What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-07-30 · 614 added, 690 removed, 686 unchanged (66% of the section changed)

4 unchanged sentences

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

8 unchanged sentences

Less treasury stock, at cost -

at June 30, 2021

at September 30, 2021

and December 31, 2020, respectively

Total stockholders’ equity

Total liabilities and

stockholders’ equity

Total liabilities and stockholders’

See accompanying notes to consolidated financial statements

3 unchanged sentences

Consolidated Statements of Earnings

Quarter ended June 30,

Six months ended June 30,

Quarter ended September 30,

Nine months ended September 30,

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

8 unchanged sentences

Provision for loan losses

Net interest income after provision for

Net interest income after provision for loan

Noninterest income:

20 unchanged sentences

Consolidated Statements of Comprehensive Income

Quarter ended June 30,

Six months ended June 30,

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

Other comprehensive income (loss), net of

Unrealized net holding gain (loss) on securities

Other comprehensive (loss) income, net of tax:

Unrealized net holding (loss) gain on securities

Reclassification adjustment for net gain on securities

recognized in net earnings

Other comprehensive income (loss)

Other comprehensive (loss) income

Comprehensive income

7 unchanged sentences

income (loss)

Quarter ended June 30, 2021

Balance, March 31, 2021

Other comprehensive income

Quarter ended September 30, 2021

Balance, June 30, 2021

Other comprehensive loss

Cash dividends paid ($

1 unchanged sentence

Sale of treasury stock

Balance, September 30, 2021

Quarter ended September 30, 2020

Balance, June 30, 2020

Quarter ended June 30, 2020

Balance, March 31, 2020

Other comprehensive income

Other comprehensive loss

Cash dividends paid ($

Sale of treasury stock

Balance, June 30, 2020

Six months ended June 30,

Balance, September 30, 2020

Nine months ended September 30, 2021

Balance, December 31, 2020

3 unchanged sentences

Sale of treasury stock

Balance, June 30, 2021

Six months ended June 30,

Balance, September 30, 2021

Nine months ended September 30, 2020

Balance, December 31, 2019

2 unchanged sentences

Sale of treasury stock

Balance, June 30, 2020

Balance, September 30, 2020

See accompanying notes to consolidated financial statements

3 unchanged sentences

Consolidated Statements of Cash Flows

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands)

Cash flows from operating activities:

Adjustments to reconcile net earnings to net cash provided

Adjustments to reconcile net earnings to net cash provided by

operating activities:

9 unchanged sentences

Income recognized from death benefit on bank-owned life insurance

Net decrease (increase) in other assets

Net increase in other assets

Net decrease in accrued expenses and other liabilities

2 unchanged sentences

Proceeds from sales of securities available-for-sale

Proceeds from prepayments and maturities of securities available

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

Purchase of securities available-for-sale

27 unchanged sentences

Auburn National Bancorporation, Inc.

(the “Company”) provides

a full range of banking services to individual and

(the “Company”) provides a full range of banking

services to individual and

corporate customers in Lee County,

1 unchanged sentence

(the “Bank”).

The Company does not have any segments other

than banking that are considered material.

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

Basis of Presentation and Use of Estimates

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

The unaudited consolidated financial statements in this report have been prepared

in accordance with U.S.

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

Accordingly, these financial statements

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

for complete financial statements.

GAAP for complete financial

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.

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

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 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.

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

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”).

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”

On January 1, 2018, the Company implemented Accounting Standards Update

or “updates”) 2014-09,

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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 majority of the Company’s revenue stream

is generated from

interest income on loans and securities 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

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:

The following is a summary of the revenue streams that fall

within the scope of ASC 606:

Service charges on deposits, investment services, ATM

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when the individual transaction is processed,

or set periodic service charges, for which the performance

obligations are satisfied over the period the service is

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

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

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.

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

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

subsequent to June 30, 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

The Company has evaluated the effects of events and transactions through

the date of this filing that have occurred

subsequent to September 30, 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 this report.

Accounting Developments

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

accounting guidance.

In the first nine months of 2021, the Company did not adopt any new accounting

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

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

At June 30, 2021 and 2020,

respectively, the Company had

no such securities or rights issued or outstanding, and therefore,

no dilutive effect to

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, 2021 and

2020, respectively, the Company

had no such securities or rights issued or outstanding, and therefore, no dilutive effect

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 June 30,

Six months ended June 30,

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,

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

3 unchanged sentences

Net earnings per share

At June 30, 2021 and December 31, 2020, respectively,

At September 30, 2021 and December 31, 2020, respectively,

all securities within the scope of ASC 320,

Investments – Debt and

Equity Securities,

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 June 30, 2021 and December 31,

2020, respectively, are presented

The fair value and amortized cost for securities available-

for-sale by contractual maturity at September 30, 2021 and December

31, 2020, respectively, are

presented below.

Gross Unrealized

(Dollars in thousands)

June 30, 2021

September 30, 2021

Agency obligations (a)

8 unchanged sentences

(a) Includes securities issued by U.S.

government agencies or

government-sponsored entities.

government agencies or government-sponsored

Securities with aggregate fair values of $

million and $

million at June 30, 2021 and December 31, 2020,

million at September 30, 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.

secure public deposits, securities sold under agreements to repurchase, Federal Home

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 June 30, 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.

million at September 30, 2021 and

December 31, 2020, respectively.

Non-marketable equity investments include FHLB of Atlanta Stock, Federal

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 June 30,

The fair values and gross unrealized losses on securities at September 30,

2021 and December 31, 2020, respectively,

by those securities that have been in an unrealized loss position for

less than 12 months and 12 months or longer,

presented below.

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)

June 30, 2021:

September 30, 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

On a quarterly basis, the Company assesses each security for

credit impairment.

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.

whether credit impairment exists by comparing the present value of the expected cash

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;

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

adverse conditions specifically related to the security,

an industry, or a geographic

area (for example, changes in

an industry, or a geographic area

(for example, changes in

the financial condition of the issuer of the security,

1 unchanged sentence

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

condition of the underlying loan obligors, including changes in technology or the discontinuance 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

the payment structure of the debt security and the likelihood of the issuer being able to make payments

increase in the future;

failure of the issuer of the security to make scheduled interest

or principal payments;

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 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.

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.

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

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.

political subdivisions were primarily driven by declines

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.

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

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

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

As a result, there is

a risk that other-than-temporary impairment charges

may occur in the future.

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

4 unchanged sentences

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 June 30, 2021 and 2020,

30, 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 September 30, 2021 and

2020, respectively.

Realized Gains and Losses

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

of securities.

Quarter ended June 30,

Six months ended June 30,

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

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

4 unchanged sentences

FOR LOAN LOSSES

September 30,

(Dollars in thousands)

13 unchanged sentences

of the Company’s total loan portfolio

at June 30, 2021.

the Company’s geographic loan distribution

was concentrated primarily in Lee County,

Alabama, and surrounding

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

at which an entity develops and documents a

at September 30, 2021.

September 30, 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.

As part of the

Company’s quarterly assessment

allowance, the loan portfolio is disaggregated into the following portfolio segments:

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

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.

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

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases,

or other needs

includes loans to finance business operations, equipment purchases, or

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

Also included

in this category are loans to finance agricultural

the primary source of repayment is the cash flow from business operations and activities

We participated

as a lender in the Paycheck Protection Program (“PPP”),

which ended May 31, 2021.

are forgivable in whole or in part, if the proceeds

are used for payroll and other permitted purposes in accordance

as a lender in the Paycheck Protection Program (“PPP”), which ended May 31, 2021.

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.

2 unchanged sentences

million and $

million, included in this category,

as of June 30, 2021 and December 31, 2020, respectively.

million, included in this category, as

of September 30, 2021 and December 31, 2020, respectively.

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.

and developing land into commercial developments or residential subdivisions.

Also included are loans and credit

6 unchanged sentences

(1) owner occupied, (2)

(2) hotel/motel,

(3) multifamily and (4)

(3) multifamily and (4) 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

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

owner-occupied facilities primarily for small and medium-sized

commercial customers.

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

– includes loans for hotels and motels.

Generally, the primary source

of repayment is dependent upon

Generally, the primary source of repayment

is dependent upon

income generated from the real estate collateral.

1 unchanged sentence

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

– primarily includes loans to finance income-producing 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.

source of repayment is dependent upon income generated from the real

estate collateral.

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

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.

1 unchanged sentence

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.

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

(1) consumer mortgage and (2)

investment property.

Consumer mortgage

– primarily includes first or second lien mortgages and home equity

lines of credit to

– primarily includes first or second lien mortgages and home equity lines of credit

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

loans are underwritten in accordance

with the Bank’s general loan poli

cies and procedures which require, among other things, proper

documentation of

each borrower’s financial condition, satisfactory credit

history, and property

These loans are underwritten in

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

Generally, the primary source

of repayment is dependent upon income generated from leasing the

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

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

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.

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

Loans include

1 unchanged sentence

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

Bank’s general loan policies and procedures

which require, among other things, proper documentation of each borrower’s

financial condition, satisfactory credit history,

and, if applicable, property value.

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

loans by portfolio segment and class as of June

30, 2021 and December 31, 2020.

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

segment and class as of

September 30, 2021 and December 31, 2020.

(Dollars in thousands)

June 30, 2021:

September 30, 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 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.

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.

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

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

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.

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

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

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.

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’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

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

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

of the allowance, management evaluates the loan portfolio’s

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

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.

1 unchanged sentence

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 June 30, 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

credit risk grades is based on its experience with similarly graded loans.

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

At September 30, 2021 and December 31, 2020, and for the periods then ended, the Company adjusted

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.

The allocation

for qualitative and environmental factors

is particularly subjective and does not lend itself to exact mathematical calculation.

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

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

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.

quarter ended June 30, 2021, the Company increased its look-back

period to 49 quarters to continue to include losses

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 September 30, 2021, the Company increased its look-back period

to 50 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.

back period to incorporate the effects of at least one economic downturn

in its loss history.

During 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.

During the second quarter of 2021, the Company adjusted

certain qualitative

and economic factors to reflect improvements in economic conditions

in our primary market area.

The following table details the changes in the allowance for loan

losses by portfolio segment for the respective periods.

June 30, 2021

adjusted certain qualitative and economic factors related to changes in economic conditions

driven by the impact of the

COVID-19 pandemic and resulting adverse economic conditions, including

higher unemployment in our primary market

During the second quarter of 2021, the Company adjusted certain qualitative and economic factors

improvements in economic conditions 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, 2021

(Dollars in thousands)

2 unchanged sentences

Beginning balance

Net recoveries (charge-offs)

Net recoveries

Provision for loan losses

Ending balance

Six months ended:

Nine months ended:

Beginning balance

Net recoveries (charge-offs)

Net recoveries

Provision for loan losses

Ending balance

June 30, 2020

September 30, 2020

(Dollars in thousands)

2 unchanged sentences

Beginning balance

Net (charge-offs) recoveries

Net recoveries

Provision for loan losses

Ending balance

Six months ended:

Nine months ended:

Beginning balance

2 unchanged sentences

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 June 30, 2021

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, 2021 and 2020.

Collectively evaluated (1)

1 unchanged sentence

(Dollars in thousands)

June 30, 2021:

September 30, 2021:

Commercial and industrial (3)

3 unchanged sentences

Consumer installment

June 30, 2020:

September 30, 2020:

Commercial and industrial (4)

6 unchanged sentences

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.

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 $13.3 million of PPP loans for which no allowance

3 unchanged sentences

Credit Quality Indicators

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

than quarterly using categories similar to the

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.

1 unchanged sentence

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

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

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,

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

These loans are characterized by the distinct possibility

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)

June 30, 2021:

September 30, 2021:

Commercial and industrial

24 unchanged sentences

not included in the following tables.

allowance generally represents the following components that correspond

The related allowance generally represents the following

components that correspond

to impaired loans:

1 unchanged sentence

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

construction and land development, commercial real estate, and residential real estate

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 June 30, 2021 and December 31, 2020.

June 30, 2021

All troubled debt restructurings.

The following tables set forth certain information regarding the Company’s

impaired loans that were individually evaluated

for impairment at September 30, 2021 and December 31, 2020.

September 30, 2021

(Dollars in thousands)

11 unchanged sentences

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;

(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

14 unchanged sentences

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;

(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

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

amount of interest income recognized on impaired loans after impairment by portfolio

segment and class during the

respective periods.

Quarter ended June 30, 2021

Six months ended June 30, 2021

Quarter ended September 30, 2021

Nine months ended September 30, 2021

Total interest

7 unchanged sentences

Total residential real estate

Quarter ended June 30, 2020

Six months ended June 30, 2020

Quarter ended September 30, 2020

Nine months ended September 30, 2020

Total interest

13 unchanged sentences

Section 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.

Troubled Debt Restructurings,” provides banks the option

to temporarily suspend certain requirements under ASC 340-10’s

TDR classifications for a limited period of time to account for the effects

On April 7, 2020, the Federal

Reserve and the other banking regulators issued a statement, “Interagency

Statement on Loan Modifications and Reporting

Reserve and the other banking regulators issued a statement, “Interagency Statement

on Loan Modifications and Reporting

for Financial Institutions Working

3 unchanged sentences

with borrowers and to describe the agencies’

interpretation of how accounting rules under ASC 310

-40, “Troubled Debt Restructurings by Creditors,”

apply to certain

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

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

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

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

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

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

In the normal course of business, management may grant concessions to borrowers

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 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

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.

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

In making the determination of

whether a loan modification is a TDR, the Company considers

the individual facts and circumstances surrounding each

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

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

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

interest rate as the discount rate, or the fair value of the collateral, less selling costs if

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

June 30, 2021 and December 31, 2020, respectively.

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,

2021 and December 31, 2020,

respectively.

(Dollars in thousands)

June 30, 2021

September 30, 2021

Commercial real estate:

9 unchanged sentences

Total residential real estate

At June 30, 2021 there were no significant outstanding commitments to

advance additional funds to customers whose loans

had been restructured.

Quarter ended June 30,

Six months ended June 30,

At September 30, 2021 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

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

Commercial real estate:

Total commercial real estate

2 unchanged sentences

Total residential real estate

There were no loans modified in a TDR during the quarter and

six months ended June 30, 2021.

During the quarter and six months ended ended June 30, 2021

and 2020, respectively, there

There were no loans modified in a TDR during the quarter and nine

months ended September 30, 2021.

During the quarter and nine months ended September 30, 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).

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

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

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

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

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 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

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

MSRs are included in other assets on the

2 unchanged sentences

Impairment is determined by stratifying MSRs into

groupings based on predominant risk characteristics, such as interest

rate and loan type.

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.

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

Changes in the valuation allowance are recognized in earnings as a component

lending income.

The following table details the changes in amortized MSRs and

the related valuation allowance for the respective periods.

Quarter ended June 30,

Six months ended June 30,

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,

(Dollars in thousands)

12 unchanged sentences

, 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.

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

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

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

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

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 changes in fair value measurements

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 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

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 six months ended June 30, 2021, 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

months ended ended September 30, 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

Securities available-for-sale

Fair values of securities available for sale were primarily measured

using Level 2 inputs.

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.

These third party pricing services consider observable data that

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

On a quarterly basis,

management reviews the pricing received from the third party

pricing services for reasonableness given current market

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

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

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

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 June

30, 2021 and December 31, 2020, respectively,

by caption, on the accompanying consolidated balance

sheets by ASC 820

valuation hierarchy (as described above).

The following table presents the balances of the assets and liabilities measured at fair value

on a recurring basis as of

September 30, 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)

June 30, 2021:

September 30, 2021:

Securities available-for-sale:

1 unchanged sentence

State and political subdivisions

Total securities available

Total securities available-for-sale

assets at fair value

3 unchanged sentences

State and political subdivisions

Total securities available

Total securities available-for-sale

assets at fair value

Assets and liabilities measured at fair value

on a nonrecurring basis

Assets and liabilities measured at fair value on a nonrecurring

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

Fair values of loans held for

sale are determined using

quoted market secondary market prices for similar loans.

3 unchanged sentences

, 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

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

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.

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.

2 unchanged sentences

accounts receivable.

The Company determines the value of the

collateral based on

The Company determines the value of the collateral based

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

appraisals may utilize a single valuation approach

or a combination of approaches including comparable sales and the income approach.

values are discounted for

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

6 unchanged sentences

determining fair value.

Impaired loans are reviewed and evaluated

on at least a quarterly basis for additional impairment

Impaired loans are reviewed and evaluated on at least a quarterly

basis for additional impairment

and adjusted accordingly, based

1 unchanged sentence

Mortgage servicing rights, net

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

balance sheets, are carried at the lower of cost or

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

To determine the fair

MSRs, the Company engages an independent third party.

1 unchanged sentence

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 Compa

ny will review

broker surveys and other market research to validate significant

assumptions used in the model.

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

Periodically, the Company

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

unobservable inputs include prepayment speeds or the constant prepayment rate

(“CPR”) and the weighted average

discount rate.

2 unchanged sentences

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

June 30, 2021 and December 31, 2020, respectively,

by caption, on the accompanying consolidated balance

sheets and by

FASB ASC 820 valuation

hierarchy (as described above):

The following table presents the balances of the assets and liabilities measured

at fair value on a nonrecurring basis as of

September 30, 2021 and December 31, 2020, respectively,

by caption, on the accompanying consolidated balance sheets

and by FASB ASC 820

valuation hierarchy (as described above):

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

June 30, 2021:

September 30, 2021:

Loans held for sale

3 unchanged sentences

Total assets at fair value

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

This amount reflects the recorded investment in impaired loans,

Loans considered impaired under ASC 310-10-35

This amount reflects the recorded investment in impaired

of any related allowance for loan losses.

Represents MSRs, net.

These are carried at lower of cost or estimated fair value.

Quantitative Disclosures for Level 3 Fair

Value Measurements

At June 30, 2021 and December 31, 2020,

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

For Level 3 assets measured at fair value on a non-recurring basis

at June 30, 2021 and December 31, 2021,

the significant

unobservable inputs used in the fair value measurements are presented

These are carried at lower of cost or estimated

Quantitative Disclosures for Level 3 Fair Value

At September 30, 2021 and December 31, 2020, the Company had no Level 3 assets

measured at fair value on a recurring

For Level 3 assets measured at fair value on a non-recurring basis at September

30, 2021 and December 31, 2021,

the significant unobservable inputs used in the fair value measurements are presented

(Dollars in thousands)

1 unchanged sentence

Unobservable Input

June 30, 2021:

September 30, 2021:

Impaired loans

13 unchanged sentences

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.

, 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

The assumptions used in the

2 unchanged sentences

Where quoted market prices are

not available, fair values are based on estimates using discounted

cash flow analyses.

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

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

3 unchanged sentences

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:

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.

discount rates reflected current rates at which similar

The discount rates reflected

current rates at which similar

loans would be made for the same remaining maturities.

1 unchanged sentence

cash flows, adjusted for estimated prepayments.

The fair value of loans was measured using an exit

price notion.

Loans held for

Fair values of loans held for sale are determined using quoted

secondary market prices for similar loans.

The fair value of loans was measured using an exit price

Loans held for sale

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

The discount rates were based on rates currently

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

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 June 30, 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

The carrying value,

related estimated fair value, and placement in the fair value hierarchy of the Company’s

instruments at September 30, 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 value

included cash and cash equivalents.

3 unchanged sentences

Fair value approximates

carrying value in these financial liabilities due to these products having

no stated maturity.

carrying value in these financial liabilities due to these products having no stated

Additionally, financial

liabilities for which fair value approximates carrying value included

overnight borrowings such as federal funds purchased

liabilities for which fair value approximates carrying value included overnight

borrowings such as federal funds purchased

and securities sold under agreements to repurchase.

1 unchanged sentence

(Dollars in thousands)

June 30, 2021:

September 30, 2021:

Financial Assets:

11 unchanged sentences

for loan losses.

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

The fair value of loans was measured using an exit price

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