What changed in this filing

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Item 1. Financial Statements

2021-04-30 compared with 2020-10-30 · 970 added, 457 removed, 342 unchanged (81% of the section changed)

FINANCIAL STATEMENTS

AUBURN NATIONAL BANCORPORATION, INC.

AUBURN NATIONAL

BANCORPORATION,

AND SUBSIDIARIES

Consolidated Balance Sheets

September 30,

(Dollars in thousands, except share data)

12 unchanged sentences

Total deposits

Federal funds purchased and securities sold under agreements to repurchase

Federal funds purchased and securities sold under agreements

to repurchase

Accrued expenses and other liabilities

1 unchanged sentence

Stockholders' equity:

Preferred stock of $ .01 par value;

authorized 200,000 shares;

Preferred stock of $

no shares issued

Common stock of $ .01 par value;

authorized 8,500,000 shares;

issued 3,957,135 shares

Common stock of $

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive income, net

Less treasury stock, at cost - 390,859 shares and 390,989 at September 30, 2020

Less treasury stock, at cost -

at March 31, 2021

and December 31, 2020, respectively

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total liabilities and

stockholders’ equity

See accompanying notes to consolidated financial statements

AUBURN NATIONAL BANCORPORATION, INC.

AUBURN NATIONAL

BANCORPORATION,

AND SUBSIDIARIES

Consolidated Statements of Earnings

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands, except share and per share data)

8 unchanged sentences

Provision for loan losses

Net interest income after provision for loan losses

Net interest income after provision for

Noninterest income:

13 unchanged sentences

Basic and diluted

Weighted average shares outstanding:

Weighted average shares

Basic and diluted

See accompanying notes to consolidated financial statements

AUBURN NATIONAL BANCORPORATION, INC.

AUBURN NATIONAL

BANCORPORATION,

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Unrealized net holding (loss) gain on securities

2 unchanged sentences

Other comprehensive (loss) income

Comprehensive income

Comprehensive (loss) income

See accompanying notes to consolidated financial statements

AUBURN NATIONAL BANCORPORATION, INC.

AUBURN NATIONAL

BANCORPORATION,

AND SUBSIDIARIES

2 unchanged sentences

(Dollars in thousands, except share data)

income (loss)

Quarter ended September 30, 2020

Balance, June 30, 2020

Other comprehensive loss

Cash dividends paid ($ .255 per share)

Sale of treasury stock

Balance, September 30, 2020

Quarter ended September 30, 2019

Balance, June 30, 2019

Other comprehensive income

Cash dividends paid ($ .25 per share)

Stock repurchases

Sale of treasury stock

Balance, September 30, 2019

Nine months ended September 30, 2020

Quarter ended March 31, 2021

Balance, December 31, 2020

Other comprehensive income

Cash dividends paid ($ .765 per share)

Other comprehensive loss

Cash dividends paid ($

Sale of treasury stock

Balance, September 30, 2020

Nine months ended September 30, 2019

Balance, March 31, 2021

Quarter ended March 31, 2020

Balance, December 31, 2019

Other comprehensive income

Cash dividends paid ($ .75 per share)

Stock repurchases

Sale of treasury stock

Balance, September 30, 2019

Cash dividends paid ($

Balance, March 31, 2020

See accompanying notes to consolidated financial statements

AUBURN NATIONAL BANCORPORATION, INC.

AUBURN NATIONAL

BANCORPORATION,

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Cash flows from operating activities:

Adjustments to reconcile net earnings to net cash provided by

Adjustments to reconcile net earnings to net cash provided

operating activities:

4 unchanged sentences

Net gain on sale of loans held for sale

Net gain on other real estate owned

Loans originated for sale

2 unchanged sentences

Income recognized from death benefit on bank-owned life insurance

Net increase in other assets

Net (decrease) increase in accrued expenses and other liabilities

Net decrease (increase) in other assets

Net increase (decrease) in accrued expenses and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from sales of securities available-for-sale

Proceeds from prepayments and maturities of securities available-for-sale

Proceeds from prepayments and maturities of securities available

Purchase of securities available-for-sale

2 unchanged sentences

Proceeds from bank-owned life insurance death benefit

(Increase) decrease in FHLB stock

Proceeds from sale of other real estate owned

Net cash (used in) provided by investing activities

Decrease (increase) in FHLB stock

Net cash used in investing activities

Cash flows from financing activities:

Net increase in noninterest-bearing deposits

Net increase (decrease) in interest-bearing deposits

Net increase (decrease) in federal funds purchased and securities sold

Net increase in interest-bearing deposits

Net increase in federal funds purchased and securities sold

under agreements to repurchase

Proceeds from sale of treasury stock

Stock repurchases

Dividends paid

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net change in cash and cash equivalents

4 unchanged sentences

Supplemental disclosure of non-cash transactions:

Initial recognition of operating lease right of use assets

Initial recognition of operating lease liabilities

Real estate acquired through foreclosure

See accompanying notes to consolidated financial statements

AUBURN NATIONAL BANCORPORATION, INC.

AUBURN NATIONAL

BANCORPORATION,

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING

Auburn National Bancorporation, Inc.

(the “Company”) provides a full range of banking services to individual and corporate customers in Lee County, Alabama and surrounding counties through its wholly owned subsidiary, AuburnBank (the “Bank”).

The Company does not have any segments other than banking that are considered material.

(the “Company”) provides

a full range of banking services to individual and

corporate customers in Lee County,

Alabama and surrounding counties through its wholly owned subsidiary,

(the “Bank”).

The Company does not have any segments other

than banking that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information.

Accordingly, these financial statements do not include all of the information and footnotes required by U.S.

GAAP for complete financial statements.

The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented.

All such adjustments are of a normal recurring nature.

The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year.

For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Significant intercompany transactions and accounts are eliminated in consolidation.

The unaudited consolidated financial statements in this report

have been prepared in accordance with U.S.

accepted accounting principles (“GAAP”) for interim financial

Accordingly, these financial

statements do not

include all of the information and footnotes required by U.S.

for complete financial statements.

The unaudited

consolidated financial statements include, in the opinion of management,

all adjustments necessary to present a fair

statement of the financial position and the results of operations for

all periods presented.

All such adjustments are of a

normal recurring nature.

The results of operations in the interim statements

are not necessarily indicative of the results of

operations that the Company and its subsidiaries may achieve

for future interim periods or the entire year.

information, refer to the consolidated financial statements and

footnotes included in the Company's Annual Report on Form

10-K for the year ended December 31, 2020.

The unaudited consolidated financial statements include the accounts

of the Company and its wholly-owned subsidiaries.

Significant intercompany transactions and accounts are eliminated

in consolidation.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date 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 in the near term include other-than-temporary impairment on investment securities, the determination of the allowance for loan losses, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned (“OREO”).

GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and

liabilities and disclosures of contingent assets and liabilities as of

the balance sheet date 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

in the near term

include other-than-temporary impairment on investment securities,

the determination of the allowance for loan losses, fair

value of financial instruments, and the valuation of deferred

tax assets and other real estate owned (“OREO”).

Revenue Recognition

On January 1, 2018, the Company implemented Accounting Standards Update (“ASU” or “updates”) 2014-09, Revenue from Contracts with Customers , codified at Accounting Standards Codification (“ASC”) 606.

The Company adopted ASC 606 using the modified retrospective transition method.

The majority of the Company’s revenue stream is generated from interest income on loans and deposits which are outside the scope of ASC 606.

The Company’s sources of income that fall within the scope of ASC 606 include service charges on deposits, investment services, interchange fees and gains and losses on sales of other real estate, all of which are presented as components of noninterest income.

The following is a summary of the revenue streams that fall within the scope of ASC 606:

 Service charges on deposits, investment services, ATM and interchange fees – Fees from these services are either transaction-based, for which the performance obligations are satisfied when the individual transaction is processed, or set periodic service charges, for which the performance obligations are satisfied over the period the service is provided.

Transaction-based fees are recognized at the time the transaction is processed, and periodic service charges are recognized over the service period.

 Gains on sales of OREO – A gain on sale should be recognized when a contract for sale exists and control of the asset has been transferred to the buyer.

ASC 606 lists several criteria required to conclude that a contract for sale exists, including a determination that the institution will collect substantially all of the consideration to which it is entitled.

In addition to the loan-to-value, the analysis is based on various other factors, including the credit quality of the borrower, the structure of the loan, and any other factors that may affect collectability.

Reclassifications

Certain amounts reported in the prior period have been reclassified to conform to the current-period presentation.

These reclassifications had no impact on the Company’s previously reported net earnings or total stockholders’ equity .

On January 1, 2018, the Company implemented Accounting Standards

Update (“ASU”

or “updates”) 2014-09,

from Contracts with Customers

, codified at

Accounting Standards Codification

The Company adopted ASC

606 using the modified retrospective transition method.

The majority of the Company’s revenue

stream is generated from

interest income on loans and deposits which are outside the scope

The Company’s sources of income that

fall within the scope of ASC 606 include service charges

on deposits, investment

services, interchange fees and gains and losses on sales of other

real estate, all of which are presented as components of

noninterest income.

The following is a summary of the revenue streams

that fall within the scope of ASC 606:

Service charges on deposits, investment services, ATM

and interchange fees – Fees from these services are either

transaction-based, for which the performance obligations are satisfied

when the individual transaction is processed,

or set periodic service charges, for which the performance

obligations are satisfied over the period the service is

Transaction-based fees are recognized

at the time the transaction is processed, and periodic

charges are recognized over the service period.

Gains on sales of OREO

A gain on sale should be recognized when a contract for sale exists and

control of the

asset has been transferred to the buyer.

ASC 606 lists several criteria required to conclude that a contract

exists, including a determination that the institution will collect

substantially all of the consideration to which it is

In addition to the loan-to-value, the analysis is based

on various other factors, including the credit quality

of the borrower, the structure of the loan, and

any other factors that may affect collectability.

Subsequent Events

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to September 30, 2020.

The Company does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the unaudited consolidated financial statements included in this report.

The Company has evaluated the effects of events

and transactions through the date of this filing that have

subsequent to March 31, 2021.

The Company does not believe

there were any material subsequent events during this period

that would have required further recognition or disclosure in the

unaudited consolidated financial statements included in

Accounting Developments

In the first nine months of 2020, the Company adopted new guidance related to the following ASUs:

 ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ;

 ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

Information about these pronouncements is described in more detail below.

ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, improves the disclosure requirements on fair value measurements by eliminating the requirements to disclose (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

(ii) the policy for timing of transfers between levels;

and (iii) the valuation processes for Level 3 fair value measurements.

This ASU also added specific disclosure requirements for fair value measurements for public entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years.

Early adoption was permitted upon issuance of the ASU.

Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional disclosures until their effective date.

The Company adopted this ASU on January 1, 2020.

Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

ASU 2018- 15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license).

This ASU requires entities to use the guidance in FASB ASC 350-40, Intangibles - Goodwill and Other - Internal Use Software, to determine whether to capitalize or expense implementation costs related to the service contract.

This ASU also requires entities to (i) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement;

(ii) present the expense related to the capitalized implementation costs in the same line item on the income statement as fees associated with the hosting element of the arrangement;

(iii) classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element;

and (iv) present the capitalized implementation costs in the same balance sheet line item that a prepayment for the fees associated with the hosting arrangement would be presented.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption was permitted.

The Company adopted this ASU on January 1, 2020.

Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In the first quarter of 2021, the Company did not adopt any new

accounting guidance.

BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for the respective period.

Diluted net earnings per share reflect the potential dilution that could occur upon exercise of securities or other rights for, or convertible into, shares of the Company’s common stock.

At September 30, 2020 and 2019, respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to consider for the diluted net earnings per share calculation.

The basic and diluted net earnings per share computations for the respective periods are presented below.

Quarter ended September 30,

Nine months ended September 30,

Basic net earnings per share is computed by dividing net earnings

by the weighted average common shares outstanding for

the quarters ended March 31, 2021 and 2020, respectively.

Diluted net earnings per share reflect the potential dilution that

could occur upon exercise of securities or other rights for,

or convertible into, shares of the Company’s

common stock.

March 31, 2021 and 2020, respectively,

the Company had no such securities or rights issued

or outstanding, and therefore,

no dilutive effect to consider for the diluted net earnings

per share calculation.

The basic and diluted net earnings per share computations for

the respective periods are presented below

Quarter ended March 31,

(Dollars in thousands, except share and per share data)

Basic and diluted:

Weighted average common shares outstanding

Weighted average common

shares outstanding

Net earnings per share

At September 30, 2020 and December 31, 2019, respectively, all securities within the scope of ASC 320, Investments – Debt and Equity Securities, were classified as available-for-sale.

The fair value and amortized cost for securities available-for-sale by contractual maturity at September 30, 2020 and December 31, 2019, respectively, are presented below.

At March 31, 2021 and December 31, 2020, respectively,

all securities within the scope of ASC 320,

Investments – Debt

and Equity Securities,

were classified as available-for-sale.

The fair value and amortized cost for securities available-for-

sale by contractual maturity at March 31, 2021 and

December 31, 2020, respectively,

are presented below.

Gross Unrealized

(Dollars in thousands)

September 30, 2020

March 31, 2021

Agency obligations (a)

Agency RMBS (a)

Agency MBS (a)

State and political subdivisions

2 unchanged sentences

Agency obligations (a)

Agency RMBS (a)

Agency MBS (a)

State and political subdivisions

1 unchanged sentence

(a) Includes securities issued by U.S.

government agencies or government-sponsored entities.

Securities with aggregate fair values of $ 162.4 million and $ 147.8 million at September 30, 2020 and December 31, 2019, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances, and for other purposes required or permitted by law.

Included in other assets on the accompanying consolidated balance sheets are non-marketable equity investments.

The carrying amounts of non-marketable equity investments were $ 1.4 million at September 30, 2020 and December 31, 2019, respectively.

Non-marketable equity investments include FHLB of Atlanta Stock, Federal Reserve Bank (“FRB”) stock, and stock in a privately held financial institution.

government agencies or

government-sponsored entities.

Securities with aggregate fair values of $

million and $

million at March 31, 2021 and December 31, 2020,

respectively, were pledged to

secure public deposits, securities sold under agreements to repurchase,

Federal Home Loan

Bank (“FHLB”) advances, and for other purposes required

or permitted by law.

Included in other assets on the accompanying consolidated balance sheets

are non-marketable equity investments.

carrying amounts of non-marketable equity investments were

million and $

million at March 31, 2021 and

December 31, 2020, respectively.

Non-marketable equity investments include FHLB of Atlanta Stock,

Federal Reserve

Bank (“FRB”) stock, and stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at September 30, 2020 and December 31, 2019, respectively, segregated by those securities that have been in an unrealized loss position for less than 12 months and 12 months or longer, are presented below.

The fair values and gross unrealized losses on securities at March

31, 2021 and December 31, 2020, respectively,

segregated by those securities that have been in an unrealized

loss position for less than 12 months and 12 months or

longer, are presented below.

Less than 12 Months

1 unchanged sentence

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Agency obligations

3 unchanged sentences

State and political subdivisions

For the securities in the previous table, the Company does not have the intent to sell and has determined it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost basis, which may be maturity.

On a quarterly basis, the Company assesses each security for credit impairment.

For debt securities, the Company evaluates, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the securities’ amortized cost basis.

In determining whether a loss is temporary, the Company considers all relevant information including:

 the length of time and the extent to which the fair value has been less than the amortized cost basis;

 adverse conditions specifically related to the security, an industry, or a geographic area (for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, in the financial condition of the underlying loan obligors, including changes in technology or the discontinuance of a segment of the business that may affect the future earnings potential of the issuer or underlying loan obligors of the security or changes in the quality of the credit enhancement);

For the securities in the previous table, the Company does not

have the intent to sell and has determined it is not more likely

than not that the Company will be required to sell the securities

before recovery of the amortized cost basis, which may be

On a quarterly basis, the Company assesses each security for

credit impairment.

For debt securities, the Company

evaluates, where necessary,

whether credit impairment exists by comparing the present value

of the expected cash flows to

the securities’

amortized cost basis.

In determining whether a loss is temporary,

the Company considers all relevant information including:

the length of time and the extent to which the fair value has been

less than the amortized cost basis;

adverse conditions specifically related to the security,

an industry, or a geographic

area (for example, changes in

the financial condition of the issuer of the security,

or in the case of an asset-backed debt security,

in the financial

condition of the underlying loan obligors, including changes in technology

or the discontinuance of a segment of

the business that may affect the future earnings potential of

the issuer or underlying loan obligors of the security or

changes in the quality of the credit enhancement);

the historical and implied volatility of the fair value of the security;

 the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future;

 failure of the issuer of the security to make scheduled interest or principal payments;

the payment structure of the debt security and the likelihood of the issuer

being able to make payments that

increase in the future;

failure of the issuer of the security to make scheduled interest

or principal payments;

any changes to the rating of the security by a rating agency;

 recoveries or additional declines in fair value subsequent to the balance sheet date.

recoveries or additional declines in fair value subsequent to the

balance sheet date.

Agency obligations

The unrealized losses associated with agency obligations were primarily driven by declines in interest rates and not due to the credit quality of the securities.

These securities were issued by U.S.

government agencies or government-sponsored entities and did not have any credit losses given the explicit government guarantee or other government support.

The unrealized losses associated with agency residential mortgage-backed securities (“RMBS”) were primarily driven by declines in interest rates and not due to the credit quality of the securities.

The unrealized losses associated with agency obligations were

primarily driven by declines in interest rates and not due to

the credit quality of the securities.

These securities were issued

government agencies or government-sponsored

entities and did not have any credit losses given the explicit government

guarantee or other government support.

Agency mortgage-backed securities (“MBS”)

The unrealized losses associated with agency MBS were primarily

driven by changes in interest rates and not due to the

credit quality of the securities.

These securities were issued by U.S.

government agencies or government-sponsored entities and did not have any credit losses given the explicit government guarantee or other government support.

government agencies or government-sponsored entities

and did not have any credit losses given the explicit government guarantee

or other government support.

Securities of U.S.

1 unchanged sentence

The unrealized losses associated with securities of U.S.

states and political subdivisions were primarily driven by declines in interest rates and were not due to the credit quality of the securities.

Some of these securities are guaranteed by a bond insurer, but management did not rely on the guarantee in making its investment decision.

These securities will continue to be monitored as part of the Company’s quarterly impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond insurers.

As a result, the Company expects to recover the entire amortized cost basis of these securities.

The carrying values of the Company’s investment securities could decline in the future if the financial condition of an issuer deteriorates and the Company determines it is probable that it will not recover the entire amortized cost basis for the security.

As a result, there is a risk that other-than-temporary impairment charges may occur in the future.

Other-Than-Temporarily Impaired Securities

Credit-impaired debt securities are debt securities where the Company has written down the amortized cost basis of a security for other-than-temporary impairment and the credit component of the loss is recognized in earnings.

At September 30, 2020 and December 31, 2019, the Company had no credit-impaired debt securities and there were no additions or reductions in the credit loss component of credit-impaired debt securities during the nine months ended September 30, 2020 and 2019, respectively.

political subdivisions were primarily driven by declines

in interest rates and were not due to the credit quality of the securities.

Some of these securities are guaranteed by a bond

insurer, but management did not rely on the

guarantee in making its investment decision.

These securities will continue to

be monitored as part of the Company’s

quarterly impairment analysis, but are expected to

perform even if the rating

agencies reduce the credit rating of the bond insurers.

As a result, the

expects to recover the entire amortized cost

basis of these securities.

The carrying values of the Company’s

investment securities could decline in the future if the financial

condition of an

issuer deteriorates and the Company determines it is probable

that it will not recover the entire amortized cost basis for the

As a result, there is

a risk that other-than-temporary impairment charges

may occur in the future.

Other-Than-Temporarily

Impaired Securities

Credit-impaired debt securities are debt securities where the Company

has written down the amortized cost basis of a

security for other-than-temporary impairment and the credit

component of the loss is recognized in earnings.

2021 and December 31, 2020, the Company had no credit-impaired

debt securities and there were no additions or

reductions in the credit loss component of credit-impaired debt

securities during the quarters ended March 31, 2021 and

2020, respectively.

Realized Gains and Losses

The following table presents the gross realized gains and losses on sales of securities.

Quarter ended September 30,

Nine months ended September 30,

The following table presents the gross realized gains and losses on sales

of securities.

Quarter ended March 31,

(Dollars in thousands)

2 unchanged sentences

Realized gains, net

LOANS AND ALLOWANCE FOR LOAN LOSSES

September 30,

LOANS AND ALLOWANCE

FOR LOAN LOSSES

(Dollars in thousands)

11 unchanged sentences

Loans, net of unearned income

Loans secured by real estate were approximately 77.6% of the Company’s total loan portfolio at September 30, 2020.

At September 30, 2020, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama, and surrounding areas.

In accordance with ASC 310, a portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses.

As part of the Company’s quarterly assessment of the allowance, the loan portfolio is disaggregated into the following portfolio segments:

commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment.

Where appropriate, the Company’s loan portfolio segments are further disaggregated into classes.

A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk.

The following describes the risk characteristics relevant to each of the portfolio segments and classes.

Commercial and industrial (“C&I”) — includes loans to finance business operations, equipment purchases, or other needs for small and medium-sized commercial customers.

Also included in this category are loans to finance agricultural production.

Generally, the primary source of repayment is the cash flow from business operations and activities of the borrower.

We are a participating lender in the Paycheck Protection Program (“PPP”).

PPP loans are forgivable in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP.

As of September 30, 2020, the Company has 422 PPP loans with an aggregate outstanding principal balance of $36.5 million included in this category.

Construction and land development (“C&D”) — includes both loans and credit lines for the purpose of purchasing, carrying, and developing land into commercial developments or residential subdivisions.

Also included are loans and credit lines for construction of residential, multi-family, and commercial buildings.

Generally, the primary source of repayment is dependent upon the sale or refinance of the real estate collateral.

Commercial real estate (“CRE”) — includes loans disaggregated into three classes:

(1) owner occupied, (2) multifamily and (3) other.

Owner occupied – includes loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers.

Generally, the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the property.

Hotel/motel – includes loans for hotels and motels.

Generally, the primary source of repayment is dependent upon income generated from the real estate collateral.

The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.

Multi-family – primarily includes loans to finance income-producing multi-family properties.

Loans in this class include loans for 5 or more unit residential property and apartments leased to residents.

Generally, the primary source of repayment is dependent upon income generated from the real estate collateral.

The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.

Other – primarily includes loans to finance income-producing commercial properties that are not owner occupied.

Loans in this class include loans for neighborhood retail centers, medical and professional offices, single retail stores, industrial buildings, and warehouses leased to local businesses.

Generally, the primary source of repayment is dependent upon income generated from the real estate collateral.

The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.

Residential real estate (“RRE”) — includes loans disaggregated into two classes:

(1) consumer mortgage and (2) investment property.

Consumer mortgage – primarily includes first or second lien mortgages and home equity lines of credit to consumers that are secured by a primary residence or second home.

These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and property value.

Investment property – primarily includes loans to finance income-producing 1-4 family residential properties.

Generally, the primary source of repayment is dependent upon income generated from leasing the property securing the loan.

The underwriting of these loans takes into consideration the rental rates and property value, as well as the financial health of the borrower.

Consumer installment — includes loans to individuals both secured by personal property and unsecured.

Loans include personal lines of credit, automobile loans, and other retail loans.

The following is a summary of current, accruing past due, and nonaccrual loans by portfolio segment and class as of September 30, 2020 and December 31, 2019.

Loans secured by real estate were approximately

of the Company’s total loan portfolio

at March 31, 2021.

31, 2021, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

surrounding areas.

In accordance with ASC 310, a portfolio segment is defined as the level

at which an entity develops and documents a

systematic method for determining its allowance for loan losses.

As part of the Company’s quarterly

assessment of the

allowance, the loan portfolio is disaggregated into the following portfolio

commercial and industrial,

construction and land development, commercial real estate, residential

real estate, and consumer installment.

appropriate, the Company’s loan

portfolio segments are further disaggregated into classes.

A class is generally determined

based on the initial measurement attribute, risk characteristics of the

loan, and an entity’s method

for monitoring and

determining credit risk.

The following describes

the risk characteristics relevant to each of the portfolio

segments and classes.

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases,

or other needs

for small and medium-sized commercial customers.

included in this category are loans to finance agricultural

Generally, the primary source

of repayment is the cash flow from business operations and activities

a participating lender in the Paycheck Protection Program (“PPP”).

PPP loans are forgivable in whole or

in part, if the proceeds are used for payroll and other permitted

purposes in accordance with the requirements of the PPP.

As of March 31, 2021, the Company has

PPP loans with an aggregate outstanding principal balance of $

included in this category.

Construction and land development (“C&D”) —

includes both loans and credit lines for the purpose of purchasing,

carrying, and developing land into commercial developments or

residential subdivisions.

Also included are loans and credit

lines for construction of residential, multi-family,

and commercial buildings.

the primary source of repayment is

dependent upon the sale or refinance of the real estate collateral.

Commercial real estate

includes loans disaggregated into four classes:

(1) owner occupied,

(2) hotel/motel,

(3) multifamily and (4)

Owner occupied

– includes loans secured by business facilities to finance business operations,

equipment and

owner-occupied facilities primarily for small and

medium-sized commercial customers.

Generally, the primary

source of repayment is the cash flow from business operations and

activities of the borrower, who owns the

– includes loans for hotels and motels.

Generally, the primary source

of repayment is dependent upon

income generated from the real estate collateral.

The underwriting of these loans takes into consideration the

occupancy and rental rates, as well as the financial health of the borrower.

– primarily includes loans to finance income-producing multi-family

Loans in this class

include loans for 5 or more unit residential property and apartments

leased to residents.

source of repayment is dependent upon income generated from the real

estate collateral.

The underwriting of these

loans takes into consideration the occupancy and rental rates

as well as the financial health of the borrower.

– primarily includes loans to finance income-producing commercial

properties that are not owner occupied.

Loans in this class include loans for neighborhood retail centers,

medical and professional offices, single retail

stores, industrial buildings, and warehouses leased to local businesses.

the primary source of repayment

is dependent upon income generated from the real estate collateral.

The underwriting of these loans takes into

consideration the occupancy and rental rates, as well as the financial

health of the borrower.

Residential real estate (“RRE”) —

includes loans disaggregated into two classes:

(1) consumer mortgage

investment property.

Consumer mortgage

– primarily includes first or second lien mortgages and home equity

lines of credit to

consumers that are secured by a primary residence or second home.

loans are underwritten in accordance

with the Bank’s general loan policies

and procedures which require, among other things, proper

documentation of

each borrower’s financial condition, satisfactory credit

and property value.

Investment property

– primarily includes loans to finance income-producing 1-4 family residential

Generally, the primary source

of repayment is dependent upon income generated from leasing the

securing the loan.

The underwriting of these loans takes into consideration

the rental rates and property value, as

well as the financial health of the borrower.

Consumer installment —

includes loans to individuals both secured by personal property

and unsecured.

Loans include

personal lines of credit, automobile loans, and other retail loans.

These loans are underwritten in accordance with the

Bank’s general loan policies and

procedures which require, among other things, proper

documentation of each borrower’s

financial condition, satisfactory credit history,

if applicable, property value.

The following is a summary of current, accruing past due, and nonaccrual

loans by portfolio segment and class as of March

31, 2021 and December 31, 2020.

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Commercial and industrial

20 unchanged sentences

Allowance for Loan Losses

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter.

The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates, and other pertinent factors, including regulatory recommendations.

This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely.

A loan may be partially charged-off after a “confirming event” has occurred, which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

The Company deems loans impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan.

The impairment is recognized through the allowance.

Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, the impairment measurement is based on the fair value of the collateral, less estimated disposal costs.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date.

The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, the Company also considers the results of its ongoing internal and independent loan review processes.

The Company’s loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio.

The Company’s loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews conducted by bank regulatory agencies as part of their examination process.

The Company incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

As part of the Company’s quarterly assessment of the allowance, management divides the loan portfolio into five segments:

commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment.

The Company analyzes each segment and estimates an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for each loan segment.

The estimates for these loans are established by category and based on the Company’s internal system of credit risk ratings and historical loss data.

The estimated loan loss allocation rate for the Company’s internal system of credit risk grades is based on its experience with similarly graded loans.

For loan segments where the Company believes it does not have sufficient historical loss data, the Company may make adjustments based, in part, on loss rates of peer bank groups.

At September 30, 2020 and December 31, 2019, and for the periods then ended, the Company adjusted its historical loss rates for the commercial real estate portfolio segment based, in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s estimate of probable losses for several “qualitative and environmental” factors.

The allocation for qualitative and environmental factors is particularly subjective and does not lend itself to exact mathematical calculation.

This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures, and other factors.

These qualitative and environmental factors are considered for each of the five loan segments and the allowance allocation, as determined by the processes noted above, is increased or decreased based on the incremental assessment of these factors.

The Company regularly re-evaluates its practices in determining the allowance for loan losses.

Since the fourth quarter of 2016, the Company has increased its look-back period each quarter to incorporate the effects of at least one economic downturn in its loss history.

The Company believes the extension of its look-back period is appropriate due to the risks inherent in the loan portfolio.

Absent this extension, the early cycle periods in which the Company experienced significant losses would be excluded from the determination of the allowance for loan losses and its balance would decrease.

For the quarter ended September 30, 2020, the Company increased its look-back period to 46 quarters to continue to include losses incurred by the Company beginning with the first quarter of 2009.

The Company will likely continue to increase its look-back period to incorporate the effects of at least one economic downturn in its loss history.

During the first nine months of 2020, the Company adjusted certain qualitative and economic factors related to changes in economic conditions driven by the impact of the novel strain of coronavirus (“COVID-19 pandemic”) and resulting adverse economic conditions, including higher unemployment in our primary market area.

The following table details the changes in the allowance for loan losses by portfolio segment for the respective periods.

September 30, 2020

The Company assesses the adequacy of its allowance for loan

losses prior to the end of each calendar quarter.

the allowance is based upon management’s

evaluation of the loan portfolio, past loan loss experience,

current asset quality

trends, known and inherent risks in the portfolio, adverse situations

that may affect a borrower’s ability to

repay (including

the timing of future payment), the estimated value of any underlying

collateral, composition of the loan portfolio, economic

conditions, industry and peer bank loan loss rates, and other pertinent

factors, including regulatory recommendations.

evaluation is inherently subjective as it requires material estimates including

the amounts and timing of future cash flows

expected to be received on impaired loans that may be susceptible

to significant change.

Loans are charged off, in whole

in part, when management believes that the full collectability of the

loan is unlikely.

may be partially charged-off

after a “confirming event” has occurred, which serves to validate

that full repayment pursuant to the terms of the loan is

The Company deems loans impaired when, based on current information

and events, it is probable that the Company will

be unable to collect all amounts due according to the contractual

terms of the loan agreement.

Collection of all amounts due

according to the contractual terms means that both the interest

and principal payments of a loan will be collected as

scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the

loan is less than the recorded investment in the loan.

impairment is recognized through the allowance.

Loans that are

impaired are recorded at the present value of expected

future cash flows discounted at the loan’s

effective interest rate, or if the loan is collateral dependent,

the impairment

measurement is based on the fair value of the collateral, less estimated

disposal costs.

The level of allowance maintained is believed by management to

be adequate to absorb probable losses inherent in the

portfolio at the balance sheet date.

The allowance is increased

by provisions charged to expense and decreased by charge-

offs, net of recoveries of amounts previously charged

In assessing the adequacy of the allowance, the Company also

considers the results of its ongoing internal and independent

loan review processes.

The Company’s

loan review process assists in determining whether there are

loans in the portfolio

whose credit quality has weakened over time and evaluating the risk characteristics

of the entire loan portfolio.

Company’s loan review process includes

the judgment of management, the input from our independent

loan reviewers, and

reviews conducted by bank regulatory agencies as part of their

examination process.

The Company incorporates loan

review results in the determination of whether or not it is probable

that it will be able to collect all amounts due according

to the contractual terms of a loan.

As part of the Company’s quarterly assessment

of the allowance, management divides the loan portfol

io into five segments:

commercial and industrial, construction and land development, commercial

real estate, residential real estate, and consumer

The Company analyzes each segment and estimates

an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a

process of estimating the probable losses inherent for each

loan segment.

The estimates for these loans are established by category

and based on the Company’s internal

credit risk ratings and historical loss data.

The estimated loan loss allocation rate for the Company’s

internal system of

credit risk grades is based on its experience with similarly graded

For loan segments where the Company believes it

does not have sufficient historical loss data, the Company

may make adjustments based, in part, on loss rates of peer

At March 31, 2021 and December 31, 2020, and for the periods then ended,

the Company adjusted its historical

loss rates for the commercial real estate portfolio segment based,

in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments

is then adjusted for management’s

probable losses for several “qualitative and environmental” factors.

The allocation for qualitative and environmental factors

is particularly subjective and does not lend itself to exact mathematical

This amount represents estimated

probable inherent credit losses which exist, but have not yet been

identified, as of the balance sheet date, and are based

upon quarterly trend assessments in delinquent and nonaccrual

loans, credit concentration changes, prevailing economic

conditions, changes in lending personnel experience, changes

in lending policies or procedures, and other factors.

qualitative and environmental factors are considered for each

of the five loan segments and the allowance allocation, as

determined by the processes noted above, is increased or

decreased based on the incremental assessment of these factors.

The Company regularly re-evaluates its practices in determining the

allowance for loan losses.

Since the fourth quarter of

2016, the Company has increased its look-back period each quarter

to incorporate the effects of at least one economic

downturn in its loss history.

Company believes the extension of its look-back period

is appropriate due to the risks

inherent in the loan portfolio.

Absent this extension, the early

cycle periods in which the Company experienced significant

losses would be excluded from the determination of the allowance for

loan losses and its balance would decrease.

quarter ended March 31, 2021, the Company increased its look

-back period to 48 quarters to continue to include losses

incurred by the Company beginning with the first quarter of 2009.

The Company will likely continue to increase its look-

back period to incorporate the effects of at least one

economic downturn in its loss history.

adjusted certain qualitative and economic factors related to changes i

economic conditions driven by the impact of the

novel strain of coronavirus (“COVID-19 pandemic”) and resulting adverse

economic conditions, including higher

unemployment in our primary market area.

The following table details the changes in the allowance for loan

losses by portfolio segment for the respective periods.

March 31, 2021

(Dollars in thousands)

Commercial and industrial

Construction and land development

Commercial real estate

Residential real estate

Consumer installment

Commercial and

Quarter ended:

3 unchanged sentences

Ending balance

Nine months ended:

Beginning balance

Net recoveries (charge-offs)

Provision for loan losses

Ending balance

September 30, 2019

March 31, 2020

(Dollars in thousands)

Commercial and industrial

Construction and land development

Commercial real estate

Residential real estate

Consumer installment

Commercial and

Quarter ended:

3 unchanged sentences

Ending balance

Nine months ended:

Beginning balance

Net (charge-offs) recoveries

Provision for loan losses

Ending balance

The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio segment and impairment methodology as of September 30, 2020 and 2019.

The following table presents an analysis of the allowance for

loan losses and recorded investment in loans by portfolio

segment and impairment methodology as of March 31, 2021

Collectively evaluated (1)

1 unchanged sentence

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Commercial and industrial (3)

3 unchanged sentences

Consumer installment

September 30, 2019:

March 31, 2020:

Commercial and industrial

3 unchanged sentences

Consumer installment

Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies , and

pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.

Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables , and

pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Includes $36.5 million of PPP loans for which no loan loss reserve was allocated due to 100% SBA guarantee

Represents loans collectively evaluated for impairment in accordance

with ASC 450-20,

Loss Contingencies

pursuant to amendments by ASU 2010-20 regarding allowance for

non-impaired loans.

Represents loans individually evaluated for impairment in accordance

with ASC 310-30,

pursuant to amendments by ASU 2010-20 regarding allowance for

impaired loans.

Includes $28.7 million of PPP loans for which no loan loss reserve

was allocated due to 100% SBA guarantee.

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies.

The following table presents credit quality indicators for the loan portfolio segments and classes.

These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for qualitative and environmental factors and are defined as follows:

 Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

 Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date.

These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

 Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing.

These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected.

 Nonaccrual – includes loans where management has determined that full payment of principal and interest is not expected.

The credit quality of the loan portfolio is summarized no less frequently

than quarterly using categories similar to the

standard asset classification system used by the federal banking agencies.

The following table presents credit quality

indicators for the loan portfolio segments and classes.

categories are utilized to develop the associated allowance for

loan losses using historical losses adjusted for qualitative and

environmental factors and are defined as follows:

Pass – loans which are well protected by the current net worth

and paying capacity of the obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying

Special Mention – loans with potential weakness that may,

if not reversed or corrected, weaken the credit or

inadequately protect the Company’s

position at some future date.

These loans are not adversely classified

not expose an institution to sufficient risk to warrant an

adverse classification.

Substandard Accruing – loans that exhibit a well-defined weakness which

presently jeopardizes debt repayment,

even though they are currently performing.

These loans are characterized

by the distinct possibility that the

Company may incur a loss in the future if these weaknesses are

not corrected.

Nonaccrual – includes loans where management has determined

that full payment of principal and interest is not

(Dollars in thousands)

Special Mention

Substandard Accruing

September 30, 2020:

March 31, 2021:

Commercial and industrial

20 unchanged sentences

Impaired loans

The following tables present details related to the Company’s impaired loans.

Loans that have been fully charged-off are not included in the following tables.

The related allowance generally represents the following components that correspond to impaired loans:

 Individually evaluated impaired loans equal to or greater than $500,000 secured by real estate (nonaccrual construction and land development, commercial real estate, and residential real estate loans).

 Individually evaluated impaired loans equal to or greater than $250,000 not secured by real estate (nonaccrual commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the Company’s impaired loans that were individually evaluated for impairment at September 30, 2020 and December 31, 2019.

September 30, 2020

The following tables present details related to the Company’s

impaired loans.

Loans that have been fully charged-off

not included in the following tables.

allowance generally represents the following components that correspond

to impaired loans:

Individually evaluated impaired loans equal to or greater than $500,000

secured by real estate (nonaccrual

construction and land development, commercial real estate, and

residential real estate loans).

Individually evaluated impaired loans equal to or greater than $250,000

not secured by real estate (nonaccrual

commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the

Company’s impaired loans

that were individually evaluated

for impairment at March 31, 2021 and December 31, 2020.

March 31, 2021

(Dollars in thousands)

Unpaid principal balance (1)

Charge-offs and payments applied (2)

Recorded investment (3)

Unpaid principal

Charge-offs and

payments applied

investment (3)

Related allowance

5 unchanged sentences

Total residential real estate

Total impaired loans

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been

applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied;

impaired loans

(1) Unpaid principal balance represents the contractual obligation due

from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments

that have been

applied against the outstanding principal balance subsequent to the loans

being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less

charge-offs and payments applied;

it is shown before

2 unchanged sentences

(Dollars in thousands)

Unpaid principal balance (1)

Charge-offs and payments applied (2)

Recorded investment (3)

Unpaid principal

Charge-offs and

payments applied

investment (3)

Related allowance

With no allowance recorded:

Commercial and industrial

Total impaired loans

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been

applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied;

it is shown before

any related allowance for loan losses.

The following table provides the average recorded investment in impaired loans, if any, by portfolio segment, and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class during the respective periods.

Quarter ended September 30, 2020

Nine months ended September 30, 2020

Total interest

(Dollars in thousands)

Impaired loans:

Commercial real estate:

3 unchanged sentences

Total residential real estate

Quarter ended September 30, 2019

Nine months ended September 30, 2019

impaired loans

(1) Unpaid principal balance represents the contractual obligation due

from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments

that have been

applied against the outstanding principal balance subsequent to the loans

being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less

charge-offs and payments applied;

it is shown before

any related allowance for loan losses.

The following table provides the average recorded investment in impaired

loans, if any, by portfolio

segment, and the

amount of interest income recognized on impaired loans after

impairment by portfolio segment and class during the

respective periods.

Quarter ended March 31, 2021

Quarter ended March 31, 2020

Total interest

3 unchanged sentences

Commercial real estate:

Owner occupied

Total commercial real estate

Troubled Debt Restructurings

Residential real estate:

Investment property

Total residential real estate

Troubled Debt

Restructurings

Impaired loans also include troubled debt restructurings (“TDRs”).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.

Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under ASC 340-10 TDR classifications for a limited period of time to account for the effects of COVID-19.

On April 7, 2020, the Federal Reserve and the other banking agencies and regulators issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (the “Interagency Statement on COVID-19 Loan Modifications”), to encourage banks to work prudently with borrowers and to describe the agencies’ interpretation of how accounting rules under ASC 310-40, “Troubled Debt Restructurings by Creditors,” apply to certain COVID-19-related modifications.

The Interagency Statement on COVID-19 Loan Modifications was supplemented on June 23, 2020 by the Interagency Examiner Guidance for Assessing Safety and Soundness Considering the Effect of the COVID-19 Pandemic on Institutions.

If a loan modification is eligible, a bank may elect to account for the loan under section 4013 of the CARES Act.

If a loan modification is not eligible under section 4013, or if the bank elects not to account for the loan modification under section 4013, the Revised Statement includes criteria when a bank may presume a loan modification is not a TDR in accordance with ASC 310-40.

The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under the Interagency Statement on COVID-19 Loan Modifications in accordance with FASB ASC 340-10 with respect to the classification of the loan as a TDR.

In the normal course of business, management may grant concessions to borrowers that are experiencing financial difficulty.

A concession may include, but is not limited to, delays in required payments of principal and interest for a specified period, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date, or reduction of the face amount or maturity amount of the debt.

A concession has been granted when, as a result of the restructuring, the Bank does not expect to collect, when due, all amounts owed, including interest at the original stated rate.

A concession may have also been granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt.

In making the determination of whether a loan modification is a TDR, the Company considers the individual facts and circumstances surrounding each modification.

As part of the credit approval process, the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time of restructure.

Similar to other impaired loans, TDRs are measured for impairment based on the present value of expected payments using the loan’s original effective interest rate as the discount rate, or the fair value of the collateral, less selling costs if the loan is collateral dependent.

If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses.

In periods subsequent to the modification, all TDRs are individually evaluated for possible impairment.

The following is a summary of accruing and nonaccrual TDRs, which are included in the impaired loan totals, and the related allowance for loan losses, by portfolio segment and class as of September 30, 2020.

The company had no TDRs as of December 31, 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and

Economic Security Act (“CARES

Act”) was signed into law.

4013 of the CARES Act, “Temporary

Troubled Debt Restructurings,” provides

banks the option to temporarily suspend certain requirements under ASC

TDR classifications for a limited period of time to account for

the effects of COVID-19.

On April 7, 2020, the Federal

Reserve and the other banking agencies and regulators issued

a statement, “Interagency Statement on Loan Modifications

and Reporting for Financial Institutions Working

With Customers Affected by

the Coronavirus (Revised)” (the

“Interagency Statement on COVID-19 Loan Modifications”),

to encourage banks to work prudently with borrowers and to

describe the agencies’ interpretation of how accounting rules

under ASC 310-40, “Troubled Debt

Restructurings by

Creditors,” apply to certain COVID-19-related modifications.

The Interagency Statement on COVID-19 Loan

Modifications was supplemented on June 23, 2020 by the Interagency

Examiner Guidance for Assessing Safety and

Soundness Considering the Effect of the COVID-19

Pandemic on Institutions.

If a loan modification is eligible, a bank

may elect to account for the loan under section 4013

of the CARES Act.

If a loan modification is not eligible under section

4013, or if the bank elects not to account for the loan modification

under section 4013, the Revised Statement includes

criteria when a bank may presume a loan modification is not

a TDR in accordance with ASC 310-40.

The Company evaluates loan extensions or modifications not

qualified under Section 4013 of the CARES Act or under the

Interagency Statement on COVID-19 Loan Modifications in accordance

with FASB ASC 340

-10 with respect to the

classification of the loan as a TDR.

In the normal course of business, management may grant concessions

to borrowers that

are experiencing financial difficulty.

A concession may include, but is not limited to, delays in required

principal and interest for a specified period, reduction of the stated

interest rate of the loan, reduction of accrued interest,

extension of the maturity date, or reduction of the face amount or

maturity amount of the debt.

A concession has been

granted when, as a result of the restructuring, the Bank does not expect

to collect, when due, all amounts owed, including

interest at the original stated rate.

A concession may have also been granted if the debtor is not able

to access funds

elsewhere at a market rate for debt with similar risk characteristics

as the restructured debt.

In making the determination of

whether a loan modification is a TDR, the Company considers

the individual facts and circumstances surrounding each

modification.

As part of the credit approval process, the restructured loans are evaluated

for adequate collateral protection

in determining the appropriate accrual status at the time of restructure.

Similar to other impaired loans, TDRs are measured for impairment

based on the present value of expected payments using

the loan’s original effective

interest rate as the discount rate, or the fair value of the collateral,

less selling costs if the loan is

collateral dependent.

If the recorded investment in the loan exceeds

the measure of fair value, impairment is recognized by

establishing a valuation allowance as part of the allowance for

loan losses or a charge-off to the allowance for

In periods subsequent to the modification, all TDRs are individually

evaluated for possible impairment.

The following is a summary of accruing and nonaccrual TDRs, which

are included in the impaired loan totals, and the

related allowance for loan losses, by portfolio segment and class as of

March 31, 2021 and December 31, 2020,

respectively.

(Dollars in thousands)

September 30, 2020

March 31, 2021

Commercial real estate:

3 unchanged sentences

Total residential real estate

At September 30, 2020, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured.

The following table summarizes loans modified in a TDR during the respective periods both before and after their modification.

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

(In thousands)

December 31, 2020

Commercial real estate:

Total commercial real estate

Residential real estate:

Investment property

Total residential real estate

Four loans were modified in a TDR during the nine months ended September 30, 2020.

The only concession granted by the Company was related to a delay in the required payment of principal and interest.

There were no loans modified in a TDR during the quarter and nine months ended September 30, 2019.

During the quarter and nine months ended September 30, 2020 and 2019, respectively, there were no loans modified in a TDR within the previous 12 months for which there was a payment default (defined as 90 days or more past due).

MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the corresponding mortgage loans are sold.

An estimate of the fair value of the Company’s MSRs is determined using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rates, default rates, costs to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees.

Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method.

Under the amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income.

The Company has recorded MSRs related to loans sold without recourse to Fannie Mae.

The Company generally sells conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae.

MSRs are included in other assets on the accompanying consolidated balance sheets.

At March 31, 2021 there were no significant outstanding commitments

to advance additional funds

to customers whose

loans had been restructured.

There were no loans modified in a TDR during the quarters

ended March 31, 2021 and 2020.

During the quarters

ended March 31, 2021 and 2020, respectively,

there were no loans modified in a TDR within the

previous 12 months for which there was a payment default (defined

as 90 days or more past due).

MORTGAGE SERVICING

Mortgage servicing rights (“MSRs”) are recognized based on

the fair value of the servicing rights on the date the

corresponding mortgage loans are sold.

An estimate of the Company’s MSRs is determined

using assumptions that market

participants would use in

estimating future net servicing income, including estimates of prepayment

speeds, discount rate,

default rates, cost to service, escrow account earnings, contractual

servicing fee income, ancillary income, and late fees.

Subsequent to the date of transfer, the Company

has elected to measure its MSRs under the amortization method.

the amortization method, MSRs are amortized in proportion

to, and over the period of, estimated net servicing income.

The Company has recorded MSRs related to loans sold to

The Company generally sells conforming, fixed-

rate, closed-end, residential mortgages to Fannie Mae.

MSRs are included in other assets on the accompanying

consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis.

Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate and loan type.

If, by individual stratum, the carrying amount of the MSRs exceeds fair value, a valuation allowance is established.

The valuation allowance is adjusted as the fair value changes.

Changes in the valuation allowance are recognized in earnings as a component of mortgage lending income.

The following table details the changes in amortized MSRs and the related valuation allowance for the respective periods.

Quarter ended September 30,

Nine months ended September 30,

Impairment is determined by stratifying MSRs into

groupings based on predominant risk characteristics, such as interest

rate and loan type.

If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation

allowance is established.

The valuation allowance is adjusted

as the fair value changes.

Changes in the valuation allowance are recognized

in earnings as a component of mortgage

lending income.

The change in amortized MSRs and the related valuation allowance

for the quarters ended March 31, 2021 and 2020

presented below.

Quarter ended March 31,

(Dollars in thousands)

3 unchanged sentences

Ending balance

Valuation allowance included in MSRs, net:

allowance included in MSRs, net:

Beginning of period

3 unchanged sentences

End of period

Fair Value Hierarchy

“Fair value” is defined by ASC 820, Fair Value Measurements and Disclosures , as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for an asset or liability at the measurement date.

GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

“Fair value” is defined by ASC 820,

Measurements and Disclosures

, as the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction occurring

in the principal market (or most advantageous

market in the absence of a principal market) for an asset or

liability at the measurement date.

GAAP establishes a fair

value hierarchy for valuation inputs that gives the highest priority to

quoted prices in active markets for identical assets or

liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.

Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the asset or liability, either directly or indirectly.

Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset or liability.

Level 1—inputs to the valuation methodology are quoted prices, unadjusted,

for identical assets or liabilities in active

Level 2—inputs to the valuation methodology include quoted

prices for similar assets and liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets

that are not active, or inputs that are observable for the

asset or liability, either directly

or indirectly.

Level 3—inputs to the valuation methodology are unobservable

and reflect the Company’s own assumptions

inputs market participants would use in pricing the asset or liability.

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy are generally recognized at the end of each reporting period.

The Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when transfers between levels have been affected.

The nature of the Company’s financial assets and liabilities generally is such that transfers in and out of any level are expected to be infrequent.

For the nine months ended September 30, 2020, there were no transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring basis

Transfers between levels of the fair value hierarchy

are generally recognized at the end of each reporting period.

Company monitors the valuation techniques utilized for each

category of financial assets and liabilities to ascertain when

transfers between levels have been affected.

The nature of the Company’s financial

assets and liabilities generally is such

that transfers in and out of any level are expected to be infrequent.

For the quarter ended March 31, 2021, there were no

transfers between levels and no changes in valuation techniques for

the Company’s financial assets and

Assets and liabilities measured at fair value

on a recurring basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured using Level 2 inputs.

For these securities, the Company obtains pricing from third party pricing services.

These third party pricing services consider observable data that may include broker/dealer quotes, market spreads, cash flows, benchmark yields, reported trades for similar securities, market consensus prepayment speeds, credit information, and the securities’ terms and conditions.

On a quarterly basis, management reviews the pricing received from the third party pricing services for reasonableness given current market conditions.

As part of its review, management may obtain non-binding third party broker quotes to validate the fair value measurements.

In addition, management will periodically submit pricing provided by the third party pricing services to another independent valuation firm on a sample basis.

This independent valuation firm will compare the price provided by the third party pricing service with its own price and will review the significant assumptions and valuation methodologies used with management.

The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, respectively, by caption, on the accompanying consolidated balance sheets by ASC 820 valuation hierarchy (as described above).

Fair values of securities available for sale were primarily measured

using Level 2 inputs.

For these securities, the Company

obtains pricing from third party pricing services.

These third party pricing services consider observable data

include broker/dealer quotes, market spreads, cash flows, benchmark

yields, reported trades for similar securities, market

consensus prepayment speeds, credit information, and the securities’

terms and conditions.

On a quarterly basis,

management reviews the pricing received from the third party

pricing services for reasonableness given current market

As part of its review, management

may obtain non-binding third party broker quotes to validate the fair

measurements.

In addition, management will periodically submit pricing provided

by the third party pricing services to

another independent valuation firm on a sample basis.

This independent valuation firm will compare the price provided

the third party pricing service with its own price and will review the

significant assumptions and valuation methodologies

used with management.

The following table presents the balances of the assets and liabilities

measured at fair value on a recurring basis as of March

31, 2021 and December 31, 2020, respectively,

by caption, on the accompanying consolidated balance

sheets by ASC 820

valuation hierarchy (as described above).

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Securities available-for-sale:

1 unchanged sentence

State and political subdivisions

Total securities available-for-sale

Total assets at fair value

Total securities available

assets at fair value

December 31, 2020:

2 unchanged sentences

State and political subdivisions

Total securities available-for-sale

Total assets at fair value

Assets and liabilities measured at fair value on a nonrecurring basis

Total securities available

assets at fair value

Assets and liabilities measured at fair value

on a nonrecurring basis

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value.

Fair values of loans held for sale are determined using quoted market secondary market prices for similar loans.

Loans held for sale are classified within Level 2 of the fair value hierarchy.

Fair values of loans held for sale are determined using

quoted market secondary market prices for similar loans.

Loans held for sale are classified within Level 2 of the fair value

Impaired Loans

Loans considered impaired under ASC 310-10-35, Receivables , are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement.

Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans was primarily measured based on the value of the collateral securing these loans.

Impaired loans are classified within Level 3 of the fair value hierarchy.

Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable.

The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business.

Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value.

Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Other real estate owned

Other real estate owned (“OREO”), consisting of properties obtained through foreclosure or in satisfaction of loans, is initially recorded at the lower of the loan’s carrying amount or the fair value of collateral less costs to sell upon transfer of the loans to other real estate.

Subsequently, OREO is carried at the lower of carrying value or fair value less costs to sell.

Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy.

The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business.

Such discounts are typically significant unobservable inputs for determining fair value.

In cases where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized in noninterest expense.

Loans considered impaired under ASC 310-10-35,

, are loans for which, based on current information and

events, it is probable that the Company will be unable to collect

all principal and interest payments due in accordance with

the contractual terms of the loan agreement.

Impaired loans can

be measured based on the present value of expected

payments using the loan’s original

effective rate as the discount rate, the loan’s

observable market price, or the fair value of

the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans was primarily measured based

on the value of the collateral securing these loans.

loans are classified within Level 3 of the fair value hierarchy.

Collateral may be real estate and/or business assets including

equipment, inventory, and/or

accounts receivable.

The Company determines the value of the

collateral based on

independent appraisals performed by qualified licensed appraisers.

These appraisals may utilize a single valuation approach

or a combination of approaches including comparable sales and the income

Appraised values are discounted for

costs to sell and may be discounted further based on management’s

historical knowledge, changes in market conditions

from the date of the most recent appraisal, and/or management’s

expertise and knowledge of the customer and the

customer’s business.

Such discounts by management are subjective

and are typically significant unobservable inputs for

determining fair value.

Impaired loans are reviewed and evaluated

on at least a quarterly basis for additional impairment

and adjusted accordingly, based

on the same factors discussed above.

Mortgage servicing rights, net

MSRs, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or estimated fair value.

MSRs do not trade in an active market with readily observable prices.

To determine the fair value of MSRs, the Company engages an independent third party.

The independent third party’s valuation model calculates the present value of estimated future net servicing income using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rates, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees.

Periodically, the Company will review broker surveys and other market research to validate significant assumptions used in the model.

The significant unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average discount rate.

Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s MSRs are classified within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019, respectively, by caption, on the accompanying consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above):

MSRs, net, included in other assets on the accompanying consolidated

balance sheets, are carried at the lower of cost or

estimated fair value.

MSRs do not trade in an active market with readily observable

To determine the fair value

MSRs, the Company engages an independent third party.

The independent third party’s

valuation model calculates the

present value of estimated future net servicing income using

assumptions that market participants would use in estimating

future net servicing income, including estimates of prepayment

speeds, discount rates, default rates, cost to service, escrow

account earnings, contractual servicing fee income, ancillary income,

and late fees.

Periodically, the Company will

broker surveys and other market research to validate significant

assumptions used in the model.

The significant

unobservable inputs include prepayment speeds or the constant prepayment

rate (“CPR”) and the weighted average

discount rate.

Because the valuation of MSRs requires the use of significant unobservable

inputs, all of the Company’s

MSRs are classified within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities

measured at fair value on a nonrecurring basis as of

March 31, 2021 and December 31, 2020, respectively,

by caption, on the accompanying consolidated balance sheets and

FASB ASC 820 valuation

hierarchy (as described above):

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Loans held for sale

Loans, net (1)

Other assets (2)

Total assets at fair value

1 unchanged sentence

Loans held for sale

Loans, net (1)

Other assets (2)

Total assets at fair value

Loans considered impaired under ASC 310-10-35 Receivables.

This amount reflects the recorded investment in impaired loans, net

This amount reflects the recorded investment in impaired loans,

of any related allowance for loan losses

(2) Represents MSRs, net and other real estate owned, both of which are carried at lower of cost or estimated fair value.

Quantitative Disclosures for Level 3 Fair Value Measurements

At September 30, 2020, the Company had no Level 3 assets measured at fair value on a recurring basis.

For Level 3 assets measured at fair value on a non-recurring basis at September 30, 2020, the significant unobservable inputs used in the fair value measurements are presented below.

Represents MSRs, net which are carried at lower of

cost or estimated fair value.

Quantitative Disclosures for Level 3 Fair

Value Measurements

At March 31, 2021,

the Company had no Level 3 assets measured at fair value on a recurring basis.

For Level 3 assets

measured at fair value on a non-recurring basis at March 31,

2021, the significant unobservable inputs used in the fair value

measurements are presented below

(Dollars in thousands)

1 unchanged sentence

Unobservable Input

September 30, 2020:

March 31, 2021:

Impaired loans

11 unchanged sentences

Discount rate

Fair Value of Financial Instruments

ASC 825, Financial Instruments , requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value.

The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below.

Where quoted market prices are not available, fair values are based on estimates using discounted cash flow analyses.

Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather are a good-faith estimate of the fair value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

of Financial Instruments

Financial Instruments

, requires disclosure of fair value information about financial

instruments, whether or not

recognized on the face of the balance sheet, for which it is practicable

to estimate that value.

The assumptions used in the

estimation of the fair value of the Company’s

financial instruments are explained below.

Where quoted market prices are

not available, fair values are based on estimates using discounted

cash flow analyses.

Discounted cash flows can be

significantly affected by the assumptions used,

including the discount rate and estimates of future cash flows.

following fair value estimates cannot be substantiated by comparison

to independent markets and should not be considered

representative of the liquidation value of the Company’s

financial instruments, but rather are a good-faith estimate of the

fair value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all

nonfinancial instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in

estimating the fair value of its financial instruments:

Fair values for loans were calculated using discounted cash flows.

The discount rates reflected current rates at which similar loans would be made for the same remaining maturities.

Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

The fair value of loans was measured using an exit price notion.

discount rates reflected current rates at which similar

loans would be made for the same remaining maturities.

future cash flows were projected based on contractual

cash flows, adjusted for estimated prepayments.

The fair value of loans was measured using an exit

price notion.

Loans held for sale

Fair values of loans held for sale are determined using quoted secondary market prices for similar loans.

Fair values of loans held for sale are determined using quoted

secondary market prices for similar loans.

Time Deposits

Fair values for time deposits were estimated using discounted cash flows.

The discount rates were based on rates currently offered for deposits with similar remaining maturities.

The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments at September 30, 2020 and December 31, 2019 are presented below.

This table excludes financial instruments for which the carrying amount approximates fair value.

Financial assets for which fair value approximates carrying value included cash and cash equivalents.

Financial liabilities for which fair value approximates carrying value included noninterest-bearing demand deposits, interest-bearing demand deposits, and savings deposits.

Fair value approximates carrying value in these financial liabilities due to these products having no stated maturity.

Additionally, financial liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased and securities sold under agreements to repurchase.

Fair values for time deposits were estimated using discounted

The discount rates were based on rates currently

offered for deposits with similar remaining maturities.

The carrying value, related estimated fair value, and placement in the

fair value hierarchy of the Company’s

instruments at March 31, 2021 and December 31, 2020

are presented below.

This table excludes financial instruments for

which the carrying amount approximates fair value.

Financial assets for which fair value approximates carrying

included cash and cash equivalents.

Financial liabilities for which fair value approximates carrying value

noninterest-bearing demand deposits,

interest-bearing demand deposits, and savings deposits.

Fair value approximates

carrying value in these financial liabilities due to these products having

no stated maturity.

Additionally, financial

liabilities for which fair value approximates carrying value included

overnight borrowings such as federal funds purchased

and securities sold under agreements to repurchase.

Fair Value Hierarchy

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Financial Assets:

9 unchanged sentences

Time Deposits

(1) Represents loans, net of unearned income and the allowance for loan losses.

(1) Represents loans, net of unearned income and the allowance

for loan losses.

The fair value of loans was measured using an exit price notion.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements