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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 ended September 30, 2020

 

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 0-33203

 

LANDMARK BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   43-1930755
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

 

701 Poyntz Avenue, Manhattan, Kansas 66502

(Address of principal executive offices) (Zip code)

 

(785) 565-2000

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:   Trading Symbol(s)   Name of exchange on which registered:
Common Stock, par value $0.01 per share   LARK   Nasdaq Global Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 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 outstanding of each of the issuer’s classes of common stock as of the latest practicable date: as of November 5, 2020, the issuer had outstanding 4,510,988 shares of its common stock, $0.01 par value per share.

 

 

 

 

 

 

LANDMARK BANCORP, INC.

Form 10-Q Quarterly Report

 

Table of Contents

 

    Page Number
     
PART I
     
Item 1. Financial Statements 2-25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26-40
Item 3. Quantitative and Qualitative Disclosures about Market Risk 40-41
Item 4. Controls and Procedures 41
     
PART II
     
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42-43
Item 3. Defaults Upon Senior Securities 43
Item 4. Mine Safety Disclosures 43
Item 5. Other Information 43
Item 6. Exhibits 43
    43
  Signature Page 44

 

1

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

(Dollars in thousands, except per share amounts)   September 30,     December 31,  
    2020     2019  
    (Unaudited)        
Assets                
Cash and cash equivalents   $ 15,820     $ 13,694  
Investment securities available-for-sale, at fair value     299,530       362,998  
Bank stocks, at cost     4,459       3,109  
Loans, net of allowance for loans losses of $8,366 at September 30, 2020 and $6,467 at December 31, 2019     728,150       532,180  
Loans held for sale, at fair value     18,253       8,497  
Premises and equipment, net     20,617       21,133  
Bank owned life insurance     25,269       24,809  
Goodwill     17,532       17,532  
Other intangible assets, net     3,578       2,829  
Real estate owned, net     1,488       290  
Accrued interest and other assets     14,246       11,394  
Total assets   $ 1,148,942     $ 998,465  
                 
Liabilities and Stockholders’ Equity                
Liabilities:                
Deposits:                
Non-interest-bearing demand   $ 272,864     $ 182,717  
Money market and checking     437,056       405,746  
Savings     120,424       99,522  
Time     127,598       147,063  
Total deposits     957,942       835,048  
                 
Federal Home Loan Bank borrowings     20,069       3,000  
Subordinated debentures     21,651       21,651  
Other borrowings     8,400       17,548  
Accrued interest, taxes, and other liabilities     19,010       12,611  
Total liabilities     1,027,072       889,858  
                 
Commitments and contingencies     -       -  
                 
Stockholders’ equity:                
Preferred stock, $0.01 par value per share, 200,000 shares authorized; none issued     -       -  
Common stock, $0.01 par value per share, 7,500,000 shares authorized; 4,617,882 and 4,597,396 shares issued at September 30, 2020 and December 31, 2019, respectively     46       46  
Additional paid-in capital     69,303       69,029  
Retained earnings     45,462       34,293  
Treasury stock, at cost: 106,894 and 0 shares at September 30, 2020 and December 31, 2019, respectively     (2,349 )     -  
Accumulated other comprehensive income     9,408       5,239  
Total stockholders’ equity     121,870       108,607  
Total liabilities and stockholders’ equity   $ 1,148,942     $ 998,465  

 

See accompanying notes to consolidated financial statements.

 

2

 

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

    2020     2019     2020     2019  
    Three months ended     Nine months ended  
(Dollars in thousands, except per share amounts)   September 30,     September 30,  
    2020     2019     2020     2019  
Interest income:                                
Loans:                                
Taxable   $ 7,975     $ 7,070     $ 22,819     $ 20,358  
Tax-exempt     23       26       71       78  
Investment securities:                                
Taxable     945       1,444       3,335       4,430  
Tax-exempt     814       905       2,491       2,756  
Total interest income     9,757       9,445       28,716       27,622  
Interest expense:                                
Deposits     354       1,433       1,798       4,144  
Borrowings     136       353       534       1,142  
Total interest expense     490       1,786       2,332       5,286  
Net interest income     9,267       7,659       26,384       22,336  
Provision for loan losses     1,000       400       2,600       1,000  
Net interest income after provision for loan losses     8,267       7,259       23,784       21,336  
Non-interest income:                                
Fees and service charges     2,122       2,057       5,838       5,677  
Gains on sales of loans, net     4,944       2,081       10,961       4,943  
Bank owned life insurance     152       159       460       478  
(Losses)/gains on sales of investment securities, net     678       -       2,448       (146 )
Other     269       258       783       847  
Total non-interest income     8,165       4,555       20,490       11,799  
                                 
Non-interest expense:                                
Compensation and benefits     5,559       4,678       15,394       13,072  
Occupancy and equipment     1,106       1,207       3,248       3,369  
Professional fees     381       446       1,095       1,285  
Data processing     447       405       1,311       1,233  
Amortization of intangibles     465       332       1,166       887  
Advertising     150       166       451       501  
Federal deposit insurance premiums     64       (66 )     166       71  
Foreclosure and real estate owned expense     68       75       110       142  
Other     1,282       1,375       3,804       3,751  
Total non-interest expense     9,522       8,618       26,745       24,311  
Earnings before income taxes     6,910       3,196       17,529       8,824  
Income tax expense     1,483       583       3,639       1,430  
Net earnings   $ 5,427     $ 2,613     $ 13,890     $ 7,394  
Earnings per share:                                
Basic (1)   $ 1.21     $ 0.57     $ 3.07     $ 1.61  
Diluted (1)   $ 1.20     $ 0.57     $ 3.06     $ 1.61  
Dividends per share (1)   $ 0.20     $ 0.19     $ 0.60     $ 0.57  

 

(1) Per share amounts for the periods ended September 30, 2019 have been adjusted to give effect to the 5% stock dividend paid during December 2019.

 

See accompanying notes to consolidated financial statements.

 

3

 

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

    2020     2019     2020     2019  
    Three months ended     Nine months ended  
(Dollars in thousands)   September 30,     September 30,  
    2020     2019     2020     2019  
                         
Net earnings   $ 5,427     $ 2,613     $ 13,890     $ 7,394  
                                 
Net unrealized holding gains on available-for-sale securities     661       1,787       7,970       11,995  
Reclassification adjustment for net losses (gains) included in earnings     (678 )     -       (2,448 )     146  
Net unrealized gains     (17 )     1,787       5,522       12,141  
Income tax effect on net (losses) gains included in earnings     166       -       600       (36 )
Income tax effect on net unrealized holding gains     (162 )     (437 )     (1,953 )     (2,938 )
Other comprehensive (loss) income     (13 )     1,350       4,169       9,167  
                                 
Total comprehensive income   $ 5,414     $ 3,963     $ 18,059     $ 16,561  

 

See accompanying notes to consolidated financial statements.

 

4

 

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

(Dollars in thousands, except per share amounts)   Common stock    

Additional

paid-in

capital

   

Retained

earnings

   

Treasury

stock

   

Accumulated

other

comprehensive

income (loss)

    Total  
                                     
Balance at July 1, 2019   $ 44     $ 63,904     $ 35,105     $ -     $ 3,826     $ 102,879  
Net earnings     -       -       2,613       -       -       2,613  
Other comprehensive income     -       -       -       -       1,350       1,350  
Dividends paid ($0.19 per share)     -       -       (875 )     -       -       (875 )
Stock-based compensation     -       71       -       -       -       71  
Balance at September 30, 2019   $ 44     $ 63,975     $ 36,843     $ -     $ 5,176     $ 106,038  
                                                 
Balance at July 1, 2020   $ 46     $ 69,224     $ 40,938     $ (2,349 )   $ 9,421     $ 117,280  
Net earnings     -       -       5,427       -       -       5,427  
Other comprehensive loss     -       -       -       -       (13 )     (13 )
Dividends paid ($0.20 per share)     -       -       (903 )     -       -       (903 )
Stock-based compensation     -       79       -       -       -       79  
Balance at September 30, 2020   $ 46     $ 69,303     $ 45,462     $ (2,349 )   $ 9,408     $ 121,870  

 

(Dollars in thousands, except per share amounts)   Common stock    

Additional

paid-in

capital

   

Retained

earnings

   

Treasury

stock

   

Accumulated

other

comprehensive

income (loss)

    Total  
                                     
Balance at January 1, 2019   $ 44     $ 63,775     $ 32,073     $ -     $ (3,991 )   $ 91,901  
Net earnings     -       -       7,394       -       -       7,394  
Other comprehensive income     -       -       -       -       9,167       9,167  
Dividends paid ($0.57 per share)     -       -       (2,624 )     -       -       (2,624 )
Stock-based compensation     -       200       -       -       -       200  
Balance at September 30, 2019   $ 44     $ 63,975     $ 36,843     $ -     $ 5,176     $ 106,038  
                                                 
Balance at January 1, 2020   $ 46     $ 69,029     $ 34,293     $ -     $ 5,239     $ 108,607  
Net earnings     -       -       13,890       -       -       13,890  
Other comprehensive income     -       -       -       -       4,169       4,169  
Dividends paid ($0.60 per share)     -       -       (2,721 )     -       -       (2,721 )
Stock-based compensation     -       241       -       -       -       241  
Exercise of stock options, 3,136 shares     -       33       -       -       -       33  
Purchase of 106,894 treasury shares     -       -       -       (2,349 )     -       (2,349 )
Balance at September 30, 2020   $ 46     $ 69,303     $ 45,462     $ (2,349 )   $ 9,408     $ 121,870  

 

See accompanying notes to consolidated financial statements.

 

5

 

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    2020     2019  
(Dollars in thousands)   Nine months ended September 30,  
    2020     2019  
Cash flows from operating activities:                
Net earnings   $ 13,890     $ 7,394  
Adjustments to reconcile net earnings to net cash provided by operating activities:                
Provision for loan losses     2,600       1,000  
Valuation allowance on real estate owned     19       31  
Amortization of investment security premiums, net     906       1,285  
Amortization of purchase accounting adjustment on loans     (42 )     (27 )
Amortization of intangibles     1,166       887  
Depreciation     743       761  
Increase in cash surrender value of bank owned life insurance     (460 )     (478 )
Stock-based compensation     241       200  
Deferred income taxes     1,041       (430 )
Net (gains) losses on sales of investment securities     (2,448 )     146  
Net loss (gain) on sales of premises, equipment and real estate owned     38       (2 )
Net gains on sales of loans     (10,961 )     (4,943 )
Proceeds from sales of loans     285,497       146,990  
Origination of loans held for sale     (286,207 )     (152,983 )
Changes in assets and liabilities:                
Accrued interest and other assets     (3,615 )     338  
Accrued expenses, taxes, and other liabilities     4,005       (1,208 )
Net cash provided by (used in) operating activities     6,413       (1,039 )
Cash flows from investing activities:                
Net increase in loans     (199,351 )     (32,377 )
Maturities and prepayments of investment securities     46,231       54,998  
Purchases of investment securities     (36,863 )     (34,751 )
Proceeds from sales of investment securities     61,164       9,491  
Redemption of bank stocks     1,655       7,498  
Purchase of bank stocks     (3,005 )     (5,953 )
Proceeds from sales of premises and equipment and foreclosed assets     343       26  
Purchases of premises and equipment, net     (239 )     (986 )
Net cash used in investing activities     (130,065 )     (2,054 )
Cash flows from financing activities:                
Net increase in deposits     122,894       10,106  
Federal Home Loan Bank advance borrowings     156,950       325,497  
Federal Home Loan Bank advance repayments     (139,881 )     (328,297 )
Proceeds from other borrowings     1,075       1,033  
Repayments on other borrowings     (10,223 )     -  
Proceeds from exercise of stock options     33       -  
Payment of dividends     (2,721 )     (2,624 )
Purchase of treasury stock     (2,349 )     -  
Net cash provided by financing activities     125,778       5,715  
Net increase in cash and cash equivalents     2,126       2,622  
Cash and cash equivalents at beginning of period     13,694       19,114  
Cash and cash equivalents at end of period   $ 15,820     $ 21,736  

 

6

 

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Unaudited)

 

    Nine months ended  
(Dollars in thousands)   September 30,  
    2020     2019  
    (Unaudited)  
Supplemental disclosure of cash flow information:                
Cash payments for income taxes   $ 2,890     $ 511  
Cash paid for interest     2,523       5,156  
Cash paid for operating leases     134       116  
                 
Supplemental schedule of noncash investing and financing activities:                
Transfer of loans to real estate owned     1,586       482  
Operating lease asset and related lease liability recorded     -       353  

 

See accompanying notes to consolidated financial statements.

 

7

 

 

LANDMARK BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Interim Financial Statements

 

The unaudited consolidated financial statements of Landmark Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Landmark National Bank (the “Bank”) and Landmark Risk Management Inc., have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto. The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The results of the three month and nine month interim periods ended September 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020 or any other future time period. The Company has evaluated subsequent events for recognition and disclosure up to the date the financial statements were issued.

 

2. Investments

 

A summary of investment securities available-for-sale is as follows:

 

(Dollars in thousands)   As of September 30, 2020  
          Gross     Gross        
    Amortized     unrealized     unrealized     Estimated  
    cost     gains     losses     fair value  
                         
U. S. treasury securities   $ 2,000     $ 47     $ -     $ 2,047  
U. S. federal agency obligations     18,860       146       (18 )     18,988  
Municipal obligations, tax exempt     135,700       6,179       (2 )     141,877  
Municipal obligations, taxable     45,414       2,965       -       48,379  
Agency mortgage-backed securities     80,421       3,144       -       83,565  
Certificates of deposit     4,674       -       -       4,674  
Total   $ 287,069     $ 12,481     $ (20 )   $ 299,530  

 

(Dollars in thousands)   As of December 31, 2019  
          Gross     Gross        
    Amortized     unrealized     unrealized     Estimated  
    cost     gains     losses     fair value  
                         
U. S. treasury securities   $ 2,300     $ 16     $ -     $ 2,316  
U. S. federal agency obligations     4,015       91       -       4,106  
Municipal obligations, tax exempt     142,391       3,513       (42 )     145,862  
Municipal obligations, taxable     45,541       1,293       (55 )     46,779  
Agency mortgage-backed securities     159,908       2,353       (230 )     162,031  
Certificates of deposit     1,904       -       -       1,904  
Total   $ 356,059     $ 7,266     $ (327 )   $ 362,998  

 

8

 

 

The tables above show that some of the securities in the available-for-sale investment portfolio had unrealized losses, or were temporarily impaired, as of September 30, 2020 and December 31, 2019. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of time in a continuous unrealized loss position.

 

(Dollars in thousands)         As of September 30, 2020  
          Less than 12 months     12 months or longer     Total  
    No. of     Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
    securities     value     losses     value     losses     value     losses  
U.S. federal agency obligations     5     $ 13,848     $ (18 )   $ -     $ -     $ 13,848     $ (18 )
Municipal obligations, tax exempt     3       1,329       (2 )     -       -       1,329       (2 )
Total     8     $ 15,177     $ (20 )   $ -     $ -     $ 15,177     $ (20 )

 

(Dollars in thousands)         As of December 31, 2019  
          Less than 12 months     12 months or longer     Total  
    No. of     Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
     securities     value     losses     value     losses     value     losses  
Municipal obligations, tax exempt     23     $ 5,676     $ (16 )   $ 3,473     $ (26 )   $ 9,149     $ (42 )
Municipal obligations, taxable     4       2,563       (55 )     -       -       2,563       (55 )
Agency mortgage-backed securities     21       15,735       (43 )     17,137       (187 )     32,872       (230 )
Total     48     $ 23,974     $ (114 )   $ 20,610     $ (213 )   $ 44,584     $ (327 )

 

The Company’s U.S. federal agency obligations portfolio consists of securities issued by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Bank (“FHLB”). The receipt of principal and interest on U.S. federal agency obligations is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its U.S. federal agency obligations do not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the U.S. federal agency obligations identified in the tables above were temporarily impaired as of September 30, 2020.

 

The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. The Company did not intend to sell and it was more likely than not that the Company will not be required to sell its municipal obligations in an unrealized loss position until the recovery of their costs. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of September 30, 2020 and December 31, 2019.

 

The table below sets forth amortized cost and fair value of investment securities at September 30, 2020. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

 

(Dollars in thousands)   Amortized     Estimated  
    cost     fair value  
Due in less than one year   $ 12,464     $ 12,489  
Due after one year but within five years     146,177       151,148  
Due after five years but within ten years     63,935       67,775  
Due after ten years     64,493       68,118  
Total   $ 287,069     $ 299,530  

 

9

 

 

Sales proceeds and gross realized gains and losses on sales of available-for-sale securities were as follows:

 

    2020     2019     2020     2019  
(Dollars in thousands)   Three months ended September 30,     Nine months ended September 30,  
    2020     2019     2020     2019  
                         
Sales proceeds   $ 16,655     $ -     $ 61,164     $ 9,491  
                                 
Realized gains   $ 678     $ -     $ 2,450     $ 2  
Realized losses     -       -       (2 )     (148 )
Net realized losses   $ 678     $ -     $ 2,448     $ (146 )

 

Securities with carrying values of $279.9 million and $240.0 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at September 30, 2020 and December 31, 2019, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.

 

3. Loans and Allowance for Loan Losses

 

Loans consisted of the following as of the dates indicated below:

 

    September 30,     December 31,  
(Dollars in thousands)   2020     2019  
             
One-to-four family residential real estate   $ 162,344     $ 146,505  
Construction and land     28,094       22,459  
Commercial real estate     154,804       133,501  
Commercial     137,286       109,612  
Paycheck protection program     130,977       -  
Agriculture     99,430       98,558  
Municipal     2,389       2,656  
Consumer     23,988       25,101  
Total gross loans     739,312       538,392  
Net deferred loan (fees)/costs and loans in process     (2,796 )     255  
Allowance for loan losses     (8,366 )     (6,467 )
Loans, net   $ 728,150     $ 532,180  

  

10

 

 

The following tables provide information on the Company’s activity in the allowance for loan losses by loan class:

 

(Dollars in thousands)   Three and nine months ended September 30, 2020  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Agriculture     Municipal     Consumer     Total  
                                                 
Allowance for loan losses:                                                                
Balance at July 1, 2020   $ 707     $ 273     $ 1,693     $ 2,356     $ 2,565     $ 6     $ 147     $ 7,747  
Charge-offs     (89 )     (91 )     -       (167 )     (3 )     -       (57 )     (407 )
Recoveries     -       -       -       1       -       -       25       26  
Provision for loan losses     213       22       264       436       15       -       50       1,000  
Balance at September 30, 2020     831       204       1,957       2,626       2,577       6       165       8,366  
                                                                 
Balance at January 1, 2020   $ 501     $ 271     $ 1,386     $ 1,815     $ 2,347     $ 7     $ 140     $ 6,467  
Charge-offs     (109 )     (191 )     (120 )     (200 )     (3 )     -       (180 )     (803 )
Recoveries     -       -       13       3       -       6       80       102  
Provision for loan losses     439       124       678       1,008       233       (7 )     125       2,600  
Balance at September 30, 2020     831       204       1,957       2,626       2,577       6       165       8,366  

 

(Dollars in thousands)   Three and nine months ended September 30, 2019  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Agriculture     Municipal     Consumer     Total  
                                                 
Allowance for loan losses:                                                                
Balance at July 1, 2019   $ 441     $ 255     $ 1,758     $ 1,404     $ 2,260     $ 7     $ 141     $ 6,266  
Charge-offs     (15 )     (31 )     -       (284 )     -       -       (81 )     (411 )
Recoveries     -       -       -       1       -       -       23       24  
Provision for loan losses     249       (156 )     (326 )     490       40       (1 )     104       400  
Balance at September 30, 2019     675       68       1,432       1,611       2,300       6       187       6,279  
                                                                 
Balance at January 1, 2019   $ 449     $ 168     $ 1,686     $ 1,051     $ 2,238     $ 7     $ 166     $ 5,765  
Charge-offs     (56 )     (31 )     -       (324 )     -       -       (183 )     (594 )
Recoveries     1       -       -       52       -       6       49       108  
Provision for loan losses     281       (69 )     (254 )     832       62       (7 )     155       1,000  
Balance at September 30, 2019     675       68       1,432       1,611       2,300       6       187       6,279  

 

11

 

 

The following tables provide information on the Company’s activity in the allowance for loan losses by loan class and allowance methodology:

 

(Dollars in thousands)   As of September 30, 2020  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Paycheck protection loans     Agriculture     Municipal     Consumer     Total  
                                                       
Allowance for loan losses:                                                                        
Individually evaluated for loss     213       -       -       25       -       -       -       -       238  
Collectively evaluated for loss     618       204       1,957       2,601       -       2,577       6       165       8,128  
Total     831       204       1,957       2,626       -       2,577       6       165       8,366  
                                                                         
Loan balances:                                                                        
Individually evaluated for loss     1,259       1,198       4,929       2,055       -       1,059       58       2       10,560  
Collectively evaluated for loss     161,085       26,896       149,875       135,231       130,977       98,371       2,331       23,986       728,752  
Total   $ 162,344     $ 28,094     $ 154,804     $ 137,286     $ 130,977     $ 99,430     $ 2,389     $ 23,988     $ 739,312  

 

(Dollars in thousands)   As of December 31, 2019  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial     Paycheck protection loans     Agriculture     Municipal     Consumer     Total  
                                                       
Allowance for loan losses:                                                                        
Individually evaluated for loss     129       191       103       204       -       106       -       -       733  
Collectively evaluated for loss     372       80       1,283       1,611       -       2,241       7       140       5,734  
Total     501       271       1,386       1,815       -       2,347       7       140       6,467  
                                                                         
Loan balances:                                                                        
Individually evaluated for loss     1,256       1,479       3,461       1,298       -       1,124       58       4       8,680  
Collectively evaluated for loss     145,249       20,980       130,040       108,314       -       97,434       2,598       25,097       529,712  
Total   $ 146,505     $ 22,459     $ 133,501     $ 109,612     $ -     $ 98,558     $ 2,656     $ 25,101     $ 538,392  

 

The Company’s impaired loans increased from $8.7 million at December 31, 2019 to $10.6 million at September 30, 2020. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at September 30, 2020 and December 31, 2019, was related to troubled debt restructurings (“TDR”) that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis on impaired loans was immaterial during the three and nine month periods ended September 30, 2020 and 2019.

 

12

 

 

The following tables present information on impaired loans:

 

(Dollars in thousands)   As of September 30, 2020  
    Unpaid contractual principal     Impaired loan balance     Impaired loans without an allowance     Impaired loans with an allowance     Related allowance recorded     Year-to-date average loan balance     Year-to-date interest income recognized  
                                           
One-to-four family residential real estate   $ 1,348     $ 1,259     $ 959     $ 300     $ 213     $ 1,319     $ 1  
Construction and land     2,933       1,198       1,198       -       -       1,225       19  
Commercial real estate     4,929       4,929       4,929       -       -       4,946       356  
Commercial     2,354       2,055       1,952       103       25       2,281       32  
Agriculture     1,274       1,059       1,059       -       -       1,155       61  
Municipal     58       58       58       -       -       58       1  
Consumer     2       2       2       -       -       3       -  
Total impaired loans   $ 12,898     $ 10,560     $ 10,157     $ 403     $ 238     $ 10,987     $ 470  

 

(Dollars in thousands)   As of December 31, 2019  
    Unpaid contractual principal     Impaired loan balance     Impaired loans without an allowance     Impaired loans with an allowance     Related allowance recorded     Year-to-date average loan balance     Year-to-date interest income recognized  
                                           
One-to-four family residential real estate   $ 1,297     $ 1,256     $ 887     $ 369     $ 129     $ 1,291     $ 10  
Construction and land     3,214       1,479       1,288       191       191       1,631       36  
Commercial real estate     3,461       3,461       3,258       203       103       3,489       478  
Commercial     1,427       1,298       416       882       204       1,464       11  
Agriculture     1,339       1,124       613       511       106       1,166       48  
Municipal     58       58       58       -       -       58       1  
Consumer     4       4       4       -       -       5       -  
Total impaired loans   $ 10,800     $ 8,680     $ 6,524     $ 2,156     $ 733     $ 9,104     $ 584  

 

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is ninety days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans 90 days or more delinquent and accruing interest at September 30, 2020 or December 31, 2019.

 

13

 

 

The following tables present information on the Company’s past due and non-accrual loans by loan class:

 

(Dollars in thousands)   As of September 30, 2020  
    30-59 days delinquent and accruing     60-89 days delinquent and accruing     90 days or more delinquent and accruing     Total past due loans accruing     Non-accrual loans     Total past due and non-accrual loans     Total loans not past due  
                                           
One-to-four family residential real estate   $ 30     $ 425     $ -     $ 455     $ 1,243     $ 1,698     $ 160,646  
Construction and land     598       -       -       598       697       1,295       26,799  
Commercial real estate     -       1,654       -       1,654       2,910       4,564       150,240  
Commercial     443       37       -       480       1,202       1,682       135,604  
Paycheck protection loans     -       -       -       -       -       -       130,977  
Agriculture     476       -       -       476       292       768       98,662  
Municipal     -       -       -       -       -       -       2,389  
Consumer     24       1       -       25       2       27       23,961  
Total   $ 1,571     $ 2,117     $ -     $ 3,688     $ 6,346     $ 10,034     $ 729,278  
                                                         
Percent of gross loans     0.21%     0.29%     0.00%     0.50%     0.86%     1.36%     98.64%

 

(Dollars in thousands)   As of December 31, 2019  
    30-59 days delinquent and accruing     60-89 days delinquent and accruing     90 days or more delinquent and accruing     Total past due loans accruing     Non-accrual loans     Total past due and non-accrual loans     Total loans not past due  
                                           
One-to-four family residential real estate   $ 79     $ 593     $ -     $ 672     $ 1,088     $ 1,760     $ 144,745  
Construction and land     -       -       -       -       898       898       21,561  
Commercial real estate     1,137       707       -       1,844       1,440       3,284       130,217  
Commercial     510       68       -       578       1,270       1,848       107,764  
Agriculture     316       -       -       316       846       1,162       97,396  
Municipal     -       -       -       -       -       -       2,656  
Consumer     27       -       -       27       4       31       25,070  
Total   $ 2,069     $ 1,368     $ -     $ 3,437     $ 5,546     $ 8,983     $ 529,409  
                                                         
Percent of gross loans     0.39%     0.25%     0.00%     0.64%     1.03%     1.67%     98.33%

 

 

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the nine months ended September 30, 2020 and 2019 would have increased interest income by $264,000 and $171,000, respectively. No interest income related to non-accrual loans was included in interest income for the nine months ended September 30, 2020 and 2019.

 

The Company also categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Non-classified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:

 

Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but such protection is potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

 

Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

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

 

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The following table provides information on the Company’s risk categories by loan class:

 

(Dollars in thousands)   As of September 30, 2020     As of December 31, 2019  
    Non-classified     Classified     Non-classified     Classified  
                         
One-to-four family residential real estate   $ 161,026     $ 1,318     $ 145,311     $ 1,194  
Construction and land     26,799       1,295       21,560       899  
Commercial real estate     149,712       5,092       130,714       2,787  
Commercial     129,882       7,404       101,678       7,934  
Payroll protection loan     130,977       -       -       -  
Agriculture     89,405       10,025       93,259       5,299  
Municipal     2,389       -       2,656       -  
Consumer     23,986       2       25,097       4  
Total   $ 714,176     $ 25,136     $ 520,275     $ 18,117  

 

At September 30, 2020, the Company had twelve loan relationships consisting of 22 outstanding loans that were classified as TDRs. During the three and nine months ended September 30, 2020, the Company modified the payment terms for two agriculture loans totaling $571,000 and classified the restructurings as TDRs. A commercial loan totaling $33,000 and a $1.4 million loan relationship consisting of two commercial real estate loans and one construction loan were classified as TDRs during the three and nine months ended September 30, 2020 after negotiating restructuring agreements with the borrowers. One commercial loan relationship with five loans totaling $827,000 were classified as TDRs during the nine months ended September 30, 2020, after the payments were modified to interest only. All of the loans classified as TDRs were experiencing financial difficulties prior to the COVID-19 pandemic. One agriculture loan previously classified as a TDR paid off during 2020. No loans were classified as TDRs during the first nine months of 2019.

 

The Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of September 30, 2020 and 2019. The Company did not record any charge-offs against loans classified as TDRs in the first nine months of 2020 or 2019. No provision for loan losses were recorded against TDRs in the three months ended September 30, 2020 as compared to a credit provision of $1,000 recorded in the three months ended September 30, 2019. No provision for loan losses was recorded against TDRs in the nine months ended September 30, 2020 compared to a credit provision of $1,000 in the nine months ended September 30, 2019. The Company allocated $9,000 of the allowance for loan losses against loans classified as TDRs at September 30, 2020 and December 31, 2019, respectively.

 

The following table presents information on loans that are classified as TDRs:

 

(Dollars in thousands)   As of September 30, 2020     As of December 31, 2019  
    Number of loans     Non-accrual balance     Accruing balance     Number of loans     Non-accrual balance     Accruing balance  
                                     
One-to-four family residential real estate     1     $ -     $ 15       2     $ -     $ 168  
Construction and land     5       697       501       4       510       581  
Commercial real estate     3       1,227       2,019       1       -       2,021  
Commercial     7       33       853       1       -       28  
Agriculture     5       -       767       4       -       278  
Municipal     1       -       58       1       -       58  
Total troubled debt restructurings     22     $ 1,957     $ 4,213       13     $ 510     $ 3,134  

 

As of September 30, 2020, the Company had 33 loan modifications on outstanding loan balances of $22.9 million in connection with the COVID-19 pandemic. These modifications consisted of payment deferrals that consisted of either the full loan payment or just the principal component. Between March 31, 2020 and September 30, 2020, 107 loans with outstanding loan balances of $35.7 million had reached the end of their initial deferral periods and returned to their respective contractual payment terms. Additionally, as of September 30, 2020, only three borrowers with aggregate loans outstanding of $6.8 million were granted a second deferral. The Company also entered into short-term forbearance plans or short-term repayment plans on eight one-to-four family residential mortgage loans totaling $982,000 as of September 30, 2020. Consistent with the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and Joint Interagency Regulatory Guidance, these loan modifications were not classified as TDRs and are excluded from the table above.

 

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4. Goodwill and Other Intangible Assets

 

The Company tests goodwill for impairment annually or more frequently if circumstances warrant. The Company’s annual step one impairment test as of December 31, 2019 concluded that its goodwill was not impaired. The Company concluded there was a triggering event during the first three months of 2020 that required an interim goodwill impairment test. The Company’s interim impairment test as of March 31, 2020 concluded that its goodwill was not impaired. The Company concluded there were no additional events or circumstances during the three months ended September 30, 2020 that indicated it was more likely than not that the fair value of the Company did not exceed the carrying value.

 

Lease intangible assets are amortized over the life of the lease. Core deposit intangible assets are amortized over the estimated useful life of ten years on an accelerated basis. Mortgage servicing rights are amortized over the estimated life of the mortgage loan serviced for others. A summary of the other intangible assets that continue to be subject to amortization is as follows:

 

(Dollars in thousands)   As of September 30, 2020  
    Gross carrying amount     Accumulated amortization     Net carrying amount  
Core deposit intangible assets   $ 2,018     $ (1,810 )   $ 208  
Lease intangible asset     350       (312 )     38  
Mortgage servicing rights     7,811       (4,479 )     3,332  
Total other intangible assets   $ 10,179     $ (6,601 )   $ 3,578  

 

(Dollars in thousands)   As of December 31, 2019  
    Gross carrying amount     Accumulated amortization     Net carrying amount  
Core deposit intangible assets   $ 2,018     $ (1,707 )   $ 311  
Lease intangible asset     350       (278 )     72  
Mortgage servicing rights     6,910       (4,464 )     2,446  
Total other intangible assets   $ 9,278     $ (6,449 )   $ 2,829  

 

The following sets forth estimated amortization expense for core deposit and lease intangible assets for the remainder of 2020 and in successive years ending December 31:

 

(Dollars in thousands)   Amortization  
    expense  
Remainder of 2020   $ 41  
2021     121  
2022     58  
2023     26  
Total   $ 246  

 

Mortgage loans serviced for others are not reported as assets. The following table provides information on the principal balances of mortgage loans serviced for others:

 

 

(Dollars in thousands)   September 30,     December 31,  
    2020     2019  
 FHLMC   $ 597,604     $ 509,101  
 FHLB     33,744       40,462  
 Total   $ 631,348     $ 549,563  

 

Custodial escrow balances maintained in connection with serviced loans were $9.6 million and $4.7 million at September 30, 2020 and December 31, 2019, respectively. Gross service fee income related to such loans was $391,000 and $334,000 for the three months ended September 30, 2020 and 2019, respectively, and is included in fees and service charges in the consolidated statements of earnings. Gross service fee income related to such loans was $1.1 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively.

 

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Activity for mortgage servicing rights and the related valuation allowance was as follows:

 

 

(Dollars in thousands)   Three months ended September 30,     Nine months ended September 30,  
    2020     2019     2020     2019  
Mortgage servicing rights:                                
Balance at beginning of period   $ 2,806     $ 2,372     $ 2,446     $ 2,495  
Additions     946       308       1,915       630  
Amortization     (420 )     (278 )     (1,029 )     (723 )
Balance at end of period   $ 3,332     $ 2,402     $ 3,332     $ 2,402  

 

The fair value of mortgage servicing rights was $4.1 million and $5.2 million at September 30, 2020 and December 31, 2019, respectively. Fair value at September 30, 2020 was determined using discount rates ranging from 9.00% to 12.00%; prepayment speeds ranging from 6.27% to 27.69%, depending on the stratification of the specific mortgage servicing right; and a weighted average default rate of 1.39%. Fair value at December 31, 2019 was determined using discount rates ranging from 9.00% to 11.00%, prepayment speeds ranging from 6.00% to 23.21%, depending on the stratification of the specific mortgage servicing right, and a weighted average default rate of 1.37%.

 

The Company had a mortgage repurchase reserve of $235,000 at both September 30, 2020 and December 31, 2019, which represents the Company’s best estimate of probable losses that the Company will incur related to the repurchase of one-to-four family residential real estate loans previously sold or to reimburse investors for credit losses incurred on loans previously sold where a breach of the contractual representations and warranties occurred. The Company did not incur any losses charged against the reserve or make any provisions to the reserve during the first nine months of 2020 and 2019. As of September 30, 2020, the Company did not have any outstanding mortgage repurchase requests.

 

5. Earnings per Share

 

Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during each period. Diluted earnings per share include the effect of all potential common shares outstanding during each period. The diluted earnings per share computations for the three months ended September 30, 2020 and 2019 excluded 100,039 of unexercised stock options because their inclusion would have been anti-dilutive during such periods. The diluted earnings per share computations for the nine months ended September 30, 2020 and 2019 excluded 100,039 of unexercised stock options because their inclusion would have been anti-dilutive during such periods. The shares used in the calculation of basic and diluted earnings per share are shown below:

 

 

(Dollars in thousands, except per share amounts)  

Three months ended

September 30,

   

Nine months ended

September 30,

 
    2020     2019     2020     2019  
Net earnings   $ 5,427     $ 2,613     $ 13,890     $ 7,394  
                                 
Weighted average common shares outstanding - basic (1)     4,504,953       4,593,061       4,526,769       4,591,510  
Assumed exercise of stock options (1)     17,037       15,670       17,868       15,229  
Weighted average common shares outstanding - diluted (1)     4,521,990       4,608,731       4,544,637       4,606,739  
Net earnings per share (1):                                
Basic   $ 1.21     $ 0.57     $ 3.07     $ 1.61  
Diluted   $ 1.20     $ 0.57     $ 3.06     $ 1.61  

 

(1) Share and per share values for the periods ended September 30, 2019 have been adjusted to give effect to the 5% stock dividend paid during December 2019.

 

17

 

 

6. Repurchase Agreements

 

The Company has overnight repurchase agreements with certain deposit customers whereby the Company uses investment securities as collateral for non-insured funds. These balances are accounted for as collateralized financing and included in other borrowings on the balance sheet.

 

Repurchase agreements are comprised of non-insured customer funds, totaling $8.4 million at September 30, 2020, and $17.5 million at December 31, 2019, which were secured by $11.1 million and $20.1 million of the Company’s investment portfolio at the same dates, respectively.

 

The following is a summary of the balances of and collateral for the Company’s repurchase agreements:

 

 

    As of September 30, 2020  
    Overnight and                 Greater        
    Continuous     Up to 30 days     30-90 days     than 90 days     Total  
Repurchase agreements:                                        
U.S. federal agency obligations   $ 2,195     $ -     $ -     $ -     $ 2,195  
Agency mortgage-backed securities     6,205       -       -              -       6,205  
Total   $ 8,400     $ -     $ -     $ -     $ 8,400  

 

    As of December 31, 2019  
    Overnight and     Up to           Greater        
    Continuous     30 days     30-90 days     than 90 days     Total  
Repurchase agreements:                                        
U.S. treasury obligations   $ 789     $ -     $ -     $ -     $ 789  
U.S. federal agency obligations     1,978       -       -       -       1,978  
Agency mortgage-backed securities     14,781       -       -              -       14,781  
Total   $ 17,548     $ -     $ -     $ -     $ 17,548  

 

The investment securities are held by a third-party financial institution in the customer’s custodial account. The Company is required to maintain adequate collateral for each repurchase agreement. Changes in the fair value of the investment securities impact the amount of collateral required. If the Company were to default, the investment securities would be used to settle the repurchase agreement with the deposit customer.

 

7. Revenue from Contracts with Customers

 

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. Items outside the scope of ASC 606 are noted as such.

 

 

    Three months ended     Nine months ended  
(Dollars in thousands)   September 30,     September 30,  
      2020       2019       2020       2019  
Non-interest income:                                
Service charges on deposits                                
Overdraft fees   $ 780     $ 979     $ 2,196     $ 2,633  
Other     169       165       479       435  
Interchange income     689       532       1,817       1,505  
Loan servicing fees (1)     391       344       1,115       1,017  
Office lease income (1)     164       158       488       481  
Gains on sales of loans (1)     4,944       2,081       10,961       4,943  
Bank owned life insurance income (1)     152       159       460       478  
Gains on sales of investment securities (1)     678       -       2,448       (146 )
Gains on sales of real estate owned     7       (2 )     (38 )     2  
Other     191       139       564       451  
Total non-interest income   $ 8,165     $ 4,555     $ 20,490     $ 11,799  

 

  (1) Not within the scope of ASC 606.

 

18

 

 

A description of the Company’s revenue streams within the scope of ASC 606 follows:

 

Service Charges on Deposit Accounts

 

The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period during which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

 

Interchange Income

 

The Company earns interchange fees from debit cardholder transactions conducted through the interchange payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

 

Gains (Losses) on Sales of Real Estate Owned

 

The Company records a gain or loss from the sale of real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the real estate owned asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. There were no sales of real estate owned that were financed by the Company during the first nine months of 2020 or 2019.

 

8. Fair Value of Financial Instruments and Fair Value Measurements

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

19

 

 

Fair value estimates of the Company’s financial instruments as of September 30, 2020 and December 31, 2019, including methods and assumptions utilized, are set forth below:

 

 

(Dollars in thousands)   As of September 30, 2020  
    Carrying                          
    amount     Level 1     Level 2     Level 3     Total  
Financial assets:                                        
Cash and cash equivalents   $ 15,820     $ 15,820     $ -     $ -     $ 15,820  
Investment securities available-for-sale     299,530       2,047       297,483       -       299,530  
Bank stocks, at cost     4,459        n/a        n/a        n/a        n/a  
Loans, net     728,150       -       -       743,867       743,867  
Loans held for sale, net     18,253       -       18,253       -       18,253  
Accrued interest receivable     5,295       10       1,613       3,672       5,295  
Derivative financial instruments     2,366       -       2,366       -       2,366  
                                         
Financial liabilities:                                        
Non-maturity deposits   $ (830,344 )   $ (830,344 )   $ -     $ -     $ (830,344 )
Time deposits     (127,598 )     -       (127,916 )     -       (127,916 )
FHLB borrowings     (20,069 )     -       (20,064 )     -       (7,995 )
Subordinated debentures     (21,651 )     -       (15,164 )     -       (15,164 )
Other borrowings     (8,400 )     -       (8,400 )     -       (8,400 )
Accrued interest payable     (213 )     -       (213 )     -       (213 )
Derivative financial instruments     (227 )     -       (227 )     -       (227 )

 

    As of December 31, 2019  
    Carrying                          
    amount     Level 1     Level 2     Level 3     Total  
Financial assets:                                        
Cash and cash equivalents   $ 13,694     $ 13,694     $ -     $ -     $ 13,694  
Investment securities available-for-sale     362,998       2,316       360,682       -       362,998  
Bank stocks, at cost     3,109        n/a        n/a        n/a        n/a  
Loans, net     532,180       -       -       538,427       538,427  
Loans held for sale     8,497       -       8,497       -       8,497  
Accrued interest receivable     4,557       2       1,895       2,660       4,557  
Derivative financial instruments     532       -       532       -       532  
                                         
Financial liabilities:                                        
Non-maturity deposits   $ (687,985 )   $ (687,985 )   $ -     $ -     $ (687,985 )
Time deposits     (147,063 )     -       (146,390 )     -       (146,390 )
FHLB borrowings     (3,000 )     -       (3,000 )     -       (3,000 )
Subordinated debentures     (21,651 )     -