What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-04 · 198 added, 274 removed, 734 unchanged (39% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2021 and December 31, 2020

September 30, 2021 and December 31, 2020

(Dollars in thousands)

Cash and due from banks, including reserve requirements of $ 0 at both June 30, 2021 and December 31, 2020

September 30,

Cash and due from banks, including reserve requirements of $ 0 at both September 30, 2021 and December 31, 2020

Interest-bearing deposits

22 unchanged sentences

Preferred stock, no par value;

authorized 5,000,000 shares;

5,000,000 shares;

no shares issued and outstanding

Common stock, no par value;

authorized 20,000,000 shares;

issued and outstanding 5,789,166 shares at June 30, 2021 and 5,787,504 shares at December 31, 2020

20,000,000 shares;

issued and outstanding 5,661,569 shares

at September 30, 2021 and 5,787,504 shares at December 31, 2020

Common stock held by deferred compensation trust, at cost;

158,985 shares at June 30, 2021 and 155,469 shares at December 31, 2020

shares at September 30, 2021 and 155,469 shares at December 31, 2020

Deferred compensation

6 unchanged sentences

Consolidated Statements of Earnings

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands, except per share amounts)

Three months ended

Six months ended

Nine months ended

September 30,

Interest income:

1 unchanged sentence

Interest on due from banks

Interest on fededal funds sold

Interest on federal funds sold

Interest on investment securities:

3 unchanged sentences

Interest expense:

NOW, MMDA & savings deposits

Interest-bearing demand, MMDA & savings

Time deposits

12 unchanged sentences

Appraisal management fee income

Gain on sale of other real estate

Gain on sale of other assets

Gain (loss) on sale of other real estate

Miscellaneous

15 unchanged sentences

Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

Three months ended

Six months ended

Other comprehensive income:

Nine months ended

September 30,

Other comprehensive income (loss):

Unrealized holding gains (losses) on securities available for sale

1 unchanged sentence

Total other comprehensive income (loss), before income taxes

Income tax expense (benefit) related to other comprehensive income:

Income tax expense (benefit) related to other

comprehensive income:

Unrealized holding gains (losses) on securities available for sale

6 unchanged sentences

Consolidated Statements of Changes in Shareholders' Equity

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

Comprehensive

Balance, As At December 31, 2020

Balance, December 31, 2020

Cash dividends declared on common stock

1 unchanged sentence

Equity incentive plan, net

Change in accumulated other comprehensive income, net of tax

Balance, As At March 31, 2021

Change in accumulated other comprehensive loss, net of tax

Balance, March 31, 2021

Cash dividends declared on common stock

1 unchanged sentence

Change in accumulated other comprehensive income, net of tax

Balance, As At June 30, 2021

Balance, As At December 31, 2019

Balance, June 30, 2021

Common stock repurchase

Cash dividends declared on common stock

Equity incentive plan, net

Change in accumulated other comprehensive loss, net of tax

Balance, September 30, 2021

Balance, December 31, 2019

Common stock repurchase

Cash dividends declared on common stock

Restricted stock units exercised

1 unchanged sentence

Change in accumulated other comprehensive income, net of tax

Balance, As At March 31, 2020

Balance, March 31, 2020

Cash dividends declared on common stock

1 unchanged sentence

Change in accumulated other comprehensive income, net of tax

Balance, As At June 30, 2020

Balance, June 30, 2020

Cash dividends declared on common stock

Equity incentive plan, net

Change in accumulated other comprehensive loss, net of tax

Balance, September 30, 2020

See accompanying Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

6 unchanged sentences

Gain on sale of other real estate

Write-down of other real estate

Gain on sale of other assets

Restricted stock expense

14 unchanged sentences

Purchases of premises and equipment

Purchases of bank owned life insurance

Proceeds from sale of other assets

Proceeds from sale of other real estate and repossessions

4 unchanged sentences

Proceeds from FHLB borrowings

Repayments of FHLB borrowings

Repayment of Junior Subordinated Debt

10 unchanged sentences

Consolidated Statements of Cash Flows, continued

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

4 unchanged sentences

Issuance of accrued restricted stock units

Transfer of premises and equipment to other assets held for sale

Transfers of loans to other real estate and repossessions

Transfers of premises and equipment to other assets held for sale

See accompanying Notes to Consolidated Financial Statements.

10 unchanged sentences

The consolidated financial statements in this report (other than the Consolidated Balance Sheet at December 31, 2020) are unaudited.

In the opinion of management, all adjustments (none of which were other than normal accruals) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

In the opinion of management, all adjustments (none of which were other than normal accruals other than Correction of an Error noted below) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”).

9 unchanged sentences

Additionally, an adjustment to the presentation of the Company’s shareholders’ equity on the Consolidated Balance Sheets has been made to disclose the number of shares of Company stock held by the rabbi trust and the cost basis for those shares, as well as a corresponding liability for the deferred compensation as of December 31, 2020.

On the Consolidated Statements of Earnings, basic earnings per share has been adjusted from $0.44 to $ 0.46 for the three months ended June 30, 2020 and from $0.84 to $ 0.87 for the six months ended June 30, 2020.

On the Consolidated Statements of Earnings, basic earnings per share has been adjusted from $0.78 to $ 0.80 for the three months ended September 30, 2020 and from $1.62 to $ 1.67 for the nine months ended September 30, 2020.

The impact of the changes in the fair value of the mutual funds held in the rabbi trust and the changes in the deferred compensation liability that were not previously recorded were not considered material to the financial statements.

These changes to basic earnings per share are also reflected within Note 4 to the financial statements.

These changes to basic earnings per share are also reflected within Note 4 to the financial statements below.

In addition to the adjustments to the presentation of the Company’s shareholders’ equity on the Consolidated Balance Sheets, the Company adjusted the presentation of the Consolidated Statements of Changes in Shareholders’ Equity for all periods presented to reflect the Company shares held within the rabbi trust, as well as the corresponding deferred compensation associated with these shares.

The Company’s Consolidated Statements of Cash Flows were adjusted for the six months ended June 30, 2020 in order to reflect the changes to other assets and other liabilities made on the Consolidated Balance Sheets.

The Company’s Consolidated Statements of Cash Flows were adjusted for the nine months ended September 30, 2020 in order to reflect the changes to other assets and other liabilities made on the Consolidated Balance Sheets.

These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results of the periods presented.

All adjustments were not considered material to the financial statements.

Revenue Recognition

The Company has applied Accounting Standards Update (“ASU”) 2014-09 using a modified retrospective approach.

The Company’s revenue is comprised of net interest income and non-interest income.

The scope of ASU 2014-09 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives.

Accordingly, the majority of the Company’s revenues are not affected.

Appraisal management fee income and expense from the Bank’s subsidiary, CBRES, was reported as a net amount prior to March 31, 2018, which was included in miscellaneous non-interest income.

This income and expense is now reported on separate line items under non-interest income and non-interest expense.

See below for additional information related to revenue generated from contracts with customers.

Revenue and Method of Adoption

The majority of the Company’s revenue is derived primarily from interest income from receivables (loans) and securities.

Other revenues are derived from fees received in connection with deposit accounts, investment advisory, and appraisal services.

On January 1, 2018, the Company adopted the requirements of ASU 2014-09.

The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company adopted ASU 2014-09 using the modified retrospective transition approach which does not require restatement of prior periods.

The method was selected as there were no material changes in the timing of revenue recognition resulting in no comparability issues with prior periods.

This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of, and reason for, the change, which is solely a result of the adoption of the required standard.

When applying the modified retrospective transition approach under ASU 2014-09, the Company has elected, as a practical expedient, to apply this approach only to contracts that were not completed as of January 1, 2018.

A completed contract is considered to be a contract for which all (or substantially all) of the revenue was recognized in accordance with revenue guidance that was in effect before January 1, 2018.

There were no uncompleted contracts as of January 1, 2018 for which application of the new standard required an adjustment to retained earnings.

The following disclosures involve the Company’s material income streams derived from contracts with customers which are within the scope of ASU 2014-09.

Through the Company’s wholly-owned subsidiary, PIS, the Company contracts with a registered investment advisor to perform investment advisory services on behalf of the Company’s customers.

The Company receives commissions from this third party investment advisor based on the volume of business that the Company’s customers do with such investment advisor.

Total revenue recognized from these contracts was $ 260,000 and $ 241,000 for the three months ended June 30, 2021 and 2020, respectively.

Total revenue recognized from these contracts was $ 498,000 and $ 446,000 for the six months ended June 30, 2021 and 2020, respectively.

The Company utilizes third parties to contract with the Company’s customers to perform debit and credit card clearing services.

These third parties pay the Company commissions based on the volume of transactions that they process on behalf of the Company’s customers.

Total revenue recognized from these contracts with these third parties was $ 1.2 million and $ 972,000 for the three months ended June 30, 2021 and 2020, respectively.

Total revenue recognized from these contracts with these third parties was $ 2.5 million and $ 2.0 million for the six months ended June 30, 2021 and 2020, respectively.

This revenue is reflected in the “Miscellaneous” line under “Non-interest income” on the Company’s June 30, 2021 consolidated statements of earnings.

Through the Company’s wholly-owned subsidiary, REAS, the Company provides property appraisal services for negotiated fee amounts on a per appraisal basis.

Total revenue recognized from these contracts with customers was $ 180,000 and $ 181,000 for the three months ended June 30, 2021 and 2020, respectively.

Total revenue recognized from these contracts with customers was $ 388,000 for the six months ended June 30, 2021 and 2020.

This revenue is reflected in the “Miscellaneous” line under “Non-interest income” on the Company’s June 30, 2021 consolidated statements of earnings.

Through the Company’s wholly-owned subsidiary, CBRES, the Company provides appraisal management services.

Total revenue recognized from these contracts with customers was $ 1.8 million and $ 1.4 million for the three months ended June 30, 2021 and 2020, respectively.

Total revenue recognized from these contracts with customers was $ 3.8 million and $ 3.1 million for the six months ended June 30, 2021 and 2020, respectively.

Due to the nature of the Company’s relationship with the customers that the Company provides services, the Company does not incur costs to obtain contracts and there are no material incremental costs to fulfill these contracts that should be capitalized.

Disaggregation of Revenue .

The Company’s portfolio of services provided to the Company’s customers consists of over 50,000 active contracts.

The Company has disaggregated revenue according to timing of the transfer of service.

Total revenue for the six months ended June 30, 2021 derived from contracts in which services are transferred at a point in time was approximately $ 4.7 million.

None of the Company’s revenue is derived from contracts in which services are transferred over time.

Revenue is recognized as the services are provided to the customers.

Economic factors, such as the financial stress impacting businesses and individuals as a result of the novel coronavirus (“COVID-19”) pandemic, could affect the nature, amount, and timing of these cash flows, as unfavorable economic conditions could impair a customers’ ability to provide payment for services.

For the Company’s deposit contracts, this risk is mitigated as the Company generally deducts payments from customers’ accounts as services are rendered.

For the Company’s appraisal services, the risk is mitigated in that the appraisal is not released until payment is received.

Contract Balances .

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable on the balance sheet.

Most contracts call for payment by a charge or deduction to the respective customer account but there are some that require a receipt of payment from the customer.

For fee per transaction contracts, the customers are billed as the transactions are processed.

The Company has no contracts in which customers are billed in advance for services to be performed.

These types of contracts would create contract liabilities or deferred revenue, as the customers pay in advance for services.

There are no contract liabilities or accounts receivables balances that are material to the Company’s balance sheet.

Performance Obligations .

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASU 2014-09.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Performance obligations are satisfied as the service is provided to the customer at a point in time.

There are no significant financing components in the Company’s contracts.

Excluding deposit and appraisal service revenues which are primarily billed at a point in time as a fee for services incurred, all other contracts within the scope of ASU 2014-09 contain variable consideration in that fees earned are derived from market values of accounts which determine the amount of consideration to which the Company is entitled.

The variability is resolved when the services are provided.

The contracts do not include obligations for returns, refunds, or warranties.

The contracts are specific to the amounts owed to the Company for services performed during a period should the contracts be terminated.

Significant Judgements .

All of the Company’s contracts create performance obligations that are satisfied at a point in time excluding some immaterial deposit revenues.

Revenue is recognized as services are billed to the customers.

Variable consideration does exist for contracts related to the Company’s contract with its registered investment advisor as some revenues earned pursuant to that contract are based on market values of accounts at the end of the period.

The adjustments to correct the error noted above were not considered material to the financial statements.

Recent Accounting Pronouncements

13 unchanged sentences

Clarifies the interaction between the guidance for certain collaborative arrangements and the new revenue recognition financial accounting and reporting standard.

January 1, 2020 Early adoption permitted

January 1, 2020

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

4 unchanged sentences

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

The following table provides a summary of ASU’s issued by the FASB that the Company has not adopted as of June 30, 2021, which may impact the Company’s financial statements.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (Subtopic 715-20)

Updates disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

January 1, 2021

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes

Guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

January 1, 2021

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

Effective Date

Effect on Financial Statements or Other Significant Matters

Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)

Guidance to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

January 1, 2021

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)

Amends SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

Effective upon issuance

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842) (SEC Update)

Guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No.

119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard.

Effective upon issuance

The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

The following table provides a summary of ASU’s issued by the FASB that the Company has not adopted as of September 30, 2021, which may impact the Company’s financial statements.

Recently Issued Accounting Guidance Not Yet Adopted

Effective Date

Effect on Financial Statements or Other Significant Matters

Measurement of Credit Losses on Financial Instruments

8 unchanged sentences

The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

Updates disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

January 1, 2021

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

17 unchanged sentences

Effective Dates

Guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (CECL), leases, hedging.

January 1, 2023

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Effective Date

Effect on Financial Statements or Other Significant Matters

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

4 unchanged sentences

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes

Guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

January 1, 2021

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

January 1, 2021

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842) (SEC Update)

Guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No.

119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard.

Effective upon issuance

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Effective Date

Effect on Financial Statements or Other Significant Matters

Codification Improvements to Financial Instruments

9 unchanged sentences

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Effective Date

Effect on Financial Statements or Other Significant Matters

Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

3 unchanged sentences

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments, which requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate

Updated guidance that requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if certain conditions are met

January 1, 2022

The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Other accounting standards that have been issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

3 unchanged sentences

Investment Securities

Investment securities available for sale at June 30, 2021 and December 31, 2020 are as follows:

Investment securities available for sale at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)

June 30, 2021

Gross Unrealized Gains

Gross Unrealized Losses

September 30, 2021

U.S Treasuries

Government sponsored enterprises

sponsored enterprises

Mortgage-backed securities

2 unchanged sentences

December 31, 2020

Gross Unrealized Gains

Gross Unrealized Losses

Government sponsored enterprises

sponsored enterprises

Mortgage-backed securities

State and political subdivisions

The current fair value and associated unrealized losses on investments in securities with unrealized losses at June 30, 2021 and December 31, 2020 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position.

The current fair value and associated unrealized losses on investments in securities with unrealized losses at September 30, 2021 and December 31, 2020 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position.

(Dollars in thousands)

June 30, 2021

September 30, 2021

Less than 12 Months

3 unchanged sentences

Unrealized Losses

Government sponsored enterprises

sponsored enterprises

Mortgage-backed securities

7 unchanged sentences

Unrealized Losses

Government sponsored enterprises

sponsored enterprises

Mortgage-backed securities

State and political subdivisions

At June 30, 2021, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 1.8 million.

At September 30, 2021, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 2.8 million.

The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary.

From the June 30, 2021 tables above, one out of two U.S.

From the September 30, 2021 tables above, one out of two U.S.

Treasury securities, 35 out of 145 securities issued by state and political subdivisions and 43 out of 97 securities issued by U.S.

2 unchanged sentences

Government sponsored enterprises, including mortgage-backed securities, are government backed.

The amortized cost and estimated fair value of investment securities available for sale at June 30, 2021, by contractual maturity, are shown below.

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2021, by contractual maturity, are shown below.

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

June 30, 2021

September 30, 2021

(Dollars in thousands)

4 unchanged sentences

Mortgage-backed securities

No securities available for sale were sold during the three and six months ended June 30, 2021.

Proceeds from sales of securities available for sale during the three and six months ended June 30, 2020 were $ 17.0 million and resulted in net gains of $ 457,000 .

Securities with a fair value of approximately $ 79.3 million and $ 77.3 million at June 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes as required by law.

Major classifications of loans at June 30, 2021 and December 31, 2020 are summarized as follows:

No securities available for sale were sold during the three and nine months ended September 30, 2021.

Proceeds from sales of securities available for sale during the three months ended September 30, 2020 were $ 29.2 million and resulted in net gains of $ 1.7 million.

Proceeds from sales of securities available for sale during the nine months ended September 30, 2020 were $ 46.1 million and resulted in net gains of $ 2.1 million.

Securities with a fair value of approximately $ 90.6 million and $ 77.3 million at September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes as required by law.

Major classifications of loans at September 30, 2021 and December 31, 2020 are summarized as follows:

(Dollars in thousands)

September 30,

Real estate loans:

1 unchanged sentence

Single-family residential

Single-family residential - Banco de la Gente non-traditional

Single-family residential -

Banco de la Gente non-traditional

Multifamily and farmland

12 unchanged sentences

If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.

As of June 30, 2021, construction and land development loans comprised approximately 10 % of the Bank’s total loan portfolio.

As of September 30, 2021, construction and land development loans comprised approximately 9 % of the Bank’s total loan portfolio.

Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

As of June 30, 2021, single-family residential loans comprised approximately 32 % of the Bank’s total loan portfolio, and include Banco’s non-traditional single-family residential loans, which were approximately 3 % of the Bank’s total loan portfolio.

As of September 30, 2021, single-family residential loans comprised approximately 32 % of the Bank’s total loan portfolio, and include Banco’s non-traditional single-family residential loans, which were approximately 3 % of the Bank’s total loan portfolio.

Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.

1 unchanged sentence

A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.

As of June 30, 2021, commercial real estate loans comprised approximately 38 % of the Bank’s total loan portfolio.

As of September 30, 2021, commercial real estate loans comprised approximately 41 % of the Bank’s total loan portfolio.

Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business.

In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid or fluctuate in value based on the success of the business.

As of June 30, 2021, commercial loans comprised approximately 12 % of the Bank’s total loan portfolio, including $ 35.7 million in Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans.

As of September 30, 2021, commercial loans comprised approximately 11 % of the Bank’s total loan portfolio, including $ 25.6 million in Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans.

The Company had $ 75.8 million in PPP loans at December 31, 2020.

5 unchanged sentences

Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following tables present an age analysis of past due loans, by loan type, as of June 30, 2021 and December 31, 2020:

June 30, 2021

The following tables present an age analysis of past due loans, by loan type, as of September 30, 2021 and December 31, 2020:

September 30, 2021

(Dollars in thousands)

1 unchanged sentence

Loans 90 or More Days Past Due

Total Past Due Loans

Total Current Loans

Past Due Loans

Accruing Loans 90 or More Days Past Due

14 unchanged sentences

Loans 90 or More Days Past Due

Total Past Due Loans

Total Current Loans

Past Due Loans

Accruing Loans 90 or More Days Past Due

10 unchanged sentences

All other loans

The following table presents non-accrual loans as of June 30, 2021 and December 31, 2020:

The following table presents non-accrual loans as of September 30, 2021 and December 31, 2020:

(Dollars in thousands)

June 30, 2021

December 31, 2020

September 30,

Real estate loans:

17 unchanged sentences

Impaired loans under $ 250,000 are not individually evaluated for impairment with the exception of the Bank’s troubled debt restructured (“TDR”) loans in the residential mortgage loan portfolio, which are individually evaluated for impairment.

Accruing impaired loans were $ 19.7 million, $ 21.3 million and $ 22.5 million at June 30, 2021, December 31, 2020 and June 30, 2020, respectively.

Interest income recognized on accruing impaired loans was $ 536,000 , $ 1.2 million, and $ 635,000 for the six months ended June 30, 2021, the year ended December 31, 2020 and the six months ended June 30, 2020, respectively.

Interest income recognized on accruing impaired loans was $ 253,000 and $ 306,000 for the three months ended June 30, 2021 and 2020, respectively.

Accruing impaired loans were $ 18.2 million, $ 21.3 million and $21.0 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively.

Interest income recognized on accruing impaired loans was $ 754,000 , $ 1.2 million, and $ 934,000 for the nine months ended September 30, 2021, the year ended December 31, 2020 and the nine months ended September 30, 2020, respectively.

Interest income recognized on accruing impaired loans was $ 217,000 and $ 299,000 for the three months ended September 30, 2021 and 2020, respectively.

No interest income is recognized on non-accrual impaired loans subsequent to their classification as non-accrual.

The following table presents impaired loans as of June 30, 2021:

June 30, 2021

The following table presents impaired loans as of September 30, 2021:

September 30, 2021

(Dollars in thousands)

Unpaid Contractual Principal Balance

Recorded Investment With No Allowance

Recorded Investment With Allowance

Recorded Investment in Impaired Loans

Related Allowance

Recorded Investment

Recorded Investment in Impaired

Real estate loans:

9 unchanged sentences

Total impaired loans

The following table presents the average impaired loan balance and the interest income recognized by loan class for the three and six months ended June 30, 2021 and 2020.

The following table presents the average impaired loan balance and the interest income recognized by loan class for the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands)

Three months ended

Six months ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Nine months ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Average Balance

15 unchanged sentences

Commercial loans

Farm loans (non RE)

Consumer loans

21 unchanged sentences

Total impaired loans

Impaired loans collectively evaluated for impairment totaled $ 5.7 million and $ 6.2 million at June 30, 2021 and 2020, respectively and are included in the tables above.

The following tables present changes in the allowance for loan losses for the three and six months ended June 30, 2021 and 2020.

Impaired loans collectively evaluated for impairment totaled $5.1 million and $ 5.8 million at September 30, 2021 and December 31, 2020, respectively and are included in the tables above.

Allowance on impaired loans collectively evaluated for impairment totaled $ 45,000 and $ 61,000 at September 30, 2021 and December 31, 2020, respectively.

The following tables present changes in the allowance for loan losses for the three and nine months ended September 30, 2021 and 2020.

Unallocated balances in the following tables include allowance for loan losses based on qualitative factors such as economic outlook, concentrations of credit, interest rate risk and loan volume trends.

PPP loans are excluded from the allowance for loan losses as PPP loans are 100 percent guaranteed by the SBA.

7 unchanged sentences

Consumer and All Other

Six months ended June 30, 2021:

Nine months ended September 30, 2021:

Allowance for loan losses:

1 unchanged sentence

Ending balance

Three months ended June 30, 2021:

Three months ended September 30, 2021:

Allowance for loan losses:

1 unchanged sentence

Ending balance

Allowance for loan losses at June 30, 2021:

Allowance for loan losses at September 30, 2021:

Ending balance:

3 unchanged sentences

Ending balance

Loans at June 30, 2021:

Loans at September 30, 2021:

Ending balance

Ending balance:

individually evaluated for impairment

evaluated for impairment

Ending balance:

collectively evaluated for impairment

evaluated for impairment

(Dollars in thousands)

5 unchanged sentences

Consumer and All Other

Six months ended June 30, 2020:

Nine months ended September 30, 2020:

Allowance for loan losses:

1 unchanged sentence

Ending balance

Three months ended June 30, 2020:

Three months ended September 30, 2020:

Allowance for loan losses:

1 unchanged sentence

Ending balance

Allowance for loan losses at June 30, 2020:

Allowance for loan losses at September 30, 2020:

Ending balance:

3 unchanged sentences

Ending balance

Loans at June 30, 2020:

Loans at September 30, 2020:

Ending balance

3 unchanged sentences

evaluated for impairment

The provision for loan losses for the three months ended June 30, 2021 was a recovery of $ 226,000 , compared to a provision of $ 1.4 million for the three months ended June 30, 2020.

The decrease in the provision for loan losses is primarily attributable to a decrease in reserves on loans with payment modifications made as a result of the COVID-19 pandemic and a decrease in reserves due to a net decrease in the volume of loans in the general reserve pool.

At June 30, 2021, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $ 283,000 .

The provision for loan losses for the three months ended September 30, 2021 was a recovery of $ 182,000 , compared to a provision of $ 522,000 for the three months ended September 30, 2020.

At September 30, 2021, there were no loans with existing modifications as a result of the COVID-19 pandemic.

At December 31, 2020, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $ 18.3 million.

1 unchanged sentence

The loan balances associated with COVID-19 pandemic related modifications have been grouped into their own pool within the Company’s Allowance for Loan and Lease Losses (“ALLL”) model as they have a higher likelihood of risk, and a higher reserve rate has been applied to that pool.

Of all loans modified as a result of the COVID-19 pandemic, $ 108.2 million have returned to their original terms;

however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that are currently modified and/or loans that were once modified.

All loans modified as a result of the COVID-19 pandemic, totaling $100.9 million at September 30, 2021, have returned to their original terms;

however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that were once modified.

At December 31, 2020, the balance for all loans that were then currently modified or previously modified but returned to their original terms was $ 119.6 million.

The $ 11.4 million decrease from December 31, 2020 to June 30, 2021 in the balance of currently or previously modified loans that had returned to their original terms is primarily due to loans paid off during the six months ended June 30, 2021.

The $ 18.7 million decrease from December 31, 2020 to September 30, 2021 in the balance of currently or previously modified loans that had returned to their original terms is primarily due to loans paid off during the nine months ended September 30, 2021.

Loan payment modifications associated with the COVID-19 pandemic are not classified as TDR due to Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which provides that a qualified loan modification is exempt by law from classification as a TDR pursuant to GAAP.

The provision for loan losses for the six months ended June 30, 2021 was a recovery of $ 681,000 , compared to a provision of $ 2.9 million for the six months ended June 30, 2020.

The provision for loan losses for the nine months ended September 30, 2021 was a recovery of $ 863,000 , compared to a provision of $ 3.5 million for the nine months ended September 30, 2020.

31 unchanged sentences

Loss is a temporary grade until the appropriate authority is obtained to charge the loan off.

The following tables present the credit risk profile of each loan type based on internally assigned risk grades as of June 30, 2021 and December 31, 2020:

June 30, 2021

The following tables present the credit risk profile of each loan type based on internally assigned risk grades as of September 30, 2021 and December 31, 2020:

September 30, 2021

(Dollars in thousands)

21 unchanged sentences

6- Substandard

Current year TDR modifications, past due TDR loans and non-accrual TDR loans totaled $ 2.2 million and $ 3.8 million at June 30, 2021 and December 31, 2020, respectively.

Past due TDR loans and non-accrual TDR loans totaled $ 1.6 million and $ 3.8 million at September 30, 2021 and December 31, 2020, respectively.

The terms of these loans have been renegotiated to provide a concession to original terms, including a reduction in principal or interest as a result of the deteriorating financial position of the borrower.

There were no performing loans classified as TDR loans at June 30, 2021 and December 31, 2020.

There were no new TDR modifications during the three and six months ended June 30, 2021 and 2020.

There were no loans modified as TDR that defaulted during the six months ended June 30, 2021 and 2020, which were within 12 months of their modification date.

There were no performing loans classified as TDR loans at September 30, 2021 and December 31, 2020.

There were no new TDR modifications during the three and nine months ended September 30, 2021 and 2020.

There were no loans modified as TDR that defaulted during the nine months ended September 30, 2021 and 2020, which were within 12 months of their modification date.

Generally, a TDR loan is considered to be in default once it becomes 90 days or more past due following a modification.

3 unchanged sentences

The Bank is participating as a lender in the PPP .

Total PPP loans originated as of June 30, 2021 amounted to $128.1 million .

The outstanding balance of PPP loans was $ 35.7 million and $ 75.8 million at June 30, 2021 and December 31, 2020, respectively.

The Bank has received $ 5.7 million and $ 4.0 million in fees from the SBA for PPP loans originated as of June 30, 2021.

The Bank recognized $ 2.5 million and $ 1.4 million PPP loan fee income for the six months ended June 30, 2021 and the year ended December 31, 2020 respectively.

PPP loan fee income recognized for the three months ended June 30, 2021 was $ 1.5 million.

No PPP loan fee income was recognized for the three and six months ended June 30, 2020.

Total PPP loans originated as of September 30, 2021 amounted to $ 128.1 million.

The outstanding balance of PPP loans was $ 25.6 million and $ 75.8 million at September 30, 2021 and December 31, 2020, respectively.

The Bank has received $ 5.7 million in fees from the SBA for PPP loans originated as of September 30, 2021.

The Bank recognized $3.0 million and $ 1.4 million PPP loan fee income for the nine months ended September 30, 2021 and the year ended December 31, 2020 respectively.

PPP loan fee income recognized for the three months ended September 30, 2021 was $ 489,000 .

PPP loan fee income recognized for the three and nine months ended September 30, 2020 was $ 361,000 .

Net Earnings Per Share

1 unchanged sentence

The average market price during the applicable period is used to compute equivalent shares.

The reconciliation of the amounts used in the computation of both “basic earnings per share” and “diluted earnings per share” for the three and six months ended June 30, 2021 and 2020 is as follows:

For the three months ended June 30, 2021

The reconciliation of the amounts used in the computation of both “basic earnings per share” and “diluted earnings per share” for the three and nine months ended September 30, 2021 and 2020 is as follows:

For the three months ended September 30, 2021

Net Earnings (Dollars in thousands)

Weighted Average Number of Shares

Per Share Amount

Basic earnings per share

3 unchanged sentences

Diluted earnings per share

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Net Earnings (Dollars in thousands)

Weighted Average Number of Shares

Per Share Amount

Basic earnings per share

3 unchanged sentences

Diluted earnings per share

For the three months ended June 30, 2020

For the three months ended September 30, 2020

Net Earnings (Dollars in thousands)

Weighted Average Number of Shares

Per Share Amount

Basic earnings per share

3 unchanged sentences

Diluted earnings per share

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Net Earnings (Dollars in thousands)

Weighted Average Number of Shares

Per Share Amount

Basic earnings per share

6 unchanged sentences

The 2009 Plan expired on May 7, 2019 but still governs the rights and obligations of the parties for grants made thereunder.

As of June 30, 2021, there were no outstanding shares reserved for possible issuance under the 2009 Plan.

As of September 30, 2021, there were no outstanding shares reserved for possible issuance under the 2009 Plan.

The Company granted 16,583 restricted stock units under the 2009 Plan at a grant date fair value of $ 16.34 per share during the first quarter of 2015.

6 unchanged sentences

The amount of expense recorded each period reflects the changes in the Company’s stock price during such period.

As of June 30, 2021, the total unrecognized compensation expense related to the restricted stock unit grants under the 2009 Plan was $ 66,000 .

As of September 30, 2021, the total unrecognized compensation expense related to the restricted stock unit grants under the 2009 Plan was $ 57,000 .

The Company also has an Omnibus Stock Ownership and Long Term Incentive Plan that was approved by shareholders on May 7, 2020 (the “2020 Plan”) whereby certain stock-based rights, such as stock options, restricted stock, restricted stock units, performance units, stock appreciation rights or book value shares, may be granted to eligible directors and employees.

A total of 300,000 shares were reserved for possible issuance under the 2020 Plan when it was adopted.

As of June 30, 2021, a total of 285,075 shares out of the initial 300,000 shares reserved remain available for future issuance under the 2020 Plan.

As of September 30, 2021, a total of 285,075 shares out of the initial 300,000 shares reserved remain available for future issuance under the 2020 Plan.

All stock-based rights under the 2020 Plan must be granted or awarded by May 7, 2030 (or ten years from the 2020 Plan effective date).

2 unchanged sentences

The Company recognizes compensation expense on the restricted stock units over the period of time the restrictions are in place (four years from the grant date for 2020 and 2021 grants).

As of June 30, 2021, the total unrecognized compensation expense related to the restricted stock unit grants under the 2020 Plan was $ 308,000 .

The Company recognized compensation expense for restricted stock unit awards granted under the 2009 Plan and 2020 Plan of $ 99,000 for the six months ended June 30, 2021.

The Company recognized a $ 75,000 credit to compensation expense for restricted stock unit awards granted under the 2009 Plan and 2020 Plan for the six months ended June 30, 2020 due to a reduction in the Company’s stock price from $ 32.85 per share at December 31, 2019, compared to $ 17.67 per share at June 30, 2020.

(6) Fair Value

As of September 30, 2021, the total unrecognized compensation expense related to the restricted stock unit grants under the 2020 Plan was $ 312,000 .

The Company recognized compensation expense for restricted stock unit awards granted under the 2009 Plan and 2020 Plan of $ 166,000 for the nine months ended September 30, 2021.

The Company recognized a $ 73,000 credit to compensation expense for restricted stock unit awards granted under the 2009 Plan and 2020 Plan for the nine months ended September 30, 2020 due to a reduction in the Company’s stock price from $ 32.85 per share at December 31, 2019, compared to $ 15.43 per share at September 30, 2020.

The Company is required to disclose fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value.

32 unchanged sentences

For mutual funds held in the deferred compensation trust, the carrying value is a reasonable estimate of fair value.

Mutual funds held in the deferred compensation trust are included in other assets on balance sheet and reported in the Level 2 fair value category.

Mutual funds held in the deferred compensation trust are included in other assets on the balance sheet and reported in the Level 2 fair value category.

The fair value of demand deposits, interest-bearing demand deposits and savings is the amount payable on demand at the reporting date.

21 unchanged sentences

In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The tables below present the balance of securities available for sale, which are measured at fair value on a recurring basis by level within the fair value hierarchy, as of June 30, 2021 and December 31, 2020.

The tables below present the balance of securities available for sale, which are measured at fair value on a recurring basis by level within the fair value hierarchy, as of September 30, 2021 and December 31, 2020.

(Dollars in thousands)

June 30, 2021

September 30, 2021

Fair Value Measurements

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

sponsored enterprises

4 unchanged sentences

Fair Value Measurements

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

sponsored enterprises

1 unchanged sentence

State and political subdivisions

The tables below present the balance of mutual funds held in the deferred compensation trust, which are measured at fair value on a recurring basis by level within the fair value hierarchy, as of June 30, 2021 and December 31, 2020.

(Dollars in thousands)

June 30, 2021

September 30, 2021

Fair Value Measurements

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

Mutual funds held in deferred compensation trust

2 unchanged sentences

Fair Value Measurements

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

Mutual funds held in deferred compensation trust

The fair value measurements for mortgage loans held for sale, impaired loans and other real estate on a non-recurring basis at June 30, 2021 and December 31, 2020 are presented below.

The fair value measurements for mortgage loans held for sale, impaired loans and other real estate on a non-recurring basis at September 30, 2021 and December 31, 2020 are presented below.

The fair value measurement process uses certified appraisals and other market-based information;

2 unchanged sentences

(Dollars in thousands)

Fair Value Measurements June 30, 2021

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

Fair Value Measurements September 30, 2021

Mortgage loans held for sale

2 unchanged sentences

Fair Value Measurements December 31, 2020

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

Mortgage loans held for sale

2 unchanged sentences

(Dollars in thousands)

June 30, 2021

December 31, 2020

Valuation Technique

Significant Unobservable Inputs

September 30,

General Range of Significant Unobservable Input Values

7 unchanged sentences

Discounts to reflect current market conditions and estimated costs to sell

The carrying amount and estimated fair value of financial instruments at June 30, 2021 and December 31, 2020 are as follows:

The carrying amount and estimated fair value of financial instruments at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)

Fair Value Measurements at June 30, 2021

Carrying Amount

Fair Value Measurements at September 30, 2021

Cash and cash equivalents

9 unchanged sentences

Fair Value Measurements at December 31, 2020

Carrying Amount

Cash and cash equivalents

7 unchanged sentences

Junior subordinated debentures

As of June 30, 2021, the Company had operating ROU assets of $ 3.0 million and operating lease liabilities of $ 3.1 million.

As of September 30, 2021, the Company had operating right of use assets and operating lease liabilities of $ 2.9 million.

The Company maintains operating leases on land and buildings for some of the Bank’s branch facilities and loan production offices.

3 unchanged sentences

As allowed by ASU 2016-02, leases with a term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term.

The following table presents lease cost and other lease information as of June 30, 2021 and 2020.

The following table presents lease cost and other lease information as of September 30, 2021 and 2020.

(Dollars in thousands)

June 30, 2021

June 30, 2020

September 30,

Operating lease cost

5 unchanged sentences

Weighted-average discount rate - operating leases

The following table presents lease maturities as of June 30, 2021 and December 31, 2020.

The following table presents lease maturities as of September 30, 2021 and December 31, 2020.

(Dollars in thousands)

Maturity Analysis of Operating Lease Liabilities:

June 30, 2021

December 31, 2020

September 30,

Imputed Interest

2 unchanged sentences

The Company has reviewed and evaluated subsequent events and transactions for material subsequent events through the date the financial statements are issued.

The SBA has continued to forgive the Bank’s PPP loans.

The outstanding balance of PPP loans was $ 33.1 million at July 31, 2021, as compared to $ 35.7 million at June 30, 2021.

The decrease from June 30, 2021 to July 31, 2021 was primarily due to PPP loans being forgiven by the SBA.

The Bank closed its West Lincoln branch location on June 11, 2021.

The West Lincoln branch property was sold on July 1, 2021 for a net gain of $ 107,000 that will be recognized in the third quarter of 2021.

The $ 408,000 net book value of the West Lincoln branch property at June 30, 2021 was classified as held for sale at June 30, 2021 and is reflected in “Accrued interest receivable and other assets” on the Company’s June 30, 2021 consolidated balance sheets.

Management has concluded that there were no material subsequent events.

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