What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-11 · 328 added, 277 removed, 1036 unchanged (37% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2020 (unaudited) and December 31, 2019

June 30, 2020 (unaudited) and December 31, 2019

(derived from audited financial statements)

(in thousands, except share and per share data)

March 31, 2020

June 30, 2020

December 31, 2019

16 unchanged sentences

Liabilities and Stockholders’ Equity

Federal Home Loan Bank advances

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances

Other borrowings

7 unchanged sentences

Unearned deferred compensation

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Total stockholders’ equity

3 unchanged sentences

Consolidated Statements of Operations (unaudited)

Three Months Ended March 31, 2020 and 2019

Three and Six Months Ended June 30, 2020 and 2019

(in thousands, except per share data)

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Interest and dividend income:

4 unchanged sentences

Interest on deposits

Interest on FHLB borrowed funds

Interest on FHLB and FRB borrowed funds

Interest on other borrowed funds

11 unchanged sentences

Net gains on investment securities

Gain on sale of branch

Gain on sale of insurance agency

Settlement proceeds

Total non-interest income

19 unchanged sentences

Consolidated Statements of Comprehensive Income (unaudited)

Three months ended March 31, 2020 and 2019

Three and Six months ended June 30, 2020 and 2019

(in thousands)

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Net income attributable to common stockholders

1 unchanged sentence

Securities available for sale

Net unrealized gains (losses) arising during period

Net unrealized gains arising during period

Reclassification adjustment for net gains included in net income

Other comprehensive income (loss)

Other comprehensive income

Comprehensive income

2 unchanged sentences

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

(in thousands, except shares and per share data)

14 unchanged sentences

Balance at March 31, 2020

Other comprehensive income, net of tax

Surrender of restricted shares of common stock

Stock option expense

Amortization of restricted stock

Balance at June 30, 2020

See accompanying condensed notes to unaudited consolidated financial statements.

2 unchanged sentences

Twelve Months Ended December 31, 2019

(in thousands, except shares and per share data)

Additional Paid-In Capital

40 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31, 2020 and 2019

Six Months Ended June 30, 2020 and 2019

(in thousands)

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Net premium amortization/discount accretion on investment securities

Premium amortization, net of discount accretion on investment securities

Depreciation expense

7 unchanged sentences

Net stock based compensation expense

Loss on sale of office properties and equipment

Loss (gain) on sale of office properties and equipment

Deferred income taxes

3 unchanged sentences

Net change in loans held for sale

(Decrease) increase in accrued interest receivable and other assets

Decrease in other liabilities

Decrease in accrued interest receivable and other assets

Increase (decrease) in other liabilities

Net gain on sale of insurance agency

Total adjustments

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

8 unchanged sentences

Net capital expenditures

Net cash provided by (used in) investing activities

Proceeds from disposal of office properties and equipment

Net proceeds from sale of insurance agency

Net cash used in investing activities

Cash flows from financing activities:

Escrow merger settlement proceeds

Net (decrease) increase in short-term Federal Home Loan Bank advances

Proceeds from long-term Federal Home Loan Bank advances

Long-term Federal Home Loan Bank advances

Long-term Federal Home Loan Bank maturities

Amortization of debt issuance costs

Net (decrease) increase in deposits

Proceeds from other borrowings to fund business combination, net of origination costs

Principal payment reduction to other borrowings

Net increase in deposits

Repurchase shares of common stock

2 unchanged sentences

Cash dividends paid

Net cash (used in) provided by financing activities

Net decrease in cash and cash equivalents

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

16 unchanged sentences

The Company is a bank holding company, supervised by the Federal Reserve Bank of Minneapolis (the “FRB”), and operates under the title of Citizens Community Bancorp, Inc.

Wells Insurance Agency (“WIA”) is a wholly owned subsidiary of the Bank, providing insurance products to the Bank’s customers.

Wells Insurance Agency (“WIA”) was a wholly owned subsidiary of the Bank, providing insurance products to the Bank’s customers and was sold on June 30, 2020.

F&M Investment Corp.

5 unchanged sentences

Its primary markets include the Chippewa Valley Region in Wisconsin, the Twin Cities and Mankato markets in Minnesota, and various rural communities around these areas.

The Bank offers traditional community banking services to businesses, agricultural operators and consumers, including one-to-four family residential mortgages, as well as expanded services through Wells Insurance Agency, Inc.

The Bank offers traditional community banking services to businesses, agricultural operators and consumers, including one-to-four family residential mortgages.

The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products.

Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the balance sheet date as of March 31, 2020 and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the balance sheet date as of June 30, 2020 and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

The accompanying consolidated interim financial statements are unaudited.

9 unchanged sentences

Factors that may cause sensitivity to the aforementioned estimates include but are not limited to:

those items described under the caption “Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 10, 2020, the matters described in “Risk Factors” in Item 1A of this Form 10-Q, external market factors such as market interest rates and unemployment rates, changes to operating policies and procedures, and changes in applicable banking regulations.

those items described under the caption “Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 10, 2020, the matters described in “Risk Factors” in Item 1A of our Form 10-Q for the quarter ended March 31, 2020 and in Item 1A of this Form 10-Q, external market factors such as market interest rates and unemployment rates, changes to operating policies and procedures, and changes in applicable banking regulations.

Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.

1 unchanged sentence

Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet.

Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to

Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.

Held to maturity securities are stated at amortized cost.

24 unchanged sentences

Based on management’s quarterly evaluation, no impairment has been recorded on these securities.

Other investments totaling $14,999 at March 31, 2020 consisted of $8,158 of FHLB stock, $5,166 of Federal Reserve Bank stock and $1,675 of Bankers’ Bank stock.

Other investments totaling $ 15,193 at June 30, 2020 consisted of $ 8,349 of FHLB stock, $ 5,169 of Federal Reserve Bank stock and $ 1,675 of Bankers’ Bank stock.

Other investments totaling $ 15,005 at December 31, 2019 consisted of $ 8,196 of FHLB stock and $ 5,162 of Federal Reserve Bank stock and $ 1,647 of Bankers’ Bank stock.

5 unchanged sentences

• Commercial/agricultural real estate loans past due 90 days or more;

• Commercial/agricultural non-real estate loans past due 90 days or more;

• Closed end consumer non-real estate loans past due 120 days or more;

• Residential real estate loans and open ended consumer non-real estate loans past due 180 days or more.

• Commercial and industrial/agricultural operating loans past due 90 days or more;

• Closed end consumer installment loans past due 120 days or more;

• Residential mortgage loans and open ended consumer installment loans past due 180 days or more.

Past due status is based on the contractual terms of the loan.

1 unchanged sentence

All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income.

Interest received on such loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual status.

Loans are returned to accrual status when payments

are made that bring the loan account current with the contractual term of the loan and a six month payment history has been established.

Interest received on such loans is accounted for on the cash

basis or cost recovery method until qualifying for return to accrual status.

Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a six month payment history has been established.

Interest on impaired loans considered troubled debt restructurings (“TDRs”) or substandard, less than 90 days delinquent, is recognized as income as it accrues based on the revised terms of the loan over an established period of continued payment.

Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Residential real estate loans and open ended consumer non-real estate loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more.

Closed ended consumer non-real estate loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more.

Commercial/agricultural real estate and non-real estate loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.

Residential mortgage loans and open ended consumer installment loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more.

Closed ended consumer installment loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more.

Commercial/agricultural real estate, commercial and industrial and agricultural operating loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.

Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio.

69 unchanged sentences

The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2019.

The Company performed a goodwill impairment analysis as of March 31, 2020, due to triggering events being identified, and determined that goodwill was not impaired.

The Company performed a goodwill impairment analysis as of June 30, 2020 , due to triggering events being identified, and determined that goodwill was not impaired.

Leases - We determine if an arrangement is a lease at inception.

66 unchanged sentences

whether any existing contracts were or contained leases, the classification of existing leases, and the determination of initial direct costs for existing leases.

As of March 31, 2020 , the Company leases (1) 6 branch locations, ( 2 ) its corporate offices (3) 1 production office and ( 4 ) office equipment under operating leases.

As of June 30, 2020 , the Company leases (1) 6 branch locations, ( 2 ) its corporate offices (3) 1 production office and ( 4 ) office equipment under operating leases.

See Note 5 for additional detail.

4 unchanged sentences

The Company adopted this Update for the Company’s annual goodwill impairment tests beginning in the year ended December 31, 2019.

Adoption of this ASU to had no material impact on its consolidated financial statements.

Adoption of this ASU had no material impact on its consolidated financial statements.

ASU 2018-13, Fair Value Measurement (Topic 820)— The ASU modifies disclosure requirements on fair value measurements.

30 unchanged sentences

NOTE 2 – INVESTMENT SECURITIES

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of March 31, 2020 and December 31, 2019 , respectively, were as follows:

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of June 30, 2020 and December 31, 2019 , respectively, were as follows:

Available for sale securities

March 31, 2020

June 30, 2020

government agency obligations

14 unchanged sentences

Held to maturity securities

March 31, 2020

June 30, 2020

Obligations of states and political subdivisions

5 unchanged sentences

Total held to maturity securities

As of March 31, 2020 , the Bank has pledged U.S.

As of June 30, 2020 , the Bank has pledged U.S.

Government Agency securities with a market value of $ 613 and mortgage-backed securities with a market value of $ 3,950 as collateral against specific municipal deposits.

At March 31, 2020 , the Bank has pledged mortgage-backed securities with a market value of $1,511 as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of March 31, 2020 , there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of March 31, 2020 , the Bank also has mortgage-backed securities with a carrying value of $655 pledged as collateral to the Federal Home Loan Bank of Des Moines.

The estimated fair value of securities at March 31, 2020 and December 31, 2019 , by contractual maturity, is shown below.

At June 30, 2020 , the Bank has pledged mortgage-backed securities with a market value of $ 1,403 as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of June 30, 2020 , there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of June 30, 2020 , the Bank also has mortgage-backed securities with a carrying value of $ 594 pledged as collateral to the Federal Home Loan Bank of Des Moines.

The estimated fair value of securities at June 30, 2020 and December 31, 2019 , by contractual maturity, is shown below.

Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

Total available for sale securities

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

Total held to maturity securities

Securities with unrealized losses at March 31, 2020 and December 31, 2019 , aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Securities with unrealized losses at June 30, 2020 and December 31, 2019 , aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Less than 12 Months

1 unchanged sentence

Available for sale securities

March 31, 2020

June 30, 2020

government agency obligations

9 unchanged sentences

Trust preferred securities

There were no held to maturity securities in a net loss position at either March 31, 2020 or December 31, 2019.

There were no held to maturity securities in a net loss position at either June 30, 2020 or December 31, 2019.

The Company evaluates AFS securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors.

In making this evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

As of March 31, 2020, the Company does not consider its AFS securities with unrealized losses to be attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration;

As of June 30, 2020 , the Company does not consider its AFS securities with unrealized losses to be attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration;

thus, no other-than-temporary impairment on AFS securities was recorded.

There were no other-than-temporary impairments charged to earnings during the three months ended March 31, 2020 or the three-months ended March 31, 2019.

In the first quarter of fiscal 2020, the Bank sold approximately $10,700 of fixed-rate mortgage-backed certificates with a realized gain of $156 , which is included in net gains on investment securities in the Consolidated Statements of Operations.

During the three months ended March 31, 2019, there were no debt securities sold.

There were no other-than-temporary impairments charged to earnings during the three or six months ended June 30, 2020 or the three or six months ended June 30, 2019 .

During the three and six months ended June 30, 2020, the Bank sold approximately $ 0 and $ 10,700 of fixed-rate mortgage-backed certificates with a realized gain of $ 0 and $ 156 , respectively, which is included in net gains on investment securities in the Consolidated Statements of Operations.

During the three and six months ended June 30, 2019 , the Bank sold approximately $ 7,950 of fixed rate securities with a realized gain of $ 26 , which is included in net gains on investment securities in the Consolidated Statements of Operations.

NOTE 3 – LOANS, ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

8 unchanged sentences

Loan-to-value ratios on loans secured by farmland generally do not exceed 75 % .

Commercial non-real estate loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate.

Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee.

Agricultural non-real estate loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines.

Agricultural operating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines.

Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary.

2 unchanged sentences

Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields.

Residential real estate loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values.

Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values.

Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home’s appraised value less the balance owed on the existing first mortgage.

Credit risk is minimized within the residential real estate portfolio as relatively small loan amounts are spread across many individual borrowers.

Credit risk is minimized within the residential mortgage portfolio as relatively small loan amounts are spread across many individual borrowers.

Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.

Consumer non-real estate loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles, purchased indirect paper loans secured primarily by household goods and other consumer loans secured primarily by automobiles and other personal assets.

The Bank ceased new originations of these types of loans in early fiscal 2017.

Consumer installment loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles and other consumer loans secured primarily by automobiles and other personal assets.

The Bank ceased new originations of originated indirect paper loans in early fiscal 2017.

Consumer loans underwriting terms often depend on the collateral type, debt to income ratio and the borrower’s creditworthiness as evidenced by their credit score.

Collateral value alone may not provide an adequate source of repayment of the outstanding loan balance in the event of a consumer non-real estate default.

Collateral value alone may not provide an adequate source of repayment of the outstanding loan balance in the event of a consumer installment loan default.

This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.

20 unchanged sentences

This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.

Below is a summary of originated and acquired loans by type and risk rating as of March 31, 2020 :

Below is a summary of originated and acquired loans by type and risk rating as of June 30, 2020 :

Originated Loans:

4 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

C&I/Agricultural operating:

Commercial and industrial

C&I SBA PPP loans

Agricultural operating

Residential mortgage:

Residential mortgage

Purchased HELOC loans

Consumer non-real estate:

Consumer installment:

Originated indirect paper

7 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

Consumer non-real estate:

C&I/Agricultural operating:

Commercial and industrial

Agricultural operating

Residential mortgage:

Residential mortgage

Consumer installment:

Other consumer

6 unchanged sentences

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

Commercial and industrial

C&I SBA PPP loans

Agricultural operating

Residential mortgage:

Residential mortgage

Purchased HELOC loans

Consumer non-real estate:

Consumer installment:

Originated indirect paper

11 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

C&I/Agricultural operating:

Commercial and industrial

Agricultural operating

Residential mortgage:

Residential mortgage

Purchased HELOC loans

Consumer non-real estate:

Consumer installment:

Originated indirect paper

7 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

Consumer non-real estate:

C&I/Agricultural operating:

Commercial and industrial

Agricultural operating

Residential mortgage:

Residential mortgage

Consumer installment:

Other Consumer

5 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

C&I/Agricultural operating:

Commercial and industrial

Agricultural operating

Residential mortgage:

Residential mortgage

Purchased HELOC loans

Consumer non-real estate:

Consumer installment:

Originated indirect paper

15 unchanged sentences

Commercial/Agriculture Real Estate

Commercial/Agricultural Non-real Estate

Residential Real Estate

Consumer Non-real Estate

Three months ended March 31, 2020

C&I/Agricultural operating

Residential Mortgage

Consumer Installment

Six months ended June 30, 2020

Allowance for Loan Losses:

6 unchanged sentences

Total Allowance on acquired loans

Ending balance, March 31, 2020

Allowance for Loan Losses at March 31, 2020:

Ending balance, June 30, 2020

Allowance for Loan Losses at June 30, 2020:

Amount of allowance for loan losses arising from loans individually evaluated for impairment

Amount of allowance for loan losses arising from loans collectively evaluated for impairment

Loans Receivable as of March 31, 2020:

Loans Receivable as of June 30, 2020:

Ending balance of originated loans

7 unchanged sentences

Commercial/Agriculture Real Estate

Commercial/Agricultural Non-real Estate

Residential Real Estate

Consumer Non-real Estate

Three months ended March 31, 2019

C&I/Agricultural operating

Residential Mortgage

Consumer Installment

Six months ended June 30, 2019

Allowance for Loan Losses:

6 unchanged sentences

Total Allowance on acquired loans

Ending balance, March 31, 2019

Allowance for Loan Losses at March 31, 2019:

Ending balance, June 30, 2019

Allowance for Loan Losses at June 30, 2019:

Amount of allowance for loan losses arising from loans individually evaluated for impairment

Amount of allowance for loan losses arising from loans collectively evaluated for impairment

Loans Receivable as of March 31, 2019:

Loans Receivable as of June 30, 2019:

Ending balance of originated loans

8 unchanged sentences

Commercial/Agriculture Real Estate Loans

Commercial/Agriculture non-Real Estate

Residential Real Estate

Consumer non-Real Estate

March 31, 2020

C&I/Agricultural Operating

Residential Mortgage

Consumer Installment

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

Nonperforming loans are either 90+ days past due or nonaccrual.

An aging analysis of the Company’s residential real estate, commercial/agriculture real estate, consumer and other loans and purchased third party loans as of March 31, 2020 and December 31, 2019 , respectively, was as follows:

An aging analysis of the Company’s commercial/agricultural real estate, C&I, agricultural operating, residential mortgage, consumer installment and purchased third party loans as of June 30, 2020 and December 31, 2019 , respectively, was as follows:

30-59 Days Past Due and Accruing

4 unchanged sentences

Total Past Due Accruing and Nonaccrual Loans

March 31, 2020

June 30, 2020

Commercial/Agricultural real estate:

3 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

One to four family

C&I/Agricultural operating:

Commercial and industrial

C&I SBA PPP loans

Agricultural operating

Residential mortgage:

Residential mortgage

Purchased HELOC loans

Consumer non-real estate:

Consumer installment:

Originated indirect paper

6 unchanged sentences

Construction and land development

Commercial/Agricultural non-real estate:

Commercial non-real estate

Agricultural non-real estate

Residential real estate:

C&I/Agricultural operating:

Commercial and industrial

Agricultural operating

Residential mortgage:

One to four family

Purchased HELOC loans

Consumer non-real estate:

Residential mortgage

Consumer installment:

Originated indirect paper

Other Consumer

At March 31, 2020 , the Company has identified impaired loans of $55,951 , consisting of $12,088 TDR loans, the carrying amount of purchased credit impaired loans of $26,904 and $16,959 of substandard non-TDR loans.

At June 30, 2020 , the Company has identified impaired loans of $ 51,688 , consisting of $ 13,119 TDR loans, the carrying amount of purchased credit impaired loans of $ 23,444 and $ 15,125 of substandard non-TDR loans.

The $ 51,688 total of impaired loans includes $ 5,723 of performing TDR loans.

3 unchanged sentences

Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis.

A summary of the Company’s impaired loans as of March 31, 2020 , December 31, 2019 and March 31, 2019 was as follows:

A summary of the Company’s impaired loans as of June 30, 2020 , December 31, 2019 and June 30, 2019 was as follows:

Recorded Investment

3 unchanged sentences

Interest Income Recognized

March 31, 2020

June 30, 2020

With No Related Allowance Recorded:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

With An Allowance Recorded:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

March 31, 2020 Totals:

C&I/Agricultural operating

Residential mortgage

Consumer installment

June 30, 2020 Totals:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

Recorded Investment

6 unchanged sentences

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

With An Allowance Recorded:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

December 31, 2019 Totals

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

Recorded Investment

3 unchanged sentences

Interest Income Recognized

March 31, 2019

June 30, 2019

With No Related Allowance Recorded:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

With An Allowance Recorded:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

March 31, 2019 Totals:

C&I/Agricultural operating

Residential mortgage

Consumer installment

June 30, 2019 Totals:

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty and the Bank grants a concession to that borrower that the Bank would not otherwise consider except for the borrower’s financial difficulties.

2 unchanged sentences

If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status.

There were 14 delinquent TDRs greater than 60 days past due with a recorded investment of $3,401 at March 31, 2020 , compared to 2 such loans with a recorded investment of $101 at December 31, 2019 .

Following is a summary of TDR loans by accrual status as of March 31, 2020 and December 31, 2019 .

March 31, 2020

There were 5 delinquent accruing TDRs greater than 60 days past due with a recorded investment of $ 563 at June 30, 2020 , compared to 2 such loans with a recorded investment of $ 101 at December 31, 2019 .

Following is a summary of TDR loans by accrual status as of June 30, 2020 and December 31, 2019 .

June 30, 2020

December 31, 2019

2 unchanged sentences

Non-accrual status

There were no TDR commitments meeting our TDR criteria as of March 31, 2020 and December 31, 2019.

There were unused lines of credit totaling $33 and $12 meeting our TDR criteria as of March 31, 2020 and December 31, 2019, respectively.

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three months ended March 31, 2020 , twelve months ended December 31, 2019 and three months ended March 31, 2019:

Number of Contracts

Modified Rate

Modified Payment

Modified Under- writing

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Specific Reserve

Three months ended March 31, 2020

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

There was one TDR commitment meeting our TDR criteria as of June 30, 2020 totaling $ 50 and no TDR commitments meeting our TDR criteria as of December 31, 2019.

There were unused lines of credit totaling $ 34 and $ 12 meeting our TDR criteria as of June 30, 2020 and December 31, 2019, respectively.

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the six months ended June 30, 2020 and June 30, 2019:

Number of Contracts

5 unchanged sentences

Specific Reserve

Twelve months ended December 31, 2019

Six months ended June 30, 2020

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

Number of Contracts

5 unchanged sentences

Specific Reserve

Three months ended March 31, 2019

Six months ended June 30, 2019

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

A summary of loans by loan segment modified in a troubled debt restructuring as of March 31, 2020 and March 31, 2019, was as follows:

March 31, 2020

March 31, 2019

C&I/Agricultural operating

Residential mortgage

Consumer installment

A summary of loans by loan segment modified in a troubled debt restructuring as of June 30, 2020 and June 30, 2019, was as follows:

June 30, 2020

June 30, 2019

Modifications

2 unchanged sentences

Commercial/agriculture real estate

Commercial/agricultural non-real estate

Residential real estate

Consumer non-real estate

C&I/Agricultural operating

Residential mortgage

Consumer installment

Total troubled debt restructurings

The following table provides information related to restructured loans that were considered in default as of March 31, 2020 and March 31, 2019:

March 31, 2020

March 31, 2019

The following table provides information related to restructured loans that were considered in default as of June 30, 2020 and June 30, 2019:

June 30, 2020

June 30, 2019

Modifications

4 unchanged sentences

Residential real estate

Consumer non-real estate

Total troubled debt restructurings

Included above are ten TDR loans that became in default during the three months ended March 31, 2020 .

All acquired loans were initially recorded at fair value at the acquisition date.

The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

Carrying amount

The following table provides changes in accretable yield for all acquired loans from prior acquisitions with deteriorated credit quality:

March 31, 2020

March 31, 2019

Balance at beginning of period

Reclass from non-accretable difference

Balance at end of period

Non-accretable yield on purchase credit impaired loans was $4,327 and $6,290 at March 31, 2020 and December 31, 2019, respectively.

The following table provides changes in accretable discounts for all acquired loans from prior acquisitions with deteriorated credit quality:

June 30, 2020

June 30, 2019

Accretable discounts, beginning of period

Additions to accretable discount for acquired performing loans

Accelerated accretion from payoff of certain PCI loans with transferred non-accretable differences

Transfers from non-accretable difference to accretable discount

Scheduled accretion

Accretable discounts, end of period

Non-accretable difference on purchase credit impaired loans was $ 3,355 and $ 6,290 at June 30, 2020 and December 31, 2019, respectively.

NOTE 4 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights-- Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets.

The unpaid balances of these loans as of March 31, 2020 and December 31, 2019 were $521,649 and $524,715 , respectively, and consisted of one to four family residential real estate loans.

The unpaid balances of these loans as of June 30, 2020 and December 31, 2019 were $ 538,347 and $ 524,715 , respectively, and consisted of one to four family residential real estate loans.

These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association.

The current period valuation allowance is included as amortization of mortgage servicing rights in non-interest expense on the consolidated statement of operations.

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $4,724 and $2,868 , at March 31, 2020 and December 31, 2019 , respectively.

Mortgage servicing rights activity for the three month period ended March 31, 2020 and twelve months ended December 31, 2019 were as follows:

As of and for the Three Months Ended

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $ 4,889 and $ 2,868 , at June 30, 2020 and December 31, 2019 , respectively.

Mortgage servicing rights activity for the six month period ended June 30, 2020 and twelve months ended December 31, 2019 were as follows:

As of and for the Six Months Ended

As of and for the Twelve Months Ended

Mortgage servicing rights:

March 31, 2020

June 30, 2020

December 31, 2019

15 unchanged sentences

We have operating leases for our corporate offices ( 1 ), bank branch offices ( 6 ), other production offices ( 1 ) and certain office equipment.

Our leases have remaining lease terms of 1 to 6.38 years, some of which include options to extend the leases for up to 5 years.

As of March 31, 2020 , we have no additional lease commitments that have not yet commenced.

Three Months Ended

March 31, 2020

March 31, 2019

Our leases have remaining lease terms of 3 months to 8 years, some of which include options to extend the leases for up to 5 years.

As of June 30, 2020 , we have no additional lease commitments that have not yet commenced.

Six Months Ended

June 30, 2020

June 30, 2019

Supplemental cash flow information related to leases was as follows:

3 unchanged sentences

Operating leases

March 31, 2020

June 30, 2020

December 31, 2019

10 unchanged sentences

Lease liability recognized

NOTE 6 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

A summary of Federal Home Loan Bank advances and other borrowings at March 31, 2020 and December 31, 2019 is as follows:

March 31, 2020

NOTE 6 – DEPOSITS

The following is a summary of deposits by type at June 30, 2020 and December 31, 2019, respectively:

June 30, 2020

December 31, 2019

Non-interest bearing demand deposits

Interest bearing demand deposits

Savings accounts

Money market accounts

Certificate accounts

Total deposits

Brokered deposits included above:

At June 30, 2020 , the scheduled maturities of time deposits were as follows:

June 30, 2021

June 30, 2022

June 30, 2023

June 30, 2024

June 30, 2025

After June 30, 2025

NOTE 7 – FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES AND OTHER BORROWINGS

A summary of Federal Home Loan Bank advances and other borrowings at June 30, 2020 and December 31, 2019 is as follows:

June 30, 2020

December 31, 2019

Stated Maturity

8 unchanged sentences

Total other borrowings

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $812,424 and $792,909 at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $193,603 compared to $203,935 as of December 31, 2019.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $130,030 and $151,130 , during the three months ended March 31, 2020 and the twelve months ended December 31, 2019, respectively.

(3) The weighted-average interest rates on FHLB short term borrowings outstanding as of March 31, 2020 and December 31, 2019 were 1.38% and 1.74% , respectively.

(4) The bank acquired nine remaining FHLB notes totaling $12,530 , as a result of the F&M acquisition, that mature on various dates through 2024 with a weighted average rate of 1.97% and weighted average maturity of 16 months.

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $ 816,721 and $ 792,909 at June 30, 2020 and December 31, 2019, respectively.

At June 30, 2020 , the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $ 189,242 compared to $ 203,935 as of December 31, 2019.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $ 162,480 and $ 151,130 , during the six months ended June 30, 2020 and the twelve months ended December 31, 2019, respectively.

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of June 30, 2020 and December 31, 2019 were 0.82 % and 1.74 % , respectively.

(4) Six of the FHLB notes with remaining balances totaling $ 9,530 were acquired as a result of the F&M acquisition.

These notes mature on various dates through 2024 with a weighted average rate of 2.02 % and weighted average maturity of 17 months.

The Bank acquired one $ 11,000 FHLB note as a result of the United Bank acquisition, with a 2.45 % rate and February 1, 2022 maturity date.

3 unchanged sentences

Interest is variable, based on US Prime rate with a floor rate of 3.50 % .

This note included the refinancing of $10,074 of existing debt.

(b) A $ 5,000 line of credit, maturing in August 2020, that remains undrawn upon.

5 unchanged sentences

This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances.

These balances were $177,924 and $147,991 at March 31, 2020 and December 31, 2019, respectively.

These balances were $ 182,324 and $ 147,991 at June 30, 2020 and December 31, 2019, respectively.

Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”) Program

The Bank has originated Small Business Association’s Payment Protection Program (“SBA PPP”) loans and has complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP loans upon request.

The Bank has no outstanding loan balances under this facility at June 30, 2020 and December 31, 2019.

Maximum month-end borrowed amounts outstanding under this agreement were $ 25,136 and $ 0 , during the six months ended June 30, 2020 and the twelve months ended December 31, 2019, respectively.

NOTE 8 - CAPITAL MATTERS

7 unchanged sentences

If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

At March 31, 2020 , the Bank and Company were categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.

The Bank’s Tier 1 (leverage) and risk-based capital ratios at March 31, 2020 and December 31, 2019 , respectively, are presented below:

At June 30, 2020 , the Bank and Company were categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.

The Bank’s Tier 1 (leverage) and risk-based capital ratios at June 30, 2020 and December 31, 2019 , respectively, are presented below:

For Capital Adequacy

2 unchanged sentences

Action Provisions

As of March 31, 2020

As of June 30, 2020

Total capital (to risk weighted assets)

7 unchanged sentences

Tier 1 leverage ratio (to adjusted total assets)

The Company’s Tier 1 (leverage) and risk-based capital ratios at March 31, 2020 and December 31, 2019 , respectively, are presented below:

The Company’s Tier 1 (leverage) and risk-based capital ratios at June 30, 2020 and December 31, 2019 , respectively, are presented below:

For Capital Adequacy

2 unchanged sentences

Action Provisions

As of March 31, 2020

As of June 30, 2020

Total capital (to risk weighted assets)

11 unchanged sentences

In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years.

As of March 31, 2020 , 89,183 restricted shares and 181,000 options had been granted to eligible participants.

As of June 30, 2020 , 89,183 restricted shares and 181,000 options had been granted to eligible participants.

Due to the plan’s expiration, no new awards can be granted under this plan.

5 unchanged sentences

The aggregate number of shares of common stock reserved and available for issuance under the 2018 Equity Incentive Plan is 350,000 shares.

As of March 31, 2020 , 95,575 restricted shares had been granted under this plan.

As of March 31, 2020 , no stock options had been granted under this plan.

Net compensation expense related to restricted stock awards from these plans was $139 for the three months ended March 31, 2020 , compared to $140 for the three months ended March 31, 2019 .

As of June 30, 2020 , 95,575 restricted shares had been granted under this plan.

As of June 30, 2020 , no stock options had been granted under this plan.

Net compensation expense related to restricted stock awards from these plans was $ 158 and $ 297 for the three and six months ended June 30, 2020 , compared to $ 103 and $ 243 for the three and six months ended June 30, 2019 .

Restricted Common Stock Award

March 31, 2020

June 30, 2020

December 31, 2019

6 unchanged sentences

Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award.

The compensation cost recognized for stock-based employee compensation related to these plans for the three month period ended March 31, 2020 and March 31, 2019 was $4 , respectively.

The compensation cost recognized for stock-based employee compensation related to these plans for the three and six month periods ended June 30, 2020 was $ 4 and $ 8 , respectively.

The compensation cost recognized for stock-based employee compensation related to these plans for the three and six month periods ended June 30, 2019 was $ 5 and $ 9 , respectively.

Common Stock Option Awards

Option Shares

March 31, 2020

June 30, 2020

Outstanding at beginning of year

10 unchanged sentences

Information related to the 2004 Stock Option and Incentive Plan and 2008 Equity Incentive Plan for the respective periods follows:

Three months ended March 31, 2020

Six months ended June 30, 2020

Twelve months ended December 31, 2019

15 unchanged sentences

Assets Measured on a Recurring Basis

The following tables present the financial instruments measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 :

The following tables present the financial instruments measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 :

Quoted Prices in

1 unchanged sentence

for Identical

March 31, 2020

June 30, 2020

Investment securities:

14 unchanged sentences

Assets Measured on Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of March 31, 2020 and December 31, 2019 :

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of June 30, 2020 and December 31, 2019 :

Carrying Value

2 unchanged sentences

for Identical

March 31, 2020

June 30, 2020

Foreclosed and repossessed assets, net

11 unchanged sentences

recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at

March 31, 2020 .

June 30, 2020 .

Valuation Techniques (1)

Significant Unobservable Inputs (2)

March 31, 2020

June 30, 2020

Foreclosed and repossessed assets, net

24 unchanged sentences

The carrying amount and estimated fair value of the Company’s financial instruments as of the dates indicated below were as follows:

March 31, 2020

June 30, 2020

December 31, 2019

14 unchanged sentences

Other borrowings

Other liabilities

Accrued interest payable

NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS)

The following table shows the tax effects allocated to each component of other comprehensive income for the three months ended March 31, 2020 and 2019:

Unrealized (losses) gains on securities:

Net unrealized (losses) gains arising during the period

The following tables show the tax effects allocated to each component of other comprehensive income for the three and

six months ended June 30, 2020 and 2019:

Three months ended

June 30, 2020

June 30, 2019

Unrealized gains on securities:

Net unrealized gains arising during the period

Reclassification adjustment for gains included in net income

Other comprehensive (loss) income

The changes in the accumulated balances for each component of other comprehensive income (loss) for the twelve months ended December 31, 2019 and the three months ended March 31, 2020 were as follows:

Other comprehensive income

Six months ended

June 30, 2020

June 30, 2019

Unrealized gains on securities:

Net unrealized gains arising during the period

Reclassification adjustment for gains included in net income

Other comprehensive income

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended December 31, 2019 and the six months ended June 30, 2020 were as follows:

Gains (Losses)

1 unchanged sentence

Comprehensive

Income (Loss)

Income (Loss), net of tax

Beginning Balance, January 1, 2019

Current year-to-date other comprehensive income, net of tax

Current year-to-date other comprehensive income

Adoption of ASU 2016-01;

1 unchanged sentence

Ending balance, December 31, 2019

Current year-to-date other comprehensive loss, net of tax

Ending balance, March 31, 2020

Current year-to-date other comprehensive loss

Ending balance, June 30, 2020

(1) Amounts reclassified to retained earnings due to January 1, 2019 adoption of ASU 2016-02.

1 unchanged sentence

Recent Pronouncements-Adopted”.

Reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2020 were as follows:

Details about Accumulated Other Comprehensive Income (Loss) Components

Reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 were as follows:

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)

Details about Accumulated Other Comprehensive Income (Loss) Components

Three months ended June 30, 2020

Six months ended June 30, 2020

Affected Line Item on the Statement of Operations

1 unchanged sentence

Sale of securities

Gains on available for sale securities

Net gains on investment securities

Provision for income taxes

2 unchanged sentences

(1) Amounts in parentheses indicate decreases to income/loss.

Reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2019 were as follows:

Details about Accumulated Other Comprehensive Income (Loss) Components

Reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2019 were as follows:

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)

Details about Accumulated Other Comprehensive Income (Loss) Components

Three months ended June 30, 2019

Six months ended June 30, 2019

Affected Line Item on the Statement of Operations

1 unchanged sentence

Sale of securities

Gains on available for sale securities

Net gains on investment securities

Provision for income taxes

3 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