What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 146 added, 117 removed, 832 unchanged (24% of the section changed)

3 unchanged sentences

(dollars in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

18 unchanged sentences

Short-term borrowings

Subordinated debentures, net

Long-term debt

Subordinated debentures

Other liabilities

4 unchanged sentences

24,000,000 shares authorized;

15,410,763 and 15,388,423 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

15,382,518 and 15,388,423 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

6 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(dollars in thousands, except per share data, unaudited)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Interest and dividend income

32 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(dollars in thousands, unaudited)

Three months ended June 30,

Six months ended June 30,

Other comprehensive income (loss), before tax:

Three months ended September 30,

Nine months ended September 30,

Other comprehensive (loss) income, before tax:

Unrealized gains on securities:

Unrealized holding (loss) gain arising during period

reclassification adjustment for gains included in net income (1)

Other comprehensive income (loss), before tax

reclassification adjustment for (losses) gains included in net income (1)

Other comprehensive (loss) income, before tax

Income tax (expense) benefit related to items of other comprehensive (loss) income, net of tax

Other comprehensive income (loss)

Other comprehensive (loss) income

Comprehensive income

(1) Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest income.

Income tax expense associated with the reclassification adjustment for the three months ended June 30, 2021 and 2020 was $ 0 and $ 0.1 million respectively.

Income tax expense associated with the reclassification adjustment for the six months ended June 30, 2021 and 2020 was $ 0 and $ 0.1 million respectively.

Income tax expense associated with the reclassification adjustment for the three months ended September 30, 2021 and 2020 was $ 3 thousand and $ 0 respectively.

Income tax expense associated with the reclassification adjustment for the nine months ended September 30, 2021 and 2020 was $ 3 thousand and $ 115 thousand respectively.

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(dollars in thousands, except per share data, unaudited)

1 unchanged sentence

Shareholders'

Balance, March 31, 2020

Income (Loss)

Balance, June 30, 2020

Other comprehensive income, net of tax

Exercise of stock options

Stock based compensation expense

Unvested restricted stock issued

Stock compensation costs

Cash dividends - $ 0.20 per share

Balance, September 30, 2020

Balance, June 30, 2021

Balance, March 31, 2021

Other comprehensive loss, net of tax

Exercise of stock options

Stock based compensation expense

Stock repurchase

Cash dividends - $ 0.22 per share

Balance, June 30, 2021

Balance, September 30, 2021

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(dollars in thousands, except per share data, unaudited)

8 unchanged sentences

Cash dividends - $ 0.60 per share

Balance, June 30, 2020

Balance, September 30, 2020

Balance, December 31, 2020

2 unchanged sentences

Stock based compensation expense

Stock repurchase

Cash dividends - $ 0.65 per share

Balance, June 30, 2021

Balance, September 30, 2021

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(dollars in thousands, unaudited)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

1 unchanged sentence

Gain on sales of securities

Loss on disposal of fixed assets

(Gain) loss on sale on foreclosed assets

Gain on disposal of fixed assets

Gain on sale on foreclosed assets

Writedowns on foreclosed assets

6 unchanged sentences

Amortization of core deposit intangible

Decrease (increase) in interest receivable and other assets

(Decrease) increase in other liabilities

Increase in interest receivable and other assets

Decrease in other liabilities

Deferred income tax benefit

10 unchanged sentences

Purchases of premises and equipment

Proceeds from sale premises and equipment

Proceeds from sales of foreclosed assets

1 unchanged sentence

Liquidation of bank-owned life insurance

Proceeds from BOLI death benefit

Net cash provided by (used in) investing activities

6 unchanged sentences

Stock options exercised

Proceeds from issuance of subordinated debt

Net cash provided by financing activities

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

September 30, 2021

Note 1 – The Business of Sierra Bancorp

2 unchanged sentences

The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish.

As of June 30, 2021, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”).

As of September 30, 2021, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”).

Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements.

7 unchanged sentences

In addition, in February 2020 the bank opened a loan production office which is currently located in Roseville, CA.

The Company had total assets of $ 3.3 billion at June 30, 2021, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley.

The Bank’s deposit accounts, which totaled $ 2.8 billion at June 30, 2021, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

The Company had total assets of $ 3.4 billion at September 30, 2021, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley.

The Bank’s deposit accounts, which totaled $ 2.8 billion at September 30, 2021, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

Note 2 – Basis of Presentation

29 unchanged sentences

and, debt securities on which other-than-temporary impairment had been recognized prior to the effective date will transition to the new guidance prospectively with no change in their amortized cost basis.

The Company plans to implement CECL on January 1, 2022 and the impact of adoption has not yet been definitively determined, due in part to changing economic forecasts and the sensitization of various inputs into the Company’s calculation.

The Company plans to continue to closely monitor economic forecasts and further evaluate model inputs in advance of our planned implementation on January 1, 2022.

The Company plans to continue to sensitize inputs, assumptions, and methodologies within its CECL estimation process during 2021 as we prepare for implementation on January 1, 2022.

Changes in economic forecasts, or other key assumptions, prior to the implementation of CECL on January 1, 2022, could impact the magnitude of the implementation adjustment.

The Company plans to implement CECL on January 1, 2022.

As of September 30, 2021, we would expect the implementation adjustment to be approximately 50 % to 75 % of the current balance of the allowance for loan and lease losses.

Changes in economic forecasts, or other key assumptions including qualitative factors, and refreshed regression data correlated to loss drivers prior to the implementation of CECL on January 1, 2022, could impact the magnitude of the implementation adjustment.

On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

6 unchanged sentences

See Note 10 for further information on non-TDR loan modifications.

The impact of the Interagency Guidance and Section 4013, as amended, on the Company’s financial statements has not been material through June 30, 2021, but the ultimate impact of the relief provided by these government loan modification provisions cannot be determined at this time.

The impact of the Interagency Guidance and Section 4013, as amended, on the Company’s financial statements has not been material through September 30, 2021, but the ultimate impact of the relief provided by these government loan modification provisions cannot be determined at this time.

Note 4 – Share Based Compensation

1 unchanged sentence

The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15,

Options to purchase 197,929 shares that were granted under the 2007 Plan were still outstanding as of June 30, 2021 and remain unaffected by that plan’s expiration.

Options to purchase 193,609 shares that were granted under the 2007 Plan were still outstanding as of September 30, 2021 and remain unaffected by that plan’s expiration.

The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors and consultants of the Company.

The 2017 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants.

The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2017 Plan was initially 850,000 shares, and the number remaining available for grant as of June 30, 2021 was 406,054 .

Options to purchase 438,746 shares granted under the 2017 Plan were outstanding as of June 30, 2021.

Options to purchase 254,681 shares granted under the 2017 Plan were outstanding as of September 30, 2021.

The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share.

1 unchanged sentence

The Company utilizes a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Forfeitures are recognized as they occur for both types of awards.

A pre-tax charge of $ 0.2 million was reflected in the Company’s income statement during the second quarter of 2021 and $ 0.1 million was charged during the second quarter of 2020, as expense related to stock options and restricted stock awards.

For the first half, the charges totaled $ 0.5 million in 2021 and $ 0.2 million in 2020.

Forfeitures are reflected in compensation costs as they occur for both types of awards.

A pre-tax charge of $ 0.2 million was reflected in the Company’s income statement during the third quarter of 2021 and $ 0.2 million was charged during the third quarter of 2020, as expense related to stock options and restricted stock awards.

For the first nine months, the charges totaled $ 0.7 million in 2021 and $ 0.4 million in 2020.

Restricted Stock Grants

3 unchanged sentences

Restricted Stock Awards are valued utilizing the fair value of the Company’s stock at the grant date.

During the first half of 2021 18,180 shares were granted to employees and directors of the Company.

During the first nine months of 2021 18,180 shares were granted to employees and directors of the Company.

These awards are expensed on a straight-line basis over the vesting period.

As of June 30, 2021, there was $ 2.5 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan.

As of September 30, 2021, there was $ 2.0 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan.

That cost is expected to be amortized over a weighted average period of 3.6 years.

The Company’s time-vested award activity for the six months ended June 30, 2021 and 2020 is summarized below (unaudited):

Six months ended June 30,

The Company’s time-vested award activity for the nine months ended September 30, 2021 and 2020 is summarized below (unaudited):

Nine months ended September 30,

Weighted Average Grant-Date Fair Value

1 unchanged sentence

Unvested shares, January 1,

Unvested shares June 30,

Unvested shares September 30,

Stock Option Grants

The Company has issued equity instruments in the form of Incentive Stock Options and Nonqualified Stock Options to certain officers and directors and may continue to do so under the 2017 Plan.

The exercise price of each stock option is

determined at the time of the grant and may be no less than 100% of the fair market value of such stock at the time the option is granted.

The Company’s stock option activity during the three months ended June 30, 2021 and 2020 are summarized below (dollars in thousands, except per share data, unaudited):

Six months ended June 30,

The exercise price of each stock option is determined at the time of the grant and may be no less than 100% of the fair market value of such stock at the time the option is granted.

The Company’s stock option activity during the nine months ended September 30, 2021 and 2020 are summarized below (dollars in thousands, except per share data, unaudited):

Nine months ended September 30,

Weighted Average

5 unchanged sentences

Outstanding at January 1,

Outstanding at June 30,

Exercisable at June 30,

(1) The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on June 30, 2021.

Outstanding at September 30,

Exercisable at September 30,

This amount changes based on changes in the market value of the Company's stock.

1 unchanged sentence

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards.

There were 15,243,698 weighted average shares outstanding during the second quarter of 2021 and 15,191,823 during the second quarter of 2020, while there were 15,242,451 weighted average shares outstanding during the first six months of 2021 and 15,226,748 during the first six months of 2020.

There were 15,257,367 weighted average shares outstanding during the third quarter of 2021 and 15,192,838 during the third quarter of 2020, while there were 15,247,477 weighted average shares outstanding during the first nine months of 2021 and 15,215,167 during the first nine months of 2020.

Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options, and unvested restricted stock awards.

For the second quarter of 2021, calculations under the treasury stock method resulted in the equivalent of 132,127 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 335,481 stock options were excluded from the calculation because they were underwater and thus anti-dilutive.

For the second quarter of 2020 the equivalent of 45,832 shares were added in calculating diluted earnings per share, while 367,884 anti-dilutive stock options were not factored into the computation.

Likewise, for the first half of 2021 the equivalent of 123,515 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 345,748 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 61,261 shares and non-inclusion of 336,123 anti-dilutive options in calculating diluted earnings per share for first half of 2020.

For the third quarter of 2021, calculations under the treasury stock method resulted in the equivalent of 86,176 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 327,346 stock options were excluded from the calculation because they were underwater and thus anti-dilutive.

For the third quarter of 2020 the equivalent of 45,586 shares were added in calculating diluted earnings per share, while 362,407 anti-dilutive stock options were not factored into the computation.

Likewise, for the nine months of 2021 the equivalent of 121,772 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 339,546 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 58,595 shares and non-inclusion of 344,814 anti-dilutive options in calculating diluted earnings per share for first nine months of 2020.

Note 6 – Comprehensive Income

7 unchanged sentences

The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the balance sheet.

The Company uses the same credit policies in

making commitments and issuing letters of credit as it does for originating loans included on the balance sheet.

The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

June 30, 2021

September 30, 2021

December 31, 2020

11 unchanged sentences

Standby letters of credit are issued by the Company to guarantee the performance of a customer to a third party, and the credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers.

At June 30, 2021, the Company was also utilizing a letter of credit in the amount of $ 105 million issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.

At September 30, 2021, the Company was also utilizing a letter of credit in the amount of $ 105 million issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.

That letter of credit is backed by loans which are pledged to the FHLB by the Company.

The Company is subject to loss contingencies, including claims and legal actions arising in the ordinary course of business, which are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated.

Management does not believe there are such matters that will have a material effect on the financial statements.

Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements

17 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

Fair Value Measurements

9 unchanged sentences

Repurchase agreements

Short term borrowings

Long-term debt

Subordinated debentures

13 unchanged sentences

Subordinated debentures

For financial asset categories that were carried on our balance sheet at fair value as of June 30, 2021 and December 31, 2020, the Company used the following methods and significant assumptions:

For financial asset categories that were carried on our balance sheet at fair value as of September 30, 2021 and December 31, 2020, the Company used the following methods and significant assumptions:

● Investment securities :

12 unchanged sentences

(dollars in thousands, unaudited)

Fair Value Measurements at June 30, 2021, using

Fair Value Measurements at September 30, 2021, using

Quoted Prices in

4 unchanged sentences

State and political subdivisions

Corporate bonds

Collateralized loan obligations

Total available-for-sale securities

10 unchanged sentences

(dollars in thousands, unaudited)

Fair Value Measurements at June 30, 2021, using

Fair Value Measurements at September 30, 2021, using

Quoted Prices in

47 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

Estimated Fair

3 unchanged sentences

Corporate bonds

Collateralized loan obligations

Total securities

4 unchanged sentences

State and political subdivisions

Corporate bonds

Total securities

At June 30, 2021 and December 31, 2020, the Company had 31 securities and 2 securities, respectively, with gross unrealized losses.

At September 30, 2021 and December 31, 2020, the Company had 58 securities and 2 securities, respectively, with gross unrealized losses.

Management has evaluated those securities as of the respective dates, and does not believe that any of the unrealized losses are other than temporary.

2 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

Less than twelve months

4 unchanged sentences

Corporate bonds

Collateralized loan obligations

December 31, 2020

5 unchanged sentences

Corporate bonds

Collateralized loan obligations

The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:

1 unchanged sentence

(dollars in thousands, unaudited)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Proceeds from sales, calls and maturities of securities available for sale

2 unchanged sentences

Net gains on sale of securities available for sale

The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2021 and December 31, 2020 are shown below, grouped by the remaining time to contractual maturity dates.

The amortized cost and estimated fair value of investment securities available-for-sale at September 30, 2021 and December 31, 2020 are shown below, grouped by the remaining time to contractual maturity dates.

The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities might have the right to call or prepay obligations with or without penalties.

1 unchanged sentence

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

Amortized Cost

6 unchanged sentences

Collateralized mortgage obligations

Collateralized loan obligations

December 31, 2020

7 unchanged sentences

Collateralized mortgage obligations

At June 30, 2021, the Company’s investment portfolio included 369 “muni” bonds issued by 302 different government municipalities and agencies located within 31 different states, with an aggregate fair value of $ 257.3 million.

At September 30, 2021, the Company’s investment portfolio included 398 “muni” bonds issued by 330 different government municipalities and agencies located within 32 different states, with an aggregate fair value of $ 292.1 million.

The largest exposure to any single municipality or agency was a combined $ 4.0 million (fair value) in general obligation bonds issued by the Charter Township of Washington County (MI).

In addition, the Company owned 9 subordinated debentures issues by bank holding companies totaling $ 10.7 million (fair value).

In addition, the Company owned 14 subordinated debentures issued by bank holding companies totaling $ 16.3 million (fair value).

The Company’s investments in bonds issued by corporations, states, municipalities and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance.

4 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

December 31, 2020

12 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

December 31, 2020

11 unchanged sentences

The income statement reflects tax credits and any other tax benefits from these investments “below the line” within our income tax provision, while the initial book value of the investment is amortized on a straight-line basis as an offset to noninterest income, over the time period in which the tax credits and tax benefits are expected to be received.

As of June 30, 2021, our total LIHTC investment book balance was $ 3.2 million, which includes $ 0.1 million in remaining commitments for additional capital contributions.

There were $ 0.3 million in tax credits derived from our LIHTC investments that were recognized during the six months ended June 30, 2021, and amortization expense of $ 0.2 million associated with those investments was netted against pre-tax noninterest income for the same time period.

As of September 30, 2021, our total LIHTC investment book balance was $ 3.1 million, which includes $ 0.1 million in remaining commitments for additional capital contributions.

There were $ 0.4 million in tax credits derived from our LIHTC investments that were recognized during the nine months ended September 30, 2021, and amortization expense of $ 0.4 million associated with those investments was netted against pre-tax noninterest income for the same time period.

Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired.

16 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

1-4 family residential construction

24 unchanged sentences

The Company’s foreclosed assets include OREO, which consists of commercial and/or residential real estate properties acquired by foreclosure or similar means that the Company is offering or will offer for sale.

Foreclosed assets totaled $ 0.8 million at June 30, 2021, and $ 1.0 million at December 31, 2020.

Gross nonperforming loans totaled $ 7.3 million at June 30, 2021 and $ 7.6 million at December 31, 2020.

Foreclosed assets totaled $ 0.1 million at September 30, 2021, and $ 1.0 million at December 31, 2020.

Gross nonperforming loans totaled $ 6.8 million at September 30, 2021 and $ 7.6 million at December 31, 2020.

Loans and leases are classified as nonperforming when reasonable doubt surfaces with regard to the ability of the Company to collect all principal and interest.

At that point, we stop accruing interest on the loan or lease in question and reverse any previously recognized interest to the extent that it

is uncollected or associated with interest-reserve loans.

At that point, we stop accruing interest on the loan or lease in question and reverse any previously recognized

interest to the extent that it is uncollected or associated with interest-reserve loans.

Any asset for which principal or interest has been in default for 90 days or more is also placed on non-accrual status even if interest is still being received, unless the asset is both well secured and in the process of collection.

As of June 30, 2021, the Company had $ 10.4 million in loans with payment deferrals either under section 4013 of the CARES Act or the April 7, 2020 Interagency Statement.

As of September 30, 2021, the Company had $ 10.4 million in loans with payment deferrals either under section 4013 of the CARES Act or the April 7, 2020 Interagency Statement.

An aging of the Company’s loan balances is presented in the following tables, by number of days past due as of the indicated dates:

1 unchanged sentence

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

More Past Due (1)

10 unchanged sentences

Total gross loans and leases

(1) As of June 30, 2021, there were no loans over 90 days past due and still accruing.

(1) As of September 30, 2021, there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

18 unchanged sentences

A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (TDR) if the modification constitutes a concession, excluding loan modifications that are COVID-19 related and made in accordance with the interagency guidance and the CARES Act as described in Note 3, above.

At June 30, 2021, the Company had a total of $ 12.4 million in TDRs, including $ 1.7 million in TDRs that were on non-accrual status.

At September 30, 2021, the Company had a total of $ 7.8 million in TDRs, including $ 2.3 million in TDRs that were on non-accrual status.

Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms.

5 unchanged sentences

(dollars in thousands, unaudited)

Three months ended June 30, 2021

Three months ended September 30, 2021

Rate Modification

9 unchanged sentences

Consumer loans

Three months ended June 30, 2020

Three months ended September 30, 2020

Rate Modification

11 unchanged sentences

(dollars in thousands, unaudited)

Six months ended June 30, 2021

Nine months ended September 30, 2021

Rate Modification

9 unchanged sentences

Consumer loans

Six months ended June 30, 2020

Nine months ended September 30, 2020

Rate Modification

11 unchanged sentences

(dollars in thousands, unaudited)

Three months ended June 30, 2021

Three months ended September 30, 2021

Difference ⁽ ¹ ⁾

7 unchanged sentences

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

Three months ended June 30, 2020

Three months ended September 30, 2020

Difference ⁽ ¹ ⁾

9 unchanged sentences

(dollars in thousands, unaudited)

Six months ended June 30, 2021

Nine months ended September 30, 2021

Difference ⁽ ¹ ⁾

7 unchanged sentences

Six months ended June 30, 2020

Nine months ended September 30, 2020

Difference ⁽ ¹ ⁾

7 unchanged sentences

The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three- or six-month periods ended June 30, 2021 and 2020.

The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three- or nine-month periods ended September 30, 2021 and 2020.

Purchased Credit Impaired Loans

12 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

Unpaid Principal Balance

7 unchanged sentences

Total purchased credit impaired loans

There was no allowance for loan losses allocated for PCI loans as of June 30, 2021 or December 31, 2020.

There was no discount accretion recorded on PCI loans during the six months ended June 30, 2021.

There was no allowance for loan losses allocated for PCI loans as of September 30, 2021 or December 31, 2020.

There was no discount accretion recorded on PCI loans during the nine months ended September 30, 2021.

Note 11 – Allowance for Loan and Lease Losses

8 unchanged sentences

Balances are shown by loan type, and are further broken out by those that required an allowance and those that did not, with the associated allowance disclosed for those that required such.

Included in the valuation allowance for impaired loans shown in the tables below are specific reserves allocated to TDRs, totaling $ 0.7 million at June 30, 2021 and $ 0.6 million at December 31, 2020.

Included in the valuation allowance for impaired loans shown in the tables below are specific reserves allocated to TDRs, totaling $ 0.5 million at September 30, 2021 and $ 0.6 million at December 31, 2020.

Impaired Loans

(dollars in thousands, unaudited)

June 30, 2021

September 30, 2021

Unpaid Principal

57 unchanged sentences

allowance is adjusted, as necessary, once a new appraisal is received.

Updated appraisals are generally ordered at least annually for collateral-dependent loans that remain impaired, and current appraisals were available or in process for 68 % of the Company’s impaired real estate loan balances at June 30, 2021.

Updated appraisals are generally ordered at least annually for collateral-dependent loans that remain impaired, and current appraisals were available or in process for 71 % of the Company’s impaired real estate loan balances at September 30, 2021.

Furthermore, the Company analyzes collateral-dependent loans on at least a quarterly basis, to determine if any portion of the recorded investment in such loans can be identified as uncollectible and would therefore constitute a confirmed loss.

9 unchanged sentences

Lending policies and procedures (including underwriting standards), the experience and abilities of lending staff, the quality of loan review, credit concentrations (by geography, loan type, industry and collateral type), the rate of loan portfolio growth, and changes in legal or regulatory requirements are additional factors that are considered.

The total general reserve established for probable incurred losses on unimpaired loans was $ 15.1 million at June 30, 2021.

There were no material changes to the methodology used to determine our allowance for loan and lease losses during the three months ended June 30, 2021, although as outlined in Note 3 to the consolidated financial statements we will substantially update our methodology upon the implementation of the CECL accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-13 and related amendments, Financial Instruments – Credit Losses (Topic 326) to the earlier of the first day of the fiscal year, beginning after the national emergency related to the outbreak of COVID-19 terminates or January 1, 2022.

The total general reserve established for probable incurred losses on unimpaired loans was $ 14.6 million at September 30, 2021.

There were no material changes to the methodology used to determine our allowance for loan and lease losses during the three months ended September 30, 2021, although as outlined in Note 3 to the consolidated financial statements we will substantially update our methodology upon the implementation of the CECL accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-13 and related amendments, Financial Instruments – Credit Losses (Topic 326) to the earlier of the first day of the fiscal year, beginning after the national emergency related to the outbreak of COVID-19 terminates or January 1, 2022.

Moreover, we will continue to enhance our methodology as needed in order to comply with regulatory and accounting requirements, keep pace with the size and complexity of our loan and lease portfolio, and respond to pressures created by external forces.

3 unchanged sentences

(dollars in thousands, unaudited)

Three months ended June 30, 2021

Three months ended September 30, 2021

Commercial and

4 unchanged sentences

Ending balance

Six months ended June 30, 2021

Nine months ended September 30, 2021

Commercial and

20 unchanged sentences

(dollars in thousands, unaudited)

Six months ended June 30, 2020

Nine months ended September 30, 2020

Commercial and

8 unchanged sentences

(1) Includes mortgage warehouse lines.

Note 12 – Long-Term Debt

Long-Term Debt

(dollars in thousands, unaudited)

September 30, 2021

December 31, 2020

Debt Issuance

Fixed - floating rate subordinated debentures, due 2031 (1)

Total long-term debt

(1) 3.25 % fixed rate for five years, then floating rate beginning October 1, 2026 at 253.5 basis points over 3-month term SOFR adjusted quarterly .

Note 13 – Revenue Recognition

4 unchanged sentences

The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP.

In total, approximately 25.0 % and 28.4 % of the Company’s noninterest revenue was outside of the scope of the ASC 606 for the three- and six- month periods ended June 30, 2021, respectively.

All of the Company’s revenue from contracts within the scope of ASC 606 is recognized as noninterest income, except for gains on the sale of OREO which is classified as noninterest expense.

The following table presents the Company’s

sources of noninterest income for the three-month periods ended June 30, 2021 and 2020.

The following table presents the Company’s sources of noninterest income for the three- and nine-month periods ended September 30, 2021 and 2020.

Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited).

For the three months ended June 30,

For the six months ended June 30,

For the three months ended September 30,

For the nine months ended September 30,

Noninterest income

13 unchanged sentences

Total noninterest expense

Percentage of noninterest revenue not within scope of ASC 606.

(1) Not within scope of ASC 606.

1 unchanged sentence

With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed, and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606.

Note 14 – Subsequent Events

On October 21, 2021 the Board approved the 2021 Share Repurchase Plan which authorizes 1,000,000 shares of common stock for repurchase.

In conjunction with this action, the Board terminated the current Share Repurchase Plan which authorized 500,000 shares of common stock for repurchase.

There were 268,301 shares remaining for repurchase under the current Share Repurchase Plan.

Those remaining shares were rolled into the 2021 Share Repurchase Plan, which are included in the 1,000,000 shares authorized for repurchase.

The Company plans to commence repurchases of shares in the fourth quarter of 2021.

PART I - FINANCIAL INFORMATION

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