UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10‑Q10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period September 30, 20192020
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 001-38084
FARMERS & MERCHANTS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Ohio | 34-1469491 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
307 North Defiance Street, Archbold, Ohio | 43502 |
(Address of principal executive offices) | (Zip Code) |
(419) 446-2501
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of Each Exchange |
Common Stock, No Par Value | FMAO | NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☒ | |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☒ | |
Emerging growth company |
| ☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
IndicatedIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares of each of the issuers’ classes of common stock, as of the latest practicable date:
Common Stock, No Par Value |
|
Class | Outstanding as of October |
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
FARMERS & MERCHANTS BANCORP, INC.
INDEX
| Form 10-Q Items |
| Page |
| PART I. |
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| Item 1. |
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| Condensed Consolidated Balance Sheets - | 3 |
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| 6-7 | |
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| 8-9 | |
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| 10 | |
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| Item 2. | Management's Discussion and Analysis of Financial Condition |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.(1) |
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| 101.SCH | Inline XBRL Taxonomy Extension |
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| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) |
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| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (1) |
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| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (1) |
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| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) |
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(1) | Pursuant to Rule 406T of Regulation S-T, the interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIALFINANCIAL STATEMENTS
FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
|
| (Unaudited) |
|
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|
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| (Unaudited) |
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| ||
Assets |
|
|
|
|
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|
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|
|
|
|
|
Cash and due from banks |
| $ | 103,188 |
|
| $ | 37,492 |
|
| $ | 46,395 |
|
| $ | 50,137 |
|
Federal funds sold |
|
| 11,404 |
|
|
| 873 |
|
|
| 41,358 |
|
|
| 1,159 |
|
Total cash and cash equivalents |
|
| 114,592 |
|
|
| 38,365 |
|
|
| 87,753 |
|
|
| 51,296 |
|
Interest-bearing time deposits |
|
| 4,554 |
|
|
| 4,019 |
|
|
| 4,657 |
|
|
| 4,309 |
|
Securities - available-for-sale |
|
| 190,465 |
|
|
| 168,447 |
|
|
| 259,041 |
|
|
| 222,293 |
|
Other securities, at cost |
|
| 5,789 |
|
|
| 3,679 |
|
|
| 5,827 |
|
|
| 5,810 |
|
Loans held for sale |
|
| 606 |
|
|
| 495 |
|
|
| 7,621 |
|
|
| 4,248 |
|
Loans, net |
|
| 1,151,937 |
|
|
| 839,599 |
|
|
| 1,351,979 |
|
|
| 1,211,771 |
|
Premises and equipment |
|
| 25,990 |
|
|
| 22,615 |
|
|
| 26,776 |
|
|
| 26,283 |
|
Construction in progress |
|
| - |
|
|
| 68 |
| ||||||||
Goodwill |
|
| 47,340 |
|
|
| 4,074 |
|
|
| 47,340 |
|
|
| 47,340 |
|
Mortgage servicing rights |
|
| 2,556 |
|
|
| 2,385 |
|
|
| 3,027 |
|
|
| 2,629 |
|
Other real estate owned |
|
| 351 |
|
|
| 600 |
|
|
| 206 |
|
|
| 214 |
|
Bank owned life insurance |
|
| 15,151 |
|
|
| 14,884 |
|
|
| 15,501 |
|
|
| 15,235 |
|
Other assets |
|
| 15,549 |
|
|
| 17,001 |
|
|
| 16,872 |
|
|
| 15,834 |
|
Total Assets |
| $ | 1,574,880 |
|
| $ | 1,116,163 |
|
| $ | 1,826,600 |
|
| $ | 1,607,330 |
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| ||||||||
Liabilities and Stockholders' Equity |
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Liabilities |
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Deposits |
|
|
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Noninterest-bearing |
| $ | 261,719 |
|
| $ | 215,422 |
|
| $ | 330,845 |
|
| $ | 265,156 |
|
Interest-bearing |
|
|
|
|
|
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|
|
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|
|
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NOW accounts |
|
| 430,646 |
|
|
| 298,254 |
|
|
| 534,792 |
|
|
| 423,655 |
|
Savings |
|
| 310,667 |
|
|
| 227,701 |
|
|
| 392,059 |
|
|
| 322,973 |
|
Time |
|
| 274,996 |
|
|
| 187,413 |
|
|
| 261,177 |
|
|
| 276,563 |
|
Total deposits |
|
| 1,278,028 |
|
|
| 928,790 |
|
|
| 1,518,873 |
|
|
| 1,288,347 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
| 30,056 |
|
|
| 32,181 |
|
|
| 29,859 |
|
|
| 48,073 |
|
Federal Home Loan Bank (FHLB) advances |
|
| 24,669 |
|
|
| - |
|
|
| 17,724 |
|
|
| 24,806 |
|
Dividend payable |
|
| 1,657 |
|
|
| 1,379 |
|
|
| 1,882 |
|
|
| 1,768 |
|
Accrued expenses and other liabilities |
|
| 13,062 |
|
|
| 10,526 |
|
|
| 14,841 |
|
|
| 14,078 |
|
Total liabilities |
|
| 1,347,472 |
|
|
| 972,876 |
|
|
| 1,583,179 |
|
|
| 1,377,072 |
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| ||||||||
Commitments and Contingencies |
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Stockholders' Equity |
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Common stock - No par value 20,000,000 shares authorized; issued and outstanding 12,230,000 shares 9/30/19, 10,400,000 shares 12/31/18 |
|
| 81,264 |
|
|
| 10,823 |
| ||||||||
Treasury stock - 1,092,986 shares 9/30/19, 1,114,739 shares 12/31/18 |
|
| (12,453 | ) |
|
| (12,409 | ) | ||||||||
Common stock - No par value 20,000,000 shares authorized; issued and outstanding 12,230,000 shares 9/30/20 and 12/31/19 |
|
| 81,577 |
|
|
| 81,535 |
| ||||||||
Treasury stock - 1,071,299 shares 9/30/20, 1,093,065 shares 12/31/19 |
|
| (12,397 | ) |
|
| (12,456 | ) | ||||||||
Retained earnings |
|
| 157,126 |
|
|
| 147,887 |
|
|
| 168,381 |
|
|
| 160,081 |
|
Accumulated other comprehensive income (loss) |
|
| 1,471 |
|
|
| (3,014 | ) | ||||||||
Accumulated other comprehensive income |
|
| 5,860 |
|
|
| 1,098 |
| ||||||||
Total stockholders' equity |
|
| 227,408 |
|
|
| 143,287 |
|
|
| 243,421 |
|
|
| 230,258 |
|
Total Liabilities and Stockholders' Equity |
| $ | 1,574,880 |
|
| $ | 1,116,163 |
|
| $ | 1,826,600 |
|
| $ | 1,607,330 |
|
See Notes to Condensed Consolidated Unaudited Financial Statements.
Note: The December 31, 2018,2019, Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of that date.
3
FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| (in thousands of dollars, except per share data) |
|
| (in thousands of dollars, except per share data) |
|
| (in thousands of dollars, except per share data) |
|
| (in thousands of dollars, except per share data) |
| ||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 15,202 |
|
| $ | 10,725 |
|
| $ | 46,605 |
|
| $ | 31,348 |
|
| $ | 16,181 |
|
| $ | 15,202 |
|
| $ | 48,256 |
|
| $ | 46,605 |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies |
|
| 972 |
|
|
| 613 |
|
|
| 2,501 |
|
|
| 1,848 |
|
|
| 761 |
|
|
| 972 |
|
|
| 2,674 |
|
|
| 2,501 |
|
Municipalities |
|
| 190 |
|
|
| 275 |
|
|
| 612 |
|
|
| 845 |
|
|
| 279 |
|
|
| 190 |
|
|
| 784 |
|
|
| 612 |
|
Dividends |
|
| 69 |
|
|
| 56 |
|
|
| 233 |
|
|
| 164 |
|
|
| 36 |
|
|
| 69 |
|
|
| 107 |
|
|
| 233 |
|
Federal funds sold |
|
| 120 |
|
|
| (8 | ) |
|
| 319 |
|
|
| 2 |
|
|
| 4 |
|
|
| 120 |
|
|
| 15 |
|
|
| 319 |
|
Other |
|
| 459 |
|
|
| 92 |
|
|
| 887 |
|
|
| 219 |
|
|
| 32 |
|
|
| 459 |
|
|
| 194 |
|
|
| 887 |
|
Total interest income |
|
| 17,012 |
|
|
| 11,753 |
|
|
| 51,157 |
|
|
| 34,426 |
|
|
| 17,293 |
|
|
| 17,012 |
|
|
| 52,030 |
|
|
| 51,157 |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 3,654 |
|
|
| 1,611 |
|
|
| 9,606 |
|
|
| 4,319 |
|
|
| 1,864 |
|
|
| 3,654 |
|
|
| 7,019 |
|
|
| 9,606 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
| 201 |
|
|
| 134 |
|
|
| 527 |
|
|
| 376 |
|
|
| 174 |
|
|
| 201 |
|
|
| 605 |
|
|
| 527 |
|
Borrowed funds |
|
| 257 |
|
|
| 20 |
|
|
| 813 |
|
|
| 60 |
|
|
| 231 |
|
|
| 257 |
|
|
| 754 |
|
|
| 813 |
|
Total interest expense |
|
| 4,112 |
|
|
| 1,765 |
|
|
| 10,946 |
|
|
| 4,755 |
|
|
| 2,269 |
|
|
| 4,112 |
|
|
| 8,378 |
|
|
| 10,946 |
|
Net Interest Income - Before Provision for Loan Losses |
|
| 12,900 |
|
|
| 9,988 |
|
|
| 40,211 |
|
|
| 29,671 |
|
|
| 15,024 |
|
|
| 12,900 |
|
|
| 43,652 |
|
|
| 40,211 |
|
Provision for Loan Losses |
|
| 247 |
|
|
| 47 |
|
|
| 410 |
|
|
| 219 |
|
|
| 1,987 |
|
|
| 247 |
|
|
| 4,986 |
|
|
| 410 |
|
Net Interest Income After Provision For Loan Losses |
|
| 12,653 |
|
|
| 9,941 |
|
|
| 39,801 |
|
|
| 29,452 |
| ||||||||||||||||
Net Interest Income After Provision for Loan Losses |
|
| 13,037 |
|
|
| 12,653 |
|
|
| 38,666 |
|
|
| 39,801 |
| ||||||||||||||||
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service fees |
|
| 1,722 |
|
|
| 1,392 |
|
|
| 4,994 |
|
|
| 4,323 |
|
|
| 2,299 |
|
|
| 1,722 |
|
|
| 6,143 |
|
|
| 4,994 |
|
Other service charges and fees |
|
| 1,179 |
|
|
| 1,097 |
|
|
| 3,311 |
|
|
| 3,149 |
|
|
| 879 |
|
|
| 1,179 |
|
|
| 2,622 |
|
|
| 3,311 |
|
Net gain on sale of loans |
|
| 260 |
|
|
| 184 |
|
|
| 558 |
|
|
| 617 |
|
|
| 1,537 |
|
|
| 260 |
|
|
| 2,128 |
|
|
| 558 |
|
Net gain (loss) on sale of available-for-sale securities |
|
| - |
|
|
| 10 |
|
|
| (26 | ) |
|
| 10 |
|
|
| - |
|
|
| - |
|
|
| 270 |
|
|
| (26 | ) |
Total noninterest income |
|
| 3,161 |
|
|
| 2,683 |
|
|
| 8,837 |
|
|
| 8,099 |
|
|
| 4,715 |
|
|
| 3,161 |
|
|
| 11,163 |
|
|
| 8,837 |
|
Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
| 4,158 |
|
|
| 3,391 |
|
|
| 12,300 |
|
|
| 9,926 |
|
|
| 5,102 |
|
|
| 4,158 |
|
|
| 13,420 |
|
|
| 12,300 |
|
Employee benefits |
|
| 1,331 |
|
|
| 1,029 |
|
|
| 4,148 |
|
|
| 3,013 |
|
|
| 1,566 |
|
|
| 1,331 |
|
|
| 4,461 |
|
|
| 4,148 |
|
Net occupancy expense |
|
| 630 |
|
|
| 478 |
|
|
| 1,911 |
|
|
| 1,306 |
|
|
| 558 |
|
|
| 630 |
|
|
| 1,686 |
|
|
| 1,911 |
|
Furniture and equipment |
|
| 720 |
|
|
| 588 |
|
|
| 2,179 |
|
|
| 1,660 |
|
|
| 875 |
|
|
| 720 |
|
|
| 2,383 |
|
|
| 2,179 |
|
Data processing |
|
| 482 |
|
|
| 364 |
|
|
| 2,157 |
|
|
| 1,000 |
|
|
| 490 |
|
|
| 482 |
|
|
| 1,340 |
|
|
| 2,157 |
|
Franchise taxes |
|
| 248 |
|
|
| 243 |
|
|
| 735 |
|
|
| 710 |
|
|
| 368 |
|
|
| 248 |
|
|
| 1,105 |
|
|
| 735 |
|
ATM expense |
|
| 416 |
|
|
| 327 |
|
|
| 1,281 |
|
|
| 972 |
|
|
| 444 |
|
|
| 416 |
|
|
| 1,234 |
|
|
| 1,281 |
|
Advertising |
|
| 587 |
|
|
| 236 |
|
|
| 1,229 |
|
|
| 669 |
|
|
| 411 |
|
|
| 587 |
|
|
| 979 |
|
|
| 1,229 |
|
Net loss on sale of other assets owned |
|
| 22 |
|
|
| 1 |
|
|
| 65 |
|
|
| 17 |
| ||||||||||||||||
Net (gain) loss on sale of other assets owned |
|
| (7 | ) |
|
| 22 |
|
|
| (13 | ) |
|
| 65 |
| ||||||||||||||||
FDIC assessment |
|
| - |
|
|
| 81 |
|
|
| 194 |
|
|
| 249 |
|
|
| 194 |
|
|
| - |
|
|
| 410 |
|
|
| 194 |
|
Mortgage servicing rights amortization |
|
| 149 |
|
|
| 84 |
|
|
| 329 |
|
|
| 264 |
|
|
| 296 |
|
|
| 149 |
|
|
| 784 |
|
|
| 329 |
|
Consulting fees |
|
| 196 |
|
|
| 179 |
|
|
| 404 |
|
|
| 467 |
|
|
| 205 |
|
|
| 196 |
|
|
| 561 |
|
|
| 404 |
|
Other general and administrative |
|
| 1,667 |
|
|
| 1,125 |
|
|
| 4,897 |
|
|
| 3,151 |
|
|
| 1,786 |
|
|
| 1,667 |
|
|
| 5,027 |
|
|
| 4,897 |
|
Total noninterest expense |
|
| 10,606 |
|
|
| 8,126 |
|
|
| 31,829 |
|
|
| 23,404 |
|
|
| 12,288 |
|
|
| 10,606 |
|
|
| 33,377 |
|
|
| 31,829 |
|
Income Before Income Taxes |
|
| 5,208 |
|
|
| 4,498 |
|
|
| 16,809 |
|
|
| 14,147 |
|
|
| 5,464 |
|
|
| 5,208 |
|
|
| 16,452 |
|
|
| 16,809 |
|
Income Taxes |
|
| 933 |
|
|
| 623 |
|
|
| 3,130 |
|
|
| 2,391 |
|
|
| 1,054 |
|
|
| 933 |
|
|
| 3,133 |
|
|
| 3,130 |
|
Net Income |
| $ | 4,275 |
|
| $ | 3,875 |
|
| $ | 13,679 |
|
| $ | 11,756 |
|
| $ | 4,410 |
|
| $ | 4,275 |
|
| $ | 13,319 |
|
| $ | 13,679 |
|
Basic and Diluted Earnings Per Share |
| $ | 0.38 |
|
| $ | 0.42 |
|
| $ | 1.23 |
|
| $ | 1.27 |
|
| $ | 0.40 |
|
| $ | 0.38 |
|
| $ | 1.20 |
|
| $ | 1.23 |
|
Dividends Declared |
| $ | 0.15 |
|
| $ | 0.14 |
|
| $ | 0.45 |
|
| $ | 0.41 |
|
| $ | 0.17 |
|
| $ | 0.15 |
|
| $ | 0.49 |
|
| $ | 0.45 |
|
See Notes to Condensed Consolidated Unaudited Financial Statements
4
FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
Net Income |
| $ | 4,275 |
|
| $ | 3,875 |
|
| $ | 13,679 |
|
| $ | 11,756 |
|
Other Comprehensive Income (Loss) (Net of Tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on available-for-sale securities |
|
| 841 |
|
|
| (617 | ) |
|
| 5,651 |
|
|
| (3,432 | ) |
Reclassification adjustment for (gain) loss on sale of available-for-sale securities |
|
| - |
|
|
| (10 | ) |
|
| 26 |
|
|
| (10 | ) |
Net unrealized gain (loss) on available-for-sale securities |
|
| 841 |
|
|
| (627 | ) |
|
| 5,677 |
|
|
| (3,442 | ) |
Tax expense (benefit) |
|
| 176 |
|
|
| (132 | ) |
|
| 1,192 |
|
|
| (723 | ) |
Other comprehensive income (loss) |
|
| 665 |
|
|
| (495 | ) |
|
| 4,485 |
|
|
| (2,719 | ) |
Comprehensive Income |
| $ | 4,940 |
|
| $ | 3,380 |
|
| $ | 18,164 |
|
| $ | 9,037 |
|
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||
Net Income |
| $ | 4,410 |
|
| $ | 4,275 |
|
| $ | 13,319 |
|
| $ | 13,679 |
|
Other Comprehensive Income (Net of Tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on available-for-sale securities |
|
| 639 |
|
|
| 841 |
|
|
| 6,298 |
|
|
| 5,651 |
|
Reclassification adjustment for realized (gain) loss on sale of available-for-sale securities |
|
| - |
|
|
| - |
|
|
| (270 | ) |
|
| 26 |
|
Net unrealized gain on available-for-sale securities |
|
| 639 |
|
|
| 841 |
|
|
| 6,028 |
|
|
| 5,677 |
|
Tax expense |
|
| 134 |
|
|
| 176 |
|
|
| 1,266 |
|
|
| 1,192 |
|
Other comprehensive income |
|
| 505 |
|
|
| 665 |
|
|
| 4,762 |
|
|
| 4,485 |
|
Comprehensive Income |
| $ | 4,915 |
|
| $ | 4,940 |
|
| $ | 18,081 |
|
| $ | 18,164 |
|
See Notes to Condensed Consolidated Unaudited Financial Statements
[ Remainder of this page intentionally left blank ]
5
Farmers & Merchants Bancorp, Inc. and Subsidiaries
CONDENSED Consolidated StatementS of Changes TO Stockholders’ Equity
For the THREE AND NINE Months Ended SEPTEMBERSeptember 30, 20182020
(000’s Omitted, Except Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| |||
|
| Common |
|
| Common |
|
| Treasury |
|
| Retained |
|
| Comprehensive |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Stock |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
| ||||||
Balance - January 1, 2018 |
|
| 9,265,880 |
|
| $ | 11,546 |
|
| $ | (12,160 | ) |
| $ | 136,547 |
|
| $ | (1,826 | ) |
| $ | 134,107 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,767 |
|
|
|
|
|
|
| 3,767 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,952 | ) |
|
| (1,952 | ) |
Adoption of ASU 2018-02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 360 |
|
|
| (360 | ) |
|
| - |
|
Issuance of 100 shares of restricted stock |
|
| 100 |
|
|
| (16 | ) |
|
| 2 |
|
|
| 2 |
|
|
|
|
|
|
| (12 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 160 |
|
Cash dividends declared - $0.13 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,193 | ) |
|
|
|
|
|
| (1,193 | ) |
Balance - March 31, 2018 |
|
| 9,265,980 |
|
|
| 11,690 |
|
|
| (12,158 | ) |
|
| 139,483 |
|
|
| (4,138 | ) |
|
| 134,877 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,114 |
|
|
|
|
|
|
| 4,114 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (272 | ) |
|
| (272 | ) |
Forfeiture of 600 shares of restricted stock |
|
| (600 | ) |
|
| (2 | ) |
|
| (28 | ) |
|
| 17 |
|
|
|
|
|
|
| (13 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 154 |
|
Cash dividends declared - $0.14 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,284 | ) |
|
|
|
|
|
| (1,284 | ) |
Balance - June 30, 2018 |
|
| 9,265,380 |
|
|
| 11,842 |
|
|
| (12,186 | ) |
|
| 142,330 |
|
|
| (4,410 | ) |
|
| 137,576 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,875 |
|
|
|
|
|
|
| 3,875 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (495 | ) |
|
| (495 | ) |
Purchase of Treasury stock |
|
| (10,999 | ) |
|
|
|
|
|
| (490 | ) |
|
|
|
|
|
|
|
|
|
| (490 | ) |
Issuance of 32,900 shares of restricted stock (Net of Forfeitures - 2,020) |
|
| 30,880 |
|
|
| (1,436 | ) |
|
| 267 |
|
|
| 1,154 |
|
|
|
|
|
|
| (15 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 183 |
|
Cash dividends declared - $0.14 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,287 | ) |
|
|
|
|
|
| (1,287 | ) |
Balance - September 30, 2018 |
|
| 9,285,261 |
|
| $ | 10,589 |
|
| $ | (12,409 | ) |
| $ | 146,072 |
|
| $ | (4,905 | ) |
| $ | 139,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| |||
|
| Common |
|
| Common |
|
| Treasury |
|
| Retained |
|
| Comprehensive |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Stock |
|
| Earnings |
|
| Income |
|
| Equity |
| ||||||
Balance - January 1, 2020 |
|
| 11,136,935 |
|
| $ | 81,535 |
|
| $ | (12,456 | ) |
| $ | 160,081 |
|
| $ | 1,098 |
|
| $ | 230,258 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,105 |
|
|
|
|
|
|
| 4,105 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,735 |
|
|
| 3,735 |
|
Purchase of treasury stock |
|
| (7,064 | ) |
|
|
|
|
|
| (170 | ) |
|
|
|
|
|
|
|
|
|
| (170 | ) |
Forfeiture of 450 shares of restricted stock |
|
| (450 | ) |
|
| 11 |
|
|
| (10 | ) |
|
| (2 | ) |
|
|
|
|
|
| (1 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 298 |
|
Cash dividends declared - $0.16 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,768 | ) |
|
|
|
|
|
| (1,768 | ) |
Balance - March 31, 2020 |
|
| 11,129,421 |
|
|
| 81,844 |
|
|
| (12,636 | ) |
|
| 162,416 |
|
|
| 4,833 |
|
|
| 236,457 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,804 |
|
|
|
|
|
|
| 4,804 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 522 |
|
|
| 522 |
|
Purchase of treasury stock |
|
| (2,508 | ) |
|
|
|
|
|
| (56 | ) |
|
|
|
|
|
|
|
|
|
| (56 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 290 |
|
Director stock award |
|
| 2,112 |
|
|
|
|
|
|
| 24 |
|
|
| 24 |
|
|
|
|
|
|
| 48 |
|
Cash dividends declared - $0.16 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,768 | ) |
|
|
|
|
|
| (1,768 | ) |
Balance - June 30, 2020 |
|
| 11,129,025 |
|
|
| 82,134 |
|
|
| (12,668 | ) |
|
| 165,476 |
|
|
| 5,355 |
|
|
| 240,297 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,410 |
|
|
|
|
|
|
| 4,410 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 505 |
|
|
| 505 |
|
Purchase of treasury stock |
|
| (6,875 | ) |
|
|
|
|
|
| (150 | ) |
|
|
|
|
|
|
|
|
|
| (150 | ) |
Issuance of 36,551 shares of restricted stock |
|
| 36,551 |
|
|
| (796 | ) |
|
| 421 |
|
|
| 377 |
|
|
|
|
|
|
| 2 |
|
Stock-based compensation expense |
|
|
|
|
|
| 239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 239 |
|
Cash dividends declared - $0.17 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,882 | ) |
|
|
|
|
|
| (1,882 | ) |
Balance - September 30, 2020 |
|
| 11,158,701 |
|
| $ | 81,577 |
|
| $ | (12,397 | ) |
| $ | 168,381 |
|
| $ | 5,860 |
|
| $ | 243,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Unaudited Financial Statements
6
Farmers & Merchants Bancorp, Inc. and Subsidiaries
CONDENSED Consolidated StatementS of Changes TO Stockholders’ Equity
For the THREE AND NINEand Nine Months Ended SEPTEMBERSeptember 30, 2019
(000’s Omitted, Except Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
|
| Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| ||||||
|
| Common |
|
| Common |
|
| Treasury |
|
| Retained |
|
| Comprehensive |
|
| Stockholders' |
|
| Common |
|
| Common |
|
| Treasury |
|
| Retained |
|
| Comprehensive |
|
| Stockholders' |
| ||||||||||||
|
| Stock |
|
| Stock |
|
| Stock |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Stock |
|
| Stock |
|
| Stock |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
| ||||||||||||
Balance - January 1, 2019 |
|
| 9,285,261 |
|
| $ | 10,823 |
|
| $ | (12,409 | ) |
| $ | 147,887 |
|
| $ | (3,014 | ) |
| $ | 143,287 |
|
|
| 9,285,261 |
|
| $ | 10,823 |
|
| $ | (12,409 | ) |
| $ | 147,887 |
|
| $ | (3,014 | ) |
| $ | 143,287 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,224 |
|
|
|
|
|
|
| 3,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,224 |
|
|
|
|
|
|
| 3,224 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,402 |
|
|
| 1,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,402 |
|
|
| 1,402 |
|
Issuance of 1,830,000 shares of common stock in acquisition |
|
| 1,830,000 |
|
|
| 70,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 70,437 |
|
|
| 1,830,000 |
|
|
| 70,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 70,437 |
|
Purchase of Treasury stock |
|
| (6,558 | ) |
|
|
|
|
|
| (213 | ) |
|
|
|
|
|
|
|
|
|
| (213 | ) | ||||||||||||||||||||||||
Issuance of 400 shares of restricted stock (Net of Forfeitures - 2,040) |
|
| (1,640 | ) |
|
| 66 |
|
|
| (58 | ) |
|
| 9 |
|
|
|
|
|
|
| 17 |
| ||||||||||||||||||||||||
Purchase of treasury stock |
|
| (6,558 | ) |
|
|
|
|
|
| (213 | ) |
|
|
|
|
|
|
|
|
|
| (213 | ) | ||||||||||||||||||||||||
Issuance of 400 shares of restricted stock (Net of forfeitures - 2,040) |
|
| (1,640 | ) |
|
| 66 |
|
|
| (58 | ) |
|
| 9 |
|
|
|
|
|
|
| 17 |
| ||||||||||||||||||||||||
Stock-based compensation expense |
|
|
|
|
|
| 434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 434 |
|
|
|
|
|
|
| 434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 434 |
|
Cash dividends declared - $0.15 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,654 | ) |
|
|
|
|
|
| (1,654 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,654 | ) |
|
|
|
|
|
| (1,654 | ) |
Balance - March 31, 2019 |
|
| 11,107,063 |
|
|
| 81,760 |
|
|
| (12,680 | ) |
|
| 149,466 |
|
|
| (1,612 | ) |
|
| 216,934 |
|
|
| 11,107,063 |
|
|
| 81,760 |
|
|
| (12,680 | ) |
|
| 149,466 |
|
|
| (1,612 | ) |
|
| 216,934 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,180 |
|
|
|
|
|
|
| 6,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,180 |
|
|
|
|
|
|
| 6,180 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,418 |
|
|
| 2,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,418 |
|
|
| 2,418 |
|
Forfeiture of 880 shares of restricted stock |
|
| (880 | ) |
|
| 38 |
|
|
| (27 | ) |
|
| 2 |
|
|
|
|
|
|
| 13 |
|
|
| (880 | ) |
|
| 38 |
|
|
| (27 | ) |
|
| 2 |
|
|
|
|
|
|
| 13 |
|
Stock-based compensation expense |
|
|
|
|
|
| 157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 157 |
|
|
|
|
|
|
| 157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 157 |
|
Cash dividends declared - $0.15 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,655 | ) |
|
|
|
|
|
| (1,655 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,655 | ) |
|
|
|
|
|
| (1,655 | ) |
Balance - June 30, 2019 |
|
| 11,106,183 |
|
|
| 81,955 |
|
|
| (12,707 | ) |
|
| 153,993 |
|
|
| 806 |
|
|
| 224,047 |
|
|
| 11,106,183 |
|
|
| 81,955 |
|
|
| (12,707 | ) |
|
| 153,993 |
|
|
| 806 |
|
|
| 224,047 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,275 |
|
|
|
|
|
|
| 4,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,275 |
|
|
|
|
|
|
| 4,275 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 665 |
|
|
| 665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 665 |
|
|
| 665 |
|
Purchase of Treasury stock |
|
| (6,569 | ) |
|
|
|
|
|
| (165 | ) |
|
|
|
|
|
|
|
|
|
| (165 | ) | ||||||||||||||||||||||||
Issuance of 37,700 shares of restricted stock (Net of Forfeitures - 300) |
|
| 37,400 |
|
|
| (925 | ) |
|
| 419 |
|
|
| 515 |
|
|
|
|
|
|
| 9 |
| ||||||||||||||||||||||||
Purchase of treasury stock |
|
| (6,569 | ) |
|
|
|
|
|
| (165 | ) |
|
|
|
|
|
|
|
|
|
| (165 | ) | ||||||||||||||||||||||||
Issuance of 37,700 shares of restricted stock (Net of forfeitures - 300) |
|
| 37,400 |
|
|
| (925 | ) |
|
| 419 |
|
|
| 515 |
|
|
|
|
|
|
| 9 |
| ||||||||||||||||||||||||
Stock-based compensation expense |
|
|
|
|
|
| 234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 234 |
|
|
|
|
|
|
| 234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 234 |
|
Cash dividends declared - $0.15 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,657 | ) |
|
|
|
|
|
| (1,657 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,657 | ) |
|
|
|
|
|
| (1,657 | ) |
Balance - September 30, 2019 |
|
| 11,137,014 |
|
| $ | 81,264 |
|
| $ | (12,453 | ) |
| $ | 157,126 |
|
| $ | 1,471 |
|
| $ | 227,408 |
|
|
| 11,137,014 |
|
| $ | 81,264 |
|
| $ | (12,453 | ) |
| $ | 157,126 |
|
| $ | 1,471 |
|
| $ | 227,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| . |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Unaudited Financial Statements
7
FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 13,679 |
|
| $ | 11,756 |
|
| $ | 13,319 |
|
| $ | 13,679 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 1,980 |
|
|
| 1,406 |
|
|
| 1,993 |
|
|
| 1,980 |
|
Amortization of available-for-sale securities, net |
|
| 579 |
|
|
| 743 |
| ||||||||
Amortization of premiums on available-for-sale securities, net |
|
| 900 |
|
|
| 579 |
| ||||||||
Amortization of servicing rights |
|
| 329 |
|
|
| 264 |
|
|
| 784 |
|
|
| 329 |
|
Amortization of core deposit intangible |
|
| 546 |
|
|
| 126 |
|
|
| 546 |
|
|
| 546 |
|
Net amortization (accretion) of fair value adjustments |
|
| (1,530 | ) |
|
| 5 |
|
|
| 382 |
|
|
| (1,530 | ) |
Stock-based compensation expense |
|
| 825 |
|
|
| 497 |
|
|
| 827 |
|
|
| 825 |
|
Director stock award |
|
| 48 |
|
|
| - |
| ||||||||
Deferred income taxes |
|
| (200 | ) |
|
| - |
|
|
| (3 | ) |
|
| (200 | ) |
Provision for loan loss |
|
| 410 |
|
|
| 219 |
|
|
| 4,986 |
|
|
| 410 |
|
Gain on sale of loans held for sale |
|
| (558 | ) |
|
| (617 | ) |
|
| (2,128 | ) |
|
| (558 | ) |
Originations of loans held for sale |
|
| (50,428 | ) |
|
| (40,814 | ) |
|
| (151,477 | ) |
|
| (50,428 | ) |
Proceeds from sale of loans held for sale |
|
| 48,543 |
|
|
| 39,435 |
|
|
| 150,130 |
|
|
| 48,543 |
|
Loss on sale of other assets owned |
|
| 65 |
|
|
| 17 |
| ||||||||
(Gain) loss on sale of other assets owned |
|
| (13 | ) |
|
| 65 |
| ||||||||
(Gain) loss on sales of securities available-for-sale |
|
| 26 |
|
|
| (10 | ) |
|
| (270 | ) |
|
| 26 |
|
Change in other assets and other liabilities, net |
|
| 5,750 |
|
|
| (3,450 | ) |
|
| (3,531 | ) |
|
| 5,750 |
|
Net cash provided by operating activities |
|
| 20,016 |
|
|
| 9,577 |
|
|
| 16,493 |
|
|
| 20,016 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities, prepayments and calls |
|
| 34,384 |
|
|
| 11,753 |
|
|
| 67,137 |
|
|
| 34,384 |
|
Sales |
|
| 11,100 |
|
|
| 6,781 |
|
|
| 11,843 |
|
|
| 11,100 |
|
Purchases |
|
| (44,936 | ) |
|
| (9,416 | ) |
|
| (110,330 | ) |
|
| (44,936 | ) |
Activity in other securities, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
| 237 |
|
|
| - |
|
|
| - |
|
|
| 237 |
|
Purchases |
|
| (17 | ) |
|
| - |
| ||||||||
Change in interest-bearing time deposits |
|
| (535 | ) |
|
| (1 | ) |
|
| (348 | ) |
|
| (535 | ) |
Proceeds from sale of other assets owned |
|
| 371 |
|
|
| 9 |
|
|
| 92 |
|
|
| 371 |
|
Additions to premises and equipment |
|
| (2,805 | ) |
|
| (1,803 | ) |
|
| (2,407 | ) |
|
| (2,805 | ) |
Loan originations and principal collections, net |
|
| (51,240 | ) |
|
| (14,536 | ) |
|
| (144,978 | ) |
|
| (51,240 | ) |
Acquisition of Limberlost, net of cash received |
|
| (2,089 | ) |
|
| - |
|
|
| - |
|
|
| (2,089 | ) |
Net cash used in investing activities |
|
| (55,513 | ) |
|
| (7,213 | ) |
|
| (179,008 | ) |
|
| (55,513 | ) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deposits |
|
| 142,853 |
|
|
| 9,519 |
|
|
| 230,359 |
|
|
| 142,853 |
|
Net change in federal funds purchased and securities sold under agreements to repurchase |
|
| (2,125 | ) |
|
| (12,469 | ) |
|
| (18,214 | ) |
|
| (2,125 | ) |
Repayment of FHLB advances |
|
| (23,938 | ) |
|
| - |
|
|
| (7,493 | ) |
|
| (23,938 | ) |
Purchase of treasury stock |
|
| (378 | ) |
|
| (490 | ) |
|
| (376 | ) |
|
| (378 | ) |
Cash dividends paid on common stock |
|
| (4,688 | ) |
|
| (3,670 | ) |
|
| (5,304 | ) |
|
| (4,688 | ) |
Net cash provided by (used in) financing activities |
|
| 111,724 |
|
|
| (7,110 | ) | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 76,227 |
|
|
| (4,746 | ) | ||||||||
Net cash provided by financing activities |
|
| 198,972 |
|
|
| 111,724 |
| ||||||||
Net Increase in Cash and Cash Equivalents |
|
| 36,457 |
|
|
| 76,227 |
| ||||||||
Cash and Cash Equivalents - Beginning of year |
|
| 38,365 |
|
|
| 34,467 |
|
|
| 51,296 |
|
|
| 38,365 |
|
Cash and Cash Equivalents - End of period |
| $ | 114,592 |
|
| $ | 29,721 |
|
| $ | 87,753 |
|
| $ | 114,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
8
FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||
Supplemental Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
| ||||||||
Cash paid during the period for: |
|
|
|
|
|
|
|
| ||||||||
Interest |
| $ | 9,962 |
|
| $ | 4,706 |
|
| $ | 7,970 |
|
| $ | 9,962 |
|
Income taxes |
|
| 2,345 |
|
|
| 2,407 |
|
| $ | 4,700 |
|
| $ | 2,345 |
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate owned |
|
| 187 |
|
|
| 68 |
|
| $ | 71 |
|
| $ | 187 |
|
The Company purchased all of the capital stock of Limberlost for $78,902 on January 1, 2019. In conjunction with the acquisition, liabilities were assumed as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired |
|
| 336,380 |
|
|
| - |
|
| $ | - |
|
| $ | 336,380 |
|
Less: common stock issued |
|
| 70,437 |
|
|
| - |
|
|
| - |
|
|
| 70,437 |
|
Cash paid for the capital stock |
|
| 8,465 |
|
|
| - |
|
|
| - |
|
|
| 8,465 |
|
Liabilities assumed |
|
| 257,478 |
|
|
| - |
|
| $ | - |
|
| $ | 257,478 |
|
See Notes to Condensed Consolidated Unaudited Financial Statements.
[ Remainder of this page intentionally left blank ]
9
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATIONPRESENTATION AND OTHER
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10Q and Rule 10-01 of Regulation S-X; accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 20192020 are not necessarily indicative of the results that are expected for the year ended December 31, 2019.2020. The condensed consolidated balance sheet of the Company as of December 31, 2018,2019, has been derived from the audited consolidated balance sheet of the Company as of that date. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019.
The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. The Company’s principal source of revenue is interest income from loans and investment securities. The Company also earns noninterest income from various banking and financial services offered primarily through Farmers & Merchants State Bank. Interest income is primarily recognized on an accrual basis according to nondiscretionary formulas written in contracts, such as loan agreements or investment security contracts. The Company also earns noninterest income from various banking and financial services provided to business and consumer clients such as deposit account, debit card, and mortgage banking services. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.
Reclassification
Certain amounts in the 2018 condensed consolidated financial statements have been reclassified to conform with the 2019 presentation. These reclassifications had no effect on income.
NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE
On January 1, 2019, the Company acquired Limberlost Bancshares, Inc. (“Limberlost”), the bank holding company for Bank of Geneva, a community bank based in Geneva, Indiana. Bank of Geneva operated six6 full-service offices in the northeast Indiana communities of Geneva, Berne, Decatur, Monroe, Portland and Monroeville. Shareholders of Limberlost received 1,830 shares of FMAO common stock and $8,465.00 in cash for each share. Limberlost had 1,000 shares outstanding on January 1, 2019. The share price of Farmers & Merchants Bancorp, Inc. (FMAO) stock on January 1, 2019 was $38.49. Total consideration for the acquisition was approximately $78.9 million consisting of $8.5 million in cash and $70.4 million in stock. As a result of the acquisition, the Company will havehas had an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.
In 2018, the Company incurred $742.1 thousand of third-party acquisition-related costs. The largest portion of the expenses recognized in 2018 related to consulting fees of $340 thousand, other general and administration expenses of $331.5 thousand and data processing expenses of $58.6 thousand. These three categories of expense accounted for 98.4% of the total acquisition expenses impacting the 2018 financial statements of the Company.
In 2019, the Company has incurred additional third-party acquisition-related costs of $1.27 million. These expenses are comprised of data processing of $867.6 thousand, employee benefits of $156.6 thousand, ATM expense of $31.4 thousand, consulting fees of $19.3 thousand and other general and administrative expense of $195.4 thousand in the Company’s consolidated statement of income for the nine months ended September 30, 2019.
Under the acquisition method of accounting, the total purchase iswas allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Of the total purchase price of $78.9 million, $3.9 million has been allocated to core deposit intangible included in other assets and will beis being amortized over seven years on a straight line basis. Goodwill of $43.3 million resulting from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and Bank of Geneva. Of that total amount, none of the purchase price is deductible for tax purposes. The following table summarizes the consideration paid for Bank of Geneva and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.
10
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)
Fair Value of Consideration Transferred |
|
|
|
|
|
| (In Thousands) |
| |
Cash |
| $ | 8,465 |
|
Common Shares (1,830,000 shares) |
|
| 70,437 |
|
Total |
| $ | 78,902 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
| $ | 6,376 |
|
Securities - available-for-sale |
|
| 17,494 |
|
Other securities, at cost |
|
| 2,347 |
|
Loans, net |
|
| 257,183 |
|
Premises and equipment |
|
| 2,538 |
|
Goodwill |
|
| 43,266 |
|
Other assets |
|
| 7,176 |
|
Total Assets Purchased |
| $ | 336,380 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
|
|
|
Noninterest bearing |
| $ | 37,822 |
|
Interest bearing |
|
| 168,312 |
|
Total deposits |
|
| 206,134 |
|
Federal Home Loan Bank (FHLB) advances |
|
| 48,196 |
|
Accrued expenses and other liabilities |
|
| 3,148 |
|
Total Liabilities Assumed |
| $ | 257,478 |
|
The fair value of the assets acquired includes loans with a fair value of $257.2 million. The gross principal and contractual interest due under the contracts is $359.2 million, of which $4.7 million is expected to be uncollectible. The loans have a weighted average life of 70 months.
The fair value of building and land included in premises and equipment was written down by $1.2 million and will be amortized based on the remaining life of each building. The combined average remaining life is 16.75 years.
The fair value for certificates of deposit incorporates a valuation amount of $0.5 million which will be amortized over 1.5 years. The fair value of Federal Home Loan Bank (FHLB) advances includes a valuation amount of $1.3 million which will be amortized over 2.3 years.
The Company acquired loans in the acquisition that had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.
11
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)
The carrying amount of those loans is included in loans, net on the balance sheet atas of December 31, 2019 and September 30, 2019.2020. The amounts of loans at December 31, 2019 and September 30, 20192020 are as follows:
|
| 2019 |
|
| 2019 |
| ||
|
| (In Thousands) |
|
| (In Thousands) |
| ||
Balance - January 1, 2019 |
|
|
|
|
|
|
|
|
Commercial |
| $ | 4,094 |
|
| $ | 4,094 |
|
Consumer RE |
|
| 231 |
|
|
| 231 |
|
Consumer |
|
| 71 |
|
|
| 71 |
|
Carrying amount, net of fair value adjustment of $2,118 |
| $ | 2,278 |
|
| $ | 2,278 |
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2019 |
|
|
|
| ||||
Balance - December 31, 2019 |
|
|
|
| ||||
Commercial |
| $ | 110 |
|
| $ | 106 |
|
Consumer RE |
|
| 55 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
Carrying amount, net of fair value adjustment of $63 |
| $ | 102 |
| ||||
Carrying amount, net of fair value adjustment of $62 |
| $ | 44 |
| ||||
|
|
|
|
| ||||
Balance - September 30, 2020 |
|
|
|
| ||||
Commercial |
| $ | - |
| ||||
Consumer RE |
|
| - |
| ||||
Consumer |
|
| - |
| ||||
Carrying amount, net of fair value adjustment of $0 |
| $ | - |
|
Loans acquired during 2019 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:
|
| (In Thousands) |
| |
Contractually required payments receivable at acquisition |
|
|
|
|
Commercial |
| $ | 4,215 |
|
Consumer RE |
|
| 261 |
|
Consumer |
|
| 94 |
|
Total required payments receivable |
| $ | 4,570 |
|
|
|
|
|
|
Cash flows expected to be collected at acquisition |
| $ | 2,788 |
|
|
|
|
|
|
Basis in acquired loans at acquisition |
| $ | 4,396 |
|
During the second quarter, two commercial purchased credit-impaired loans were paid off in full after the customer was able to secure financing at another financial institution. The associated credit loss of $1.985 million has been included in loan interest income in the Company’s consolidated statement of income for the nine months ended September 30, 2019. The balance of the fair value adjustment for loans acquired and accounted for under this guidance (ASC 310-30) was $63$62 thousand at December 31, 2019, 0 at September 30, 20192020 and $2.118 million on January 1, 2019, respectively.2019.
Changes in accretable yield, or income expected to be collected, are as follows:
|
| Three Months Ended September 30, 2019 |
|
| Nine Months Ended September 30, 2019 |
| ||
|
| (In Thousands) |
|
| (In Thousands) |
| ||
Beginning Balance |
| $ | 2,329 |
|
| $ | 2,544 |
|
Additions |
|
| - |
|
|
| 6 |
|
Accretion |
|
| (112 | ) |
|
| (2,316 | ) |
Reclassification from nonaccretable difference |
|
| 34 |
|
|
| 2,019 |
|
Disposals |
|
| (6 | ) |
|
| (8 | ) |
Ending Balance |
| $ | 2,245 |
|
| $ | 2,245 |
|
The results of operations of Bank of Geneva have been included in the Company’s consolidated financial statements since the acquisition date of January 1, 2019. The following schedule includes pro-forma results for the three and nine months ended September 30, 2019 and 2018 as if the Bank of Geneva acquisitions had occurred as of the beginning of the comparable prior reporting period.
|
| Three Months Ended September 30, 2020 |
|
| Three Months Ended September 30, 2019 |
|
| Nine Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2019 |
| ||||
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
| ||||
Beginning Balance |
| $ | 1,871 |
|
| $ | 2,329 |
|
| $ | 2,021 |
|
| $ | 2,544 |
|
Additions |
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 6 |
|
Accretion |
|
| (107 | ) |
|
| (112 | ) |
|
| (321 | ) |
|
| (2,316 | ) |
Reclassification from nonaccretable difference |
|
| - |
|
|
| 34 |
|
|
| 62 |
|
|
| 2,019 |
|
Disposals |
|
| (5 | ) |
|
| (6 | ) |
|
| (5 | ) |
|
| (8 | ) |
Ending Balance |
| $ | 1,759 |
|
| $ | 2,245 |
|
| $ | 1,759 |
|
| $ | 2,245 |
|
12
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)
| (in thousands of dollars, except per share data) |
|
| (in thousands of dollars, except per share data) |
| |||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
Summary of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income - Before Provision for Loan Losses |
| $ | 12,900 |
|
| $ | 13,198 |
|
| $ | 40,211 |
|
| $ | 40,916 |
|
Provision for Loan Losses |
|
| 247 |
|
|
| 77 |
|
|
| 410 |
|
|
| 474 |
|
Net Interest Income After Provision for Loan Losses |
|
| 12,653 |
|
|
| 13,121 |
|
|
| 39,801 |
|
|
| 40,442 |
|
Noninterest Income |
|
| 3,161 |
|
|
| 2,858 |
|
|
| 8,837 |
|
|
| 8,585 |
|
Noninterest Expense |
|
| 10,585 |
|
|
| 9,810 |
|
|
| 30,562 |
|
|
| 28,529 |
|
Income Before Income Taxes |
|
| 5,229 |
|
|
| 6,169 |
|
|
| 18,076 |
|
|
| 20,498 |
|
Income Taxes |
|
| 935 |
|
|
| 946 |
|
|
| 3,380 |
|
|
| 3,686 |
|
Net Income |
| $ | 4,294 |
|
| $ | 5,223 |
|
| $ | 14,696 |
|
| $ | 16,812 |
|
Basic and Diluted Earnings Per Share |
| $ | 0.38 |
|
| $ | 0.47 |
|
| $ | 1.32 |
|
| $ | 1.51 |
|
The pro-forma information includes adjustments for interest income on loans, amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the branches acquired and the related income tax effects. The pro-forma information for the quarter ended September 30, 2019 includes approximately $5.5 million, net of tax, of operating revenue from Bank of Geneva since acquisition.
The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.
The Company purchased an office on December 13, 2013 in Custar, Ohio. Core deposit intangible assets of $1.17 million were recognized and are being amortized over its remaining economic useful life of the deposits of 7 years on a straight line basis.
As mentioned previously, the acquisition of Bank of Geneva resulted in the recognition of $3.9 million in core deposit intangible assets which are being amortized over its remaining life of 7 years on a straight line basis.
The amortization expense for the nine months ended September 30, 20182019 was $126$546 thousand. Of the $727$721 thousand to be expensed in 2019,2020, $546 thousand has been expensed for the nine months ended September 30, 2019. Future2020. Annual amortization of core deposit intangible assets is as follows:
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||
|
| Custar |
|
| Geneva |
|
| Total |
|
| Custar |
|
| Geneva |
|
| Total |
| ||||||
2019 |
| $ | 167 |
|
| $ | 560 |
|
| $ | 727 |
| ||||||||||||
2020 |
|
| 161 |
|
|
| 560 |
|
|
| 721 |
|
| $ | 161 |
|
| $ | 560 |
|
| $ | 721 |
|
2021 |
|
| - |
|
|
| 560 |
|
|
| 560 |
|
|
| - |
|
|
| 560 |
|
|
| 560 |
|
2022 |
|
| - |
|
|
| 560 |
|
|
| 560 |
|
|
| - |
|
|
| 560 |
|
|
| 560 |
|
2023 |
|
| - |
|
|
| 560 |
|
|
| 560 |
|
|
| - |
|
|
| 560 |
|
|
| 560 |
|
2024 |
|
| - |
|
|
| 560 |
|
|
| 560 |
|
|
| - |
|
|
| 560 |
|
|
| 560 |
|
2025 |
|
| - |
|
|
| 560 |
|
|
| 560 |
|
|
| - |
|
|
| 560 |
|
|
| 560 |
|
|
| $ | 328 |
|
| $ | 3,920 |
|
| $ | 4,248 |
|
| $ | 161 |
|
| $ | 3,360 |
|
| $ | 3,521 |
|
[ Remainder of this page intentionally left blank ]
13
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 3 SECURITIES
Mortgage-backed securities, as shown in the following tables, are all government sponsored enterprises. The amortized cost and fair value of securities, with gross unrealized gains and losses at September 30, 20192020 and December 31, 2018,2019, are as follows:
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2020 |
| ||||||||||||||||||||||||||
|
| Amortized |
|
| Gross Unrealized |
|
| Gross Unrealized |
|
| Fair |
|
| Amortized |
|
| Gross Unrealized |
|
| Gross Unrealized |
|
| Fair |
| ||||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||||||
Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 14,029 |
|
| $ | 10 |
|
| $ | (30 | ) |
| $ | 14,009 |
|
| $ | 3,000 |
|
| $ | 4 |
|
| $ | - |
|
| $ | 3,004 |
|
U.S. Government agencies |
|
| 79,130 |
|
|
| 948 |
|
|
| (35 | ) |
|
| 80,043 |
|
|
| 88,120 |
|
|
| 1,952 |
|
|
| (10 | ) |
|
| 90,062 |
|
Mortgage-backed securities |
|
| 57,180 |
|
|
| 446 |
|
|
| (165 | ) |
|
| 57,461 |
|
|
| 100,858 |
|
|
| 2,153 |
|
|
| (31 | ) |
|
| 102,980 |
|
State and local governments |
|
| 38,265 |
|
|
| 697 |
|
|
| (10 | ) |
|
| 38,952 |
|
|
| 59,646 |
|
|
| 3,355 |
|
|
| (6 | ) |
|
| 62,995 |
|
Total available-for-sale securities |
| $ | 188,604 |
|
| $ | 2,101 |
|
| $ | (240 | ) |
| $ | 190,465 |
|
| $ | 251,624 |
|
| $ | 7,464 |
|
| $ | (47 | ) |
| $ | 259,041 |
|
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||
|
| December 31, 2018 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| Amortized |
|
| Gross Unrealized |
|
| Gross Unrealized |
|
| Fair |
|
| Amortized |
|
| Gross Unrealized |
|
| Gross Unrealized |
|
| Fair |
| ||||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||||||
Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 23,078 |
|
| $ | 6 |
|
| $ | (254 | ) |
| $ | 22,830 |
|
| $ | 10,023 |
|
| $ | 10 |
|
| $ | (12 | ) |
| $ | 10,021 |
|
U.S. Government agencies |
|
| 71,235 |
|
|
| 2 |
|
|
| (1,910 | ) |
|
| 69,327 |
|
|
| 61,882 |
|
|
| 584 |
|
|
| (21 | ) |
|
| 62,445 |
|
Mortgage-backed securities |
|
| 37,342 |
|
|
| 62 |
|
|
| (1,142 | ) |
|
| 36,262 |
|
|
| 94,998 |
|
|
| 426 |
|
|
| (227 | ) |
|
| 95,197 |
|
State and local governments |
|
| 40,608 |
|
|
| 225 |
|
|
| (805 | ) |
|
| 40,028 |
|
|
| 54,001 |
|
|
| 749 |
|
|
| (120 | ) |
|
| 54,630 |
|
Total available-for-sale securities |
| $ | 172,263 |
|
| $ | 295 |
|
| $ | (4,111 | ) |
| $ | 168,447 |
|
| $ | 220,904 |
|
| $ | 1,769 |
|
| $ | (380 | ) |
| $ | 222,293 |
|
Investment securities will at times depreciate to an unrealized loss position. The Company utilizes the following criteria to assess whether impairment is other than temporary. No one item by itself will necessarily signal that a security should be recognized as an other than temporary impairment.
| 1. | The fair value of the security has significantly declined from book value. |
| 2. | A downgrade has occurred that lowered the credit rating to below investment grade (below Baa3 by Moody and BBB – by Standard and Poors.) |
| 3. | Dividends have been reduced or eliminated or scheduled interest payments have not been made. |
| 4. | The underwater security has longer than 10 years to maturity and the loss position had existed for more than 3 years. |
| 5. | Management does not possess both the intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. |
If the impairment is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value, thereby establishing a new cost basis. The new cost basis shall not be changed for subsequent recoveries in fair value. The amount of the write down shall be included in current earnings as a realized loss. The recovery in fair value, if any, shall be recognized in earnings when the security is sold. The table below is presented by category of security and length of time in a continuous loss position. The Company currently does not hold any securities with other than temporary impairment.
14
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 3 SECURITIES (Continued)
Information pertaining to securities with gross unrealized losses at September 30, 20192020 and December 31, 2018,2019, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:
|
| (In Thousands) |
| |||||||||||||||||||||
|
| September 30, 2019 |
| |||||||||||||||||||||
|
| Less Than Twelve Months |
|
| Twelve Months & Over |
|
| Total |
| |||||||||||||||
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
| ||||||
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
| ||||||
U.S. Treasury |
| $ | - |
|
| $ | - |
|
| $ | (30 | ) |
| $ | 12,015 |
|
| $ | (30 | ) |
| $ | 12,015 |
|
U.S. Government agencies |
|
| - |
|
|
| - |
|
|
| (35 | ) |
|
| 13,720 |
|
|
| (35 | ) |
|
| 13,720 |
|
Mortgage-backed securities |
|
| (48 | ) |
|
| 8,099 |
|
|
| (117 | ) |
|
| 16,811 |
|
|
| (165 | ) |
|
| 24,910 |
|
State and local governments |
|
| (9 | ) |
|
| 2,425 |
|
|
| (1 | ) |
|
| 1,100 |
|
|
| (10 | ) |
|
| 3,525 |
|
Total available-for-sale securities |
| $ | (57 | ) |
| $ | 10,524 |
|
| $ | (183 | ) |
| $ | 43,646 |
|
| $ | (240 | ) |
| $ | 54,170 |
|
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
|
| December 31, 2018 |
|
| September 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Less Than Twelve Months |
|
| Twelve Months & Over |
|
| Total |
|
| Less Than Twelve Months |
|
| Twelve Months & Over |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
| ||||||||||||
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
| ||||||||||||
U.S. Treasury |
| $ | - |
|
| $ | - |
|
| $ | (254 | ) |
| $ | 20,861 |
|
| $ | (254 | ) |
| $ | 20,861 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
U.S. Government agencies |
|
| - |
|
|
| - |
|
|
| (1,910 | ) |
|
| 64,727 |
|
|
| (1,910 | ) |
|
| 64,727 |
|
|
| (10 | ) |
|
| 14,010 |
|
|
| - |
|
|
| - |
|
|
| (10 | ) |
|
| 14,010 |
|
Mortgage-backed securities |
|
| (4 | ) |
|
| 697 |
|
|
| (1,138 | ) |
|
| 30,347 |
|
|
| (1,142 | ) |
|
| 31,044 |
|
|
| (31 | ) |
|
| 11,298 |
|
|
| - |
|
|
| - |
|
|
| (31 | ) |
|
| 11,298 |
|
State and local governments |
|
| (22 | ) |
|
| 3,254 |
|
|
| (783 | ) |
|
| 29,413 |
|
|
| (805 | ) |
|
| 32,667 |
|
|
| (6 | ) |
|
| 1,061 |
|
|
| - |
|
|
| - |
|
|
| (6 | ) |
|
| 1,061 |
|
Total available-for-sale securities |
| $ | (26 | ) |
| $ | 3,951 |
|
| $ | (4,085 | ) |
| $ | 145,348 |
|
| $ | (4,111 | ) |
| $ | 149,299 |
|
| $ | (47 | ) |
| $ | 26,369 |
|
| $ | - |
|
| $ | - |
|
| $ | (47 | ) |
| $ | 26,369 |
|
|
| (In Thousands) |
| |||||||||||||||||||||
|
| December 31, 2019 |
| |||||||||||||||||||||
|
| Less Than Twelve Months |
|
| Twelve Months & Over |
|
| Total |
| |||||||||||||||
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
|
| Gross Unrealized |
|
| Fair |
| ||||||
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
| ||||||
U.S. Treasury |
| $ | - |
|
| $ | - |
|
| $ | (12 | ) |
| $ | 5,030 |
|
| $ | (12 | ) |
| $ | 5,030 |
|
U.S. Government agencies |
|
| (16 | ) |
|
| 10,549 |
|
|
| (5 | ) |
|
| 10,745 |
|
|
| (21 | ) |
|
| 21,294 |
|
Mortgage-backed securities |
|
| (102 | ) |
|
| 27,696 |
|
|
| (125 | ) |
|
| 11,332 |
|
|
| (227 | ) |
|
| 39,028 |
|
State and local governments |
|
| (120 | ) |
|
| 16,845 |
|
|
| - |
|
|
| - |
|
|
| (120 | ) |
|
| 16,845 |
|
Total available-for-sale securities |
| $ | (238 | ) |
| $ | 55,090 |
|
| $ | (142 | ) |
| $ | 27,107 |
|
| $ | (380 | ) |
| $ | 82,197 |
|
Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by rate changes, and the Company has the intent and ability to hold the securities for the foreseeable future. Additionally, the decline in value is primarily due to changes in interest rates since the securities were purchased. The fair value is expected to recover as the bonds approach the maturity date.
Below are the gross realized gains and losses for the three and nine months ended September 30, 20192020 and September 30, 2018.2019.
|
| Three Months |
|
| Nine Months |
|
| Three Months |
|
| Nine Months |
| ||||||||||||||||||||
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Gross realized gains |
| $ | - |
|
| $ | 51 |
|
| $ | 16 |
|
| $ | 51 |
|
| $ | - |
|
| $ | - |
|
| $ | 270 |
|
| $ | 16 |
|
Gross realized losses |
|
| - |
|
|
| (41 | ) |
|
| (42 | ) |
|
| (41 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (42 | ) |
Net realized losses |
| $ | - |
|
| $ | 10 |
|
| $ | (26 | ) |
| $ | 10 |
| ||||||||||||||||
Tax expense related to net realized losses |
| $ | - |
|
| $ | 2 |
|
| $ | (5 | ) |
| $ | 2 |
| ||||||||||||||||
Net realized gains (losses) |
| $ | - |
|
| $ | - |
|
| $ | 270 |
|
| $ | (26 | ) | ||||||||||||||||
Tax expense (benefit) related to net realized gains (losses) |
| $ | - |
|
| $ | - |
|
| $ | 57 |
|
| $ | (5 | ) |
The net realized lossesgains (losses) on sales and related tax expense is a reclassification out of accumulated other comprehensive income (loss). The net realized lossgains (losses) is included in net lossgains (losses) on sale of available-for-sale securities and the related tax expense (benefit) is included in income taxes in the condensed consolidated statements of income and comprehensive income.
15
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 3 SECURITIES (Continued)
The amortized cost and fair value of debt securities at September 30, 2019,2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||
|
| Amortized |
|
|
|
|
|
| Amortized |
|
|
|
|
| ||
|
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
One year or less |
| $ | 30,708 |
|
| $ | 30,702 |
|
| $ | 9,390 |
|
| $ | 9,410 |
|
After one year through five years |
|
| 52,474 |
|
|
| 52,597 |
|
|
| 49,534 |
|
|
| 50,784 |
|
After five years through ten years |
|
| 46,971 |
|
|
| 48,433 |
|
|
| 84,035 |
|
|
| 87,646 |
|
After ten years |
|
| 1,271 |
|
|
| 1,272 |
|
|
| 7,807 |
|
|
| 8,221 |
|
Total |
| $ | 131,424 |
|
| $ | 133,004 |
|
| $ | 150,766 |
|
| $ | 156,061 |
|
Mortgage-backed securities |
|
| 57,180 |
|
|
| 57,461 |
|
|
| 100,858 |
|
|
| 102,980 |
|
Total |
| $ | 188,604 |
|
| $ | 190,465 |
|
| $ | 251,624 |
|
| $ | 259,041 |
|
Investments with a carrying value of $89.2$87.1 million and $81.8$88.8 million at September 30, 20192020 and December 31, 2018,2019, respectively, were pledged to secure public deposits and securities sold under repurchase agreements.
Other securities include Federal Home Loan Bank of Cincinnati and Indianapolis stock in the amount of $5.8 million as of September 30, 2019. As of2020 and December 31, 2018, other securities only includes Federal Home Loan Bank2019, in addition to Ohio Equity Fund for Housing Limited Partnership of Cincinnati stock.$38 thousand and $21 thousand as of September 30, 2020 and December 31, 2019.
[ Remainder of this page intentionally left blank ]
16
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS
Loan balances as of September 30, 20192020 and December 31, 2018:2019 are summarized below:
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||
Loans: |
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
Consumer Real Estate |
| $ | 159,074 |
|
| $ | 80,766 |
|
| $ | 175,963 |
|
| $ | 165,349 |
|
Agricultural Real Estate |
|
| 200,791 |
|
|
| 68,609 |
|
|
| 192,883 |
|
|
| 199,105 |
|
Agricultural |
|
| 110,270 |
|
|
| 108,495 |
|
|
| 103,330 |
|
|
| 111,820 |
|
Commercial Real Estate |
|
| 502,137 |
|
|
| 419,784 |
|
|
| 595,146 |
|
|
| 551,309 |
|
Commercial and Industrial |
|
| 130,150 |
|
|
| 121,793 |
|
|
| 238,175 |
|
|
| 135,631 |
|
Consumer |
|
| 49,552 |
|
|
| 41,953 |
|
|
| 53,320 |
|
|
| 49,237 |
|
Other |
|
| 8,167 |
|
|
| 5,889 |
|
|
| 9,030 |
|
|
| 8,314 |
|
|
|
| 1,160,141 |
|
|
| 847,289 |
|
|
| 1,367,847 |
|
|
| 1,220,765 |
|
Less: Net deferred loan fees and costs |
|
| (1,445 | ) |
|
| (915 | ) |
|
| (3,985 | ) |
|
| (1,766 | ) |
|
|
| 1,158,696 |
|
|
| 846,374 |
|
|
| 1,363,862 |
|
|
| 1,218,999 |
|
Less: Allowance for loan losses |
|
| (6,759 | ) |
|
| (6,775 | ) |
|
| (11,883 | ) |
|
| (7,228 | ) |
Loans - Net |
| $ | 1,151,937 |
|
| $ | 839,599 |
|
| $ | 1,351,979 |
|
| $ | 1,211,771 |
|
Other loans primarily fund public improvement in the Bank’s service area.
The distribution of fixed rate loans and variable rate loans by major loan category is as follows as of September 30, 2019:2020:
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||
|
| Fixed |
|
| Variable |
|
| Fixed |
|
| Variable |
| ||||
|
| Rate |
|
| Rate |
|
| Rate |
|
| Rate |
| ||||
Consumer Real Estate |
| $ | 71,645 |
|
| $ | 87,429 |
|
| $ | 128,976 |
|
| $ | 46,987 |
|
Agricultural Real Estate |
|
| 94,620 |
|
|
| 106,171 |
|
|
| 101,191 |
|
|
| 91,692 |
|
Agricultural |
|
| 70,049 |
|
|
| 40,221 |
|
|
| 89,810 |
|
|
| 13,520 |
|
Commercial Real Estate |
|
| 323,791 |
|
|
| 178,346 |
|
|
| 446,886 |
|
|
| 148,260 |
|
Commercial and Industrial |
|
| 76,229 |
|
|
| 53,921 |
|
|
| 210,588 |
|
|
| 27,587 |
|
Consumer |
|
| 45,069 |
|
|
| 4,483 |
|
|
| 49,050 |
|
|
| 4,270 |
|
Other |
|
| 8,070 |
|
|
| 97 |
|
|
| 8,976 |
|
|
| 54 |
|
As of September 30, 20192020 and December 31, 20182019 one to four family residential mortgage loans amounting to $43.1$40.5 million and $14.9$42.1 million, respectively, have been pledged as security for future loans and existing loans the Bank has received from the Federal Home Loan Bank.
Unless listed separately, Other loans are included in the Commercial and Industrial category for the remainder of the tables in this Note 4.
17
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
The following table represents the contractual aging of the recorded investment (in thousands) in past due loans by portfolio classification of loans as of September 30, 20192020 and December 31, 2018,2019, net of deferred loan fees and costs:
September 30, 2019 |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater Than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Financing Receivables |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||||||||||||||||||||||||||||||
September 30, 2020 |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater Than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Financing Receivables |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 388 |
|
| $ | 51 |
|
| $ | 434 |
|
| $ | 873 |
|
| $ | 157,585 |
|
| $ | 158,458 |
|
| $ | - |
|
| $ | 80 |
|
| $ | 33 |
|
| $ | - |
|
| $ | 113 |
|
| $ | 175,482 |
|
| $ | 175,595 |
|
| $ | - |
|
Agricultural Real Estate |
|
| 536 |
|
|
| - |
|
|
| - |
|
|
| 536 |
|
|
| 200,089 |
|
|
| 200,625 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 192,577 |
|
|
| 192,577 |
|
|
| - |
|
Agricultural |
|
| 239 |
|
|
| 10 |
|
|
| 253 |
|
|
| 502 |
|
|
| 109,903 |
|
|
| 110,405 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 103,476 |
|
|
| 103,476 |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 501,095 |
|
|
| 501,095 |
|
|
| - |
|
|
| 169 |
|
|
| - |
|
|
| - |
|
|
| 169 |
|
|
| 593,767 |
|
|
| 593,936 |
|
|
| - |
|
Commercial and Industrial |
|
| 156 |
|
|
| 294 |
|
|
| - |
|
|
| 450 |
|
|
| 137,945 |
|
|
| 138,395 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 244,823 |
|
|
| 244,823 |
|
|
| - |
|
Consumer |
|
| 117 |
|
|
| 18 |
|
|
| - |
|
|
| 135 |
|
|
| 49,583 |
|
|
| 49,718 |
|
|
| - |
|
|
| 34 |
|
|
| 8 |
|
|
| - |
|
|
| 42 |
|
|
| 53,413 |
|
|
| 53,455 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 1,436 |
|
| $ | 373 |
|
| $ | 687 |
|
| $ | 2,496 |
|
| $ | 1,156,200 |
|
| $ | 1,158,696 |
|
| $ | - |
|
| $ | 283 |
|
| $ | 41 |
|
| $ | - |
|
| $ | 324 |
|
| $ | 1,363,538 |
|
| $ | 1,363,862 |
|
| $ | - |
|
December 31, 2018 |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater Than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Financing Receivables |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||||||||||||||||||||||||||||||
December 31, 2019 |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater Than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Financing Receivables |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 342 |
|
| $ | 24 |
|
| $ | 254 |
|
| $ | 620 |
|
| $ | 79,612 |
|
| $ | 80,232 |
|
| $ | - |
|
| $ | 355 |
|
| $ | 70 |
|
| $ | - |
|
| $ | 425 |
|
| $ | 164,266 |
|
| $ | 164,691 |
|
| $ | - |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 68,588 |
|
|
| 68,588 |
|
|
| - |
|
|
| - |
|
|
| 107 |
|
|
| - |
|
|
| 107 |
|
|
| 198,752 |
|
|
| 198,859 |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 108,616 |
|
|
| 108,616 |
|
|
| - |
|
|
| 78 |
|
|
| 7 |
|
|
| - |
|
|
| 85 |
|
|
| 111,864 |
|
|
| 111,949 |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 419,131 |
|
|
| 419,131 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 550,082 |
|
|
| 550,082 |
|
|
| - |
|
Commercial and Industrial |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 127,752 |
|
|
| 127,752 |
|
|
| - |
|
|
| 201 |
|
|
| 267 |
|
|
| - |
|
|
| 468 |
|
|
| 143,541 |
|
|
| 144,009 |
|
|
| - |
|
Consumer |
|
| 85 |
|
|
| 24 |
|
|
| 8 |
|
|
| 117 |
|
|
| 41,938 |
|
|
| 42,055 |
|
|
| - |
|
|
| 54 |
|
|
| - |
|
|
| - |
|
|
| 54 |
|
|
| 49,355 |
|
|
| 49,409 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 427 |
|
| $ | 48 |
|
| $ | 262 |
|
| $ | 737 |
|
| $ | 845,637 |
|
| $ | 846,374 |
|
| $ | - |
|
| $ | 688 |
|
| $ | 451 |
|
| $ | - |
|
| $ | 1,139 |
|
| $ | 1,217,860 |
|
| $ | 1,218,999 |
|
| $ | - |
|
18
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
The following table presents the recorded investment in nonaccrual loans by class of loans as of September 30, 20192020 and December 31, 2018:2019:
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 904 |
|
| $ | 462 |
|
| $ | 1,523 |
|
| $ | 1,209 |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| 3,775 |
|
|
| 88 |
|
Agricultural |
|
| 1,830 |
|
|
| - |
|
|
| 517 |
|
|
| 1,769 |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| 685 |
|
|
| 37 |
|
Commercial & Industrial |
|
| 456 |
|
|
| 72 |
|
|
| 1,328 |
|
|
| 288 |
|
Consumer |
|
| 85 |
|
|
| 8 |
|
|
| 42 |
|
|
| 9 |
|
Total |
| $ | 3,275 |
|
| $ | 542 |
|
| $ | 7,870 |
|
| $ | 3,400 |
|
Following are the characteristics and underwriting criteria for each major type of loan the Bank offers:
Consumer Real Estate: Purchase, refinance, or equity financing of one to four family owner occupied dwelling. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and others.
Agricultural Real Estate: Purchase of farm real estate or for permanent improvements to the farm real estate. Cash flow from the farm operation is the repayment source and is therefore subject to the financial success of the farm operation.
Agricultural: Loans for the production and housing of crops, fruits, vegetables, and livestock or to fund the purchase or re-finance of capital assets such as machinery and equipment and livestock. The production of crops and livestock is especially vulnerable to commodity prices and weather. The vulnerability to commodity prices is offset by the farmer’s ability to hedge their position by the use of future contracts. The risk related to weather is often mitigated by requiring crop insurance.
Commercial Real Estate: Construction, purchase, and refinance of business purpose real estate. Risks include potential construction delays and overruns, vacancies, collateral value subject to market value fluctuations, interest rate, market demands, borrower’s ability to repay in orderly fashion, and others. The Bank does employ stress testing on higher balance loans to mitigate risk by ensuring the customer’s ability to repay in a changing rate environment before granting loan approval.
Commercial and Industrial: Loans to proprietorships, partnerships, or corporations to provide temporary working capital and seasonal loans as well as long term loans for capital asset acquisition. Risks include adequacy of cash flow, reasonableness of projections, financial leverage, economic trends, management ability and estimated capital expenditures during the fiscal year. The Bank does employ stress testing on higher balance loans to mitigate risk by ensuring the customer's ability to repay in a changing rate environment before granting loan approval.
Other: Primarily funds public improvements in the Bank’s service area. Repayment ability is based on the continuance of the taxation revenue as the source of repayment.
Consumer: Funding for individual and family purposes. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and others.
The Bank uses a nine tier risk rating system to grade its loans. The grade of a loan may change during the life of the loan.
The risk ratings are described as follows.
| 1. | Zero (0) Unclassified. Any loan which has not been assigned a classification. |
| 2. | One (1) Excellent. Credit to premier customers having the highest credit rating based on an extremely strong financial condition, which compares favorably with industry standards (upper quartile of Risk Management Association ratios). Financial statements indicate a sound earnings and financial ratio trend for several years with satisfactory profit margins and excellent liquidity exhibited. Prime credits may also be borrowers with loans fully secured by highly liquid collateral such as traded stocks, bonds, certificates of deposit, savings account, etc. No credit or collateral exceptions exist and the loan adheres to the Bank's loan policy in every respect. Financing alternatives would be readily available and would qualify for unsecured credit. This grade is summarized by high liquidity, minimum risk, strong ratios, and low handling costs. |
19
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
| 4. | Three (3) Satisfactory. Satisfactory loans of average or slightly above average risk – having some deficiency or vulnerability to changing economic conditions, but still fully collectible. Projects should normally demonstrate acceptable debt service coverage. Generally, customers should have a leverage position less than 2.00. May be some weakness but with offsetting features of other support readily available. Loans that are meeting the terms of repayment. |
Loans may be graded 3 when there is no recent information on which to base a current risk evaluation and the following conditions apply:
At inception, the loan was properly underwritten and did not possess an unwarranted level of credit risk:
| a. | At inception, the loan was secured with collateral possessing a loan-to-value adequate to protect the Bank from loss; |
| b. | The loan exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance; |
| c. | During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or the business is in an industry which is known to be experiencing problems. If any of these credit weaknesses are observed, a lower risk grade is warranted. |
| 5. | Four (4) Satisfactory / Monitored. A “4” (Satisfactory/Monitored) risk grade may be established for a loan considered satisfactory but which is of average credit risk due to financial weakness or uncertainty. The loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in Satisfactory/Monitored classification is considered acceptable and within normal underwriting guidelines so long as the loan is given management supervision. |
| 6. | Five (5) Special Mention. Loans that possess some credit deficiency or potential weakness which deserve close attention but do not yet warrant substandard classification. Such loans pose unwarranted financial risk that if not corrected could weaken the loan and increase risk in the future. The key distinctions of a 5 (Special Mention) classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered “potential” versus “defined” impairments to the primary source of loan repayment and collateral. |
| 7. | Six (6) Substandard. One or more of the following characteristics may be exhibited in loans classified substandard: |
| a. | Loans which possess a defined credit weakness and the likelihood that a loan will be paid from the primary source and are uncertain. Financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss. |
| b. | Loans are inadequately protected by the current net worth and paying capacity of the borrower. |
| c. | The primary source of repayment is weakened, and the Bank is forced to rely on a secondary source of repayment such as collateral liquidation or guarantees. |
| d. | Loans are characterized by the distinct possibility that the Bank will sustain some loss if deficiencies are not corrected. |
| e. | Unusual courses of action are needed to maintain a high probability of repayment. |
| f. | The borrower is not generating enough cash flow to repay loan principal but continues to make interest payments. |
| g. | The lender is forced into a subordinate position or unsecured collateral position due to flaws in documentation. |
| h. | Loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms. |
| i. | The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan. |
| j. | There is significant deterioration in the market conditions and the borrower is highly vulnerable to these conditions. |
20
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
| 8. | Seven (7) Doubtful. One or more of the following characteristics may be exhibited in loans classified Doubtful: |
| a. | Loans have all of the weaknesses of those classified as Substandard. Additionally, these weaknesses make collection or liquidation in full based on existing conditions improbable. |
| b. | The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment. |
| c. | The possibility of loss is high, but because of certain important pending factors which may strengthen the loan, loss classification is deferred until its exact status is known. A Doubtful classification is established deferring the realization of the loss. |
| 9. | Eight (8) Loss. Loans are considered uncollectable and of such little value that continuing to carry them as assets on the institution’s financial statements is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future. |
[ Remainder of this page intentionally left blank ]
21
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
The following table represents the risk category of loans by portfolio class, net of deferred fees and costs, based on the most recent analysis performed as of September 30, 20192020 (Refer to the table in the COVID-19 section for deferrals impacted by the Coronavirus Aid, Relief and Economic Security Act (CARES Act.) and December 31, 2018:2019:
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||||||||||
|
| Agricultural |
|
|
|
|
|
| Commercial |
|
| Commercial |
|
|
|
|
|
| Agricultural |
|
|
|
|
|
| Commercial |
|
| Commercial |
|
|
|
|
| ||||||
|
| Real Estate |
|
| Agricultural |
|
| Real Estate |
|
| and Industrial |
|
| Other |
|
| Real Estate |
|
| Agricultural |
|
| Real Estate |
|
| and Industrial |
|
| Other |
| ||||||||||
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
1-2 |
| $ | 16,072 |
|
| $ | 6,211 |
|
| $ | 6,036 |
|
| $ | 4,472 |
|
| $ | - |
|
| $ | 12,929 |
|
| $ | 4,631 |
|
| $ | 11,389 |
|
| $ | 89,381 |
|
| $ | - |
|
3 |
|
| 35,757 |
|
|
| 36,178 |
|
|
| 87,360 |
|
|
| 18,069 |
|
|
| 2,437 |
|
|
| 38,127 |
|
|
| 26,818 |
|
|
| 164,410 |
|
|
| 26,846 |
|
|
| 4,716 |
|
4 |
|
| 115,160 |
|
|
| 60,747 |
|
|
| 399,320 |
|
|
| 98,960 |
|
|
| 5,730 |
|
|
| 112,786 |
|
|
| 69,383 |
|
|
| 402,362 |
|
|
| 110,393 |
|
|
| 4,314 |
|
5 |
|
| 14,232 |
|
|
| 2,664 |
|
|
| 3,845 |
|
|
| 4,707 |
|
|
| - |
|
|
| 10,387 |
|
|
| 1,991 |
|
|
| 10,631 |
|
|
| 4,143 |
|
|
| - |
|
6 |
|
| 19,404 |
|
|
| 4,605 |
|
|
| 4,534 |
|
|
| 3,125 |
|
|
| - |
|
|
| 18,348 |
|
|
| 653 |
|
|
| 5,144 |
|
|
| 4,131 |
|
|
| - |
|
7 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 895 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 899 |
|
|
| - |
|
8 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 200,625 |
|
| $ | 110,405 |
|
| $ | 501,095 |
|
| $ | 130,228 |
|
| $ | 8,167 |
|
| $ | 192,577 |
|
| $ | 103,476 |
|
| $ | 593,936 |
|
| $ | 235,793 |
|
| $ | 9,030 |
|
|
| Agricultural |
|
|
|
|
|
| Commercial |
|
| Commercial |
|
|
|
|
|
| Agricultural |
|
|
|
|
|
| Commercial |
|
| Commercial |
|
|
|
|
| ||||||
|
| Real Estate |
|
| Agricultural |
|
| Real Estate |
|
| and Industrial |
|
| Other |
|
| Real Estate |
|
| Agricultural |
|
| Real Estate |
|
| and Industrial |
|
| Other |
| ||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
1-2 |
| $ | 4,442 |
|
| $ | 5,753 |
|
| $ | 4,698 |
|
| $ | 3,199 |
|
| $ | - |
|
| $ | 14,655 |
|
| $ | 4,093 |
|
| $ | 7,860 |
|
| $ | 3,844 |
|
| $ | - |
|
3 |
|
| 14,118 |
|
|
| 38,852 |
|
|
| 64,341 |
|
|
| 16,284 |
|
|
| 3,135 |
|
|
| 33,951 |
|
|
| 36,913 |
|
|
| 131,780 |
|
|
| 19,790 |
|
|
| 3,168 |
|
4 |
|
| 49,596 |
|
|
| 63,380 |
|
|
| 346,072 |
|
|
| 100,644 |
|
|
| 2,754 |
|
|
| 116,834 |
|
|
| 65,414 |
|
|
| 401,404 |
|
|
| 103,527 |
|
|
| 5,146 |
|
5 |
|
| 422 |
|
|
| 631 |
|
|
| 2,171 |
|
|
| 308 |
|
|
| - |
|
|
| 14,836 |
|
|
| 2,300 |
|
|
| 3,699 |
|
|
| 2,465 |
|
|
| - |
|
6 |
|
| 10 |
|
|
| - |
|
|
| 1,849 |
|
|
| 542 |
|
|
| - |
|
|
| 18,583 |
|
|
| 3,229 |
|
|
| 5,339 |
|
|
| 4,983 |
|
|
| - |
|
7 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 886 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,086 |
|
|
| - |
|
8 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 68,588 |
|
| $ | 108,616 |
|
| $ | 419,131 |
|
| $ | 121,863 |
|
| $ | 5,889 |
|
| $ | 198,859 |
|
| $ | 111,949 |
|
| $ | 550,082 |
|
| $ | 135,695 |
|
| $ | 8,314 |
|
22
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
For consumer residential real estate, and other, the Company also evaluates credit quality based on the aging status of the loan, as was previously stated, and by payment activity. The following tables present the recorded investment in those classes based on payment activity and assigned risk grading as of September 30, 20192020 and December 31, 2018. 2019.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||
|
| Consumer |
|
| Consumer |
|
| Consumer |
|
| Consumer |
| ||||
|
| Real Estate |
|
| Real Estate |
|
| Real Estate |
|
| Real Estate |
| ||||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
Grade |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 155,346 |
|
| $ | 79,121 |
|
| $ | 172,132 |
|
| $ | 160,930 |
|
Special Mention (5) |
|
| 227 |
|
|
| 232 |
|
|
| 1,234 |
|
|
| 415 |
|
Substandard (6) |
|
| 2,885 |
|
|
| 879 |
|
|
| 2,229 |
|
|
| 3,346 |
|
Doubtful (7) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 158,458 |
|
| $ | 80,232 |
|
| $ | 175,595 |
|
| $ | 164,691 |
|
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||
|
| Consumer - Credit |
|
| Consumer - Other |
|
| Consumer - Credit |
|
| Consumer - Other |
| ||||||||||||||||||||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||
Performing |
| $ | 3,867 |
|
| $ | 3,909 |
|
| $ | 45,752 |
|
| $ | 38,073 |
|
| $ | 3,430 |
|
| $ | 4,076 |
|
| $ | 49,868 |
|
| $ | 44,831 |
|
Nonperforming |
|
| - |
|
|
| 19 |
|
|
| 99 |
|
|
| 54 |
|
|
| - |
|
|
| 15 |
|
|
| 157 |
|
|
| 487 |
|
Total |
| $ | 3,867 |
|
| $ | 3,928 |
|
| $ | 45,851 |
|
| $ | 38,127 |
|
| $ | 3,430 |
|
| $ | 4,091 |
|
| $ | 50,025 |
|
| $ | 45,318 |
|
Information about impaired loans as of September 30, 2019,2020, December 31, 20182019 and September 30, 20182019 are as follows:
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
| ||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2019 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans without a valuation allowance |
| $ | 1,914 |
|
| $ | 1,808 |
|
| $ | 1,841 |
|
| $ | 5,134 |
|
| $ | 2,420 |
|
| $ | 1,914 |
|
Impaired loans with a valuation allowance |
|
| 1,314 |
|
|
| 246 |
|
|
| 970 |
|
|
| 10,125 |
|
|
| 641 |
|
|
| 1,314 |
|
Total impaired loans |
| $ | 3,228 |
|
| $ | 2,054 |
|
| $ | 2,811 |
|
| $ | 15,259 |
|
| $ | 3,061 |
|
| $ | 3,228 |
|
Valuation allowance related to impaired loans |
| $ | 187 |
|
| $ | 31 |
|
| $ | 148 |
|
| $ | 1,198 |
|
| $ | 197 |
|
| $ | 187 |
|
Total non-accrual loans |
| $ | 3,275 |
|
| $ | 542 |
|
| $ | 483 |
|
| $ | 7,870 |
|
| $ | 3,400 |
|
| $ | 3,275 |
|
Total loans past-due ninety days or more and still accruing |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 408 |
|
| $ | 0 |
|
| $ | 0 |
|
Quarter ended average investment in impaired loans |
| $ | 3,141 |
|
| $ | 2,533 |
|
| $ | 2,158 |
|
| $ | 13,517 |
|
| $ | 3,120 |
|
| $ | 3,141 |
|
Year to date average investment in impaired loans |
| $ | 2,492 |
|
| $ | 1,958 |
|
| $ | 1,765 |
|
| $ | 8,613 |
|
| $ | 2,649 |
|
| $ | 2,492 |
|
There were $5 thousand$1.2 million additional funds available to be advanced in connection with impaired loans.loans as of September 30, 2020.
The Bank had approximately $1.1$6.4 million of its impaired loans classified as troubled debt restructured (TDR) as of September 30, 2019, $178 thousand2020, $1.0 million as of December 31, 20182019 and $207 thousand$1.1 million as of September 30, 2018. During the year to date 2019, there were 5 new loans considered TDR. There were no new loans considered TDR year to date 2018.2019.
23
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
Modification programs focused on payment pattern changes and/or modified maturity dates with most receiving a combination of the two concessions. The modifications did 0t result in the contractual forgiveness of principal. In 2020, 2 loans resulted in payment changes from a monthly payment to principal and interest at maturity on June 19, 2020. NaN loan was paid off in May with the other loan past due and in the foreclosure process. In the second quarter of 2020, 3 loans had a rate concession along with the amortization extended. During the third quarter of 2020, 1 loan was modified with a rate concession. All interest was paid current at the time of the modifications. Consequently, the financial impact of the modifications was immaterial to the ALLL. During the year to date 2020, there were 6 new loans considered TDR with 1 of the loans subsequently paid off in May. There were 5 new loans considered TDR year to date 2019. The following tabletables represents three and nine months ended September 30, 2020 and 2019:
|
|
|
| Pre- |
| Post- |
|
|
|
|
|
| Pre- |
| Post- |
|
|
|
|
| Pre- |
|
| Post- |
|
|
|
|
|
|
| Pre- |
|
| Post- |
| ||||||||
Three Months | Number of |
| Modification |
| Modification |
|
| Nine Months | Number of |
| Modification |
| Modification |
| Number of |
|
| Modification |
|
| Modification |
|
| Nine Months | Number of |
|
| Modification |
|
| Modification |
| ||||||||||||
September 30, 2019 | Contracts |
| Outstanding |
| Outstanding |
|
| September 30, 2019 | Contracts |
| Outstanding |
| Outstanding |
| ||||||||||||||||||||||||||||||
September 30, 2020 | Contracts |
|
| Outstanding |
|
| Outstanding |
|
| September 30, 2020 | Contracts |
|
| Outstanding |
|
| Outstanding |
| ||||||||||||||||||||||||||
(in thousands) | Modified in the |
| Recorded |
| Recorded |
|
| (in thousands) | Modified in the |
| Recorded |
| Recorded |
| Modified in the |
|
| Recorded |
|
| Recorded |
|
| (in thousands) | Modified in the |
|
| Recorded |
|
| Recorded |
| ||||||||||||
Troubled Debt Restructurings | Last Three Months |
| Investment |
| Investment |
|
| Troubled Debt Restructurings | Last Nine Months |
| Investment |
| Investment |
| Last Three Months |
|
| Investment |
|
| Investment |
|
| Troubled Debt Restructurings | Last Nine Months |
|
| Investment |
|
| Investment |
| ||||||||||||
Consumer Real Estate |
| 1 |
| $ | 74 |
| $ | 74 |
|
| Consumer Real Estate |
| 1 |
| $ | 74 |
| $ | 74 |
|
| - |
|
| $ | - |
|
| $ | - |
|
| Consumer Real Estate |
| - |
|
| $ | - |
|
| $ | - |
|
Commercial Real Estate |
| - |
|
|
| - |
|
|
| - |
|
| Commercial Real Estate |
| 2 |
|
|
| 981 |
|
|
| 981 |
| ||||||||||||||||||||
Ag Real Estate |
| - |
|
|
| - |
|
|
| - |
|
| Ag Real Estate |
| 2 |
|
|
| 5,380 |
|
|
| 5,380 |
| ||||||||||||||||||||
Commercial and Industrial |
| - |
| $ | - |
| $ | - |
|
| Commercial and Industrial |
| 4 |
| $ | 812 |
| $ | 812 |
|
| 1 |
|
|
| 50 |
|
|
| 50 |
|
| Commercial and Industrial |
| 1 |
|
|
| 50 |
|
|
| 50 |
|
Agricultural |
| - |
|
|
| - |
|
|
| - |
|
| Agricultural |
| 1 |
|
|
| 164 |
|
|
| 164 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pre- |
|
| Post- |
|
|
|
|
|
|
| Pre- |
|
| Post- |
| ||||
Three Months | Number of |
|
| Modification |
|
| Modification |
|
| Nine Months | Number of |
|
| Modification |
|
| Modification |
| ||||||
September 30, 2019 | Contracts |
|
| Outstanding |
|
| Outstanding |
|
| September 30, 2019 | Contracts |
|
| Outstanding |
|
| Outstanding |
| ||||||
(in thousands) | Modified in the |
|
| Recorded |
|
| Recorded |
|
| (in thousands) | Modified in the |
|
| Recorded |
|
| Recorded |
| ||||||
Troubled Debt Restructurings | Last Three Months |
|
| Investment |
|
| Investment |
|
| Troubled Debt Restructurings | Last Nine Months |
|
| Investment |
|
| Investment |
| ||||||
Consumer Real Estate |
| 1 |
|
| $ | 74 |
|
| $ | 74 |
|
| Consumer Real Estate |
| 1 |
|
| $ | 74 |
|
| $ | 74 |
|
Commercial Real Estate |
| - |
|
|
| - |
|
|
| - |
|
| Commercial Real Estate |
| - |
|
|
| - |
|
|
| - |
|
Ag Real Estate |
| - |
|
|
| - |
|
|
| - |
|
| Ag Real Estate |
| - |
|
|
| - |
|
|
| - |
|
Commercial and Industrial |
| - |
|
|
| - |
|
|
| - |
|
| Commercial and Industrial |
| 4 |
|
|
| 812 |
|
|
| 812 |
|
Agricultural |
| - |
|
|
| - |
|
|
| - |
|
| Agricultural |
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine month periodperiods ended September 30, 20192020 and 2018,2019, there were no0 TDRs that subsequently defaulted after modification.
For the three and nine month period ended September 30, 2019,2020, there was 1 impaired commercial real estate loan of $481 thousand that was classified as TDR paid off. There were no0 impaired loans classified as TDR paid off.
off for the nine month period ended September 30, 2019.
[ Remainder of this page intentionally left blank ]
24
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
For the majority of the Bank’s impaired loans, the Bank will apply the fair value of collateral or use a measurement incorporating the present value of expected future cash flows discounted at the loan’s effective rate of interest. To determine fair value of collateral, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained. Until such time that updated appraisals are received, the Bank may discount the collateral value used.
The Bank uses the following guidelines as stated in policy to determine when to realize a charge-off, whether a partial or full loan balance. A charge-off in whole or in part is realized when unsecured consumer loans, credit card credits and overdraft lines of credit reach 90 days delinquency. At 120 days delinquent, secured consumer loans are charged down to the value of the collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. Commercial and agricultural credits are charged down at 120 days delinquency, unless an established and approved work-out plan is in place or litigation of the credit will likely result in recovery of the loan balance. Upon notification of bankruptcy, unsecured debt is charged off. Additional charge-off may be realized as further unsecured positions are recognized.
The following tables present loans individually evaluated for impairment by class of loans for the three and nine months ended September 30, 20192020 and September 30, 2018.2019 and for the year ended December 31, 2019.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
|
| QTD |
|
| Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
|
| QTD |
|
| Interest |
| ||||||
Three Months Ended September 30, 2019 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
Three Months Ended September 30, 2020 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
| ||||||||||||
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
| ||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 626 |
|
| $ | 626 |
|
| $ | - |
|
| $ | 628 |
|
| $ | 9 |
|
| $ | 3 |
|
| $ | 780 |
|
| $ | 780 |
|
| $ | - |
|
| $ | 791 |
|
| $ | 41 |
|
| $ | 5 |
|
Agricultural Real Estate |
|
| 406 |
|
|
| 406 |
|
|
| - |
|
|
| 406 |
|
|
| - |
|
|
| - |
|
|
| 1,589 |
|
|
| 1,589 |
|
|
| - |
|
|
| 873 |
|
|
| 2 |
|
|
| - |
|
Agricultural |
|
| 368 |
|
|
| 368 |
|
|
| - |
|
|
| 368 |
|
|
| - |
|
|
| - |
|
|
| 533 |
|
|
| 533 |
|
|
| - |
|
|
| 375 |
|
|
| 4 |
|
|
| 1 |
|
Commercial Real Estate |
|
| 304 |
|
|
| 304 |
|
|
| - |
|
|
| 267 |
|
|
| 7 |
|
|
| - |
|
|
| 186 |
|
|
| 186 |
|
|
| - |
|
|
| 186 |
|
|
| 1 |
|
|
| - |
|
Commercial and Industrial |
|
| 210 |
|
|
| 210 |
|
|
| - |
|
|
| 219 |
|
|
| 3 |
|
|
| - |
|
|
| 2,021 |
|
|
| 2,021 |
|
|
| - |
|
|
| 1,190 |
|
|
| 5 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 25 |
|
|
| 25 |
|
|
| - |
|
|
| 26 |
|
|
| 21 |
|
|
| - |
|
With a specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
|
| 126 |
|
|
| 128 |
|
|
| 22 |
|
|
| 172 |
|
|
| - |
|
|
| - |
|
|
| 205 |
|
|
| 205 |
|
|
| 43 |
|
|
| 119 |
|
|
| 8 |
|
|
| - |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,425 |
|
|
| 5,425 |
|
|
| 432 |
|
|
| 5,450 |
|
|
| 2 |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 188 |
|
|
| 188 |
|
|
| 28 |
|
|
| 342 |
|
|
| 3 |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
|
| - |
|
|
| 3,033 |
|
|
| 3,033 |
|
|
| 44 |
|
|
| 3,046 |
|
|
| - |
|
|
| - |
|
Commercial and Industrial |
|
| 1,188 |
|
|
| 1,188 |
|
|
| 165 |
|
|
| 1,081 |
|
|
| - |
|
|
| - |
|
|
| 1,274 |
|
|
| 1,274 |
|
|
| 651 |
|
|
| 1,119 |
|
|
| 3 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 752 |
|
| $ | 754 |
|
| $ | 22 |
|
| $ | 800 |
|
| $ | 9 |
|
| $ | 3 |
|
| $ | 985 |
|
| $ | 985 |
|
| $ | 43 |
|
| $ | 910 |
|
| $ | 49 |
|
| $ | 5 |
|
Agricultural Real Estate |
| $ | 406 |
|
| $ | 406 |
|
| $ | - |
|
| $ | 406 |
|
| $ | - |
|
| $ | - |
|
| $ | 7,014 |
|
| $ | 7,014 |
|
| $ | 432 |
|
| $ | 6,323 |
|
| $ | 4 |
|
| $ | - |
|
Agricultural |
| $ | 368 |
|
| $ | 368 |
|
| $ | - |
|
| $ | 368 |
|
| $ | - |
|
| $ | - |
|
| $ | 721 |
|
| $ | 721 |
|
| $ | 28 |
|
| $ | 717 |
|
| $ | 7 |
|
| $ | 1 |
|
Commercial Real Estate |
| $ | 304 |
|
| $ | 304 |
|
| $ | - |
|
| $ | 267 |
|
| $ | 21 |
|
| $ | - |
|
| $ | 3,219 |
|
| $ | 3,219 |
|
| $ | 44 |
|
| $ | 3,232 |
|
| $ | 1 |
|
| $ | - |
|
Commercial and Industrial |
| $ | 1,398 |
|
| $ | 1,398 |
|
| $ | 165 |
|
| $ | 1,300 |
|
| $ | 3 |
|
| $ | - |
|
| $ | 3,295 |
|
| $ | 3,295 |
|
| $ | 651 |
|
| $ | 2,309 |
|
| $ | 8 |
|
| $ | - |
|
Consumer |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 25 |
|
| $ | 25 |
|
| $ | - |
|
| $ | 26 |
|
| $ | 21 |
|
| $ | - |
|
25
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
|
| (In Thousands) |
|
|
|
|
|
| (In Thousands) |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
|
| QTD |
|
| Interest |
| |||||||||||||||||||||||||||
Three Months Ended September 30, 2018 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
Year Ended December 31, 2019 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
| ||||||||||||
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
| ||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 589 |
|
| $ | 589 |
|
| $ | - |
|
| $ | 645 |
|
| $ | 9 |
|
| $ | 5 |
|
| $ | 648 |
|
| $ | 648 |
|
| $ | - |
|
| $ | 626 |
|
| $ | 32 |
|
| $ | 9 |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 204 |
|
|
| - |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 491 |
|
|
| 491 |
|
|
| - |
|
|
| 124 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 196 |
|
|
| 196 |
|
|
| - |
|
|
| 197 |
|
|
| 3 |
|
|
| - |
|
|
| 299 |
|
|
| 299 |
|
|
| - |
|
|
| 238 |
|
|
| 19 |
|
|
| - |
|
Commercial and Industrial |
|
| 1,056 |
|
|
| 1,056 |
|
|
| - |
|
|
| 504 |
|
|
| 12 |
|
|
| - |
|
|
| 982 |
|
|
| 982 |
|
|
| - |
|
|
| 637 |
|
|
| 66 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
With a specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
|
| 174 |
|
|
| 174 |
|
|
| 26 |
|
|
| 227 |
|
|
| - |
|
|
| - |
|
|
| 181 |
|
|
| 184 |
|
|
| 30 |
|
|
| 211 |
|
|
| - |
|
|
| - |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22 |
|
|
| 1 |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 200 |
|
|
| 200 |
|
|
| 21 |
|
|
| 29 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial and Industrial |
|
| 796 |
|
|
| 796 |
|
|
| 122 |
|
|
| 585 |
|
|
| 3 |
|
|
| - |
|
|
| 227 |
|
|
| 377 |
|
|
| 142 |
|
|
| 555 |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 33 |
|
|
| 33 |
|
|
| 4 |
|
|
| 3 |
|
|
| - |
|
|
| - |
|
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 763 |
|
| $ | 763 |
|
| $ | 26 |
|
| $ | 872 |
|
| $ | 9 |
|
| $ | 5 |
|
| $ | 829 |
|
| $ | 832 |
|
| $ | 30 |
|
| $ | 837 |
|
| $ | 32 |
|
| $ | 9 |
|
Agricultural Real Estate |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 226 |
|
| $ | 1 |
|
| $ | - |
|
Agricultural |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 691 |
|
| $ | 691 |
|
| $ | 21 |
|
| $ | 153 |
|
| $ | - |
|
| $ | - |
|
Commercial Real Estate |
| $ | 196 |
|
| $ | 196 |
|
| $ | - |
|
| $ | 197 |
|
| $ | 3 |
|
| $ | - |
|
| $ | 299 |
|
| $ | 299 |
|
| $ | - |
|
| $ | 238 |
|
| $ | 19 |
|
| $ | - |
|
Commercial and Industrial |
| $ | 1,852 |
|
| $ | 1,852 |
|
| $ | 122 |
|
| $ | 1,089 |
|
| $ | 15 |
|
| $ | - |
|
| $ | 1,209 |
|
| $ | 1,359 |
|
| $ | 142 |
|
| $ | 1,192 |
|
| $ | 66 |
|
| $ | - |
|
Consumer |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 33 |
|
| $ | 33 |
|
| $ | 4 |
|
| $ | 3 |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
The following tables present loans individually evaluated for impairment by class of loans for nine months ended September 30, 2019 and September 30, 2018.
|
| (In Thousands) |
|
| (In Thousands) |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
|
| YTD |
|
| Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| QTD |
|
| QTD |
|
| Interest |
| ||||||
Nine Months Ended September 30, 2019 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
Three Months Ended September 30, 2019 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
| ||||||||||||
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
| ||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 626 |
|
| $ | 626 |
|
| $ | - |
|
| $ | 625 |
|
| $ | 24 |
|
| $ | 7 |
|
| $ | 626 |
|
| $ | 626 |
|
| $ | - |
|
| $ | 628 |
|
| $ | 9 |
|
| $ | 3 |
|
Agricultural Real Estate |
|
| 406 |
|
|
| 406 |
|
|
| - |
|
|
| 135 |
|
|
| - |
|
|
| - |
|
|
| 406 |
|
|
| 406 |
|
|
| - |
|
|
| 406 |
|
|
| - |
|
|
| - |
|
Agricultural |
|
| 368 |
|
|
| 368 |
|
|
| - |
|
|
| 123 |
|
|
| - |
|
|
| - |
|
|
| 368 |
|
|
| 368 |
|
|
| - |
|
|
| 368 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 304 |
|
|
| 304 |
|
|
| - |
|
|
| 217 |
|
|
| 14 |
|
|
| - |
|
|
| 304 |
|
|
| 304 |
|
|
| - |
|
|
| 267 |
|
|
| 7 |
|
|
| - |
|
Commercial and Industrial |
|
| 210 |
|
|
| 210 |
|
|
| - |
|
|
| 697 |
|
|
| 9 |
|
|
| - |
|
|
| 210 |
|
|
| 210 |
|
|
| - |
|
|
| 219 |
|
|
| 3 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
With a specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
|
| 126 |
|
|
| 128 |
|
|
| 22 |
|
|
| 220 |
|
|
| - |
|
|
| - |
|
|
| 126 |
|
|
| 128 |
|
|
| 22 |
|
|
| 172 |
|
|
| - |
|
|
| - |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
|
| - |
|
Commercial and Industrial |
|
| 1,188 |
|
|
| 1,188 |
|
|
| 165 |
|
|
| 451 |
|
|
| 37 |
|
|
| - |
|
|
| 1,188 |
|
|
| 1,188 |
|
|
| 165 |
|
|
| 1,081 |
|
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 752 |
|
| $ | 754 |
|
| $ | 22 |
|
| $ | 845 |
|
| $ | 24 |
|
| $ | 7 |
|
| $ | 752 |
|
| $ | 754 |
|
| $ | 22 |
|
| $ | 800 |
|
| $ | 9 |
|
| $ | 3 |
|
Agricultural Real Estate |
| $ | 406 |
|
| $ | 406 |
|
| $ | - |
|
| $ | 135 |
|
| $ | - |
|
| $ | - |
|
| $ | 406 |
|
| $ | 406 |
|
| $ | - |
|
| $ | 406 |
|
| $ | - |
|
| $ | - |
|
Agricultural |
| $ | 368 |
|
| $ | 368 |
|
| $ | - |
|
| $ | 147 |
|
| $ | - |
|
| $ | - |
|
| $ | 368 |
|
| $ | 368 |
|
| $ | - |
|
| $ | 368 |
|
| $ | - |
|
| $ | - |
|
Commercial Real Estate |
| $ | 304 |
|
| $ | 304 |
|
| $ | - |
|
| $ | 217 |
|
| $ | 14 |
|
| $ | - |
|
| $ | 304 |
|
| $ | 304 |
|
| $ | - |
|
| $ | 267 |
|
| $ | 21 |
|
| $ | - |
|
Commercial and Industrial |
| $ | 1,398 |
|
| $ | 1,398 |
|
| $ | 165 |
|
| $ | 1,148 |
|
| $ | 46 |
|
| $ | - |
|
| $ | 1,398 |
|
| $ | 1,398 |
|
| $ | 165 |
|
| $ | 1,300 |
|
| $ | 3 |
|
| $ | - |
|
Consumer |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
27
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
| (In Thousands) |
|
|
|
|
|
| (In Thousands) |
| |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
|
| YTD |
|
| Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
|
| YTD |
|
| Interest |
| ||||||
Nine Months Ended September 30, 2018 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
Nine Months Ended September 30, 2020 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||||||||||||||||||||||||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
| ||||||||||||
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
| ||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 589 |
|
| $ | 589 |
|
| $ | - |
|
| $ | 554 |
|
| $ | 23 |
|
| $ | 15 |
|
| $ | 780 |
|
| $ | 780 |
|
| $ | - |
|
| $ | 688 |
|
| $ | 120 |
|
| $ | 9 |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22 |
|
|
| - |
|
|
| - |
|
|
| 1,589 |
|
|
| 1,589 |
|
|
| - |
|
|
| 451 |
|
|
| 6 |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 533 |
|
|
| 533 |
|
|
| - |
|
|
| 367 |
|
|
| 9 |
|
|
| 1 |
|
Commercial Real Estate |
|
| 196 |
|
|
| 196 |
|
|
| - |
|
|
| 199 |
|
|
| 8 |
|
|
| - |
|
|
| 186 |
|
|
| 186 |
|
|
| - |
|
|
| 199 |
|
|
| 3 |
|
|
| - |
|
Commercial and Industrial |
|
| 1,056 |
|
|
| 1,056 |
|
|
| - |
|
|
| 238 |
|
|
| 12 |
|
|
| - |
|
|
| 2,021 |
|
|
| 2,021 |
|
|
| - |
|
|
| 819 |
|
|
| 18 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 25 |
|
|
| 25 |
|
|
| - |
|
|
| 21 |
|
|
| 37 |
|
|
| - |
|
With a specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
|
| 174 |
|
|
| 174 |
|
|
| 26 |
|
|
| 153 |
|
|
| - |
|
|
| - |
|
|
| 205 |
|
|
| 205 |
|
|
| 43 |
|
|
| 60 |
|
|
| 10 |
|
|
| - |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,425 |
|
|
| 5,425 |
|
|
| 432 |
|
|
| 2,475 |
|
|
| 7 |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 188 |
|
|
| 188 |
|
|
| 28 |
|
|
| 208 |
|
|
| 6 |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 186 |
|
|
| - |
|
|
| - |
|
|
| 3,033 |
|
|
| 3,033 |
|
|
| 44 |
|
|
| 2,389 |
|
|
| - |
|
|
| - |
|
Commercial and Industrial |
|
| 796 |
|
|
| 796 |
|
|
| 122 |
|
|
| 413 |
|
|
| 11 |
|
|
| - |
|
|
| 1,274 |
|
|
| 1,274 |
|
|
| 651 |
|
|
| 929 |
|
|
| 10 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| - |
|
|
| - |
|
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 763 |
|
| $ | 763 |
|
| $ | 26 |
|
| $ | 707 |
|
| $ | 23 |
|
| $ | 15 |
|
| $ | 985 |
|
| $ | 985 |
|
| $ | 43 |
|
| $ | 748 |
|
| $ | 130 |
|
| $ | 9 |
|
Agricultural Real Estate |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 22 |
|
| $ | - |
|
| $ | - |
|
| $ | 7,014 |
|
| $ | 7,014 |
|
| $ | 432 |
|
| $ | 2,926 |
|
| $ | 13 |
|
| $ | - |
|
Agricultural |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 721 |
|
| $ | 721 |
|
| $ | 28 |
|
| $ | 575 |
|
| $ | 15 |
|
| $ | 1 |
|
Commercial Real Estate |
| $ | 196 |
|
| $ | 196 |
|
| $ | - |
|
| $ | 385 |
|
| $ | 8 |
|
| $ | - |
|
| $ | 3,219 |
|
| $ | 3,219 |
|
| $ | 44 |
|
| $ | 2,588 |
|
| $ | 3 |
|
| $ | - |
|
Commercial and Industrial |
| $ | 1,852 |
|
| $ | 1,852 |
|
| $ | 122 |
|
| $ | 651 |
|
| $ | 23 |
|
| $ | - |
|
| $ | 3,295 |
|
| $ | 3,295 |
|
| $ | 651 |
|
| $ | 1,748 |
|
| $ | 28 |
|
| $ | - |
|
Consumer |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 25 |
|
| $ | 25 |
|
| $ | - |
|
| $ | 28 |
|
| $ | 37 |
|
| $ | - |
|
28
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
|
| (In Thousands) |
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD |
|
| YTD |
|
| Interest |
| |||
Nine Months Ended September 30, 2019 |
|
|
|
|
| Unpaid |
|
|
|
|
|
| Average |
|
| Interest |
|
| Income |
| ||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
|
| Recognized |
| ||||||
|
| Investment |
|
| Balance |
|
| Allowance |
|
| Investment |
|
| Recognized |
|
| Cash Basis |
| ||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 626 |
|
| $ | 626 |
|
| $ | - |
|
| $ | 625 |
|
| $ | 24 |
|
| $ | 7 |
|
Agricultural Real Estate |
|
| 406 |
|
|
| 406 |
|
|
| - |
|
|
| 135 |
|
|
| - |
|
|
| - |
|
Agricultural |
|
| 368 |
|
|
| 368 |
|
|
| - |
|
|
| 123 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| 304 |
|
|
| 304 |
|
|
| - |
|
|
| 217 |
|
|
| 14 |
|
|
| - |
|
Commercial and Industrial |
|
| 210 |
|
|
| 210 |
|
|
| - |
|
|
| 697 |
|
|
| 9 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
With a specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
|
| 126 |
|
|
| 128 |
|
|
| 22 |
|
|
| 220 |
|
|
| - |
|
|
| - |
|
Agricultural Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Agricultural |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24 |
|
|
| - |
|
|
| - |
|
Commercial Real Estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial and Industrial |
|
| 1,188 |
|
|
| 1,188 |
|
|
| 165 |
|
|
| 451 |
|
|
| 37 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Real Estate |
| $ | 752 |
|
| $ | 754 |
|
| $ | 22 |
|
| $ | 845 |
|
| $ | 24 |
|
| $ | 7 |
|
Agricultural Real Estate |
| $ | 406 |
|
| $ | 406 |
|
| $ | - |
|
| $ | 135 |
|
| $ | - |
|
| $ | - |
|
Agricultural |
| $ | 368 |
|
| $ | 368 |
|
| $ | - |
|
| $ | 147 |
|
| $ | - |
|
| $ | - |
|
Commercial Real Estate |
| $ | 304 |
|
| $ | 304 |
|
| $ | - |
|
| $ | 217 |
|
| $ | 14 |
|
| $ | - |
|
Commercial and Industrial |
| $ | 1,398 |
|
| $ | 1,398 |
|
| $ | 165 |
|
| $ | 1,148 |
|
| $ | 46 |
|
| $ | - |
|
Consumer |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
As of September 30, 2019,2020, the Company had $187$71 thousand of foreclosed residential real estate property obtained by physical possession and $379$849 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions. As of September 30, 2018,2019, the Company had $68$187 thousand of foreclosed residential real estate property obtained by physical possession and $174$379 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process according to local jurisdictions.
[ Remainder of this page intentionally left blank ]
2829
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
The Allowance for Loan and Lease Losses (ALLL) has a direct impact on the provision expense. An increase in the ALLL is funded through recoveries and provision expense. The following tables summarize the activities in the allowance for credit losses.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||
|
| Nine Months Ended |
|
| Twelve Months Ended |
|
| Nine Months Ended |
|
| Twelve Months Ended |
| ||||
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
Allowance for Loan & Lease Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
| $ | 6,775 |
|
| $ | 6,868 |
|
| $ | 7,228 |
|
| $ | 6,775 |
|
Provision for loan loss |
|
| 410 |
|
|
| 324 |
|
|
| 4,986 |
|
|
| 1,138 |
|
Loans charged off |
|
| (554 | ) |
|
| (580 | ) |
|
| (480 | ) |
|
| (841 | ) |
Recoveries |
|
| 128 |
|
|
| 163 |
|
|
| 149 |
|
|
| 156 |
|
Allowance for Loan & Lease Losses |
| $ | 6,759 |
|
| $ | 6,775 |
|
| $ | 11,883 |
|
| $ | 7,228 |
|
Allowance for Unfunded Loan Commitments & Letters of Credit |
| $ | 430 |
|
| $ | 274 |
|
| $ | 633 |
|
| $ | 479 |
|
Total Allowance for Credit Losses |
| $ | 7,189 |
|
| $ | 7,049 |
|
| $ | 12,516 |
|
| $ | 7,707 |
|
The Company segregates its ALLL into two reserves: The ALLL and the Allowance for Unfunded Loan Commitments and Letters of Credit (AULC). When combined, these reserves constitute the total Allowance for Credit Losses (ACL).
The ALLL does not include an accretable yield of $1.7 million and $2.0 million as September 30, 2020 and December 31, 2019 related to the acquisition of Bank of Geneva as previously discussed in Note 2.
The AULC is reported within other liabilities on the balance sheet while the ALLL is netted within the loans, net asset line. The ACL presented above represents the full amount of reserves available to absorb possible credit losses.
[ Remainder of this page intentionally left blank ]
2930
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
The following table breaks down the activity within ACL for each loan portfolio classification and shows the contribution provided by both the recoveries and the provision along with the reduction of the allowance caused by charge-offs.
Additional analysis, presented in thousands, related to the allowance for credit losses for the three and nine months ended September 30, 20192020 and September 30, 20182019 in addition to the ending balances as of December 31, 20182019 is as follows:
|
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
|
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| ||||||||||||||||||
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
ALLOWANCE FOR CREDIT LOSSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 275 |
|
| $ | 340 |
|
| $ | 756 |
|
| $ | 3,320 |
|
| $ | 1,461 |
|
| $ | 526 |
|
| $ | 370 |
|
| $ | 5 |
|
| $ | 7,053 |
|
| $ | 570 |
|
| $ | 813 |
|
| $ | 1,036 |
|
| $ | 4,458 |
|
| $ | 2,423 |
|
| $ | 561 |
|
| $ | 605 |
|
| $ | 72 |
|
| $ | 10,538 |
|
Charge Offs |
|
| (39 | ) |
|
| - |
|
|
| (22 | ) |
|
| - |
|
|
| (55 | ) |
|
| (103 | ) |
|
| - |
|
|
| - |
|
|
| (219 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (79 | ) |
|
| - |
|
|
| - |
|
|
| (79 | ) |
Recoveries |
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| 2 |
|
|
| 13 |
|
|
| 32 |
|
|
| - |
|
|
| - |
|
|
| 48 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 10 |
|
|
| 28 |
|
|
| - |
|
|
| - |
|
|
| 42 |
|
Provision (Credit) |
|
| 38 |
|
|
| 12 |
|
|
| (2 | ) |
|
| (17 | ) |
|
| 131 |
|
|
| 90 |
|
|
| - |
|
|
| (5 | ) |
|
| 247 |
|
|
| (42 | ) |
|
| (51 | ) |
|
| (367 | ) |
|
| 1,275 |
|
|
| 839 |
|
|
| 94 |
|
|
| - |
|
|
| 239 |
|
|
| 1,987 |
|
Other Non-interest expense related to unfunded |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 60 |
|
|
| - |
|
|
| 60 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28 |
|
|
|
|
|
|
| 28 |
|
Ending Balance |
| $ | 274 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,550 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,189 |
|
| $ | 530 |
|
| $ | 762 |
|
| $ | 669 |
|
| $ | 5,735 |
|
| $ | 3,272 |
|
| $ | 604 |
|
| $ | 633 |
|
| $ | 311 |
|
| $ | 12,516 |
|
Ending balance: individually evaluated for impairment |
| $ | 22 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 165 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 187 |
|
| $ | 43 |
|
| $ | 432 |
|
| $ | 28 |
|
| $ | 44 |
|
| $ | 651 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,198 |
|
Ending balance: collectively evaluated for impairment |
| $ | 252 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,385 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,002 |
|
| $ | 487 |
|
| $ | 330 |
|
| $ | 641 |
|
| $ | 5,691 |
|
| $ | 2,621 |
|
| $ | 604 |
|
| $ | 633 |
|
| $ | 311 |
|
| $ | 11,318 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
FINANCING RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 158,458 |
|
| $ | 200,625 |
|
| $ | 110,405 |
|
| $ | 501,095 |
|
| $ | 138,395 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,158,696 |
|
| $ | 175,595 |
|
| $ | 192,577 |
|
| $ | 103,476 |
|
| $ | 593,936 |
|
| $ | 244,823 |
|
| $ | 53,455 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,363,862 |
|
Ending balance: individually evaluated for impairment |
| $ | 752 |
|
| $ | 406 |
|
| $ | 368 |
|
| $ | 304 |
|
| $ | 1,398 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,228 |
|
| $ | 985 |
|
| $ | 7,014 |
|
| $ | 721 |
|
| $ | 3,219 |
|
| $ | 3,295 |
|
| $ | 25 |
|
| $ | - |
|
| $ | - |
|
| $ | 15,259 |
|
Ending balance: collectively evaluated for impairment |
| $ | 157,659 |
|
| $ | 200,219 |
|
| $ | 110,037 |
|
| $ | 500,791 |
|
| $ | 136,997 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,155,421 |
|
| $ | 174,567 |
|
| $ | 185,563 |
|
| $ | 102,755 |
|
| $ | 590,717 |
|
| $ | 241,528 |
|
| $ | 53,339 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,348,469 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 47 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 47 |
|
| $ | 43 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 91 |
|
| $ | - |
|
| $ | - |
|
| $ | 134 |
|
3031
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2019 |
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| |||||||||||||||||||||||||||||||||||||||||||||
ALLOWANCE FOR CREDIT LOSSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ | 247 |
|
| $ | 250 |
|
| $ | 768 |
|
| $ | 3,217 |
|
| $ | 1,305 |
|
| $ | 484 |
|
| $ | 274 |
|
| $ | 504 |
|
| $ | 7,049 |
|
| $ | 311 |
|
| $ | 314 |
|
| $ | 691 |
|
| $ | 3,634 |
|
| $ | 1,727 |
|
| $ | 551 |
|
| $ | 479 |
|
| $ | - |
|
| $ | 7,707 |
|
Ending balance: individually evaluated for impairment |
| $ | 26 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 5 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 31 |
|
| $ | 30 |
|
| $ | - |
|
| $ | 21 |
|
| $ | - |
|
| $ | 142 |
|
| $ | 4 |
|
| $ | - |
|
| $ | - |
|
| $ | 197 |
|
Ending balance: collectively evaluated for impairment |
| $ | 221 |
|
| $ | 250 |
|
| $ | 768 |
|
| $ | 3,217 |
|
| $ | 1,300 |
|
| $ | 484 |
|
| $ | 274 |
|
| $ | 504 |
|
| $ | 7,018 |
|
| $ | 281 |
|
| $ | 314 |
|
| $ | 670 |
|
| $ | 3,634 |
|
| $ | 1,585 |
|
| $ | 547 |
|
| $ | 479 |
|
| $ | - |
|
| $ | 7,510 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
FINANCING RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 80,232 |
|
| $ | 68,588 |
|
| $ | 108,616 |
|
| $ | 419,131 |
|
| $ | 127,752 |
|
| $ | 42,055 |
|
| $ | - |
|
| $ | - |
|
| $ | 846,374 |
|
| $ | 164,691 |
|
| $ | 198,859 |
|
| $ | 111,949 |
|
| $ | 550,082 |
|
| $ | 144,009 |
|
| $ | 49,409 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,218,999 |
|
Ending balance: individually evaluated for impairment |
| $ | 757 |
|
| $ | - |
|
| $ | - |
|
| $ | 194 |
|
| $ | 1,103 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,054 |
|
| $ | 829 |
|
| $ | - |
|
| $ | 691 |
|
| $ | 299 |
|
| $ | 1,209 |
|
| $ | 33 |
|
| $ | - |
|
| $ | - |
|
| $ | 3,061 |
|
Ending balance: collectively evaluated for impairment |
| $ | 79,359 |
|
| $ | 68,588 |
|
| $ | 108,616 |
|
| $ | 418,937 |
|
| $ | 126,649 |
|
| $ | 42,055 |
|
| $ | - |
|
| $ | - |
|
| $ | 844,204 |
|
| $ | 163,816 |
|
| $ | 198,859 |
|
| $ | 111,258 |
|
| $ | 549,783 |
|
| $ | 142,694 |
|
| $ | 49,376 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,215,786 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 116 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 116 |
|
| $ | 46 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 106 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 152 |
|
31
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| ||||||||||
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR CREDIT LOSSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 251 |
|
| $ | 255 |
|
| $ | 751 |
|
| $ | 3,260 |
|
| $ | 1,420 |
|
| $ | 459 |
|
| $ | 315 |
|
| $ | 393 |
|
| $ | 7,104 |
|
Charge Offs |
|
| (29 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (94 | ) |
|
| - |
|
|
| - |
|
|
| (123 | ) |
Recoveries |
|
| 18 |
|
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| 3 |
|
|
| 18 |
|
|
| - |
|
|
| - |
|
|
| 42 |
|
Provision (Credit) |
|
| (5 | ) |
|
| (3 | ) |
|
| (8 | ) |
|
| 9 |
|
|
| (25 | ) |
|
| 88 |
|
|
| - |
|
|
| (9 | ) |
|
| 47 |
|
Other Non-interest expense related to unfunded |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18 |
|
|
| - |
|
|
| 18 |
|
Ending Balance |
| $ | 235 |
|
| $ | 252 |
|
| $ | 743 |
|
| $ | 3,272 |
|
| $ | 1,398 |
|
| $ | 471 |
|
| $ | 333 |
|
| $ | 384 |
|
| $ | 7,088 |
|
Ending balance: individually evaluated for impairment |
| $ | 26 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 122 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 148 |
|
Ending balance: collectively evaluated for impairment |
| $ | 209 |
|
| $ | 252 |
|
| $ | 743 |
|
| $ | 3,272 |
|
| $ | 1,276 |
|
| $ | 471 |
|
| $ | 333 |
|
| $ | 384 |
|
| $ | 6,940 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
FINANCING RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 82,629 |
|
| $ | 68,524 |
|
| $ | 103,760 |
|
| $ | 416,632 |
|
| $ | 125,612 |
|
| $ | 41,541 |
|
| $ | - |
|
| $ | - |
|
| $ | 838,698 |
|
Ending balance: individually evaluated for impairment |
| $ | 763 |
|
| $ | - |
|
| $ | - |
|
| $ | 196 |
|
| $ | 1,852 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,811 |
|
Ending balance: collectively evaluated for impairment |
| $ | 81,748 |
|
| $ | 68,524 |
|
| $ | 103,760 |
|
| $ | 416,436 |
|
| $ | 123,760 |
|
| $ | 41,541 |
|
| $ | - |
|
| $ | - |
|
| $ | 835,769 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 118 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 118 |
|
32
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
Additional analysis, presented in thousands, related to the allowance for credit losses for nine months ended September 30, 2019 and September 30, 2018 is as follows:
|
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
|
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| ||||||||||||||||||
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
ALLOWANCE FOR CREDIT LOSSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 247 |
|
| $ | 250 |
|
| $ | 768 |
|
| $ | 3,217 |
|
| $ | 1,305 |
|
| $ | 484 |
|
| $ | 274 |
|
| $ | 504 |
|
| $ | 7,049 |
|
| $ | 275 |
|
| $ | 340 |
|
| $ | 756 |
|
| $ | 3,320 |
|
| $ | 1,461 |
|
| $ | 526 |
|
| $ | 370 |
|
| $ | 5 |
|
| $ | 7,053 |
|
Charge Offs |
|
| (95 | ) |
|
| - |
|
|
| (22 | ) |
|
| - |
|
|
| (55 | ) |
|
| (382 | ) |
|
| - |
|
|
| - |
|
|
| (554 | ) |
|
| (39 | ) |
|
| - |
|
|
| (22 | ) |
|
| - |
|
|
| (55 | ) |
|
| (103 | ) |
|
| - |
|
|
| - |
|
|
| (219 | ) |
Recoveries |
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| 7 |
|
|
| 21 |
|
|
| 97 |
|
|
| - |
|
|
| - |
|
|
| 128 |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| 2 |
|
|
| 13 |
|
|
| 32 |
|
|
| - |
|
|
| - |
|
|
| 48 |
|
Provision (Credit) |
|
| 122 |
|
|
| 102 |
|
|
| (16 | ) |
|
| 81 |
|
|
| 279 |
|
|
| 346 |
|
|
| - |
|
|
| (504 | ) |
|
| 410 |
|
|
| 38 |
|
|
| 12 |
|
|
| (2 | ) |
|
| (17 | ) |
|
| 131 |
|
|
| 90 |
|
|
| - |
|
|
| (5 | ) |
|
| 247 |
|
Other Non-interest expense related to unfunded |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 156 |
|
|
| - |
|
|
| 156 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 60 |
|
|
| - |
|
|
| 60 |
|
Ending Balance |
| $ | 274 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,550 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,189 |
|
| $ | 274 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,550 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,189 |
|
Ending balance: individually evaluated for impairment |
| $ | 22 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 165 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 187 |
|
| $ | 22 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 165 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 187 |
|
Ending balance: collectively evaluated for impairment |
| $ | 252 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,385 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,002 |
|
| $ | 252 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,385 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,002 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
FINANCING RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 158,458 |
|
| $ | 200,625 |
|
| $ | 110,405 |
|
| $ | 501,095 |
|
| $ | 138,395 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,158,696 |
|
| $ | 158,458 |
|
| $ | 200,625 |
|
| $ | 110,405 |
|
| $ | 501,095 |
|
| $ | 138,395 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,158,696 |
|
Ending balance: individually evaluated for impairment |
| $ | 752 |
|
| $ | 406 |
|
| $ | 368 |
|
| $ | 304 |
|
| $ | 1,398 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,228 |
|
| $ | 752 |
|
| $ | 406 |
|
| $ | 368 |
|
| $ | 304 |
|
| $ | 1,398 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,228 |
|
Ending balance: collectively evaluated for impairment |
| $ | 157,659 |
|
| $ | 200,219 |
|
| $ | 110,037 |
|
| $ | 500,791 |
|
| $ | 136,997 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,155,421 |
|
| $ | 157,659 |
|
| $ | 200,219 |
|
| $ | 110,037 |
|
| $ | 500,791 |
|
| $ | 136,997 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,155,421 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 47 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 47 |
|
| $ | 47 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 47 |
|
33
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
|
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| |||||||||||||||||||
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
ALLOWANCE FOR CREDIT LOSSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 343 |
|
| $ | 244 |
|
| $ | 667 |
|
| $ | 3,149 |
|
| $ | 1,546 |
|
| $ | 441 |
|
| $ | 227 |
|
| $ | 478 |
|
| $ | 7,095 |
|
| $ | 311 |
|
| $ | 314 |
|
| $ | 691 |
|
| $ | 3,634 |
|
| $ | 1,727 |
|
| $ | 551 |
|
| $ | 479 |
|
| $ | - |
|
| $ | 7,707 |
|
Charge Offs |
|
| (63 | ) |
|
| - |
|
|
| - |
|
|
| (15 | ) |
|
| (100 | ) |
|
| (272 | ) |
|
| - |
|
|
| - |
|
|
| (450 | ) |
|
| (35 | ) |
|
| - |
|
|
| - |
|
|
| (8 | ) |
|
| (165 | ) |
|
| (272 | ) |
|
| - |
|
|
| - |
|
|
| (480 | ) |
Recoveries |
|
| 18 |
|
|
| - |
|
|
| 6 |
|
|
| 7 |
|
|
| 8 |
|
|
| 79 |
|
|
| - |
|
|
| - |
|
|
| 118 |
|
|
| 7 |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| 19 |
|
|
| 116 |
|
|
| - |
|
|
| - |
|
|
| 149 |
|
Provision (Credit) |
|
| (63 | ) |
|
| 8 |
|
|
| 70 |
|
|
| 131 |
|
|
| (56 | ) |
|
| 223 |
|
|
| - |
|
|
| (94 | ) |
|
| 219 |
|
|
| 247 |
|
|
| 448 |
|
|
| (22 | ) |
|
| 2,102 |
|
|
| 1,691 |
|
|
| 209 |
|
|
| - |
|
|
| 311 |
|
|
| 4,986 |
|
Other Non-interest expense related to unfunded |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 106 |
|
|
| - |
|
|
| 106 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 154 |
|
|
| - |
|
|
| 154 |
|
Ending Balance |
| $ | 235 |
|
| $ | 252 |
|
| $ | 743 |
|
| $ | 3,272 |
|
| $ | 1,398 |
|
| $ | 471 |
|
| $ | 333 |
|
| $ | 384 |
|
| $ | 7,088 |
|
| $ | 530 |
|
| $ | 762 |
|
| $ | 669 |
|
| $ | 5,735 |
|
| $ | 3,272 |
|
| $ | 604 |
|
| $ | 633 |
|
| $ | 311 |
|
| $ | 12,516 |
|
Ending balance: individually evaluated for impairment |
| $ | 26 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 122 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 148 |
|
| $ | 43 |
|
| $ | 432 |
|
| $ | 28 |
|
| $ | 44 |
|
| $ | 651 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,198 |
|
Ending balance: collectively evaluated for impairment |
| $ | 209 |
|
| $ | 252 |
|
| $ | 743 |
|
| $ | 3,272 |
|
| $ | 1,276 |
|
| $ | 471 |
|
| $ | 333 |
|
| $ | 384 | �� |
| $ | 6,940 |
|
| $ | 487 |
|
| $ | 330 |
|
| $ | 641 |
|
| $ | 5,691 |
|
| $ | 2,621 |
|
| $ | 604 |
|
| $ | 633 |
|
| $ | 311 |
|
| $ | 11,318 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
FINANCING RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 82,629 |
|
| $ | 68,524 |
|
| $ | 103,760 |
|
| $ | 416,632 |
|
| $ | 125,612 |
|
| $ | 41,541 |
|
| $ | - |
|
| $ | - |
|
| $ | 838,698 |
|
| $ | 175,595 |
|
| $ | 192,577 |
|
| $ | 103,476 |
|
| $ | 593,936 |
|
| $ | 244,823 |
|
| $ | 53,455 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,363,862 |
|
Ending balance: individually evaluated for impairment |
| $ | 763 |
|
| $ | - |
|
| $ | - |
|
| $ | 196 |
|
| $ | 1,852 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,811 |
|
| $ | 985 |
|
| $ | 7,014 |
|
| $ | 721 |
|
| $ | 3,219 |
|
| $ | 3,295 |
|
| $ | 25 |
|
| $ | - |
|
| $ | - |
|
| $ | 15,259 |
|
Ending balance: collectively evaluated for impairment |
| $ | 81,748 |
|
| $ | 68,524 |
|
| $ | 103,760 |
|
| $ | 416,436 |
|
| $ | 123,760 |
|
| $ | 41,541 |
|
| $ | - |
|
| $ | - |
|
| $ | 835,769 |
|
| $ | 174,567 |
|
| $ | 185,563 |
|
| $ | 102,755 |
|
| $ | 590,717 |
|
| $ | 241,528 |
|
| $ | 53,339 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,348,469 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 118 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 118 |
|
| $ | 43 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 91 |
|
| $ | - |
|
| $ | - |
|
| $ | 134 |
|
34
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 4 LOANS (Continued)
|
| Consumer Real Estate |
|
| Agricultural Real Estate |
|
| Agricultural |
|
| Commercial Real Estate |
|
| Commercial and Industrial |
|
| Consumer |
|
| Unfunded Loan Commitment & Letters of Credit |
|
| Unallocated |
|
| Total |
| |||||||||
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR CREDIT LOSSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 247 |
|
| $ | 250 |
|
| $ | 768 |
|
| $ | 3,217 |
|
| $ | 1,305 |
|
| $ | 484 |
|
| $ | 274 |
|
| $ | 504 |
|
| $ | 7,049 |
|
Charge Offs |
|
| (95 | ) |
|
| - |
|
|
| (22 | ) |
|
| - |
|
|
| (55 | ) |
|
| (382 | ) |
|
| - |
|
|
| - |
|
|
| (554 | ) |
Recoveries |
|
| - |
|
|
| - |
|
|
| 3 |
|
|
| 7 |
|
|
| 21 |
|
|
| 97 |
|
|
| - |
|
|
| - |
|
|
| 128 |
|
Provision (Credit) |
|
| 122 |
|
|
| 102 |
|
|
| (16 | ) |
|
| 81 |
|
|
| 279 |
|
|
| 346 |
|
|
| - |
|
|
| (504 | ) |
|
| 410 |
|
Other Non-interest expense related to unfunded |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 156 |
|
|
| - |
|
|
| 156 |
|
Ending Balance |
| $ | 274 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,550 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,189 |
|
Ending balance: individually evaluated for impairment |
| $ | 22 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 165 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 187 |
|
Ending balance: collectively evaluated for impairment |
| $ | 252 |
|
| $ | 352 |
|
| $ | 733 |
|
| $ | 3,305 |
|
| $ | 1,385 |
|
| $ | 545 |
|
| $ | 430 |
|
| $ | - |
|
| $ | 7,002 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
FINANCING RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 158,458 |
|
| $ | 200,625 |
|
| $ | 110,405 |
|
| $ | 501,095 |
|
| $ | 138,395 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,158,696 |
|
Ending balance: individually evaluated for impairment |
| $ | 752 |
|
| $ | 406 |
|
| $ | 368 |
|
| $ | 304 |
|
| $ | 1,398 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,228 |
|
Ending balance: collectively evaluated for impairment |
| $ | 157,659 |
|
| $ | 200,219 |
|
| $ | 110,037 |
|
| $ | 500,791 |
|
| $ | 136,997 |
|
| $ | 49,718 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,155,421 |
|
Ending balance: loans acquired with deteriorated credit quality |
| $ | 47 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 47 |
|
35
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 5 EARNINGS PER SHARE
Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e. unvested restricted stock), not subject to performance based measures. Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Application of the two-class method for participating securities results in a more dilutive basic earnings per share as the participating securities are allocated the same amount of income as if they are outstanding for purposes of basic earnings per share. There is no additional potential dilution in calculating diluted earnings per share, therefore basic and diluted earnings per share are the same amounts. Other than the restricted stock plan, the Company has no other employee stock based compensation plans.
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 4,275 |
|
| $ | 3,875 |
|
| $ | 13,679 |
|
| $ | 11,756 |
|
Less: distributed earnings allocated to participating securities |
|
| (14 | ) |
|
| (13 | ) |
|
| (37 | ) |
|
| (38 | ) |
Less: undistributed earnings allocated to participating securities |
|
| (18 | ) |
|
| (26 | ) |
|
| (63 | ) |
|
| (80 | ) |
Net earnings available to common shareholders |
| $ | 4,243 |
|
| $ | 3,836 |
|
| $ | 13,579 |
|
| $ | 11,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding including participating securities |
|
| 11,121,426 |
|
|
| 9,274,507 |
|
|
| 11,105,993 |
|
|
| 9,268,819 |
|
Less: average unvested restricted shares |
|
| (79,335 | ) |
|
| (93,242 | ) |
|
| (81,569 | ) |
|
| (92,683 | ) |
Weighted average common shares outstanding |
|
| 11,042,091 |
|
|
| 9,181,265 |
|
|
| 11,024,424 |
|
|
| 9,176,136 |
|
Basic earnings and diluted per share |
| $ | 0.38 |
|
| $ | 0.42 |
|
| $ | 1.23 |
|
| $ | 1.27 |
|
The Compensation Committee of the Company has determined that it is appropriate to award shares of the common stock of the Company to Outside Directors and Employees that are officers of the Company or the Bank who also serve as Directors of the Company and the Bank as a portion of their retainer for services rendered as Directors of the Company and the Bank. The Committee believes that it is appropriate to award the Directors Shares equal to approximately $4,000, rounded to the nearest whole Share on an annual basis commencing on June 5, 2020 and thereafter on the first Friday of June in each year. The value for the Shares to be based upon the closing price for Shares on June 4, 2020 and thereafter on the first Thursday in June in each year. On June 5, 2020, each Director received 176 shares. The use of stock for Directors’ retainer, does not have an effect on diluted earnings per share as it is immediately vested.
|
| (in thousands of dollars) |
|
| (in thousands of dollars) |
| ||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 4,410 |
|
| $ | 4,275 |
|
| $ | 13,319 |
|
| $ | 13,679 |
|
Less: distributed earnings allocated to participating securities |
|
| (15 | ) |
|
| (14 | ) |
|
| (41 | ) |
|
| (37 | ) |
Less: undistributed earnings allocated to participating securities |
|
| (19 | ) |
|
| (18 | ) |
|
| (59 | ) |
|
| (63 | ) |
Net earnings available to common shareholders |
| $ | 4,376 |
|
| $ | 4,243 |
|
| $ | 13,219 |
|
| $ | 13,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding including participating securities |
|
| 11,142,797 |
|
|
| 11,121,426 |
|
|
| 11,135,695 |
|
|
| 11,105,993 |
|
Less: average unvested restricted shares |
|
| (83,257 | ) |
|
| (79,335 | ) |
|
| (83,445 | ) |
|
| (81,569 | ) |
Weighted average common shares outstanding |
|
| 11,059,540 |
|
|
| 11,042,091 |
|
|
| 11,052,250 |
|
|
| 11,024,424 |
|
Basic and diluted earnings per share |
| $ | 0.40 |
|
| $ | 0.38 |
|
| $ | 1.20 |
|
| $ | 1.23 |
|
[ Remainder of this page intentionally left blank ]
3536
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates.
The following assumptions and methods were used in estimating the fair value for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash, cash equivalents and federal funds sold approximate their fair values. Also included in this line item are the carrying amounts of interest-bearing deposits maturing within ninety days which approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.
Interest Bearing Time Deposits
Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Securities – Available-for-sale
Fair values for securities, excluding Federal Home Loan Bank stock are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Other Securities
The carrying value of Federal Home Loan Bank stock of Cincinnati and Indianapolis, approximates fair value based on the redemption provisions of the respective Federal Home Loan Bank.
Loans Held for Sale
The carrying amount approximates fair value due to insignificant amount of time between origination and date of sale.
Loans, net
The fair values of the loans are estimated using a credit mark adjustment along with discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The credit mark adjustment was estimated using merger and acquisition analysis of nationwide bank and thrift deals and/or the Bank’s most recent acquisition experience.
Deposits
The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amount payable on demand. The carrying amounts for variable-rate, fixed term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
The carrying value of federal funds purchased and securities sold under agreements to repurchase approximates fair values.
FHLB Advances
Fair values orof FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types or borrowing arrangements.
3637
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Accrued Interest Receivable and Payable
The carrying amounts of accrued interest approximate their fair values.
Off Balance Sheet Financial Instruments
Fair values for off-balance sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter-parties' credit standing.
The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of September 30, 20192020 and December 31, 20182019 are reflected below.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2020 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying |
|
| Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying |
|
| Fair |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Amount |
|
| Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Amount |
|
| Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 114,592 |
|
| $ | 114,592 |
|
| $ | 114,592 |
|
| $ | - |
|
| $ | - |
|
| $ | 87,753 |
|
| $ | 87,753 |
|
| $ | 87,753 |
|
| $ | - |
|
| $ | - |
|
Interest-bearing time deposits |
|
| 4,554 |
|
|
| 4,554 |
|
|
| - |
|
|
| 4,554 |
|
|
| - |
|
|
| 4,657 |
|
|
| 4,718 |
|
|
| - |
|
|
| 4,718 |
|
|
| - |
|
Securities - available-for-sale |
| �� | 190,465 |
|
|
| 190,465 |
|
|
| 14,009 |
|
|
| 174,947 |
|
|
| 1,509 |
|
|
| 259,041 |
|
|
| 259,041 |
|
|
| 3,004 |
|
|
| 254,452 |
|
|
| 1,585 |
|
Other securities |
|
| 5,789 |
|
|
| 5,789 |
|
|
| - |
|
|
| - |
|
|
| 5,789 |
|
|
| 5,827 |
|
|
| 5,827 |
|
|
| - |
|
|
| - |
|
|
| 5,827 |
|
Loans held for sale |
|
| 606 |
|
|
| 606 |
|
|
| - |
|
|
| - |
|
|
| 606 |
|
|
| 7,621 |
|
|
| 7,621 |
|
|
| - |
|
|
| - |
|
|
| 7,621 |
|
Loans, net |
|
| 1,151,937 |
|
|
| 1,129,954 |
|
|
| - |
|
|
| - |
|
|
| 1,129,954 |
|
|
| 1,351,979 |
|
|
| 1,324,451 |
|
|
| - |
|
|
| - |
|
|
| 1,324,451 |
|
Interest receivable |
|
| 7,830 |
|
|
| 7,830 |
|
|
| - |
|
|
| - |
|
|
| 7,830 |
|
|
| 6,879 |
|
|
| 6,879 |
|
|
| - |
|
|
| - |
|
|
| 6,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
| $ | 741,313 |
|
| $ | 741,360 |
|
| $ | - |
|
| $ | - |
|
| $ | 741,360 |
|
| $ | 926,851 |
|
| $ | 926,899 |
|
| $ | - |
|
| $ | - |
|
| $ | 926,899 |
|
Non-interest bearing deposits |
|
| 261,719 |
|
|
| 261,719 |
|
|
| - |
|
|
| 261,719 |
|
|
| - |
|
|
| 330,845 |
|
|
| 330,845 |
|
|
| - |
|
|
| 330,845 |
|
|
| - |
|
Time deposits |
|
| 274,996 |
|
|
| 275,658 |
|
|
| - |
|
|
| - |
|
|
| 275,658 |
|
|
| 261,177 |
|
|
| 264,052 |
|
|
| - |
|
|
| - |
|
|
| 264,052 |
|
Total Deposits |
|
| 1,278,028 |
|
|
| 1,278,707 |
|
|
| - |
|
|
| 261,719 |
|
|
| 1,016,988 |
|
|
| 1,518,873 |
|
|
| 1,521,796 |
|
|
| - |
|
|
| 330,845 |
|
|
| 1,190,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreement to repurchase |
|
| 30,056 |
|
|
| 30,056 |
|
|
| - |
|
|
| - |
|
|
| 30,056 |
|
|
| 29,859 |
|
|
| 29,859 |
|
|
| - |
|
|
| - |
|
|
| 29,859 |
|
Federal Home Loan Bank advances |
|
| 24,669 |
|
|
| 24,672 |
|
|
| - |
|
|
| - |
|
|
| 24,672 |
|
|
| 17,724 |
|
|
| 17,737 |
|
|
| - |
|
|
| - |
|
|
| 17,737 |
|
Interest payable |
|
| 739 |
|
|
| 739 |
|
|
| - |
|
|
| - |
|
|
| 739 |
|
|
| 558 |
|
|
| 558 |
|
|
| - |
|
|
| - |
|
|
| 558 |
|
3738
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||||||||||
|
| December 31, 2018 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying |
|
| Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying |
|
| Fair |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Amount |
|
| Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Amount |
|
| Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 38,365 |
|
| $ | 38,365 |
|
| $ | 38,365 |
|
| $ | - |
|
| $ | - |
|
| $ | 51,296 |
|
| $ | 51,296 |
|
| $ | 51,296 |
|
| $ | - |
|
| $ | - |
|
Interest-bearing time deposits |
|
| 4,019 |
|
|
| 3,954 |
|
|
| - |
|
|
| 3,954 |
|
|
| - |
|
|
| 4,309 |
|
|
| 4,331 |
|
|
| - |
|
|
| 4,331 |
|
|
| - |
|
Securities - available-for-sale |
|
| 168,447 |
|
|
| 168,447 |
|
|
| 36,935 |
|
|
| 130,085 |
|
|
| 1,427 |
|
|
| 222,293 |
|
|
| 222,293 |
|
|
| 10,021 |
|
|
| 210,782 |
|
|
| 1,490 |
|
Other securities |
|
| 3,679 |
|
|
| 3,679 |
|
|
| - |
|
|
| - |
|
|
| 3,679 |
|
|
| 5,810 |
|
|
| 5,810 |
|
|
| - |
|
|
| - |
|
|
| 5,810 |
|
Loans held for sale |
|
| 495 |
|
|
| 495 |
|
|
| - |
|
|
| - |
|
|
| 495 |
|
|
| 4,248 |
|
|
| 4,248 |
|
|
| - |
|
|
| - |
|
|
| 4,248 |
|
Loans, net |
|
| 839,599 |
|
|
| 823,914 |
|
|
| - |
|
|
| - |
|
|
| 823,914 |
|
|
| 1,211,771 |
|
|
| 1,188,014 |
|
|
| - |
|
|
| - |
|
|
| 1,188,014 |
|
Interest receivable |
|
| 4,542 |
|
|
| 4,542 |
|
|
| - |
|
|
| - |
|
|
| 4,542 |
|
|
| 6,769 |
|
|
| 6,769 |
|
|
| - |
|
|
| - |
|
|
| 6,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
| $ | 525,955 |
|
| $ | 525,955 |
|
| $ | - |
|
| $ | - |
|
| $ | 525,955 |
|
| $ | 746,628 |
|
| $ | 746,691 |
|
| $ | - |
|
| $ | - |
|
| $ | 746,691 |
|
Non-interest bearing deposits |
|
| 215,422 |
|
|
| 215,422 |
|
|
| - |
|
|
| 215,422 |
|
|
| - |
|
|
| 265,156 |
|
|
| 265,156 |
|
|
| - |
|
|
| 265,156 |
|
|
| - |
|
Time deposits |
|
| 187,413 |
|
|
| 187,545 |
|
|
| - |
|
|
| - |
|
|
| 187,545 |
|
|
| 276,563 |
|
|
| 277,008 |
|
|
| - |
|
|
| - |
|
|
| 277,008 |
|
Total Deposits |
|
| 928,790 |
|
|
| 928,922 |
|
|
| - |
|
|
| 215,422 |
|
|
| 713,500 |
|
|
| 1,288,347 |
|
|
| 1,288,855 |
|
|
| - |
|
|
| 265,156 |
|
|
| 1,023,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreement to repurchase |
|
| 32,181 |
|
|
| 3,181 |
|
|
| - |
|
|
| - |
|
|
| 32,181 |
|
|
| 48,073 |
|
|
| 48,073 |
|
|
| - |
|
|
| - |
|
|
| 48,073 |
|
Federal Home Loan Bank advances |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24,806 |
|
|
| 24,811 |
|
|
| - |
|
|
| - |
|
|
| 24,811 |
|
Interest payable |
|
| 418 |
|
|
| 418 |
|
|
| - |
|
|
| - |
|
|
| 418 |
|
|
| 754 |
|
|
| 754 |
|
|
| - |
|
|
| - |
|
|
| 754 |
|
Fair Value Measurements
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access.
Available-for-sale securities, when quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The Bank holds some local municipals that the Bank evaluates based on the credit strength of the underlying project. The fair value is determined by valuing similar credit payment streams at similar rates.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.
3839
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following summarizes financial assets measured at fair value on a recurring basis as of September 30, 20192020 and December 31, 2018,2019, segregated by level or the valuation inputs within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands) | Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands) |
| Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands) |
| ||||||||||||||||||||
September 30, 2019 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Observable Inputs (Level 3) |
| |||||||||||||||
September 30, 2020 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||||||||||||||
Assets - (Securities Available-for-Sale) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 14,009 |
|
| $ | - |
|
| $ | - |
|
| $ | 3,004 |
|
| $ | - |
|
| $ | - |
|
U.S. Government agencies |
|
| - |
|
|
| 80,043 |
|
|
| - |
|
|
| - |
|
|
| 90,062 |
|
|
| - |
|
Mortgage-backed securities |
|
| - |
|
|
| 57,461 |
|
|
| - |
|
|
| - |
|
|
| 102,980 |
|
|
| - |
|
State and local governments |
|
| - |
|
|
| 37,443 |
|
|
| 1,509 |
|
|
| - |
|
|
| 61,410 |
|
|
| 1,585 |
|
Total Securities Available-for-Sale |
| $ | 14,009 |
|
| $ | 174,947 |
|
| $ | 1,509 |
|
| $ | 3,004 |
|
| $ | 254,452 |
|
| $ | 1,585 |
|
December 31, 2018 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Observable Inputs (Level 3) |
| |||||||||||||||
December 31, 2019 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||||||||||||||
Assets - (Securities Available-for-Sale) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 22,830 |
|
| $ | - |
|
| $ | - |
|
| $ | 10,021 |
|
| $ | - |
|
| $ | - |
|
U.S. Government agencies |
|
| 14,105 |
|
|
| 55,222 |
|
|
| - |
|
|
| - |
|
|
| 62,445 |
|
|
| - |
|
Mortgage-backed securities |
|
| - |
|
|
| 36,262 |
|
|
| - |
|
|
| - |
|
|
| 95,197 |
|
|
| - |
|
State and local governments |
|
| - |
|
|
| 38,601 |
|
|
| 1,427 |
|
|
| - |
|
|
| 53,140 |
|
|
| 1,490 |
|
Total Securities Available-for-Sale |
| $ | 36,935 |
|
| $ | 130,085 |
|
| $ | 1,427 |
|
| $ | 10,021 |
|
| $ | 210,782 |
|
| $ | 1,490 |
|
The following tables represent the changes in the Level 3 fair-value category of which unobservable inputs are relied upon as of the three and nine month periods ended September 30, 20192020 and September 30, 2018.2019.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
|
| Fair Value Measurements Using Significant |
|
| Fair Value Measurements Using Significant |
| ||||||||||||||||||
|
| Unobservable Inputs (Level 3) |
|
| Unobservable Inputs (Level 3) |
| ||||||||||||||||||
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
| ||||||
Balance at July 1, 2019 |
| $ | - |
|
| $ | 1,505 |
|
| $ | 1,505 |
| ||||||||||||
Balance at July 1, 2020 |
| $ | - |
|
| $ | 1,550 |
|
| $ | 1,550 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Market Value |
|
| - |
|
|
| 4 |
|
|
| 4 |
|
|
| - |
|
|
| 35 |
|
|
| 35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments & Maturities |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019 |
| $ | - |
|
| $ | 1,509 |
|
| $ | 1,509 |
| ||||||||||||
Balance at September 30, 2020 |
| $ | - |
|
| $ | 1,585 |
|
| $ | 1,585 |
|
3940
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
| (In Thousands) |
|
| (In Thousands) |
| |||||||||||||||||||
|
| Fair Value Measurements Using Significant |
|
| Fair Value Measurements Using Significant |
| ||||||||||||||||||
|
| Unobservable Inputs (Level 3) |
|
| Unobservable Inputs (Level 3) |
| ||||||||||||||||||
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
| ||||||
Balance at January 1, 2019 |
| $ | - |
|
| $ | 1,427 |
|
| $ | 1,427 |
| ||||||||||||
Balance at January 1, 2020 |
| $ | - |
|
| $ | 1,490 |
|
| $ | 1,490 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Market Value |
|
| - |
|
|
| 82 |
|
|
| 82 |
|
|
| - |
|
|
| 95 |
|
|
| 95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments & Maturities |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019 |
| $ | - |
|
| $ | 1,509 |
|
| $ | 1,509 |
| ||||||||||||
Balance at September 30, 2020 |
| $ | - |
|
| $ | 1,585 |
|
| $ | 1,585 |
|
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
|
| Fair Value Measurements Using Significant |
|
| Fair Value Measurements Using Significant |
| ||||||||||||||||||
|
| Unobservable Inputs (Level 3) |
|
| Unobservable Inputs (Level 3) |
| ||||||||||||||||||
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
| ||||||
Balance at July 1, 2018 |
| $ | - |
|
| $ | 1,423 |
|
| $ | 1,423 |
| ||||||||||||
Balance at July 1, 2019 |
| $ | - |
|
| $ | 1,505 |
|
| $ | 1,505 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Market Value |
|
| - |
|
|
| (30 | ) |
|
| (30 | ) |
|
| 0 |
|
|
| 4 |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments & Maturities |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018 |
| $ | - |
|
| $ | 1,393 |
|
| $ | 1,393 |
| ||||||||||||
Balance at September 30, 2019 |
| $ | - |
|
| $ | 1,509 |
|
| $ | 1,509 |
|
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
|
| Fair Value Measurements Using Significant |
|
| Fair Value Measurements Using Significant |
| ||||||||||||||||||
|
| Unobservable Inputs (Level 3) |
|
| Unobservable Inputs (Level 3) |
| ||||||||||||||||||
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
|
| State and Local Governments Tax-Exempt |
|
| State and Local Governments Taxable |
|
| State and Local Governments Total |
| ||||||
Balance at January 1, 2018 |
| $ | - |
|
| $ | 1,428 |
|
| $ | 1,428 |
| ||||||||||||
Balance at January 1, 2019 |
| $ | - |
|
| $ | 1,427 |
|
| $ | 1,427 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Market Value |
|
| - |
|
|
| (35 | ) |
|
| (35 | ) |
|
| 0 |
|
|
| 82 |
|
|
| 82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments & Maturities |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018 |
| $ | - |
|
| $ | 1,393 |
|
| $ | 1,393 |
| ||||||||||||
Balance at September 30, 2019 |
| $ | - |
|
| $ | 1,509 |
|
| $ | 1,509 |
|
Most of the Company's available-for-sale securities, including any bonds issued by local municipalities, have CUSIP numbers or have similar characteristics of those in the municipal markets, making them marketable and comparable as Level 2.
The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At September 30, 20192020 and December 31, 2018,2019, such assets consist primarily of collateral dependent impaired loans. Collateral dependent impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.)
4041
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
At September 30, 20192020 and December 31, 2018,2019, fair value of collateral dependent impaired loans categorized as Level 3 was $106$8.1 million and $215$444 thousand, respectively. The specific allocation for impaired loans was $22$1.2 million and $31$197 thousand as of September 30, 20192020 and December 31, 2018,2019, respectively, which are accounted for in the allowance for loan losses (see Note 4).
Other real estate is reported at either the lower of the fair value of the real estate minus the estimated costs to sell the asset or the cost of the asset. The determination of fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset's cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense. The valuation allowance is therefore increased or decreased, through charges or credits to expense, for changes in the asset's fair value or estimated selling costs.
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:
|
| (In Thousands) |
|
|
|
|
|
| Range |
| (In Thousands) |
|
|
|
|
|
| Range | ||
|
| Fair Value at |
|
|
|
|
|
| (Weighted |
| Fair Value at |
|
|
|
|
|
| (Weighted | ||
|
| September 30, 2019 |
|
| Valuation Technique |
| Unobservable Inputs |
| Average) |
| September 30, 2020 |
|
| Valuation Technique |
| Unobservable Inputs |
| Average) | ||
State and local government |
| $ | 1,509 |
|
| Discounted Cash Flow |
| Credit strength of underlying project or entity / Discount rate |
| 0-5% (2.41%) |
| $ | 1,585 |
|
| Discounted Cash Flow |
| Credit strength of underlying project or entity / Discount rate |
| 0-5% (1.07%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans |
|
| 106 |
|
| Collateral based measurements |
| Discount to reflect current market conditions and ultimate collectability |
| 0-50% (17.19%) |
|
| 8,144 |
|
| Collateral based measurements |
| Discount to reflect current market conditions and ultimate collectability |
| 0-50% (5.99%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned - commercial |
|
| 164 |
|
| Appraisals |
| Discount to reflect current market |
| 0-20% (23.31% ) |
|
| - |
|
| Appraisals |
| Discount to reflect current market |
| — % ( — ) |
|
| (In Thousands) |
|
|
|
|
|
| Range |
| (In Thousands) |
|
|
|
|
|
| Range | ||
|
| Fair Value at |
|
|
|
|
|
| (Weighted |
| Fair Value at |
|
|
|
|
|
| (Weighted | ||
|
| December 31, 2018 |
|
| Valuation Technique |
| Unobservable Inputs |
| Average) |
| December 31, 2019 |
|
| Valuation Technique |
| Unobservable Inputs |
| Average) | ||
State and local government |
| $ | 1,427 |
|
| Discounted Cash Flow |
| Credit strength of underlying project or entity / Discount rate |
| 0-5% (3.51%) |
| $ | 1,490 |
|
| Discounted Cash Flow |
| Credit strength of underlying project or entity / Discount rate |
| 0-5% (2.52%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans |
|
| 215 |
|
| Collateral based measurements |
| Discount to reflect current market conditions and ultimate collectability |
| 0-50% (12.38%) |
|
| 444 |
|
| Collateral based measurements |
| Discount to reflect current market conditions and ultimate collectability |
| 0-50% (30.73%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned - commercial |
|
| - |
|
| Appraisals |
| Discount to reflect current market |
| — % ( — ) |
|
| 164 |
|
| Appraisals |
| Discount to reflect current market |
| 0-20% (23.31% ) |
4142
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following table presents impaired loans and other real estate owned as recorded at fair value on September 30, 20192020 and December 31, 2018:2019:
|
| Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2019 |
|
| Assets Measured at Fair Value on a Nonrecurring Basis at September 30, 2020 |
| ||||||||||||||||||||||||||
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||
|
| Balance at September 30, 2019 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Balance at September 30, 2020 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
Collateral dependent impaired loans |
| $ | 106 |
|
| $ | - |
|
| $ | - |
|
| $ | 106 |
|
| $ | 8,144 |
|
| $ | - |
|
| $ | - |
|
| $ | 8,144 |
|
Other real estate owned - commercial |
|
| 164 |
|
|
| - |
|
|
| - |
|
|
| 164 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2018 |
|
| Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2019 |
| ||||||||||||||||||||||||||
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||||||||||
|
| Balance at December 31, 2018 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Balance at December 31, 2019 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
Collateral dependent impaired loans |
| $ | 215 |
|
| $ | - |
|
| $ | - |
|
| $ | 215 |
|
| $ | 444 |
|
| $ | - |
|
| $ | - |
|
| $ | 444 |
|
Other real estate owned - commercial |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 164 |
|
|
| - |
|
|
| - |
|
|
| 164 |
|
42
[ Remainder of this page intentionally left blank ]
43
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 7 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company had no0 Federal Funds purchased as of September 30, 20192020 and $6.5$17.8 million as of December 31, 2018,2019, respectively. During the same time periods, the companyCompany also had $30.1$29.9 million and $25.7$30.2 million in securities sold under agreement to repurchase.
|
| September 30, 2019 |
| |||||||||||||||||
|
| Remaining Contractual Maturity of the Agreements (In Thousands) |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Overnight & Continuous |
|
| Up to 30 days |
|
| 30-90 days |
|
| Greater Than 90 days |
|
| Total |
| |||||
Federal funds purchased |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury & agency securities |
|
| 1,698 |
|
|
| - |
|
|
| - |
|
|
| 28,358 |
|
|
| 30,056 |
|
|
| $ | 1,698 |
|
| $ | - |
|
| $ | - |
|
| $ | 28,358 |
|
| $ | 30,056 |
|
|
| December 31, 2018 |
|
| September 30, 2020 |
| ||||||||||||||||||||||||||||||||||
|
| Remaining Contractual Maturity of the Agreements (In Thousands) |
|
| Remaining Contractual Maturity of the Agreements (In Thousands) |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Overnight & Continuous |
|
| Up to 30 days |
|
| 30-90 days |
|
| Greater Than 90 days |
|
| Total |
|
| Overnight & Continuous |
|
| Up to 30 days |
|
| 30-90 days |
|
| Greater Than 90 days |
|
| Total |
| ||||||||||
Federal funds purchased |
| $ | 6,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 6,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury & agency securities |
|
| 806 |
|
|
| - |
|
|
| - |
|
|
| 24,889 |
|
|
| 25,695 |
|
|
| 1,540 |
|
|
| - |
|
|
| - |
|
|
| 28,319 |
|
|
| 29,859 |
|
|
| $ | 7,292 |
|
| $ | - |
|
| $ | - |
|
| $ | 24,889 |
|
| $ | 32,181 |
|
| $ | 1,540 |
|
| $ | - |
|
| $ | - |
|
| $ | 28,319 |
|
| $ | 29,859 |
|
43
|
| December 31, 2019 |
| |||||||||||||||||
|
| Remaining Contractual Maturity of the Agreements (In Thousands) |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Overnight & Continuous |
|
| Up to 30 days |
|
| 30-90 days |
|
| Greater Than 90 days |
|
| Total |
| |||||
Federal funds purchased |
| $ | 17,843 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 17,843 |
|
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury & agency securities |
|
| 1,814 |
|
|
| - |
|
|
| 3,965 |
|
|
| 24,451 |
|
|
| 30,230 |
|
|
| $ | 19,657 |
|
| $ | - |
|
| $ | 3,965 |
|
| $ | 24,451 |
|
| $ | 48,073 |
|
44
ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
NOTE 8 RECENT ACCOUNTING PRONOUNCEMENTS
In February June2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 “Leases (Topic 842).” ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company has adopted ASU 2016-02 on January 1, 2019 and recorded a right of use asset and a corresponding liability in the amount of $491.7 thousand. This did not have a significant impact on the company’s financial statements.
In June 2016, FASB issued ASUAccounting Standards Update (“ASU”) No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). FASB recently approved a delay in adoption for Smaller Reporting Companies. The Company has completed an analysis to determine they qualifythat it qualifies as a Smaller Reporting Company. AdoptionAs such, adoption can be postponed until periods beginning after December 15, 2022 (i.e., January 1, 2023, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
The Company has contracted with an external advisor and has formed a committee to determine the methodology to be used. Most importantly, the Company is gathering as much data as possible to enable management to review scenarios and determine which calculations will produce the most reliable results. The Company began working with the third partythird-party service provider to review parallel reports starting in June 2019. The Company will not adopt ASU 2016-13 in calendar year 2020 and management is currently evaluating when or if they would elect to early adopt.adopt ASU 2016-13.
In January 2017, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and other (Topic 350) – Simplifying the Test for Goodwill Impairment.” These amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption iswas permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company has adopted ASU 2017-04 effective January 1, 2020, as required, and does not expect the ASU 2017-04 to have a material impact on its financial statements, as goodwillstatements. Goodwill testing has beenis scheduled to be completed annually without any impairment concerns.during the fourth quarter.
In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 is effective for years beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating and does not expectadopted ASU 2018-13 to have aeffective January 1, 2020, as required, without material impacteffect on its accounting disclosures.
44In March 2020, in connection with the implementation of the CARES Act and related provisions, we have elected the temporary relief in the CARES Act not to apply the guidance in ASC 310-40 on accounting for troubled debt restructurings (TDRs) to loan modifications related to COVID-19 made between March 1, 2020 and the earlier of (1) December 31, 2020 or (2) 60 days after the end of the COVID-19 national emergency. The relief was only applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. As of September 30, 2020, there were 0 loan modifications that would have been previously treated as TDRs under the guidance in ASC 310-40.
ITEM 2 MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
OVERVIEW2020 started out to be the year of execution. After a good beginning in terms of loan growth and initiatives the first two months, March brought the year of unprecedented change. The Federal Reserve decreased its overnight rate by fifty basis points on March 3rd. As we were adjusting to that change, they again decreased the rate on March 15th by a before unseen 100 basis points. We began to see the disruption caused by COVID-19 and the focus of the Bank quickly changed. Execution took on a new meaning related to following the actions governed by the Bank’s pandemic flu plan. The Bank took immediate measures to protect its customers and employees from risk of spread while continuing to provide financial services. Investigating solutions was our focus for the second quarter and will be for as long as it takes. Please see section titled COVID-19 for additional information related to actions taken.
During the third quarter, the Bank continued to grow, as loans increased by 17.71% or $205.2 million over September 30, 2019 and 11.88% or $144.9 million over December 31, 2019. Loan balances as of September 30, 2020 include approximately $87 million in forgivable Paycheck Protection Program (PPP) loans made under the CARES Act. In comparison for the same time periods, deposits grew 18.85% or $240.8 million over September 30, 2019 and 17.89% or $230.5 million over December 31, 2019. Home loan activity continued to be robust, due to the refinance activity associated with interest rate reductions. The activity is expected to continue into fourth quarter as our home loan applications continue to grow. Deposit growth correlated to a flight to safety as the stock market experienced great volatility in addition to the depositing of funds from the PPP loans.
The growing season in our market area was variable with some areas receiving timely rains and others needing moisture. It is believed yields will be average when looking at our market area. Grain markets have increased thus giving producers an opportunity to lock in better prices. The profit potential appears better than believed earlier in the year. Fluctuations in markets and challenges in production are part of the inherent risk of agriculture that our producers have become used to managing. COVID-19 challenges seem to be decreasing. The agriculture portfolio remains healthy and concerns are manageable.
Row crop production accounts for the largest percentage of our agriculture portfolio. We remain very positive about the long term outlook of this sector. Our customers mitigate risk through the purchasing of crop insurance. F&M’s exposure to customers that do not carry crop insurance is less than 5% of the total exposure in this sector of agriculture. The livestock sector, which equates to 25% of the agricultural portfolio, has 70% exposure to supportive roles and does not have direct ownership of the livestock. The Bank has limited exposure to any one producer and many loans are secured with buildings as collateral.
During the third quarter, most of the commercial sector in the Bank’s markets returned to work in an increased capacity. Business volumes and profitability have returned for many commercial loan clients, but still lag for those industries most impacted by COVID-19. The current rate environment continues to drive acquisition and construction activity. These projects have seen some delays due to the higher restrictions in the second quarter. With these restrictions lessened in the third quarter, projects are moving forward and leases are being executed.
Loan Production Offices (LPO) in Muncie, Indiana, Oxford, Ohio and West Bloomfield, Michigan all have new loan activity and are helping extend the F&M footprint. The Bank was able to hire well known talented bankers from each area. The Bank is completing a new full-service office in Fort Wayne, Indiana which will open in the fourth quarter.
During the second quarter, the Bank accelerated investments in our digital infrastructure to support our employee’s ability to work from home and to make it easier for our customers to engage with the Bank electronically. Due to retirement, the Bank also hired Shalini Singhal as our new Chief Information Officer. Shalini is a proven CIO who will lead our digital efforts.
The Company remains well capitalized and prepared to face the new challenges coming our way in 2020. Our history shows we weathered the 2008-2009 financial crisis and recession. We did so without taking Troubled Asset Relief Program (TARP) funds and our performance over the time frame was significantly higher than our peers. It is the character of the communities we serve that contributed to that success. It is not just what is done during the storm but how well prepared for the storm you are. F&M has prepared well with historically low troubled loans the last few years due to having strong credit quality controls in place. Additional loan loss provision was taken in the first three quarters in view of the unknown length and breadth of the declining economic situation and its potential effect on our loan portfolio.
F&M will continue to focus on serving our shareholders, communities, and customers while protecting our employees. Please see below for what we have accomplished so far in 2020 and our response to and impact of COVID-19.
COVID-19: What the Company knows and what steps have been taken
Shareholders
Dividend declaration
The Company expects to continue to maintain the payment of its quarterly dividend consistent with its past practices. We are sensitive to the needs of our long-time shareholders that utilize these funds to supplement their living expenses, especially in this low interest rate environment. Dividends declared during the quarter at $0.17 per share increased by 6.25% over first and second quarters $0.16 per share.
Annual Meeting
The Company held its Annual Meeting on April 16th; however, in light of the governmental restrictions the meeting was significantly different than in the past. There was no dinner, no presentation of 2019 or an outlook for 2020 and only a small group of directors and officers present. For the three items to be considered at the meeting, shareholders were asked to seriously consider not attending and vote by proxy. Over 80% of the shareholders voted by proxy.
Communities
Offices
With the health of our employees and customers being our top concern, as of March 20th, the Bank temporarily suspended branch lobby hours to the public for walk-in transactions. Appointments could be made at branches to complete all needed paperwork and transactions. Drive-thru services remained open as well as all ATM’s and ITM’s to complete needed transactions. To assure branches remained open, employees were divided into teams who rotated every three days to two weeks as a means to practice social distancing while limiting any possible exposure. During the month of May, the retail re-open team developed an employee handbook which focused on opening protocols, employee training, health and wellness and facility signage. Branch re-openings began on June 3rd with the last branches re-opening on June 15th. We continue to monitor and adjust lobby access as needed. Internal controls have not been significantly modified due to COVID-19.
Small Business
As a Small Business Administration (SBA) approved provider, the Bank was able to immediately participate in the SBA PPP established under the CARES Act, which was signed into law on March 27, 2020. The PPP provided much needed assistance to businesses in our communities. The Bank has been able to present applications for around 947 small businesses which provided approximately $87 million in needed funding. Loan size varied from $300 to $2.3 million with only 2 loans over $2 million. Net fee income from PPP loans to be recognized over 24 months will be $3.2 million. The Bank began to take applications for PPP loan forgiveness in the third quarter.
Consumers
Home Loan
With theFederal Reserve rate drops of 150 basis points in March (100 basis points of which was directly related to the effects of the virus on the economy), a surge in home loan activity has occurred. Much of the activity is refinance related and the Bank has experienced the highest amount of applications in its history, both in number of and dollar amount. Given the nature of the programs, the results were recorded in the second and third quarters. The Bank sells most of its home loans into the secondary market through Freddie Mac.
Existing loans on our books for which the Bank has received inquiries into forbearance agreements, totaled over 100 as of September 30th. Of these inquiries, 95 customers entered into agreements totaling just under $8.9 million. 30 loans were in-house making up $2.2 million in principal balance and 65 were secondary market loans which we service with balances totaling $6.7 million. Of the 30 in-house loans, 4 loans are in a repayment plan, 1 loan is in the payment deferral process and 3 loans are in forbearance as of September 30th. Of the 65 secondary market loans, 13 loans are in a repayment plan and 3 loans are in forbearance as of September 30th. Some inquiries were only for possible future requests. We remain ready to assist our customers through this difficult time in the best manner possible.
Retail Loans
The Bank is offering its “Skip-a-pay” program to consumers with installment loans, which allows the customer to skip the payment and extend the maturity of the contract for the payment period. We are allowing two payments to be skipped upon request with an additional one possible at the end of the initial request upon review. Normally, the Bank would charge a fee for this program – the fee has been waived. The Bank would also normally require the interest for the period to be collected and that requirement is currently waived. Interest is a part of the extended maturity payments. We have assisted 141 customers currently with loan balances totaling $1.9 million. 129 of those customers have returned the extension documents representing approximately $1.8 million and 247 extended months.
Waiving of late payment fees for our customers was introduced on March 16, 2020 and ceased on June 30, 2020. As of June 30th, the Bank had foregone fees of $307 thousand on loans to help our customers. Of the $307 thousand, $131 thousand was related to two past due commercial loans. As a community bank, it is by definition what we should do.
Depositors
The Bank’s most popular checking account, which includes requirements to earn a reward, removed the requirement of debit card transactions to be completed during a cycle for the months of April and May. In the Bank’s geographical area, the states issued “stay at home” guidelines and many of our customers were concerned with being able to complete the requirement. This impacted almost 11.6 thousand accounts and represented just under $101 million in average account balances. The product includes the option of attaching a savings account for which the same requirements were waived and impacted an additional almost 7 thousand accounts and $113.1 million in average account balances, calculated as of June 30th. Overall, typically 80-85% of our customers meet all the requirements. The waiving of the debit card transactions allowed those customers to receive the reward and possibly an additional 77.5% of the previous non-qualifiers which represented the other 15-20% in total. With the removal of the “stay at home” guidelines, the debit card transaction requirement was reinstated beginning with the June cycle on May 29th. During the months of April and May, most individuals still met their debit card transaction requirement with the “stay at home” order in place. As of end of September, our customers are meeting the same percentage of qualifications as pre-COVID levels.
Employees
The Bank continued paying employees their full pay through Marsh 31st. During this time period, accumulated PTO and vacation time were frozen and not required to be used to receive full pay. The Bank continues to promote social distancing by encouraging employees who can work remotely to do so and in other cases, departments have been dispersed to keep the team separated. As of April 1st, the Bank is following The Families First Coronavirus Response Act (FFCRA) which requires employers to provide their employees with paid sick leave and extended family and medical leave for specified reasons related to COVID-19. These provisions are in effect until December 31, 2020. Qualifying reasons for leave related to COVID-19 include the employee: (1) being subject to a quarantine order, (2) being advised by a healthcare provider to self-quarantine, (3) experiencing COVID-19 symptoms and is seeking a medical diagnosis, (4) caring for an individual subject to a quarantine order, (5) caring for his or her child whose school or place of care is closed or (6) experiencing any other substantially-similar condition specified by the U.S. Department of Health and Human Services. All time off related to the above reasons is being separately documented within our time and attendance system. The Bank will be able to reduce its employer tax for up to two weeks (80 hours, or a part-time employee’s two-week equivalent).
Financial – Exposures
Given the timing of the outbreak in the United States of the COVID-19 pandemic, management believes that the main impact on the Company’s first three quarters performance was a factor in the economic qualitative adjustment for the calculation of the allowance for loan loss. Subsequently the loan loss provision was increased which also included an increase due to loan growth. The COVID-19 pandemic represents an unprecedented challenge to the global economy in general and the financial services sector in particular. However, there is still significant uncertainty regarding the overall length of the pandemic and the aggregate impact that it will have on global and regional economies, including uncertainties regarding the potential positive effects of governmental actions taken in response to the pandemic during the remainder of 2020. With so much uncertainty, it is impossible for the Bank to accurately predict the impact that the pandemic will have on the Company’s primary markets and the overall extent to which it will affect the Company’s financial condition and results of operations during the remainder of the current fiscal year. At a minimum, the actions taken by the Company to assist its customers experiencing challenges from the pandemic, such as through the Bank’s “Skip-a-pay” program, the waiver of late payment fees, and the entry into loan forbearance agreements, did have an impact on the Company’s 2020 performance. Nonetheless, management believes that the Company’s current regulatory capital position is adequate to face the coming challenges.
The Company has a limited exposure to many sectors of the economy that will likely be impacted for an extended period such as the travel, restaurant, hospitality, energy and retail industries. The Bank does not have any direct exposure to the energy industry and hotels, entertainment and food related businesses are less than 10% of our overall loan portfolio as shown in the chart which follows. In addition, the Bank’s hotel customers are financially strong business owners, operating brand name hotels in compelling locations. The Bank, along with many other financial institutions, has increased its provision for loan losses in the current year compared to 2019 by approximately $4.6 million. The Bank is fully prepared to make additional provisions as warranted by the COVID-19 situation.
The Bank initially had loans of $28 million in deferment and loans of $137 million making interest only payments. As of September 30th, there is a total of $8.5 million outstanding between deferrals and interest only payments within our commercial and agricultural portfolios. The $8.5 million is comprised of $1.4 million with one full month of deferment, $641 thousand with three full months of deferment, $5.5 million with three month interest only and $900 thousand with six months interest only. At this point in time, existing loans outstanding in deferral or interest only payments are expected to be current as of December 31st.
Industry Segments (Dollars in Thousands) |
| Outstanding Loan Balance |
|
| Percent of Total Loan Portfolio |
|
| Payment Deferment |
|
| Percent of Total Loans Adjusted with Deferment |
|
| Interest Only Modifications |
|
| Percent of Total Loans Adjusted with Interest Only |
| ||||||
Hospitality (Hotels) |
| $ | 74,426 |
|
|
| 5.44 | % |
| $ | - |
|
|
| 0.00 | % |
| $ | 1,679 |
|
|
| 26.19 | % |
Restaurants |
|
| 21,726 |
|
|
| 1.59 | % |
|
| - |
|
|
| 0.00 | % |
|
| 2,000 |
|
|
| 31.20 | % |
Retail Commercial Real Estate * |
|
| 101,783 |
|
|
| 7.44 | % |
|
| - |
|
|
| 0.00 | % |
|
| - |
|
|
| 0.00 | % |
Entertainment |
|
| 24,568 |
|
|
| 1.80 | % |
|
| 641 |
|
|
| 31.10 | % |
|
| 1,302 |
|
|
| 20.32 | % |
Car Dealers |
|
| 32,094 |
|
|
| 2.35 | % |
|
| - |
|
|
| 0.00 | % |
|
| - |
|
|
| 0.00 | % |
Gas Stations |
|
| 17,586 |
|
|
| 1.29 | % |
|
| - |
|
|
| 0.00 | % |
|
| - |
|
|
| 0.00 | % |
Other |
|
| 770,197 |
|
|
| 56.31 | % |
|
| 1,420 |
|
|
| 68.90 | % |
|
| 1,429 |
|
|
| 22.29 | % |
Total |
| $ | 1,042,380 |
|
|
| 76.22 | % |
| $ | 2,061 |
|
|
| 100.00 | % |
| $ | 6,410 |
|
|
| 100.00 | % |
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# of Customers |
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| 4 |
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| 5 |
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*Includes Owner Occupied |
|
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| |||||||
Report on Adjusted Loans as of September 30, 2020 |
|
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The other category in payment deferment as of September 30th is a loan for a livestock production facility. The other category for interest modifications as of September 30th is for construction of an agricultural implement facility and a manufacturer.
The Company continued second quarter’s “quarter of execution” to the “quarter on fire” for the third quarter of 2019. The first quarter of 2019 was impacted by a very labor-intensive process as we welcomed new employees, customers and shareholders into the F&M family. This followed our merger with Limberlost Bancshares, Inc. on January 1, 2019 and three weeks later the integrationrestaurant portfolio, which represents 1.6% of the Bank’s total loan portfolio, is 60% full-service restaurants with the remaining 40% quick-service restaurants. Of the $87 million PPP loans originated, only $6.1 million were to restaurants.
Entertainment loans, which total $24.6 million or 1.8% of the Bank’s total loan portfolio, has $641 thousand on payment deferments as of September 30th. The Bank has nearly 100 entertainment loans with an average loan amount of Geneva into$230 thousand. There is a diverse group of businesses that comprise this sector and have performed well throughout the pandemic. Businesses include sports, athletic and fitness facilities, camping and campgrounds, fireworks and pet kennels. Loans for sports and athletics total $14.9 million while loans for campgrounds total $2.7 million.
Our credit administration is closely monitoring and analyzing these higher risk segments within the loan portfolio, tracking loan payment deferrals, customer liquidity and providing timely reports to senior management and the board of directors. The Farmers & Merchants State Bank’s core operating system. Financially, the mergerBank is becoming accretive to earningsin frequent contact with our borrowers during 2019, with a larger legal lending limit enabling the expansionthis time of existing customer’s borrowings,uncertainty and a wider range of producthas had only one COVID-19 related downgrade which was less than $10 million. The Bank has stress tested our top five commercial concentrations which include retail commercial real estate, hotels, multi-family, industrial commercial real estate and services now available to all customers. The second andassisted living. An outside third quarters have been the time to focus on these new opportunities.
A Chief People Officer was added in second quarter 2019 to assist with increasing the levelparty has reviewed 55% of our Company’s talent. The Company has invested incommercial portfolio along with our retail infrastructure and has been conducting extensive training. During the last two quarters, the Company has spent time developing a three year strategic plan. The vision statement was updated to be “Community Vested to Help People Realize Their Best Lives.” An outcome of the strategic planning process included the following five strategic initiatives that will help take the Company to the next level: customer acquisition and retention, talent optimization, actively pursue acquisition opportunities, improve operating efficiency and financial performance, and develop a comprehensive digital strategy for internal and external constituencies.
The third quarter growing conditions for late planted crops were favorable with the crop outlook better than originally anticipated given the late planting dates. The use of crop insurance and the receipt of government subsidies for manycredit department having recently reviewed 75% of our farms will result in an acceptable year. The large grain carryover and trade disruptionsloan portfolio as a result of tariffs continue to weighnew money, renewals or annual reviews. Based on commodity prices. Agri-businesses will likely feel the largest negative effect of non-planted acreage; although, it is believed most are financially soundCompany’s capital levels, prudent underwriting policies, loan concentration diversification and have the ability to withstand the potential negative financial impact. Recent land sales continueour geographic footprint, we expect to be strong suggesting farmer optimism and an overall solid financial position. Results will continue to be monitored going into fourth quarter and 2020. The overall ag sector remains healthy.
The labor shortage is still impacting our commercial customers; whether it is slowing existing projects or expanding the use of technology. It remains one of the largest concerns for 2019. Performance is strong and competition is fierce. The strong performance is evidenced by the size of paydowns and payoffs that have occurred. Regional banks in our market area are busy with larger projects and the small to midsize business segment is where our community bank excels. Overall, the commercial division is optimistic on growth. Many loans which closed in the second quarter were funded in the third, replacing the accelerated paydowns and payoffs of the first half of the year. Two larger relationships which include construction may not be completely drawn until the fourth quarter. The commercial real estate market remains very active and competition is extending amortization and rate terms. Commercial and industrial markets remain healthy with competition thinly priced creating a high demand for the borrower’s non-credit business.
Nationally, the automotive demand has fallen below 17 million units for the first time since 2014. The Bank ran an automotive special during second quarter and has been able to maintainmanage the portfolio balances in the retail market. The yield on the new loans being generated is also higher than what last year’s loans were, by about 50 basis points. The Bank has been busy contracting with automotive dealers in the newer markets to expand our opportunities. This should help to maintain the balances in the consumer market.
Home loan origination activity substantially improved in the third quartereconomic risks and the division was on fire. One of the biggest impediments to continued improvement is the lack of available housing in our markets, specifically at the moderate level. The Bank is experiencing increased activity in purchases and home improvement. Fixed mortgage rates fell in third quarter resulting in an increase in refinance volume.
Yield on loans is high due to the payoff of two loans in the second quarter, the same relationship, that was a reversal of a fair value adjustment of almost $2 million that was established in the Limberlost acquisition. The payoff totaled approximately $3.8 million as the customer was able to secure financing elsewhere. This enabled the widening of the net interest margin which would have tightened otherwise from the increased cost of funds outpacing the asset yield improvement. Cost of deposits continues to put pressure on the margin.
Profitability from core operations is on track to match the expectations for 2019uncertainties associated with the acquisition factored in. As additional acquisition costs continue to lessen, the negative impact on ROA,pandemic and ROE should also lessen. F&M will continue to operate on the foundation of a strong community bank platform in the communities we serve and are a part of.
45
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The focus remains on growth for 2019 along with the widening of our footprint from additional offices. Welcoming and developing our newest offices is also important and a priority. The Company is positioned for positive results in 2019 and remains wellremain adequately capitalized.
NATURE OF ACTIVITIES
Farmers & Merchants Bancorp, Inc. (the “Company”) is a financial holding company incorporated under the laws of Ohio in 1985. Our subsidiaries are The Farmers & Merchants State Bank (the “Bank”), a community bank operating in Northwest Ohio since 1897, and Farmers & Merchants Risk Management, Inc., a captive insurance company formed in December 2014 and located in Nevada. We report our financial condition and net income on a consolidated basis and we have only one segment.
Our executive offices are located at 307 North Defiance Street, Archbold, Ohio 43502, and our telephone number is (419) 446-2501. The Bank operates thirty full service banking offices throughout Northwest Ohio and Northeast Indiana.
On January 1, 2019, six offices of Bank of Geneva, located in the Indiana counties of Adams, Allen and Jay, were merged with and into The Farmers & Merchants State Bank. The Bank has continued its expansion strategy and the new offices are expected to providehave provided new growth opportunities.
The Farmers & Merchants State Bank engages in general commercial banking and savings business including commercial, agricultural and residential mortgage, consumer and credit card lending activities. The largest segment of the lending business relates to commercial, both real estate and non-real estate. The type of commercial business ranges from small business to multi-million dollar companies. The loans are a reflection of business located within the Banks’ market area. Because the Bank's offices are located in Northwest Ohio and Northeast Indiana, a substantial amount of the loan portfolio is comprised of loans made to customers in the farming industry for such items as farm land, farm equipment, livestock and operating loans for seed, fertilizer, and feed. Other types of lending activities include loans for home improvements, and loans for the purchase of autos, trucks, recreational vehicles, motorcycles, and other consumer goods.
The Bank also provides checking account services, as well as savings and time deposit services such as certificates of deposits. In addition, Automated Teller Machines (ATMs) or Interactive Teller Machines (ITMs) are provided at most branch locations along with other independent locations in the market area. ITMs operate as an ATM with the addition of remote teller access to assist the user. The Bank has custodial services for Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs). The Bank provides on-line banking access for consumer and business customers. For consumers, this includes bill-pay, on-line statement opportunities and mobile banking. For business customers, it provides the option of electronic transaction origination such as wire and Automated Clearing House (ACH) file transmittal. In addition, the Bank offers remote deposit capture or electronic deposit processing and merchant credit card services. Mobile banking was added in 2012 and has been widely accepted and used by consumers. Over the past couple of years, the Bank has updated its consumer offerings with “Secure” and “Pure” checking in 2014 and with KASASA Cash Back in 2015. During the second quarter 2017, new business checking products were announced and existing business accounts were converted to one of three new products, Business Essential, Edge or Elite. The new products provided customers with new options to bundle services and for the Bank to utilize the full relationship to determine pricing. This was the next step of implementation for the Bank’s “earn to free” strategic initiative. During second quarter 2019, “Smart 25” checking and Business Money Market savings products were launched. Upgrades to our digital products and services continue to occur in both retail and business lines. During the fourth quarter of 2020, new checking products will be rolled out which will replace KASASA.
The Bank has established underwriting policies and procedures which facilitate operating in a safe and sound manner in accordance with supervisory and regulatory guidance. Within this sphere of safety and soundness, the Bank's practice has been to not promote innovative, unproven credit products which may not be in the best interest of the Bank or its customers. The Bank does offer a hybrid mortgage loan. Hybrid loans are loans that start out as a fixed rate mortgage but after a set number of years automatically adjust to an adjustable rate mortgage. The Bank offers a three year fixed rate mortgage after which the interest rate will adjust annually. The majority of the Bank's adjustable rate mortgages are of this type. In order to offer longer term fixed rate mortgages, the Bank does participate in the Freddie Mac, Farmer Mac and Small Business Lending programs. The Bank also normally retains the servicing rights on these partially or 100% sold loans. In order for the customer to participate in these programs they must meet the requirements established by those agencies. In addition, the Bank does sell some of its longer term fixed rate agricultural mortgages into the secondary market with the aid of a broker.
The Bank does not have a program to fund sub-prime loans. Sub-prime loans are characterized as a lending program or strategy that targets borrowers who pose a significantly higher risk of default than traditional retail banking customers.
46
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
All loan requests are reviewed as to credit worthiness and are subject to the Bank's underwriting guidelines as to secured versus unsecured credit. Secured loans are in turn subject to loan to value (LTV) requirements based on collateral types as set forth in the Bank's Loan Policy.Policy and described more thoroughly below on the basis of general loan type. In addition, credit scores of those seeking consumer credit are reviewed and if they do not meet the Bank's Loan Policy guidelines an additional officer approval is required.
Consumer Loans:
Maximum loan to value (LTV) for cars, trucks and light trucks vary from 90% to 110% depending on whether direct or indirect.
• | Maximum loan to value (LTV) for cars, trucks and light trucks vary from 90% to 110% depending on whether direct or indirect. |
Loans above 100% are generally the result of additional charges for extended warranties and/or insurance coverage for wage or death.
• | Loans above 100% are generally the result of additional charges for extended warranties and/or insurance coverage for wage or death. |
Boats, campers, motorcycles, RV's and Motor Coaches range from 80%-90% based on age of vehicle.
• | Boats, campers, motorcycles, RV's and Motor Coaches range from 80%-90% based on age of vehicle. |
1st or 2nd mortgages on 1-4 family homes range from 75%-90% with "in-house" first real estate mortgages requiring private mortgage insurance on those exceeding 80% LTV.
• | 1st or 2nd mortgages on 1-4 family homes range from 75%-90% with "in-house" first real estate mortgages requiring private mortgage insurance on those exceeding 80% LTV. |
Raw land LTV maximum ranges from 65%-75% depending on whether or not the property has been improved.
• | Raw land LTV maximum ranges from 65%-75% depending on whether or not the property has been improved. |
Commercial/Agriculture/Real Estate:
Maximum LTVs range from 70%-80% depending on type.
• | Maximum LTVs range from 70%-80% depending on type. |
Accounts Receivable: Up to 80% LTV less retainages and greater than 90 days.
• | Accounts Receivable: Up to 80% LTV less retainages and greater than 90 days. |
Maximum LTV on non-traditional loan up to 85%.
• | Maximum LTV on non-traditional loan up to 85%. |
Inventory:
Agriculture:
• | Agriculture: |
Livestock and grain up to 80% LTV, crops (insured) up to 75% and Warehouse Receipts up to 87%.
Commercial:
• | Commercial: |
Maximum LTV of 50% on raw and finished goods.
Floor plan:
|
|
|
| o | New/used vehicles to 100% of wholesale. |
o | New/Used recreational vehicles and manufactured homes to 80% of wholesale. |
Equipment:
New not to exceed 80% of invoice, used NTE 50% of listed book or 75% of appraised value.
• | New not to exceed 80% of invoice, used NTE 50% of listed book or 75% of appraised value. |
Restaurant equipment up to 35% of market value.
• | Restaurant equipment up to 35% of market value. |
Heavy trucks, titled trailers up to NTE 75% LTV and aircraft up to 75% of appraised value.
• | Heavy trucks, titled trailers up to NTE 75% LTV and aircraft up to 75% of appraised value. |
F&M Investment Services, the brokerage department of the Bank, opened for business in April 1999. Securities are offered through Raymond James Financial Services, Inc.
In December of 2014, the Company became a financial holding company within the meaning of the Bank Holding Company Act of 1956 as amended (the “Act”), in order to provide the flexibility to take advantage of the expanded powers available to a financial holding company under the Act. Our subsidiary bank is in turn regulated and examined by the Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation. The activities of our bank subsidiary are also subject to other federal and state laws and regulations. The Company also formed a captive insurance company (the “captive”) in December 2014 which is located in Nevada and regulated by the State of Nevada Division of Insurance.
The Bank’s primary market includes communities located in the Ohio counties of Defiance, Fulton, Hancock, Henry, Lucas, Williams, Wood and in the Indiana counties of Adams, Allen, DeKalb, Jay and Steuben. In our banking activities, we compete directly with other commercial banks, credit unions, farm credit services, and savings and loan institutions in each of our operating localities. In a number of our locations, we compete against entities which are much larger than us. The primary factors in competing for loans and deposits are the rates charged as well as location and quality of the services provided.
At September 30, 2019,2020, we had 355374 full time equivalent employees. The employees are not represented by a collective bargaining unit. We provide our employees with a comprehensive benefit program, some of which areis contributory. We consider our employee relations to be good.
47
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RECENT REGULATORY DEVELOPMENTS
The Bank remains attentive to the current regulatory environment in light of the regulatory agencies’ risk-based approach to examinations. Regulatory changes and the complexity of new and amended rules have resulted in lack of claritychallenges and uncertainties which could pose an increased risk of noncompliance. Various significant mortgage rules require monitoring by means of testing, validation of results, additional training, and further research or consultation to assist with ongoing compliance.
The Economic Growthglobal spread of the Coronavirus (COVID-19) and resulting declaration of a world-wide pandemic have impacted the financial services industry and banking operations in the United States (US) and world-wide. The financial services sector is
identified as a Critical Infrastructure Sector by the Department of Homeland Security during the COVID-19 response efforts. How basic business operations can be conducted has undergone a rapid and dramatic change. At the same time continuity of business operations involves promoting safety and security of customers and employees, providing a quality customer experience, and maintaining effective delivery systems and channels of communication. Regulatory Reliefguidance has been issued to manage and Consumer Protectionmitigate the unprecedented impact of the COVID-19 pandemic on business operations. Regulatory agencies promote prudent and practical efforts to assist customers and communities during this national emergency. Such assistance to alleviate the financial impact on affected customers can involve modification of loan terms for existing borrowers, waiver of certain fees and charges, providing small dollar loans, and offering forbearance and payment deferrals on mortgage loan obligations due to financial hardship. Legislation enacted in March 2020 has provided the Families First Coronavirus Response Act (EGRRCPA) was signed into law(FFCRA) and CARES Act. The FFCRA which is effective through December 31, 2020, provides for a paid leave for employees (of employers with fewer than 500 employees) who must quarantine due to the coronavirus, are caring for a sick family member, or caring for a child out of school. It significantly expands existing protections currently available to employees who take leave to care for a sick family member. The CARES Act, among other matters, resulted in May 2018. EGRRCPA was intendedexpansion of SBA Lending Programs; provided for a financial election to pavesuspend GAAP principles and regulatory determinations for COVID-19 related loan modifications that would otherwise be deemed Trouble Debt Restructuring; gave the wayFDIC authority to establish a temporary Debt Guarantee Program for bank liabilities; delayed Current Expected Credit Losses (CECL) compliance; reduced the Community Bank Leverage Ratio to 8% to eliminate risk-based capital compliance for banks under $10 billion; required credit furnishers that agree to lenddeferred loan payments, forbearance on a delinquent account, or any other relief during the national emergency to creditworthy borrowersreport accounts as current to Credit Reporting Agencies; and better serve their communities. Rollbackdefined forbearance requirements and terms for single family and multi-family loans backed by federal government agencies or government sponsored entities due to COVID-19 financial hardship. Of immediate and significant importance has been the rollout of some burdensome requirements resulting from the Dodd-Frank Wall Street ReformSBA Paycheck Protection Program (PPP). The PPP authorized lending of up to $350 billion in 100% guaranteed 7(a) loans to cover payroll costs, interest on mortgage payments, rent obligations, and Consumerutilities. The PPP provides a guaranteed loan for which a portion of the loan up to or equal to 8 weeks of covered payroll and specific operating expenses can be forgiven. The maximum loan size is capped at the lessor of 250% of the average monthly payroll costs or $10 million.
In April, legislation known as the Paycheck Protection Program and Health Care Enhancement Act provided additional funding to replenish and supplement key programs under the CARES Act. Included in this legislation was welcomed by community banks. Regulatory relief has not been immediate, as guidance and new rulemaking remainsthe extension of the PPP with an additional $320 billion in funding. At least $60 billion of this funding was to be completedset aside for small and midsize banks and community lenders. Since April, the SBA has issued various Interim Final Rules to implement various provisions. Sectionssupplement and clarify matters involving the PPP. The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) was enacted in early June 2020. This provided more flexibility to Borrowers regarding use of PPP loan funds. Certain provisions were retroactive to the date of the CARES Act and all PPP loans. Among these provisions were the extension of the covered period of the loan, extension of the forgiveness period, deferral of payments based on the loan forgiveness period, reduction in the EGRRCPA address access to mortgage credit; consumer access to credit; protectionsminimum that must be spent for veterans, consumers,payroll costs, extended date by which employees must be rehired, and homeowners; rulesremoval of restrictions on payroll tax deferral. The term for certain bank holding companies, capital access; and protections for student borrowers. Implementationsubsequent PPO loans made after enactment of the rulesPPPFA was extended to five years from two. A primary focus is now directed to aiding PPP borrowers in navigating the loan forgiveness process. Further legislation and regulatory guidance formay result depending on the various provisionsduration of the EGRRCPA will commence as rulemaking occurs.
The U.S. Department of the Treasury’s final rules on Customer Due Diligence (CDD)COVID-19 spread and Beneficial Ownership added a fifth core elementsubsequent economic impact to the original core elements necessary for an effective Bank Secrecy Actcustomers, communities, businesses, and Anti-Money Laundering compliance program. These rules were effective in May 2018. The CDD Final Rule is a significant step toward greater financial transparency. Prior to these new rules, the ability for individuals to hide financial activity through anonymous ownership of business entities was a weakness in the fight against financial crime. By gaining a more complete profile of entity customers, financial institutions can help further reduce the flow of illicit funds through the US banking system.
The Company has implemented Basel III capital rules which began to be phased in for the Company on January 1, 2015. These rules may impact the ability of some financial institutions to pay dividends, though the Company believes itself to be able to maintain its strong capital position and not be limited in that regard. industry sectors.
With regard to all regulatory matters, the Bank remains committed in making good faith efforts to comply with technical requirements of the laws, rules, regulations, and guidance from both federal and state agencies which govern its activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and the Company follows general practices within the financial services industry in which it operates. At times the application of these principles requires management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements and accompanying notes.
These assumptions, estimates and judgments are based on information available as of the date of the financial statements. As this information changes, the financial statements could reflect different assumptions, estimates and judgments. Certain policies inherently have a greater reliance on assumptions, estimates and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Examples of critical assumptions, estimates and judgments are when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not required to be recorded at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability must be recorded contingent upon a future event. These policies, along with the disclosures presented in the notes to the condensed consolidated financial statements and in the management discussion and analysis of the financial condition and results of operations, provide information on how significant assets and liabilities are valued and how those
values are determined for the financial statements. Based on the valuation techniques used and the sensitivity of financial statement amounts to assumptions, estimates, and judgments underlying those amounts, management has identified the determination of the ALLL, the valuation of its Mortgage Servicing Rights and the valuation of real estate acquired through or in lieu of;of loan foreclosures (“OREO Property”) as the accounting areas that require the most subjective or complex judgments, and as such could be the most subject to revision as new information becomes available.
OREO Property held for sale and is initially recorded at fair value at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of cost or fair value minus estimated costs to sell.
48
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Costs of holding foreclosed real estate are charged to expense in the current period, except for significant property improvements, which are capitalized. Valuations are periodically performed by management and a write-down is recorded by a charge to non-interest expense if the carrying value exceeds the fair value minus estimated costs to sell.
The net income from operations of foreclosed real estate held for sale is reported either in noninterest income or noninterest expense depending upon whether the property is in a gain or loss position overall. At September 30, 20192020 OREO property holdings were $351$206 thousand. OREO totaled $600$214 thousand and $717$351 thousand as of December 31, 20182019 and September 30, 20182019 respectively.
The ALLL and ACL represents management’s estimate of probable credit losses inherent in the Bank’s loan portfolio, unfunded loan commitments, and letters of credit at the report date. The ALLL methodology is regularly reviewed for its appropriateness and is approved annually by the Board of Directors. This written methodology is consistent with Generally Accepted Accounting Principles which provides for a consistently applied analysis.
The Bank’s methodology provides an estimate of the probable credit losses either by calculating a specific loss per credit or by applying a composite of historical factors over a relevant period of time with current internal and external factors which may affect credit collectability. Such factors which may influence estimated losses are the conditions of the local and national economy, local unemployment trends, and abilities of lending staff, valuation trends of fixed assets, and trends in credit delinquency, classified credits, and credit losses.
Inherent in most estimates is imprecision. The Bank’s ALLL may include a margin for imprecision with an unallocated portion. Bank regulatory agencies and external auditors periodically review the Bank’s methodology and adequacy of the ALLL. Any required changes in the ALLL or loan charge-offs by these agencies or auditors may have a material effect on the ALLL. For more information regarding the estimates and calculations used to establish the ALLL please see Note 4 to the consolidated financial statements provided herewith.
The Bank is also required to estimate the value of its mortgage servicing rights. The Bank’s mortgage servicing rights relating to fixed rate single-family mortgage loans that isit has sold without recourse but services for others for a fee represent an asset on the Bank’s balance sheet. The valuation is completed by an independent third party.
The expected and actual rates of mortgage loan prepayments are the most significant factors driving the potential for the impairment of the value of mortgage servicing assets. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced.
The Bank’s mortgage servicing rights relating to loans serviced for others represent an asset. This asset is initially capitalized and included in other assets on the Company's consolidated balance sheet. The mortgage servicing rights are then amortized againstas noninterest incomeexpense in proportion to, and over the period of the estimated future net servicing income of the underlying mortgage servicing rights using the level yield method. The amortization thereof is recorded in non-interest expense.rights. There are a number of factors, however, that can affect the ultimate value of the mortgage servicing rights to the Bank. The expected and actual rates of mortgage loan prepayments are the most significant factors driving the potential for the impairment of the value of mortgage servicing assets. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced, meaning that the present value of the mortgage servicing rights is less than the carrying value of those rights on the Bank's balance sheet. Therefore, in an attempt to reflect an accurate expected value to the Bank of the mortgage servicing rights, the Bank receives a valuation of its mortgage servicing rights from an independent third party. The independent third party's valuation of the mortgage servicing rights is based on relevant characteristics of the Bank's loan servicing portfolio, such as loan terms, interest rates and recent national prepayment experience, as well as current national market interest rate levels, market forecasts and other economic conditions. For purposes of determining impairment, the mortgage servicing assets are stratified into like groups based on loan type, term, new versus seasoned and interest rate. Management, with the advice from its third partythird-party valuation firm, reviewed the assumptions related to prepayment speeds, discount rates, and capitalized mortgage servicing income on a quarterly basis. Changes are reflected in the following quarter's analysis related to the mortgage servicing asset. In addition,
based upon the independent third party's valuation of the Bank's mortgage servicing rights, management then establishes a valuation allowance by each strata,stratum, if necessary, to quantify the likely impairment of the value of the mortgage servicing rights to the Bank. The estimates of prepayment speeds and discount rates are inherently uncertain, and different estimates could have a material impact on the Bank's net income and results of operations. The valuation allowance is evaluated and adjusted quarterly by management to reflect changes in the fair value of the underlying mortgage servicing rights based on market conditions. The accuracy of these estimates and assumptions by management and its third party valuation specialist can be directly tied back to the fact that management has only been required to record minor valuation allowances through its income statement over time based upon the valuation of each stratum of servicing rights.
49
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
For more information regarding the estimates and calculations used to establish the ALLL please see Note 4 to the consolidated financial statements provided herewith.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
TheIn spite of the ongoing COVID-19 pandemic, the Company plans to continue in its growth mode in 20192020 led by loan growth from within our newer markets. The Bank is focused on funding the loan growth with the least expensive source of deposits, sale of securities or borrowings. Growing deposits will also be a focus especially in our newer markets. The Bank offers the Insured Cash Sweep (“ICS”) product accessed through the Promontory network of financial institutions which helps to reduce the amount of pledged securities. This has provided more availability for runoff of securities by the Bank if warranted to fund loan growth. Competition for deposits is intense with most competitors offering “special” rates for specific terms.
Liquidity in terms of cash and cash equivalents ended $76.2$36.5 million higher as of September 30, 20192020 than it was at yearend December 31, 2018.2019. An increase in deposits helped to fund the $312.3$140.2 million increase in net loans since yearend 2018. All loan portfolios increased as a result of the Limberlost acquisition with the largest loan growth having occurred in agricultural2019. Commercial real estate, and commercialconsumer real estate, portfolios. Consumer real estate and commercial and industrial and consumer portfolios also experienced large increases.increased compared to December 31, 2019. The remaining two portfolios decreased compared to yearend.
In comparing to the same prior year period, the September 30, 20192020 (net of deferred fees and cost) loan balances of $1.2$1.4 billion accounted for $320.0$205.2 million or 38.2%17.7% increase when compared to 2018’s $838.7 million.2019’s $1.2 billion. The year over year improvement in all loan categories was made up of a combined increase of 199.2%99.6% in agriculturalcommercial and industrial related loans (comprised of 192.8%18.5% in commercial real estate loans and 81.1% in non-real estate commercial loans). PPP loans of approximately $87.2 million are included in the non-real estate commercial portfolio. Consumer real estate loans increased by 10.8%, consumer loans by 7.5% and other loans by 10.6%. Agricultural related loans decreased 10.3% year over year (comprised of 4.0% in agricultural real estate loans and 6.4%6.3% in non-real estate agricultural loans). Consumer real estate loans increased by 91.8%, consumer loans by 19.7%, other loans by 36.0% and commercial and industrial related loans by 29.2%. The Company credits the growth not only to the Limberlost acquisition, but also the strong team of lenders focused on providing customers valuable localized services and thereby increasing our market share.
The chart below shows the breakdown of the loan portfolio category as of September 30, for the last three years, net of deferred fees and costs.
|
| (In Thousands) |
| |||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2017 |
| |||
|
| Amount |
|
| Amount |
|
| Amount |
| |||
Consumer Real Estate |
| $ | 158,458 |
|
| $ | 82,629 |
|
| $ | 83,875 |
|
Agricultural Real Estate |
|
| 200,625 |
|
|
| 68,524 |
|
|
| 63,571 |
|
Agricultural |
|
| 110,405 |
|
|
| 103,760 |
|
|
| 87,239 |
|
Commercial Real Estate |
|
| 501,095 |
|
|
| 416,632 |
|
|
| 393,913 |
|
Commercial and Industrial |
|
| 130,228 |
|
|
| 119,607 |
|
|
| 124,165 |
|
Consumer |
|
| 49,718 |
|
|
| 41,541 |
|
|
| 35,887 |
|
Other |
|
| 8,167 |
|
|
| 6,005 |
|
|
| 6,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans, net |
| $ | 1,158,696 |
|
| $ | 838,698 |
|
| $ | 795,205 |
|
|
| (In Thousands) |
| |||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| |||
|
| Amount |
|
| Amount |
|
| Amount |
| |||
Consumer Real Estate |
| $ | 175,595 |
|
| $ | 158,458 |
|
| $ | 82,629 |
|
Agricultural Real Estate |
|
| 192,577 |
|
|
| 200,625 |
|
|
| 68,524 |
|
Agricultural |
|
| 103,476 |
|
|
| 110,405 |
|
|
| 103,760 |
|
Commercial Real Estate |
|
| 593,936 |
|
|
| 501,095 |
|
|
| 416,632 |
|
Commercial and Industrial |
|
| 235,793 |
|
|
| 130,228 |
|
|
| 119,607 |
|
Consumer |
|
| 53,455 |
|
|
| 49,718 |
|
|
| 41,541 |
|
Other |
|
| 9,030 |
|
|
| 8,167 |
|
|
| 6,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans, net |
| $ | 1,363,862 |
|
| $ | 1,158,696 |
|
| $ | 838,698 |
|
The following is a contractual maturity schedule by major category of loans excluding fair value adjustments as of September 30, 2019.2020.
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
|
|
|
|
|
| After One |
|
|
|
|
|
|
|
|
|
| After One |
|
|
|
|
| ||
|
| Within |
|
| Year Within |
|
| After |
|
| Within |
|
| Year Within |
|
| After |
| ||||||
|
| One Year |
|
| Five Years |
|
| Five Years |
|
| One Year |
|
| Five Years |
|
| Five Years |
| ||||||
Consumer Real Estate |
| $ | 5,516 |
|
| $ | 16,780 |
|
| $ | 136,971 |
|
| $ | 4,903 |
|
| $ | 32,069 |
|
| $ | 139,063 |
|
Agricultural Real Estate |
|
| 177 |
|
|
| 5,660 |
|
|
| 196,000 |
|
|
| 7,148 |
|
|
| 5,663 |
|
|
| 180,864 |
|
Agricultural |
|
| 64,939 |
|
|
| 30,949 |
|
|
| 14,372 |
|
|
| 58,767 |
|
|
| 31,897 |
|
|
| 12,665 |
|
Commercial Real Estate |
|
| 32,816 |
|
|
| 220,684 |
|
|
| 248,828 |
|
|
| 39,227 |
|
|
| 310,028 |
|
|
| 246,035 |
|
Commercial and Industrial |
|
| 61,580 |
|
|
| 57,158 |
|
|
| 11,463 |
|
|
| 67,085 |
|
|
| 149,522 |
|
|
| 21,623 |
|
Consumer |
|
| 6,151 |
|
|
| 32,344 |
|
|
| 10,973 |
|
|
| 5,587 |
|
|
| 34,774 |
|
|
| 12,915 |
|
Other |
|
| 825 |
|
|
| 895 |
|
|
| 6,440 |
|
|
| 2,250 |
|
|
| 173 |
|
|
| 6,602 |
|
50
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
While the security portfolio has been utilized to fund loan growth for the last three years, additional sources have been cultivated during 2017, 2018, 2019, and 2019.2020. The security portfolio increased $22.0$36.7 million in the first nine months 2019of 2020 from yearend 2018.2019. The amount of pledged investment securities increaseddecreased by $7.4$1.7 million as compared to yearend and increased $8.0$2.2 million as compared to September 30, 2018. The difference in the growth and consequently pledged securities, improves liquidity2019. Liquidity is improved with the additional option of selling unpledged investment securities if needed to fund loan growth or other initiatives. As of September 30, 2019,2020, pledged investment securities totaled $89.2$87.1 million. The current portfolio is in a net unrealized gain position of $1.9$7.4 million.
For the Bank, an additional $17.3$6.8 million is also available from the Federal Home Loan Bank based on current collateral pledging with up to $97 millionamounts of pledged collateral. At the present time, only 1-4 family and home equity portfolios are pledged. Additional borrowings would be available provided adequate collateral isif additional portfolios (i.e. commercial real estate) were pledged.
With the exception of FHLB stocks, carried at cost, which is shown as other securities, all of the Company’s security portfolio is categorized as “available-for-sale” and as such is recorded at fair value.
Management feels confident that liquidity needs for future growth can be met through additional maturities and/or sales from the security portfolio, increased deposits and additional borrowings. For short term needs, the Bank has $123.4$148.1 million of unsecured borrowing capacity through its correspondent banks.
Overall total assets increased 41.1%13.6% since yearend 20182019 and grew 42.1%16.0% since September 30, 2018.2019. The largest growth in both periods was in the loan portfolios followed by cash and equivalents.securities. COVID-19 has not had an impact on Goodwill also increased with the acquisition of the Bank of Geneva.at this point but will be externally tested during fourth quarter 2020.
Deposits accounted for the largest growth within liabilities, up 37.6%17.9% or $349.2$230.2 million since yearend and 18.8% or $240.8 million over both yearend and September 30, 20182019 balances. As stated previously, the growth of deposits correlated to a flight to safety as the stock market experienced great volatility. Core deposits continue to drive the increase which provide the opportunity to generate additional noninterest income. This growth aided the increased liquidity position and funded the loan growth for the periods along with usage of purchased Federal Funds for daily borrowings.
Shareholders’ equity increased by $84.1$13.2 million as of the third quarter of 20192020 compared to yearend 2018,2019, as the acquisition of Limberlost, which included stock in the transaction, was completed on January 1, 2019 along with earnings exceedingexceeded dividend declarations induring the first three quarters.nine months ended September 30, 2020. Accumulated other comprehensive loss decreasedincome increased in lossunrealized gain position by $4.5$4.8 million from December 20182019 to an unrealized gain of $1.5$5.9 million aton September 30, 2019.2020. Dividends declared were the same as the first two quarters at $0.15increased to $0.17 per share.share for third quarter 2020. Compared to September 30, 2018,2019, shareholders’ equity increased 63.2%7.0% or $88.1$16 million. Profits are higherwere lower year-to-date September 2020 than year-to-date September 2019 than year-to-date September 2018 by $1.9 million with the Limberlost acquisition.$360 thousand.
Basel III regulatory capital requirements became effective in 2016. The Bank and Company include a capital conservation buffer as a part of the transition provision. For calendar year 2016, the applicable required capital conservation buffer percentage of 0.625% was the base above which institutions avoid limitations on distributions and certain discretionary bonus payments. For the calendar year 2017, the applicable required capital conservation buffer percentage was 1.25%. For 2018, the capital conservation buffer percentage increased to 1.875%. The total buffer requirement increased to 2.5% for calendar year 2019. As of September 30, 2019,2020, the Company and the Bank are both positioned well above the 2019 requirement.
The Holding Company has sufficient liquidity to maintain its dividend policy without relying on the upstreaming of dividends from the Bank.
The Bank continues to be well-capitalized in accordance with Federal regulatory capital requirements as the capital ratios below show:
Tier I Leverage Ratio |
|
|
| % |
Risk Based Capital Tier I |
|
|
| % |
Total Risk Based Capital |
|
|
| % |
Stockholders' Equity/Total Assets |
|
|
| % |
Capital Conservation Buffer |
|
|
| % |
51
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Comparison of Results of Interest Earnings and Expenses for three month periods ended September 30, 20192020 and 20182019
Interest Income
When comparing third quarter 20192020 to third quarter 2018,2019, average loan balances grew $233 million with PPP loans accounting for $87.2 million of the acquisition of Limberlost grew $294.9 million.increase. This represented a 35.5%20.7% increase in a one-year time period. Interest income on loan balances also experienced an increase of $4.5 million$979 thousand as compared to the quarter ended September 30, 2018.2019. Net fee income for the PPP loans is recognized on a straight line basis over 24 months and will be accelerated upon payoff. PPP loan income for the quarter included interest income of $220 thousand and net fee income of $417 thousand.
The available-for-sale securities portfolio increased in average balances by $6.3$71.1 million when comparing to the previous year while the income increased $287decreased $155 thousand over third quarter. Fed Funds sold and interest bearinginterest-bearing deposits increaseddecreased in average balances by $93.3$29.2 million as compared to the same quarter in 2018 which resulted in increased2019 with decreased income of $495$543 thousand for the current quarter.quarter due to much lower interest rates.
OverallWith the overall increase in the average balances of the Bank’s earning assets, overall total interest income for the quarter comparisons was only higher for third quarter 20192020 by 44.7%1.7% or $5.3 million$281 thousand as compared to third quarter 2018.2019. Decreases in the prime lending rate between the periods contributed to a decrease in rate yield.
In terms of annualizedAnnualized yield, for the quarter ended September 30, 2019, it2020, was 4.04% as compared to 4.74% which compares to a year ago thirdfor the quarter ended September 30, 2018 of 4.52%.2019. The following chart demonstratescharts demonstrate the value of increased loan balances in the balance sheet mix.mix, as well as the impact on the changes in interest rates. The yields on tax-exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts to follow.
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Quarter to Date Ended September 30, 2019 |
|
| Annualized Yield/Rate |
|
| Quarter to Date Ended September 30, 2020 |
|
| Annualized Yield/Rate |
| ||||||||||||||||||||
Interest Earning Assets: |
| Average Balance |
|
| Interest/Dividends |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| Average Balance |
|
| Interest/Dividends |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||||||
Loans |
| $ | 1,126,173 |
|
| $ | 15,202 |
|
|
| 5.40 | % |
|
| 5.16 | % |
| $ | 1,359,156 |
|
| $ | 16,181 |
|
|
| 4.76 | % |
|
| 5.40 | % |
Taxable investment securities |
|
| 167,654 |
|
|
| 1,082 |
|
|
| 2.58 | % |
|
| 1.95 | % |
|
| 245,274 |
|
|
| 968 |
|
|
| 1.58 | % |
|
| 2.58 | % |
Tax-exempt investment securities |
|
| 32,530 |
|
|
| 149 |
|
|
| 2.32 | % |
|
| 2.45 | % |
|
| 26,032 |
|
|
| 108 |
|
|
| 2.10 | % |
|
| 2.32 | % |
Fed funds sold & other |
|
| 112,961 |
|
|
| 579 |
|
|
| 2.05 | % |
|
| 1.71 | % |
|
| 83,760 |
|
|
| 36 |
|
|
| 0.17 | % |
|
| 2.05 | % |
Total Interest Earning Assets |
| $ | 1,439,318 |
|
| $ | 17,012 |
|
|
| 4.74 | % |
|
| 4.52 | % |
| $ | 1,714,222 |
|
| $ | 17,293 |
|
|
| 4.04 | % |
|
| 4.74 | % |
Change in Interest Income Quarter to Date September 30, 20192020 Compared to September 30, 20182019
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
Interest Earning Assets: |
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
|
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
| ||||||
Loans |
| $ | 4,477 |
|
| $ | 3,982 |
|
| $ | 495 |
|
| $ | 979 |
|
| $ | 2,774 |
|
| $ | (1,795 | ) |
Taxable investment securities |
|
| 372 |
|
|
| 143 |
|
|
| 229 |
|
|
| (114 | ) |
|
| 306 |
|
|
| (420 | ) |
Tax-exempt investment securities |
|
| (85 | ) |
|
| (92 | ) |
|
| 7 |
|
|
| (41 | ) |
|
| (34 | ) |
|
| (7 | ) |
Fed funds sold & other |
|
| 495 |
|
|
| 478 |
|
|
| 17 |
|
|
| (543 | ) |
|
| (13 | ) |
|
| (530 | ) |
Total Interest Earning Assets |
| $ | 5,259 |
|
| $ | 4,511 |
|
| $ | 748 |
|
| $ | 281 |
|
| $ | 3,033 |
|
| $ | (2,752 | ) |
52
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Interest Expense
Offsetting some of the lower than expected increase in interest income for the quarter was the increasedecrease in cost of fundsinterest expense in 2019.2020. Third quarter 20192020 was higherlower by $2.3$1.8 million thanor 44.8% compared to third quarter 2018.2019. Since 2018 with the Limberlost acquisition,2019, average interest-bearing deposit balances have increased $278.1$163.3 million or 16.2% and resulted inthe Company recognized approximately $2.0$1.8 million moreless in interest expense for the most recent quarter. Additionally, interestThe prime rate has dropped 150 basis points to date in 2020. Management has adjusted deposit rates accordingly. Interest expense on FHLB borrowings was up $237down $26 thousand in the third quarter 20192020 over the same time frame in 20182019 due to borrowings taken on from the acquisition. During the quarter, the prime rate has dropped 50 basis points. Management has adjusted deposit rates accordingly.Limberlost acquisition being repaid.
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Quarter to Date Ended September 30, 2019 |
|
| Annualized Yield/Rate |
|
| Quarter to Date Ended September 30, 2020 |
|
| Annualized Yield/Rate |
| ||||||||||||||||||||
Interest Bearing Liabilities: |
| Average Balance |
|
| Interest |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| Average Balance |
|
| Interest |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||||||
Savings deposits |
| $ | 734,075 |
|
| $ | 2,044 |
|
|
| 1.11 | % |
|
| 0.67 | % |
| $ | 915,367 |
|
| $ | 798 |
|
|
| 0.35 | % |
|
| 1.11 | % |
Other time deposits |
|
| 276,793 |
|
|
| 1,610 |
|
|
| 2.33 | % |
|
| 1.53 | % |
|
| 258,809 |
|
|
| 1,066 |
|
|
| 1.65 | % |
|
| 2.33 | % |
Other borrowed money |
|
| 24,582 |
|
|
| 257 |
|
|
| 4.18 | % |
|
| 1.60 | % |
|
| 18,920 |
|
|
| 231 |
|
|
| 4.88 | % |
|
| 4.18 | % |
Fed funds purchased & securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold under agreement to repurchase |
|
| 28,947 |
|
|
| 201 |
|
|
| 2.78 | % |
|
| 2.08 | % |
| $ | 30,100 |
|
| $ | 174 |
|
|
| 2.31 | % |
|
| 2.78 | % |
Total Interest Bearing Liabilities |
| $ | 1,064,397 |
|
| $ | 4,112 |
|
|
| 1.55 | % |
|
| 0.92 | % |
| $ | 1,223,196 |
|
| $ | 2,269 |
|
|
| 0.74 | % |
|
| 1.55 | % |
Change in Interest Expense Quarter to Date September 30, 20192020 Compared to September 30, 20182019
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
Interest Bearing Liabilities: |
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
|
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
| ||||||
Savings deposits |
| $ | 1,123 |
|
| $ | 507 |
|
| $ | 616 |
|
| $ | (1,246 | ) |
| $ | 158 |
|
| $ | (1,404 | ) |
Other time deposits |
|
| 920 |
|
|
| 558 |
|
|
| 362 |
|
|
| (544 | ) |
|
| (74 | ) |
|
| (470 | ) |
Other borrowed money |
|
| 237 |
|
|
| 205 |
|
|
| 32 |
|
|
| (26 | ) |
|
| (69 | ) |
|
| 43 |
|
Fed funds purchased & securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold under agreement to repurchase |
|
| 67 |
|
|
| 22 |
|
|
| 45 |
|
|
| (27 | ) |
|
| 7 |
|
|
| (34 | ) |
Total Interest Bearing Liabilities |
| $ | 2,347 |
|
| $ | 1,292 |
|
| $ | 1,055 |
|
| $ | (1,843 | ) |
| $ | 22 |
|
| $ | (1,865 | ) |
Overall, net interest spread for the third quarter 2019 is 412020 was 11 basis points lowerhigher than last year. As the following chart illustrates, higherindicates, the decline in yields on interest and dividend income did not offsetearning assets was less than the higher interest expensedecline in the most recent quartercost of funds when comparing to the same period a year ago.
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||
Interest/Dividend income/yield |
|
| 4.74 | % |
|
| 4.52 | % |
|
| 4.24 | % |
|
| 4.04 | % |
|
| 4.74 | % |
|
| 4.52 | % |
Interest Expense/cost |
|
| 1.55 | % |
|
| 0.92 | % |
|
| 0.72 | % |
|
| 0.74 | % |
|
| 1.55 | % |
|
| 0.92 | % |
Net Interest Spread |
|
| 3.19 | % |
|
| 3.60 | % |
|
| 3.52 | % |
|
| 3.30 | % |
|
| 3.19 | % |
|
| 3.60 | % |
Net Interest Margin |
|
| 3.60 | % |
|
| 3.85 | % |
|
| 3.71 | % |
|
| 3.51 | % |
|
| 3.60 | % |
|
| 3.85 | % |
Net Interest Income
Net interest income was up $2.9increased $2.1 million for the third quarter 20192020 over the same time frame in 2018 due to2019 with the increase in loan interest income and partially offset by highercombined with the lower interest expense, as previously mentioned. As the new loans added in 20182019 and 20192020 generate more income, management expects the benefits of the Company’s strategy of repositioning the balance sheet to continue to widen this margin as measured in dollars. In terms of net interest margin rate, the Bank recognizes competition for deposits havemay again increase and will continue to put pressure on the margin which may lead to a tightening.
Comparison of Noninterest Results of Operations - Third Quarter 20192020 to Third Quarter 20182019
Provision Expense
The ALLL has a direct impact on the provision expense. The increase in the ALLL is funded through recoveries and provision expense. The following tables both deal with the allowance for credit losses. The first table breaks down the
53
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
activity within ALLL for each loan portfolio class and shows the contribution provided by both the recoveries and the provision along with the reduction of the allowance caused by charge-offs. The second table discloses how much of the ALLL is attributed to each class of the loan portfolio, as well as the percent that each particular class of the loan portfolio represents to the entire loan portfolio in the aggregate. The consumer loan portfolios accounted for the largest component of charge-offs and recoveries for third quarter of 2019 as compared to the consumer2020 and consumer real estate portfolios which comprised the majority of the charge-offs and recoveries for third quarter 2018.2019. The commercial real estate portfolio is currently creating a large impact on the ALLL due to the loan growth.
Total provision for loan losses was $200 thousand$1.7 million higher for the third quarter 20192020 as compared to the same quarter 2018.2019. Provision for loan loss was increased due to the uncertainty related to COVID-19 and its effects on the ability of individuals, businesses and other entities to meet their financial obligations. Therefore, it is prudent to incorporate the impact of COVID-19 in the evaluation of the adequacy of Allowance for Loan and Lease Losses (ALLL). Due to the governors’ prior closure of non-essential businesses in many states, including restaurants (except for carryout and delivery), hair salons, and retail establishments, the risk in those industries has increased. The restaurant and hospitality sectors have been hit especially hard. Risk in the Consumer and 1-4 Family Portfolio has increased but the full impact remains unknown. Increases to the Bank’s ALLL for the third quarter of 2020, centered around current customers and businesses that are particularly vulnerable due to the stay at home order and qualitative factors, were adjusted accordingly. Management continues to monitor asset quality, making adjustments to the provision as necessary. Loan charge-offs were $96$140 thousand higherlower in third quarter 20192020 than the same quarter 2018.2019. Recoveries were $6 thousand higherlower in third quarter 20192020 as compared to third quarter 2018.2019. Combined net charge-offs were $90$134 thousand higherlower in third quarter 20192020 than the same time period 2018.2019. Past due loans, increased $1.7which include no deferrals related to COVID-19, decreased $2.2 million fromat September 30, 20182020 as compared to September 30, 2019. The majority of the change is attributed to the increasedecrease of past due balances in the consumer real estate, agricultural, agricultural real estate and commercial portfolios.and industrial portfolios with an increase in the commercial real estate portfolio.
54
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following table breaks down the activity within the ALLL for each loan portfolio class and shows the contribution provided by both recoveries and the provision, along with the reduction of the allowance caused by charge-offs. The time period covered is for three months ended September 30, 2020, 2019, 2018, and 2017.2018.
| (In Thousands) |
| (In Thousands) |
| ||||||||||||||||||||||||||
| Three Months Ended September 30, 2019 |
| Three Months Ended September 30, 2018 |
| Three Months Ended September 30, 2017 |
| Three Months Ended September 30, 2020 |
|
|
| Three Months Ended September 30, 2019 |
|
|
| Three Months Ended September 30, 2018 |
| ||||||||||||||
Loans, net | $ | 1,158,696 |
|
| $ | 838,698 |
|
| $ | 795,205 |
| $ | 1,363,862 |
|
|
| $ | 1,158,696 |
|
|
| $ | 838,698 |
| ||||||
Daily average of outstanding loans | $ | 1,126,173 |
|
| $ | 831,246 |
|
| $ | 790,397 |
| $ | 1,359,156 |
|
|
| $ | 1,126,173 |
|
|
| $ | 831,246 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allowance for Loan Losses - July 1, | $ | 6,683 |
| $ | 6,789 |
| $ | 6,858 |
| $ | 9,933 |
|
|
| $ | 6,683 |
|
|
| $ | 6,789 |
| ||||||||
Loans Charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Consumer Real Estate |
| 39 |
|
|
| 29 |
|
|
| - |
|
| - |
|
|
|
|
| 39 |
|
|
|
|
| 29 |
| ||||
Agriculture Real Estate |
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
|
|
| - |
|
|
|
|
| - |
| ||||
Agricultural |
| 22 |
|
|
| - |
|
|
| - |
|
| - |
|
|
|
|
| 22 |
|
|
|
|
| - |
| ||||
Commercial Real Estate |
| - |
|
|
| - |
|
|
| 19 |
|
| - |
|
|
|
|
| - |
|
|
|
|
| - |
| ||||
Commercial and Industrial |
| 55 |
| - |
| - |
|
| - |
|
|
|
| 55 |
|
|
|
| - |
| ||||||||||
Consumer |
| 103 |
|
|
|
|
| 94 |
|
|
|
|
| 92 |
|
| 79 |
|
|
|
|
| 103 |
|
|
|
|
| 94 |
|
|
| 219 |
|
|
| 123 |
|
|
| 111 |
|
| 79 |
|
|
|
| 219 |
|
|
|
| 123 |
| ||||||
Loan Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer Real Estate |
| - |
| 18 |
| - |
|
| 2 |
|
|
|
| - |
|
|
|
| 18 |
| ||||||||||
Agriculture Real Estate |
| - |
| - |
| - |
|
| - |
|
|
|
| - |
|
|
|
| - |
| ||||||||||
Agricultural |
| 1 |
| - |
| - |
|
| - |
|
|
|
| 1 |
|
|
|
| - |
| ||||||||||
Commercial Real Estate |
| 2 |
| 3 |
| 4 |
|
| 2 |
|
|
|
| 2 |
|
|
|
| 3 |
| ||||||||||
Commercial and Industrial |
| 13 |
| 3 |
| 2 |
|
| 10 |
|
|
|
| 13 |
|
|
|
| 3 |
| ||||||||||
Consumer |
| 32 |
|
|
| 18 |
|
|
| 18 |
|
| 28 |
|
|
|
| 32 |
|
|
|
| 18 |
| ||||||
|
| 48 |
|
|
| 42 |
|
|
| 24 |
|
| 42 |
|
|
|
| 48 |
|
|
|
| 42 |
| ||||||
Net Charge Offs |
| 171 |
|
|
| 81 |
|
|
| 87 |
|
| 37 |
|
|
|
| 171 |
|
|
|
| 81 |
| ||||||
Provision for loan loss |
| 247 |
| 47 |
| 99 |
|
| 1,987 |
|
|
|
| 247 |
|
|
|
| 47 |
| ||||||||||
Acquisition provision for loan loss |
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
|
| - |
|
|
|
| - |
| ||||||
Allowance for Loan & Lease Losses - September 30, |
| 6,759 |
|
|
| 6,755 |
|
|
| 6,870 |
|
| 11,883 |
|
|
|
| 6,759 |
|
|
|
| 6,755 |
| ||||||
Allowance for Unfunded Loan Commitments & Letters of Credit - September 30, |
| 430 |
|
|
| 333 |
|
|
| 228 |
|
| 633 |
|
|
|
| 430 |
|
|
|
| 333 |
| ||||||
Total Allowance for Credit Losses - September 30, | $ | 7,189 |
|
| $ | 7,088 |
|
| $ | 7,098 |
| $ | 12,516 |
|
|
| $ | 7,189 |
|
|
| $ | 7,088 |
| ||||||
Ratio of net charge-offs to average Loans outstanding |
| 0.02 | % |
|
| 0.01 | % |
|
| 0.01 | % |
| 0.00 | % |
|
|
| 0.02 | % |
|
|
| 0.01 | % | ||||||
Ratio of the Allowance for Loan Loss to Nonperforming Loans* |
| 173.25 | % |
| 1,399.98% |
|
|
| 397.35 | % |
| 151.01 | % |
|
|
| 173.25 | % |
|
| 1,399.98% |
|
| * | Nonperforming loans are defined as all loans on nonaccrual, plus any loans |
The Bank uses the following guidelines as stated in policy to determine when to realize a charge-off of a loan, whether partial loan balance or full loan balance. The Bank is also following the guidelines established under the CARES Act. A charge down in whole or in part is realized when unsecured consumer loans, credit card credits and overdraft lines of credit reach 90 days delinquency. At 120 days delinquent, secured consumer loans are charged down to the value of the collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. Commercial and agricultural credits are charged down at 120 days delinquency, unless an established and approved work-out plan is in place or litigation of the credit will likely result in recovery of the loan balance. Upon
55
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
notification of bankruptcy, unsecured debt is charged off. Additional charge-offs may be realized as further unsecured positions are recognized.
Loans classified as nonaccrual were higher as of September 30, 20192020 at $3.3$7.9 million as compared to $483 thousand$3.3 million as of September 30, 2018.2019. The majority ofagricultural real estate portfolio increased $3.8 million while the increase is in the agricultural,commercial real estate. commercial and industrial and consumer real estate and commercial portfolios.portfolios increased a combined $2.2 million. The agricultural portfolio decreased by $1.3 million as compared to September 2019.
In determining the allocation for impaired loans, the Bank applies the appraised market value of the collateral securing the asset, reduced by applying a discount for estimated costs of collateral liquidation. In some instances where the discounted market value is less than the loan amount, a specific impairment allocation is assigned, which may be reduced or eliminated by the write down of the credit’s active principal outstanding balance.
For the majority of the Bank’s impaired loans, including all collateral dependent loans, the Bank will apply the appraised market value methodology. However, the Bank may also utilize a measurement incorporating the present value of expected future cash flows discounted at the loan's effective rate of interest. To determine appraised market value, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily relied upon. Until such time that updated appraisals are received, the Bank may discount the collateral value used.
The following table presents the balances for allowance for loan losses by loan type for nine months ended September 30, 20192020 and September 30, 2018.2019.
|
| (In Thousands) |
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
| (In Thousands) |
|
|
|
|
| ||||
|
| September 30, 2019 |
|
|
|
|
|
| September 30, 2018 |
|
|
|
|
|
| September 30, 2020 |
|
|
|
|
|
| September 30, 2019 |
|
|
|
|
| ||||
Balance at End of Period Applicable To: |
| Amount |
|
| % of Loan Category |
|
| Amount |
|
| % of Loan Category |
|
| Amount |
|
| % of Loan Category |
|
| Amount |
|
| % of Loan Category |
| ||||||||
Consumer Real Estate |
| $ | 274 |
|
|
| 13.68 | % |
| $ | 235 |
|
|
| 9.85 | % |
| $ | 530 |
|
|
| 12.87 | % |
| $ | 274 |
|
|
| 13.68 | % |
Agricultural Real Estate |
|
| 352 |
|
|
| 17.31 | % |
|
| 252 |
|
|
| 8.17 | % |
|
| 762 |
|
|
| 14.12 | % |
|
| 352 |
|
|
| 17.31 | % |
Agricultural |
|
| 733 |
|
|
| 9.53 | % |
|
| 743 |
|
|
| 12.37 | % |
|
| 669 |
|
|
| 7.59 | % |
|
| 733 |
|
|
| 9.53 | % |
Commercial Real Estate |
|
| 3,305 |
|
|
| 43.25 | % |
|
| 3,272 |
|
|
| 49.68 | % |
|
| 5,735 |
|
|
| 43.55 | % |
|
| 3,305 |
|
|
| 43.25 | % |
Commercial and Industrial |
|
| 1,550 |
|
|
| 11.94 | % |
|
| 1,398 |
|
|
| 14.98 | % |
|
| 3,272 |
|
|
| 17.95 | % |
|
| 1,550 |
|
|
| 11.94 | % |
Consumer |
|
| 545 |
|
|
| 4.29 | % |
|
| 471 |
|
|
| 4.95 | % |
|
| 604 |
|
|
| 3.92 | % |
|
| 545 |
|
|
| 4.29 | % |
Unallocated |
|
| - |
|
|
| 0.00 | % |
|
| 384 |
|
|
| 0.00 | % |
|
| 311 |
|
|
| 0.00 | % |
|
| - |
|
|
| 0.00 | % |
Allowance for Loan & Lease Losses |
|
| 6,759 |
|
|
|
|
|
|
| 6,755 |
|
|
|
|
|
|
| 11,883 |
|
|
|
|
|
|
| 6,759 |
|
|
|
|
|
Off Balance Sheet Commitments |
|
| 430 |
|
|
|
|
|
|
| 333 |
|
|
|
|
|
|
| 633 |
|
|
|
|
|
|
| 430 |
|
|
|
|
|
Total Allowance for Credit Losses |
| $ | 7,189 |
|
|
|
|
|
| $ | 7,088 |
|
|
|
|
|
| $ | 12,516 |
|
|
|
|
|
| $ | 7,189 |
|
|
|
|
|
Noninterest Income
Noninterest income was up $478 thousand$1.6 million for the third quarter 20192020 over the same time frame in 2018.2019. The Company has seen an increase in its mortgage production volume and the gain on the sale of these loans was $76 thousand$1.3 million higher for the third quarter 20192020 over the same period in 2018.2019. Loan originations on loans held for sale for the third quarter 20192020 were $24.7$63.5 million with proceeds from sale at $24.8$68.9 million for 20192020 compared to 2018’s2019’s third quarter activity of $13.6$24.7 million in originations and $11.8$24.8 million in sales. The increase in loan originations was driven by the refinance activity associated with the reduction in interest rates. The mortgages sold were both 1-4 family and agricultural real estate loans originated for sale.
The largest fluctuation in noninterestCombined service fees increased by $277 thousand as compared to third quarter 2019. Service fee income was in the combined service fee lines, which was $412for 1-4 family and agricultural real estate loans increased by $23 thousand, higher than the same quarter last year. The increase was largely due to an increase inmortgage release fees increased $45 thousand, servicing rights income of $150increased $334 thousand, credit card fees increased $33 thousand and debit card income increased by $163 thousand over the same quarter in 2019. The additional fee income was offset by a decrease in overdraft and returned check charges of $127$283 thousand and service charge income of $37 thousand.
56The Bank may see an impact in some of the line items such as interchange fee income and overdraft fees going forward; however, we do see additional income being derived from home loan activity.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The impact of mortgage servicing rights, both to income and expense, is shown in the following table which reconciles the value of mortgage servicing rights. The capitalization runs through noninterest income while the amortization thereof is included in non-interest expense. For the third quarter of 2020 and 2019, mortgage servicing rights caused a net $287 and $91 thousand in income in comparison to a net $17 thousand income for the third quarter of 2018.respectively. The higher capitalized additions for 20192020 are attributed to a higher loan origination level of 1-4 families combined with a higherfamilies. A lower interest rate environment has helped to generate the mortgage servicing rights value being applied to originations of 1-4 families in 2019 as compared to 2018.refinance activity. For loans of 15 years and less, the value was 1.055%0.975% in the third quarter 20192020 versus 1.008%1.055% in third quarter 2018.2019. For loans over 15 years, the value was 1.259%1.109% versus 1.218%1.259% for the same periods respectively. The carrying value is well below the market value of $3.0$3.6 million which indicates any large expense to fund the valuation allowance to be unlikely in 2019.2020.
|
| (In Thousands) |
| Three Months |
|
| Nine Months |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||
Beginning Balance, January 1, |
| $ | 2,385 |
|
| $ | 2,299 |
| |||||||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
Beginning Balance | $ | 2,740 |
|
| $ | 2,465 |
|
| $ | 2,629 |
|
| $ | 2,385 |
| ||||||||
Capitalized Additions |
| $ | 500 |
|
|
| 338 |
|
| 583 |
|
|
| 240 |
|
|
| 1,182 |
|
|
| 500 |
|
Amortization |
| $ | (329 | ) |
|
| (264 | ) |
| (296 | ) |
|
| (149 | ) |
|
| (784 | ) |
|
| (329 | ) |
Ending Balance, September 30, |
| $ | 2,556 |
|
|
| 2,373 |
|
| 3,027 |
|
|
| 2,556 |
|
|
| 3,027 |
|
|
| 2,556 |
|
Valuation Allowance |
| $ | - |
|
|
| - |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Mortgage Servicing Rights net, September 30, |
| $ | 2,556 |
|
| $ | 2,373 |
| $ | 3,027 |
|
| $ | 2,556 |
|
| $ | 3,027 |
|
| $ | 2,556 |
|
Noninterest Expense
For the third quarter 2019,2020, noninterest expenses were $2.5$1.7 million higher than for the same quarter in 2018.2019. Salaries, wages, and employee benefits increased $1.1 million, with the addition of the acquired offices,(includes normal merit increases, increased medical costs and restricted stock expense.expense, incentive payout and all employee benefits) increased $1.2 million in total. This was comprised of increased salaries of $944 thousand which includes a one-time true up of $500 thousand to support our employees’ annual incentive program and increased benefits of $235 thousand. Furniture and equipment expenses increased $132$155 thousand from the prior year primarily due to an increase in depreciation of $83$54 thousand and an increase in maintenance contracts of $48$94 thousand. Data processing charges only increased $118$8 thousand for third quarter 2019 while advertising increased $3512020. Building occupancy costs decreased $72 thousand due to decreased building depreciation of $39 thousand and decreased building repairs of $28 thousand. Advertising decreased $176 thousand for the quarter. OtherFranchise taxes increased $120 thousand over third quarter 2019 with the increase in equity due to the issuance of stock in the Bank of Geneva acquisition. FDIC assessment and other general and administrative expenses were up $542$194 thousand and $119 thousand respectfully as compared to third quarter 2018. Core deposit intangible increased $1402019. In 2019, Small Bank Credits were applied to the FDIC assessment.
Income Taxes
Federal income tax expense was $121 thousand loan and collection expense increased $88 thousand and audit and exam fees increased $72 thousand. Miscellaneous NSF checks and other losses decreased $72 thousand fromhigher for the third quarter 2018.2020 compared to the same quarter in 2019. Effective tax rates were 19.29% and 17.91% for third quarter 2020 and 2019 respectively. The higher effective tax rate for third quarter 2020 equated to an increase in federal income tax expense of $75 thousand with the remainder attributed to the increase in pre-tax income.
Net Income
Results overall, net income in the third quarter of 20192020 was up $400$135 thousand as compared to the same quarter last year. Third quarter 2020 included an additional $1.7 million of loan loss provision as compared to third quarter 2019. As discussed previously, the long-term effects of COVID-19 and the ability of borrowers to make timely payments are unknown at this time. The Company has done an exceptional job of growing loans while keeping past dues low. The Company remains strong, stable, and well capitalized and has the capacity to continue to cover the increased costs of expansion.
Comparison of Results of Interest Earnings and Expenses for nine month periods ended September 30, 20192020 and 20182019
Interest Income
Higher loan balances created the improvement in the interest income for the first nine months of 20192020 as compared to the first nine months of 2018.2019. Interest income rose 48.6%1.7% or $16.7 million$873 thousand while interest income from loans accounted for the majority$1.7 million of the increase. Contributing to the overall improvement was an increase in securities income of $489$219 thousand and an increaseoffset by a decrease in income from Fed Funds sold and interest bearinginterest-bearing deposits of $985$997 thousand over 2018.2019. The change in the balance sheet mix along with the loan growth caused the asset yield to improvedecreased by 63 basis points to 5.04%4.30% for the first nine months of 20192020 compared to the first nine months of 2018’s 4.41%2019’s 4.93%. The improvement of the2019 yield was favorably impacted by the $2.0 million reversal of the fair value adjustment fromestimated credit loss associated with the payoff of thetwo purchased credit-impaired loans as discussed in Note 2.loans.
With each quarter of 2019,2020, the loan growth contributedhas provided an offset to the continued improvementoverall decline in asset yield. PPP loan income for the year included interest income of $390 thousand and net fee income of $735 thousand. The growth factor contribution is shown in the charts which follow.
The average interest earning asset base was $308.1$228.1 million higher in the first nine months 20192020 than the first nine months of 2018,2019, an increase of approximately 29.4%16.4%.
57
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The yields on tax-exempt securities and the portion of the tax-exempt IDB loans included in loans have been tax adjusted based on a 21% tax rate in the charts to follow.
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year to Date Ended September 30, 2019 |
|
| Annualized Yield/Rate |
|
| Year to Date Ended September 30, 2020 |
|
| Annualized Yield/Rate |
| ||||||||||||||||||||
Interest Earning Assets: |
| Average Balance |
|
| Interest/Dividends |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| Average Balance |
|
| Interest/Dividends |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||||||
Loans |
| $ | 1,113,892 |
|
| $ | 46,605 |
|
|
| 5.58 | % |
|
| 5.04 | % |
| $ | 1,305,998 |
|
| $ | 48,256 |
|
|
| 4.93 | % |
|
| 5.58 | % |
Taxable investment securities |
|
| 146,085 |
|
|
| 2,857 |
|
|
| 2.61 | % |
|
| 1.91 | % |
|
| 208,499 |
|
|
| 3,220 |
|
|
| 2.06 | % |
|
| 2.34 | % |
Tax-exempt investment securities |
|
| 20,784 |
|
|
| 489 |
|
|
| 3.97 | % |
|
| 2.45 | % |
|
| 25,564 |
|
|
| 345 |
|
|
| 2.28 | % |
|
| 2.46 | % |
Fed funds sold & other |
|
| 75,388 |
|
|
| 1,206 |
|
|
| 2.13 | % |
|
| 1.51 | % |
|
| 75,917 |
|
|
| 209 |
|
|
| 0.37 | % |
|
| 2.08 | % |
Total Interest Earning Assets |
| $ | 1,356,149 |
|
| $ | 51,157 |
|
|
| 5.04 | % |
|
| 4.41 | % |
| $ | 1,615,978 |
|
| $ | 52,030 |
|
|
| 4.30 | % |
|
| 4.93 | % |
Change in Interest Income Year to Date September 30, 20192020 Compared to September 30, 20182019
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
Interest Earning Assets: |
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
|
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
| ||||||
Loans |
| $ | 15,257 |
|
| $ | 11,882 |
|
| $ | 3,375 |
|
| $ | 1,651 |
|
| $ | 7,104 |
|
| $ | (5,453 | ) |
Taxable investment securities |
|
| 721 |
|
|
| (53 | ) |
|
| 774 |
|
|
| 363 |
|
|
| 701 |
|
|
| (338 | ) |
Tax-exempt investment securities |
|
| (232 | ) |
|
| (859 | ) |
|
| 627 |
|
|
| (144 | ) |
|
| (136 | ) |
|
| (8 | ) |
Fed funds sold & other |
|
| 985 |
|
|
| 894 |
|
|
| 91 |
|
|
| (997 | ) |
|
| (4 | ) |
|
| (993 | ) |
Total Interest Earning Assets |
| $ | 16,731 |
|
| $ | 11,864 |
|
| $ | 4,867 |
|
| $ | 873 |
|
| $ | 7,665 |
|
| $ | (6,792 | ) |
Interest Expense
Interest expense was also higherlower for the first nine months of 20192020 compared to the first nine months of 2018.2019. At $10.9$8.4 million, the first nine months of 20192020 was up $6.2down $2.6 million as compared to the same time period 20182019 or 130.2%23.5%.
The average balance of interest-bearing liabilities was higher by $257.4$148.7 million in 20192020 than the first nine months of 2018.2019. Interest bearing deposits increased $233.1$148.6 million while Fed Funds purchased and securities sold under agreement to repurchase increased by $3.3a combined $3.5 million. The higher balance coupled with the slight variation of the balance sheet mix, resulted in a 5947 basis points increasedecrease in the cost of funds at 1.42%0.95% for the first nine months of 20192020 as compared to 2018’s 0.83%2019’s 1.42%.
Competition has caused deposits to price higher. The change chart on the following pagebelow shows the increaseddecreased cost is only slightlywas driven more by volumerate than rate.volume.
|
| (In Thousands) |
|
|
|
|
|
|
|
|
|
| (In Thousands) |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year to Date Ended September 30, 2019 |
|
| Annualized Yield/Rate |
|
| Year to Date Ended September 30, 2020 |
|
| Annualized Yield/Rate |
| ||||||||||||||||||||
Interest Bearing Liabilities: |
| Average Balance |
|
| Interest |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| Average Balance |
|
| Interest |
|
| September 30, 2020 |
|
| September 30, 2019 |
| ||||||||
Savings deposits |
| $ | 708,280 |
|
| $ | 5,577 |
|
|
| 1.05 | % |
|
| 0.60 | % |
| $ | 849,748 |
|
| $ | 3,237 |
|
|
| 0.51 | % |
|
| 1.05 | % |
Other time deposits |
|
| 261,729 |
|
|
| 4,029 |
|
|
| 2.05 | % |
|
| 1.33 | % |
|
| 268,762 |
|
|
| 3,782 |
|
|
| 1.88 | % |
|
| 2.05 | % |
Other borrowed money |
|
| 26,035 |
|
|
| 813 |
|
|
| 4.16 | % |
|
| 1.60 | % |
|
| 22,401 |
|
|
| 754 |
|
|
| 4.49 | % |
|
| 4.20 | % |
Fed funds purchased & securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold under agreement to repurchase |
|
| 29,657 |
|
|
| 527 |
|
|
| 2.37 | % |
|
| 1.90 | % |
|
| 33,118 |
|
|
| 605 |
|
|
| 2.44 | % |
|
| 2.37 | % |
Total Interest Bearing Liabilities |
| $ | 1,025,701 |
|
| $ | 10,946 |
|
|
| 1.42 | % |
|
| 0.83 | % |
| $ | 1,174,029 |
|
| $ | 8,378 |
|
|
| 0.95 | % |
|
| 1.42 | % |
58
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Change in Interest Expense Year to Date September 30, 20192020 Compared to September 30, 20182019
|
| (In Thousands) |
|
| (In Thousands) |
| ||||||||||||||||||
Interest Bearing Liabilities: |
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
|
| Total Change |
|
| Change Due to Volume |
|
| Change Due to Rate |
| ||||||
Savings deposits |
| $ | 3,080 |
|
| $ | 1,214 |
|
| $ | 1,866 |
|
| $ | (2,340 | ) |
| $ | 539 |
|
| $ | (2,879 | ) |
Other time deposits |
|
| 2,207 |
|
|
| 1,215 |
|
|
| 992 |
|
|
| (247 | ) |
|
| 101 |
|
|
| (348 | ) |
Other borrowed money |
|
| 753 |
|
|
| 657 |
|
|
| 96 |
|
|
| (59 | ) |
|
| (115 | ) |
|
| 56 |
|
Fed funds purchased & securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold under agreement to repurchase |
|
| 151 |
|
|
| 58 |
|
|
| 93 |
|
|
| 78 |
|
|
| 63 |
|
|
| 15 |
|
Total Interest Bearing Liabilities |
| $ | 6,191 |
|
| $ | 3,144 |
|
| $ | 3,047 |
|
| $ | (2,568 | ) |
| $ | 588 |
|
| $ | (3,156 | ) |
Net Interest Income
Overall, net interest spread figures for the first nine months of 2020 were down from 2019 are up from 2018 by 416 basis points and up 18down 23 basis points from 2017.2018. Net interest margin for the first nine months of 2019 is higher2020 was lower than the same period 2018periods of 2019 and 2017.2018. As the chart below illustrates, both higherlower yields on interestloan and dividendinvestment income were only partially offset by higherlower interest expense resulting in total net interest margin up 17down 27 basis points since the first nine months of 20182019 and overunder the first nine months of 20172018 by 3619 basis points.
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2017 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||
Interest/Dividend income/yield |
|
| 5.04 | % |
|
| 4.41 | % |
|
| 4.12 | % |
|
| 4.30 | % |
|
| 4.93 | % |
|
| 4.41 | % |
Interest Expense/cost |
|
| 1.42 | % |
|
| 0.83 | % |
|
| 0.68 | % |
|
| 0.95 | % |
|
| 1.42 | % |
|
| 0.83 | % |
Net Interest Spread |
|
| 3.62 | % |
|
| 3.58 | % |
|
| 3.44 | % |
|
| 3.35 | % |
|
| 3.51 | % |
|
| 3.58 | % |
Net Interest Margin |
|
| 3.97 | % |
|
| 3.80 | % |
|
| 3.61 | % |
|
| 3.61 | % |
|
| 3.88 | % |
|
| 3.80 | % |
Net interest income was up $10.5$3.4 million in the first nine months of 20192020 over the same time frame in 20182019 due to the increase in loan income even with higherand lower interest expense as previously mentioned. NewAs the new loans added in 20182019 and 2019 will continue to2020 generate more income, while deposit pressure is expectedmanagement expects the benefits of the Company’s strategy of repositioning the balance sheet to continue to widen this margin as measured in dollars. In terms of net interest margin rate, the Bank recognizes competition for deposits may again increase and put pressure on the expense side.margin which may lead to a tightening.
59
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Comparison of Results of Noninterest Earnings and Expenses for nine month periods ended September 30, 20192020 and 20182019
Provision Expense
Total provision for loan losses was $191 thousand$4.6 million higher for the first nine months 20192020 than for the first nine months 2018. While loan growth continued2019 attributable primarily to the uncertainties associated with COVID-19 and its effects on the ability of individuals, businesses and other entities to meet their financial obligations. Therefore, it is prudent to incorporate the impact of COVID-19 in the evaluation of the adequacy of Allowance for Loan and Lease Losses (ALLL). Due to the governors’ prior closure of non-essential businesses in many states, including restaurants (except for carryout and delivery), hair salons, and retail establishments, the risk in those industries has increased. The restaurant and hospitality sectors have been hit especially hard. Risk in the Consumer and 1-4 Family Portfolio has increased but the full impact remains unknown. Increases to the Bank’s ALLL for the first nine months of 2020, centered around current customers and businesses that are particularly vulnerable due to the stay at home order and qualitative factors, were adjusted accordingly. Management continues to monitor asset quality, making adjustments to the provision as necessary. Loan charge-offs were $74 thousand lower in the first nine months strong asset quality continued also. of 2020 compared to the same period 2019. Recoveries were $21 thousand higher in the first nine months of 2020 as compared to first nine months of 2019. Combined net charge-offs were $95 thousand lower in the nine months ended September 2020 as compared to the same time period 2019. Management continues to evaluate the potential financial implications resulting from COVID-19 and adjusts ALLL qualitative factors as necessary.
The strong asset qualityfollowing table breaks down the activity within the ALLL for each loan portfolio class and shows the contribution provided by both recoveries and the provision, along with only $94 thousand higher net charge-offs offset any needthe reduction of the allowance caused by charge-offs. The time period covered is for additional provision above the $410 thousand that was expensed.nine months ended September 30, 2020, 2019, and 2018.
| (In Thousands) |
| (In Thousands) |
| ||||||||||||||||||||||||||
| Nine Months Ended September 30, 2019 |
|
|
| Nine Months Ended September 30, 2018 |
|
|
| Nine Months Ended September 30, 2017 |
| Nine Months Ended September 30, 2020 |
|
|
|
| Nine Months Ended September 30, 2019 |
|
|
|
| Nine Months Ended September 30, 2018 |
| ||||||||
Loans, net | $ | 1,158,696 |
|
|
| $ | 838,698 |
|
|
| $ | 795,205 |
| $ | 1,363,862 |
|
|
|
| $ | 1,158,696 |
|
|
|
| $ | 838,698 |
| ||
Daily average of outstanding loans | $ | 1,113,892 |
| $ | 830,118 |
| $ | 776,828 |
| $ | 1,305,998 |
|
|
| $ | 1,113,892 |
|
|
| $ | 830,118 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Allowance for Loan Losses - January 1, | $ | 6,775 |
| $ | 6,868 |
| $ | 6,784 |
| $ | 7,228 |
|
|
| $ | 6,775 |
|
|
| $ | 6,868 |
| ||||||||
Loans Charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Consumer Real Estate |
| 95 |
|
|
| 63 |
|
|
| - |
|
| 35 |
|
|
|
|
| 95 |
|
|
|
|
| 63 |
| ||||
Agriculture Real Estate |
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
|
|
| - |
|
|
|
|
| - |
| ||||
Agricultural |
| 22 |
|
|
| - |
|
|
| - |
|
| - |
|
|
|
|
| 22 |
|
|
|
|
| - |
| ||||
Commercial Real Estate |
| - |
|
|
| 15 |
|
|
| 19 |
|
| 8 |
|
|
|
|
| - |
|
|
|
|
| 15 |
| ||||
Commercial and Industrial |
| 55 |
| 100 |
| - |
|
| 165 |
|
|
|
| 55 |
|
|
|
| 100 |
| ||||||||||
Consumer |
| 382 |
|
|
|
| 272 |
|
|
|
| 189 |
|
| 272 |
|
|
|
|
| 382 |
|
|
|
|
| 272 |
| ||
|
| 554 |
|
| 450 |
|
| 208 |
|
| 480 |
|
|
|
| 554 |
|
|
|
| 450 |
| ||||||||
Loan Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer Real Estate |
| - |
| 18 |
| 13 |
|
| 7 |
|
|
|
| - |
|
|
|
| 18 |
| ||||||||||
Agriculture Real Estate |
| - |
| - |
| - |
|
| - |
|
|
|
| - |
|
|
|
| - |
| ||||||||||
Agricultural |
| 3 |
| 6 |
| 2 |
|
| - |
|
|
|
| 3 |
|
|
|
| 6 |
| ||||||||||
Commercial Real Estate |
| 7 |
| 7 |
| 11 |
|
| 7 |
|
|
|
| 7 |
|
|
|
| 7 |
| ||||||||||
Commercial and Industrial |
| 21 |
| 8 |
| 8 |
|
| 19 |
|
|
|
| 21 |
|
|
|
| 8 |
| ||||||||||
Consumer |
| 97 |
|
| 79 |
|
| 63 |
|
| 116 |
|
|
|
| 97 |
|
|
|
| 79 |
| ||||||||
|
| 128 |
|
| 118 |
|
| 97 |
|
| 149 |
|
|
|
| 128 |
|
|
|
| 118 |
| ||||||||
Net Charge Offs |
| 426 |
|
| 332 |
|
| 111 |
|
| 331 |
|
|
|
| 426 |
|
|
|
| 332 |
| ||||||||
Provision for loan loss |
| 410 |
| 219 |
| 197 |
|
| 4,986 |
|
|
|
| 410 |
|
|
|
| 219 |
| ||||||||||
Acquisition provision for loan loss |
| - |
|
| - |
|
| - |
|
| - |
|
|
|
| - |
|
|
|
| - |
| ||||||||
Allowance for Loan & Lease Losses - September 30, |
| 6,759 |
|
| 6,755 |
|
| 6,870 |
|
| 11,883 |
|
|
|
| 6,759 |
|
|
|
| 6,755 |
| ||||||||
Allowance for Unfunded Loan Commitments & Letters of Credit - September 30, |
| 430 |
|
| 333 |
|
| 228 |
|
| 633 |
|
|
|
| 430 |
|
|
|
| 333 |
| ||||||||
Total Allowance for Credit Losses - September 30, | $ | 7,189 |
| $ | 7,088 |
| $ | 7,098 |
| $ | 12,516 |
|
|
| $ | 7,189 |
|
|
| $ | 7,088 |
| ||||||||
Ratio of net charge-offs to average Loans outstanding |
| 0.04 | % |
|
| 0.04 | % |
|
| 0.01 | % |
| 0.03 | % |
|
|
| 0.04 | % |
|
|
| 0.04 | % | ||||||
Ratio of the Allowance for Loan Loss to Nonperforming Loans* |
| 173.25 | % |
| 1,399.98% |
|
| 397.35 | % |
| 151.01 | % |
|
|
| 173.25 | % |
|
| 1,399.98% |
|
| * | Nonperforming loans are defined as all loans on nonaccrual, plus any loans |
In comparing past due balances of loans 30+ days, September 30, 2019 2020 balances were $2.5 million$324 thousand as compared to September 30, 20182019 balances of $777 thousand.$2.5 million. Net charge-offs were also slightly higherlower at $426$331 thousand for the first nine months of 20192020 compared to the first nine months of 2018’s $3322019’s $426 thousand.
Noninterest Income
60
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Noninterest income for the first nine months 2019of 2020 increased over the first nine months of 20182019 by $738 thousand.$2.3 million. Gain on sale of loans showed an $1.6 million increase over the first nine months of 2019 with the refinance activity due to interest rate reductions. Combined service fees increased by $833$460 thousand with increased debit card income of $336$358 thousand, and servicing rights income of $163$642 thousand and mortgage release fees of $262 thousand. Overdraft and returned check income increased $119decreased $636 thousand whileand miscellaneous service fees increased $108decreased $196 thousand. Gain on sale of loans showed a $59 thousand decrease over the first nine months of 2018. The Company did sell some of its available-for-sale securities in first quarter 20192020 and recognized a lossgain of $26 thousand.$270 thousand.
Noninterest Expense
Through the first nine months of 2019,2020, noninterest expenses were $8.4$1.5 million higher than in the first nine months of 2018. Of this increase,2019. 2019 included $1.3 million wasof third party acquisition related costs incurred with the Limberlost transaction. The effectnine months of 2020 included an increase of $2.4$1.1 million in salaries and wages was combined within addition to an increase of $1.1 million$313 thousand in employee benefits. The addition of the acquired offices, normal merit increases, increased restricted stock expense, increased medical costs and increased employer taxes related to the vesting of restricted stock awards have impacted 2019. Acquisition2020. 2019 included acquisition costs included in these categories were $157of $145 thousand.
Data processing fees were $1.2 million higher$817 thousand lower than last year with $868 thousand of the increasedecrease acquisition related. A seven year contract extension was signed in the third quarter of 2016 which has helped reduce the expense while adding new products and services to better align with our customers’ expectations in the coming years. We have already added additional products in 2019,2020, mainly focused on mobile services and business deposit accounts. Furniture and equipment was $519$204 thousand higher than 2018.2019. Increased depreciation for new offices and office transformations, along with increased maintenance costs have led to this expense to increase over 2018.
2019.
General and administrative expenses were up $1.7 million$130 thousand over the first nine months of 2018 with $1952019. Acquisition costs of $182 thousand incurred fromwere included in this line for 2019. One of the acquisition. The largest increaseincreases was $420$106 thousand for core deposit intangible. Miscellaneousaudit, accounting and exam fees. Overdraft related expenses were $225$96 thousand more than 2018 with acquisition expenses totaling $37 thousand. Loan and collection expenses were up $116 thousand as compared to 2018.2019. The next largest increasedecrease for 20192020 was in legal expenses. These two line items on the income statement were updown by $154$131 thousand over the first nine months of 2018 with2019. During the first nine months of 2019, legal acquisition expenses accountingwere $96 thousand. Travel and convention expenses were down $81 thousand as compared to 2019.
Income Taxes
Federal income tax expense was only $3 thousand higher for $96the first nine months of 2020 compared to the first nine months of 2019. Effective tax rates were 19.04% and 18.62% for the first nine months of 2020 and 2019 respectively. The higher effective tax rate for the first nine months of 2020 equaled an increase in federal income tax expense of $70 thousand ofwith the increase. remainder driven from decreased earnings.
Net Income
Overall, net income through the first nine months of 20192020 was up $1.9 milliondown $360 thousand as compared to the first nine months of 2018. Excluding tax adjusted acquisition costs, net income would have been approximately $14.7 million, an increase of $1.0 million as shown below in the table.
|
| (in thousands of dollars) |
| |||||
|
| Nine Months Ended |
| |||||
Non-GAAP Reconciliation of Net Income |
| September 30, 2019 |
|
| September 30, 2018 |
| ||
|
| (Unaudited) |
| |||||
Net income as reported |
| $ | 13,679 |
|
| $ | 11,756 |
|
Acquisition expenses |
|
| 1,270 |
|
|
| 189 |
|
Tax effect |
|
| (250 | ) |
|
| (19 | ) |
Net income excluding acquisition expenses |
| $ | 14,699 |
|
| $ | 11,926 |
|
The Company continues to grow loans while keeping past dues low. The growth in loans has spurred the increase in net interest income that has flowed through to the bottom line. The asset quality has kept loan provision down as the allowance2019. Provision for loan loss, remains adequatewhich increased $4.6 million for the levelfirst nine months of credit risk. The opening2020 as compared to the first nine months of 2019, was the new offices has hampered earnings inlargest contributor to the short term; however, the Company remains focused on the long term.
The Company continues to look for new opportunities to generate and protect revenue and provide additional channels through which to serve our customers and maintain our high level of customer satisfaction.
decreased net income.
61
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
FORWARD LOOKING STATEMENTS
Statements contained in this portion of the Company's report may be forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "intend," "believe," "expect," "anticipate," "should," "planned," "estimated," and "potential." Such forward-looking statements are based on current expectations, but actual results may differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. Other factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank's market area, changes in relevant accounting principles and guidelines and other factors over which management has no control.control, including, but not limited to, the ongoing impact of the COVID-19 pandemic. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results differ from those projected in the forward-looking statements.
62
ITEM 3 QUALITATIVE AND QUANTITATIVEQUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates and equity prices. The primary market risk to which the Company is subject is interest rate risk. The majority of our interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading such as loans, available for sale securities, interest bearing deposits, short term borrowings and long term borrowings. Interest rate risk occurs when interest bearing assets and liabilities re-price at different times as market interest rates change. For example, if fixed rate assets are funded with variable rate debt, the spread between asset and liability rates will decline or turn negative if rates increase.
Interest rate risk is managed within an overall asset/liability framework. The principal objectives of asset/liability management are to manage sensitivity of net interest spreads and net income to potential changes in interest rates.
Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. In the event that our asset/liabilities management strategies are unsuccessful, our profitably may be adversely affected. The Company employs a sensitivity analysis utilizing interest rate shocks to help in this analysis.
The shocks presented below assume an immediate change of rate in the percentages and directions shown covering a twelve month period:
Interest Rate Shock on Net Interest Margin |
|
|
|
|
|
|
|
| Interest Rate Shock on Net Interest Income |
| |||||||
Net Interest |
|
| % Change to |
|
| Rate |
| Rate |
|
| Cumulative |
|
| % Change to |
| ||
Margin (Ratio) |
|
| Flat Rate |
|
| Direction |
| Changes by |
|
| Total ($000) |
|
| Flat Rate |
| ||
4.23% |
|
| 20.16% |
|
| Rising |
| 3.00% |
|
|
| 60,436 |
|
| 18.70% |
| |
4.01% |
|
| 14.03% |
|
| Rising |
| 2.00% |
|
|
| 57,439 |
|
| 12.81% |
| |
3.80% |
|
| 8.00% |
|
| Rising |
| 1.00% |
|
|
| 54,497 |
|
| 7.03% |
| |
3.52% |
|
| 0.00% |
|
| Flat |
| 0.00% |
|
|
| 50,916 |
|
| 0.00% |
| |
3.49% |
|
| -0.78% |
|
| Falling |
| -1.00% |
|
|
| 49,947 |
|
| -1.90% |
| |
3.29% |
|
| -6.56% |
|
| Falling |
| -2.00% |
|
|
| 47,307 |
|
| -7.09% |
| |
3.10% |
|
| -11.98% |
|
| Falling |
| -3.00% |
|
|
| 44,984 |
|
| -11.65% |
|
Interest Rate Shock on Net Interest Margin |
|
|
|
|
|
|
|
| Interest Rate Shock on Net Interest Income |
| |||||||
Net Interest |
|
| % Change to |
|
| Rate |
| Rate |
|
| Cumulative |
|
| % Change to |
| ||
Margin (Ratio) |
|
| Flat Rate |
|
| Direction |
| Changes by |
|
| Total ($000) |
|
| Flat Rate |
| ||
3.65% |
|
| 10.63% |
|
| Rising |
| 3.00% |
|
|
| 60,605 |
|
| 10.42% |
| |
3.31% |
|
| 0.43% |
|
| Rising |
| 2.00% |
|
|
| 55,997 |
|
| 2.03% | �� | |
3.27% |
|
| -0.67% |
|
| Rising |
| 1.00% |
|
|
| 55,062 |
|
| 0.32% |
| |
3.29% |
|
| 0.00% |
|
| Flat |
| 0.00% |
|
|
| 54,885 |
|
| 0.00% |
| |
3.03% |
|
| -8.03% |
|
| Falling |
| -1.00% |
|
|
| 51,308 |
|
| -6.52% |
| |
2.90% |
|
| -11.94% |
|
| Falling |
| -2.00% |
|
|
| 49,450 |
|
| -9.90% |
| |
2.78% |
|
| -15.64% |
|
| Falling |
| -3.00% |
|
|
| 47,713 |
|
| -13.07% |
|
The net interest margin represents the forecasted twelve month margin. The Company also reviews shocks with a 4.0% fluctuation with a delayed time frame of 10 months and over a 24 month time frame. It also shows the effect rate changes will have on both the margin and net interest income. The goal of the Company is to lengthen the term of some of the Bank’s fixed rate liabilities or sources of funds to decrease the exposure to a rising rate environment. Of course, customer desires also impact the Bank’s ability to attract longer term deposits. Some movement into the longer term time deposits has occurred. Over the past five year period,with the Limberlost acquisition, the Bank has experienced a decreasean increase in the time balances of our deposit portfolio, and therefore, a lossan increase of term funding. Over the past two years, the Bank has also paid off term borrowings with the last $5 million maturing last year;December 2018; however, additional borrowings were a part of the Limberlost acquisition in 2019.
The shock chart currently shows a wideningtightening in net interest margin over the next twelve months in an increasinga rising rate environment with a tighteningat 100 basis points and at all levels in a falling rate environment. At an increase of 100 basis points and the current low rate, there are not enough assets repricing above the floor for an expansion of net interest margin. Due to the existence of such a low rate environment, the model predicts expansion of net interest income at any level in a rising rate environment. Cost of funds are at 1.55%0.74% for the quarter and 1.42%0.95% for the year to date so the lowest shock of 100 basis points is where the Bank can take fullpartial advantage and reprice some funds to match the level of shock. Once the shocks are falling over 100 basis points, the cost of funds cannot lower to match and the loss on net interest income continues to build. Since theThe average duration of the majority of the assets is outside the 12 month shock period, the rising rate environment only shows improvement.period. The majority of the newer loans added to the commercial real estate portfolio begin with an initial fixed rate period of three to five years whose variable adjustment is outside of the current shock time frame. The Bank continues to adjust its assumptions by including decay rates and key rate ties on certain deposit accounts and continues to review and modify those rates as the index rates change. All shocks are within risk exposure guidelines at all levels. The effect of the rate shocks may be mitigated to the extent that not all lines of business are directly tied to an external index and actual balance sheet composition may differ from prediction.
Overall, the Company must concentrate on increasing loan spreads on variable loans and extend the duration on cost of funds where possible.
63
ITEM 4 CONTROLS AND PROCEDURES
As of September 30, 2019,2020, an evaluation was performed under the supervision and with the participation of the Company's management including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 20192020 . There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, the registrant'sCompany's internal control over financial reporting.
None
ThereExcept as otherwise provided below, there have been no material changes in the Company’s risk factors from those disclosed by Registrant in itsthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.
In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak an unprecedented number of individuals have filed claims for unemployment, and stock markets have experienced significant volatility, with bank stocks suffering significant declines in value. In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation to provide relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.
Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities. In addition, the success of our operations substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business.The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. As the result, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
• | demand for our products and services may decline, making it difficult to grow assets and income; |
• | if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; |
• | collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; |
• | our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; |
• | the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; |
• | as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; |
• | a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend; |
• | we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and |
• | Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs. |
Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Treasury stock repurchased the quarter ended September 30, 2019.2020.
Period |
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs (1) |
|
| (d) Maximum Number of Shares that may yet be purchased under the Plans or Programs |
| ||||
7/1/2019 to 7/31/2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2019 to 8/31/2019 |
|
| 6,569 |
| (2) |
| 25.21 |
| (2) |
| — |
|
|
| 500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2019 to 9/30/2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 500,000 |
|
Total |
|
| 6,569 |
|
|
| — |
|
|
| — |
|
|
| 500,000 |
|
Period |
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs (1) |
|
| (d) Maximum Number of Shares that may yet be purchased under the Plans or Programs |
| ||||
7/1/2020 to 7/31/2020 |
|
| 475 |
| (2) |
| 21.65 |
| (2) |
| — |
|
|
| 545,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2020 to 8/31/2020 |
|
| 6,400 |
| (2) |
| 21.78 |
| (2) |
| — |
|
|
| 545,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2020 to 9/30/2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 545,000 |
|
Total |
|
| 6,875 |
|
|
| 21.77 |
|
|
| — |
|
|
| 545,000 |
|
| (1) | From time to time, the Company purchases shares in the market pursuant to a stock repurchase program publicly announced on January |
| (2) | Shares which were repurchased to account for |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable
64
3.1 |
| |
3.2 |
| |
4.1 | ||
31.1 |
| |
31.2 |
| |
32.1 |
| |
32.2 |
| |
|
|
|
101.INS |
| Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.(1) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document (1) |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document (1) |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document (1) |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, has been formatted in Inline XBRL. |
65
SIGNATURES(1) Pursuant to Rule 406T of Regulation S-T, the interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
| Farmers & Merchants Bancorp, Inc., | |
|
|
|
|
| |
Date: | October | By: | /s/ Lars B. Eller | ||
|
|
|
| Lars B. Eller | |
|
|
|
| President and Chief Executive Officer | |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
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| |
Date: | October | By: | /s/ Barbara J. Britenriker | ||
|
|
|
| Barbara J. Britenriker | |
|
|
|
| Executive Vice-President and | |
|
|
|
| Chief Financial Officer | |
|
|
|
|
|
6671