What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2022-11-04 · 316 added, 337 removed, 483 unchanged (57% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30, 2022 and December 31, 2021

March 31, 2023 and December 31, 2022

(Dollars in thousands)

September 30,

Cash and due from banks, including reserve requirements of $ 0 at both 3/31/23 and 12/31/22

5 unchanged sentences

Mortgage loans held for sale

Less allowance for loan losses

Less allowance for credit losses

Premises and equipment, net

5 unchanged sentences

Interest-bearing demand, MMDA & savings

Time, $ 250,000 or more

Time, over $ 250,000

Total deposits

10 unchanged sentences

authorized 20,000,000 shares;

issued and outstanding 5,641,030 shares at September 30, 2022 and 5,661,569 shares at December 31, 2021

issued and outstanding 5,637,021 shares at March 31, 2023 and 5,636,830 shares at December 31, 2022

Common stock held by deferred compensation trust, at cost;

167,889 shares at September 30, 2022 and 162,193 shares at December 31, 2021

158,356 shares at March 31, 2023 and 163,883 shares at December 31, 2022

Deferred compensation

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total shareholders' equity

3 unchanged sentences

Consolidated Statements of Earnings

Three and Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

Three months ended

Nine months ended

September 30,

Interest income:

6 unchanged sentences

Interest expense:

NOW, MMDA & savings deposits

Interest-bearing demand, MMDA & savings deposits

Time deposits

2 unchanged sentences

Net interest income

Provision for (recovery of) loan losses

Net interest income after provision for loan losses

Provision for credit losses

Net interest income after provision for credit losses

Non-interest income:

1 unchanged sentence

Other service charges and fees

Loss on sale of securities, net

Mortgage banking income

1 unchanged sentence

Appraisal management fee income

Gain on sale of other assets

Gain on sale of other real estate

Miscellaneous

6 unchanged sentences

Appraisal management fee expense

Miscellaneous

Total non-interest expense

7 unchanged sentences

Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(Dollars in thousands)

Three months ended

Nine months ended

September 30,

Other comprehensive loss:

Unrealized holding losses on securities

available for sale

Income tax benefit related to other

comprehensive loss:

Unrealized holding losses on securities

available for sale

Total other comprehensive loss,

Other comprehensive income (loss):

Unrealized holding gains (losses) on securities available for sale

Reclassification adjustment for losses on securities available for sale included in net earnings

Total other comprehensive income (loss), before income taxes

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

Unrealized holding gains (losses) on securities available for sale

Reclassification adjustment for losses on sales of securities available for sale included in net earnings

Total income tax expense (benefit) related to other comprehensive income (loss)

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

2 unchanged sentences

Consolidated Statements of Changes in Shareholders' Equity

Three and Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(Dollars in thousands)

Comprehensive

Income (Loss)

Balance, December 31, 2022

Common stock repurchase

Cash dividends declared on

Adoption of new accounting standard, net of tax

Cash dividends declared on common stock

Restricted stock units exercised

Equity incentive plan, net

Change in accumulated other

comprehensive loss, net of tax

Change in accumulated other comprehensive income, net of tax

Balance, March 31, 2023

Common stock repurchase

Cash dividends declared on

Equity incentive plan, net

Change in accumulated other

comprehensive loss, net of tax

Balance, June 30, 2022

Cash dividends declared on

Equity incentive plan, net

Change in accumulated other

comprehensive loss, net of tax

Balance, September 30, 2022

Balance, December 31, 2021

Cash dividends declared on

Common stock repurchase

Cash dividends declared on common stock

Restricted stock units exercised

Equity incentive plan, net

Change in accumulated other

comprehensive loss, net of tax

Change in accumulated other comprehensive loss, net of tax

Balance, March 31, 2022

Cash dividends declared on

Equity incentive plan, net

Change in accumulated other

comprehensive income, net of tax

Balance, June 30, 2021

Common stock repurchase

Cash dividends declared on

Equity incentive plan, net

Change in accumulated other

comprehensive loss, net of tax

Balance, September 30, 2021

See accompanying Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(Dollars in thousands)

Cash flows from operating activities:

Adjustments to reconcile net earnings to

net cash provided by operating activities:

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

Depreciation, amortization and accretion

Provision for (recovery of) loan losses

Provision for credit losses

Deferred income taxes

Gain on sale of other real estate

Gain on sale of other assets

Loss on sale of investment securities, net

Restricted stock expense

8 unchanged sentences

Purchases of investment securities available for sale

Proceeds from sales, calls and maturities of investment securities

available for sale

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

Proceeds from paydowns of investment securities available for sale

Proceeds from paydowns on other investments

Redemptions (purchases) of FHLB stock

Proceeds from paydowns of other investment securities

Redemption (purchase) of FHLB stock

Net change in loans

Purchases of premises and equipment

Proceeds from sale of other assets

Proceeds from sale of other real estate

Proceeds from bank owned life insurance

Net cash used by investing activities

Net cash provided (used) by investing activities

Cash flows from financing activities:

1 unchanged sentence

Net change in securities sold under agreement to repurchase

Proceeds from Fed Funds purchased

Repayments of Fed Funds purchased

Common stock repurchased

Cash dividends paid on common stock

Net cash provided by financing activities

Net cash provided (used) by financing activities

Net change in cash and cash equivalents

3 unchanged sentences

Consolidated Statements of Cash Flows, continued

Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(Dollars in thousands)

2 unchanged sentences

Noncash investing and financing activities:

Change in unrealized loss on investment securities

available for sale, net

Change in unrealized loss on investment securities available for sale, net

Issuance of accrued restricted stock units

Transfer of premises and equipment to other assets held for sale

Initial recognition of lease right-of-use asset and lease liability

Allowance for credit losses record upon adoption of ASU 326

See accompanying Notes to Consolidated Financial Statements.

16 unchanged sentences

Actual results could differ from those estimates.

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance.

Management has determined that the Company has two significant operating segment:

Banking Operations and CBRES, as discussed more fully in Note 7.

In determining the appropriateness of segment definition, the Company considers the criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting.

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition.

1 unchanged sentence

A description of the Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2022 Annual Report to Shareholders which is Appendix A to the Proxy Statement for the 2023 Annual Meeting of Shareholders.

There have been no significant changes to the application of significant accounting policies since December 31, 2022, except for the adoption of ASC 326 noted below.

Recent Accounting Pronouncements

The following table provides a summary of Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) that the Company has not adopted as of September 30, 2022, 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

Provides guidance to change the accounting for credit losses and modify the impairment model for certain debt securities.

See ASU 2019-10 below.

The Company will apply this guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.

The Company is still evaluating the impact of this guidance on its consolidated financial statements.

The Company has formed a Current Expected Credit Losses (“CECL”) committee and implemented a model from a third-party vendor for running CECL calculations.

The Company has developed CECL model assumptions and is comparing results to current allowance for loan loss calculations.

Parallel processing of the existing allowance for loan losses model with the CECL model will occur during the fourth quarter of 2022.

The Company is currently evaluating the impact of this adoption on its financial statements and disclosures and currently expects to record a one-time adjustment to retained earnings to increase the allowance for loan losses.

In addition to the Company’s allowance for loan losses, it will also review an allowance for credit losses on debt securities instead of applying the impairment model currently utilized.

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.

Based on implementation progress to date, the Company believes the capital adequacy requirements to which it and the Bank are subject to, and its business strategies and practices, will not be materially impacted following the adoption on January 1, 2023.

The following table provides a summary of Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”) that the Company has recently adopted.

Effective Date

Effect on Financial Statements or Other Significant Matters

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

Aligns the implementation date of the topic for annual financial statements of nonpublic companies with the implementation date for their interim financial statements.

The guidance also clarifies that receivables arising from operating leases are not within the scope of the topic, but rather, should be accounted for in accordance with the leases topic.

See ASU 2019-10 below.

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

See ASU 2016-13 above.

Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Addresses unintended issues accountants flagged when implementing ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities.

See ASU 2019-10 below.

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

See ASU 2016-13 above.

Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief

Guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments.

See ASU 2019-10 below.

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

See ASU 2016-13 above.

Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

2 unchanged sentences

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.

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

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

3 unchanged sentences

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.

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

Codification Improvements to Financial Instruments

1 unchanged sentence

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.

Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Guidance that provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The ASU is intended to help stakeholders during the global market-wide reference rate transition period.

Therefore, it will be in effect for a limited time through December 31, 2022.

March 12, 2020 through December 31, 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.

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):

2 unchanged sentences

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.

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

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.

On January 1, 2023, the Company adopted ASC 326, which replaced the incurred loss impairment framework in prior GAAP with a current expected credit loss (“CECL”) framework, which requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and some off-balance sheet credit exposures such as unfunded commitments to extend credit.

Financial assets measured at amortized cost are presented at the net amount expected to be collected by using an allowance for credit losses (“ACL”).

In addition, CECL made changes to the accounting for available for sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Adoption of ASC 326 resulted in an initial reduction to retained earnings of $ 838,000 , net of tax, due to a $1.1 million increase in the allowance for credit losses, comprised of a $ 2.3 million increase in the allowance for credit losses on unfunded commitments and a $ 1.2 million decrease in the allowance for credit losses on loans.

There was no impact to the available-for-sale securities portfolio or other financial instruments.

Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP (referred to as the “Incurred Loss” methodology).

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023.

As of December 31, 2022, the Company did not have any other than-temporarily impaired investment securities.

Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not deemed material.

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal of uncollectible interest.

The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of March 31, 2023.

The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist.

No loans were individually evaluated as of March 31, 2023.

The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a Weighted Average Remaining Maturity methodology:

1-4 family residential construction loans

Other construction loans and all land development and other land loans

Secured by farmland (including farm residential and other improvements)

Home equity loans

1-4 family residential loans secured by first liens

1-4 family residential loans secured by junior liens

Secured by multifamily residential properties

Loans secured by owner-occupied, nonfarm nonresidential properties

Loans secured by other nonfarm nonresidential properties

Loans to finance agricultural production and other loans to farmers

Commercial and industrial loans

Other revolving credit plans

Other consumer loans

Obligations (other than securities and leases) of states and political subdivisions in the US

Under the WARM methodology, lifetime losses are calculated by determining the remaining life of the loan pool and then applying a loss rate which includes a forecast component over this remaining life of the loan.

The methodology considers historical loss experience and a loss forecast expectation to estimate credit losses for the remaining balance of the loan pool.

The calculated loss rate is applied to the contractual term (adjusted for prepayments) to determine the loan pool’s current expected credit losses.

The Company’s forecast period for all pools projects the next four quarters to have similar loss rates to the period between November 1, 2015 and March 31, 2019, and then with a reversion back to the long-term average over four quarters.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience.

These qualitative adjustments may increase or reduce reserve levels and include adjustments for:

local, state and national economic outlook;

levels and trends of delinquencies;

trends in volume, mix and size of loans;

seasoning of the loan portfolio;

experience of staff;

concentrations of credit;

and interest rate risk.

Loans that do not share risk characteristics are evaluated on an individual basis.

When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date unadjusted for selling costs as appropriate.

The Company did not have any loans evaluated on an individual basis at March 31, 2023.

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments.

Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable.

The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees.

The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

(2) Investment Securities

Investment securities available for sale at September 30, 2022 and December 31, 2021 are as follows:

Investment securities available for sale at March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)

September 30, 2022

sponsored enterprises

March 31, 2023

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

U.S Treasuries

Government sponsored enterprises

Mortgage-backed securities

2 unchanged sentences

December 31, 2022

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

U.S Treasuries

sponsored enterprises

Government 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 September 30, 2022 and December 31, 2021 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 March 31, 2023 and December 31, 2022 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position.

(Dollars in thousands)

September 30, 2022

March 31, 2023

Less than 12 Months

3 unchanged sentences

Unrealized Losses

sponsored enterprises

Government sponsored enterprises

Mortgage-backed securities

7 unchanged sentences

Unrealized Losses

sponsored enterprises

Government sponsored enterprises

Mortgage-backed securities

State and political subdivisions

At September 30, 2022, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 59.8 million.

At March 31, 2023, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 50.7 million.

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

From the September 30, 2022 tables above, all three U.S.

Treasury securities, 152 out of 166 securities issued by state and political subdivisions and 127 out of 139 securities issued by U.S.

Government sponsored enterprises, including mortgage-backed securities, contained unrealized losses.

These unrealized losses are considered temporary because of the acceptable financial condition and results of operations of the entities that issued each security and the repayment sources of principal and interest on U.S.

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

From the March 31, 2023 tables above, all three of the U.S.

Treasury securities, all 108 of the securities issued by state and political subdivisions , all seven of the securities issued by U.S.

Government sponsored enterprises and 119 of the 132 mortgage-backed securities contained unrealized losses.

These unrealized losses are not related to credit impairment because of the acceptable financial condition and results of operations of the entities that issued each security and the repayment sources of principal and interest on U.S.

Government sponsored enterprises, including mortgage-backed securities.

The Company does not have an allowance for credit losses on available for sale securities at March 31, 2023.

At December 31, 2022, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 62.3 million.

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

From the December 31, 2021 tables above, both of the U.S.

Treasury securities, 70 of the 146 securities issued by state and political subdivisions contained unrealized losses and 54 of the 99 securities issued by U.S.

Government sponsored enterprises, including mortgage-backed securities, contained unrealized losses.

From the December 31, 2022 tables above, all three of the U.S.

Treasury securities, 149 of the 158 securities issued by state and political subdivisions, all seven of the securities issued by U.S.

Government sponsored enterprises and 123 of the 133 mortgage-backed securities contained unrealized losses.

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

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2022, 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.

September 30, 2022

Government sponsored enterprises, including mortgage-backed securities.

The amortized cost and estimated fair value of investment securities available for sale at March 31, 2023, presented by contractual maturity, are shown below.

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

March 31, 2023

(Dollars in thousands)

5 unchanged sentences

Mortgage-backed securities

No securities available for sale were sold during the three and nine months ended September 30, 2022 and 2021.

Securities with a fair value of approximately $ 101.8 million and $ 98.6 million at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits and for other purposes as required by law.

Major classifications of loans at September 30, 2022 and December 31, 2021 are summarized as follows:

During the three months ended March 31, 2023, proceeds from sales of securities available for sale were $ 53.5 million and resulted in gross losses of $ 2.7 million and gross gains of $ 177,000 .

No securities available for sale were sold during the three months ended March 31, 2022.

Securities with a fair value of approximately $ 99.6 million and $ 96 .0 million at March 31, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and for other purposes as required by law.

Major classifications of loans at March 31, 2023 and December 31, 2022 are summarized as follows:

(Dollars in thousands)

September 30, 2022

December 31, 2021

Real estate loans:

9 unchanged sentences

All other loans

Less allowance for loan losses

Less allowance for credit losses

Total net loans

18 unchanged sentences

Loans are returned to accrual status when all 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 September 30, 2022 and December 31, 2021:

September 30, 2022

The following tables present an age analysis of past due loans, by loan type, as of March 31, 2023 and December 31, 2022:

March 31, 2023

(Dollars in thousands)

3 unchanged sentences

Total Current Loans

Accruing Loans 90 or More Days Past Due

28 unchanged sentences

All other loans

The following table presents non-accrual loans as of September 30, 2022 and December 31, 2021:

(Dollars in thousands)

September 30, 2022

The following table presents non-accrual loans as of March 31, 2023 and December 31, 2022:

Incurred Loss

March 31, 2023

December 31, 2022

Nonaccrual Loans

(Dollars in thousands)

Real estate loans:

8 unchanged sentences

Consumer loans

At each reporting period, the Bank determines which loans are impaired.

Accordingly, the Bank’s impaired loans are reported at their estimated fair value on a non-recurring basis.

An allowance for each impaired loan that is collateral-dependent is calculated based on the fair value of its collateral less estimated selling costs.

The fair value of the collateral is based on appraisals performed by REAS, a subsidiary of the Bank.

REAS is staffed by certified appraisers that also perform appraisals for other companies.

Factors, including the assumptions and techniques utilized by the appraiser, are considered by management.

If the recorded investment in the impaired loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses.

An allowance for each impaired loan that is not collateral dependent is calculated based on the present value of projected cash flows.

If the recorded investment in the impaired loan exceeds the present value of projected cash flows, a valuation allowance is recorded as a component of the allowance for loan losses.

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

Impaired loans were $ 15.7 million and $ 18.3 million at September 30, 2022 and December 31, 2021, respectively.

Interest income recognized on accruing impaired loans was $ 649,000 and $ 754,000 for the nine months ended September 30, 2022 and 2021, respectively.

Interest income recognized on accruing impaired loans was $ 217,000 and $253,000 for the three months ended September 30, 2022 and the three months ended September 30, 2021, 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 September 30, 2022:

September 30, 2022

Interest income is not recognized on non-accrual loans.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition.

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty.

An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

Occasionally, the Bank modifies loans by providing principal forgiveness on certain loans.

When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses.

The amount of the principal forgiveness is deemed to be uncollectible;

therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Bank may modify a certain loan by providing multiple types of concessions.

Typically, one type of concession, such as a term extension, is granted initially.

If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table shows the amortized cost basis at March 31, 2023 of the loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted.

(Dollars in thousands)

Investment in

Real estate loans:

Construction and land development

Single-family residential

Single-family residential -

Banco de la Gente non-traditional

Multifamily and farmland

Total impaired real estate loans

Loans not secured by real estate:

Commercial loans

Consumer loans

Total impaired loans

Term Extension

Amortized Cost Basis at March 31, 2023

% of Loan Class

Commercial real estate

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty.

Term Extension

Financial Effect

Commercial real estate

Extended existing amortization from 148 months to 173 months to keep existing payment the same with the current market rate.

Upon the Bank’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

No loans modified in the three months ended March 31, 2023 that were made to borrowers experiencing financial difficulty had been written off at March 31, 2023.

The Bank closely monitors the performance of those loans that are modified because borrowers are experiencing financial difficulty so as to understand the effectiveness of its modification efforts.

The following table shows the performance of loans that have been modified in the last 12 months.

(Dollars in thousands)

Payment Status (Amortized Cost Basis)

30 - 89 Days Past Due

90 + Days Past Due

Commercial real estate

The following table presents impaired loans as of and for the year ended December 31, 2022:

1 unchanged sentence

(Dollars in thousands)

Investment in

Unpaid Contractual Principal Balance

Recorded Investment With No Allowance

Recorded Investment With Allowance

Recorded Investment in Impaired Loans

Related Allowance

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 nine months ended September 30, 2022 and 2021.

The following table presents the average impaired loan balance and the interest income recognized by loan class for the three months ended March 31, 2022 and the twelve months ended December 31, 2022.

(Dollars in thousands)

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Average Balance

Interest Income Recognized

Average Balance

Interest Income Recognized

Twelve months ended

March 31, 2022

December 31, 2022

Average Balance

11 unchanged sentences

Commercial loans

Farm loans (non RE)

Consumer loans

Total impaired loans

Impaired loans collectively evaluated for impairment totaled $ 5.1 million at September 30, 2022 and December 31, 2021 and are included in the tables above.

Allowance on impaired loans collectively evaluated for impairment totaled $ 44,000 and $ 52,000 at September 30, 2022 and December 31, 2021, respectively.

The following tables present changes in the allowance for loan losses for the three and nine months ended September 30, 2022 and 2021.

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.

Paycheck Protection Program (“PPP”) loans are excluded from the allowance for loan losses as PPP loans are 100 percent guaranteed by the Small Business Administration (“SBA”).

Impaired loans collectively evaluated for impairment totaled $ 5.3 million $ 4.9 million at March 31, 2022 and December 31, 2022, respectively and are included in the tables above.

Allowance on impaired loans collectively evaluated for impairment totaled $ 47,000 and $ 44,000 at March 31, 2022 and December 31, 2022, respectively.

The following tables present changes in the allowance for credit losses for the three months ended March 31, 2023 and 2022.

The March 31, 2023 table reflects the CECL methodology and the March 31, 2022 table reflects the Incurred Loss methodology.

Paycheck Protection Program (“PPP”) loans are excluded from the allowance for credit losses because PPP loans are guaranteed by the Small Business Administration (“SBA”).

No loans were individually evaluated as of March 31, 2023.

(Dollars in thousands)

5 unchanged sentences

Consumer and All Other

Nine months ended September 30, 2022:

Allowance for loan losses:

Beginning balance

Ending balance

Three months ended September 30, 2022:

Allowance for loan losses:

Three months ended March 31, 2023

Allowance for credit losses:

Beginning balance

Ending balance

Allowance for loan losses at September 30, 2022:

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

Ending balance

Loans at September 30, 2022:

Ending balance

Ending balance:

evaluated for impairment

Adjustment for CECL implementation

Provision (recovery) for unfunded commitments

Provision (recovery) for loan losses

Ending balance

evaluated for impairment

Allowance for credit loss-loans

Allowance for credit losses loan commitments

Total allowance for credit losses

(Dollars in thousands)

5 unchanged sentences

Consumer and All Other

Nine months ended September 30, 2021:

Allowance for loan losses:

Beginning balance

Ending balance

Three months ended September 30, 2021:

Three months ended March 31, 2022

Allowance for loan losses:

Beginning balance

Provision (recovery)

Ending balance

Allowance for loan losses at September 30, 2021:

Allowance for loan losses March 31, 2022

Ending balance:

evaluated for impairment

individually evaluated for impairment

Ending balance:

evaluated for impairment

collectively evaluated for impairment

Ending balance

Loans at September 30, 2021:

Loans at March 31, 2022:

Ending balance

Ending balance:

evaluated for impairment

individually evaluated for impairment

Ending balance:

evaluated for impairment

The Bank utilizes an internal risk grading matrix to assign a risk grade to each of its loans.

Loans are graded on a scale of 1 to 8.

These risk grades are evaluated on an ongoing basis.

A description of the general characteristics of the eight risk grades is as follows:

Risk Grade 1 – Excellent Quality:

Loans are well above average quality and a minimal amount of credit risk exists.

CD or cash secured loans or properly margined actively traded stock or bond secured loans would fall in this grade.

Risk Grade 2 – High Quality:

Loans are of good quality with risk levels well within the Bank’s range of acceptability.

The organization or individual is established with a history of successful performance though somewhat susceptible to economic changes.

Risk Grade 3 – Good Quality:

Loans of average quality with risk levels within the Bank’s range of acceptability but higher than normal.

This may be a new organization or an existing organization in a transitional phase (e.g.

expansion, acquisition, market change).

PPP loans are classified as risk grade 3.

Risk Grade 4 – Management Attention:

These loans have higher risk and servicing needs but still are acceptable.

Evidence of marginal performance or deteriorating trends is observed.

These are not problem credits presently, but may be in the future if the borrower is unable to change its present course.

Risk Grade 5 – Watch:

These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date.

Risk Grade 6 – Substandard:

A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any).

collectively evaluated for impairment

The Bank utilizes several credit quality indicators to manage credit risk in an ongoing manner.

The Bank uses an internal risk grade system that categorizes loans into pass, watch or substandard categories.

The Bank uses the following credit quality indicators:

Pass – Includes loans ranging from excellent quality with a minimal amount of credit risk to loans with higher risk and servicing needs but still are considered to be acceptable.

The higher risk loans in this category are not problem credits presently, but may be in the future if the borrower is unable to change its present course.

Watch – These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date.

Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any).

There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Risk Grade 7 – Doubtful:

Loans classified as Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy.

Once the loss position is determined, the amount is charged off.

Risk Grade 8 – Loss:

Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be realized in the future.

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 September 30, 2022 and December 31, 2021:

September 30, 2022

The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of March 31, 2023.

Term Loans by Origination Year

(dollars in thousands)

March 31, 2023

Real Estate Loans

Construction and land development

Single-Family Residential

Single-Family Residential - Banco de la Gente non-traditional

Total Construction and land development

Single family

Total single family

Single family-Banco de la

Gente non-traditional

Total Banco de la Gente

non-traditional

Total commercial

Multifamily and farmland

1- Excellent Quality

2- High Quality

3- Good Quality

4- Management Attention

6- Substandard

Total multifamily and

Total real estate loans

Loans not secured by real estate

Total Commercial

Total consumer

Total all other

Total loans not secured by real estate

Current period gross charge-offs

The following table presents the credit risk profile of each loan type based on credit quality indicators as of December 31, 2022:

December 31, 2022

5 unchanged sentences

Multifamily and Farmland

1- Excellent Quality

2- High Quality

3- Good Quality

4- Management Attention

6- Substandard

There were no new TDR modifications during the three and nine months ended September 30, 2022 and 2021.

There were no loans modified as TDR loans that defaulted during the nine months ended September 30, 2022 and 2021, which were within 12 months of their modification date.

On March 27, 2020, President Trump signed the CARES Act, which established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the PPP .

Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals were able to apply for loans from existing SBA lenders and other approved regulated lenders, subject to certain limitations and eligibility criteria.

A second round of PPP funding provided a total of $320 billion additional funding for the PPP .

The Bank participated as a lender in the PPP.

Total PPP loans originated during the years ended December 31, 2020 and 2021 amounted to $ 128.1 million.

The outstanding balance of PPP loans was $ 103,000 and $ 18.0 million at September 30, 2022 and December 31, 2021, respectively.

These loans are classified as commercial loans in the tables above.

The Bank recognized $ 54,000 and $ 489,000 of PPP loan fee income for the three months ended September 30, 2022 and the three months ended September 30, 2021, respectively.

The Bank recognized $ 948,000 and $ 3.0 million of PPP loan fee income for the nine months ended September 30, 2022 and nine months ended September 30, 2021, respectively.

(4) 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 nine months ended September 30, 2022 and 2021 is as follows:

For the three months ended September 30, 2022

Basic earnings per share

Effect of dilutive securities:

Restricted stock units - unvested

Shares held in deferred comp plan

by deferred compensation trust

Diluted earnings per share

For the nine months ended September 30, 2022

Basic earnings per share

Effect of dilutive securities:

Restricted stock units - unvested

Shares held in deferred comp plan

by deferred compensation trust

Diluted earnings per share

For the three months ended September 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 months ended March 31, 2023 and 2022 is as follows:

For the three months ended March 31, 2023

Net Earnings (Dollars in thousands)

Weighted Average Number of Shares

Per Share Amount

Basic earnings per share

1 unchanged sentence

Restricted stock units - unvested

Shares held in deferred comp plan

by deferred compensation trust

Shares held in deferred comp plan by deferred compensation trust

Diluted earnings per share

For the nine months ended September 30, 2021

For the three months ended March 31, 2022

Net Earnings (Dollars in thousands)

Weighted Average Number of Shares

Per Share Amount

Basic earnings per share

1 unchanged sentence

Restricted stock units - unvested

Shares held in deferred comp plan

by deferred compensation trust

Shares held in deferred comp plan by deferred compensation trust

Diluted earnings per share

28 unchanged sentences

Mortgage loans held for sale are reported in the Level 3 fair value category.

The fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses.

The fair value of loans, excluding previously presented individually evaluated loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses.

The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans.

15 unchanged sentences

Commitments to Extend Credit and Standby Letters of Credit

Commitments to extend credit and standby letters of credit are generally short-term and at variable interest rates.

Commitments to extend credit and standby letters of credit are generally short-term in duration and made at variable interest rates.

Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial.

7 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 all financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy, as of September 30, 2022 and December 31, 2021.

The tables below present all financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy, as of March 31, 2023 and December 31, 2022.

(Dollars in thousands)

September 30, 2022

March 31, 2023

Level 1 Valuation

1 unchanged sentence

Level 3 Valuation

sponsored enterprises

Government sponsored enterprises

Mortgage-backed securities

6 unchanged sentences

Level 3 Valuation

sponsored enterprises

Government sponsored enterprises

Mortgage-backed securities

1 unchanged sentence

Mutual funds held in deferred compensation trust

The fair value measurements for mortgage loans held for sale and impaired loans on a non-recurring basis at September 30, 2022 and December 31, 2021 are presented below.

The fair value measurements for mortgage loans held for sale and individually evaluated loans on a non-recurring basis at March 31, 2023 and December 31, 2022 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 September 30, 2022

Fair Value Measurements March 31, 2023

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

Mortgage loans held for sale

Impaired loans

Individually evaluated loans

(Dollars in thousands)

Fair Value Measurements December 31, 2022

Level 1 Valuation

Level 2 Valuation

Level 3 Valuation

Mortgage loans held for sale

1 unchanged sentence

(Dollars in thousands)

September 30, 2022

December 31, 2021

Significant Unobservable

Fair Value March 31, 2023

Fair Value December 31, 2022

Valuation Technique

Significant Unobservable Inputs

General Range of Significant Unobservable Input Values

1 unchanged sentence

Rate lock commitment

Impaired loans

Individually evaluated loans

Appraised value and discounted cash flows

Discounts to reflect current market conditions and ultimate collectability

The carrying amount and estimated fair value of financial instruments at September 30, 2022 and December 31, 2021 are as follows:

The carrying amount and estimated fair value of financial instruments at March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)

Fair Value Measurements at September 30, 2022

Fair Value Measurements at March 31, 2023

Carrying Amount

3 unchanged sentences

Mortgage loans held for sale

Mutual funds held in deferred

compensation trust

Securities sold under agreements

to repurchase

Mutual funds held in deferred compensation trust

Securities sold under agreements to repurchase

Junior subordinated debentures

6 unchanged sentences

Mortgage loans held for sale

Mutual funds held in deferred

compensation trust

Securities sold under agreements

to repurchase

Mutual funds held in deferred compensation trust

Securities sold under agreements to repurchase

Junior subordinated debentures

As of September 30, 2022, the Bank had operating right of use assets of $ 5.8 million and operating lease liabilities of $ 5.8 million.

As of March 31, 2023, the Bank had operating right of use assets of $ 4.9 million and operating lease liabilities of $ 5.0 million.

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

3 unchanged sentences

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 September 30, 2022 and 2021.

The following table presents lease cost and other lease information as of March 31, 2023 and 2022.

(Dollars in thousands)

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Operating lease cost

5 unchanged sentences

Weighted-average discount rate - operating leases

The following table presents lease maturities as of September 30, 2022 and December 31, 2021.

The following table presents lease maturities as of March 31, 2023.

(Dollars in thousands)

Maturity Analysis of Operating Lease Liabilities:

September 30,2022

March 31, 2023

Imputed Interest

Operating Lease Liability

(7) Reportable Segments

The Company has two reportable segments, as described below.

Banking Operations – This segment reflects the consolidated Bank, excluding CBRES.

The primary source of revenue for this segment is net interest income.

CBRES – A Bank subsidiary that provides appraisal management services to community banks.

The primary source of revenue for this segment is appraisal management fee income.

The following table presents financial information for the reportable segments.

The information provided under the caption “Other” represents financial information for the Company, which is not considered to be a reportable segment, and is included to reconcile the results of the reportable segments to the Consolidated Financial Statements prepared in conformity with GAAP.

(Dollars in thousands)

As of and for the three months ended March 31, 2023

Interest income

Interest expense

Net interest income

Provision for credit losses

Noninterest income

Appraisal management fee income

Noninterest expense

Appraisal management fee expense

Income tax expense (benefit)

Net income (loss)

As of and for the three months ended March 31, 2022

Interest income

Interest expense

Net interest income

Provision for loan losses

Noninterest income

Appraisal management fee income

Noninterest expense

Appraisal management fee expense

Income tax expense (benefit)

Net income (loss)

(8) Subsequent Events

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements