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FMAO Farmers & Merchants Bancorp

Filed: 26 Oct 21, 3:39pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period September 30, 2021

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.

Indicate 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

13,066,233

Class

Outstanding as of October 22, 2021

 

1


 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10Q

 

FARMERS & MERCHANTS BANCORP, INC.

INDEX

 

Form 10-Q Items

 

Page

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item   1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets -
September 30, 2021 and December 31, 2020
  

3

 

 

 

 

 

 

Condensed Consolidated Statements of Income -
Three and Nin
e Months Ended September 30, 2021 and September 30, 2020
  

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income -
Three and Nine Months Ended September 30, 2021 and September 30, 2020

5

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes to Stockholders’ Equity -
Three and Nine Months Ended September 30, 2021 and September 30, 2020

6-7

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2021 and September 30, 2020

8-9

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

10

 

 

 

 

 

Item   2.

Management's Discussion and Analysis of Financial Condition
and Results of Operations

48-67

 

 

 

 

 

Item   3.

Qualitative and Quantitative Disclosures About Market Risk

68

 

 

 

 

 

Item   4.

Controls and Procedures

69

 

 

 

 

 

PART II.

OTHER INFORMATION

69

 

 

 

 

 

Item   1.

Legal Proceedings

69

 

 

 

 

 

Item 1A.

Risk Factors

69

 

 

 

 

 

Item   2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

 

 

 

 

 

Item   3.

Defaults Upon Senior Securities

69

 

 

 

 

 

Item   4.

Mine Safety Disclosures

69

 

 

 

 

 

Item   5.

Other Information

69

 

 

 

 

 

Item   6.

Exhibits

70

 

 

 

 

 

Signatures

 

71

 

 

 

 

 

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)

 

 

(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 FINANCIAL STATEMENTS

 

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(in thousands of dollars)

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

112,875

 

 

$

98,279

 

Federal funds sold

 

 

45,203

 

 

 

77,427

 

Total cash and cash equivalents

 

 

158,078

 

 

 

175,706

 

Interest-bearing time deposits

 

 

14,622

 

 

 

4,653

 

Securities - available-for-sale

 

 

426,717

 

 

 

307,812

 

Other securities, at cost

 

 

4,905

 

 

 

5,939

 

Loans held for sale

 

 

3,735

 

 

 

7,740

 

Loans, net

 

 

1,479,864

 

 

 

1,289,318

 

Premises and equipment

 

 

26,476

 

 

 

27,063

 

Goodwill

 

 

55,214

 

 

 

47,340

 

Mortgage servicing rights

 

 

3,097

 

 

 

3,320

 

Other real estate owned

 

 

167

 

 

 

71

 

Bank owned life insurance

 

 

27,397

 

 

 

25,208

 

Other assets

 

 

18,711

 

 

 

15,374

 

Total Assets

 

$

2,218,983

 

 

$

1,909,544

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

438,076

 

 

$

351,147

 

Interest-bearing

 

 

 

 

 

 

 

 

NOW accounts

 

 

646,237

 

 

 

542,317

 

Savings

 

 

529,532

 

 

 

455,145

 

Time

 

 

252,383

 

 

 

247,553

 

Total deposits

 

 

1,866,228

 

 

 

1,596,162

 

Federal funds purchased and securities sold under agreements to

   repurchase

 

 

29,601

 

 

 

30,239

 

Federal Home Loan Bank (FHLB) advances

 

 

17,868

 

 

 

17,861

 

Subordinated notes, net of unamortized issuance costs

 

 

34,441

 

 

 

-

 

Dividend payable

 

 

2,002

 

 

 

1,889

 

Accrued expenses and other liabilities

 

 

14,097

 

 

 

14,233

 

Total liabilities

 

 

1,964,237

 

 

 

1,660,384

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock - No par value 20,000,000 shares authorized; issued and

   outstanding 12,230,000 shares 9/30/21 and 12/31/20

 

 

81,382

 

 

 

81,804

 

Treasury stock - 997,680 shares 9/30/21, 1,032,456 shares 12/31/20

 

 

(11,718

)

 

 

(11,932

)

Retained earnings

 

 

184,181

 

 

 

173,591

 

Accumulated other comprehensive income

 

 

901

 

 

 

5,697

 

Total stockholders' equity

 

 

254,746

 

 

 

249,160

 

Total Liabilities and Stockholders' Equity

 

$

2,218,983

 

 

$

1,909,544

 

 

See Notes to Condensed Consolidated Unaudited Financial Statements.

 

Note: The December 31, 2020, 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)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

18,766

 

 

$

16,181

 

 

$

50,637

 

 

$

48,256

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

 

924

 

 

 

761

 

 

 

2,532

 

 

 

2,674

 

Municipalities

 

 

284

 

 

 

279

 

 

 

881

 

 

 

784

 

Dividends

 

 

44

 

 

 

36

 

 

 

125

 

 

 

107

 

Federal funds sold

 

 

10

 

 

 

4

 

 

 

21

 

 

 

15

 

Other

 

 

94

 

 

 

32

 

 

 

221

 

 

 

194

 

Total interest income

 

 

20,122

 

 

 

17,293

 

 

 

54,417

 

 

 

52,030

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,221

 

 

 

1,864

 

 

 

3,837

 

 

 

7,019

 

Federal funds purchased and securities sold under

   agreements to repurchase

 

 

165

 

 

 

174

 

 

 

494

 

 

 

605

 

Borrowed funds

 

 

87

 

 

 

231

 

 

 

424

 

 

 

754

 

Subordinated notes

 

 

199

 

 

 

-

 

 

 

199

 

 

 

-

 

Total interest expense

 

 

1,672

 

 

 

2,269

 

 

 

4,954

 

 

 

8,378

 

Net Interest Income - Before Provision for Loan Losses

 

 

18,450

 

 

 

15,024

 

 

 

49,463

 

 

 

43,652

 

Provision for Loan Losses

 

 

659

 

 

 

1,987

 

 

 

3,000

 

 

 

4,986

 

Net Interest Income After Provision for Loan Losses

 

 

17,791

 

 

 

13,037

 

 

 

46,463

 

 

 

38,666

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

2,242

 

 

 

2,299

 

 

 

7,254

 

 

 

6,143

 

Other service charges and fees

 

 

1,010

 

 

 

879

 

 

 

2,722

 

 

 

2,622

 

Net gain on sale of loans

 

 

822

 

 

 

1,537

 

 

 

2,823

 

 

 

2,128

 

Net gain on sale of available-for-sale securities

 

 

-

 

 

 

-

 

 

 

293

 

 

 

270

 

Total noninterest income

 

 

4,074

 

 

 

4,715

 

 

 

13,092

 

 

 

11,163

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

5,442

 

 

 

5,102

 

 

 

14,423

 

 

 

13,420

 

Employee benefits

 

 

1,621

 

 

 

1,566

 

 

 

5,530

 

 

 

4,461

 

Net occupancy expense

 

 

529

 

 

 

558

 

 

 

1,652

 

 

 

1,686

 

Furniture and equipment

 

 

903

 

 

 

875

 

 

 

2,542

 

 

 

2,383

 

Data processing

 

 

1,548

 

 

 

490

 

 

 

2,481

 

 

 

1,340

 

Franchise taxes

 

 

372

 

 

 

368

 

 

 

1,112

 

 

 

1,105

 

ATM expense

 

 

460

 

 

 

444

 

 

 

1,368

 

 

 

1,234

 

Advertising

 

 

439

 

 

 

411

 

 

 

1,005

 

 

 

979

 

Net (gain) loss on sale of other assets owned

 

 

219

 

 

 

(7

)

 

 

421

 

 

 

(13

)

FDIC assessment

 

 

296

 

 

 

194

 

 

 

808

 

 

 

410

 

Mortgage servicing rights amortization

 

 

285

 

 

 

296

 

 

 

1,314

 

 

 

784

 

Consulting fees

 

 

256

 

 

 

205

 

 

 

873

 

 

 

561

 

Other general and administrative

 

 

1,951

 

 

 

1,553

 

 

 

6,211

 

 

 

4,740

 

Total noninterest expense

 

 

14,321

 

 

 

12,055

 

 

 

39,740

 

 

 

33,090

 

Income Before Income Taxes

 

 

7,544

 

 

 

5,697

 

 

 

19,815

 

 

 

16,739

 

Income Taxes

 

 

1,624

 

 

 

1,287

 

 

 

4,003

 

 

 

3,420

 

Net Income

 

$

5,920

 

 

$

4,410

 

 

$

15,812

 

 

$

13,319

 

Basic and Diluted Earnings Per Share

 

$

0.53

 

 

$

0.40

 

 

$

1.41

 

 

$

1.20

 

Dividends Declared

 

$

0.18

 

 

$

0.17

 

 

$

0.52

 

 

$

0.49

 

 

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, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Net Income

 

$

5,920

 

 

$

4,410

 

 

$

15,812

 

 

$

13,319

 

Other Comprehensive Income (Net of Tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale

   securities

 

 

173

 

 

 

639

 

 

 

(5,778

)

 

 

6,298

 

Reclassification adjustment for realized gain on sale

   of available-for-sale securities

 

 

-

 

 

 

-

 

 

 

(293

)

 

 

(270

)

Net unrealized gain (loss) on available-for-sale

   securities

 

 

173

 

 

 

639

 

 

 

(6,071

)

 

 

6,028

 

Tax expense (benefit)

 

 

36

 

 

 

134

 

 

 

(1,275

)

 

 

1,266

 

Other comprehensive income (loss)

 

 

137

 

 

 

505

 

 

 

(4,796

)

 

 

4,762

 

Comprehensive Income

 

$

6,057

 

 

$

4,915

 

 

$

11,016

 

 

$

18,081

 

 

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 September 30, 2021

(000’s Omitted, Except Per Share Data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common

 

 

Common

 

 

Treasury

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Earnings

 

 

Income

 

 

Equity

 

Balance - January 1, 2021

 

 

11,197,544

 

 

$

81,804

 

 

$

(11,932

)

 

$

173,591

 

 

$

5,697

 

 

$

249,160

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,909

 

 

 

 

 

 

 

4,909

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,554

)

 

 

(5,554

)

Purchase of treasury stock

 

 

(950

)

 

 

 

 

 

 

(23

)

 

 

 

 

 

 

 

 

 

 

(23

)

Issuance of 750 shares of restricted stock

   (Net of forfeitures - 600)

 

 

150

 

 

 

1

 

 

 

(7

)

 

 

6

 

 

 

 

 

 

 

-

 

Stock-based compensation expense

 

 

 

 

 

 

225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

225

 

Cash dividends declared - $0.17 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,889

)

 

 

 

 

 

 

(1,889

)

Balance - March 31, 2021

 

 

11,196,744

 

 

 

82,030

 

 

 

(11,962

)

 

 

176,617

 

 

 

143

 

 

 

246,828

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,983

 

 

 

 

 

 

 

4,983

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

621

 

 

 

621

 

Purchase of treasury stock

 

 

(8,929

)

 

 

 

 

 

 

(201

)

 

 

 

 

 

 

 

 

 

 

(201

)

Forfeiture of 1,975 shares of restricted stock

 

 

(1,975

)

 

 

58

 

 

 

(47

)

 

 

(11

)

 

 

 

 

 

 

-

 

Stock-based compensation expense

 

 

 

 

 

 

171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

171

 

Director stock award

 

 

3,212

 

 

 

 

 

 

 

38

 

 

 

33

 

 

 

 

 

 

 

71

 

Cash dividends declared - $0.17 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,888

)

 

 

 

 

 

 

(1,888

)

Balance - June 30, 2021

 

 

11,189,052

 

 

$

82,259

 

 

$

(12,172

)

 

$

179,734

 

 

$

764

 

 

$

250,585

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,920

 

 

 

 

 

 

 

5,920

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137

 

 

 

137

 

Purchase of treasury stock

 

 

(4,732

)

 

 

 

 

 

 

(107

)

 

 

 

 

 

 

 

 

 

 

(107

)

Issuance of 48,000 shares of restricted stock

 

 

48,000

 

 

 

(1,090

)

 

 

561

 

 

 

529

 

 

 

 

 

 

 

-

 

Stock-based compensation expense

 

 

 

 

 

 

213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

213

 

Cash dividends declared - $0.18 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,002

)

 

 

 

 

 

 

(2,002

)

Balance - September 30, 2021

 

 

11,232,320

 

 

$

81,382

 

 

$

(11,718

)

 

$

184,181

 

 

$

901

 

 

$

254,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 NINE Months Ended September 30, 2020

(000’s Omitted, Except Per Share Data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

7


 

 

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

(in thousands of dollars)

 

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

15,812

 

 

$

13,319

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,073

 

 

 

1,993

 

Amortization of premiums on available-for-sale securities, net

 

 

1,598

 

 

 

900

 

Amortization of servicing rights

 

 

1,314

 

 

 

784

 

Amortization of core deposit intangible

 

 

478

 

 

 

546

 

Amortization of customer list intangible

 

 

92

 

 

 

-

 

Net amortization (accretion) of fair value adjustments

 

 

(170

)

 

 

382

 

Amortization of subordinated note issuance costs

 

 

20

 

 

 

-

 

Stock-based compensation expense

 

 

609

 

 

 

827

 

Director stock award

 

 

71

 

 

 

48

 

Deferred income taxes

 

 

-

 

 

 

(3

)

Provision for loan loss

 

 

3,000

 

 

 

4,986

 

Gain on sale of loans held for sale

 

 

(2,823

)

 

 

(2,128

)

Originations of loans held for sale

 

 

(86,720

)

 

 

(151,477

)

Proceeds from sale of loans held for sale

 

 

93,548

 

 

 

150,130

 

(Gain) loss on sale of other assets owned

 

 

421

 

 

 

(13

)

Gain on sales of securities available-for-sale

 

 

(293

)

 

 

(270

)

Increase in cash surrender value of bank owned life insurance

 

 

(475

)

 

 

(266

)

Change in other assets and other liabilities, net

 

 

(1,278

)

 

 

(3,265

)

Net cash provided by operating activities

 

 

27,277

 

 

 

16,493

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Activity in available-for-sale securities:

 

 

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

41,305

 

 

 

67,137

 

Sales

 

 

9,291

 

 

 

11,843

 

Purchases

 

 

(146,634

)

 

 

(110,330

)

Activity in other securities, at cost:

 

 

 

 

 

 

 

 

Purchases

 

 

(207

)

 

 

(17

)

Proceeds from redemption of FHLB stock

 

 

1,522

 

 

 

-

 

Change in interest-bearing time deposits

 

 

10,257

 

 

 

(348

)

Proceeds from sale of other assets owned

 

 

196

 

 

 

92

 

Additions to premises and equipment

 

 

(1,418

)

 

 

(2,407

)

Loan originations and principal collections, net

 

 

(141,116

)

 

 

(144,978

)

Acquisition of Ossian Financial Services, Inc., net of cash received

 

 

228

 

 

 

-

 

Net cash used in investing activities

 

 

(226,576

)

 

 

(179,008

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net change in deposits

 

 

154,042

 

 

 

230,359

 

Net change in federal funds purchased and securities sold under agreements

   to repurchase

 

 

(638

)

 

 

(18,214

)

Repayment of FHLB advances

 

 

(157

)

 

 

(7,493

)

Purchase of treasury stock

 

 

(331

)

 

 

(376

)

Proceeds from issuance of subordinated notes

 

 

34,421

 

 

 

-

 

Cash dividends paid on common stock

 

 

(5,666

)

 

 

(5,304

)

Net cash provided by financing activities

 

 

181,671

 

 

 

198,972

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

(17,628

)

 

 

36,457

 

Cash and Cash Equivalents - Beginning of year

 

 

175,706

 

 

 

51,296

 

Cash and Cash Equivalents - End of period

 

$

158,078

 

 

$

87,753

 

 

 

 

 

 

 

 

 

 

(continued)

8


 

FARMERS & MERCHANTS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  (Continued)

 

 

 

(in thousands of dollars)

 

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

Supplemental Information

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

4,559

 

 

$

7,970

 

Income taxes paid

 

 

5,100

 

 

 

5,016

 

Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Transfer of loans to other real estate owned

 

 

209

 

 

 

71

 

Cash dividends declared not paid

 

 

2,002

 

 

 

1,882

 

The Company purchased the assets of Ossian Financial Services, Inc. for $20,001 on April 30, 2021.

 

 

 

 

 

 

 

 

Fair value of assets acquired

 

$

137,058

 

 

$

-

 

Cash paid for the capital stock

 

 

20,001

 

 

 

-

 

Liabilities assumed

 

$

117,057

 

 

$

-

 

 

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 PRESENTATION 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 nine months ended September 30, 2021 are not necessarily indicative of the results that are expected for the year ended December 31, 2021.  The condensed consolidated balance sheet of the Company as of December 31, 2020, 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, 2020.

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.

 

NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE

 

On April 30, 2021, the Company acquired Ossian Financial Services, Inc., (OSFI), the bank holding company for Ossian State Bank, a community bank based in Ossian, Indiana.  Ossian State Bank operated 2 full-service offices in the northeast Indiana communities of Ossian and Bluffton.  Shareholders of OSFI received $67.71 in cash for each share. OSFI had 295,388 shares outstanding on April 30, 2021. Total consideration for the acquisition was approximately $20.0 million in cash.  As a result of the acquisition, the Company has increased its deposit base and is working to reduce transaction costs.  The Company also expects to reduce costs through economies of scale.

 

In 2020, the Company incurred $42.5 thousand of third-party acquisition-related costs.  The expenses recognized in 2020 related to other general and administration expenses of $30.0 thousand and consulting fees of $12.5 thousand. These acquisition expenses were included in the Company’s 2020 consolidated statement of income.

 

In 2021, the Company has incurred additional third-party acquisition-related costs of $2.1 million.  These expenses are comprised of employee benefits of $694.1 thousand, data processing costs of $938.9 thousand, consulting fees of $255.2 thousand, ATM expense of $13.8 thousand and other general and administrative expense of $241.3 thousand in the Company’s consolidated statement of income for the nine months ended September 30, 2021.  For the quarter ended September 30, 2021, the Company incurred third-party acquisition related costs of $1.2 million.  These expenses are comprised of employee benefits of $152.6 thousand, data processing costs of $938.9 thousand, consulting fees of $10.3 thousand, ATM expense of $2.6 thousand and other general and administrative expense of $61.5 thousand in the Company’s consolidated statement of income for the three months ended September 30, 2021.

10


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)

 

Under the acquisition method of accounting, the total purchase was 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 $20.0 million, $980.2 thousand has been allocated to core deposit intangible included in other assets and will be amortized over seven years on a straight line basis.  Goodwill of $7.9 million which resulted from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and Ossian State Bank and is deductible for tax purposes over 15 years.  The following table summarizes the consideration paid for Ossian State Bank and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

Fair Value of Consideration Transferred

 

 

 

 

 

 

(In Thousands)

 

Cash

 

$

20,001

 

Total

 

$

20,001

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

Cash and cash equivalents

 

$

20,229

 

Interest-bearing time deposits

 

 

20,226

 

Securities - available-for-sale

 

 

30,243

 

Other securities, at cost

 

 

281

 

Loans, net

 

 

52,403

 

Premises and equipment

 

 

494

 

Goodwill

 

 

7,874

 

Other assets

 

 

5,308

 

Total Assets Purchased

 

$

137,058

 

 

 

 

 

 

Liabilities

 

 

 

 

Deposits

 

 

 

 

Noninterest bearing

 

$

34,509

 

Interest bearing

 

 

81,535

 

Total deposits

 

 

116,044

 

Accrued expenses and other liabilities

 

 

1,013

 

Total Liabilities Assumed

 

$

117,057

 

 

The fair value of the assets acquired includes loans with a fair value of $52.4 million.  The gross principal and contractual interest due under the contracts is $58.6 million, of which $1.1 million is expected to be uncollectible.  The loans have a weighted average life of 52 months.

The fair value of building and land included in premises and equipment was written down by $596 thousand with $244 thousand attributable to buildings and will be accreted over the useful life of 39 years,

The fair value for certificates of deposit incorporates a valuation amount of $59 thousand which will be accreted over 1.4 years.  

Certain transferred loans evidenced deterioration of credit quality since origination and management deemed it 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.

The carrying amount of those loans is included in loans, net on the balance sheet at September 30.  The amounts of loans at April 30, 2021 and September 30, 2021 are as follows:

11


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)

 

 

 

2021

 

 

 

(In Thousands)

 

Balance - April 30, 2021

 

 

 

 

Consumer Real Estate

 

$

24

 

Agricultural Real Estate

 

 

981

 

Commercial Real Estate

 

 

315

 

Commercial & Industrial

 

 

314

 

Carrying amount, net of fair value adjustment of $325

 

$

1,309

 

 

 

 

 

 

Balance - September 30, 2021

 

 

 

 

Consumer Real Estate

 

$

23

 

Agricultural Real Estate

 

 

-

 

Commercial Real Estate

 

 

234

 

Commercial & Industrial

 

 

293

 

Carrying amount, net of fair value adjustment of $325

 

$

225

 

 

 

 

 

 

 

Loans acquired during 2021 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

 

 

 

 

Consumer Real Estate

 

$

28

 

Agricultural Real Estate

 

 

1,142

 

Commercial Real Estate

 

 

527

 

Commercial & Industrial

 

 

360

 

Total required payments receivable

 

$

2,057

 

 

 

 

 

 

Cash flows expected to be collected at acquisition

 

$

1,309

 

 

 

 

 

 

Basis in acquired loans at acquisition

 

$

1,634

 

 

During the third quarter, 2 agricultural real estate purchased credit impaired loans were paid off in full.  

Changes in accretable yield, or income expected to be collected, are as follows:

 

 

Three Months Ended

September 30, 2021

 

 

Nine Months Ended

September 30, 2021

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Beginning Balance

 

$

733

 

 

$

-

 

Additions

 

 

-

 

 

 

762

 

Accretion

 

 

(44

)

 

 

(73

)

Reclassification from nonaccretable difference

 

 

-

 

 

 

-

 

Disposals

 

 

-

 

 

 

-

 

Ending Balance

 

$

689

 

 

$

689

 

 

The results of operations of Ossian State Bank have been included in the Company’s consolidated financial statements since the acquisition date of April 30, 2021.  The following schedule includes pro-forma results for the three and nine months ended September 30, 2021 and 2020 as if the Ossian State Bank acquisitions had occurred as of the beginning of the comparable prior reporting period.

 

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, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Summary of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income - Before Provision for Loan Losses

 

$

18,450

 

 

$

15,909

 

 

$

50,482

 

 

$

46,387

 

Provision for Loan Losses

 

 

659

 

 

 

1,988

 

 

 

3,001

 

 

 

4,989

 

Net Interest Income After Provision for Loan Losses

 

 

17,791

 

 

 

13,921

 

 

 

47,481

 

 

 

41,398

 

Noninterest Income

 

 

4,074

 

 

 

4,814

 

 

 

13,302

 

 

 

11,363

 

Noninterest Expense

 

 

12,880

 

 

 

13,062

 

 

 

38,010

 

 

 

35,666

 

Income Before Income Taxes

 

 

8,985

 

 

 

5,673

 

 

 

22,773

 

 

 

17,095

 

Income Taxes

 

 

1,892

 

 

 

1,093

 

 

 

4,566

 

 

 

3,273

 

Net Income

 

$

7,093

 

 

$

4,580

 

 

$

18,207

 

 

$

13,822

 

Basic and Diluted Earnings Per Share

 

$

0.63

 

 

$

0.41

 

 

$

1.63

 

 

$

1.24

 

 

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, 2021 includes approximately $348 thousand, net of tax, of operating revenue from Ossian State Bank since January 1, 2021.

 

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.

 

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 6 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 has had an opportunity to increase its deposit base and reduce transaction costs.  The Company has also reduced costs through economies of scale.

Under the acquisition method of accounting, the total purchase was 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 is 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.   

Changes in accretable yield, or income expected to be collected, for the three and nine months ended are as follows:

 

 

 

Three Months Ended

September 30, 2021

 

 

Three Months Ended

September 30, 2020

 

 

Nine Months Ended

September 30, 2021

 

 

Nine Months Ended

September 30, 2020

 

 

 

(In Thousands)

 

 

(In Thousands)

 

 

(In Thousands)

 

 

(In Thousands)

 

Beginning Balance

 

$

1,439

 

 

$

1,871

 

 

$

1,653

 

 

$

2,021

 

Additions

 

 

3

 

 

 

-

 

 

 

8

 

 

 

2

 

Accretion

 

 

(108

)

 

 

(107

)

 

 

(323

)

 

 

(321

)

Reclassification from nonaccretable difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

62

 

Disposals

 

 

-

 

 

 

(5

)

 

 

(4

)

 

 

(5

)

Ending Balance

 

$

1,334

 

 

$

1,759

 

 

$

1,334

 

 

$

1,759

 

 

13


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)

 

 

As mentioned previously, the acquisition of Bank of Geneva resulted in the recognition of $3.9 million in core deposit intangible assets which is being amortized over its remaining life of 7 years on a straight line basis.

 

The amortization expense for the nine months ended September 30, 2020 was $546 thousand of which $84 thousand was related to the purchase of the Custar office in December of 2013.  Of the $653 thousand to be expensed in 2021, $478 thousand has been expensed for the nine months ended September 30, 2021.  Annual amortization of core deposit intangible assets is as follows:

 

 

 

(In Thousands)

 

 

(In Thousands)

 

 

(In Thousands)

 

 

 

Geneva

 

 

Ossian

 

 

Total

 

2021

 

$

560

 

 

$

93

 

 

$

653

 

2022

 

 

560

 

 

 

140

 

 

 

700

 

2023

 

 

560

 

 

 

140

 

 

 

700

 

2024

 

 

560

 

 

 

140

 

 

 

700

 

2025

 

 

560

 

 

 

140

 

 

 

700

 

Thereafter

 

 

-

 

 

 

327

 

 

 

-

 

 

 

$

2,800

 

 

$

980

 

 

 

3,453

 

 

On November 16, 2020, FM Investment Services, a division of the Bank, purchased the assets and clients of Adams County Financial Resources (ACFR), a full-service registered investment advisory firm located in Geneva, Indiana.

 

ACFR was founded in 1994 by R. Lee Flueckiger and provides clients and their families with financial confidence through personalized investment planning and services. As of November 30, 2020, ACFR had approximately $83 million of assets under management and over 450 clients.

 

Total consideration for the purchase was $825 thousand which consisted of 40,049 shares of stock. As a result of this purchase, the Company expects an increase to noninterest income of approximately $500 thousand in 2021 with the majority of the income to be recognized in the second half of the year.

 

Under the acquisition method of accounting, the total purchase is 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 $825 thousand, $800 thousand has been allocated to customer list intangible, included in other assets, to be amortized over 6.5 years on a straight line basis.

 

The following table summarizes the consideration paid for ACFR and the amounts of the assets acquired:

 

Fair Value of Consideration Transferred

 

 

 

 

 

 

(In Thousands)

 

Common Shares (40,049 shares)

 

$

825

 

Total

 

$

825

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

Premises and equipment

 

$

25

 

Customer list intangible

 

 

800

 

Total Assets Purchased

 

$

825

 

 

Of the $123 thousand to be expensed in 2021, $92 thousand has been expensed for the nine months ended September 30, 2021.  Annual amortization expense of customer list intangible is as follows:

 

 

 

14


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 2 BUSINESS COMBINATION AND ASSET PURCHASE (Continued)

 

 

 

 

 

(In Thousands)

 

 

 

Adams County Financial Resources

 

2021

 

$

123

 

2022

 

 

123

 

2023

 

 

123

 

2024

 

 

123

 

2025

 

 

123

 

Thereafter

 

 

169

 

 

 

$

784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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15


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, 2021 and December 31, 2020, are as follows:

 

 

 

(In Thousands)

 

 

 

September 30, 2021

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

74,347

 

 

$

29

 

 

$

(572

)

 

$

73,804

 

U.S. Government agencies

 

 

163,771

 

 

 

1,123

 

 

 

(1,698

)

 

 

163,196

 

Mortgage-backed securities

 

 

124,658

 

 

 

1,348

 

 

 

(907

)

 

 

125,099

 

State and local governments

 

 

62,802

 

 

 

2,046

 

 

 

(230

)

 

 

64,618

 

Total available-for-sale securities

 

$

425,578

 

 

$

4,546

 

 

$

(3,407

)

 

$

426,717

 

 

 

 

 

(In Thousands)

 

 

 

December 31, 2020

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

U.S. Government agencies

 

 

122,514

 

 

 

1,857

 

 

 

(130

)

 

 

124,241

 

Mortgage-backed securities

 

 

110,828

 

 

 

2,228

 

 

 

-

 

 

 

113,056

 

State and local governments

 

 

67,260

 

 

 

3,265

 

 

 

(10

)

 

 

70,515

 

Total available-for-sale securities

 

$

300,602

 

 

$

7,350

 

 

$

(140

)

 

$

307,812

 

 

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.

16


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, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:    

 

 

 

(In Thousands)

 

 

 

September 30, 2021

 

 

 

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

 

$

(572

)

 

$

58,913

 

 

$

-

 

 

$

-

 

 

$

(572

)

 

$

58,913

 

U.S. Government agencies

 

 

(1,636

)

 

 

107,353

 

 

 

(62

)

 

 

2,443

 

 

 

(1,698

)

 

 

109,796

 

Mortgage-backed securities

 

 

(907

)

 

 

57,266

 

 

 

-

 

 

 

-

 

 

 

(907

)

 

 

57,266

 

State and local governments

 

 

(166

)

 

 

11,260

 

 

 

(64

)

 

 

2,503

 

 

 

(230

)

 

 

13,763

 

Total available-for-sale securities

 

$

(3,281

)

 

$

234,792

 

 

$

(126

)

 

$

4,946

 

 

$

(3,407

)

 

$

239,738

 

 

 

 

 

(In Thousands)

 

 

 

December 31, 2020

 

 

 

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

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

U.S. Government agencies

 

 

(130

)

 

 

48,331

 

 

 

-

 

 

 

-

 

 

 

(130

)

 

 

48,331

 

Mortgage-backed securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

State and local governments

 

 

(10

)

 

 

3,562

 

 

 

-

 

 

 

-

 

 

 

(10

)

 

 

3,562

 

Total available-for-sale securities

 

$

(140

)

 

$

51,893

 

 

$

-

 

 

$

-

 

 

$

(140

)

 

$

51,893

 

 

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 changes in interest rates since the securities were purchased, and the Company has the intent and ability to hold the securities for the foreseeable future.  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, 2021 and September 30, 2020.

 

 

 

Three Months

 

 

Nine Months

 

 

 

(In Thousands)

 

 

(In Thousands)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Gross realized gains

 

$

-

 

 

$

-

 

 

$

293

 

 

$

270

 

Gross realized losses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net realized gains

 

$

-

 

 

$

-

 

 

$

293

 

 

$

270

 

Tax expense related to net realized gains

 

$

-

 

 

$

-

 

 

$

62

 

 

$

57

 

 

The net realized gains on sales and related tax expense is a reclassification out of accumulated other comprehensive income (loss). The net realized gains are included in net gains on sale of available-for-sale securities and the related tax expense is included in income taxes in the condensed consolidated statements of income and comprehensive income (loss).

17


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, 2021, 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)

 

 

 

Amortized

 

 

 

 

 

 

 

Cost

 

 

Fair Value

 

One year or less

 

$

8,867

 

 

$

8,923

 

After one year through five years

 

 

120,220

 

 

 

121,121

 

After five years through ten years

 

 

171,484

 

 

 

171,215

 

After ten years

 

 

349

 

 

 

359

 

Total

 

$

300,920

 

 

$

301,618

 

Mortgage-backed securities

 

 

124,658

 

 

 

125,099

 

Total

 

$

425,578

 

 

$

426,717

 

 

Investments with a carrying value of $77.1 million and $83.2 million at September 30, 2021 and December 31, 2020, 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 $4.5 million as of September 30, 2021 and $5.8 million as of December 31, 2020 in addition to Ohio Equity Fund for Housing Limited Partnership of $357 thousand as of  September 30, 2021 and $151 thousand as of  December 31, 2020.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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18


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

 

 

 

NOTE 4 LOANS

Loan balances as of  September 30, 2021 and December 31, 2020 are summarized below:

 

 

 

(In Thousands)

 

Loans:

 

September 30, 2021

 

 

December 31, 2020

 

Consumer Real Estate

 

$

202,454

 

 

$

175,588

 

Agricultural Real Estate

 

 

179,374

 

 

 

189,159

 

Agricultural

 

 

105,580

 

 

 

94,358

 

Commercial Real Estate

 

 

728,852

 

 

 

588,825

 

Commercial and Industrial

 

 

194,767

 

 

 

189,246

 

Consumer

 

 

55,521

 

 

 

52,540

 

Other

 

 

31,096

 

 

 

15,757

 

 

 

 

1,497,644

 

 

 

1,305,473

 

Less: Net deferred loan fees and costs

 

 

(2,082

)

 

 

(2,483

)

 

 

 

1,495,562

 

 

 

1,302,990

 

Less: Allowance for loan losses

 

 

(15,698

)

 

 

(13,672

)

Loans - Net

 

$

1,479,864

 

 

$

1,289,318

 

 

Other loans primarily fund public improvements 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, 2021:

 

 

 

(In Thousands)

 

 

 

Fixed

 

 

Variable

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

138,024

 

 

$

64,430

 

Agricultural Real Estate

 

 

108,102

 

 

 

71,272

 

Agricultural

 

 

89,426

 

 

 

16,154

 

Commercial Real Estate

 

 

594,081

 

 

 

134,771

 

Commercial and Industrial

 

 

161,106

 

 

 

33,661

 

Consumer

 

 

51,469

 

 

 

4,052

 

Other

 

 

21,096

 

 

 

10,000

 

 

As of September 30, 2021 and December 31, 2020 one to four family residential mortgage loans amounting to $36.5 million and $38.0 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.

 

 

19


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, 2021 and December 31, 2020, net of deferred loan fees and costs:

 

September 30, 2021

 

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

 

$

175

 

 

$

-

 

 

$

204

 

 

$

379

 

 

$

201,991

 

 

$

202,370

 

 

$

-

 

Agricultural Real Estate

 

 

120

 

 

 

-

 

 

 

-

 

 

 

120

 

 

 

178,931

 

 

 

179,051

 

 

 

-

 

Agricultural

 

 

-

 

 

 

-

 

 

 

117

 

 

 

117

 

 

 

105,605

 

 

 

105,722

 

 

 

-

 

Commercial Real Estate

 

 

-

 

 

 

-

 

 

 

180

 

 

 

180

 

 

 

727,238

 

 

 

727,418

 

 

 

-

 

Commercial and Industrial

 

 

136

 

 

 

199

 

 

 

366

 

 

 

701

 

 

 

224,681

 

 

 

225,382

 

 

 

-

 

Consumer

 

 

62

 

 

 

45

 

 

 

-

 

 

 

107

 

 

 

55,512

 

 

 

55,619

 

 

 

-

 

Total

 

$

493

 

 

$

244

 

 

$

867

 

 

$

1,604

 

 

$

1,493,958

 

 

$

1,495,562

 

 

$

-

 

 

 

December 31, 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

 

$

269

 

 

$

191

 

 

$

1,032

 

 

$

1,492

 

 

$

173,824

 

 

$

175,316

 

 

$

-

 

Agricultural Real Estate

 

 

-

 

 

 

-

 

 

 

88

 

 

 

88

 

 

 

188,738

 

 

 

188,826

 

 

 

-

 

Agricultural

 

 

-

 

 

 

-

 

 

 

176

 

 

 

176

 

 

 

94,314

 

 

 

94,490

 

 

 

-

 

Commercial Real Estate

 

 

-

 

 

 

-

 

 

 

185

 

 

 

185

 

 

 

587,469

 

 

 

587,654

 

 

 

-

 

Commercial and Industrial

 

 

-

 

 

 

750

 

 

 

983

 

 

 

1,733

 

 

 

202,310

 

 

 

204,043

 

 

 

-

 

Consumer

 

 

53

 

 

 

-

 

 

 

-

 

 

 

53

 

 

 

52,608

 

 

 

52,661

 

 

 

-

 

Total

 

$

322

 

 

$

941

 

 

$

2,464

 

 

$

3,727

 

 

$

1,299,263

 

 

$

1,302,990

 

 

$

-

 

 

 

 

20


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, 2021 and December 31, 2020:

 

 

 

(In Thousands)

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

395

 

 

$

1,546

 

Agricultural Real Estate

 

 

4,568

 

 

 

5,575

 

Agricultural

 

 

117

 

 

 

307

 

Commercial Real Estate

 

 

619

 

 

 

665

 

Commercial & Industrial

 

 

542

 

 

 

1,296

 

Consumer

 

 

7

 

 

 

15

 

Total

 

$

6,248

 

 

$

9,404

 

 

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 various pricing mechanisms. 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, limited liability companies 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.  Included in commercial loans for 2021 and 2020 are Paycheck Protection Program (PPP) loans, administered by the Small Business Administration (SBA), in the amounts of $9.8 million and $36.2 million, respectively.  The PPP provides loans to eligible businesses through financial institutions like the Bank, with loans being eligible for forgiveness of some or all of the principal amount by the SBA if the borrower meets certain requirements.  The SBA guarantees repayment of the loans to the Bank if the borrower’s loan is not forgiven and is then not repaid by the customer.  Therefore, there is 0 allowance for loan losses related to these loans.

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.

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.

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 RMA

21


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS (Continued)

 

 

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 rate is summarized by high liquidity, minimum risk, strong ratios, and low handling costs.

 

3.

Two (2) Good. Desirable loans of somewhat less stature than rate 1, but with strong financial statements. Loan supported by financial statements containing strong balance sheets and a history of profitability. Probability of serious financial deterioration is unlikely. Possessing a sound repayment source (and a secondary source), which would allow repayment in a reasonable period of time. Individual loans backed by liquid personal assets, established history and unquestionable character.  

 

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.  There may be some weakness but with offsetting features of other support readily available.  Loans that are meeting the terms of repayment.

Loans may be rated 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 is observed, a lower risk rating is warranted.

 

5.

Four (4) Satisfactory / Monitored. A “4” (Satisfactory/Monitored) risk rating 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 which 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 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; however, 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.

22


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS (Continued)

 

 

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.

 

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, however, 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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23


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, 2021 and December 31, 2020:

 

 

 

(In Thousands)

 

 

 

Agricultural

 

 

 

 

 

 

Commercial

 

 

Commercial

 

 

 

 

 

 

 

Real Estate

 

 

Agricultural

 

 

Real Estate

 

 

and Industrial

 

 

Other

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-2

 

$

9,647

 

 

$

4,902

 

 

$

11,306

 

 

$

11,867

 

 

$

-

 

3

 

 

40,914

 

 

 

25,170

 

 

 

222,396

 

 

 

42,616

 

 

 

10,956

 

4

 

 

110,166

 

 

 

74,802

 

 

 

458,886

 

 

 

134,690

 

 

 

20,140

 

5

 

 

4,638

 

 

 

301

 

 

 

7,872

 

 

 

1,098

 

 

 

-

 

6

 

 

13,686

 

 

 

547

 

 

 

26,958

 

 

 

4,015

 

 

 

-

 

7

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

8

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

179,051

 

 

$

105,722

 

 

$

727,418

 

 

$

194,286

 

 

$

31,096

 

 

 

 

 

Agricultural

 

 

 

 

 

 

Commercial

 

 

Commercial

 

 

 

 

 

 

 

Real Estate

 

 

Agricultural

 

 

Real Estate

 

 

and Industrial

 

 

Other

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-2

 

$

11,960

 

 

$

5,093

 

 

$

11,001

 

 

$

38,486

 

 

$

-

 

3

 

 

38,306

 

 

 

23,779

 

 

 

165,201

 

 

 

26,515

 

 

 

4,651

 

4

 

 

112,465

 

 

 

63,480

 

 

 

396,076

 

 

 

114,108

 

 

 

11,106

 

5

 

 

7,478

 

 

 

1,577

 

 

 

4,010

 

 

 

3,266

 

 

 

-

 

6

 

 

18,617

 

 

 

561

 

 

 

11,366

 

 

 

4,796

 

 

 

-

 

7

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,115

 

 

 

-

 

8

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

188,826

 

 

$

94,490

 

 

$

587,654

 

 

$

188,286

 

 

$

15,757

 

 

 

24


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, 2021 and December 31, 2020.  

 

 

 

(In Thousands)

 

 

 

Consumer

 

 

Consumer

 

 

 

Real Estate

 

 

Real Estate

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Grade

 

 

 

 

 

 

 

 

Pass

 

$

199,470

 

 

$

171,667

 

Special Mention (5)

 

 

1,687

 

 

 

1,284

 

Substandard (6)

 

 

1,213

 

 

 

2,365

 

Doubtful (7)

 

 

-

 

 

 

-

 

Total

 

$

202,370

 

 

$

175,316

 

 

 

 

 

(In Thousands)

 

 

 

Consumer - Credit

 

 

Consumer - Other

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

September 30,

2021

 

 

December 31,

2020

 

Performing

 

$

3,630

 

 

$

3,660

 

 

$

51,976

 

 

$

48,855

 

Nonperforming

 

 

-

 

 

 

10

 

 

 

13

 

 

 

136

 

Total

 

$

3,630

 

 

$

3,670

 

 

$

51,989

 

 

$

48,991

 

 

Information about impaired loans as of September 30, 2021, December 31, 2020 and September 30, 2020 are as follows:

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans without a valuation allowance

 

$

2,461

 

 

$

5,172

 

 

$

5,134

 

Impaired loans with a valuation allowance

 

 

9,388

 

 

 

9,360

 

 

 

10,125

 

Total impaired loans

 

$

11,849

 

 

$

14,532

 

 

$

15,259

 

Valuation allowance related to impaired loans

 

$

2,400

 

 

$

1,657

 

 

$

1,198

 

Total non-accrual loans

 

$

6,248

 

 

$

9,404

 

 

$

7,870

 

Total loans past-due ninety days or more and

   still accruing

 

$

-

 

 

$

0

 

 

$

0

 

Quarter ended average investment in impaired

   loans

 

$

11,639

 

 

$

14,868

 

 

$

13,517

 

Year to date average investment in impaired

   loans

 

$

12,360

 

 

$

10,234

 

 

$

8,613

 

 

There were 0 additional funds available to be advanced in connection with impaired loans as of September 30, 2021.

The Bank had approximately $6.0 million of its impaired loans classified as troubled debt restructured (TDR) as of September 30, 2021, $6.5 million as of December 31, 2020 and $6.4 million as of September 30, 2020.      

 

 

25


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.  During the third quarter of 2021, 1 new loan was considered TDR as a result of being in a deficiency balance upon the sale of property.  The loan is set for a 3 year term and 10 year amortization. The ALLL includes $1.0 million for the specific allocation on the principal balance of this loan.  Year to date 2021, there were 2 new loans considered TDR with 2 previously reported TDR loans paid off in June.  In the third quarter of 2020, 1 new loan was considered TDR and was given a rate concession.  During the year to date 2020, there were 6 new loans considered TDR with 1 of the loans subsequently paid off in May.  Interest was paid current at the time of all modifications.  

The following tables represent three and nine months ended September 30, 2021 and 2020:

 

 

 

 

 

 

Pre-

 

 

Post-

 

 

 

 

 

 

 

Pre-

 

 

Post-

 

Three Months

Number of

 

 

Modification

 

 

Modification

 

 

Nine Months

Number of

 

 

Modification

 

 

Modification

 

September 30, 2021

Contracts

 

 

Outstanding

 

 

Outstanding

 

 

September 30, 2021

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

 

Ag Real Estate

 

-

 

 

$

-

 

 

$

-

 

 

Ag Real Estate

 

-

 

 

$

-

 

 

$

-

 

Agricultural

 

-

 

 

 

-

 

 

 

-

 

 

Agricultural

 

-

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

-

 

 

 

-

 

 

 

-

 

 

Commercial Real Estate

 

1

 

 

 

382

 

 

 

382

 

Commercial and

     Industrial

 

1

 

 

 

1,000

 

 

 

1,000

 

 

Commercial and

     Industrial

 

1

 

 

 

1,000

 

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-

 

 

Post-

 

 

 

 

 

 

 

Pre-

 

 

Post-

 

Three Months

Number of

 

 

Modification

 

 

Modification

 

 

Nine Months

Number of

 

 

Modification

 

 

Modification

 

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

 

Troubled Debt Restructurings

Last Three Months

 

 

Investment

 

 

Investment

 

 

Troubled Debt Restructurings

Last Nine Months

 

 

Investment

 

 

Investment

 

Ag Real Estate

 

-

 

 

$

-

 

 

$

-

 

 

Ag Real Estate

 

2

 

 

$

5,380

 

 

$

5,380

 

Agricultural

 

-

 

 

 

-

 

 

 

-

 

 

Agricultural

 

1

 

 

 

164

 

 

 

164

 

Commercial Real Estate

 

-

 

 

 

-

 

 

 

-

 

 

Commercial Real Estate

 

2

 

 

 

981

 

 

 

981

 

Commercial and

     Industrial

 

1

 

 

 

50

 

 

 

50

 

 

Commercial and

     Industrial

 

1

 

 

 

50

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three and nine month periods ended September 30, 2021 and 2020, there were 0 TDRs that subsequently defaulted after modification.  

For the nine month period ended September 30, 2021, there was 1 impaired commercial real estate loan of $86 thousand and 1 impaired commercial loan of $480 thousand that were classified as TDR paid off as well as 3 impaired commercial loans of $809 thousand that were classified as TDR charged off.  There was 1 impaired commercial real estate loan of $481 thousand that was classified as TDR paid off for the nine month period ended September 30, 2020.

 

26


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 90 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. A broker’s price opinion or appraisal will be completed on all home loans in litigation and any deficiency will be charged off before reaching 150 days delinquent.  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, 2021 and September 30, 2020 and for the year ended December 31, 2020.

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QTD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QTD

 

 

QTD

 

 

Interest

 

Three Months Ended September 30, 2021

 

 

 

 

 

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

 

$

714

 

 

$

714

 

 

$

-

 

 

$

453

 

 

$

1

 

 

$

3

 

Agricultural Real Estate

 

 

1,207

 

 

 

1,207

 

 

 

-

 

 

 

1,047

 

 

 

19

 

 

 

-

 

Agricultural

 

 

130

 

 

 

130

 

 

 

-

 

 

 

130

 

 

 

4

 

 

 

-

 

Commercial Real Estate

 

 

180

 

 

 

180

 

 

 

-

 

 

 

2,519

 

 

 

4

 

 

 

1

 

Commercial and Industrial

 

 

215

 

 

 

215

 

 

 

-

 

 

 

525

 

 

 

-

 

 

 

1

 

Consumer

 

 

15

 

 

 

15

 

 

 

-

 

 

 

16

 

 

 

-

 

 

 

-

 

With a specific allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Agricultural Real Estate

 

 

4,844

 

 

 

4,844

 

 

 

636

 

 

 

5,104

 

 

 

4

 

 

 

-

 

Agricultural

 

 

117

 

 

 

117

 

 

 

54

 

 

 

117

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

3,427

 

 

 

3,427

 

 

 

710

 

 

 

1,395

 

 

 

31

 

 

 

-

 

Commercial and Industrial

 

 

1,000

 

 

 

1,000

 

 

 

1,000

 

 

 

333

 

 

 

2

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

714

 

 

$

714

 

 

$

-

 

 

$

453

 

 

$

1

 

 

$

3

 

Agricultural Real Estate

 

$

6,051

 

 

$

6,051

 

 

$

636

 

 

$

6,151

 

 

$

23

 

 

$

-

 

Agricultural

 

$

247

 

 

$

247

 

 

$

54

 

 

$

247

 

 

$

4

 

 

$

-

 

Commercial Real Estate

 

$

3,607

 

 

$

3,607

 

 

$

710

 

 

$

3,914

 

 

$

35

 

 

$

1

 

Commercial and Industrial

 

$

1,215

 

 

$

1,215

 

 

$

1,000

 

 

$

858

 

 

$

2

 

 

$

1

 

Consumer

 

$

15

 

 

$

15

 

 

$

-

 

 

$

16

 

 

$

-

 

 

$

-

 

27


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS (Continued)

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

Year Ended December 31, 2020

 

 

 

 

 

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

 

$

799

 

 

$

799

 

 

$

-

 

 

$

738

 

 

$

22

 

 

$

10

 

Agricultural Real Estate

 

 

1,546

 

 

 

1,549

 

 

 

-

 

 

 

729

 

 

 

18

 

 

 

12

 

Agricultural

 

 

291

 

 

 

291

 

 

 

-

 

 

 

392

 

 

 

3

 

 

 

3

 

Commercial Real Estate

 

 

185

 

 

 

185

 

 

 

-

 

 

 

195

 

 

 

13

 

 

 

-

 

Commercial and Industrial

 

 

2,328

 

 

 

2,328

 

 

 

-

 

 

 

1,222

 

 

 

26

 

 

 

5

 

Consumer

 

 

23

 

 

 

23

 

 

 

-

 

 

 

16

 

 

 

-

 

 

 

-

 

With a specific allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

 

202

 

 

 

202

 

 

 

31

 

 

 

126

 

 

 

-

 

 

 

3

 

Agricultural Real Estate

 

 

5,210

 

 

 

5,210

 

 

 

600

 

 

 

3,175

 

 

 

6

 

 

 

102

 

Agricultural

 

 

176

 

 

 

176

 

 

 

116

 

 

 

188

 

 

 

-

 

 

 

-

 

Commercial Real Estate

 

 

2,765

 

 

 

2,765

 

 

 

20

 

 

 

2,524

 

 

 

128

 

 

 

-

 

Commercial and Industrial

 

 

1,007

 

 

 

1,007

 

 

 

890

 

 

 

916

 

 

 

52

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11

 

 

 

1

 

 

 

-

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

1,001

 

 

$

1,001

 

 

$

31

 

 

$

864

 

 

$

22

 

 

$

13

 

Agricultural Real Estate

 

$

6,756

 

 

$

6,759

 

 

$

600

 

 

$

3,904

 

 

$

24

 

 

$

114

 

Agricultural

 

$

467

 

 

$

467

 

 

$

116

 

 

$

580

 

 

$

3

 

 

$

3

 

Commercial Real Estate

 

$

2,950

 

 

$

2,950

 

 

$

20

 

 

$

2,719

 

 

$

141

 

 

$

-

 

Commercial and Industrial

 

$

3,335

 

 

$

3,335

 

 

$

890

 

 

$

2,138

 

 

$

78

 

 

$

5

 

Consumer

 

$

23

 

 

$

23

 

 

$

-

 

 

$

27

 

 

$

1

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS (Continued)

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QTD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QTD

 

 

QTD

 

 

Interest

 

Three Months Ended September 30, 2020

 

 

 

 

 

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

 

$

780

 

 

$

780

 

 

$

-

 

 

$

791

 

 

$

41

 

 

$

5

 

Agricultural Real Estate

 

 

1,589

 

 

 

1,589

 

 

 

-

 

 

 

873

 

 

 

2

 

 

 

-

 

Agricultural

 

 

533

 

 

 

533

 

 

 

-

 

 

 

375

 

 

 

4

 

 

 

1

 

Commercial Real Estate

 

 

186

 

 

 

186

 

 

 

-

 

 

 

186

 

 

 

1

 

 

 

-

 

Commercial and Industrial

 

 

2,021

 

 

 

2,021

 

 

 

-

 

 

 

1,190

 

 

 

5

 

 

 

-

 

Consumer

 

 

25

 

 

 

25

 

 

 

-

 

 

 

26

 

 

 

21

 

 

 

-

 

With a specific allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

 

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

 

 

3,033

 

 

 

3,033

 

 

 

44

 

 

 

3,046

 

 

 

-

 

 

 

-

 

Commercial and Industrial

 

 

1,274

 

 

 

1,274

 

 

 

651

 

 

 

1,119

 

 

 

3

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

985

 

 

$

985

 

 

$

43

 

 

$

910

 

 

$

49

 

 

$

5

 

Agricultural Real Estate

 

$

7,014

 

 

$

7,014

 

 

$

432

 

 

$

6,323

 

 

$

4

 

 

$

-

 

Agricultural

 

$

721

 

 

$

721

 

 

$

28

 

 

$

717

 

 

$

7

 

 

$

1

 

Commercial Real Estate

 

$

3,219

 

 

$

3,219

 

 

$

44

 

 

$

3,232

 

 

$

1

 

 

$

-

 

Commercial and Industrial

 

$

3,295

 

 

$

3,295

 

 

$

651

 

 

$

2,309

 

 

$

8

 

 

$

-

 

Consumer

 

$

25

 

 

$

25

 

 

$

-

 

 

$

26

 

 

$

21

 

 

$

-

 

 

 

 

 


29


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, 2021

 

 

 

 

 

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

 

$

714

 

 

$

714

 

 

$

-

 

 

$

485

 

 

$

4

 

 

$

10

 

Agricultural Real Estate

 

 

1,207

 

 

 

1,207

 

 

 

-

 

 

 

1,191

 

 

 

53

 

 

 

-

 

Agricultural

 

 

130

 

 

 

130

 

 

 

-

 

 

 

161

 

 

 

8

 

 

 

-

 

Commercial Real Estate

 

 

180

 

 

 

180

 

 

 

-

 

 

 

1,768

 

 

 

38

 

 

 

7

 

Commercial and Industrial

 

 

215

 

 

 

215

 

 

 

-

 

 

 

1,206

 

 

 

24

 

 

 

4

 

Consumer

 

 

15

 

 

 

15

 

 

 

-

 

 

 

19

 

 

 

1

 

 

 

-

 

With a specific allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Agricultural Real Estate

 

 

4,844

 

 

 

4,844

 

 

 

636

 

 

 

5,273

 

 

 

15

 

 

 

-

 

Agricultural

 

 

117

 

 

 

117

 

 

 

54

 

 

 

123

 

 

 

4

 

 

 

-

 

Commercial Real Estate

 

 

3,427

 

 

 

3,427

 

 

 

710

 

 

 

1,800

 

 

 

58

 

 

 

3

 

Commercial and Industrial

 

 

1,000

 

 

 

1,000

 

 

 

1,000

 

 

 

334

 

 

 

2

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

714

 

 

$

714

 

 

$

-

 

 

$

485

 

 

$

4

 

 

$

10

 

Agricultural Real Estate

 

$

6,051

 

 

$

6,051

 

 

$

636

 

 

$

6,464

 

 

$

68

 

 

$

-

 

Agricultural

 

$

247

 

 

$

247

 

 

$

54

 

 

$

284

 

 

$

12

 

 

$

-

 

Commercial Real Estate

 

$

3,607

 

 

$

3,607

 

 

$

710

 

 

$

3,568

 

 

$

96

 

 

$

10

 

Commercial and Industrial

 

$

1,215

 

 

$

1,215

 

 

$

1,000

 

 

$

1,540

 

 

$

26

 

 

$

4

 

Consumer

 

$

15

 

 

$

15

 

 

$

-

 

 

$

19

 

 

$

1

 

 

$

-

 

30


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, 2020

 

 

 

 

 

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

 

$

780

 

 

$

780

 

 

$

-

 

 

$

688

 

 

$

120

 

 

$

9

 

Agricultural Real Estate

 

 

1,589

 

 

 

1,589

 

 

 

-

 

 

 

451

 

 

 

6

 

 

 

-

 

Agricultural

 

 

533

 

 

 

533

 

 

 

-

 

 

 

367

 

 

 

9

 

 

 

1

 

Commercial Real Estate

 

 

186

 

 

 

186

 

 

 

-

 

 

 

199

 

 

 

3

 

 

 

-

 

Commercial and Industrial

 

 

2,021

 

 

 

2,021

 

 

 

-

 

 

 

819

 

 

 

18

 

 

 

-

 

Consumer

 

 

25

 

 

 

25

 

 

 

-

 

 

 

21

 

 

 

37

 

 

 

-

 

With a specific allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

 

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

 

 

3,033

 

 

 

3,033

 

 

 

44

 

 

 

2,389

 

 

 

-

 

 

 

-

 

Commercial and Industrial

 

 

1,274

 

 

 

1,274

 

 

 

651

 

 

 

929

 

 

 

10

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

-

 

 

 

-

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Real Estate

 

$

985

 

 

$

985

 

 

$

43

 

 

$

748

 

 

$

130

 

 

$

9

 

Agricultural Real Estate

 

$

7,014

 

 

$

7,014

 

 

$

432

 

 

$

2,926

 

 

$

13

 

 

$

-

 

Agricultural

 

$

721

 

 

$

721

 

 

$

28

 

 

$

575

 

 

$

15

 

 

$

1

 

Commercial Real Estate

 

$

3,219

 

 

$

3,219

 

 

$

44

 

 

$

2,588

 

 

$

3

 

 

$

-

 

Commercial and Industrial

 

$

3,295

 

 

$

3,295

 

 

$

651

 

 

$

1,748

 

 

$

28

 

 

$

-

 

Consumer

 

$

25

 

 

$

25

 

 

$

-

 

 

$

28

 

 

$

37

 

 

$

-

 

 


31


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS (Continued)

 

 

As of September 30, 2021, the Company had $167 thousand of foreclosed residential real estate property obtained by physical possession and $129 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions. This compares to the Company having $71 thousand of foreclosed residential real estate property obtained by physical possession and $910 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceeding are in process according to local jurisdictions as of December 31, 2020.  As of September 30, 2020, the Company had $71 thousand of foreclosed residential real estate property obtained by physical possession and $849 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process according to local jurisdictions.

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)

 

 

 

Nine Months Ended

 

 

Twelve Months Ended

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Allowance for Loan & Lease Losses

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

13,672

 

 

$

7,228

 

Provision for loan loss

 

 

3,000

 

 

 

6,981

 

Loans charged off

 

 

(1,154

)

 

 

(720

)

Recoveries

 

 

180

 

 

 

183

 

Allowance for Loan & Lease Losses

 

$

15,698

 

 

$

13,672

 

Allowance for Unfunded Loan Commitments &

      Letters of Credit

 

$

1,039

 

 

$

641

 

Total Allowance for Credit Losses

 

$

16,737

 

 

$

14,313

 

 

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 $2.0 million and $1.7 million as of September 30, 2021 and December 31, 2020, respectively nor a nonaccretable yield of $325 thousand as of September 30, 2021 related to the acquisitions of Bank of Geneva in 2019 and Ossian State Bank in 2021 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.

 

 

 

 

 

 

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32


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, 2021 and September 30, 2020 in addition to the ending balances as of December 31, 2020 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

 

Three Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALLOWANCE FOR CREDIT LOSSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

649

 

 

$

1,217

 

 

$

720

 

 

$

8,831

 

 

$

2,837

 

 

$

613

 

 

$

1,145

 

 

$

220

 

 

 

16,232

 

Charge Offs

 

 

(2

)

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

(5

)

 

 

(95

)

 

 

-

 

 

 

-

 

 

 

(103

)

Recoveries

 

 

3

 

 

 

-

 

 

 

1

 

 

 

3

 

 

 

9

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

55

 

Provision (Credit)

 

 

146

 

 

 

(291

)

 

 

(33

)

 

 

(469

)

 

 

973

 

 

 

49

 

 

 

-

 

 

 

284

 

 

 

659

 

Other Non-interest expense related to

   unfunded

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(106

)

 

 

-

 

 

 

(106

)

Ending Balance

 

$

796

 

 

$

926

 

 

$

687

 

 

$

8,365

 

 

$

3,814

 

 

$

606

 

 

$

1,039

 

 

$

504

 

 

$

16,737

 

Ending balance: individually evaluated

   for impairment

 

$

-

 

 

$

636

 

 

$

54

 

 

$

710

 

 

$

1,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2,400

 

Ending balance: collectively evaluated

   for impairment

 

$

796

 

 

$

290

 

 

$

633

 

 

$

7,655

 

 

$

2,814

 

 

$

606

 

 

$

1,039

 

 

$

504

 

 

$

14,337

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

FINANCING RECEIVABLES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

202,370

 

 

$

179,051

 

 

$

105,722

 

 

$

727,418

 

 

$

225,382

 

 

$

55,619

 

 

$

-

 

 

$

-

 

 

$

1,495,562

 

Ending balance: individually evaluated

   for impairment

 

$

714

 

 

$

6,051

 

 

$

247

 

 

$

3,607

 

 

$

1,215

 

 

$

15

 

 

$

-

 

 

$

-

 

 

$

11,849

 

Ending balance: collectively evaluated

   for impairment

 

$

201,595

 

 

$

173,000

 

 

$

105,475

 

 

$

723,577

 

 

$

223,803

 

 

$

55,604

 

 

$

-

 

 

$

-

 

 

$

1,483,054

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

61

 

 

$

-

 

 

$

-

 

 

$

234

 

 

$

364

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

659

 

 

 


33

 


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 4 LOANS (Continued)

 

 

December 31, 2020

 

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

 

$

633

 

 

$

958

 

 

$

701

 

 

$

7,415

 

 

$

3,346

 

 

$

606

 

 

$

641

 

 

$

13

 

 

$

14,313

 

Ending balance: individually evaluated for

   impairment

 

$

31

 

 

$

600

 

 

$

116

 

 

$

20

 

 

$

890

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,657

 

Ending balance: collectively evaluated for

   impairment

 

$

602

 

 

$

358

 

 

$

585

 

 

$

7,395

 

 

$

2,456

 

 

$

606

 

 

$

641

 

 

$

13

 

 

$

12,656

 

Ending balance: loans acquired with deteriorated

   credit quality

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

FINANCING RECEIVABLES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

175,316

 

 

$

188,826

 

 

$

94,490

 

 

$

587,654

 

 

$

204,043

 

 

$

52,661

 

 

$

-

 

 

$

-

 

 

$

1,302,990

 

Ending balance: individually evaluated for

   impairment

 

$

1,001

 

 

$

6,756

 

 

$

467

 

 

$

2,950

 

 

$

3,335

 

 

$

23

 

 

$

-

 

 

$

-

 

 

$

14,532

 

Ending balance: collectively evaluated for

   impairment

 

$

174,273

 

 

$

182,070

 

 

$

94,023

 

 

$

584,704

 

 

$

200,602

 

 

$

52,638

 

 

$

-

 

 

$

-

 

 

$

1,288,310

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

42

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

106

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

148

 

 


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

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALLOWANCE FOR CREDIT LOSSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

570

 

 

$

813

 

 

$

1,036

 

 

$

4,458

 

 

$

2,423

 

 

$

561

 

 

$

605

 

 

$

72

 

 

$

10,538

 

Charge Offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(79

)

 

 

-

 

 

 

-

 

 

 

(79

)

Recoveries

 

 

2

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

10

 

 

 

28

 

 

 

-

 

 

 

-

 

 

 

42

 

Provision (Credit)

 

 

(42

)

 

 

(51

)

 

 

(367

)

 

 

1,275

 

 

 

839

 

 

 

94

 

 

 

-

 

 

 

239

 

 

 

1,987

 

Other Non-interest expense related to

   unfunded

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28

 

 

 

-

 

 

 

28

 

Ending Balance

 

$

530

 

 

$

762

 

 

$

669

 

 

$

5,735

 

 

$

3,272

 

 

$

604

 

 

$

633

 

 

$

311

 

 

$

12,516

 

Ending balance: individually evaluated

   for impairment

 

$

43

 

 

$

432

 

 

$

28

 

 

$

44

 

 

$

651

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,198

 

Ending balance: collectively evaluated

   for impairment

 

$

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

 

$

175,595

 

 

$

192,577

 

 

$

103,476

 

 

$

593,936

 

 

$

244,823

 

 

$

53,455

 

 

$

-

 

 

$

-

 

 

$

1,363,862

 

Ending balance: individually evaluated

   for impairment

 

$

985

 

 

$

7,014

 

 

$

721

 

 

$

3,219

 

 

$

3,295

 

 

$

25

 

 

$

-

 

 

$

-

 

 

$

15,259

 

Ending balance: collectively evaluated

   for impairment

 

$

174,567

 

 

$

185,563

 

 

$

102,755

 

 

$

590,717

 

 

$

241,528

 

 

$

53,339

 

 

$

-

 

 

$

-

 

 

$

1,348,469

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

43

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

91

 

 

$

-

 

 

$

-

 

 

$

134

 

 

 

 

35


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, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALLOWANCE FOR CREDIT LOSSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

633

 

 

$

958

 

 

$

701

 

 

$

7,415

 

 

$

3,346

 

 

$

606

 

 

$

641

 

 

$

13

 

 

$

14,313

 

Charge Offs

 

 

(2

)

 

 

-

 

 

 

(143

)

 

 

-

 

 

 

(814

)

 

 

(195

)

 

 

-

 

 

 

-

 

 

 

(1,154

)

Recoveries

 

 

9

 

 

 

-

 

 

 

7

 

 

 

8

 

 

 

19

 

 

 

137

 

 

 

-

 

 

 

-

 

 

 

180

 

Provision (Credit)

 

 

156

 

 

 

(32

)

 

 

122

 

 

 

942

 

 

 

1,263

 

 

 

58

 

 

 

-

 

 

 

491

 

 

 

3,000

 

Other Non-interest expense related to

   unfunded

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

398

 

 

 

-

 

 

 

398

 

Ending Balance

 

$

796

 

 

$

926

 

 

$

687

 

 

$

8,365

 

 

$

3,814

 

 

$

606

 

 

$

1,039

 

 

$

504

 

 

$

16,737

 

Ending balance: individually evaluated

   for impairment

 

$

-

 

 

$

636

 

 

$

54

 

 

$

710

 

 

$

1,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2,400

 

Ending balance: collectively evaluated

   for impairment

 

$

796

 

 

$

290

 

 

$

633

 

 

$

7,655

 

 

$

2,814

 

 

$

606

 

 

$

1,039

 

 

$

504

 

 

$

14,337

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

FINANCING RECEIVABLES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

202,370

 

 

$

179,051

 

 

$

105,722

 

 

$

727,418

 

 

$

225,382

 

 

$

55,619

 

 

$

-

 

 

$

-

 

 

$

1,495,562

 

Ending balance: individually evaluated

   for impairment

 

$

714

 

 

$

6,051

 

 

$

247

 

 

$

3,607

 

 

$

1,215

 

 

$

15

 

 

$

-

 

 

$

-

 

 

$

11,849

 

Ending balance: collectively evaluated

   for impairment

 

$

201,595

 

 

$

173,000

 

 

$

105,475

 

 

$

723,577

 

 

$

223,803

 

 

$

55,604

 

 

$

-

 

 

$

-

 

 

$

1,483,054

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

61

 

 

$

-

 

 

$

-

 

 

$

234

 

 

$

364

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

659

 

 

 

 

36


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, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALLOWANCE FOR CREDIT LOSSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

311

 

 

$

314

 

 

$

691

 

 

$

3,634

 

 

$

1,727

 

 

$

551

 

 

$

479

 

 

$

-

 

 

$

7,707

 

Charge Offs

 

 

(35

)

 

 

-

 

 

 

-

 

 

 

(8

)

 

 

(165

)

 

 

(272

)

 

 

-

 

 

 

-

 

 

 

(480

)

Recoveries

 

 

7

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

19

 

 

 

116

 

 

 

-

 

 

 

-

 

 

 

149

 

Provision (Credit)

 

 

247

 

 

 

448

 

 

 

(22

)

 

 

2,102

 

 

 

1,691

 

 

 

209

 

 

 

-

 

 

 

311

 

 

 

4,986

 

Other Non-interest expense related to

   unfunded

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

154

 

 

 

-

 

 

 

154

 

Ending Balance

 

$

530

 

 

$

762

 

 

$

669

 

 

$

5,735

 

 

$

3,272

 

 

$

604

 

 

$

633

 

 

$

311

 

 

$

12,516

 

Ending balance: individually evaluated

   for impairment

 

$

43

 

 

$

432

 

 

$

28

 

 

$

44

 

 

$

651

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,198

 

Ending balance: collectively evaluated

   for impairment

 

$

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

 

$

175,595

 

 

$

192,577

 

 

$

103,476

 

 

$

593,936

 

 

$

244,823

 

 

$

53,455

 

 

$

-

 

 

$

-

 

 

$

1,363,862

 

Ending balance: individually evaluated

   for impairment

 

$

985

 

 

$

7,014

 

 

$

721

 

 

$

3,219

 

 

$

3,295

 

 

$

25

 

 

$

-

 

 

$

-

 

 

$

15,259

 

Ending balance: collectively evaluated

   for impairment

 

$

174,567

 

 

$

185,563

 

 

$

102,755

 

 

$

590,717

 

 

$

241,528

 

 

$

53,339

 

 

$

-

 

 

$

-

 

 

$

1,348,469

 

Ending balance: loans acquired with

   deteriorated credit quality

 

$

43

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

$

91

 

 

$

-

 

 

$

-

 

 

$

134

 

 

 

 


37


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.

Beginning in 2020, 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 a specific dollar amount, 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.  Directors receive a prorated dollar value of shares for a partial year of service.  The value for the shares is 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 approximately $4,000 which equated to 176 shares.  On June 4, 2021, 10 Directors received approximately $6,000 worth of shares which equated to 272 shares while 4 Directors received a prorated dollar value of 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, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,920

 

 

$

4,410

 

 

$

15,812

 

 

$

13,319

 

Less: distributed earnings allocated to participating

   securities

 

 

(20

)

 

 

(15

)

 

 

(49

)

 

 

(41

)

Less: undistributed earnings allocated to participating

   securities

 

 

(31

)

 

 

(19

)

 

 

(77

)

 

 

(59

)

Net earnings available to common shareholders

 

$

5,869

 

 

$

4,376

 

 

$

15,686

 

 

$

13,219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding including

   participating securities

 

 

11,209,732

 

 

 

11,142,797

 

 

 

11,199,309

 

 

 

11,135,695

 

Less: average unvested restricted shares

 

 

(96,197

)

 

 

(83,257

)

 

 

(89,075

)

 

 

(83,445

)

Weighted average common shares outstanding

 

 

11,113,535

 

 

 

11,059,540

 

 

 

11,110,234

 

 

 

11,052,250

 

Basic and diluted earnings per share

 

$

0.53

 

 

$

0.40

 

 

$

1.41

 

 

$

1.20

 

 

 

 

 

 

 

 

 

 

 

 

 

38

 


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.

 

 

 

 

 

 

 

 

 

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39

 


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

 

 

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of September 30, 2021 and December 31, 2020 are reflected below.

 

 

 

(In Thousands)

 

 

 

September 30, 2021

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

158,078

 

 

$

158,078

 

 

$

158,078

 

 

$

-

 

 

$

-

 

Interest-bearing time deposits

 

 

14,622

 

 

 

14,651

 

 

 

-

 

 

 

14,651

 

 

 

-

 

Securities - available-for-sale

 

 

426,717

 

 

 

426,717

 

 

 

73,804

 

 

 

349,146

 

 

 

3,767

 

Other securities

 

 

4,905

 

 

 

4,905

 

 

 

-

 

 

 

-

 

 

 

4,905

 

Loans held for sale

 

 

3,735

 

 

 

3,735

 

 

 

-

 

 

 

-

 

 

 

3,735

 

Loans, net

 

 

1,479,864

 

 

 

1,434,960

 

 

 

-

 

 

 

-

 

 

 

1,434,960

 

Interest receivable

 

 

7,401

 

 

 

7,401

 

 

 

-

 

 

 

-

 

 

 

7,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,175,769

 

 

$

1,175,816

 

 

$

-

 

 

$

-

 

 

$

1,175,816

 

Non-interest bearing deposits

 

 

438,076

 

 

 

438,076

 

 

 

-

 

 

 

438,076

 

 

 

-

 

Time deposits

 

 

252,383

 

 

 

248,399

 

 

 

-

 

 

 

-

 

 

 

248,399

 

Total Deposits

 

 

1,866,228

 

 

 

1,862,291

 

 

 

-

 

 

 

438,076

 

 

 

1,424,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under

   agreement to repurchase

 

 

29,601

 

 

 

29,601

 

 

 

-

 

 

 

-

 

 

 

29,601

 

Federal Home Loan Bank advances

 

 

17,868

 

 

 

17,869

 

 

 

-

 

 

 

-

 

 

 

17,869

 

Subordinated notes, net of unamortized issuance costs

 

 

34,441

 

 

 

35,000

 

 

 

-

 

 

 

35,000

 

 

 

-

 

Interest payable

 

 

588

 

 

 

588

 

 

 

-

 

 

 

-

 

 

 

588

 

 

 

 

 

 

 

(In Thousands)

 

 

 

December 31, 2020

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

175,706

 

 

$

175,706

 

 

$

175,706

 

 

$

-

 

 

$

-

 

Interest-bearing time deposits

 

 

4,653

 

 

 

4,677

 

 

 

-

 

 

 

4,677

 

 

 

-

 

Securities - available-for-sale

 

 

307,812

 

 

 

307,812

 

 

 

-

 

 

 

306,250

 

 

 

1,562

 

Other securities

 

 

5,939

 

 

 

5,939

 

 

 

-

 

 

 

-

 

 

 

5,939

 

Loans held for sale

 

 

7,740

 

 

 

7,740

 

 

 

-

 

 

 

-

 

 

 

7,740

 

Loans, net

 

 

1,289,318

 

 

 

1,261,440

 

 

 

-

 

 

 

-

 

 

 

1,261,440

 

Interest receivable

 

 

6,188

 

 

 

6,188

 

 

 

-

 

 

 

-

 

 

 

6,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

997,462

 

 

$

1,004,608

 

 

$

-

 

 

$

-

 

 

$

1,004,608

 

Non-interest bearing deposits

 

 

351,147

 

 

 

351,147

 

 

 

-

 

 

 

351,147

 

 

 

-

 

Time deposits

 

 

247,553

 

 

 

250,135

 

 

 

-

 

 

 

-

 

 

 

250,135

 

Total Deposits

 

 

1,596,162

 

 

 

1,605,890

 

 

 

-

 

 

 

351,147

 

 

 

1,254,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under

   agreement to repurchase

 

 

30,239

 

 

 

30,239

 

 

 

-

 

 

 

-

 

 

 

30,239

 

Federal Home Loan Bank advances

 

 

17,861

 

 

 

17,872

 

 

 

-

 

 

 

-

 

 

 

17,872

 

Subordinated notes, net of unamortized issuance costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Interest payable

 

 

338

 

 

 

338

 

 

 

-

 

 

 

-

 

 

 

338

 

 

40


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

 

 

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.

The following summarizes financial assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, 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)

 

September 30, 2021

 

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

 

$

73,804

 

 

$

-

 

 

$

-

 

U.S. Government agencies

 

 

-

 

 

 

163,196

 

 

 

-

 

Mortgage-backed securities

 

 

-

 

 

 

125,099

 

 

 

-

 

State and local governments

 

 

-

 

 

 

60,851

 

 

 

3,767

 

Total Securities Available-for-Sale

 

$

73,804

 

 

$

349,146

 

 

$

3,767

 

 

 

December 31, 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

 

$

-

 

 

$

-

 

 

$

-

 

U.S. Government agencies

 

 

-

 

 

 

124,241

 

 

 

-

 

Mortgage-backed securities

 

 

-

 

 

 

113,056

 

 

 

-

 

State and local governments

 

 

-

 

 

 

68,953

 

 

 

1,562

 

Total Securities Available-for-Sale

 

$

-

 

 

$

306,250

 

 

$

1,562

 

 

41


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

 

 

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, 2021 and September 30, 2020.

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local

Governments

Tax-Exempt

 

 

State and Local

Governments

Taxable

 

 

State and Local

Governments

Total

 

Balance at July 1, 2021

 

$

2,410

 

 

$

1,538

 

 

$

3,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Market Value

 

 

(9

)

 

 

(17

)

 

 

(26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

-

 

 

 

-

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments & Maturities

 

 

(155

)

 

 

-

 

 

 

(155

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

$

2,246

 

 

$

1,521

 

 

$

3,767

 

 

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local

Governments

Tax-Exempt

 

 

State and Local

Governments

Taxable

 

 

State and Local

Governments

Total

 

Balance at July 1, 2020

 

$

0

 

 

$

1,550

 

 

$

1,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Market Value

 

 

-

 

 

 

35

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments & Maturities

 

 

-

 

 

 

-

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

$

0

 

 

$

1,585

 

 

$

1,585

 

 

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local

Governments

Tax-Exempt

 

 

State and Local

Governments

Taxable

 

 

State and Local

Governments

Total

 

Balance at January 1, 2021

 

$

0

 

 

$

1,562

 

 

$

1,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Market Value

 

 

(17

)

 

 

(41

)

 

 

(58

)

 

 

 

 

 

 

 

 

 

 

.

 

Purchases

 

 

2,418

 

 

 

-

 

 

 

2,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments & Maturities

 

 

(155

)

 

 

-

 

 

 

(155

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

$

2,246

 

 

$

1,521

 

 

$

3,767

 

 

42


ITEM 1 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)

NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

 

 

 

 

(In Thousands)

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

State and Local

Governments

Tax-Exempt

 

 

State and Local

Governments

Taxable

 

 

State and Local

Governments

Total

 

Balance at January 1, 2020

 

$

0

 

 

$

1,490

 

 

$

1,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Market Value

 

 

0

 

 

 

95

 

 

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments & Maturities

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

$

0

 

 

$

1,585

 

 

$

1,585

 

 

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, 2021 and December 31, 2020, 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 estimat