank will receive the lesser of the cash surrender value or the sum of the premiums paid on the policy from the policy date to the date of surrender. Under the director insurance policies, the Bank receives the cash surrender value if the policy is surrendered or receives all benefits payable upon the death of the insured. As of June 30, 2021 and December 31, 2020, $120,928 and $121,388 , respectively, was included in other liabilities related to the split-dollar insurance policies.
Premises and Equipment
Land is carried at cost. Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over estimated useful lives of assets. Amortization of leasehold improvements is recognized on a straight-line basis over the term of the lease or the life of the improvement, whichever is shorter. The cost of maintenance and repairs is charged to expense as incurred whereas improvements are capitalized. The range of estimated useful lives for premises and equipment are as follows:
| Buildings and land improvements | ||
| Leasehold improvements | ||
| Furniture, fixtures and equipment | ||
| Automobile |
Foreclosed Real Estate
Real estate acquired through foreclosure or other means is recorded at the fair value of the related real estate collateral at the transfer date less estimated selling costs. Losses incurred at the time of the acquisition of the property are charged to the allowance for loan losses. Subsequent reductions in the estimated fair value of the property are included in noninterest expense. Costs to maintain foreclosed real estate are expensed as incurred.
Employee Stock Ownership Plan (“ESOP”)
Compensation expense is recognized based on the current market price of shares committed to be released to employees. All shares released and committed to be released are deemed outstanding for purposes of earnings per share calculations. Dividends declared and paid on allocated shares held by the ESOP are charged to retained earnings. The value of unearned shares to be allocated to ESOP participants for future services not yet performed is reflected as a reduction of stockholders’ equity. Dividends declared on unallocated shares held by the ESOP are recorded as a reduction of the ESOP’s loan payment to the Company.
Stock-Based Compensation
Compensation cost is recognized for stock options and restricted stock awards (“RSA”) issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for RSAs. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite
service
period for the entire award. 11
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies (Continued)
Income Taxes
The provision
for income taxes includes taxes payable for the current year and deferred income taxes. Deferred income taxes are provided for the temporary differences between financial and taxable income. Deferred income taxes and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted through earnings for the effects of changes in tax laws and rates on the date of enactment.
Earnings per Common Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Weighted average shares include allocated ESOP shares and ESOP shares committed to be released but exclude unallocated ESOP shares. Diluted earnings per share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.
Off-Balance
Sheet Financial Instruments In the ordinary course of business, the Bank has entered into
off-balance
sheet financial instruments consisting of commitments to extend credit. These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet. Such financial instruments are recorded when they are funded. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments is represented by the contractual amount of these instruments. The Bank uses the same credit policies for these instruments as it does for the on-balance
sheet instruments. Concentrations of Credit Risk
The Bank did no 500,000 by the Securities Investor Protection Corporation.
Emerging Growth Company
The Company, as an emerging growth company (“EGC”), has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law. The CARES Act creates 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 for a limited period of time to account for the effects of
COVID-19.
Recent Accounting Pronouncements
ASU
2016-02,
Leases (Topic 842)12
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies (Continued)
ASU
2016-13,
Financial Instruments – Credit Lossesoff-balance
sheet credit exposures. Entities will apply the standard’s provisions as a cumulative-effect (i.e., modified retrospective approach). The Company has begun to gather loan information and consider acceptable methodologies to comply with this ASU. The Company’s initial evaluation indicates that the provisions of this ASU are expected to impact its consolidated financial statements, in particular the level of reserve for loan losses and is continuing to evaluate and assess the impact of the adoption of this ASU on its consolidated financial statements. On October 16, 2019, the Financial Accounting Standards Board (“FASB”) approved its proposal to delay the effective date for smaller reporting companies, as defined by the SEC, and other non-SEC
reporting entities. As the Company will take advantage of the extended transition period for complying with new or revised accounting standards assuming we remain a smaller reporting company, we will adopt the amendments in this update beginning after December 15, 2022, including interim periods within those
fiscal years. Note 2. Securities
The amortized cost and estimated fair value of securities classified as available for sale at June 30, 2021 and December 31, 2020, are as follows:
June 30, 2021 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
Securities Available for Sale |
||||||||||||||||
U.S. Government and Federal Agency obligations |
$ | $ | $ | ( |
) | $ | ||||||||||
Residential mortgage-backed securities |
( |
) | ||||||||||||||
| $ | $ | $ | ( |
) | $ | |||||||||||
December 31, 2020 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
Securities Available for Sale |
||||||||||||||||
U.S. Government and Federal Agency obligations |
$ | $ | $ | $ | ||||||||||||
Residential mortgage-backed securities |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
There were no 5,747,032 and $7,312,769 realizing gross gains of $96,672 and $143,223 for the three and six months ended June 30, 2020, respectively.
13
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 2. Securities (Continued)
The amortized cost and estimated fair value of securities as of June 30, 2021, 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 call or prepayment penalties
.
June 30, 2021 |
||||||||
Securities Available for Sale |
||||||||
Amortized Cost |
Fair Value |
|||||||
| Due in one year or less |
$ | $ | ||||||
| Due after one year through five years |
||||||||
| Due five years to ten years |
||||||||
| Due after ten years |
||||||||
| Mortgage-backed, in monthly installments |
||||||||
| |
|
|
|
|||||
| $ | $ | |||||||
| |
|
|
|
|||||
Securities with gross unrealized losses at June 30, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:
June 30, 2021 |
||||||||||||||||||||||||
Less than 12 Months |
12 Months or Greater |
Total |
||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
| Securities Available for Sale |
||||||||||||||||||||||||
| U.S. Government and Federal Agency obligations |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential mortgage-backed securities |
||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At June 30, 2021, the Bank held seven investments with gross unrealized losses. At December 31, 2020, the Bank held no investments with gross unrealized losses. The unrealized losses that existed were a result of market changes in interest rates since the original purchase. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) structure of the security.
An impairment loss is recognized in earnings if any of the following are true: (1) the Bank intends to sell the debt security; (2) it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis; or (3) the Bank does not expect to recover the entire amortized cost basis of the security. In situations where the Bank intends to sell or when it is more likely than not that the Bank will be required to sell the security, the entire impairment loss must be recognized in earnings. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in equity as a component of other comprehensive income, net of deferred tax.
There were no
14
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 3. Loans
The Bank currently manages its credit products and respective exposure to credit losses by the following specific portfolio segments which are levels at which the Bank develops and documents its systematic methodology to determine the allowance for loan losses attributable to each respective portfolio segment. The segments are:
| • | One-to four-family real estate loansdebt-to-income non-conforming. |
| • | Home equity loans and lines of credit one-to four-family residential real estate. These loans are typically secured with second mortgages on the homes. |
| • | Construction and land development |
| • | Nonresidential real estate loans – non-owner occupied properties. Owner occupied commercial property loans involve a variety of property types to conduct the borrower’s operations. The primary source of repayment for this type of loan is the cash flow from the business and is based upon the borrower’s financial health and ability of the borrower and the business to repay. Non-owner occupied commercial property loans involve investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. This real estate category contains commercial mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale to repay the loan. |
| • | Commercial loans |
| • | Consumer loans |
15
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 3. Loans (Continued)
The Bank makes loans to customers primarily in the Baltimore Metropolitan Area and its surrounding counties. The principal loan portfolio segment balances at June 30, 2021 and December 31, 2020 were as follows:
June 30, 2021 |
December 31, 2020 |
|||||||
Real estate loans |
||||||||
One-to four-family |
$ | $ | ||||||
Home equity loans and lines of credit |
||||||||
Construction and land development |
||||||||
Nonresidential |
||||||||
Total real estate loans |
||||||||
Other loans |
||||||||
Commercial |
||||||||
Consumer |
||||||||
Total other loans |
||||||||
Total loans |
||||||||
Net deferred loan origination fees and costs |
( |
) | ( |
) | ||||
Allowance for loan losses |
( |
) | ( |
) | ||||
Total loans, net |
$ | $ | ||||||
Overdraft deposits are reclassified as consumer loans and are included in the total loans on the balance sheet. Overdrafts were $1,639 and $1,739 at June 30, 2021 and December 31, 2020, respectively.
Paycheck Protection Program
The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified lender, we were automatically authorized to originate PPP loans. In early April 2020, the Company began accepting and processing applications for PPP loans. During the year ended December 31, 2020 we processed 101 PPP loans in the amount of $8,563,898 . During the six months ended June 30, 2021, we processed an additional 84 PPP loans in the amount of $5,107,009 . As of June 30, 2021, borrowers applied for and received forgiveness on PPP loans in the amount of $9,818,802 .
We recorded fee income during the three and six months ended June 30, 2021 in the amounts of $150,954 and $232,677 , respectively. As of June 30, 2021, our outstanding PPP loan balances are $3,852,105 , with deferred fees relating to those loans in the amount of $142,562 . As of December 31, 2020, our outstanding PPP loans were $4,479,894 .
Note 4. Credit Quality of Loans and the Allowance for Loan Losses
The allowance for loan losses is maintained at a level to provide for losses that are probable and can be reasonably estimated. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent losses in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.
16
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. The general component covers
non-impaired
loans and is based on historical loss experience adjusted for qualitative factors. Determinations as to the classification of assets and the amount of loss allowances are subject to review by our principal federal regulator, the Office of the Comptroller of the Currency, which can require that we establish additional loss allowances. The Bank regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations. A loan is considered past due or delinquent when a contractual payment is not paid on the day it is due. A loan in considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a 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. Impairment is measured on a loan by loan basis for all loans secured by real estate by the fair value of the collateral if the loan is collateral dependent. If the loan repayment is not deemed collateral dependent, impairment is measured on the net present value of the expected discounted future cash flows.
case-by-case
Loans are automatically placed on
non-accrual
status when payment of principal or interest is more than 90 days delinquent. Loans are also placed on non-accrual
status if collection of principal or interest in full is in doubt or if the loan has been restructured. When loans are placed on non-accrual
status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if unpaid principal and interest are repaid so that the loan is less than 90 days delinquent. The Bank’s charge-off
policy states after all collection efforts have been exhausted, the loan is deemed to be a loss and the amount has been determined, the loss amount will be charged to the allowance for loan losses. The following tables summarize the activity in the allowance for losses for the three and six months ended June 30, 2021 and 2020 and the distribution of the allowance for loan losses and loans receivable by loan portfolio class and impairment method as of June 30, 2021 and
June 30
, 2020. 17
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
As of June 30, 2021 |
||||||||||||||||||||||||||||
One –to Four-Family |
Home Equity Loans and Lines of Credit |
Construction and Land Development |
Nonresidential |
Commercial |
Consumer |
Total |
||||||||||||||||||||||
Allowance for loans losses: |
||||||||||||||||||||||||||||
Beginning Balance – April 1, 2021 |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Charge-offs |
— | — | — | — | — | — | — | |||||||||||||||||||||
Recoveries |
— | — | — | — | — | — | — | |||||||||||||||||||||
Provision for loan losses |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Ending Balance – June 30, 2021 |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Beginning Balance – January 1, 2021 |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Charge-offs |
— | — | — | — | — | — | — | |||||||||||||||||||||
Recoveries |
— | — | — | — | — | — | — | |||||||||||||||||||||
Provision for loan losses |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Ending Balance – June 30, 2021 |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | $ | $ | — | $ | — | $ | — | $ | — | $ | |||||||||||||||||
Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Loans: |
||||||||||||||||||||||||||||
Ending balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | $ | $ | — | $ | — | $ | — | $ | — | $ | |||||||||||||||||
Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
18
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
As of June 30, 2020 |
||||||||||||||||||||||||||||||||
One –to Four-Family |
Home Equity Loans and Lines of Credit |
Construction and Land Development |
Nonresidential |
Commercial |
Consumer |
Unallocated |
Total |
|||||||||||||||||||||||||
Allowance for loans losses: |
||||||||||||||||||||||||||||||||
Beginning Balance – April 1, 2020 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Charge-offs |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Recoveries |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Provision for loan losses |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Ending Balance – June 30, 2020 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Beginning Balance – January 1, 2020 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Charge-offs |
— | — | ( |
) | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||
Recoveries |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Provision for loan losses |
||||||||||||||||||||||||||||||||
Ending Balance – June 30, 2020 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | — | $ | $ | — | $ | — | $ | — | $ | — | $ | — | $ | ||||||||||||||||||
Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | $ | $ | — | $ | $ | — | $ | — | $ | ||||||||||||||||||||||
Ending balance: collectively evaluated for impairment |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
19
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
As part of the ongoing monitoring of the credit quality of the Bank’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grade of classified loans, net chargeoffs, nonperforming loans, credit scores, and the general economic conditions in the Bank’s market area.
The Bank utilizes an internal rating system to monitor the credit quality of the overall loan portfolio. A description of the general characteristics is as follows:
| • | Pass |
| • | Special mention |
| • | Substandard |
| • | Doubtful non-accrual status and all payments applied to principal recapture. Doubtful classification should be used only when a distinct possibility of loss exists. When identified, adequate loss should be recorded for the specific assets. It is not necessary to classify an entire credit doubtful when collection of a specific portion appears highly probable. |
| • | Loss charged-off in the period in which they are deemed uncollectible. |
When assets are classified as impaired, the Bank allocates a portion of the related general loss allowances to such assets as the Bank deems prudent. Determinations as to the classification of assets and the amount of loss allowances are subject to review by our principal federal regulator, the Office of the Comptroller of the Currency, which can require that we establish additional loss allowances. The Bank regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations.
20
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
The following table is a summary of the loan portfolio quality indicators by loan class recorded investment as of June 30, 2021 and December 31, 2020:
June 30, 2021 |
||||||||||||||||||||
Pass |
Special Mention |
Substandard |
Doubtful |
Total Loans |
||||||||||||||||
Real estate loans: |
||||||||||||||||||||
One-to four-family |
$ | $ | $ | $ | — | $ | ||||||||||||||
Home equity loans and lines of credit |
— | — | ||||||||||||||||||
Construction and land development |
— | — | — | |||||||||||||||||
Nonresidential |
— | — | ||||||||||||||||||
Other loans: |
||||||||||||||||||||
Commercial |
— | — | — | |||||||||||||||||
Consumer |
— | — | — | |||||||||||||||||
Total loans |
$ | $ | $ | $ | — | $ | ||||||||||||||
December 31, 2020 |
||||||||||||||||||||
Pass |
Special Mention |
Substandard |
Doubtful |
Total Loans |
||||||||||||||||
Real estate loans: |
||||||||||||||||||||
One-to four-family |
$ | $ | $ | $ | — | $ | ||||||||||||||
Home equity loans and lines of credit |
— | — | ||||||||||||||||||
Construction and land development |
— | — | — | |||||||||||||||||
Nonresidential |
— | — | ||||||||||||||||||
Other loans: |
||||||||||||||||||||
Commercial |
— | — | — | |||||||||||||||||
Consumer |
— | — | — | |||||||||||||||||
Total loans |
$ | $ | $ | $ | — | $ | ||||||||||||||
The following table sets forth certain information with respect to our loan portfolio delinquencies by loan class and amount as of June 30, 2021 and December 31, 2020:
June 30, 2021 |
||||||||||||||||||||||||||||||||
Loans 30-59 Days Past Due |
Loans 60-89 Days Past Due |
Loans 90 or More Days Past Due |
Total Past Due Loans |
Current Loans |
Total Loans |
Recorded Investment > 90 Days and Accruing |
Nonaccrual Loans |
|||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||
One-to four-family |
$ | $ | — | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Home equity loans and lines of credit |
— | — | ||||||||||||||||||||||||||||||
Construction and land development |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Nonresidential |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Other loans: |
||||||||||||||||||||||||||||||||
Commercial |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Consumer |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Total loans |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
21
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
December 31, 2020 |
||||||||||||||||||||||||||||||||
Loans 30-59 Days Past Due |
Loans 60-89 Days Past Due |
Loans 90 or More Days Past Due |
Total Past Due Loans |
Current Loans |
Total Loans |
Recorded Investment > 90 Days and Accruing |
Nonaccrual Loans |
|||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||||||||||
One-to four-family |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Home equity loans and lines of credit |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Construction and land development |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Nonresidential |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Other loans: |
||||||||||||||||||||||||||||||||
Commercial |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Consumer |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Total loans |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
At June 30, 2021 and December 31, 2020 there were no loans 90 four loans on 7,942 . At December 31, 2020, the Bank had three loans on 8,895 .
non-accrual
status with foregone interest in the amount of $non-accrual
status with foregone interest in the amount of $The Bank accounts for impaired loans under generally accepted accounting principles. An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Loans are individually evaluated for impairment. When the Bank classifies a problem asset as impaired, it provides a specific reserve for that portion of the asset that is deemed uncollectible based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or based on the loan’s observable market price or fair value of the collateral if the loan is collateral dependent.
22
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
The following table is a summary of impaired loans for the three and six months ended June 30, 2021 and 2020 and the year ended December 31, 2020:
Impaired Loans at June 30, 2021 |
Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2021 |
||||||||||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||||||||
| With no related allowance recorded: |
||||||||||||||||||||||||||||
| One-to four-family |
$ | $ | $ | — | $ | $ | $ | $ | ||||||||||||||||||||
| Home equity loans and lines of credit |
— | — | — | |||||||||||||||||||||||||
| With an allowance recorded: |
||||||||||||||||||||||||||||
| One-to four-family |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Home equity loans and lines of credit |
||||||||||||||||||||||||||||
| Total |
||||||||||||||||||||||||||||
| One-to four-family |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Home equity loans and lines of credit |
||||||||||||||||||||||||||||
Impaired Loans at June 30, 2020 |
Three Months Ended June 30, 2020 |
Six Months Ended June 30, 2020 |
||||||||||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||||||||
| With no related allowance recorded: |
||||||||||||||||||||||||||||
| One-to four-family |
$ | $ | $ | — | $ | $ | $ | $ | ||||||||||||||||||||
| Home equity loans and lines of credit |
— | |||||||||||||||||||||||||||
| Nonresidential |
— | |||||||||||||||||||||||||||
| With an allowance recorded: |
||||||||||||||||||||||||||||
| Home equity loans and lines of credit |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Total |
||||||||||||||||||||||||||||
| One-to four-family |
$ | $ | $ | — | $ | $ | $ | $ | ||||||||||||||||||||
| Home equity loans and lines of credit |
||||||||||||||||||||||||||||
| Nonresidential |
— | |||||||||||||||||||||||||||
23
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
December 31, 2020 |
||||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
| With no related allowance recorded: |
||||||||||||||||||||
| One-to four-family |
$ | $ | $ | — | $ | $ | ||||||||||||||
| With an allowance recorded: |
||||||||||||||||||||
| One-to four-family |
$ | $ | $ | $ | $ | |||||||||||||||
| Home equity loans and lines of credit |
||||||||||||||||||||
| Total |
||||||||||||||||||||
| One-to four-family |
$ | $ | $ | $ | $ | |||||||||||||||
| Home equity loans and lines of credit |
||||||||||||||||||||
Impaired loans also include certain loans that have been modified in a TDR to make concessions to help a borrower remain current on the loan and/or to avoid foreclosure. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Generally, nonaccrual loans that are modified and are considered TDRs are classified as nonperforming at the time of the restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. A summary of TDRs at June 30, 2021 and December 31, 2020 are as follows:
| June 30, 2021 |
Number of Contracts |
Performing |
Nonperforming |
Total |
||||||||||||
| One-to four-family |
$ | $ | $ | |||||||||||||
| Home equity loans and lines of credit |
— | |||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | $ | $ | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| December 31, 2020 |
Number of Contracts |
Performing |
Nonperforming |
Total |
||||||||||||
| One-to four-family |
$ | — | $ | $ | ||||||||||||
| Home equity loans and lines of credit |
— | |||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | $ | $ | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The Bank had two TDRs at June 30, 2021 totaling $122,956 and two TDRs at December 31, 2020 totaling $126,381 . The Bank has no commitments to loan additional funds to borrowers whose loans have been modified. There were no nonperforming TDRs reclassified to nonperforming loans during the three and six months ended June 30, 2021 and 2020. A default is considered to have occurred once the TDR is past due 90 days or more, or it has been placed on nonaccrual. If loans modified in a TDR subsequently default, the Bank evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
In response to the
COVID-19
pandemic and its economic impact to our customers, we implemented a short-term modification program that complies with the CARES Act and ASC 310-40
to provide temporary payment relief to those borrowers directly impacted by COVID-19
who were not more than 30 days past due as of December 31, 2019. This program allowed for a deferral of payments for 90 days, which we extended for an additional 90 days for certain loans, for a maximum of 180 days on a cumulative and successive basis. 24
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)
Additionally, none of the deferrals are reflected in the Company’s asset quality measures (i.e.
non-performing
loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the U.S. GAAP requirements to treat such short-term modifications as a TDR. Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the FASB. During the year ended December 31, 2020, the Bank received and approved requests to modify 61 loans with total balances of approximately $26,100,000 due to the effects of 2,500,000 . As of June 30, 2021, one borrower secured by a 731,003 continues to receive
COVID-19.
The Bank’s modifications primarily consisted of interest only payments with the deferral of principal for up to six months, dependent on the borrower and the borrower’s financial situation. All the borrowers whose loans were modified during the year ended December 31, 2020 d
ue to the effects of COVID-19,
complied with their loan modification agreements. During the six months ended June 30, 2021 the Bank received and approved eight additional modification requests with total balances of approximately $one-to
four-family residential property in the amount of $COVID-19
modification relief. In general, the Bank does not classify such modified loans as nonperforming and continues to accrue and recognize interest income during the forbearance period. Note 5. Foreclosed Real Estate
The activity in foreclosed real estate for the six months ended June 30, 2021 and 2020 is presented below. There were no residential real estate loans in foreclosed real estate and there one residential loan in the amount of $69,360 in the process of foreclosure as of June 30, 2021. During the six months ended June 30, 2021, the Bank disposed of foreclosed real estate in the amount of $602,289 recording a loss on the sale of $172,711 . The Bank did not dispose of any foreclosed real estate during the six months ended June 30, 2020.
w
as Six Months Ended June 30, |
||||||||
2021 |
2020 |
|||||||
| Balance, beginning of period |
$ | $ | ||||||
| Sale of foreclosed real estate |
( |
) | — | |||||
| Loss on sale foreclosed real estate |
( |
) | — | |||||
| Write-down of foreclosed real estate |
( |
) | ||||||
| |
|
|
|
|||||
| Balance, end of period |
$ | $ | ||||||
| |
|
|
|
|||||
Note 6. Deposits
Deposits are summarized as follows:
June 30, 2021 |
December 31, 2020 |
|||||||
| Noninterest-bearing demand |
$ | $ | ||||||
| Interest-bearing demand |
||||||||
| Money market |
||||||||
| Savings |
||||||||
| Certificates of deposit |
||||||||
| |
|
|
|
|||||
| Total deposits |
$ | $ | ||||||
| |
|
|
|
|||||
Deposit accounts in the Bank are federally insured up to $250,000 per depositor. The aggregate amount of time deposits with balances of $19,264,583 and $18,339,134 at June 30, 2021 and
250,000
or more totaled $December 31, 2020, respectively.
25
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6. Deposits (Continued)
At June 30, 2021 certificates of deposit and their remaining maturities were as follows:
| Maturities for the 12 Month Period ended June 30, |
||||
| 2022 |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| |
|
|||
| $ | ||||
| |
|
|||
Deposit balances of officers and directors totaled $1,041,398 and $973,464 at June 30, 2021 and December 31, 2020, respectively.
Note 7. Borrowings
The Bank has advances outstanding from the FHLB. A schedule of borrowings is as follows:
| June 30, 2021 |
December 31, 2020 | |||||||||||||||
| Advance Amount |
Rate |
Maturity Date |
Advance Amount |
Rate |
Maturity Date | |||||||||||
| $ |
% | $ | % | |||||||||||||
The Bank has an agreement with the FHLB that allows it to obtain advances secured by assets owned by the Bank. Total advances are limited to
one-to
four-family residential mortgages as collateral. The amount of loans that were deemed eligible to pledge as collateral totaled approximately $at June 30, 2021 and December 31, 2020, respectively.
The Bank also has a $2,000,000 unsecured federal funds line of credit available with another financial institution, for which no
Note 8. Employee Stock Ownership Plan
In connection with the Bank’s mutual to stock conversion in September 2018, the Bank established the Chesapeake Bank of Maryland Employee Stock Ownership Plan (“ESOP”) for all eligible employees. The ESOP purchased 338,560 shares of Company common stock in the Company’s initial public offering at $10.00 per share with the proceeds of a ten (10) year loan from the Company. The Bank intends to make annual contributions to the ESOP that at a minimum will permit the ESOP to repay the principal and interest due on the ESOP debt. However, the Bank may prepay the principal of the note, partially or in full and without penalty or premium at any time and from time to time without prior notice to the holder. Any dividends declared on Company common stock held by the ESOP and not allocated to the account of a participant can be used to repay the loan. As the ESOP loan is repaid, shares of Company common stock pledged as collateral for the loan are released from the loan suspense account for allocation to Plan participants on the basis of each active participant’s proportional share of compensation.
Participants vest 100 % in their ESOP allocations after three years of service. In connection with the implementation of the ESOP, participants were given credit for past service with the Bank for vesting purposes. Participants will become fully vested upon age 65, death or disability, a change in control, or termination of the ESOP. Generally, participants will receive distributions from the ESOP upon separation from service. The plan reallocates any unvested shares of common stock forfeited upon termination of employment among the remaining participants in the plan.
26
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 8. Employee Stock Ownership Plan (Continued)
The ESOP compensation expense was $120,363 and $238,476 and for the three and six months ended June 30, 2021 and $107,493 and $220,064 for the three and six months ended June 30, 2020. This amount represents the average fair market value of the shares of Company common stock allocated or committed to be released as of that date. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional 236,992 shares not yet released having an aggregate market value of approximately $3,711,295 .
paid-in
capital. Dividends, if any, on allocated shares are recorded as a reduction of retained earnings and dividends, if any, on unallocated shares are recorded as a reduction of the debt service. At June 30, 2021, there were Note 9. Stock Based Compensation
On May 14, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (“2019 Plan”), which was approved at the Annual Meeting of Stockholders. The 2019 Plan allows for up to 169,280 shares to be issued to employees, executive officers or Directors in the form of restricted stock, and up to 423,200 shares to be issued to employees, executive officers or Directors in the form of stock options. At June 30, 2021, there were 169,280 restricted stock awards granted and 423,200 stock option awards granted under the 2019 Plan.
Restricted Stock
The specific terms of each restricted stock award are determined by the Compensation Committee at the date of the grant. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the date of the grant. Participants will vest in their share awards at a rate of 20 % per year over a five year period, beginning one year after the date of the plan share award. If service to the Company is terminated for any reason other than death, disability or change in control, the unvested share awards will be forfeited.
The 2019 Equity Incentive Plan Trust (“Trust”) has been established to acquire, hold, administer, invest and make distributions from the Trust in accordance with provisions of the Plan and Trust. The Company contributed sufficient funds to the Trust for the Trust to acquire 169,280 shares of common stock which is held in the Trust subject to the restricted stock award vesting requirements. The 2019 Plan provides that grants to each employee and
non-employee
director shall not exceed 25% and 5% of the shares available under the 2019 Plan, respectively. Shares awarded to non-employee
directors in the aggregate shall not exceed 30% of the shares available under the 2019 Plan.The following table presents a summary of the activity in the Company’s restricted stock for the six month period ended June 30, 2021:
| June 30, 2021 |
Shares |
Weighted Average Grant Date Fair Value |
||||||
| Nonvested at January 1, 2021 |
$ | |||||||
| Granted |
— | — | ||||||
| Vested |
||||||||
| Forfeited |
— | — | ||||||
| |
|
|
|
|||||
| Nonvested at June 30, 2021 |
$ | |||||||
| |
|
|
|
|||||
| Fair value of vested shares |
$ | |||||||
| |
|
|||||||
27
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 9. Stock Based Compensation (Continued)
The following table outlines the vesting schedule of the nonvested restricted stock awards as of June 30, 2021:
| Year Ending December 31, |
Number of Restricted Shares |
|||
| 2021 |
||||
| 2022 |
||||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| |
|
|||
| |
|
|||
The Company recorded compensation expense related to restricted stock awards of $112,726 and $223,786 during the three months and six months ended June 30, 2021 and $109,622 and $217,116 during the three and six months ended June 30, 2020. As of June 30, 2021, there was $1,313,809 of total unrecognized compensation expense related to nonvested shares granted under the 2019 Plan. The cost is expected to be recognized over a weighted average period of 3.0 years.
Stock Options
Under the above 2019 Plan, stock options are granted to provide the Company’s directors and key employees with a proprietary interest in the Company as an as incentive to contribute to its success. The Board of Directors of the Company may grant options to eligible employees and 20 % per year over a five-year period, beginning one year after the grant date of the option. Vested options will have an exercise period of ten years commencing on the date of grant. If service to the Company is terminated for any reason other than death, disability or change in control, the unvested options shall be forfeited. The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of the grant. The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical data. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of the options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury rate equal to the expected term of the option at the time of the grant.
non-employee
directors based on these factors. The 2019 Plan participants will vest in their options at a rate no more rapid than The following table summarizes the Company’s stock option activity and related information for the six month period ended June 30, 2021:
Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
||||||||||
| Outstanding at January 1, 2021 |
$ | |||||||||||
| Granted |
— | — | — | |||||||||
| Exercised |
— | — | — | |||||||||
| Forfeited |
— | — | — | |||||||||
| |
|
|
|
|
|
|||||||
| Outstanding at June 30, 2021 |
$ | |||||||||||
| |
|
|
|
|
|
|||||||
| Fair value of exercisable shares |
$ | |||||||||||
| |
|
|||||||||||
28
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 9. Stock Based Compensation (Continued)
The Company recorded compensation expense related to stock options of $69,925 and $139,082 during the three and six months ended June 30, 2021 and $65,139 and $126,492 during the three and six months ended June 30, 2020. As of June 30, 2021, there was $838,880 of total unrecognized compensation expense related to nonvested stock options granted under the 2019 Plan. The cost is expected to be recognized over a weighted average period of 3.1 years. The intrinsic value of a stock option is the amount that the market value of the underlying stock exceeds the exercise price of the option. Based upon a fair market value of $15.66 at June 30, 2021, the options outstanding had an intrinsic value of $1,038,782 .
Note 10. Common Stock
On August 18, 2020, upon completion of the previous repurchase plan which commenced on December 31, 2019, the Board of Directors authorized a plan to repurchase up to an additional $3,500,000 of the Company’s outstanding common stock. The repurchases will be made during a
one-year
period on the open market, in privately negotiated transactions, or in such other manner as will comply with applicable policy, laws and regulations. The following table sets forth information in connection with repurchases of the Company’s shares of common stock during the periods listed.
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Value of Shares Purchased as Part of Publicly Announced Plans |
Maximum Value of Shares That May Yet Be Purchased Under the Plan |
||||||||||||
| August 18 – 31, 2020 |
$ | $ | $ | |||||||||||||
| September 1 – 30, 2020 |
||||||||||||||||
| October 1 – 31, 2020 |
||||||||||||||||
| November 1 – 30, 2020 |
||||||||||||||||
| December 1 – 31, 2020 |
||||||||||||||||
| January 1 – 31, 2021 |
||||||||||||||||
| February 1 – 28, 2021 |
||||||||||||||||
| March 1 – 31, 2021 |
||||||||||||||||
| April 1 – 30, 2021 |
||||||||||||||||
On May 21, 2021, upon completion of the previous repurchase plan which commenced on August 18, 2020, the Board of Directors authorized a plan to repurchase up to an additional $2,500,000 of the Company’s outstanding common stock. The repurchases will be made until December 31, 2021 on the open market, in privately negotiated transactions, or in such a manner as will comply with applicable policy, laws and regulations. As of June 30, 2021 no shares have been repurchased under this plan.
Note 11. Earnings Per Common Share
Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Net income available to common stockholders is net income to the Company. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating earnings per share until they are committed to be released. Basic earnings per share excludes dilution and is computed by dividing net income by weighted average number of common shares outstanding during the period. Dilutive earnings per share reflects the potential dilution that could occur if stock options were exercised and is computed by dividing net income by the dilutive weighted average number of common shares outstanding during the period.
29
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 11. Earnings Per Common Share (Continued)
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, 2021 |
June 30, 2020 |
June 30, 2021 |
June 30, 2020 |
|||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding - basic |
||||||||||||||||
| Weighted average common shares outstanding - dilutive |
||||||||||||||||
| Earnings per common share, basic and diluted |
$ | $ | $ | $ | ||||||||||||
Note 12. Regulatory Capital Requirements
Information presented for June 30, 2021 and December 31, 2020, reflects the Basel III capital requirements that became effective January 1, 2015 for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain
off-balance-sheet
items as calculated under the regulatory accounting practices. The Bank’s capital amounts and classifications are subject to qualitative judgements by regulators about components, risk- weightings and other factors. Federal bank regulators require that the Bank maintain minimum ratios of core capital to adjusted average assets of 4.0 %, common equity Tier 1 capital to risk-weighted assets of 4.5 %, Tier 1 capital to risk-weighted assets of 6.0 % and total risk-based capital to risk-weighted assets of 8.0 %. At June 30, 2021, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. To be “well capitalized,” the Bank must maintain minimum leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios of at least 5.0 %, 6.5 %, 8.0 % and 10.0 %, respectively. There have been no conditions or events since June 30, 2021 that management believes have changed the Bank’s category.
The actual and required capital amounts and ratios of the Bank as of June 30, 2021 and December 31, 2020 were as follows (dollars in thousands):
Actual |
Capital Adequacy Purposes |
To Be Well Capitalized Under the Prompt Corrective Action Provision |
||||||||||||||||||||||
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
|||||||||||||||||||
(dollars in thousands) |
||||||||||||||||||||||||
| As of June 30, 2021: |
||||||||||||||||||||||||
| Common equity tier 1 capital (to risk-weighted assets) |
$ | % | $ | ³ |
% | $ | ³ |
% | ||||||||||||||||
| Total risk-based capital (to risk-weighted assets) |
% | ³ |
% | ³ |
% | |||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) |
% | ³ |
% | ³ |
% | |||||||||||||||||||
| Tier 1 capital (to average assets) |
% | ³ |
% | ³ |
% | |||||||||||||||||||
| As of December 31, 2020: |
||||||||||||||||||||||||
| Common equity tier 1 capital (to risk-weighted assets) |
$ | % | $ | ³ |
% | $ | ³ |
% | ||||||||||||||||
| Total risk-based capital (to risk-weighted assets) |
% | ³ |
% | ³ |
% | |||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) |
% | ³ |
% | ³ |
% | |||||||||||||||||||
| Tier 1 capital (to average assets) |
% | ³ |
% | ³ |
% | |||||||||||||||||||
30
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 13. Fair Value Measurements
ASC Topic 820 provides a framework for measuring and disclosing fair value under GAAP. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, investment securities) or a nonrecurring basis (for example, impaired loans). ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 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.
available-for-sale
The Bank utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities is recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record at fair value all other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
available-for-sale
ASC Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
Level
1
Level
2
Level
3
The following is a description of the valuation methods used for instruments measured at fair value as the general classification of such instruments pursuant to the applicable valuation method.
Fair value measurements on a recurring basis
Securities available for sale
As of June 30, 2021 and December 31, 2020 the Bank has categorized its investment securities available for sale as follows:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| June 30, 2021 |
||||||||||||||||
| Securities available for sale: U.S. Government Agency and Federal Obligations |
$ | — | $ | $ | — | $ | ||||||||||
| Residential mortgage-backed securities |
— | |||||||||||||||
| December 31, 2020 |
||||||||||||||||
| Securities available for sale: U.S. Government Agency and Federal Obligations |
$ | — | $ | $ | — | $ | ||||||||||
| Residential mortgage-backed securities |
— | |||||||||||||||
31
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 13. Fair Value Measurements (Continued)
Fair value measurements on a nonrecurring basis
Impaired loans
Foreclosed real estate
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| June 30, 2021 |
||||||||||||||||
| Impaired loans |
$ | — | $ | — | $ | $ | ||||||||||
| December 31, 2020 |
||||||||||||||||
| Impaired loans |
$ | — | $ | — | $ | $ | ||||||||||
| Foreclosed real estate |
— | — | ||||||||||||||
The following table presents quantitative information about Level 3 fair value measurements for selected financial instruments measured at fair value on a
non-recurring
basis at June 30, 2021 and December 31, 2020: Fair Value |
Value Technique(s) |
Unobservable Inputs |
Range or Rate Used |
|||||||||||
| June 30, 2021 |
||||||||||||||
| Impaired loans |
$ | Appraised value | Discount to reflect current market conditions |
% | ||||||||||
| Discounted cash flows | Discount rates |
% | ||||||||||||
| December 31, 2020 |
||||||||||||||
| Impaired loans |
$ | Appraised value | Discount to reflect current market conditions |
% | ||||||||||
| Discounted cash flows | Discount rates |
% | ||||||||||||
| Foreclosed real estate |
$ | Appraised value | Discount to reflect current market conditions |
% | ||||||||||
The remaining financial assets and liabilities are not reported on the balance sheet at fair value on a recurring basis. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.
32
CBM Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 13. Fair Value Measurements (Continued)
The estimated fair values of the Bank’s financial instruments, whether carried at cost or fair value are as follows:
Fair Value Measurements at June 30, 2021 Using |
||||||||||||||||||||
Carrying Value |
Quoted Prices in Active Market for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value |
||||||||||||||||
(dollars in thousands) |
||||||||||||||||||||
| Financial assets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | $ | $ | — | $ | — | ||||||||||||||
| Time deposits in other banks |
— | — | ||||||||||||||||||
| Securities available for sale |
— | — | ||||||||||||||||||
| Federal Home Loan Bank stock |
— | — | ||||||||||||||||||
| Loans held for sale |
— | — | ||||||||||||||||||
| Loans, net (1) |
— | — | ||||||||||||||||||
| Accrued interest receivable |
— | — | ||||||||||||||||||
| Financial liabilities: |
||||||||||||||||||||
| Deposits |
— | — | ||||||||||||||||||
| Borrowings |
— | — | ||||||||||||||||||
Fair Value Measurements at December 31, 2020 Using |
||||||||||||||||||||
Carrying Value |
Quoted Prices in Active Market for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value |
||||||||||||||||
(dollars in thousands) |
||||||||||||||||||||
| Financial assets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | $ | $ | — | $ | — | $ | |||||||||||||
| Time deposits in other banks |
— | — | ||||||||||||||||||
| Securities available for sale |
— | — | ||||||||||||||||||
| Federal Home Loan Bank stock |
— | — | ||||||||||||||||||
| Loans held for sale |
— | — | ||||||||||||||||||
| Loans, net (1) |
— | — | ||||||||||||||||||
| Accrued interest receivable |
— | — | ||||||||||||||||||
| Financial liabilities: |
||||||||||||||||||||
| Deposits |
— | — | ||||||||||||||||||
| Borrowings |
||||||||||||||||||||
| (1) | Carrying amount is net of unearned income and the allowance for loan losses. |
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Management’s discussion and analysis of financial condition at June 30, 2021 and December 31, 2020 and results of operations for the three and six months ended June 30, 2021 and 2020 is intended to assist in understanding the financial condition and results of operations of the Bank. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item1, of this quarterly report on Form
10-Q.
Statement Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward- looking statements can be identified by use of such words as “may,” “will,” “anticipate,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors and other conditions, which by their nature are not susceptible to accurate forecast and are subject to significant uncertainty. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company’s Prospectus dated August 7, 2018 (filed with the Securities and Exchange Commission on August 15, 2018), and in other periodic and current reports filed by the Company with the Securities and Exchange Commission. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward looking statements.
General
Chesapeake Bank of Maryland
Our business operations are conducted through Chesapeake Bank of Maryland, a federally chartered stock savings association headquartered in Baltimore County, Maryland. Prior to 1998 and the creation of a mutual holding company structure, Chesapeake Bank of Maryland or its predecessors had operated as thrift institutions since 1913. Chesapeake Bank of Maryland conducts business out of its main office located in Baltimore County, Maryland, and out of three branch offices located in Arbutus, Maryland, Bel Air, Maryland, and Pasadena, Maryland.
Chesapeake Bank of Maryland operates as a community-oriented institution by offering a variety of loan and deposit products and serving other financial needs of its local community. Chesapeake Bank of Maryland takes its corporate citizenship seriously and is committed to meeting the credit needs of the community, consistent with safe and sound operations.
Chesapeake Bank of Maryland’s business consists principally of attracting retail deposits from the general public in our market area and using those funds, together with funds generated from operations and borrowings, to originate loans secured by residential and nonresidential real estate. Nonresidential real estate loans, construction and land development loans and commercial loans constitute a significant percentage of the loan portfolio and, in that respect, Chesapeake Bank of Maryland’s lending operations are more diversified and have more risk than many traditional thrift institutions.
Chesapeake Bank of Maryland’s primary market area is the Baltimore Metropolitan Area and its surrounding counties. The economy of Chesapeake Bank of Maryland’s market area is diversified, with a mix of services, manufacturing, wholesale/retail trade and federal and local government. See “Business of Chesapeake Bank of Maryland - Market Area.”
Chesapeake Bank of Maryland is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency. Chesapeake Bank of Maryland is subject to Maryland banking laws except to the extent they are preempted by Federal law. Chesapeake Bank of Maryland is not regulated by the Maryland Commissioner of Financial Regulation.
34
CBM Bancorp, Inc.
CBM Bancorp, Inc. a Maryland corporation is the savings and loan holding company for Chesapeake Bank of Maryland.
Our executive offices are located at 2001 East Joppa Road, Baltimore, Maryland 21234, and our telephone number is (410)
665-7600.
Our website address is www.chesapeakebank.com
. Information on this website is not and should not be considered a part of this prospectus. Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following represents our critical accounting policies:
Allowance for Loan Losses.
The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on Chesapeake Bank of Maryland’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan category that are not considered impaired. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative risk factors.
Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of the Comptroller of the Currency, as an integral part of their examination process, periodically reviews our allowance for loan losses. This agency may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
35
Deferred Tax Assets.
In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies, these assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.
Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. Valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized. In evaluating the need for a valuation allowance, we must estimate our taxable income in future years and the impact of tax planning strategies. If we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.
The ongoing
COVID-19
pandemic and measures intended to prevent its spread and mitigate its adverse effects may have a material adverse effect on our business, results of operations, financial condition and prospects. Any such effect will depend on future developments which are uncertain and difficult to predict. The
COVID-19
pandemic has created, and may continue to create, significant disruptions of the United States and global economies and financial markets. Governments, businesses, and the public have taken and will continue to take actions to contain the spread of COVID-19
and mitigate its effects, including quarantines, travel bans, “stay at home” orders, physical distancing, cancellation of events and travel, closures of businesses and schools, unprecedented levels of fiscal stimulus, and legislation intended to provide monetary aid and other relief. The scope, duration, and ultimate adverse effect of COVID-19
continue to evolve and cannot be known at this time. COVID-19
and related efforts to contain it have disrupted economic activity and the functioning of financial markets, impacted interest rates, and created financial uncertainty. The United States government has attempted to mitigate some of the most severe anticipated economic effects of the virus. Enactment of the CARES Act, the distribution of vaccinations and monetary assistance in various forms are intended to help contain spread of the virus and its economic impact. However, there can be no assurance that these actions will be effective, and the lasting impacts cannot be calculated.
To date, our Bank has avoided many of the adverse financial effects of the virus. Nevertheless, the outbreak has adversely impacted, and may further adversely impact, our workforce and operations, and the operations of our borrowers and other customers. We may experience losses due to these adverse factors negatively impacting our business and/or causing our customers to be unable to meet obligations to us. In addition, the business and operations of third-party service providers who provide critical services for us could be adversely impacted. We may further adjust our business practices if required by government authorities or we determine are in the best interests of our employees and customers. There is no certainty that such measures will be sufficient to mitigate risks to us posed by the virus or will otherwise be satisfactory to government authorities.
COVID-19
has caused us to reconsider and modify certain of our business practices, including adoption of work from home and social distancing policies and procedures for our employees and customers. Because the technology in employees’ homes may be more limited or less reliable than in our offices, the Bank’s work from home measures introduce additional operational risk, including increased cybersecurity risk. 36
In response to the
COVID-19
pandemic, we provided payment relief to qualified commercial and mortgage/consumer loans customers. As of June 30, 2021, the majority of the loans granted modifications/deferrals had returned to their original payment plans without a significant impact on payment delinquencies. For additional information, see Note 4 of Notes to Consolidated Financial Statements. The extent to which
COVID-19
impacts our business, results of operations, financial condition and prospectus will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, the effectiveness of vaccination programs for the virus, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19
outbreak has subsided, we may continue to experience adverse impacts as a result of COVID-19’s
economic impact. Comparison of Financial Condition at June 30, 2021 and December 31, 2020
Total Assets
Cash and Cash Equivalents.
Time Deposits in Other Banks.
Investment Securities.
Loans Held for Sale.
Net Loans.
One-to
four-family residential real estate loans and nonresidential loans remained relatively unchanged at June 30, 2021 compared to December 31, 2020. Deposits.
non-interest-bearing
demand deposits increased $4.2 million, or 12.84%, to $36.9 million at June 30, 2021 from $32.7 million at December 31, 2020. Our interest-bearing demand deposits increased $2.2 million, or 8.73%, to $27.4 million at June 30, 2021 from $25.2 million at December 31, 2020. Our money market deposit accounts increased $826,000, or 7.72%, to $11.5 million at June 30, 2021 from $10.7 million at December 31, 2020. Our savings accounts increased $11.5 million, or 41.97%, to $38.9 million at June 30, 2021 from $27.4 million at December 31, 2020. Our certificates of deposit decreased $630,000, or 0.80%, to $78.2 million at June 30, 2021 from $78.8 million at December 31, 2020. Total Stockholders’ Equity.
37
paid in capital for the recording of stock-based compensation relating to the ESOP and the 2019 Plan were offset by a decrease of $205,000 in other comprehensive income related to interest fluctuations on the Company’s available for sale securities, a cash dividend in the amount of $1.7 million paid to stockholders and the repurchase of $2.3 million in common stock, which was part of the stock repurchase plan that was approved by the Board of Directors on August 18, 2020.
Average Balance Sheets
The following table set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. No tax equivalent yield adjustments have been made, as the effects would immaterial. All average balances are daily average balances.
Non-accrual
loans were included in the computation of average balances of loans. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Loan balances exclude loans held for sale. For the Three Months Ended June 30, |
||||||||||||||||||||||||
2021 |
2020 |
|||||||||||||||||||||||
Average Outstanding Balance |
Interest |
Average Yield/ Rate |
Average Outstanding Balance |
Interest |
Average Yield/ Rate |
|||||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||||
| Interest earning assets: |
||||||||||||||||||||||||
| Loans |
$ | 150,217 | $ | 1,844 | 4.92 | % | $ | 168,647 | $ | 1,980 | 4.71 | % | ||||||||||||
| Interest-bearing deposits in other banks |
55,924 | 14 | 0.10 | % | 21,067 | 5 | 0.10 | % | ||||||||||||||||
| Time deposits in other banks |
7,255 | 47 | 2.60 | % | 7,287 | 53 | 2.92 | % | ||||||||||||||||
| Investment securities |
19,558 | 108 | 2.21 | % | 23,941 | 190 | 3.18 | % | ||||||||||||||||
| Federal Home Loan Bank stock |
330 | 3 | 3.65 | % | 681 | 7 | 4.12 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-earning assets |
233,284 | 2,016 | 3.50 | % | 221,623 | 2,235 | 4.09 | % | ||||||||||||||||
| Non-interest-earning assets |
12,536 | 12,260 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 245,820 | $ | 233,883 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Interest bearing liabilities: |
||||||||||||||||||||||||
| Interest-bearing demand |
$ | 27,398 | $ | 9 | 0.13 | % | $ | 24,155 | $ | 8 | 0.13 | % | ||||||||||||
| Money market |
11,256 | 6 | 0.21 | % | 10,004 | 5 | 0.20 | % | ||||||||||||||||
| Savings |
35,631 | 4 | 0.05 | % | 25,944 | 3 | 0.05 | % | ||||||||||||||||
| Certificates of deposit |
78,459 | 276 | 1.41 | % | 78,549 | 339 | 1.73 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total deposits |
152,744 | 295 | 0.77 | % | 138,652 | 355 | 1.03 | % | ||||||||||||||||
| Borrowed funds |
5,000 | 12 | 0.96 | % | 11,346 | 20 | 0.71 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing liabilities |
157,744 | 307 | 0.78 | % | 149,998 | 375 | 1.00 | % | ||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Non-interest-bearing liabilities |
37,948 | 29,844 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities |
195,692 | 179,842 | ||||||||||||||||||||||
| Equity |
50,128 | 54,041 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities and equity |
$ | 245,820 | $ | 233,883 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Net interest income |
$ | 1,709 | $ | 1,860 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Interest rate spread (1) |
2.72 | % | 3.09 | % | ||||||||||||||||||||
| Net interest-earning assets (2) |
$ | 75,540 | $ | 71,625 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Net interest margin (3) |
2.94 | % | 3.37 | % | ||||||||||||||||||||
| Average interest-earning assets to average-interest bearing liabilities |
147.89 | % | 147,75 | % | ||||||||||||||||||||
| 1) | Interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities. |
| (2) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
| (3) | Net interest margin represents net interest income divided by average interest-earning assets. |
38
For the Six Months Ended June 30, |
||||||||||||||||||||||||
2021 |
2020 |
|||||||||||||||||||||||
Average Outstanding Balance |
Interest |
Average Yield/ Rate |
Average Outstanding Balance |
Interest |
Average Yield/ Rate |
|||||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||||
| Interest earning assets: |
||||||||||||||||||||||||
| Loans |
$ | 149,600 | $ | 3,630 | 4.89 | % | $ | 165,657 | $ | 3,945 | 4.80 | % | ||||||||||||
| Interest-bearing deposits in other banks |
53,731 | 27 | 0.10 | % | 13,925 | 20 | 0.29 | % | ||||||||||||||||
| Time deposits in other banks |
7,040 | 94 | 2.69 | % | 7,606 | 109 | 2.89 | % | ||||||||||||||||
| Investment securities |
18,079 | 218 | 2.43 | % | 29,176 | 434 | 3.00 | % | ||||||||||||||||
| Federal Home Loan Bank stock |
364 | 7 | 3.88 | % | 552 | 11 | 4.02 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-earning assets |
228,814 | 3,976 | 3.50 | % | 216,916 | 4,519 | 4.20 | % | ||||||||||||||||
| Non-interest-earning assets |
12,791 | 11,269 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 241,605 | $ | 228,185 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Interest bearing liabilities: |
||||||||||||||||||||||||
| Interest-bearing demand |
$ | 26,576 | $ | 18 | 0.14 | % | $ | 23,722 | $ | 25 | 0.21 | % | ||||||||||||
| Money market |
10,965 | 12 | 0.22 | % | 9,988 | 10 | 0.20 | % | ||||||||||||||||
| Savings |
32,454 | 8 | 0.05 | % | 25,242 | 6 | 0.05 | % | ||||||||||||||||
| Certificates of deposit |
79,039 | 570 | 1.45 | % | 79,257 | 683 | 1.74 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total deposits |
149,034 | 608 | 0.82 | % | 138,209 | 724 | 1.06 | % | ||||||||||||||||
| Borrowed funds |
5,000 | 24 | 0.97 | % | 8,349 | 36 | 0.87 | % | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing liabilities |
154,034 | 632 | 0.83 | % | 146,558 | 760 | 1.05 | % | ||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Non-interest-bearing liabilities |
36,561 | 25,530 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities |
190,595 | 172,088 | ||||||||||||||||||||||
| Equity |
51,010 | 56,097 | ||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Total liabilities and equity |
$ | 241,605 | $ | 228,185 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Net interest income |
$ | 3,344 | $ | 3,759 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Interest rate spread (1) |
2.68 | % | 3.16 | % | ||||||||||||||||||||
| Net interest-earning assets (2) |
$ | 74,780 | $ | 70,358 | ||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||
| Net interest margin (3) |
2.95 | % | 3.49 | % | ||||||||||||||||||||
| Average interest-earning assets to average-interest bearing liabilities |
148.55 | % | 148.01 | % | ||||||||||||||||||||
| (1) | Interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities. |
| (2) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
| (3) | Net interest margin represents net interest income divided by average interest-earning assets. |
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Comparison of Operating Results for the Three Months Ended June 30, 2021 and June 30, 2020
General.
non-interest
expense of $164,000, or 8.63%, to $2.0 million for three months ended June 30, 2021 from $1.9 million for the three months ended June 30, 2020 offset by a decrease in provision for loan losses of $250,000 to a $100,000 reversal of provision for loan losses for the three months ended June 30, 2021 from a provision for loan losses of $150,000 for the three months ended June 30, 2020, as discussed in more detail below. Interest Income
Interest and fees on loans decreased $136,000, or 6.80%, to $1.8 million for the three months ended June 30, 2021 from $2.0 million for the three months ended June 30, 2020. The decrease was due to a decrease in the average balance of our loans offset by an increase in the average yield on our loans. Our average balance of loans decreased $18.4 million, or 10.91%, to $150.2 million for the three months ended June 30, 2021 from $168.6 million for the three months ended June 30, 2020. Our average yield on loans increased 21 basis points to 4.92% for the three months ended June 30, 2021 from 4.71% for the three months ended June 30, 2020 due to the amortization of PPP deferred loan fees during the three months ended June 30, 2021. For the three months ended June 30, 2021, we had recorded income relating to the amortization of PPP deferred loan fees of approximately $151,000.
Interest and dividends on interest-bearing deposits in other banks, time deposits in other banks, and investments decreased $83,000, or 32.55%, to $172,000 for the three months ended June 30, 2021 from $255,000 for the three months ended June 30, 2020. The average balances on interest-bearing deposits in other banks, time deposits in other banks and investments increased $30.1 million to $83.1 million for the three months ended June 30, 2021 from $53.0 million for the three months ended June 30, 2020 and this increase in the average balances was driven primarily by an increase in our average interest-bearing deposits in other banks. The average rate we earned on interest-bearing deposits in other banks, time deposits in other banks and investments decreased by 111 basis points to 0.84% for the three months ended June 30, 2021 from 1.95% for the three months ended June 30, 2020 primarily due to the overall increase in our average interest-bearing deposits in other banks as of June 30, 2021, which is our lowest yielding interest-earning asset.
Interest Expense.
Net Interest Income
Provisions for Loan Losses
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grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and
non-accrual
loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. The allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance. Provision for loan losses decreased $250,000 to a reversal of provision for loan losses of $100,000 for the three months ended June 30, 2021 from a provision for loan losses for the three months ended June 30, 2020 of $150,000. The decrease in provision for loan losses to a was due to a decrease in the qualitative factors across the entire loan portfolio during the three months ended June 30, 2021. During the three months ended June 30, 2020, we had increased the qualitative factors, including current economic conditions, adequacy of underlying collateral and the financial strength of our borrowers, due to the uncertainty that existed related to the
COVID-19
pandemic. The impact of those qualitative factors was cautiously evaluated given the ongoing impacts of the COVID-19
pandemic on economic activity and a reduction in those qualitative factors reflects improvements in those economic conditions. We did not record any charge-offs for three months ended June 30, 2021 or for the three months ended June 30, 2020. Non-performing
loans totaled $253,000 at June 30, 2021 compared to $494,000 at June 30, 2020. The decrease of $241,000 in non-performing
loans was primarily the result of a decrease in one-to
four-family residential loans. Our non-performing
loans to total loans decreased to 0.10% at June 30, 2021 from 0.30% at June 30, 2020. We have provided for losses that are probable and reasonably estimable at June 30, 2021. Non-Interest
Income.Non-interest
income increased by $31,000, or 9.09%, to $372,000 for the three months ended June 30, 2021 from $341,000 for the three months ended June 30, 2020. The increase was primarily due to an increase of $112,000 in gain on sale of loans to $284,000 for the three months ended June 30, 2021 from $172,000 for the three months ended June 30, 2020 offset by the gain on sale of investments of $97,000 that occurred during the three months ended June 30, 2020. Non-Interest
Expense.Non-interest
expense increased by $164,000, or 8.63%, to $2.0 million for the three months ended June 30, 2021 from $1.9 million for the three months ended June 30, 2020. Professional fees increased $37,000, or 28.03%, to $169,000 for the three months ended June 30, 2021 from $132,000 for the three months ended June 30, 2020 primarily due to higher levels of consulting expenses during the three months ended June 30, 2021 relating to the Company’s public company status. FDIC premiums and regulatory expenses increased $12,000, or 70.59%, to $29,000 for the three months ended June 30, 2021 from $17,000 for the three months ended June 30, 2020 due to the FDIC awarding small banks credits for a portion of their assessment during the second quarter of 2020. Marketing expenses increased $19,000 to $31,000 for the three months ended June 30, 2021 compared to $12,000 for the three months ended June 30, 2020 due to an increase in marketing outlays during the second quarter of 2021 compared to 2020. Provision for losses and costs on foreclosed real estate increased by $104,000 to $179,000 for the three months ended June 30, 2021 from $75,000 for the three months ended June 30, 2020 due to the sale of foreclosed real estate during the three months ended June 30, 2021 resulting in a loss of $173,000 compared to a writedown in the valuation of foreclosed real estate of $70,000 during the three months ended June 30, 2020. Other operating expenses increased by $15,000, or 8.98%, to $182,000 for the three months ended June 30, 2021 from $167,000 for the three months ended June 30, 2020 primarily due to an increase in ATM expenses and an increase in software maintenance costs. Income Tax Expense.
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Comparison of Operating Results for the Six Months Ended June 30, 2021 and June 30, 2020
General.
non-interest
expense offset by a decrease in provision for loan losses and an increase in non-interest
income. Net interest income decreased by $417,000, or 10.97%, to $3.3 million for the six months ended June 30, 2021 compared to $3.8 million for the six months ended June 30, 2020. Non-interest
expense increased by $273,000, or 7.58%, to $3.8 million for the six months ended June 30, 2021 compared to $3.6 million for the six months ended June 30, 2020. The provision for loan losses decreased $425,000 to a $100,000 reversal of provision for loan losses for the six months ended June 30, 2021 from a provision for loan losses of $325,000 for the six months ended June 30, 2020. Non-interest
income increased $165,000, or 28.16%, to $751,000 for the six months ended June 30, 2021 compared to $586,000 for the six months ended June 30, 2020, as discussed in more detail below. Interest Income
Interest and fees on loans decreased $316,000, or 8.10%, to $3.6 million for the six months ended June 30, 2021 from $3.9 million for the six months ended June 30, 2020. The decrease was primarily due to a decrease in the average balance of our loans offset by an increase in the average yield on our loans. Our average balance of loans decreased $16.1 million, or 9.72%, to $149.6 million for the six months ended June 30, 2021 from $165.7 million for the six months ended June 30, 2020. Our average yield on loans increased 9 basis points to 4.89% for the six months ended June 30, 2021 from 4.80% for the six months ended June 30, 2020, due to the amortization of PPP deferred loan fees during the six months ended June 30, 2021. For the six months ended June 30, 2021, we had recorded income relating to the amortization of PPP deferred loan fees of approximately $233,000.
Interest and dividends on interest-bearing deposits in other banks, time deposits in other banks, and investments decreased $229,000, or 39.90%, to $345,000 for the six months ended June 30, 2021 from $574,000 for the six months ended June 30, 2020. The average balances on interest-bearing deposits in other banks, time deposits in other banks and investments increased $27.9 million, or 54.39%, to $79.2 million for the six months ended June 30, 2021 from $51.3 million for the six months ended June 30, 2020 and this increase in the average balances was driven primarily by a decrease in our average balances of loans offset by an increase in our average deposits. The average rate we earned on interest-bearing deposits in other banks, time deposits in other banks and investments decreased 138 basis points to 0.88% for the six months ended June 30, 2021 from 2.26% for the six months ended June 30, 2020 primarily due to our interest-bearing deposits in other banks repricing due to federal funds rate decreases that occurred during the six months ended June 30, 2020, the overall increase in our average interest-bearing deposits in other banks as of June 30, 2021 which is our lowest yielding interest-earning asset, as well as decreases in the average yield on our investment portfolio after the sales and calls of higher yielding investment securities during the six months ended June 30, 2020.
Interest Expense.
Net Interest Income
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Provisions for Loan Losses
COVID-19
pandemic. The impact of those qualitative factors was cautiously evaluated given the ongoing impacts of the COVID-19
pandemic on economic activity and a reduction in those qualitative factors reflects improvements in those economic conditions. We did not record any charge-offs for six months ended June 30, 2021 and recorded $3,000 in net charge-offs for the six months ended June 30, 2020. Non-performing
loans totaled $253,000 at June 30, 2021 compared to $494,000 at June 30, 2020. The decrease of $241,000 in non-performing
loans was primarily the result of a decrease in one-to
four-family residential loans. Our non-performing
loans to total loans decreased to 0.10% at June 30, 2021 from 0.30% at June 30, 2020. We have provided for losses that are probable and reasonably estimable at June 30, 2021. Non-Interest
Income.Non-interest
income increased by $165,000, or 28.16%, to $751,000 for the six months ended June 30, 2021 from $586,000 for the six months ended June 30, 2020. The increase was primarily due to an increase of $300,000 in gain on sale of loans to $587,000 for the six months ended June 30, 2021 from $287,000 for the six months ended June 30, 2020 offset by the gain on sale of investments of $143,000 recorded for the six months ended June 30, 2020. Non-Interest
Expense.Non-interest
expense increased by $273,000, or 7.58%, to $3.8 million for the six months ended June 30, 2021 from $3.6 million for the six months ended June 30, 2020. FDIC premiums and regulatory expenses increased $25,000, or 75.76%, to $58,000 for the six months ended June 30, 2021 from $33,000 for the six months ended June 30, 2020 due to the FDIC awarding small banks credits for a portion of their assessment during the first and second quarters of 2020. Marketing expenses increased $26,000, or 89.66%, to $55,000 for the six months ended June 30, 2021 compared to $29,000 for the six months ended June 30, 2020 due to increases in marketing outlays during the first and second quarters of 2021. Provision for losses and costs on foreclosed real estate increased by $104,000 to $182,000 for the six months ended June 30, 2021 from $78,000 for the six months ended June 30, 2020 due to the sale of foreclosed real estate resulting in a loss of $173,000 during the six months ended June 30, 2021 compared to a writedown in the valuation of the foreclosed real estate of $70,000 during the six months ended June 30, 2020. Other operating expenses increased by $25,000, or 7.25%, to $370,000 for the six months ended June 30, 2021 from $345,000 for the six months ended June 30, 2020 primarily due to an increase in ATM expenses and an increase in software maintenance costs. Income Tax Expense.
non-deductible
compensation expense relating to the 2019 Equity Incentive Plan relative to the income before income taxes during the six months ended June 30, 2021 compared to the income before income taxes during the six months ended June 30, 2020. Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. Our primary sources of funds are deposits and, principal and interest payments on loans and securities. We also have the ability to borrow funds from the Federal Home Loan Bank of Atlanta, and we have credit availability with a correspondent bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
We monitor and adjust our investments in liquid assets based upon our assessments of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset liability management program. Excess liquid assets are invested generally in interest-earning deposits and short and intermediate securities.
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Our most liquid assets are cash and cash equivalents, which include interest-bearing deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2021, cash and cash equivalents totaled $59.8 million, which included $916,000 in cash and due from banks and interest-bearing deposits in other banks of $58.9 million. Time deposits in other banks and securities classified as which provide additional sources of liquidity, totaled $6.9 million and $22.5 million, respectively at June 30, 2021.
available-for-sale,
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was $ 2.9 million and $(20,000) for the six months ended June 30, 2021 and 2020, respectively. Net cash (used in) provided by investing activities, which consists primarily of disbursements for loan originations and the purchases of securities, offset by principal collections on loans, proceeds from sales and maturing securities and
pay-downs
on mortgage-backed securities was $(5.5) million and $8.8 million for the six months ended June 30, 2021 and 2020, respectively. Net cash provided by financing activities, consisting of activities in deposit accounts and borrowings, as well as the repurchase of common stock and payment of dividends was $14.8 million and $13.8 million for the six months ended June 30, 2021 and 2020, respectively. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of June 30, 2021 totaled $36.9 million, or 19.13% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
We are subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and
off-balance
sheet items to broad risk categories. At June 30, 2021, Chesapeake Bank of Maryland exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. See “Historical and Pro Forma Regulatory Capital Compliance.” Off-Balance
Sheet Arrangements As a financial services provider, we routinely are a party to various financial instruments with
off-balance-sheet
risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At June 30, 2021, we had outstanding commitments to originate loans of $28.0 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information relating to this item.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e)
and 15d-15(e)
under the Exchange Act) as of the end of the period covered by the quarterly report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
44
Part II – OTHER INFORMATION
Item 1 – Legal Proceedings
The Company was not involved in any pending legal proceedings. The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. The Company’s management believes that such routine legal proceedings, in the aggregate, are immaterial to the Company’s consolidated financial condition and results of operations.
Item 1A – Risk Factors
Not applicable as CBM Bancorp, Inc. is a smaller reporting company.
Item 2 – Unregistered Sales of Equity Securities and Use or Proceeds
For information regarding stock repurchases during the quarter and six months ended June 30, 2021, see Note 10 of Notes to Consolidated Financial Statements which is incorporated by reference.
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not applicable
Item 5 – Other Information
None
Item 6 – Exhibits
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of principal executive officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of principal financial officer | |
| 32.0 | Section 1350 Certifications | |
| 101.0 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CBM BANCORP, INC. | ||||||
| Dated: August 13, 2021 | By: | /s/ Joseph M. Solomon | ||||
| Joseph M. Solomon | ||||||
| President | ||||||
| (principal executive officer) | ||||||
| Dated: August 13, 2021 | By: | /s/ Jodi L. Beal | ||||
| Jodi L. Beal | ||||||
| Executive Vice President and Chief Financial Officer | ||||||
| (principal financial and accounting officer) | ||||||
46