What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-10-29 · 370 added, 387 removed, 913 unchanged (45% of the section changed)

4 unchanged sentences

Consolidated Balance Sheets

September 30,

(Dollars in thousands, except share data)

21 unchanged sentences

Retained earnings

Accumulated other comprehensive income, net

Accumulated other comprehensive (loss) income, net

Less treasury stock, at cost -

at September 30, 2021

at March 31, 2022

and December 31, 2021, respectively

6 unchanged sentences

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)

13 unchanged sentences

Bank-owned life insurance

Securities gains, net

Total noninterest income

14 unchanged sentences

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Quarter ended September 30,

Nine months ended September 30,

Consolidated Statements of Comprehensive Loss

Quarter ended March 31,

(Dollars in thousands)

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 (loss) income

Comprehensive income

Other comprehensive loss, net of tax:

Unrealized net holding loss on securities

Other comprehensive loss

Comprehensive loss

See accompanying notes to consolidated financial statements

6 unchanged sentences

income (loss)

Quarter ended September 30, 2021

Balance, June 30, 2021

Other comprehensive loss

Cash dividends paid ($

Stock repurchases

Sale of treasury stock

Balance, September 30, 2021

Quarter ended September 30, 2020

Balance, June 30, 2020

Other comprehensive loss

Cash dividends paid ($

Sale of treasury stock

Balance, September 30, 2020

Nine months ended September 30, 2021

Quarter ended March 31, 2022

Balance, December 31, 2021

3 unchanged sentences

Sale of treasury stock

Balance, September 30, 2021

Nine months ended September 30, 2020

Balance, March 31, 2022

Quarter ended March 31, 2021

Balance, December 31, 2020

Other comprehensive income

Other comprehensive loss

Cash dividends paid ($

Sale of treasury stock

Balance, September 30, 2020

Balance, March 31, 2021

See accompanying notes to consolidated financial statements

3 unchanged sentences

Consolidated Statements of Cash Flows

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

5 unchanged sentences

Premium amortization and discount accretion, net

Net gain on securities available-for-sale

Net gain on sale of loans held for sale

Net gain on other real estate owned

Loans originated for sale

1 unchanged sentence

Increase in cash surrender value of bank-owned life insurance

Income recognized from death benefit on bank-owned life insurance

Net increase in other assets

Net (increase) decrease in other assets

Net decrease in accrued expenses and other liabilities

1 unchanged sentence

Cash flows from investing activities:

Proceeds from sales of securities available-for-sale

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

2 unchanged sentences

Net purchases of premises and equipment

Proceeds from bank-owned life insurance death benefit

Decrease (increase) in FHLB stock

Proceeds from sale of other real estate owned

Net cash used in investing activities

(Increase) decrease in FHLB stock

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Net increase in noninterest-bearing deposits

Net (decrease) increase in noninterest-bearing deposits

Net increase in interest-bearing deposits

18 unchanged sentences

Auburn National Bancorporation, Inc.

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

services to individual and

corporate customers in Lee County,

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

to individuals and

commercial 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

AuburnBank (the “Bank”).

The Company does not have any segments other than

banking that are considered material.

Basis of Presentation and Use of Estimates

8 unchanged sentences

necessary to present a fair

statement of the financial position and the results of operations for all periods presented.

statement of the financial position and the results of operations for all periods

All such adjustments are of a

64 unchanged sentences

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.

subsequent to March 31, 2022.

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

Reclassifications

Certain amounts reported in prior periods have been reclassified to conform to the current

-period presentation.

reclassifications had no effect on the Company’s

previously reported net earnings or total stockholders’ equity.

Accounting Developments

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

In the first quarter of 2022, the Company did not adopt any new accounting

BASIC AND DILUTED NET EARNINGS PER SHARE

1 unchanged sentence

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, 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 September 30,

Nine months ended September 30,

the quarters ended March 31, 2022 and 2021, 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

March 31, 2022 and 2021, 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)

3 unchanged sentences

Net earnings per share

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

INTEREST ENTITIES

Generally, a variable interest entity (“VIE”)

is a corporation, partnership, trust or other legal structure that does not have

equity investors with substantive or proportional voting rights or has equity investors

that do not provide sufficient financial

resources for the entity to support its activities.

At March 31, 2022, the Company did not have any consolidated VIEs to disclose but did

have one nonconsolidated VIE,

discussed below.

New Markets Tax

Credit Investment

The New Markets Tax Credit

(“NMTC”) program provides federal tax incentives to investors to make investments in

distressed communities and promotes economic improvement through the development

of successful businesses in these

The NMTC is available to investors over seven years and is subject to recapture if certain events occur

during such period.

At March 31, 2022 and December 31, 2021, respectively,

the Company had one such investment in the

amount of $2.2 million, which was included in other assets in the consolidated

balance sheets.

The Company’s equity

investment meets the definition of a VIE.

While the Company’s

investment exceeds 50% of the outstanding equity

interests, the Company does not consolidate the VIE because it does not

meet the characteristics of a primary beneficiary

since the Company lacks the power to direct the activities of the VIE.

New Markets Tax Credit investment

At March 31, 2022 and December 31, 2021, 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 September 30, 2021 and December

31, 2020, respectively, are

presented below.

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

sale by contractual maturity at March 31, 2022 and December 31, 2021,

respectively, are presented below.

Gross Unrealized

(Dollars in thousands)

September 30, 2021

March 31, 2022

Agency obligations (a)

11 unchanged sentences

million and $

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

million at March 31, 2022 and December 31, 2021,

respectively, were pledged to

4 unchanged sentences

carrying amounts of non-marketable equity investments were $

million and $

million at September 30, 2021 and

December 31, 2020, respectively.

million at March 31, 2022 and December 31, 2021,

respectively.

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

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

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,

The fair values and gross unrealized losses on securities at March 31, 2022

and December 31, 2021, respectively,

5 unchanged sentences

(Dollars in thousands)

September 30, 2021:

March 31, 2022:

Agency obligations

10 unchanged sentences

evaluates, where necessary,

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

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

cash flows to

the securities’ amortized cost basis.

13 unchanged sentences

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

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

make payments that

increase in the future;

3 unchanged sentences

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.

The unrealized losses associated with agency obligations were primarily driven by

increases in market 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

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.

The unrealized losses associated with agency MBS were primarily driven by increases

in market 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.

or government-sponsored

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

or other government support.

Securities of U.S.

2 unchanged sentences

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

were primarily driven by increases

in market 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.

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

As a result, there is a risk that other-than-temporary

impairment charges may occur in the future.

securities could decline in the future if market interest rates continue to

If the financial condition of an issuer (other than the U.S.

government or

its agencies) deteriorates and the

Company determines it is probable that it will not recover the entire amortized cost

basis for the security,

there is a risk that

other-than-temporary impairment charges

may occur in the future.

The Company will evaluate whether any loss is

temporary or not.

Other-Than-Temporarily

2 unchanged sentences

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.

30, 2021 and December 31, 2020, the Company had no credit-impaired debt

securities and there were no additions or

security for other-than-temporary impairment and the credit component of the loss is recognized

2022 and December 31, 2021, 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

ended March 31, 2022 and

2021, 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,

(Dollars in thousands)

Gross realized gains

Gross realized losses

Realized gains, net

The Company had no realized gains and losses on sale of securities during the first quarters ended

March 31, 2022 and

2021, respectively.

LOANS AND ALLOWANCE

FOR LOAN LOSSES

September 30,

(Dollars in thousands)

13 unchanged sentences

of the Company’s total loan portfolio

at September 30, 2021.

September 30, 2021, the Company’s

geographic loan distribution was concentrated primarily in Lee County,

at March 31, 2022.

31, 2022, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

surrounding areas.

4 unchanged sentences

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.

allowance, the loan portfolio included 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

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

Commercial and industrial (“C&I”) —

4 unchanged sentences

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 with the

requirements of the PPP.

The Company had

PPP loans with an aggregate outstanding principal balance of

million and $

million, included in this category, as

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

As of March 31, 2022, the Company has 82 PPP loans with an aggregate outstanding principal

balance of $4.1

million included in this category.

The Company had 138 PPP loans with an aggregate principal balance of $8.1

included in this category at December 31, 2021.

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

12 unchanged sentences

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

owner-occupied facilities primarily for small and medium-sized

commercial customers.

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,

13 unchanged sentences

– 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.

other than hotels/motels and

multi-family properties, and which

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”) —

5 unchanged sentences

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

These loans are underwritten in

with the Bank’s general loan policies

and procedures which require, among other things, proper documentation of

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

18 unchanged sentences

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.

segment and class as of March

31, 2022 and December 31, 2021.

(Dollars in thousands)

September 30, 2021:

March 31, 2022:

Commercial and industrial

30 unchanged sentences

recommendations.

evaluation is inherently subjective as it requires material estimates including the amounts

and timing of future cash flows

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.

4 unchanged sentences

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

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.

20 unchanged sentences

loan review processes.

The Company’s loan

review process assists in determining whether there are loans in the portfolio

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

3 unchanged sentences

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

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.

14 unchanged sentences

internal system of

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

loan segments where the Company believes it

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 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.

At March 31, 2022 and December 31, 2021, 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

allocation for qualitative and environmental factors

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

12 unchanged sentences

for loan losses.

Since the fourth quarter of

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

The Company’s look-back

period each quarter incorporates the effects of at least one economic downturn

in its loss history.

Company believes

this look-back period is appropriate due to the risks inherent in the loan portfolio.

Absent this look-back period,

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 March 31, 2022, the Company increased

its look-back period to 52 quarters to continue to include losses incurred by the Company

beginning with the first quarter of

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.

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 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.

During 2020, the Company

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.

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

factors, previously downgraded as a result of the COVID-19 pandemic, to reflect improvements in

economic conditions in

our primary market area.

Further adjustments may be made from time to time in the future as a result of the COVID-19

pandemic and other changes in economic conditions.

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

for the respective periods.

September 30, 2021

March 31, 2022

(Dollars in thousands)

2 unchanged sentences

Beginning balance

Net recoveries

Provision for loan losses

Ending balance

Nine months ended:

Beginning balance

Net recoveries

Net recoveries (charge-offs)

Provision for loan losses

Ending balance

September 30, 2020

March 31, 2021

(Dollars in thousands)

2 unchanged sentences

Beginning balance

Net recoveries

Provision for loan losses

Ending balance

Nine months ended:

Beginning balance

Net recoveries (charge-offs)

3 unchanged sentences

investment in loans by portfolio

segment and impairment methodology as of September 30, 2021 and 2020.

segment and impairment methodology as of March 31, 2022 and 2021.

Collectively evaluated (1)

1 unchanged sentence

(Dollars in thousands)

September 30, 2021:

March 31, 2022:

Commercial and industrial (3)

3 unchanged sentences

Consumer installment

September 30, 2020:

March 31, 2021:

Commercial and industrial (4)

12 unchanged sentences

for impaired loans.

Includes $13.3 million of PPP loans for which no allowance

for loan losses was allocated due to 100% SBA guarantee.

Includes $4.1 million of PPP loans for which no

allowance for loan losses was allocated due to

100% SBA guarantee.

Includes $28.7 million of PPP loans for which no allowance

8 unchanged sentences

the associated allowance for

loan losses using historical losses adjusted for qualitative and environmental factors

and are defined as follows:

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

15 unchanged sentences

(Dollars in thousands)

September 30, 2021:

March 31, 2022:

Commercial and industrial

22 unchanged sentences

impaired loans.

Loans that have been fully charged-off

Loans that have been fully charged-off are

not included in the following tables.

2 unchanged sentences

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

Individually evaluated impaired loans equal to or greater than $250,000 not secured

Individually evaluated impaired loans equal to or greater than $500 thousand secured

by real estate (nonaccrual

commercial and industrial and consumer installment loans).

All troubled debt restructurings.

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

Individually evaluated impaired loans equal to or greater than $250 thousand 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, 2021 and December 31, 2020.

September 30, 2021

for impairment at March 31, 2022 and December 31, 2021.

March 31, 2022

(Dollars in thousands)

7 unchanged sentences

Total commercial real estate

Residential real estate:

Investment property

Total residential real estate

impaired loans

39 unchanged sentences

respective periods.

Quarter ended September 30, 2021

Nine months ended September 30, 2021

Total interest

(Dollars in thousands)

Impaired loans:

Commercial real estate:

Total commercial real estate

Residential real estate:

Investment property

Total residential real estate

Quarter ended September 30, 2020

Nine months ended September 30, 2020

Quarter ended March 31, 2022

Quarter ended March 31, 2021

Total interest

10 unchanged sentences

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

Troubled Debt Restructurings,” provides banks the option

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

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

On April 7, 2020, the Federal

Reserve and the other banking 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

In addition, the Interagency

Statement on COVID-19 Loan Modifications, encourages banks to

work prudently with borrowers and describes 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.

3 unchanged sentences

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

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.

1 unchanged sentence

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

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

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.

Interagency Statement and related regulatory guidance on COVID-19 Loan Modifications

in accordance with FASB

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 risk characteristics

similar to the restructured debt.

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

1 unchanged sentence

the loan’s original effective

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

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

collateral dependent.

3 unchanged sentences

-off to the allowance for loan losses.

In periods subsequent to the modification, all TDRs are individually evaluated

In periods subsequent to the modification, all TDRs are evaluated individually,

including those that have payment defaults,

for possible impairment.

1 unchanged sentence

loan totals, and the

related allowance for loan losses, by portfolio segment and class as of September 30,

related allowance for loan losses, by portfolio segment and class as of March 31, 2022

and December 31, 2021,

1 unchanged sentence

(Dollars in thousands)

September 30, 2021

March 31, 2022

Commercial real estate:

Total commercial real estate

Residential real estate:

Investment property

Total residential real estate

(In thousands)

4 unchanged sentences

Total residential real estate

At September 30, 2021 there were no significant outstanding commitments to advance

additional funds to customers whose

At March 31, 2022 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

Residential real estate:

Investment property

Total residential real estate

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).

There were no loans modified in a TDR during the quarters ended March 31,

2022 and 2021, respectively.

periods, the Company had no loans modified in a TDR within the previous 12

months for which there was a payment

MORTGAGE SERVICING

2 unchanged sentences

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

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 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.

Increases in market interest rates generally increase the fair value of MSRs by reducing

prepayments and refinancings and

therefore the prepayment speed.

The Company has recorded MSRs related to loans sold 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.

The Company evaluates MSRs for impairment on a quarterly basis.

5 unchanged sentences

as the fair value changes.

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

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,

The change in amortized MSRs and the related valuation allowance for the quarters

ended March 31, 2022 and 2021 are

presented below.

Quarter ended March 31,

(Dollars in thousands)

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, 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

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.

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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

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

11 unchanged sentences

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

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

For the quarter ended

March 31, 2022, 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

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 that

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

trades for similar securities, market

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

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

1 unchanged sentence

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

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

2 unchanged sentences

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).

on a recurring basis as of March

31, 2022 and December 31, 2021, 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, 2021:

March 31, 2022:

Securities available-for-sale:

51 unchanged sentences

on the same factors discussed above.

Other real estate owned

Other real estate

owned, consisting of properties obtained through foreclosure or in satisfaction

of loans, are initially

recorded at the lower of the loan’s carrying amount

or the fair value less costs to sell upon transfer of the loans to other rea.

Subsequently, other real

estate 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.

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.

where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized

in noninterest expense.

Mortgage servicing rights, net

16 unchanged sentences

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.

4 unchanged sentences

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):

March 31, 2022 and December 31, 2021, 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)

September 30, 2021:

March 31, 2022:

Loans held for sale

6 unchanged sentences

of any related allowance for loan losses.

Represents MSRs, net.

These are carried at lower of cost or estimated

Represents other real estate owned and MSRs, net

both of which 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

At March 31, 2022 and December 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, 2022

and December 31, 2021, the

significant unobservable inputs used in the fair value measurements are presented

(Dollars in thousands)

1 unchanged sentence

Unobservable Input

September 30, 2021:

March 31, 2022:

Impaired loans

Appraisal discounts

Other real estate owned

Appraisal discount

Mortgage servicing rights, net

5 unchanged sentences

Appraisal discounts

Other real estate owned

Appraisal discounts

Mortgage servicing rights, net

6 unchanged sentences

whether or not

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

recognized on the face of the balance sheet, for which it is practicable to estimate that value.

The assumptions used in the

31 unchanged sentences

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

instruments at March 31, 2022 and December 31, 2021 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

Financial liabilities for which fair value approximates carrying value included

noninterest-bearing demand deposits,

8 unchanged sentences

(Dollars in thousands)

September 30, 2021:

March 31, 2022:

Financial Assets:

13 unchanged sentences

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