What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 154 added, 151 removed, 627 unchanged (33% of the section changed)

Financial Statements

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands)

September 30,

Cash and due from banks

Interest earning deposits with other banks (restricted cash of $ 0 and $ 27,355

at June 30, 2020 and December 31, 2019, respectively)

at September 30, 2020 and December 31, 2019, respectively)

Investment securities, available for sale, at fair value

14 unchanged sentences

Principal amount $ 10,000 (less unamortized debt issuance costs of $ 11

and $ 21 at June 30, 2020 and December 31, 2019, respectively)

and $ 21 at September 30, 2020 and December 31, 2019, respectively)

Junior subordinated debentures

Principal amount $ 3,609 (less unamortized debt issuance costs of $ 25

and $26 at June 30, 2020 and December 31, 2019, respectively)

and $ 26 at September 30, 2020 and December 31, 2019, respectively)

Deferred compensation

5 unchanged sentences

Preferred stock, no par value:

25,000,000 shares at June 30, 2020 and December 31, 2019;

25,000,000 shares at September 30, 2020 and December 31, 2019;

issued and outstanding:

zero shares at June 30, 2020 and December 31, 2019

zero shares at September 30, 2020 and December 31, 2019

Common stock, no par value:

300,000,000 shares at June 30, 2020 and December 31, 2019;

11,926,263 voting shares at June 30, 2020 issued and outstanding

300,000,000 shares at September 30, 2020 and December 31, 2019;

11,930,243 voting shares at September 30, 2020 issued and outstanding

and 11,913,885 voting shares at December 31, 2019 issued and outstanding

4 unchanged sentences

See accompanying Notes to Condensed Consolidated Financial Statements.

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except for per share data)

Three months ended June 30,

Six months ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

INTEREST AND DIVIDEND INCOME

17 unchanged sentences

Gain on sales of loans, net

Gain on sales of securities, net

Total noninterest income

14 unchanged sentences

See accompanying Notes to Condensed Consolidated Financial Statements.

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(dollars in thousands)

Three months ended June 30,

Six months ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

OTHER COMPREHENSIVE INCOME, before tax

2 unchanged sentences

Income tax benefit (expense) related to unrealized holding

Reclassification adjustment for net gain from sale of

investment securities available for sale included

Income tax provision related to net gain from sale of

investment securities available for sale included in income

OTHER COMPREHENSIVE (LOSS) INCOME, net of tax

1 unchanged sentence

See accompanying Notes to Condensed Consolidated Financial Statements.

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(dollars in thousands)

Amount of Common

Comprehensive

Income (Loss)

BALANCE, March 31, 2019

Issuance of restricted stock awards

Forfeiture of restricted stock awards

BALANCE, June 30, 2019

Exercise of stock options

1 unchanged sentence

Other comprehensive income

BALANCE, September 30, 2019

BALANCE, June 30, 2020

BALANCE, March 31, 2020

Forfeiture of restricted stock awards

Exercise of stock options

1 unchanged sentence

Other comprehensive loss

BALANCE, June 30, 2020

BALANCE, September 30, 2020

BALANCE, December 31, 2018

4 unchanged sentences

Other comprehensive income

BALANCE, June 30, 2019

BALANCE, September 30, 2019

BALANCE, December 31, 2019

4 unchanged sentences

Other comprehensive income

BALANCE, June 30, 2020

BALANCE, September 30, 2020

S ee accompanying Notes to Condensed Consolidated Financial Statements.

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollars in thousands)

Six months ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

6 unchanged sentences

Gain on sales of loans

Gain on sale of securities, net

Net premium amortization (discount accretion) on investment securities

1 unchanged sentence

Increase in bank-owned life insurance value

Deferred tax (benefit) expense

Deferred tax benefit

Net change in other assets and liabilities

2 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Net (increase) decrease in interest earning deposits with other banks

Net increase in interest earning deposits with other banks

Purchase of investment securities available for sale

Purchase of investment securities held-to-maturity

Proceeds from sale of available for sale securities

Change in other investments, net

9 unchanged sentences

Net increase in demand deposits, NOW and money market, and savings

Net (decrease) increase in time deposits

Net decrease in time deposits

Net repayments from short term FHLB borrowing

16 unchanged sentences

See accompanying Notes to Condensed Consolidated Financial Statements.

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9 unchanged sentences

The Bank’s loans and deposits are primarily within the greater Puget Sound area, and the Bank’s primary funding source is deposits from customers.

The Bank also provides banking as a service (“BaaS”) that allow the Company’s broker dealers and digital financial service partners to offer their customers banking services.

The Bank also provides banking as a service (“BaaS”) that allow the Company’s broker dealers and digital financial service providers to offer their customers banking services.

In 2021, the Bank expects to introduce a digital bank offering in collaboration with Google.

The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks.

4 unchanged sentences

Securities and Exchange Commission (“SEC”) on March 12, 2020.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for future periods.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for future periods.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars.

4 unchanged sentences

All significant intercompany accounts have been eliminated in consolidation.

Business Segments - The Company is managed by legal entity and not by lines of business.

The entity’s primary business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its market areas.

The Bank offers a wide variety of deposit products to its customers.

Lending activities include the origination of real estate, commercial and industrial, and consumer loans.

Interest income on loans is the Company’s primary source of revenue, and is supplemented by interest income on deposits with other banks, interest income from investment securities, deposit service charges, and other service provided activities.

The Company has determined that its current business and operations consist of a single reporting segment and, therefore, segment disclosures are not required.

Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Management believes that its critical accounting policies include determining the allowance for loan losses, the fair value of the Company’s deferred tax assets, and financial instruments.

Management believes that its critical accounting policies include determining the allowance for loan losses, the valuation of the Company’s deferred tax assets, and fair value of financial instruments.

Actual results could differ significantly from those estimates.

Subsequent Events - The Company has evaluated events and transactions subsequent to June 30, 2020 for potential recognition or disclosure.

To the extent any events and conditions exist, disclosures are made regarding the nature of events and the estimated

financial effects for those events and conditions.

The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements other than the ones presented below .

The Company recently became a registered lender in the Main Street Lending Program (“MSLP”), which was established by the Federal Reserve, to support lending to small- and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

The Company has not yet made any MSLP loans.

As a registered lender, the Company will be better positioned to provide financial assistance to customers as the COVID-19 pandemic evolves.

On July 4, the President signed legislation extending the PPP to August 8, 2020.

The PPP was originally set to expire on June 30, 2020.

The Company will continue to serve its customers and prospective new customers to originate loans in its markets through the latest extension date.

The Company funded $ 10.0 million in PPP loans from July 1, 2020 through August 5, 2020, helping over 1,015 additional people in its communities.

On August 3, 2020 the Bank announced it is working with Google to introduce digital bank accounts, which will be available to its customers through Google Pay in 2021.

Accounting policies – The Company’s complete accounting policies are described in Note 1, summary of significant accounting policies of the Company’s audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 included in the Company’s Annual Report Form 10-K filed with the SEC on March 12, 2020.

Subsequent Events - The Company has evaluated events and transactions subsequent to September 30, 2020 for potential recognition or disclosure.

To the extent any events and conditions exist, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions.

The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements.

Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.

18 unchanged sentences

The Company is actively assessing the data and the model needs and are evaluating the impact of adopting the amendment.

The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period, January 2023, in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

Note 3 - Investment Securities

1 unchanged sentence

(dollars in thousands)

June 30, 2020

September 30, 2020

Available-for-sale

19 unchanged sentences

Total investment securities

The amortized cost and fair value of debt securities at June 30, 2020, by contractual maturity, are shown below.

The amortized cost and fair value of debt securities at September 30, 2020, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because issuers or the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

3 unchanged sentences

(dollars in thousands)

June 30, 2020

September 30, 2020

Amounts maturing in

3 unchanged sentences

collateralized mortgage obligations

Investment securities with carrying values of $ 19,480,000 and $ 16,843,000 at June 30, 2020 and December 31, 2019 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

There were no sales of securities available for sale during the three or six months ended June 30, 2020 and 2019.

Information pertaining to securities with gross unrealized losses at the dates indicated, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

Investment securities with carrying values of $ 21,958,000 and $ 16,843,000 at September 30, 2020 and December 31, 2019, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

There were no sales of available for sale securities during the three or nine months ended September 30, 2020.

There were five securities sold totaling $ 30.0 million during the three and nine months ended September 30, 2019, resulting in gross gains of $ 242,000 and gross losses of $ 71,000 .

There were no gross unrealized losses as of September 30, 2020.

Information pertaining to securities with gross unrealized losses at the date indicated, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

Less Than 12 Months

1 unchanged sentence

(dollars in thousands)

June 30, 2020

Available-for-sale

Treasury securities

Total investment securities

December 31, 2019

6 unchanged sentences

Total investment securities

At June 30, 2020 and December 31, 2019, there were two and six securities in an unrealized loss position, respectively.

At September 30, 2020 and December 31, 2019, there were zero and six securities in an unrealized loss position, respectively.

Unrealized losses have not been recognized into income because management does not intend to sell and does not expect that it will be required to sell the investments.

1 unchanged sentence

The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve.

The Company does no t consider these securities to be other than temporarily impaired at June 30, 2020 and December 31, 2019.

The Company did no t consider these securities to be other than temporarily impaired at December 31, 2019.

Note 4 - Loans and Allowance for Loan Losses

The composition of the loan portfolio is as follows as of the periods indicated:

September 30,

Commercial and industrial loans

7 unchanged sentences

Loans receivable

Included in consumer and other loans are overdrafts of $ 13,000 and $ 26,000 at June 30, 2020 and December 31, 2019, respectively.

The Company has pledged loans totaling $ 359,278,000 and $ 163,522,000 at June 30, 2020 and December 31, 2019, respectively, for borrowing lines at the FHLB and Federal Reserve Bank (“FRB”).

The balance of Small Business Administration (“SBA”) and United States Department of Agriculture (“USDA”) loans was $ 470,700,000 and $ 36,592,000 at June 30, 2020 and December 31, 2019, respectively.

PPP loans of $ 438,077,000 at June 30, 2020 are included in the commercial and industrial loans balance.

Included in these totals are SBA and USDA loans serviced for others totaling $ 21,101,000 and $ 21,498,000 at June 30, 2020 and December 31, 2019, respectively.

Net deferred origination fees include $ 10,639,000 of net fees from PPP loans as of June 30, 2020.

Included in consumer and other loans are overdrafts of $ 11,000 and $ 26,000 at September 30, 2020 and December 31, 2019, respectively.

The Company has pledged loans totaling $ 378,645,000 and $ 163,522,000 at September 30, 2020 and December 31, 2019, respectively, for borrowing lines at the FHLB and Federal Reserve Bank (“FRB”).

The balance of Small Business Administration (“SBA”) and United States Department of Agriculture (“USDA”) loans was $ 487,536,000 and $ 36,592,000 at September 30, 2020 and December 31, 2019, respectively.

Paycheck Protection Plan (“PPP”) loans totaling $ 452,846,000 at September 30, 2020 are included in the commercial and industrial loans balance.

Net deferred origination fees and premiums include $ 8,586,000 of net fees from PPP loans as of September 30, 2020.

Included in these totals are SBA and USDA loans serviced for others amounting to $ 20,700,000 and $ 21,498,000 at September 30, 2020 and December 31, 2019, respectively .

The Company, at times, purchases individual loans at fair value as of the acquisition date.

Purchased loans with remaining balances totaled $ 25,151,000 and $ 32,937,000 as of June 30, 2020 and December 31, 2019, respectively.

Unamortized premiums totaled $ 398,000 and $ 527,000 as of June 30, 2020 and December 31, 2019, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $ 35,456,000 and $ 31,352,000 as of June 30, 2020 and December 31, 2019, respectively.

Purchased loans with remaining balances totaled $ 20,920,000 and $ 32,937,000 as of September 30, 2020 and December 31, 2019, respectively.

Unamortized premiums totaled $ 324,000 and $ 527,000 as of September 30, 2020 and December 31, 2019, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $ 41,465,000 and $ 31,352,000 as of September 30, 2020 and December 31, 2019, respectively.

The following is a summary of the Company’s loan portfolio segments:

9 unchanged sentences

Government / SBA if used for certain purposes.

To bolster the effectiveness of the SBA’s PPP loan program, the Federal Reserve is supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.

The Paycheck Protection Program Liquidity Facility extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

The interest rate is 0.35 % and as PPP loans are paid down, the borrowing line must also be paid down.

Construction, land and land development loans – The Company originates loans for the construction of 1-4 family, multifamily, and Commercial Real Estate (“CRE”) properties in the Company’s market area.

15 unchanged sentences

(dollars in thousands)

June 30, 2020

September 30, 2020

Commercial and industrial loans

18 unchanged sentences

(dollars in thousands)

June 30, 2020

September 30, 2020

Commercial and industrial loans

7 unchanged sentences

Residential real estate

The following tables summarize the Company’s average recorded investment and interest income recognized on impaired loans by loan class for the three and six months ended June 30, 2020 and 2019:

The following tables summarize the Company’s average recorded investment and interest income recognized on impaired loans by loan class for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Interest Income

6 unchanged sentences

Commercial real estate

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Interest Income

6 unchanged sentences

Commercial real estate

Consumer and other loans

The Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms.

The restructured loans on accrual status represent the only impaired loans accruing interest.

In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to

100 % of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

No loans were restructured in the three or six months ended June 30, 2020 and June 30, 2019 that qualified as troubled debt restructurings (“TDRs”).

The Company has no commitments to loan additional funds to borrowers whose loans were classified as TDRs at June 30, 2020, as there were no outstanding TDRs at June 30, 2020.

In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100 % of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

No loans were restructured in the three or nine months ended September 30, 2020 and September 30, 2019 that qualified as troubled debt restructurings (“TDRs”).

The Company has no commitments to loan additional funds to borrowers whose loans were classified as TDRs at September 30, 2020, as there were no outstanding TDRs at September 30, 2020.

The Company is in contact with borrowers with existing loans that have been impacted by COVID-19.

The Company has restructured payments for loan customers during this uncertain time to help alleviate financial hardships, deferring payments on 215 loans, representing $ 207.2 million in outstanding loans, and $ 5,611,000 in unused commitments, as of June 30, 2020.

The Company has modified payments for loan customers during this uncertain time to help alleviate financial hardships.

There are 44 loans, representing $ 52.5 million in outstanding loans, and $ 1.4 million in unused commitments, that remain on deferred or modified payment status as of September 30, 2020.

In accordance with GAAP and interagency guidance issued on March 22, 2020, these short-term modifications, six months or less, made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief, are not considered troubled debt restructurings.

4 unchanged sentences

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

September 30,

(dollars in thousands)

20 unchanged sentences

(dollars in thousands)

June 30, 2020

September 30, 2020

Commercial and industrial loans

22 unchanged sentences

An estimated loss rate calculated from the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The $ 438.1 million in PPP loans as of June 30, 2020 are 100% guaranteed and were not subject to the allowance analysis or assigned an allowance.

The Company’s provision for credit losses of $ 1.9 million and $ 3.5 million during the three and six months ended June 30, 2020, respectively, is related to the growth in the loan portfolio along with an increase in qualitative factors primarily related to the uncertainties in the economic outlook from the COVID-19 pandemic.

The $ 452.8 million in PPP loans as of September 30, 2020 are 100% guaranteed and were not subject to the allowance analysis or assigned an allowance.

The Company’s provision for credit losses of $ 2.2 million and $ 5.7 million during the three and nine months ended September 30, 2020, respectively, is related to an increase in qualitative factors primarily related to the uncertainties in the economic outlook from the COVID-19 pandemic and growth in the loan portfolio.

The Company is not required to implement the provisions of the Current Expected Credit Loss (“CECL”) accounting standard until January 1, 2023 and is continuing to account for the allowance for loan losses under the incurred loss model.

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three and six months ended June 30, 2020:

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three and nine months ended September 30, 2020:

Construction,

(dollars in thousands)

Three Months Ended June 30, 2020

ALLL balance, March 31, 2020

Three Months Ended September 30, 2020

ALLL balance, June 30, 2020

Provision for loan losses or (recapture)

2 unchanged sentences

Net (charge-offs) recoveries

ALLL balance, June 30, 2020

Six Months Ended June 30, 2020

ALLL balance, September 30, 2020

Nine Months Ended September 30, 2020

ALLL balance, December 31, 2019

3 unchanged sentences

Net (charge-offs) recoveries

ALLL balance, June 30, 2020

As of June 30, 2020

ALLL balance, September 30, 2020

As of September 30, 2020

ALLL amounts allocated to

1 unchanged sentence

Collectively evaluated for impairment

ALLL balance, June 30, 2020

ALLL balance September 30, 2020

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loan balance, June 30, 2020

The following tables summarize the allocation of the ALLL , as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three and six months ended June 30 , 2019 :

Loan balance, September 30, 2020

The following tables summarize the allocation of the ALLL , as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three and nine months ended September 30 , 2019 :

Construction,

(dollars in thousands)

Three months ended June 30, 2019

Balance, March 31, 2019

Three months ended September 30, 2019

Balance, June 30, 2019

Provision for loan losses or (recapture)

2 unchanged sentences

Net (charge-offs) recoveries

Balance, June 30, 2019

Six months ended June 30, 2019

Balance, September 30, 2019

Nine months ended September 30, 2019

Balance, December 31, 2018

3 unchanged sentences

Net (charge-offs) recoveries

Balance, June 30, 2019

As of June 30, 2019

Balance, September 30, 2019

As of September 30, 2019

ALLL amounts allocated to

1 unchanged sentence

Collectively evaluated for impairment

ALLL balance, June 30, 2019

ALLL balance, September 30, 2019

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loan balance, June 30, 2019

Loan balance, September 30, 2019

The following table summarizes the allocation of the ALLL attributed to various segments in the loan portfolio as of December 31, 2019.

11 unchanged sentences

The composition of consolidated deposits consisted of the following at the periods indicated:

September 30,

(dollars in thousands)

5 unchanged sentences

Total deposits

The following table presents the maturity distribution of time deposits as of June 30, 2020 (dollars in thousands):

The following table presents the maturity distribution of time deposits as of September 30, 2020 (dollars in thousands):

Twelve months

17 unchanged sentences

Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis .

As of June 30, 2020, the Company does no t have any leases that have not yet commenced.

At June 30, 2020, lease expiration dates ranged from two to 26 years , with additional renewal options on certain leases typically ranging from 5 to 10 years .

At June 30, 2020, the weighted average remaining lease term for the Company’s operating leases was 10.6 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 334,000 and $ 348,000 , respectively, for the three months ended June 30, 2020 and 2019 and $ 678,000 and $ 711,000 , respectively for the six months ended June 30, 2020 and 2019.

As of September 30, 2020, the Company does no t have any leases that have not yet commenced.

At September 30, 2020, lease expiration dates ranged from six months to 25 years , with additional renewal options on certain leases typically ranging from 5 to 10 years .

At September 30, 2020, the weighted average remaining lease term for the Company’s operating leases was 10.5 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 461,000 and $ 342,000 , respectively, for the three months ended September 30, 2020 and 2019 and $ 1.1 million for both the nine months ended September 30, 2020 and 2019.

Variable lease components, such as inflation adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at June 30, 2020:

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at September 30, 2020:

September 30,

(dollars in thousands)

July 1, 2020 to December 31, 2020

October 1, 2020 to December 31, 2020

2025 and thereafter

2 unchanged sentences

Present value of lease liabilities

The following table presents the components of total lease expense and operating cash flows for the six months ended June 30, 2020:

The following table presents the components of total lease expense and operating cash flows for the nine months ended September 30, 2020:

September 30,

(dollars in thousands)

11 unchanged sentences

Existing awards under the previous plans will vest under the terms granted and no further awards will be made under these plans.

Shares available to be granted under the 2018 Plan totaled 281,225 at June 30, 2020.

Shares available to be granted under the 2018 Plan totaled 275,323 at September 30, 2020.

Stock Option Awards

In January 2019, the Company granted 26,737 nonqualified stock options under the 2018 Plan to an employee, which vest ratably over 10 years.

In January 2019, the Company also granted 99,100 qualified stock options under the 2018 Plan to employees, which vest ratably over 10 years.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table.

5 unchanged sentences

The following assumptions were used to estimate the value of options granted under the 2018 Plan as applicable in the period indicated.

Six months ended

June 30, 2019

There were no new stock options granted in the nine months ended September 30, 2020:

Nine months ended

September 30, 2019

Expected term

3 unchanged sentences

Weighted average grant date fair value

A summary of stock option activity under the 2018 Plan and 2006 Plan during the three months ended June 30, 2020:

A summary of stock option activity under the 2018 Plan and 2006 Plan during the nine months ended September 30, 2020:

Intrinsic Value

2 unchanged sentences

Forfeited or expired

Outstanding at June 30, 2020

Vested or expected to vest at June 30, 2020

Exercisable at June 30, 2020

The total or aggregate intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the three and six months ended June 30, 2020 was $ 3,000 and $ 94,000 , respectively, and was $ 66,000 and $ 135,000 for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, there was $ 2.1 million of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan.

Outstanding at September 30, 2020

Vested or expected to vest at September 30, 2020

Exercisable at September 30, 2020

The total or aggregate intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the three and nine months ended September 30, 2020 was $ 28,000 and $ 121,000 , respectively, and was $ 35,000 and $ 170,000 for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, there was $ 2.0 million of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan.

Total unrecognized compensation costs are adjusted for unvested forfeitures.

The Company expects to recognize that cost over a weighted-average period of approximately 6.8 years.

Compensation expense recorded related to stock options was $ 92,000 and $ 187,000 for the three and six months ended June 30, 2020, respectively, and $ 101,000 and $ 198,000 for the three and six months ended June 30, 2019, respectively.

Compensation expense recorded related to stock options was $ 94,000 and $ 281,000 for the three and nine months ended September 30, 2020, respectively, and $ 101,000 and $ 295,000 for the three and nine months ended September 30, 2019, respectively.

Restricted Stock Units

1 unchanged sentence

In April 2020, the Company granted 1,490 restricted stock units under the 2018 Plan to an employee, which vest ratably over 10 years.

In July 2020, the Company granted 6,902 restricted stock units under the 2018 Plan to employees, which cliff vest after 5 years.

The fair value of restricted stock units is equal to the fair value of the Company’s stock at the date of grant.

1 unchanged sentence

Restricted stock units are nonparticipating securities.

As of March 31, 2020, there was $ 1.4 million of total unrecognized compensation cost related to nonvested restricted stock units.

As of September 30, 2020, there was $ 1.3 million of total unrecognized compensation cost related to nonvested restricted stock units.

The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 9.2 years.

Compensation expense recorded related to restricted stock units was $ 34,000 and $ 57,000 for the three and six months ended June 30, 2020, respectively.

There were no restricted stock units and no compensation expense recorded related to restricted stock units for the three and six months ended June 30, 2019.

A summary of the Company’s nonvested shares at June 30, 2020 and changes during the six-month period is presented below:

Compensation expense recorded related to restricted stock units was $ 39,000 and $ 96,000 for the three and nine months ended September 30, 2020, respectively.

There were no restricted stock units and no compensation expense recorded related to restricted stock units for the three and nine months ended September 30, 2019.

A summary of the Company’s nonvested shares at September 30, 2020 and changes during the nine-month period is presented below:

Nonvested shares

3 unchanged sentences

Nonvested shares at December 31, 2019

Nonvested shares at June 30, 2020

Nonvested shares at September 30, 2020

Restricted Stock Awards

In February 2020, there were 4,000 shares granted to an employee at an estimated fair value of $ 17.81 per share.

In February 2020, there were 4,000 shares granted to an employee at an estimated fair value of $ 17.81 per share, vesting over eight years .

The fair value of restricted stock awards is equal to the fair value of the Company’s stock at the date of grant.

1 unchanged sentence

Restricted stock awards are participating securities.

As of June 30, 2020, there was $ 70,000 of total unrecognized compensation cost related to nonvested restricted stock awards.

As of September 30, 2020, there was $ 65,000 of total unrecognized compensation cost related to nonvested restricted stock awards.

The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 7.3 years.

Compensation expense recorded related to restricted stock awards was $ 1,000 and $ 3,000 for the three and six months ended June 30, 2020, respectively, and was $ 2,000 and $ 4,000 for the three and six months ended June 30, 2019, respectively.

Compensation expense recorded related to restricted stock awards was $ 2,000 and $ 5,000 for the three and nine months ended September 30, 2020, respectively, and was $ 2,000 and $ 5,000 for the three and nine months ended September 30, 2019, respectively.

Director’s Stock Bonus

4 unchanged sentences

During the vesting period, the grants are considered participating securities.

Grants also immediately vest when a director has to retire from the Board due to the age requirement.

Awards previously granted under the Bonus Plan will vest under the term granted.

4 unchanged sentences

In January 2019, there were 2,352 shares granted to seven directors at an estimated fair value of $ 14.91 per share.

Compensation expense recorded related to the 2018 Plan totaled $ 9,000 and $ 18,000 for the three and six months ended June 30, 2020, respectively, and $ 8,000 and $ 17,000 for the three and six months ended June 30, 2019, respectively.

A summary of the Company’s nonvested shares at June 30, 2020 and changes during the three-month period is presented below:

Compensation expense recorded related to the 2018 Plan totaled $ 8,000 and $ 26,000 for the three and nine months ended September 30, 2020, respectively, and $ 8,000 and $ 25,000 for the three and nine months ended September 30, 2019, respectively.

A summary of the Company’s nonvested shares at September 30, 2020 and changes during the nine-month period is presented below:

Nonvested shares

3 unchanged sentences

Nonvested shares at December 31, 2019

Nonvested shares at June 30, 2020

Nonvested shares at September 30, 2020

Note 8 - Fair Value Measurements

The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:

June 30, 2020

September 30, 2020

Fair Value Measurements Using

5 unchanged sentences

Other investments

Loans receivable, net

Loans receivable

Accrued interest receivable

41 unchanged sentences

(dollars in thousands)

June 30, 2020

September 30, 2020

Available-for-sale

10 unchanged sentences

Investment securities - The fair value of securities is based on quoted market prices, pricing models, quoted prices of similar securities, independent pricing sources, and discounted cash flows.

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2020 and December 31, 2019.

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2020 and December 31, 2019.

The factors used in the fair values estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

3 unchanged sentences

Unobservable Inputs

June 30, 2020

September 30, 2020

December 31, 2019

4 unchanged sentences

(dollars in thousands)

June 30, 2020

September 30, 2020

Impaired loans

12 unchanged sentences

Three months ended

Six months ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

(dollars in thousands, except share data)

Basic weighted average number common shares outstanding

Dilutive effect of equity-based awards

Diluted weighted average number common shares

Dilutive effect of share-based compensation

Diluted weighted average number common shares outstanding

Basic earnings per share

1 unchanged sentence

Antidilutive stock options and restricted stock outstanding

Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings, however the difference in the two-class method was not significant.

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