What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 212 added, 159 removed, 1267 unchanged (23% of the section changed)

4 unchanged sentences

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc.

and Subsidiary as of June 30, 2020 and 2019 and for the three-month and six-month periods then ended.

and Subsidiary as of September 30, 2020 and 2019 and for the three-month and nine-month periods then ended.

These financial statements are the responsibility of the Company's management.

6 unchanged sentences

Portland, Maine

August 7, 2020

November 6, 2020

Consolidated Balance Sheets (Unaudited)

1 unchanged sentence

and Subsidiary

2020 December 31, 2019 June 30,

September 30,

2020 December 31, 2019 September 30,

Cash and cash equivalents $ 22,742,000 $ 14,433,000 $ 21,418,000

1 unchanged sentence

Securities available for sale 340,140,000 360,520,000 326,798,000

Securities to be held to maturity (fair value of $ 352,225,000 at June 30, 2020, $ 287,045,000 at December 31, 2019 and $ 308,075,000 at June 30, 2019)

Securities to be held to maturity (fair value of $ 342,062,000 at September 30, 2020, $ 287,045,000 at December 31, 2019 and $ 306,647,000 at September 30, 2019)

331,962,000 281,606,000 298,786,000

41 unchanged sentences

and Subsidiary

For the six months ended June 30, For the quarter ended June 30,

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

Interest income

Interest and fees on loans (includes tax-exempt income of $ 608,000 YTD June 30, 2020 and $ 705,000 YTD June 30, 2019)

Interest and fees on loans (includes tax-exempt income of $ 899,000 YTD September 30, 2020 and $ 1,001,000 YTD September 30, 2019)

$ 44,124,000 $ 44,450,000 $ 14,109,000 $ 14,993,000

Interest on deposits with other banks 87,000 145,000 8,000 48,000

Interest and dividends on investments (includes tax-exempt income of $ 3,733,000 YTD June 30, 2020 and $ 3,625,000 YTD June 30, 2019)

Interest and dividends on investments (includes tax-exempt income of $ 5,649,000 YTD September 30, 2020 and $ 5,480,000 YTD September 30, 2019)

13,775,000 14,399,000 4,389,000 4,863,000

30 unchanged sentences

Net unrealized gain on securities transferred from available for sale to held to maturity, net of amortization 43,000 8,000 7,000 1,000

Net unrealized loss on cash flow hedging derivative instruments ( 6,284,000 ) ( 1,363,000 ) ( 1,414,000 ) ( 898,000 )

Net unrealized gain (loss) on cash flow hedging derivative instruments ( 5,897,000 ) ( 1,703,000 ) 387,000 ( 340,000 )

Other comprehensive gain (loss) ( 3,991,000 ) 7,042,000 ( 1,186,000 ) 597,000

24 unchanged sentences

Proceeds from sale of common stock 18,772 488,000 — — 488,000

Balance at June 30, 2019 10,890,236 $ 63,428,000 $ 138,493,000 $ 2,672,000 $ 204,593,000

Balance at September 30, 2019 10,896,331 $ 63,711,000 $ 141,509,000 $ 3,269,000 $ 208,489,000

Balance at December 31, 2019 10,899,210 $ 64,073,000 $ 144,839,000 $ 3,596,000 $ 212,508,000

10 unchanged sentences

Proceeds from sale of common stock 21,851 497,000 — — 497,000

Balance at June 30, 2020 10,933,428 $ 64,710,000 $ 151,083,000 $ 791,000 $ 216,584,000

Balance at September 30, 2020 10,942,959 $ 65,052,000 $ 154,783,000 $ ( 395,000 ) $ 219,440,000

See Report of Independent Registered Public Accounting Firm.

3 unchanged sentences

and Subsidiary

For the six months ended

June 30, 2020 June 30, 2019

For the nine months ended

September 30, 2020 September 30, 2019

Cash flows from operating activities

9 unchanged sentences

Net amortization of premiums on investments 1,425,000 752,000

Net gain on sale of other real estate owned 29,000 ( 107,000 )

Net (gain) loss on sale of other real estate owned 5,000 ( 113,000 )

Provision for losses on other real estate owned 45,000 —

Equity compensation expense 482,000 368,000

6 unchanged sentences

Cash flows from investing activities

(Increase) decrease in interest-bearing deposits in other banks ( 10,597,000 ) 11,162,000

Increase in interest-bearing deposits in other banks ( 36,801,000 ) ( 4,635,000 )

Proceeds from sales of securities available for sale 70,869,000 3,835,000

8 unchanged sentences

Capital expenditures ( 7,475,000 ) ( 960,000 )

Proceeds from disposal of premises and equipment 3,000 —

Net cash used by investing activities ( 214,584,000 ) ( 70,264,000 )

Cash flows from financing activities

Net increase (decrease) in demand, savings, and money market accounts 123,001,000 ( 59,718,000 )

Net increase in demand, savings, and money market accounts 212,641,000 25,821,000

Net increase (decrease) in certificates of deposit ( 100,048,000 ) 70,384,000

6 unchanged sentences

Net cash provided by financing activities 201,829,000 58,123,000

Net increase (decrease) in cash and cash equivalents 7,710,000 ( 2,216,000 )

Net increase in cash and cash equivalents 8,309,000 2,284,000

Cash and cash equivalents at beginning of period 14,433,000 19,134,000

Cash and cash equivalents at end of period $ 22,742,000 $ 21,418,000

For the nine months ended

September 30, 2020 September 30, 2019

Interest paid $ 14,066,000 $ 19,858,000

19 unchanged sentences

To curtail spread of the virus, governments at all levels have encouraged social distancing and many have imposed restrictions on travel and group meetings, and/or mandated shut-downs of all but essential businesses.

The pace of re-opening varies across the United States, and certain locations have reimposed restrictions after experiencing increases in infection rates.

Much of the unprecedented uncertainty surrounding the duration of the pandemic, its potential economic ramifications, and any government actions to mitigate them initially experienced in the first quarter of 2020 has continued in the second quarter and early stages of the the third quarter.

The pace of re-opening varies across the United States, and some locations have considered or proceeded with reimposed restrictions after experiencing increases in infection rates.

Much of the unprecedented uncertainty surrounding the duration of the pandemic, its potential economic ramifications, and any government actions to mitigate them initially experienced in the first two quarters of 2020 has continued in the third quarter and early stages of the the fourth quarter.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.

The Bank's primary market is the State of Maine, which relies upon tourism for a significant percentage of its economic activity.

COVID-19 is expected to adversely impact the tourism industry to a greater degree than other industries, however, it remains the case that an assessment of the impact cannot be completed with a high degree of certainty at this time.

COVID-19 has adversely impacted the tourism industry to a greater degree than other industries, however, it remains the case that an assessment of the impact cannot be completed with a high degree of certainty at this time.

In addition to loans, demand for other products and services could be impacted by COVID-19.

1 unchanged sentence

Certain fee based activities such as service charges, interchange revenues, and wealth management activity, could be impacted due to lower activity or market declines.

Accordingly, while management expects this matter to likely have a negative financial impact on the Company's financial position and results of future operations, such potential impact cannot be reasonably estimated as of the date of this report, August 7, 2020.

Accordingly, while management expects this matter may have a negative impact on the Company's financial position and results of future operations, the materiality of such potential impact cannot be reasonably estimated as of the date of this report, November 6, 2020.

Subsequent Events

Events occurring subsequent to June 30, 2020, have been evaluated as to their potential impact to the financial statements.

Events occurring subsequent to September 30, 2020, have been evaluated as to their potential impact to the financial statements.

Note 2 – Investment Securities

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2020:

The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2020:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

32 unchanged sentences

$ 8,982,000 $ — $ — $ 8,982,000

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2019:

The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2019:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

Securities available for sale

Government-sponsored agencies $ 5,000,000 $ 12,000 $ — $ 5,012,000

Mortgage-backed securities $ 317,553,000 $ 5,327,000 $ ( 690,000 ) $ 322,190,000

11 unchanged sentences

$ 8,982,000 $ — $ — $ 8,982,000

The following table summarizes the contractual maturities of investment securities at June 30, 2020:

The following table summarizes the contractual maturities of investment securities at September 30, 2020:

Securities available for sale Securities to be held to maturity

15 unchanged sentences

$ 355,890,000 $ 360,520,000 $ 281,606,000 $ 287,045,000

The following table summarizes the contractual maturities of investment securities at June 30, 2019:

The following table summarizes the contractual maturities of investment securities at September 30, 2019:

Securities available for sale Securities to be held to maturity

6 unchanged sentences

$ 322,133,000 $ 326,798,000 $ 298,786,000 $ 306,647,000

At June 30, 2020, securities with a fair value of $ 245,917,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a fair value of $ 214,173,000 as of December 31, 2019 and $ 190,725,000 at June 30, 2019, pledged for the same purposes.

At September 30, 2020, securities with a fair value of $ 285,253,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a fair value of $ 214,173,000 as of December 31, 2019 and $ 216,903,000 at September 30, 2019, pledged for the same purposes.

Gains and losses on the sale of securities are computed by subtracting the amortized cost at the time of sale from the security's selling price, net of accrued interest to be received.

The following table shows securities gains and losses for the six months ended June 30, 2020 and 2019:

For the six months ended June 30, For the quarter ended June 30,

The following table shows securities gains and losses for the nine months and quarters ended September 30, 2020 and 2019:

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

11 unchanged sentences

Management reviews securities with unrealized losses for other than temporary impairment.

As of June 30, 2020, there were 52 securities with unrealized losses held in the Company's portfolio.

As of September 30, 2020, there were 75 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 10 had been temporarily impaired for 12 months or more.

The Company has the ability and intent to hold its impaired securities until a recovery of their amortized cost, which may be at maturity.

Information regarding securities temporarily impaired as of June 30, 2020 is summarized below:

Information regarding securities temporarily impaired as of September 30, 2020 is summarized below:

Less than 12 months 12 months or more Total

13 unchanged sentences

$ 77,148,000 $ ( 588,000 ) $ 19,000,000 $ ( 498,000 ) $ 96,148,000 $ ( 1,086,000 )

As of June 30, 2019, there were 133 securities with unrealized losses held in the Company's portfolio.

As of September 30, 2019, there were 60 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 29 had been temporarily impaired for 12 months or more.

1 unchanged sentence

These securities totaled approximately 0.13 % of overall state and municipal security holdings and were subsequently sold during the third quarter 2019.

Information regarding securities temporarily impaired as of June 30, 2019 is summarized below:

Information regarding securities temporarily impaired as of September 30, 2019 is summarized below:

Less than 12 months 12 months or more Total

8 unchanged sentences

The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 146,000 , net of tax, at June 30, 2020.

This compares to $ 182,000 and $ 190,000 , net of taxes, at December 31, 2019 and June 30, 2019, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 139,000 , net of tax, at September 30, 2020.

This compares to $ 182,000 and $ 189,000 , net of taxes, at December 31, 2019 and September 30, 2019, respectively.

These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

2 unchanged sentences

The Bank uses the FHLB for a portion of its wholesale funding needs.

As of June 30, 2020 and 2019, and December 31, 2019, the Bank's investment in FHLB stock totaled $ 9,508,000 , $ 7,945,000 and $ 7,945,000 , respectively.

As of September 30, 2020 and 2019, and December 31, 2019, the Bank's investment in FHLB stock totaled $ 9,508,000 , $ 7,945,000 and $ 7,945,000 , respectively.

FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value.

The Company periodically evaluates its investment in FHLB stock for impairment based on, among other factors, the capital adequacy of the FHLB and its overall financial condition.

No impairment losses have been recorded through June 30, 2020.

No impairment losses have been recorded through September 30, 2020.

The Company will continue to monitor its investment in FHLB stock.

Note 3 – Loans

The following table shows the composition of the Company's loan portfolio as of June 30, 2020 and 2019 and at December 31, 2019:

June 30, 2020 December 31, 2019 June 30, 2019

The following table shows the composition of the Company's loan portfolio as of September 30, 2020 and 2019 and at December 31, 2019:

September 30, 2020 December 31, 2019 September 30, 2019

Real estate $ 407,128,000 28.3 % $ 372,810,000 28.7 % $ 368,165,000 29.1 %

7 unchanged sentences

Total $ 1,436,646,000 100.0 % $ 1,297,075,000 100.0 % $ 1,263,459,000 100.0 %

Loan balances include net deferred loan costs of $ 4,866,000 as of June 30, 2020, $ 7,419,000 as of December 31, 2019, and $ 7,124,000 as of June 30, 2019.

The decrease in net deferred loan costs year-over-year and year-to-date is attributable to PPP loans originated during the second quarter of 2020.

Loan balances include net deferred loan costs of $ 5,323,000 as of September 30, 2020, $ 7,419,000 as of December 31, 2019, and $ 7,181,000 as of September 30, 2019.

The decrease in net deferred loan costs year-over-year and year-to-date is attributable to PPP loans originated during the second and third quarters of 2020.

These loans generated gross origination fee income of $ 3,797,000 and deferred loan costs of $ 299,000 ;

during the quarter a net of $ 356,000 was recognized in interest income.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 399,525,000 at June 30, 2020, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 296,871,000 at December 31, 2019, and $ 312,568,000 at June 30, 2019.

In addition, commercial, construction and home equity loans totaling $ 264,343,000 at June 30, 2020, $ 240,133,000 at December 31, 2019, and $ 239,481,000 at June 30, 2019, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston.

year-to-date a net of $ 788,000 in PPP fees was recognized in interest income.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 379,387,000 at September 30, 2020, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 296,871,000 at December 31, 2019, and $ 308,163,000 at September 30, 2019.

In addition, commercial, construction and home equity loans totaling $ 271,905,000 at September 30, 2020, $ 240,133,000 at December 31, 2019, and $ 254,076,000 at September 30, 2019, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston.

For all loan classes, loans over 30 days past due are considered delinquent.

Information on the past-due status of loans by class of financing receivable as of June 30, 2020, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of September 30, 2020, is presented in the following table:

Past Due 60-89 Days

13 unchanged sentences

Both the Interagency Statement and the CARES Act provided an exemption for qualified modifications from Troubled Debt Restructure (TDR) designation.

The Company actively worked with borrowers impacted by the COVID-19 outbreak and as of June 30, 2020 a total of 867 loan modification requests had been completed in conformance with the Interagency Statement issued in March, representing $ 239,484,000 in loan balances, or approximately 16.5 % of the overall loan portfolio.

These loans have not been classified as TDRs and are not included as past due in any loan delinquency data so long as the modified terms are met.

The Company actively worked with borrowers impacted by the COVID-19 outbreak and as of September 30, 2020, a total of 996 loan modification requests for interest-only payments or deferred payments had been completed in conformance with the Interagency Statement or CARES Act, representing $ 279,700,000 in loan balances, or approximately 20.8 % of the loan portfolio excluding PPP balances.

One of these modifications of de minimis amount has been classified as a Troubled Debt Restructure since being modified.

So long as modified terms are met, loans in an active modification are not included in past due loan totals and continue to accrue interest.

As of September 30, 2020, loans totaling $ 81.0 million, or 6.0 % of all loans, remained in either their original modification or a subsequent modification.

Modification statuses by portfolio segment are summarized below:

Commercial/Municipal Loan Modifications

Units Percentage Balance Percentage

Paid Off 34 6.0 % $ 6,031,000 3.0 %

Subsequent Modification 41 7.0 % 20,443,000 9.0 %

Still in Original Modification 55 9.0 % 30,188,000 13.0 %

Out of Modification 452 78.0 % 171,407,000 75.0 %

Total 582 100.0 % $ 228,069,000 100.0 %

Residential Real Estate Modifications

Units Percentage Balance Percentage

Paid Off 17 5.0 % $ 3,102,000 6.0 %

Subsequent Modification 97 28.0 % 13,857,000 27.0 %

Still in Original Modification 125 35.0 % 15,565,000 31.0 %

Out of Modification 111 32.0 % 17,949,000 36.0 %

Total 350 100.0 % $ 50,473,000 100.0 %

Consumer Loan Modifications

Units Percentage Balance Percentage

Paid Off 8 13.0 % $ 95,000 9.0 %

Subsequent Modification — — % — — %

Still in Original Modification 52 81.0 % 967,000 86.0 %

Out of Modification 4 6.0 % 58,000 5.0 %

Total 64 100.0 % $ 1,120,000 100.0 %

Information on the past-due status of loans by class of financing receivable as of December 31, 2019, is presented in the following table:

11 unchanged sentences

Total $ 6,139,000 $ 2,092,000 $ 6,786,000 $ 15,017,000 $ 1,282,058,000 $ 1,297,075,000 $ 1,560,000

Information on the past-due status of loans by class of financing receivable as of June 30, 2019, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of September 30, 2019, is presented in the following table:

Past Due 60-89 Days

15 unchanged sentences

As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected, or when it otherwise becomes well secured and in the process of collection.

Information on nonaccrual loans as of June 30, 2020 and 2019 and at December 31, 2019 is presented in the following table:

June 30, 2020 December 31, 2019 June 30, 2019

Information on nonaccrual loans as of September 30, 2020 and 2019 and at December 31, 2019 is presented in the following table:

September 30, 2020 December 31, 2019 September 30, 2019

Real estate $ 1,771,000 $ 1,784,000 $ 1,807,000

7 unchanged sentences

Total $ 9,111,000 $ 16,649,000 $ 16,858,000

Impaired loans include troubled debt restructured ("TDR") and loans placed on non-accrual.

Impaired loans include TDR loans and loans placed on non-accrual.

These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent.

If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2020 is presented in the following table:

For the six months ended June 30, 2020 For the quarter ended June 30, 2020

A breakdown of impaired loans by class of financing receivable as of and for the periods ended September 30, 2020 is presented in the following table:

For the nine months ended September 30, 2020 For the quarter ended September 30, 2020

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

60 unchanged sentences

$ 29,274,000 $ 32,178,000 $ 2,213,000 $ 31,557,000 $ 735,000

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2019 is presented in the following table:

For the six months ended June 30, 2019 For the quarter ended June 30, 2019

A breakdown of impaired loans by class of financing receivable as of and for the periods ended September 30, 2019 is presented in the following table:

For the nine months ended September 30, 2019 For the quarter ended September 30, 2019

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

35 unchanged sentences

common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

As of June 30, 2020, the Company had 78 loans with a balance of $ 14,013,000 that have been classified as TDRs.

This compares to 81 loans with a balance of $ 21,424,000 and 83 loans with a balance of $ 24,454,000 classified as TDRs as of December 31, 2019 and June 30, 2019, respectively.

As of September 30, 2020, the Company had 78 loans with a balance of $ 13,390,000 that have been classified as TDRs.

This compares to 81 loans with a balance of $ 21,424,000 and 82 loans with a balance of $ 24,281,000 classified as TDRs as of December 31, 2019 and September 30, 2019, respectively.

The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the expected cash flows on the loan at the original interest rate, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of June 30, 2020:

The following table shows TDRs by class and the specific reserve as of September 30, 2020:

Number of Loans Balance Specific Reserves

19 unchanged sentences

81 $ 21,424,000 $ 1,677,000

The following table shows TDRs by class and the specific reserve as of June 30, 2019:

The following table shows TDRs by class and the specific reserve as of September 30, 2019:

Number of Loans Balance Specific Reserves

8 unchanged sentences

82 $ 24,281,000 $ 1,683,000

As of June 30, 2020, 11 of the loans classified as TDRs with a total balance of $ 1,479,000 were more than 30 days past due.

Of these loans, one had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2020:

As of September 30, 2020, 15 of the loans classified as TDRs with a total balance of $ 2,814,000 were more than 30 days past due.

Of these loans, two had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2020:

Number of Loans Balance Specific Reserves

8 unchanged sentences

15 $ 2,814,000 $ 93,000

As of June 30, 2019, 15 of the loans classified as TDRs with a total balance of $ 1,681,000 were more than 30 days past due.

Of these loans, three had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2019:

As of September 30, 2019, nine of the loans classified as TDRs with a total balance of $ 1,084,000 were more than 30 days past due.

Of these loans, four had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2019:

Number of Loans Balance Specific Reserves

8 unchanged sentences

9 $ 1,084,000 $ 142,000

For the six months ended June 30, 2020, two loans were placed on TDR status.

The following table shows these TDRs, net of principle deductions of $ 2,000 , by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2020:

For the nine months ended September 30, 2020, three loans were placed on TDR status.

The following table shows these TDRs, by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2020:

Number of Loans Pre-Modification

10 unchanged sentences

3 $ 245,000 $ 197,000 $ 24,000

For the six months ended June 30, 2019, nine loans were placed on TDR status.

The following table shows these TDRs by class and associated specific reserves included in the allowance for loan losses as of June 30, 2019:

For the nine months ended September 30, 2019, 10 loans were placed on TDR status.

The following table shows these TDRs by class and associated specific reserves included in the allowance for loan losses as of September 30, 2019:

Number of Loans Pre-Modification

10 unchanged sentences

10 $ 1,108,000 $ 977,000 $ 168,000

For the quarter ended June 30, 2020, no loans were place on TDR status.

For the quarter ended June 30, 2019, four loans were place on TDR status.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2019:

For the quarter ended September 30, 2020, one loan was placed on TDR status.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2020:

Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserves

3 unchanged sentences

Municipal — — — —

Construction — — — —

Home equity line of credit — — — —

Consumer 1 10,000 10,000 1,000

1 $ 10,000 $ 10,000 $ 1,000

For the quarter ended September 30, 2019, two loans were placed on TDR status.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2019:

Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserves

Real estate — $ — $ — $ —

Construction — — — —

Other — — — —

Municipal — — — —

Term 2 317,000 276,000 —

3 unchanged sentences

2 $ 317,000 $ 276,000 $ —

As of June 30, 2020, Management is aware of nine loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 965,000 .

As of September 30, 2020, Management is aware of eight loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 911,000 .

There were also 22 loans with an outstanding balance of $ 3,159,000 that were classified as TDRs and on non-accrual status, of which two loans with an outstanding balance of $ 430,000 were in the process of foreclosure.

Residential Mortgage Loans in Process of Foreclosure

As of June 30, 2020, there were 15 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 2,028,000 .

This compares to 11 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 1,231,000 as of June 30, 2019.

As of September 30, 2020, there were 17 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 2,083,000 .

This compares to 15 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 1,649,000 as of September 30, 2019.

Allowance for Loan Losses

22 unchanged sentences

All outstanding loans are considered in evaluating the appropriateness of the allowance.

A breakdown of the allowance for loan losses as of June 30, 2020, December 31, 2019, and June 30, 2019, by class of financing receivable and allowance element, is presented in the following tables:

As of June 30, 2020 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

A breakdown of the allowance for loan losses as of September 30, 2020, December 31, 2019, and September 30, 2019, by class of financing receivable and allowance element, is presented in the following tables:

As of September 30, 2020 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

21 unchanged sentences

$ 2,213,000 $ 1,983,000 $ 6,261,000 $ 1,182,000 $ 11,639,000

As of June 30, 2019 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

As of September 30, 2019 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

21 unchanged sentences

these qualitative factors are also considered in connection with the unallocated portion of our allowance for loan losses.

The qualitative portion of the allowance for loan losses was 0.71 % of related loans as of June 30, 2020, compared to 0.48 % of related loans as of December 31, 2019.

The qualitative portion increased $ 4,109,000 between December 31, 2019 and June 30, 2020 due to a mix of factors.

These included initial impacts of the COVID-19 pandemic on various macroeconomic measures used

in the qualitative model, as well as top down and unit level analysis of the loan portfolio for factors such as COVID-19 related modifications and industry segments particularly vulnerable to social distancing.

The unallocated component of the allowance totaled $ 1,009,000 at June 30, 2020, or 7.2 % of the total reserve.

The qualitative portion of the allowance for loan losses was 0.77 % of related loans as of September 30, 2020, compared to 0.48 % of related loans as of December 31, 2019.

The qualitative portion increased $ 4,818,000 between December 31, 2019 and September 30, 2020 due to a mix of factors.

These included the impacts of the COVID-19 pandemic on various macroeconomic

measures used in the qualitative model, as well as analysis of the loan portfolio conducted under both top down and unit level approaches for factors such as levels of credit extended to industry segments particularly vulnerable to social distancing, and performance of COVID-19 related modifications .

The unallocated component of the allowance totaled $ 1,576,000 at September 30, 2020, or 10.3 % of the total reserve.

This compares to $ 1,182,000 or 10.2 % as of December 31, 2019.

While year to date growth in the qualitative portion of the reserve directionally reflects potential impacts of COVID-19 on the loan portfolio, it remains likely that there are other underlying credit risks not yet captured in loan specific or qualitative metrics the Company uses to estimate its allowance.

This uncertainty along with general imprecision related to portfolio growth supports the continued inclusion of an unallocated component.

The allowance for loan losses as a percent of total loans stood at 0.97 % as of June 30, 2020, 0.90 % at December 31, 2019 and 0.92 % as of June 30, 2019.

This uncertainty along with general imprecision related to portfolio growth experienced year-to-date supports the continued inclusion of an unallocated component.

The allowance for loan losses as a percent of total loans stood at 1.07 % as of September 30, 2020, 0.90 % at December 31, 2019 and 0.93 % as of September 30, 2019.

Commercial loans are comprised of three major classes, commercial real estate loans, commercial construction loans and other commercial loans.

36 unchanged sentences

Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto, recreational vehicles, debt consolidation, personal expenses or overdraft protection.

Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.

Borrower qualifications

include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.

Consumer loans may be secured or unsecured.

Construction, land and land development loans, both commercial and residential, comprise a small portion of the portfolio, and at 31.1 % of capital are below the regulatory guidance limit of 100.0 % of capital at June 30, 2020.

Construction loans and non-owner-occupied commercial real estate loans are at 125.8 % of total capital, below the regulatory limit of 300.0 % of capital at June 30, 2020.

Construction, land and land development loans, both commercial and residential, comprise a small portion of the portfolio, and at 33.4 % of capital are below the regulatory guidance limit of 100.0 % of capital at September 30, 2020.

Construction loans and non-owner-occupied commercial real estate loans are at 129.4 % of total capital, below the regulatory limit of 300.0 % of capital at September 30, 2020.

The process of establishing the allowance with respect to the commercial loan portfolio begins when a Loan Officer or Senior Officer (or designate) initially assigns each loan a risk rating, using established credit criteria.

22 unchanged sentences

The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of June 30, 2020:

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of September 30, 2020:

Real Estate Commercial

25 unchanged sentences

Total $ 372,810,000 $ 38,084,000 $ 218,773,000 $ 41,288,000 $ 670,955,000

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of June 30, 2019:

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of September 30, 2019:

Real Estate Commercial

28 unchanged sentences

This is subject to completion of a current assessment of the value of the collateral with any outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off.

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the six months ended June 30, 2020.

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2020, and allowance for loan loss balances by class and related loan balances by class as of June 30, 2020:

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the nine months ended September 30, 2020.

The following table presents allowance for loan losses activity by class for the nine months and quarter ended September 30, 2020, and allowance for loan loss balances by class and related loan balances by class as of September 30, 2020:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Beginning balance $ 3,742,000 $ 365,000 $ 3,329,000 $ 27,000 $ 1,024,000 $ 25,000 $ 1,078,000 $ 867,000 $ 1,182,000 $ 11,639,000

3 unchanged sentences

Ending balance $ 4,761,000 $ 607,000 $ 3,642,000 $ 139,000 $ 2,516,000 $ 81,000 $ 1,457,000 $ 592,000 $ 1,576,000 $ 15,371,000

For the three months ended June 30, 2020

For the three months ended September 30, 2020

Beginning balance $ 4,511,000 $ 524,000 $ 3,689,000 $ 110,000 $ 2,261,000 $ 64,000 $ 1,284,000 $ 658,000 $ 1,009,000 $ 14,110,000

3 unchanged sentences

Ending balance $ 4,761,000 $ 607,000 $ 3,642,000 $ 139,000 $ 2,516,000 $ 81,000 $ 1,457,000 $ 592,000 $ 1,576,000 $ 15,371,000

Allowance for loan losses as of June 30, 2020

Allowance for loan losses as of September 30, 2020

Ending balance specifically evaluated for impairment $ 135,000 $ 19,000 $ 128,000 $ — $ 204,000 $ — $ 403,000 $ 1,000 $ — $ 890,000

Ending balance collectively evaluated for impairment $ 4,626,000 $ 588,000 $ 3,514,000 $ 139,000 $ 2,312,000 $ 81,000 $ 1,054,000 $ 591,000 $ 1,576,000 $ 14,481,000

Related loan balances as of June 30, 2020

Related loan balances as of September 30, 2020

Ending balance $ 407,128,000 $ 52,038,000 $ 309,297,000 $ 44,110,000 $ 497,667,000 $ 16,101,000 $ 82,982,000 $ 27,323,000 $ — $ 1,436,646,000

17 unchanged sentences

Ending balance collectively evaluated for impairment $ 366,501,000 $ 37,126,000 $ 211,698,000 $ 41,288,000 $ 480,016,000 $ 14,813,000 $ 89,861,000 $ 26,498,000 $ — $ 1,267,801,000

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2019, and allowance for loan loss balances by class and related loan balances by class as of June 30, 2019:

The following table presents allowance for loan losses activity by class for the nine months and quarter ended September 30, 2019, and allowance for loan loss balances by class and related loan balances by class as of September 30, 2019:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the six months ended June 30, 2019

For the nine months ended September 30, 2019

Beginning balance $ 3,567,000 $ 255,000 $ 3,541,000 $ 24,000 $ 1,235,000 $ 34,000 $ 730,000 $ 630,000 $ 1,216,000 $ 11,232,000

3 unchanged sentences

Ending balance $ 3,795,000 $ 353,000 $ 3,220,000 $ 26,000 $ 1,137,000 $ 23,000 $ 824,000 $ 680,000 $ 1,707,000 $ 11,765,000

For the three months ended June 30, 2019

For the three months ended September 30, 2019

Beginning balance $ 3,609,000 $ 309,000 $ 3,281,000 $ 25,000 $ 1,106,000 $ 23,000 $ 633,000 $ 649,000 $ 1,836,000 $ 11,471,000

3 unchanged sentences

Ending balance $ 3,795,000 $ 353,000 $ 3,220,000 $ 26,000 $ 1,137,000 $ 23,000 $ 824,000 $ 680,000 $ 1,707,000 $ 11,765,000

Allowance for loan losses as of June 30, 2019

Allowance for loan losses as of September 30, 2019

Ending balance specifically evaluated for impairment $ 258,000 $ — $ 1,275,000 $ — $ 337,000 $ — $ 184,000 $ 6,000 $ — $ 2,060,000

Ending balance collectively evaluated for impairment $ 3,537,000 $ 353,000 $ 1,945,000 $ 26,000 $ 800,000 $ 23,000 $ 640,000 $ 674,000 $ 1,707,000 $ 9,705,000

Related loan balances as of June 30, 2019

Related loan balances as of September 30, 2019

Ending balance $ 368,165,000 $ 37,242,000 $ 201,859,000 $ 36,522,000 $ 485,490,000 $ 14,118,000 $ 94,144,000 $ 25,919,000 $ — $ 1,263,459,000

13 unchanged sentences

Other compensation under the 2020 Plan will qualify as performance-based for purposes of Section 162(m) of the Internal Revenue Code, and will satisfy NASDAQ guidelines relating to equity compensation.

As of June 30, 2020, 184,487 shares of restricted stock had been granted under the 2010 Plan and 4,250 shares under the 2020 Plan, of which 75,624 shares remain restricted as of June 30, 2020 as detailed in the following table:

As of September 30, 2020, 184,487 shares of restricted stock had been granted under the 2010 Plan and 5,750 shares under the 2020 Plan, of which 76,597 shares remain restricted as of September 30, 2020 as detailed in the following table:

Granted Vesting Term

10 unchanged sentences

2020 3.0 20,842 2.3

2020 3.0 20,842 2.6

The compensation cost related to these nonvested restricted stock grants is $ 1,978,000 and is recognized over the vesting terms of each grant.

In the six months ended June 30, 2020, $ 312,000 of expense was recognized for these restricted shares, leaving $ 1,003,000 in unrecognized expense as of June 30, 2020.

In the six months ended June 30, 2019, $ 244,000 of expense was recognized for restricted shares, leaving $ 921,000 in unrecognized expense as of June 30, 2019.

In the nine months ended September 30, 2020, $ 482,000 of expense was recognized for these restricted shares, leaving $ 864,000 in unrecognized expense as of September 30, 2020.

In the nine months ended September 30, 2019, $ 368,000 of expense was recognized for restricted shares, leaving $ 797,000 in unrecognized expense as of September 30, 2019.

Note 6 – Common Stock

Proceeds from sale of common stock totaled $ 325,000 and $ 329,000 for the six months ended June 30, 2020 and 2019, respectively.

Proceeds from sale of common stock totaled $ 497,000 and $ 488,000 for the nine months ended September 30, 2020 and 2019, respectively.

Note 7 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the six months ended June 30, 2020 and 2019:

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the nine months ended September 30, 2020 and 2019:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Net income as reported $ 20,159,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 20,159,000 10,927,669 $ 1.84

For the six months ended June 30, 2019

For the nine months ended September 30, 2019

Net income as reported $ 18,839,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 18,839,000 10,886,246 $ 1.73

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the quarters ended June 30, 2020 and 2019:

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the quarters ended September 30, 2020 and 2019:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the quarter ended June 30, 2020

For the quarter ended September 30, 2020

Net income as reported $ 7,095,000

4 unchanged sentences

Income available to common shareholders plus assumed conversions $ 7,095,000 10,939,859 $ 0.65

For the quarter ended June 30, 2019

For the quarter ended September 30, 2019

Net income as reported $ 6,288,000

10 unchanged sentences

The Company adopted the safe harbor form of 401(k) plan for 2020 and will follow safe harbor guidelines when determining the level of discretionary contribution.

The expense related to the 401(k) plan was $ 453,000 and $ 322,000 for the six months ended June 30, 2020 and 2019, respectively.

The expense related to the 401(k) plan was $ 653,000 and $ 464,000 for the nine months ended September 30, 2020 and 2019, respectively.

Deferred Compensation and Supplemental Retirement Benefits

2 unchanged sentences

The costs for these benefits are recognized over the service periods of the participating officers in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 712 "Compensation – Nonretirement Postemployment Benefits".

The expense of these supplemental retirement benefits was $ 79,000 for the six months ended June 30, 2020 and 2019.

As of June 30, 2020, the associated accrued liability included in other liabilities in the balance sheet was $ 2,764,000 compared to $ 2,828,000 and $ 2,887,000 at December 31, 2019 and June 30, 2019, respectively.

The expense of these supplemental retirement benefits was $ 119,000 for the nine months ended September 30, 2020 and 2019.

As of September 30, 2020, the associated accrued liability included in other liabilities in the balance sheet was $ 2,708,000 compared to $ 2,828,000 and $ 2,831,000 at December 31, 2019 and September 30, 2019, respectively.

Post-Retirement Benefit Plans

6 unchanged sentences

The following table sets forth the accumulated postretirement benefit obligation and funded status:

At or for the six months ended June 30,

At or for the nine months ended September 30,

Change in benefit obligation

8 unchanged sentences

The following table sets forth the net periodic pension cost:

For the six months ended June 30, For the quarter ended June 30,

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income are as follows:

2020 December 31, 2019 June 30,

September 30,

2020 December 31, 2019 September 30,

Unamortized net actuarial gain $ 31,000 $ 31,000 $ 47,000

8 unchanged sentences

Note 9 - Other Comprehensive Income (Loss)

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the six months and quarter ended June 30, 2020 and 2019.

For the six months ended June 30, For the quarter ended June 30,

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the nine months and quarter ended September 30, 2020 and 2019.

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

6 unchanged sentences

The reclassification of realized gains is included in the net securities gains line of the consolidated statements of income and comprehensive income and the tax effect is included in the income tax expense line of the same statement.

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in other comprehensive income (loss) for the six months and quarter ended June 30, 2020 and 2019.

For the six months ended June 30, For the quarter ended June 30,

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in other comprehensive income (loss) for the nine months and quarter ended September 30, 2020 and 2019.

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

4 unchanged sentences

Balance at end of period $ ( 139,000 ) $ ( 189,000 ) $ ( 139,000 ) $ ( 189,000 )

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the six months and quarter ended June 30, 2020 and 2019.

For the six months ended June 30, For the quarter ended June 30,

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the nine months and quarter ended September 30, 2020 and 2019.

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

Balance at beginning of period $ 97,000 $ 1,438,000 $ ( 6,187,000 ) $ 75,000

Unrealized losses on cash flow hedging derivatives arising during the period ( 7,955,000 ) ( 1,725,000 ) ( 1,790,000 ) ( 1,136,000 )

Unrealized gains (losses) on cash flow hedging derivatives arising during the period ( 7,465,000 ) ( 2,156,000 ) 490,000 ( 430,000 )

Related deferred taxes 1,568,000 453,000 ( 103,000 ) 90,000

1 unchanged sentence

Balance at end of period $ ( 5,800,000 ) $ ( 265,000 ) $ ( 5,800,000 ) $ ( 265,000 )

The following table summarizes activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the six months and quarter ended June 30, 2020 and 2019.

For the six months ended June 30, For the quarter ended June 30,

The following table summarizes activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the nine months and quarter ended September 30, 2020 and 2019.

For the nine months ended September 30, For the quarter ended September 30,

2020 2019 2020 2019

16 unchanged sentences

The details of the interest rate swap agreements are as follows:

June 30, 2020 December 31, 2019 June 30, 2019

September 30, 2020 December 31, 2019 September 30, 2019

Effective Date Maturity Date Variable Index Received Fixed Rate Paid Presentation on Consolidated Balance Sheet Notional Amount Fair Value

26 unchanged sentences

Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheet.

At June 30, 2020 there were three customer loan swap arrangements in place, detailed below:

June 30, 2020 December 31, 2019 June 30, 2019

At September 30, 2020, there were four customer loan swap arrangements in place, detailed below:

September 30, 2020 December 31, 2019 September 30, 2019

Presentation on Consolidated Balance Sheet Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value

5 unchanged sentences

The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested.

At June 30, 2020, the Bank posted to the counterparty $ 3,100,000 of cash and $ 10,000,000 in securities as collateral on its swap contracts.

At September 30, 2020, the Bank posted to the counterparty $ 3,100,000 of cash and $ 10,000,000 in securities as collateral on its swap contracts.

The required amount to be pledged was $ 9,322,000 .

6 unchanged sentences

Management intends to continue to monitor developments from ARRC and ISDA closely, and expects to pursue the steps ultimately recommended to provide for an orderly transition to a post-LIBOR environment.

Of the interest rate swap contracts the Bank has in place as of June 30, 2020, two contracts carrying a total notional amount of $ 50 million are set to mature prior to December 31, 2021;

Of the interest rate swap contracts the Bank has in place as of September 30, 2020, two contracts carrying a total notional amount of $ 50 million are set to mature prior to December 31, 2021;

nine contracts with a total notional amount of $ 210 million have maturity dates beyond December 31, 2021.

The three customer loan swap contracts shown in the table immediately above have maturity dates of December 19, 2029, July 1, 2035 and October 1, 2039.

The four customer loan swap contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, July 1, 2035 and October 1, 2039.

Note 11 – Mortgage Servicing Rights

3 unchanged sentences

The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three -months moving average of weekly prepayment data published by the Public Securities Association (PSA) and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows.

As of June 30, 2020, the prepayment assumption using the PSA model was 321, which translates into an anticipated prepayment rate of 19.26 %.

As of September 30, 2020, the prepayment assumption using the PSA model was 323, which translates into an anticipated prepayment rate of 19.38 %.

The discount rate is 9.00 %.

2 unchanged sentences

Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income.

For the six months ended June 30, 2020 and 2019, servicing rights capitalized totaled $ 464,000 and $ 128,000 , respectively.

Servicing rights amortized for the six-month periods ended June 30, 2020 and 2019 were $ 135,000 and $ 114,000 , respectively.

The fair value of servicing rights was $ 1,777,000 , $ 2,089,000 and $ 2,087,000 at June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

The Bank serviced loans for others totaling $ 287,987,000 , $ 266,173,000 and $ 259,889,000 at June 30, 2020, December 31, 2019, and June 30, 2019, respectively.

For the nine months ended September 30, 2020 and 2019, servicing rights capitalized totaled $ 926,000 and $ 267,000 , respectively.

Servicing rights amortized for the nine-months periods ended September 30, 2020 and 2019 were $ 252,000 and $ 170,000 , respectively.

The fair value of servicing rights was $ 2,013,000 , $ 2,089,000 and $ 2,083,000 at September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

The Bank serviced loans for others totaling $ 321,813,000 , $ 266,173,000 and $ 261,685,000 at September 30, 2020, December 31, 2019, and September 30, 2019, respectively.

The Bank recorded an impairment reserve as of September 30, 2020 for strata with a fair value lower than cost.

Mortgage servicing rights are included in other assets and detailed in the following table:

September 30,

2020 December 31,

2019 June 30,

2019 September 30,

Mortgage servicing rights $ 7,066,000 $ 6,140,000 $ 5,985,000

Accumulated amortization ( 4,846,000 ) ( 4,594,000 ) ( 4,534,000 )

$ 1,874,000 $ 1,546,000 $ 1,368,000

Amortized Cost 2,220,000 1,546,000 1,451,000

Impairment reserve ( 258,000 ) — —

Carrying Value $ 1,962,000 $ 1,546,000 $ 1,451,000

Note 12 – Income Taxes

3 unchanged sentences

Note 13 - Certificates of Deposit

The following table represents the breakdown of certificates of deposit at June 30, 2020 and 2019, and at December 31, 2019:

June 30, 2020 December 31, 2019 June 30, 2019

The following table represents the breakdown of certificates of deposit at September 30, 2020 and 2019, and at December 31, 2019:

September 30, 2020 December 31, 2019 September 30, 2019

Certificates of deposit < $100,000 $ 252,461,000 $ 277,225,000 $ 319,292,000

3 unchanged sentences

Note 14 – Reclassifications

Certain items from the prior year were reclassified in the financial statements to conform with the current year presentation.

Certain items from the prior year were reclassified in the consolidated financial statements to conform with the current year presentation.

These do not have a material impact on the consolidated balance sheet or statement of income and comprehensive income presentations.

48 unchanged sentences

The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties.

As of June 30, 2020 and 2019, and December 31, 2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

As of September 30, 2020 and 2019, and December 31, 2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

Customer Loan Derivatives

12 unchanged sentences

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2020, December 31, 2019 and June 30, 2019.

At June 30, 2020

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2020, December 31, 2019 and September 30, 2019.

At September 30, 2020

Level 1 Level 2 Level 3 Total

7 unchanged sentences

Total assets $ — $ 343,451,000 $ — $ 343,451,000

At June 30, 2020

At September 30, 2020

Level 1 Level 2 Level 3 Total

18 unchanged sentences

Total liabilities $ — $ 1,644,000 $ — $ 1,644,000

At June 30, 2019

At September 30, 2019

Level 1 Level 2 Level 3 Total

Securities available for sale

Treasury and agency $ — $ 5,012,000 $ — $ 5,012,000

Mortgage-backed securities $ — $ 322,190,000 $ — $ 322,190,000

5 unchanged sentences

Total assets $ — $ 328,951,000 $ — $ 328,951,000

At June 30, 2019

At September 30, 2019

Level 1 Level 2 Level 3 Total

4 unchanged sentences

The following tables include assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition.

Other real estate owned is presented net of an allowance of $ 0 at June 30, 2020, 2019

and December 31, 2019.

Mortgage servicing rights are presented net of an impairment reserve of $ 258,000 at September 30,

2020 and $ 0 at December 31, 2019 and September 30, 2019.

Other real estate owned is presented net of an allowance of $ 45,000 at September 30, 2020 and $ 0 at December 31, 2019 and September 30, 2019.

Only collateral-dependent impaired loans with a related specific allowance for loan losses or a partial charge off are included in impaired loans for purposes of fair value disclosures.

Impaired loans below are presented net of specific allowances of $ 623,000 , $ 1,916,000 and $ 1,893,000 at June 30, 2020, December 31, 2019, and June 30, 2019, respectively.

At June 30, 2020

Impaired loans below are presented net of specific allowances of $ 633,000 , $ 1,916,000 and $ 1,763,000 at September 30, 2020, December 31, 2019, and September 30, 2019, respectively.

At September 30, 2020

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 2,013,000 $ — $ 2,013,000

Other real estate owned — 777,000 — 777,000

3 unchanged sentences

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 2,089,000 $ — $ 2,089,000

Other real estate owned — 279,000 — 279,000

1 unchanged sentence

Total assets $ — $ 8,947,000 $ — $ 8,947,000

At June 30, 2019

At September 30, 2019

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 2,083,000 $ — $ 2,083,000

Other real estate owned — 279,000 — 279,000

14 unchanged sentences

Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately.

The carrying amount and estimated fair values for financial instruments as of June 30, 2020 were as follows:

The carrying amount and estimated fair values for financial instruments as of September 30, 2020 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

41 unchanged sentences

Total borrowed funds 184,955,000 177,513,000 — 177,513,000 —

The carrying amount and estimated fair values for financial instruments as of June 30, 2019 were as follows:

The carrying amount and estimated fair values for financial instruments as of September 30, 2019 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

57 unchanged sentences

As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

Note 17 – Commitment

On September 3, 2020, the Bank entered into a Branch Purchase & Assumption Agreement with Bangor Savings Bank (BSB) to acquire a branch location in Belfast, ME currently owned and operated by Damariscotta Bank & Trust (DB&T);

BSB has an agreement in place to purchase DB&T.

The acquisition will be the Bank's first branch location in Waldo County, and is expected to add $ 16.5 million in deposits and $ 23.5 million in loans to its balance sheet.

The final value of the transaction is estimated to be $ 24.8 million which includes the loans, an assignment of a ground lease, leasehold improvements, furniture and equipment, and the premium paid for the deposits.

The Bank has received regulatory approval for the purchase, and the transaction is expected to be closed in the fourth quarter.

A copy of the Agreement is included as Exhibit 10.4.

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