The validity of the New Notes will be passed upon
for us by Bryan Cave Leighton Paisner LLP and Michele McKinnon, Vice President Human Resources/Legal Counsel of Nicolet National Bank.
As of June 30, 2021, Ms. McKinnon beneficially owned shares of Nicolet common stock representing less than 1% of the total outstanding
shares of Nicolet common stock.
We have filed a registration statement on Form S-4
with the SEC relating to the New Notes and the exchange offer. This prospectus is a part of that registration statement and, as allowed
by SEC rules and regulations, does not contain all of the information in the registration statement. The registration statement, including
the exhibits thereto, contains additional relevant information about the Company, the New Notes and the exchange offer.
The SEC allows the Company to “incorporate
by reference” the information that it files with the SEC, which means that the Company can disclose important information to
you by referring to its filings with the SEC. The information incorporated by reference is considered a part of this prospectus, and
certain information that the Company files later with the SEC will automatically update and supersede the information in this
prospectus.
This prospectus incorporates by reference the following
documents the Company has filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, other than information
in these documents that is not deemed to be filed with the SEC:
* We are not incorporating and will not incorporate
by reference into this prospectus, past or future information on reports furnished or that will be furnished by us under Items 2.02 and/or
7.01 of, or otherwise with, Form 8-K.
You should rely only on the information contained or
incorporated by reference in this prospectus to and in the accompanying exchange offer transmittal documents filed by us with the SEC.
We have not authorized anyone to provide you with information that is different from what is contained in this prospectus. This prospectus
is dated [●], 2021. You should not assume that the information contained or incorporated by reference in this prospectus is accurate
as of any date other than the date of the applicable document that contains that information.
The following unaudited pro forma condensed combined financial information
and accompanying notes show the impact on the historical financial conditions and results of operations of Nicolet, County and Mackinac
and have been prepared to illustrate the effects of the proposed County and Mackinac mergers under the acquisition method of accounting.
The unaudited pro forma condensed combined balance sheet as of June
30, 2021 and unaudited pro forma combined statements of income for the six months ended June 30, 2021 and for the year ended December
31, 2020, have been prepared to reflect the mergers of Nicolet and County (the “combined company”), and of Nicolet, County
and Mackinac (the “fully combined company”), after giving effect to the adjustments described in the notes to the pro forma
condensed combined financial information. In the County merger, County common shareholders, in exchange for the shares of County shares
of common stock they hold immediately prior to the merger (other than certain cancelled shares), will have the right to receive total
consideration of approximately $45 million in cash and an aggregate of 2.3 million shares of Nicolet common stock, subject to adjustments
as described herein, having an estimated aggregate value of approximately $169 million (based on the closing price of Nicolet common
stock of $71.75 on June 21, 2021), representing an aggregate purchase price of approximately $214 million.
Each merger will be accounted for as an acquisition transaction. Under
the acquisition method of accounting, Nicolet records the assets and liabilities of the acquired entities at their respective fair values
on the respective closing dates of the mergers. The pro forma condensed consolidated balance sheet as of June 30, 2021 has been prepared
based on the historical consolidated balance sheets of Nicolet, County and Mackinac, assuming the transactions were consummated on June
30, 2021. The pro forma condensed combined statements of income for the six months ended June 30, 2021 and for the year ended December
31, 2020 have been prepared based on the historical consolidated statements of income for Nicolet, County and Mackinac, assuming the transactions
were consummated on January 1, 2020.
The selected unaudited pro forma condensed consolidated financial information
is presented for illustrative purposes only and does not indicate either the operating results that would have occurred had the mergers
been consummated as of the dates indicated, or future results of operations or financial condition. The selected unaudited pro forma condensed
combined financial information is based upon assumptions and adjustments that Nicolet believes are reasonable. Only such adjustments as
have been noted in the accompanying notes have been applied in order to give effect to the proposed transaction described in this prospectus.
Such assumptions and adjustments are subject to change as future events materialize and fair value estimates are refined. Future results
may vary significantly from the results reflected because of various factors, including those discussed in the section of this prospectus
entitled “Risk Factors” beginning on page 8.
The unaudited pro forma condensed combined and fully combined consolidated
financial information should be read in conjunction with:
Note 1. Basis of Presentation
The accompanying unaudited pro form condensed combined financial information
and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined income statement
for the six months ended June 30, 2021, and for the year ended December 31, 2020, combine the historical consolidated statements of income
of Nicolet, County, and Mackinac, giving effect to the merger as if it had been completed on January 1, 2020. The accompanying unaudited
pro forma condensed combined balance sheet as of June 30, 2021 combines the historical consolidated balance sheets of Nicolet, County,
and Mackinac, giving effect to the merger as if it had been completed on June 30, 2021.
The unaudited pro forma condensed combined financial information and
explanatory notes have been prepared to illustrate the effects of the merger involving Nicolet, County, and Mackinac under the acquisition
method of accounting with Nicolet treated as the acquirer. The unaudited pro forma condensed combined financial information is presented
for illustrative purposes only and does not necessarily indicate the financial results of the combined company had the companies actually
been combined at the beginning of each period presented, nor does it necessarily indicate the results of operations in future periods
or the future financial position of the combined company. Under the acquisition method of accounting, the assets and liabilities of County
and Mackinac, as of the effective time of the merger, will be recorded by Nicolet at their respective fair values, and the excess of the
merger consideration over the fair value of the net assets acquired will be allocated to goodwill.
The merger provides for County common shareholders, in exchange for
the shares of County common stock they hold immediately prior to the merger, at the election of each shareholder and subject to proration,
to receive total consideration of approximately $45 million in cash and an aggregate of 2.3 million shares of Nicolet common stock, subject
to adjustments as described herein, having an estimated aggregate value of approximately $169 million, which represents the 0.48 exchange
ratio assuming approximately 80% will be paid in Nicolet common stock (or an estimated 0.384 exchange ratio) and the closing price of
Nicolet Bankshares common stock of $71.75 on June 21, 2021, representing an aggregate purchase price of approximately $214 million.
The pro forma allocation of the purchase price reflected in the unaudited
pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that
will be recorded at the time the merger is completed. The selected unaudited pro forma condensed combined financial information is based
upon assumptions and adjustments that Nicolet believes are reasonable. Only such adjustments as have been noted in the accompanying footnotes
have been applied in order to give effect to the proposed transaction described in this prospectus. Such assumptions and adjustments are
subject to change as future events materialize and fair value estimates are refined.
Note 2. Preliminary Purchase Price Allocation for County
The following table summarizes the preliminary purchase price allocation
for County.
(In thousands, except per share data)
|
|
County
Net Assets
at Fair Value
|
|
Cash and cash equivalents
|
|
$
|
64,745
|
|
Investment securities
|
|
|
349,334
|
|
Loans held for sale
|
|
|
15,805
|
|
Loans
|
|
|
1,001,490
|
|
Allowance for credit losses
|
|
|
(7,300
|
)
|
Other real estate owned, net
|
|
|
814
|
|
Bank owned life insurance
|
|
|
31,378
|
|
Core deposit intangible
|
|
|
3,200
|
|
Other assets
|
|
|
56,977
|
|
Total Assets
|
|
$
|
1,516,743
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,139,226
|
|
Short-term borrowings
|
|
|
---
|
|
Holding company borrowings
|
|
|
79,319
|
|
Other long-term borrowings
|
|
|
123,557
|
|
Other liabilities
|
|
|
29,328
|
|
Total Liabilities
|
|
$
|
1,371,430
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
145,313
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
Shares of County outstanding
|
|
|
6,117
|
|
Exchange ratio
|
|
|
0.384
|
|
Pro Forma Nicolet shares to be issued
|
|
|
2,349
|
|
Nicolet closing stock price on June 21 2021
|
|
$
|
71.75
|
|
|
|
|
|
|
Pro Forma stock consideration
|
|
$
|
168,540
|
|
Pro Forma cash consideration (including $3.4 million to cash out stock options)
|
|
|
45,329
|
|
Total Pro Forma purchase price
|
|
$
|
213,869
|
|
Preliminary goodwill
|
|
$
|
68,556
|
|
Note 3. Preliminary Purchase Price Allocation for Mackinac
The following table summarizes the preliminary purchase price allocation
for Mackinac.
(In thousands, except per share data)
|
|
Mackinac Net Assets
at Fair Value
|
|
Cash and cash equivalents
|
|
$
|
353,904
|
|
Investment securities
|
|
|
101,955
|
|
Loans held for sale
|
|
|
1,535
|
|
Loans
|
|
|
969,133
|
|
Allowance for credit losses
|
|
|
(5,905
|
)
|
Other real estate owned, net
|
|
|
679
|
|
Bank owned life insurance
|
|
|
15,658
|
|
Core deposit intangible
|
|
|
4,800
|
|
Other assets
|
|
|
51,191
|
|
Total Assets
|
|
$
|
1,492,950
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,307,654
|
|
Short-term borrowings
|
|
|
---
|
|
Holding company borrowings
|
|
|
---
|
|
Other long-term borrowings
|
|
|
28,541
|
|
Other liabilities
|
|
|
26,038
|
|
Total Liabilities
|
|
$
|
1,362,233
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
130,717
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
Shares of Mackinac outstanding
|
|
|
10,705
|
|
Exchange ratio
|
|
|
0.22
|
|
Pro Forma Nicolet shares to be issued
|
|
|
2,355
|
|
Nicolet closing stock price on April 9, 2021
|
|
$
|
84.40
|
|
|
|
|
|
|
Pro Forma stock consideration
|
|
$
|
198,769
|
|
Pro Forma cash consideration
|
|
|
49,692
|
|
Total Pro Forma purchase price
|
|
$
|
248,461
|
|
Preliminary goodwill
|
|
$
|
117,744
|
|
Note 4. Pro Forma Adjustments to the Unaudited Condensed Combined
Balance Sheet
The following pro forma adjustments have been reflected in the unaudited
pro forma condensed combined financial information. All taxable adjustments were calculated using a 27% tax rate, which represents Nicolet’s
statutory rate, to arrive at deferred tax asset or liability adjustments. All adjustments are based on preliminary assumptions and valuations,
which are subject to change.
|
A.
|
Total pro forma purchase price consideration of $214 million comprised of the issuance of approximately 2.3 million shares of Nicolet
common stock at a price of $71.75, based on the Nicolet closing stock price on June 21, 2021 (the last trading day immediately preceding
the acquisition announcement), for pro forma stock consideration of $169 million and pro forma cash consideration of $45 million.
|
|
B.
|
Total pro forma cash adjustment is comprised of the following.
|
(In thousands)
|
|
June 30, 2021
|
|
Pro forma cash consideration (as noted in A above)
|
|
$
|
(45,329
|
)
|
Redemption of County preferred equity (as noted in L below)
|
|
|
(8,000
|
)
|
Net proceeds from new issuance of subordinated notes by Nicolet on July 7, 2021
|
|
|
98,703
|
|
Cumulative pro forma adjustments to cash
|
|
$
|
45,374
|
|
|
C.
|
Adjustment to loans to reflect estimated fair value adjustments, which include lifetime credit loss expectations for loans, current
interest rates and liquidity, as well as the gross up of purchased credit deteriorated (“PCD”) loans. The adjustment includes
the following.
|
(In thousands)
|
|
June 30, 2021
|
|
Estimate of loan fair value adjustments
|
|
$
|
(7,700
|
)
|
Gross up of PCD loans for credit mark (see also D below)
|
|
|
7,300
|
|
Cumulative pro forma adjustments to loans
|
|
$
|
(400
|
)
|
|
D.
|
Adjustments to the allowance for credit losses include the following.
|
(In thousands)
|
|
June 30, 2021
|
|
Reversal of historical County allowance for credit losses
|
|
$
|
11,466
|
|
Estimate of lifetime credit losses for PCD loans (see also C above)
|
|
|
(7,300
|
)
|
Estimate of lifetime credit losses for non-PCD loans
|
|
|
(8,900
|
)
|
Cumulative pro forma adjustments to the allowance for credit losses
|
|
$
|
(4,734
|
)
|
|
E.
|
Adjustment of $100,000 to mark County’s other real estate owned to fair value, based on Nicolet’s assessment of property
resolution.
|
|
F.
|
Adjustment to record estimated goodwill associated with the merger of $68.6 million.
|
|
G.
|
Adjustment to eliminate County’s existing core deposit intangible of $12,000 and record a new core deposit intangible of $3.2
million.
|
|
H.
|
Adjustment to deferred tax related to all fair value marks noted in these pro forma adjustments to the condensed combined balance
sheet.
|
|
I.
|
Adjustment to reflect current market rate of interest on deposits of $3.5 million.
|
|
J.
|
Adjustment to mark County’s long-term borrowings to fair value by $11.8 million and reflect the new issuance of subordinated
notes by Nicolet effective July 7, 2021. The total pro forma long-term borrowing adjustment is comprised of the following.
|
(In thousands)
|
|
June 30, 2021
|
|
Estimated fair value mark on long-term borrowings
|
|
$
|
11,800
|
|
Net proceeds from new issuance of subordinated notes by Nicolet on July 7, 2021
|
|
|
98,703
|
|
Cumulative pro forma adjustments to long-term borrowings
|
|
$
|
110,503
|
|
|
K.
|
Adjustment to record estimated merger-related transaction costs of $19 million, net of deferred taxes of $5.1 million.
|
|
L.
|
Adjustment to reflect the redemption of County’s preferred equity.
|
|
M.
|
Adjustments to eliminate County’s common equity and record the issuance of Nicolet pro forma stock consideration (as noted in
A above).
|
|
N.
|
Total pro forma purchase price consideration of $249 million comprised of the issuance of approximately 2.4 million shares of Nicolet
common stock at a price of $84.40, based on the Nicolet closing stock price on April 9, 2021 (the last trading day immediately preceding
the acquisition announcement), for pro forma stock consideration of $199 million and pro forma cash consideration of $50 million.
|
|
O.
|
Nicolet to write-off its investment holding of 30,000 shares of Mackinac common stock (carried at the Mackinac market price of $19.76
on June 30, 2021) for a reduction to investments of $593,000, a decrease of $160,000 to the deferred tax liability, and a $433,000 net
equity reduction.
|
|
P.
|
Adjustment to loans to reflect estimated fair value adjustments, which include lifetime credit loss expectations for loans, current
interest rates and liquidity, as well as the gross up of PCD loans. The adjustment includes the following.
|
(In thousands)
|
|
June 30, 2021
|
|
Reversal of historic Mackinac loan fair value adjustments
|
|
$
|
1,391
|
|
Estimate of loan fair value adjustments
|
|
|
(14,683
|
)
|
Net pro forma fair value adjustments
|
|
|
(13,292
|
)
|
Gross up of PCD loans for credit mark (see also Q below)
|
|
|
5,905
|
|
Cumulative pro forma adjustments to loans
|
|
$
|
(7,387
|
)
|
|
Q.
|
Adjustments to the allowance for credit losses include the following.
|
(In thousands)
|
|
June 30, 2021
|
|
Reversal of historical Mackinac allowance for credit losses
|
|
$
|
5,651
|
|
Estimate of lifetime credit losses for PCD loans (see also P above)
|
|
|
(5,905
|
)
|
Estimate of lifetime credit losses for non-PCD loans
|
|
|
(13,892
|
)
|
Cumulative pro forma adjustments to the allowance for credit losses
|
|
$
|
(14,146
|
)
|
|
R.
|
Adjustment of $664,000 to mark Mackinac’s other real estate owned to fair value, based on Nicolet’s assessment of property
resolution.
|
|
S.
|
Adjustment to eliminate Mackinac’s historical goodwill of $19.6 million and record estimated goodwill associated with the merger
of $117.7 million.
|
|
T.
|
Adjustment to eliminate Mackinac’s existing core deposit intangible of $4.2 million and record a new core deposit intangible
of $4.8 million.
|
|
U.
|
Adjustment to deferred tax related to all fair value marks noted in these pro forma adjustments to the condensed combined balance
sheet.
|
|
V.
|
Adjustment to mark Mackinac’s Federal Home Loan Bank advances to fair value by $100,000 and to reflect current market rate of
interest on deposits of $500,000.
|
|
W.
|
Adjustment to record estimated merger-related transaction costs of $20 million, net of deferred taxes of $5.4 million.
|
|
X.
|
Adjustments to eliminate Mackinac’s common equity and record the issuance of Nicolet pro forma stock consideration (as noted
in N above).
|
Note 5. Pro Forma Adjustments to the Unaudited Condensed Combined
Statements of Income
Pro forma net income includes one-time estimated merger-related transaction
costs (see item E and L below), as well as the Day 2 adjustment to record provision expense and the corresponding increase to the allowance
for credit losses (see item C and J below, as well as Note 4 items D and Q above), but does not reflect potential synergies and other
estimated cost savings that may arise from the combinations.
|
A.
|
Net fair value adjustments to interest income to record the estimated accretion of the net discount on acquired loans. For purposes
of the pro forma impact, the net discount accretion was estimated using a period of 3 years.
|
|
B.
|
Net fair value adjustments to interest expense for deposits and long-term borrowings assuming straight-line over a 3 year weighted
average life for deposits and a 5 year weighted average life for long-term borrowings.
|
|
C.
|
Adjustment to record provision expense on County’s non-PCD loans, including adoption of the current expected credit losses (“CECL”)
methodology for the County loan portfolio (Day 2).
|
|
D.
|
Net adjustment to core deposit intangible amortization to eliminate County core deposit intangible amortization and record estimated
amortization of acquired core deposit intangible. Core deposit intangible will be amortized using the sum-of-the-years digits method over
ten years.
|
|
E.
|
Adjustment to reflect the estimated merger-related transaction costs of $19 million.
|
|
F.
|
Adjustment to income tax expense to record the income tax effects of pro forma adjustments at the estimated statutory effective tax
rate of 27%.
|
|
G.
|
Adjustments to weighted average shares to eliminate weighted average shares of Mackinac common stock outstanding, and record the issuance
of Nicolet common stock, calculated using an exchange ratio of 0.384 per share.
|
|
H.
|
Net fair value adjustments to interest income to eliminate Mackinac accretion of discounts on previously acquired loans and record
the estimated accretion of the net discount on acquired loans. For purposes of the pro forma impact, the net discount accretion was estimated
using a period of 3 years.
|
|
I.
|
Net fair value adjustments to interest expense for deposits and FHLB advances assuming straight-line over a 3 year weighted average
life.
|
|
J.
|
Adjustment to record provision expense on Mackinac’s non-PCD loans, including adoption of the CECL methodology for the Mackinac
loan portfolio (Day 2).
|
|
K.
|
Net adjustment to core deposit intangible amortization to eliminate Mackinac core deposit intangible amortization and record estimated
amortization of acquired core deposit intangible. Core deposit intangible will be amortized using the sum-of-the-years digits method over
ten years.
|
|
L.
|
Adjustment to reflect the estimated merger-related transaction costs of $20 million.
|
|
M.
|
Adjustment to income tax expense to record the income tax effects of pro forma adjustments at the estimated statutory effective tax
rate of 27%.
|
|
N.
|
Adjustments to weighted average shares to eliminate weighted average shares of Mackinac common stock outstanding, and record the issuance
of Nicolet common stock, calculated using an exchange ratio of 0.22 per share.
|
APPENDIX A
INDEX TO COUNTY BANCORP, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
AS OF THE SIX MONTHS ENDED JUNE 30, 2021
APPENDIX A
COUNTY BANCORP, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
AS OF THE SIX MONTHS ENDED JUNE 30, 2021
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2021 and December 31, 2020
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
(dollars in thousands except per share data)
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
72,329
|
|
|
$
|
19,084
|
|
Interest earning cash at other financial institutions
|
|
|
416
|
|
|
|
416
|
|
Securities available-for-sale, at fair value
|
|
|
349,334
|
|
|
|
352,854
|
|
FHLB Stock
|
|
|
5,485
|
|
|
|
5,758
|
|
Loans held for sale
|
|
|
15,805
|
|
|
|
35,976
|
|
Loans, net of allowance for loan losses of $11,466 as of June 30, 2021;
$14,808 as of December 31, 2020
|
|
|
990,424
|
|
|
|
981,477
|
|
Premises and equipment, net
|
|
|
18,923
|
|
|
|
14,898
|
|
Loan servicing rights
|
|
|
19,478
|
|
|
|
18,396
|
|
Other real estate owned, net
|
|
|
914
|
|
|
|
1,077
|
|
Cash surrender value of bank owned life insurance
|
|
|
31,678
|
|
|
|
31,275
|
|
Core deposit intangible, net of accumulated amortization of $1,789 as
of June 30, 2021; $1,747 as of December 31, 2020
|
|
|
12
|
|
|
|
54
|
|
Accrued interest receivable and other assets
|
|
|
12,274
|
|
|
|
11,093
|
|
Total assets
|
|
$
|
1,517,072
|
|
|
$
|
1,472,358
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
158,880
|
|
|
$
|
163,202
|
|
Interest-bearing
|
|
|
976,846
|
|
|
|
877,624
|
|
Total deposits
|
|
|
1,135,726
|
|
|
|
1,040,826
|
|
Other borrowings
|
|
|
35,557
|
|
|
|
49,006
|
|
Advances from FHLB
|
|
|
88,000
|
|
|
|
129,000
|
|
Subordinated debentures
|
|
|
67,519
|
|
|
|
67,111
|
|
Deferred tax liability, net
|
|
|
2,951
|
|
|
|
2,302
|
|
Accrued interest payable and other liabilities
|
|
|
12,507
|
|
|
|
12,337
|
|
Total liabilities
|
|
|
1,342,260
|
|
|
|
1,300,582
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock- $1,000 stated value; 15,000 shares authorized; 8,000 shares issued
|
|
|
8,000
|
|
|
|
8,000
|
|
Common stock - $0.01 par value; 50,000,000 authorized; 7,250,476 shares issued
and 6,026,748 shares outstanding as of June 30, 2021; 7,212,727 shares issued
and 6,197,965 shares outstanding as of December 31, 2020
|
|
|
29
|
|
|
|
29
|
|
Surplus
|
|
|
56,272
|
|
|
|
55,346
|
|
Retained earnings
|
|
|
127,992
|
|
|
|
118,712
|
|
Treasury stock, at cost; 1,223,728 shares at June 30, 2021; 1,014,762 shares at
December 31, 2020
|
|
|
(22,346
|
)
|
|
|
(17,606
|
)
|
Accumulated other comprehensive income
|
|
|
4,865
|
|
|
|
7,295
|
|
Total shareholders' equity
|
|
|
174,812
|
|
|
|
171,776
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,517,072
|
|
|
$
|
1,472,358
|
|
See accompanying notes to unaudited consolidated
financial statements.
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30,
2021 and 2020
(Unaudited)
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020*
|
|
|
2021
|
|
|
2020*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except per share data)
|
|
INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
12,000
|
|
|
$
|
12,009
|
|
|
$
|
23,523
|
|
|
$
|
24,574
|
|
Taxable securities
|
|
|
2,205
|
|
|
|
1,283
|
|
|
|
4,092
|
|
|
|
2,565
|
|
Tax-exempt securities
|
|
|
261
|
|
|
|
162
|
|
|
|
508
|
|
|
|
168
|
|
Federal funds sold and other
|
|
|
71
|
|
|
|
111
|
|
|
|
129
|
|
|
|
336
|
|
Total interest and dividend income
|
|
|
14,537
|
|
|
|
13,565
|
|
|
|
28,252
|
|
|
|
27,643
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,716
|
|
|
|
3,721
|
|
|
|
3,786
|
|
|
|
8,068
|
|
FHLB advances and other borrowed funds
|
|
|
277
|
|
|
|
343
|
|
|
|
598
|
|
|
|
587
|
|
Subordinated debentures
|
|
|
1,106
|
|
|
|
736
|
|
|
|
2,212
|
|
|
|
1,442
|
|
Total interest expense
|
|
|
3,099
|
|
|
|
4,800
|
|
|
|
6,596
|
|
|
|
10,097
|
|
Net interest income
|
|
|
11,438
|
|
|
|
8,765
|
|
|
|
21,656
|
|
|
|
17,546
|
|
Provision for (recovery of) loan losses
|
|
|
(4,278
|
)
|
|
|
1,142
|
|
|
|
(4,036
|
)
|
|
|
3,360
|
|
Net interest income after provision for loan losses
|
|
|
15,716
|
|
|
|
7,623
|
|
|
|
25,692
|
|
|
|
14,186
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services charges
|
|
|
165
|
|
|
|
139
|
|
|
|
284
|
|
|
|
252
|
|
Crop insurance commission
|
|
|
291
|
|
|
|
229
|
|
|
|
593
|
|
|
|
458
|
|
Gain on sale of loans
|
|
|
1,873
|
|
|
|
1,045
|
|
|
|
3,552
|
|
|
|
1,588
|
|
Loan servicing fees, net
|
|
|
1,116
|
|
|
|
1,156
|
|
|
|
2,156
|
|
|
|
2,771
|
|
Gain (loss) on sale of securities
|
|
|
(1,453
|
)
|
|
|
570
|
|
|
|
(1,453
|
)
|
|
|
570
|
|
Other
|
|
|
259
|
|
|
|
362
|
|
|
|
832
|
|
|
|
582
|
|
Total non-interest income
|
|
|
2,251
|
|
|
|
3,501
|
|
|
|
5,964
|
|
|
|
6,221
|
|
NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
6,426
|
|
|
|
4,594
|
|
|
|
12,008
|
|
|
|
9,854
|
|
Occupancy
|
|
|
293
|
|
|
|
305
|
|
|
|
572
|
|
|
|
659
|
|
Information processing
|
|
|
664
|
|
|
|
663
|
|
|
|
1,325
|
|
|
|
1,333
|
|
Professional fees
|
|
|
450
|
|
|
|
480
|
|
|
|
1,252
|
|
|
|
881
|
|
Writedown of other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,360
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,038
|
|
Loss (gain) on sale of fixed assets
|
|
|
(1,075
|
)
|
|
|
(1
|
)
|
|
|
(1,081
|
)
|
|
|
349
|
|
Merger-related professional fees
|
|
|
385
|
|
|
|
-
|
|
|
|
385
|
|
|
|
-
|
|
Other
|
|
|
1,622
|
|
|
|
1,424
|
|
|
|
3,069
|
|
|
|
3,008
|
|
Total non-interest expense
|
|
|
8,765
|
|
|
|
7,465
|
|
|
|
17,530
|
|
|
|
22,482
|
|
Income (loss) before income taxes
|
|
|
9,202
|
|
|
|
3,659
|
|
|
|
14,126
|
|
|
|
(2,075
|
)
|
Income tax expense
|
|
|
2,459
|
|
|
|
926
|
|
|
|
3,455
|
|
|
|
379
|
|
NET INCOME (LOSS)
|
|
$
|
6,743
|
|
|
$
|
2,733
|
|
|
$
|
10,671
|
|
|
$
|
(2,454
|
)
|
Less: Cash dividends declared on preferred stock
|
|
|
(79
|
)
|
|
|
(99
|
)
|
|
|
(160
|
)
|
|
|
(207
|
)
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
6,664
|
|
|
$
|
2,634
|
|
|
$
|
10,511
|
|
|
$
|
(2,661
|
)
|
NET INCOME (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.08
|
|
|
$
|
0.40
|
|
|
$
|
1.70
|
|
|
$
|
(0.40
|
)
|
Diluted
|
|
$
|
1.07
|
|
|
$
|
0.40
|
|
|
$
|
1.69
|
|
|
$
|
(0.40
|
)
|
Dividends paid per share
|
|
$
|
0.10
|
|
|
$
|
0.07
|
|
|
$
|
0.20
|
|
|
$
|
0.14
|
|
*Amounts reclassed to current classifications from original presentation
See accompanying notes to unaudited consolidated
financial statements.
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30,
2021 and 2020
(Unaudited)
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net income (loss)
|
|
$
|
6,743
|
|
|
$
|
2,733
|
|
|
$
|
10,671
|
|
|
$
|
(2,454
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities available-for-sale
|
|
|
4,322
|
|
|
|
5,685
|
|
|
|
(5,346
|
)
|
|
|
9,132
|
|
Income tax benefit (expense)
|
|
|
(1,176
|
)
|
|
|
(1,548
|
)
|
|
|
1,457
|
|
|
|
(2,487
|
)
|
Reclassification for realized losses (gains) on securities
|
|
|
1,453
|
|
|
|
(570
|
)
|
|
|
1,453
|
|
|
|
(570
|
)
|
Income tax expense (benefit)
|
|
|
(396
|
)
|
|
|
154
|
|
|
|
(396
|
)
|
|
|
154
|
|
Total other comprehensive income (loss) on securities
available-for-sale
|
|
|
4,203
|
|
|
|
3,721
|
|
|
|
(2,832
|
)
|
|
|
6,229
|
|
Unrealized gain (loss) on derivatives arising during the period
|
|
|
(186
|
)
|
|
|
(60
|
)
|
|
|
553
|
|
|
|
(1,254
|
)
|
Income tax benefit (expense)
|
|
|
51
|
|
|
|
17
|
|
|
|
(151
|
)
|
|
|
342
|
|
Total other comprehensive income (loss) on derivatives
|
|
|
(135
|
)
|
|
|
(43
|
)
|
|
|
402
|
|
|
|
(912
|
)
|
Total other comprehensive income (loss)
|
|
|
4,068
|
|
|
|
3,678
|
|
|
|
(2,430
|
)
|
|
|
5,317
|
|
Comprehensive income
|
|
$
|
10,811
|
|
|
$
|
6,411
|
|
|
$
|
8,241
|
|
|
$
|
2,863
|
|
See accompanying notes to unaudited consolidated
financial statements.
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
For the Three and Six Months Ended June 30,
2021 and 2020
(Unaudited)
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Total
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands
except share data)
|
|
Balance at January 1, 2020
|
|
$
|
8,000
|
|
|
$
|
28
|
|
|
$
|
54,122
|
|
|
$
|
115,595
|
|
|
$
|
(5,030
|
)
|
|
$
|
1,798
|
|
|
$
|
174,513
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,188
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,188
|
)
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,639
|
|
|
|
1,639
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
314
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
314
|
|
Cash dividends declared on common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(466
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(466
|
)
|
Cash dividends declared on preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
Treasury stock purchases (255,650
shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,853
|
)
|
|
|
-
|
|
|
|
(5,853
|
)
|
Proceeds
from exercise of common stock options (14,590 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
195
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
195
|
|
Balance at March 31, 2020
|
|
$
|
8,000
|
|
|
$
|
28
|
|
|
$
|
54,631
|
|
|
$
|
109,833
|
|
|
$
|
(10,883
|
)
|
|
$
|
3,437
|
|
|
$
|
165,046
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,733
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,678
|
|
|
|
3,678
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182
|
|
Cash dividends declared on common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(455
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(455
|
)
|
Cash dividends declared on preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(99
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(99
|
)
|
Treasury
stock purchases (127,280 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,560
|
)
|
|
|
-
|
|
|
|
(2,560
|
)
|
Balance at June 30, 2020
|
|
$
|
8,000
|
|
|
$
|
28
|
|
|
$
|
54,813
|
|
|
$
|
112,012
|
|
|
$
|
(13,443
|
)
|
|
$
|
7,115
|
|
|
$
|
168,525
|
|
Balance at December 31, 2020
|
|
$
|
8,000
|
|
|
$
|
29
|
|
|
$
|
55,346
|
|
|
$
|
118,712
|
|
|
$
|
(17,606
|
)
|
|
$
|
7,295
|
|
|
$
|
171,776
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,928
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,928
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,498
|
)
|
|
|
(6,498
|
)
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
273
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
273
|
|
Cash dividends declared on common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(620
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(620
|
)
|
Cash dividends declared on preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(81
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(81
|
)
|
Treasury stock purchases (117,020
shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,513
|
)
|
|
|
-
|
|
|
|
(2,513
|
)
|
Proceeds
from exercise of common stock options (6,206 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
72
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72
|
|
Balance at March 31, 2021
|
|
$
|
8,000
|
|
|
$
|
29
|
|
|
$
|
55,691
|
|
|
$
|
121,939
|
|
|
$
|
(20,119
|
)
|
|
$
|
797
|
|
|
$
|
166,337
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,743
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,743
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,068
|
|
|
|
4,068
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
224
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
224
|
|
Cash dividends declared on common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(611
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(611
|
)
|
Cash
dividends declared on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(79
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(79
|
)
|
Treasury
stock purchases (91,946 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,227
|
)
|
|
|
-
|
|
|
|
(2,227
|
)
|
Proceeds
from exercise of common stock options (18,274 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
357
|
|
Balance
at June 30, 2021
|
|
$
|
8,000
|
|
|
$
|
29
|
|
|
$
|
56,272
|
|
|
$
|
127,992
|
|
|
$
|
(22,346
|
)
|
|
$
|
4,865
|
|
|
$
|
174,812
|
|
See accompanying notes to unaudited consolidated
financial statements
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2021 and 2020
(Unaudited)
|
|
For the Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
(dollars in thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,671
|
|
|
$
|
(2,454
|
)
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment
|
|
|
598
|
|
|
|
676
|
|
Amortization of core deposit intangible
|
|
|
42
|
|
|
|
100
|
|
Amortization of subordinated debentures discount
|
|
|
408
|
|
|
|
76
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
5,038
|
|
Provision for (recovery of) loan losses
|
|
|
(4,036
|
)
|
|
|
3,360
|
|
Realized loss (gain) on sales of securities available-for-sale
|
|
|
1,453
|
|
|
|
(570
|
)
|
Realized loss (gain) on sales of premises and equipment
|
|
|
(1,082
|
)
|
|
|
236
|
|
Realized loss on sales of other real estate owned
|
|
|
17
|
|
|
|
4
|
|
Writedown of other real estate owned
|
|
|
-
|
|
|
|
1,360
|
|
Increase in cash surrender value of bank owned life insurance
|
|
|
(403
|
)
|
|
|
(344
|
)
|
Deferred income tax expense (benefit)
|
|
|
1,710
|
|
|
|
(240
|
)
|
Stock compensation expense
|
|
|
497
|
|
|
|
496
|
|
Net amortization of securities
|
|
|
1,074
|
|
|
|
443
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable and other assets
|
|
|
(1,181
|
)
|
|
|
(655
|
)
|
Loans held for sale
|
|
|
20,171
|
|
|
|
(9,696
|
)
|
Loan servicing rights
|
|
|
(1,082
|
)
|
|
|
(1,493
|
)
|
Accrued interest payable and other liabilities
|
|
|
573
|
|
|
|
(1,628
|
)
|
Net cash provided by (used in) operating activities
|
|
|
29,430
|
|
|
|
(5,291
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from maturities, principal repayments, and call of securities available-for-sale
|
|
|
17,001
|
|
|
|
13,000
|
|
Purchases of securities available-for-sale
|
|
|
(53,754
|
)
|
|
|
(100,339
|
)
|
Proceeds from sales of securities available-for-sale
|
|
|
33,852
|
|
|
|
27,790
|
|
Purchase (redemption) of FHLB stock
|
|
|
273
|
|
|
|
(4,130
|
)
|
Purchase of bank owned life insurance
|
|
|
-
|
|
|
|
(10,000
|
)
|
Loan originations and principal collections, net
|
|
|
(5,271
|
)
|
|
|
(51,809
|
)
|
Proceeds from sales of premises and equipment
|
|
|
1,750
|
|
|
|
2,199
|
|
Purchases of premises and equipment
|
|
|
(5,291
|
)
|
|
|
(3,822
|
)
|
Proceeds from sales of other real estate owned
|
|
|
506
|
|
|
|
1,528
|
|
Net cash used in investing activities
|
|
|
(10,934
|
)
|
|
|
(125,583
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net increase in demand and savings deposits
|
|
|
140,095
|
|
|
|
86,554
|
|
Net decrease in certificates of deposits
|
|
|
(45,195
|
)
|
|
|
(114,943
|
)
|
Net change in other borrowings
|
|
|
(13,449
|
)
|
|
|
101,054
|
|
Proceeds from FHLB advances
|
|
|
376,000
|
|
|
|
516,000
|
|
Repayment of FHLB advances
|
|
|
(417,000
|
)
|
|
|
(467,000
|
)
|
Payments to acquire treasury stock
|
|
|
(4,740
|
)
|
|
|
(8,413
|
)
|
Proceeds from issuance of subordinated debt
|
|
|
-
|
|
|
|
16,976
|
|
Proceeds from issuance of common stock
|
|
|
429
|
|
|
|
195
|
|
Dividends paid on common stock
|
|
|
(1,231
|
)
|
|
|
(921
|
)
|
Dividends paid on preferred stock
|
|
|
(160
|
)
|
|
|
(207
|
)
|
Net cash provided by financing activities
|
|
|
34,749
|
|
|
|
129,295
|
|
Net change in cash and cash equivalents
|
|
|
53,245
|
|
|
|
(1,579
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
19,500
|
|
|
|
129,011
|
|
Cash and cash equivalents, end of period
|
|
$
|
72,745
|
|
|
$
|
127,432
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,685
|
|
|
$
|
12,729
|
|
Income taxes
|
|
$
|
490
|
|
|
$
|
350
|
|
Noncash operating activities:
|
|
|
|
|
|
|
|
|
Change in accounting principle
|
|
$
|
-
|
|
|
$
|
2,484
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
Transfer from loans to other real estate owned
|
|
$
|
360
|
|
|
$
|
-
|
|
Loans charged off
|
|
$
|
-
|
|
|
$
|
144
|
|
See accompanying notes to unaudited consolidated
financial statements.
County Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - BASIS
OF PRESENTATION
The unaudited
consolidated financial statements of County Bancorp, Inc. (“we,” “us,” ”our,” or the “Company”)
and its subsidiaries, including Investors Community Bank (the “Bank”), have been prepared, in the opinion of management, to
reflect all adjustments necessary for a fair presentation of the financial position and results of operations as of and for the three
and six months ended June 30, 2021. The results of operations for the three and six months ended June 30, 2021 may not necessarily be
indicative of the results to be expected for the year ending December 31, 2021, or for any other period.
Management
of the Company is required to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and
expenses during the reported periods. Actual results could differ significantly from those estimates.
These unaudited
interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).
Certain information in footnote disclosure normally included in financial statements prepared in accordance with GAAP has been condensed
or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements
should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 12, 2021.
Merger Transaction
On June 22, 2021, we entered into an agreement
and plan of merger (the “Merger Agreement”) with Nicolet Bankshares, Inc. (“Nicolet”), a Wisconsin corporation,
pursuant to which the Company will merge with and into Nicolet (the “Merger”). Following
the Merger, the Bank will merge with and into Nicolet National Bank, Nicolet’s wholly-owned bank subsidiary, with Nicolet National
Bank continuing as the surviving bank, with all Bank branches operating under the Nicolet National Bank brand. The Merger is contingent
upon the approval of the Company’s and Nicolet’s shareholders, our regulators, and certain customary closing conditions. Subject
to our receipt of the required approvals, the Merger is expected to be completed in the fourth quarter of 2021. For additional information
on this proposed Merger, see Note 2 “Acquisition” to our consolidated financial statements.
New Accounting Pronouncements
On December 27, 2020, the Consolidated Appropriations
Act (“CAA”), 2021, was signed into law which extended the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”) which expired on December 31, 2020. The CAA included a $900.0 billion COVID-19 relief package that included an additional
$284.5 billion in PPP funding. In March 2021, President Biden signed the American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus
package that included cash payments to individuals, supplemental unemployment insurance, and modifications and expansion of the PPP. In
March 2021, President Biden also signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021. Section
4013 of the CARES Act was extended in the CAA and allows financial institutions to elect to suspend troubled debt restructuring accounting
under certain circumstances when the temporary restructuring is related to the Coronavirus Disease 2019 (COVID-19) pandemic. The Company
has elected to implement Section 4013, and at June 30, 2021, loan balances totaling $2.9 million were still participating in the payment
deferral program and were not classified as troubled debt restructurings.
In March 2020, the Financial Accounting
Standards Board (the “FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU provides optional
expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate
reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that
reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU was effective upon
issuance on March 12, 2020 and can be applied through December 31, 2022. The Company is in the process of evaluating the impact of
this standard but does not expect this standard to have a material impact on its results of operations, financial position, and
liquidity.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses, to provide financial statement users with more decision-useful information about the expected
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment
replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Entities should apply this
amendment by a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective. The Company has engaged a third-party software consultant and is currently
testing the model’s methodology in parallel to current loss model calculations. At this time, the effect this ASU will have on its
consolidated financial statements is still being quantified as the Company ensures data, assumptions, and methods all comply with the
requirements of ASU 2016-13. In October 2019, the FASB voted to delay the effective date for the credit losses standard to January 2023
for certain entities, including SEC filers that qualify as smaller reporting companies and private companies. As a smaller reporting company,
the Company is eligible for the delay and will be deferring adoption. Management will continue to progress on its implementation project
plan and improve the Company’s approach throughout the deferral period.
NOTE 2 - ACQUISITION
On June 22, 2021, the
Company entered into the Merger Agreement with Nicolet Bankshares, Inc. Inc. Following the Merger, the Bank will merge with and into Nicolet
National Bank, Nicolet’s wholly-owned bank subsidiary, with Nicolet National Bank continuing as the surviving bank, with all Bank
branches operating under the Nicolet National Bank brand.
Under the terms of the
Merger Agreement, at the effective time of the Merger, the Company’s shareholders will have the right to receive for each share
of the Company’s common stock, at the election of each holder and subject to proration, either $37.18 in cash or 0.48 shares of
Nicolet common stock. County shareholder elections will be prorated to ensure the total consideration will consist of approximately 20%
cash and approximately 80% common stock.
The Merger is contingent
upon the approval of the Company’s and Nicolet’s shareholders, our and Nicolet’s regulators and certain customary closing
conditions. Subject to our receipt of the required approvals, the Merger is expected to be completed in the fourth quarter of 2021.
NOTE
3 - EARNINGS PER SHARE
Earnings
per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income by the weighted-average
number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number
of shares determined for the basic earnings per common share plus the dilutive effect of share-based compensation using the treasury stock
method.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net income (loss) from continuing operations
|
|
$
|
6,743
|
|
|
$
|
2,733
|
|
|
$
|
10,671
|
|
|
$
|
(2,454
|
)
|
Less: preferred stock dividends
|
|
|
79
|
|
|
|
99
|
|
|
|
160
|
|
|
|
207
|
|
Income (loss) available to common shareholders for basic earnings
per common share
|
|
$
|
6,664
|
|
|
$
|
2,634
|
|
|
$
|
10,511
|
|
|
$
|
(2,661
|
)
|
Weighted average number of common shares issued
|
|
|
7,242,997
|
|
|
|
7,198,901
|
|
|
|
7,230,746
|
|
|
|
7,190,923
|
|
Less: weighted average treasury shares
|
|
|
1,179,271
|
|
|
|
759,294
|
|
|
|
1,129,954
|
|
|
|
639,017
|
|
Plus: weighted average of participating restricted stock units
|
|
|
97,915
|
|
|
|
65,291
|
|
|
|
81,047
|
|
|
|
52,281
|
|
Weighted average number of common shares and participating
securities outstanding
|
|
|
6,161,641
|
|
|
|
6,504,898
|
|
|
|
6,181,839
|
|
|
|
6,604,187
|
|
Effect of dilutive options
|
|
|
46,438
|
|
|
|
28,511
|
|
|
|
41,952
|
|
|
|
39,548
|
|
Weighted average number of common shares outstanding
used to calculate diluted earnings per common share
|
|
|
6,208,079
|
|
|
|
6,533,409
|
|
|
|
6,223,791
|
|
|
|
6,643,735
|
|
Weighted average of anti-dilutive options
|
|
|
39,495
|
|
|
|
62,313
|
|
|
|
47,163
|
|
|
|
55,764
|
|
NOTE 4 - SECURITIES
AVAILABLE-FOR-SALE
The amortized cost and fair value
of securities available-for-sale as of June 30, 2021 and December 31, 2020 were as follows:
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
12,948
|
|
|
$
|
-
|
|
|
$
|
(107
|
)
|
|
$
|
12,841
|
|
Municipal securities
|
|
|
127,089
|
|
|
|
3,741
|
|
|
|
(826
|
)
|
|
|
130,004
|
|
Mortgage-backed securities
|
|
|
140,037
|
|
|
|
5,822
|
|
|
|
(805
|
)
|
|
|
145,054
|
|
Corporate bonds
|
|
|
45,000
|
|
|
|
242
|
|
|
|
(193
|
)
|
|
|
45,049
|
|
Asset-backed securities
|
|
|
16,215
|
|
|
|
172
|
|
|
|
(1
|
)
|
|
|
16,386
|
|
|
|
$
|
341,289
|
|
|
$
|
9,977
|
|
|
$
|
(1,932
|
)
|
|
$
|
349,334
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
14,745
|
|
|
$
|
-
|
|
|
$
|
(152
|
)
|
|
$
|
14,593
|
|
Municipal securities
|
|
|
149,203
|
|
|
|
4,736
|
|
|
|
(285
|
)
|
|
|
153,654
|
|
Mortgage-backed securities
|
|
|
127,804
|
|
|
|
7,872
|
|
|
|
(298
|
)
|
|
|
135,378
|
|
Corporate bonds
|
|
|
32,500
|
|
|
|
21
|
|
|
|
(10
|
)
|
|
|
32,511
|
|
Asset-backed securities
|
|
|
16,664
|
|
|
|
55
|
|
|
|
(1
|
)
|
|
|
16,718
|
|
|
|
$
|
340,916
|
|
|
$
|
12,684
|
|
|
$
|
(746
|
)
|
|
$
|
352,854
|
|
The amortized
cost and fair value of securities at June 30, 2021 and December 31, 2020, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
-
|
|
|
$
|
-
|
|
Due from one to five years
|
|
|
-
|
|
|
|
-
|
|
Due from five to ten years
|
|
|
67,685
|
|
|
|
67,716
|
|
Due after ten years
|
|
|
117,352
|
|
|
|
120,178
|
|
Asset-backed securities
|
|
|
16,215
|
|
|
|
16,386
|
|
Mortgage-backed securities
|
|
|
140,037
|
|
|
|
145,054
|
|
|
|
$
|
341,289
|
|
|
$
|
349,334
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
-
|
|
|
$
|
-
|
|
Due from one to five years
|
|
|
-
|
|
|
|
-
|
|
Due from five to ten years
|
|
|
55,024
|
|
|
|
55,120
|
|
Due after ten years
|
|
|
141,424
|
|
|
|
145,638
|
|
Asset-backed securities
|
|
|
16,664
|
|
|
|
16,718
|
|
Mortgage-backed securities
|
|
|
127,804
|
|
|
|
135,378
|
|
|
|
$
|
340,916
|
|
|
$
|
352,854
|
|
Proceeds from the sale of available-for-sale securities
were $33.9 million for the three and six months ended June 30, 2021, which resulted in a loss of $1.5 million. For the three and six months
ended June 30, 2020, proceeds from the sale of available-for-sale securities were $27.8 million which resulted in a gain of $0.6 million.
At June
30, 2021 and December 31, 2020, there were $32.5 million and $23.0 million, respectively, of securities pledged at the Federal Reserve
Bank to secure municipal customer deposits.
Federal
Home Loan Bank (FHLB) advances were secured by $5.5 million and $5.8 million FHLB stock at June 30, 2021 and December 31, 2020, respectively.
The following
table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to
be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position at June 30, 2021 and December 31, 2020:
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,841
|
|
|
$
|
(107
|
)
|
|
$
|
12,841
|
|
|
$
|
(107
|
)
|
Municipal securities
|
|
|
58,747
|
|
|
|
(826
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
58,747
|
|
|
|
(826
|
)
|
Mortgage-backed securities
|
|
|
34,778
|
|
|
|
(805
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
34,778
|
|
|
|
(805
|
)
|
Corporate bonds
|
|
|
15,307
|
|
|
|
(193
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
15,307
|
|
|
|
(193
|
)
|
Asset-backed securities
|
|
|
1,496
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,496
|
|
|
|
(1
|
)
|
|
|
$
|
110,328
|
|
|
$
|
(1,825
|
)
|
|
$
|
12,841
|
|
|
$
|
(107
|
)
|
|
$
|
123,169
|
|
|
$
|
(1,932
|
)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
12,217
|
|
|
$
|
(134
|
)
|
|
$
|
2,376
|
|
|
$
|
(18
|
)
|
|
$
|
14,593
|
|
|
$
|
(152
|
)
|
Municipal securities
|
|
|
30,849
|
|
|
|
(285
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
30,849
|
|
|
|
(285
|
)
|
Mortgage-backed securities
|
|
|
7,781
|
|
|
|
(298
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,781
|
|
|
|
(298
|
)
|
Corporate bonds
|
|
|
7,990
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,990
|
|
|
|
(10
|
)
|
Asset-backed securities
|
|
|
3,817
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,817
|
|
|
|
(1
|
)
|
|
|
$
|
62,654
|
|
|
$
|
(728
|
)
|
|
$
|
2,376
|
|
|
$
|
(18
|
)
|
|
$
|
65,030
|
|
|
$
|
(746
|
)
|
The unrealized
losses on the investments at June 30, 2021 and December 31, 2020 were due to market conditions as well as normal fluctuations and pricing
inefficiencies. The contractual terms of the investments do not permit the issuers to settle the securities at a price less than the amortized
cost basis of the investment. Because the Company does not intend to sell the investments and it is not more-likely-than-not that the
Company will be required to sell the investments before recovery of the amortized cost basis, which may be maturity, the Company did not
consider these investments to be other-than-temporarily impaired at June 30, 2021 and December 31, 2020.
NOTE 5 - LOANS
The components of loans were
as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
613,513
|
|
|
$
|
606,881
|
|
Commercial real estate loans
|
|
|
245,810
|
|
|
|
235,969
|
|
Commercial loans
|
|
|
107,469
|
|
|
|
115,087
|
|
Residential real estate loans
|
|
|
34,873
|
|
|
|
38,084
|
|
Installment and consumer other
|
|
|
225
|
|
|
|
264
|
|
Total gross loans
|
|
|
1,001,890
|
|
|
|
996,285
|
|
Allowance for loan losses
|
|
|
(11,466
|
)
|
|
|
(14,808
|
)
|
Net loans
|
|
$
|
990,424
|
|
|
$
|
981,477
|
|
Net unamortized
deferred fees totalling $0.3 million and deferred costs of $0.3 million as of June 30, 2021 and December 31, 2020, respectively, are included
in the total gross loans above.
Changes
in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2021 and 2020
were as follows:
|
|
For the Three Months Ended June 30, 2021
|
|
|
|
Beginning Balance
|
|
|
Provision for Loan Losses
|
|
|
Loans Charged Off
|
|
|
Loan Recoveries
|
|
|
Ending Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
11,527
|
|
|
$
|
(2,653
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,874
|
|
Commercial real estate loans
|
|
|
2,858
|
|
|
|
(1,651
|
)
|
|
|
-
|
|
|
|
612
|
|
|
|
1,819
|
|
Commercial loans
|
|
|
691
|
|
|
|
(176
|
)
|
|
|
-
|
|
|
|
50
|
|
|
|
565
|
|
Residential real estate loans
|
|
|
5
|
|
|
|
203
|
|
|
|
-
|
|
|
|
-
|
|
|
|
208
|
|
Installment and consumer other
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
15,082
|
|
|
$
|
(4,278
|
)
|
|
$
|
-
|
|
|
$
|
662
|
|
|
$
|
11,466
|
|
|
|
For the Six Months Ended June 30, 2021
|
|
|
|
Beginning Balance
|
|
|
Provision for Loan Losses
|
|
|
Loans Charged Off
|
|
|
Loan Recoveries
|
|
|
Ending Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
10,859
|
|
|
$
|
(1,985
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,874
|
|
Commercial real estate loans
|
|
|
3,139
|
|
|
|
(1,933
|
)
|
|
|
-
|
|
|
|
613
|
|
|
|
1,819
|
|
Commercial loans
|
|
|
805
|
|
|
|
(321
|
)
|
|
|
-
|
|
|
|
81
|
|
|
|
565
|
|
Residential real estate loans
|
|
|
5
|
|
|
|
203
|
|
|
|
-
|
|
|
|
-
|
|
|
|
208
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
14,808
|
|
|
$
|
(4,036
|
)
|
|
$
|
-
|
|
|
$
|
694
|
|
|
$
|
11,466
|
|
|
|
For the Three Months Ended June 30, 2020
|
|
|
|
Beginning Balance
|
|
|
Provision for Loan Losses
|
|
|
Loans Charged Off
|
|
|
Loan Recoveries
|
|
|
Ending Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
12,685
|
|
|
$
|
(38
|
)
|
|
$
|
-
|
|
|
$
|
23.00
|
|
|
$
|
12,670
|
|
Commercial real estate loans
|
|
|
2,577
|
|
|
|
1,281
|
|
|
|
-
|
|
|
|
1
|
|
|
|
3,859
|
|
Commercial loans
|
|
|
2,173
|
|
|
|
(75
|
)
|
|
|
(144
|
)
|
|
|
-
|
|
|
|
1,954
|
|
Residential real estate loans
|
|
|
112
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Total
|
|
$
|
17,547
|
|
|
$
|
1,142
|
|
|
$
|
(144
|
)
|
|
$
|
24
|
|
|
$
|
18,569
|
|
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
Beginning Balance
|
|
|
Provision for Loan Losses
|
|
|
Loans Charged Off
|
|
|
Loan Recoveries
|
|
|
Ending Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
11,737
|
|
|
$
|
910
|
|
|
$
|
-
|
|
|
$
|
23.00
|
|
|
$
|
12,670
|
|
Commercial real estate loans
|
|
|
1,913
|
|
|
|
1,884
|
|
|
|
-
|
|
|
|
62
|
|
|
|
3,859
|
|
Commercial loans
|
|
|
1,599
|
|
|
|
498
|
|
|
|
(144
|
)
|
|
|
1
|
|
|
|
1,954
|
|
Residential real estate loans
|
|
|
15
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
Installment and consumer other
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Total
|
|
$
|
15,267
|
|
|
$
|
3,360
|
|
|
$
|
(144
|
)
|
|
$
|
86
|
|
|
$
|
18,569
|
|
The following
tables present the balances in the allowance for loan losses and the recorded balance in loans by portfolio segment and based on impairment
method as of June 30, 2021 and December 31, 2020:
|
|
June 30, 2021
|
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
1,892
|
|
|
$
|
6,982
|
|
|
$
|
8,874
|
|
Commercial real estate loans
|
|
|
217
|
|
|
|
1,602
|
|
|
|
1,819
|
|
Commercial loans
|
|
|
74
|
|
|
|
491
|
|
|
|
565
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
208
|
|
|
|
208
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total ending allowance for loan losses
|
|
|
2,183
|
|
|
|
9,283
|
|
|
|
11,466
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
37,377
|
|
|
|
576,136
|
|
|
|
613,513
|
|
Commercial real estate loans
|
|
|
2,722
|
|
|
|
243,088
|
|
|
|
245,810
|
|
Commercial loans
|
|
|
2,503
|
|
|
|
104,966
|
|
|
|
107,469
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
34,873
|
|
|
|
34,873
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
225
|
|
|
|
225
|
|
Total loans
|
|
|
42,602
|
|
|
|
959,288
|
|
|
|
1,001,890
|
|
Net loans
|
|
$
|
40,419
|
|
|
$
|
950,005
|
|
|
$
|
990,424
|
|
|
|
December 31, 2020
|
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
3,504
|
|
|
$
|
7,355
|
|
|
$
|
10,859
|
|
Commercial real estate loans
|
|
|
672
|
|
|
|
2,467
|
|
|
|
3,139
|
|
Commercial loans
|
|
|
86
|
|
|
|
719
|
|
|
|
805
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total ending allowance for loan losses
|
|
|
4,262
|
|
|
|
10,546
|
|
|
|
14,808
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
63,777
|
|
|
|
543,104
|
|
|
|
606,881
|
|
Commercial real estate loans
|
|
|
7,077
|
|
|
|
228,892
|
|
|
|
235,969
|
|
Commercial loans
|
|
|
2,818
|
|
|
|
112,269
|
|
|
|
115,087
|
|
Residential real estate loans
|
|
|
59
|
|
|
|
38,025
|
|
|
|
38,084
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
264
|
|
|
|
264
|
|
Total loans
|
|
|
73,731
|
|
|
|
922,554
|
|
|
|
996,285
|
|
Net loans
|
|
$
|
69,469
|
|
|
$
|
912,008
|
|
|
$
|
981,477
|
|
The following tables present loans individually evaluated for impairment
by class of loans at June 30, 2021 and December 31, 2020:
|
|
June 30, 2021
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
|
(dollars in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
7,300
|
|
|
$
|
6,904
|
|
|
$
|
-
|
|
Commercial real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial loans
|
|
|
2,035
|
|
|
|
2,029
|
|
|
|
-
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
9,335
|
|
|
$
|
8,933
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
32,305
|
|
|
$
|
30,473
|
|
|
$
|
1,892
|
|
Commercial real estate loans
|
|
|
2,958
|
|
|
|
2,722
|
|
|
|
217
|
|
Commercial loans
|
|
|
503
|
|
|
|
474
|
|
|
|
74
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
35,766
|
|
|
$
|
33,669
|
|
|
$
|
2,183
|
|
Total
|
|
$
|
45,101
|
|
|
$
|
42,602
|
|
|
$
|
2,183
|
|
|
|
December 31, 2020
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
20,245
|
|
|
$
|
20,120
|
|
|
$
|
-
|
|
Commercial real estate loans
|
|
|
288
|
|
|
|
288
|
|
|
|
-
|
|
Commercial loans
|
|
|
2,504
|
|
|
|
2,481
|
|
|
|
-
|
|
Residential real estate loans
|
|
|
61
|
|
|
|
59
|
|
|
|
-
|
|
|
|
$
|
23,098
|
|
|
$
|
22,948
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
47,971
|
|
|
$
|
43,657
|
|
|
$
|
3,504
|
|
Commercial real estate loans
|
|
|
8,245
|
|
|
|
6,790
|
|
|
|
672
|
|
Commercial loans
|
|
|
357
|
|
|
|
336
|
|
|
|
86
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
56,573
|
|
|
$
|
50,783
|
|
|
$
|
4,262
|
|
Total
|
|
$
|
79,671
|
|
|
$
|
73,731
|
|
|
$
|
4,262
|
|
The following table presents the aging of the recorded investment in
past due loans at June 30, 2021 and December 31, 2020:
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90+ Days
Past Due
|
|
|
Total
Past Due
|
|
|
Loans Not
Past Due
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
384
|
|
|
$
|
348
|
|
|
$
|
4,840
|
|
|
$
|
5,572
|
|
|
$
|
607,941
|
|
|
$
|
613,513
|
|
Commercial real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
245,810
|
|
|
|
245,810
|
|
Commercial loans
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
27
|
|
|
|
107,442
|
|
|
|
107,469
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,873
|
|
|
|
34,873
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
|
|
225
|
|
Total
|
|
$
|
384
|
|
|
$
|
348
|
|
|
$
|
4,867
|
|
|
$
|
5,599
|
|
|
$
|
996,291
|
|
|
$
|
1,001,890
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
47
|
|
|
$
|
-
|
|
|
$
|
5,041
|
|
|
$
|
5,088
|
|
|
$
|
601,793
|
|
|
$
|
606,881
|
|
Commercial real estate loans
|
|
|
82
|
|
|
|
-
|
|
|
|
4,283
|
|
|
|
4,365
|
|
|
|
231,604
|
|
|
|
235,969
|
|
Commercial loans
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
96
|
|
|
|
114,991
|
|
|
|
115,087
|
|
Residential real estate loans
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
38,080
|
|
|
|
38,084
|
|
Installment and consumer other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
264
|
|
|
|
264
|
|
Total
|
|
$
|
133
|
|
|
$
|
-
|
|
|
$
|
9,420
|
|
|
$
|
9,553
|
|
|
$
|
986,732
|
|
|
$
|
996,285
|
|
The following table presents the recorded investment
in nonaccrual loans by class of loan:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
27,986
|
|
|
$
|
35,067
|
|
Commercial real estate loans
|
|
|
1,756
|
|
|
|
6,093
|
|
Commercial loans
|
|
|
329
|
|
|
|
405
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
59
|
|
Total
|
|
$
|
30,071
|
|
|
$
|
41,624
|
|
The following tables present the average recorded
investment and interest income recognized on impaired loans by portfolio segment for the three and six months ended June 30, 2021 and
2020:
|
|
As of and for the Three Months Ended June 30, 2021
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
39,605
|
|
|
$
|
37,377
|
|
|
$
|
1,892
|
|
|
$
|
45,936
|
|
|
$
|
103
|
|
Commercial real estate loans
|
|
|
2,958
|
|
|
|
2,722
|
|
|
|
217
|
|
|
|
4,898
|
|
|
|
36
|
|
Commercial loans
|
|
|
2,538
|
|
|
|
2,503
|
|
|
|
74
|
|
|
|
2,645
|
|
|
|
13
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
Total
|
|
$
|
45,101
|
|
|
$
|
42,602
|
|
|
$
|
2,183
|
|
|
$
|
53,508
|
|
|
$
|
152
|
|
|
|
As of and for the Six Months Ended June 30, 2021
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
39,605
|
|
|
$
|
37,377
|
|
|
$
|
1,892
|
|
|
$
|
50,577
|
|
|
$
|
1,029
|
|
Commercial real estate loans
|
|
|
2,958
|
|
|
|
2,722
|
|
|
|
217
|
|
|
|
4,900
|
|
|
|
73
|
|
Commercial loans
|
|
|
2,538
|
|
|
|
2,503
|
|
|
|
74
|
|
|
|
2,661
|
|
|
|
53
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
Total
|
|
$
|
45,101
|
|
|
$
|
42,602
|
|
|
$
|
2,183
|
|
|
$
|
58,168
|
|
|
$
|
1,155
|
|
|
|
As of and for the Three Months Ended June 30, 2020
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
62,268
|
|
|
$
|
58,895
|
|
|
$
|
3,826
|
|
|
$
|
59,565
|
|
|
$
|
1,060
|
|
Commercial real estate loans
|
|
|
9,420
|
|
|
|
9,351
|
|
|
|
2,471
|
|
|
|
6,496
|
|
|
|
115
|
|
Commercial loans
|
|
|
2,962
|
|
|
|
2,882
|
|
|
|
1,226
|
|
|
|
2,360
|
|
|
|
21
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
Total
|
|
$
|
74,650
|
|
|
$
|
71,188
|
|
|
$
|
7,523
|
|
|
$
|
68,480
|
|
|
$
|
1,196
|
|
|
|
As of and for the Six Months Ended June 30, 2020
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
62,268
|
|
|
$
|
58,895
|
|
|
$
|
3,826
|
|
|
$
|
58,864
|
|
|
$
|
2,320
|
|
Commercial real estate loans
|
|
|
9,420
|
|
|
|
9,351
|
|
|
|
2,471
|
|
|
|
6,517
|
|
|
|
140
|
|
Commercial loans
|
|
|
2,962
|
|
|
|
2,882
|
|
|
|
1,226
|
|
|
|
2,372
|
|
|
|
69
|
|
Residential real estate loans
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
61
|
|
|
|
1
|
|
Total
|
|
$
|
74,650
|
|
|
$
|
71,188
|
|
|
$
|
7,523
|
|
|
$
|
67,814
|
|
|
$
|
2,530
|
|
Impaired loans include nonaccrual loans, troubled
debt restructured loans, and loans that are 90 days or more past due and still accruing. For nonaccrual loans included in impaired loans,
the interest income that would have been recognized had those loans been performing in accordance with their original terms would have
been approximately $0.2 million and $2.1 million for the three months ended June 30, 2021 and 2020, respectively, and $0.2 million and
$2.8 million for the six months ended June 30, 2021 and 2020, respectively.
Troubled Debt Restructurings
The Company
allocated approximately $1.8 million and $3.8 million of specific reserves to customers whose loan terms have been modified in troubled
debt restructurings (“TDR”) at June 30, 2021 and December 31, 2020, respectively. The Company had no additional lending commitments
at June 30, 2021 or December 31, 2020 to customers with outstanding loans that were classified as TDRs.
A TDR on
nonaccrual status is classified as a nonaccrual loan until evaluation supports reasonable assurance of repayment and there has been a
satisfactory period of performance according to the modified terms of the loan. Once this assurance is reached, the TDR is returned to
accrual status. The following table presents the TDRs and related allowance for loan losses by loan class at June 30, 2021 and December
31, 2020:
|
|
Non-Accrual
|
|
|
Restructured and Accruing
|
|
|
Total
|
|
|
Allowance for Loan Losses Allocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
21,379
|
|
|
$
|
4,784
|
|
|
$
|
26,163
|
|
|
$
|
1,595
|
|
Commercial real estate loans
|
|
|
1,756
|
|
|
|
966
|
|
|
|
2,722
|
|
|
|
217
|
|
Commercial loans
|
|
|
27
|
|
|
|
1,891
|
|
|
|
1,918
|
|
|
|
4
|
|
Total
|
|
$
|
23,162
|
|
|
$
|
7,641
|
|
|
$
|
30,803
|
|
|
$
|
1,816
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
27,223
|
|
|
$
|
15,690
|
|
|
$
|
42,913
|
|
|
$
|
3,494
|
|
Commercial real estate loans
|
|
|
1,810
|
|
|
|
984
|
|
|
|
2,794
|
|
|
|
315
|
|
Commercial loans
|
|
|
68
|
|
|
|
1,918
|
|
|
|
1,986
|
|
|
|
4
|
|
Total
|
|
$
|
29,101
|
|
|
$
|
18,592
|
|
|
$
|
47,693
|
|
|
$
|
3,813
|
|
The following table provides
the number of loans modified in a troubled debt restructuring investment by class for the three and six months ended June 30, 2021 and
2020:
|
|
For the Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6
|
|
|
$
|
2,640
|
|
Total
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6
|
|
|
$
|
2,640
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
5
|
|
|
$
|
1,586
|
|
|
|
8
|
|
|
$
|
2,872
|
|
Total
|
|
|
5
|
|
|
$
|
1,586
|
|
|
|
8
|
|
|
$
|
2,872
|
|
The following table provides
the troubled debt restructurings for the three and six months ended June 30, 2021 and 2020 grouped by type of concession:
|
|
For the Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment concessions
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
231
|
|
Term concessions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
435
|
|
Extension of interest-only payments
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
75
|
|
Capitalized interest
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
153
|
|
Combination of payment concessions and interest rate concessions
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1,746
|
|
Total
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6
|
|
|
$
|
2,640
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment concessions
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
231
|
|
Term concessions
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
484
|
|
Extension of interest-only payments
|
|
|
5
|
|
|
|
1,586
|
|
|
|
2
|
|
|
|
75
|
|
Capitalized interest
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
153
|
|
Combination of extension of term and interest rate concessions
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
1,929
|
|
Total
|
|
|
5
|
|
|
$
|
1,586
|
|
|
|
8
|
|
|
$
|
2,872
|
|
No troubled
debt restructurings defaulted within twelve months of the restructure date during the three and six months ended June 30, 2021 and June
30, 2020.
The CAA extended Section 4013 of the CARES Act
which allows financial institutions to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary
restructuring is related to the COVID-19 pandemic. The Company has elected to implement Section 4013, and the balance of those loans
modified under Section 4103 was $2.9 million and $16.8 million at June 30, 2021 and December 31, 2020, respectively.
Credit Quality Indicators
The Company 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 agricultural,
commercial, and commercial real estate loans individually by classifying the credits as to credit risk. The process of analyzing loans
for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits with
total exposure in excess of $300,000. The Company uses the following definitions for credit risk ratings:
Sound. Credits classified as sound show
very good probability of ongoing ability to meet and/or exceed obligations.
Acceptable. Credits classified as acceptable
show a good probability of ongoing ability to meet and/or exceed obligations.
Satisfactory. Credits classified as satisfactory
show fair probability of ongoing ability to meet and/or exceed obligations.
Low Satisfactory. Credits classified as
low satisfactory show fair probability of ongoing ability to meet and/or exceed obligations. Low satisfactory credits may be newer or
have a less established track record of financial performance, inconsistent earnings, or may be going through an expansion.
Watch. Credits classified as watch show
some questionable probability of ongoing ability to meet and/or exceed obligations.
Special Mention. Credits classified as
special mention show potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.
Substandard - Performing. Credits classified
as substandard - performing generally have well-defined weaknesses. Collateral coverage is adequate, and the loans are not considered
impaired. Payments are being made and the loans are on accrual status.
Substandard - Impaired. Credits
classified as substandard-impaired generally have well-defined weaknesses that jeopardize the repayment of the debt. They have a
distinct possibility that a loss will be sustained if the deficiencies are not corrected. Loans are considered impaired. Loans are
either exhibiting signs of delinquency, are on non-accrual or are identified as a TDR.
Doubtful. Credits classified as doubtful
have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection
or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable.
The Company categorizes residential real estate,
installment and consumer other loans as satisfactory at the time of origination based on information obtained as to the ability of the
borrower(s) to service their debt, such as current financial information, employment status and history, historical payment experience,
credit scores and type and amount of collateral among other factors. The Company updates relevant information on these types of loans
at the time of refinance, troubled debt restructuring or other indications of financial difficulty, downgrading as needed using the same
category descriptions as for agricultural, commercial, and commercial real estate loans. In addition, the Company further considers current
payment status as an indicator of which risk category to assign the borrower.
The greater the level of deteriorated risk as
indicated by a loan’s assigned risk category, the greater the likelihood a loss will occur in the future. If the loan is substandard
- impaired, then the loan loss reserves for the loan are recorded at the loss level of impairment. If the loan is not impaired, then its
loan loss reserves are determined by the application of a loss rate that increases with risk in accordance with the allowance for loan
loss analysis.
The Bank will not accrue interest on any loan
past due 90-days or more. Furthermore, the Bank will place any loan on non-accrual status for which payment in full of principal and interest
is not expected. A loan shall be placed on non-accrual as soon as it is determined that payment in full of interest and/or principal is
unlikely. The Bank’s chief credit officer may approve the placement of a loan on non-accrual prior to 90-days past due.
Based on the most recent analysis performed by
management, the risk category of loans by class of loans was as follows as of June 30, 2021 and December 31, 2020:
|
|
As
of June 30, 2021
|
|
|
|
Sound/
Acceptable/
Satisfactory/
Low Satisfactory
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
Performing
|
|
|
Substandard
Impaired
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural
loans
|
|
$
|
467,743
|
|
|
$
|
94,254
|
|
|
$
|
-
|
|
|
$
|
23,232
|
|
|
$
|
28,284
|
|
|
$
|
613,513
|
|
Commercial
real estate loans
|
|
|
220,925
|
|
|
|
20,864
|
|
|
|
-
|
|
|
|
2,265
|
|
|
|
1,756
|
|
|
|
245,810
|
|
Commercial
loans
|
|
|
98,408
|
|
|
|
5,920
|
|
|
|
566
|
|
|
|
2,246
|
|
|
|
329
|
|
|
|
107,469
|
|
Residential
real estate loans
|
|
|
34,669
|
|
|
|
204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,873
|
|
Installment
and consumer other
|
|
|
225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
Total
|
|
$
|
821,970
|
|
|
$
|
121,242
|
|
|
$
|
566
|
|
|
$
|
27,743
|
|
|
$
|
30,369
|
|
|
$
|
1,001,890
|
|
|
|
As
of December 31, 2020
|
|
|
|
Sound/
Acceptable/
Satisfactory/
Low Satisfactory
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
Performing
|
|
|
Substandard
Impaired
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural
loans
|
|
$
|
374,595
|
|
|
$
|
155,546
|
|
|
$
|
1,854
|
|
|
$
|
34,452
|
|
|
$
|
40,434
|
|
|
$
|
606,881
|
|
Commercial
real estate loans
|
|
|
200,208
|
|
|
|
26,266
|
|
|
|
-
|
|
|
|
3,402
|
|
|
|
6,093
|
|
|
|
235,969
|
|
Commercial
loans
|
|
|
103,488
|
|
|
|
8,022
|
|
|
|
647
|
|
|
|
2,566
|
|
|
|
364
|
|
|
|
115,087
|
|
Residential
real estate loans
|
|
|
37,758
|
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59
|
|
|
|
38,084
|
|
Installment
and consumer other
|
|
|
264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
264
|
|
Total
|
|
$
|
716,313
|
|
|
$
|
190,101
|
|
|
$
|
2,501
|
|
|
$
|
40,420
|
|
|
$
|
46,950
|
|
|
$
|
996,285
|
|
NOTE 6 - LOAN SERVICING RIGHTS
Loans serviced
for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to
changes in prepayments that result from shifts in interest rates. The unpaid principal balances of loans serviced for others were approximately
$853.2 million and $812.6 million at June 30, 2021 and December 31, 2020, respectively. The fair value of these rights were approximately
$19.5 million and $18.4 million at June 30, 2021 and December 31, 2020.
The fair
value of servicing rights is highly sensitive to changes in underlying assumptions. The Company’s portfolio of loans serviced
for others is mostly comprised of fixed rate loans. Generally, as market interest rates rise, prepayments on fixed rate loans decrease
due to a decline in refinancing activity, which results in an increase in the fair value of servicing rights. However, due to the cross-collateralization
of loans in the portfolio and the government guarantee programs under which many of the loans were originated, prepayments on the portfolio
tend to be muted in comparison to other types of loans, such as mortgage loans. Measurement of fair
value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be
appropriate if they were applied at a different time.
The fair
value of servicing rights at June 30, 2021 was determined using an assumed discount rate of 15.0% percent and a weighted average run-off
rate of 16.78%, ranging from 16.25% to 24.32%, depending upon loan type, the stratification of the specific right, and nominal credit
losses. The fair value of servicing rights at December 31, 2020 was determined using an assumed discount rate of 14.3% and weighted average
run-off rate of 16.59%, ranging from 16.02% to 24.72%, depending upon the stratification of the specific right, and nominal credit losses.
Changes
to the fair value are reported in loan servicing fees within the consolidated statements of operations.
The following
tables summarize servicing rights capitalized, along with the aggregate activity in related valuation allowances for periods indicated.
|
|
For the Three Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance, beginning of period
|
|
$
|
18,864
|
|
|
$
|
16,211
|
|
Additions, net
|
|
|
1,775
|
|
|
|
1,041
|
|
Fair value changes:
|
|
|
|
|
|
|
|
|
Decay due to increases in principal paydowns or runoff
|
|
|
(859
|
)
|
|
|
(727
|
)
|
Due to changes in valuation inputs or assumptions
|
|
|
(302
|
)
|
|
|
(39
|
)
|
Balance, end of period
|
|
$
|
19,478
|
|
|
$
|
16,486
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance, beginning of period
|
|
$
|
18,396
|
|
|
$
|
15,921
|
|
Additions, net
|
|
|
3,362
|
|
|
|
1,546
|
|
Fair value changes:
|
|
|
|
|
|
|
|
|
Decay due to increases in principal paydowns or runoff
|
|
|
(1,130
|
)
|
|
|
(992
|
)
|
Due to changes in valuation inputs or assumptions
|
|
|
(1,150
|
)
|
|
|
11
|
|
Balance, end of period
|
|
$
|
19,478
|
|
|
$
|
16,486
|
|
NOTE 7 - DEPOSITS
Deposits are summarized as follows
at June 30, 2021 and December 31, 2020:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Demand deposits
|
|
$
|
158,880
|
|
|
$
|
163,202
|
|
NOW and interest checking
|
|
|
136,180
|
|
|
|
96,624
|
|
Savings
|
|
|
9,059
|
|
|
|
7,367
|
|
Money market accounts
|
|
|
394,486
|
|
|
|
344,250
|
|
Certificates of deposit
|
|
|
259,386
|
|
|
|
304,580
|
|
National time deposits
|
|
|
18,648
|
|
|
|
44,347
|
|
Brokered deposits
|
|
|
159,087
|
|
|
|
80,456
|
|
Total deposits
|
|
$
|
1,135,726
|
|
|
$
|
1,040,826
|
|
NOTE 8 - ADVANCES FROM FHLB AND OTHER BORROWINGS
The Bank had advances outstanding from the FHLB
in the amount of $88.0 million and $129.0 million on June 30, 2021 and December 31, 2020, respectively. These advances, rates, and maturities
were as follows:
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Maturity
|
|
|
Rate
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Fixed rate, fixed term
|
|
|
01/04/2021
|
|
|
|
0.23
|
%
|
|
$
|
-
|
|
|
$
|
29,000
|
|
Fixed rate, fixed term
|
|
|
04/12/2021
|
|
|
|
1.92
|
%
|
|
|
-
|
|
|
|
8,000
|
|
Fixed rate, fixed term
|
|
|
05/03/2021
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
4,000
|
|
Fixed rate, fixed term
|
|
|
06/15/2021
|
|
|
|
1.39
|
%
|
|
|
-
|
|
|
|
5,000
|
|
Fixed rate, fixed term
|
|
|
08/16/2021
|
|
|
|
2.29
|
%
|
|
|
3,000
|
|
|
|
3,000
|
|
Fixed rate, fixed term
|
|
|
12/30/2021
|
|
|
|
2.29
|
%
|
|
|
2,000
|
|
|
|
2,000
|
|
Fixed rate, fixed term
|
|
|
03/18/2022
|
|
|
|
1.03
|
%
|
|
|
15,000
|
|
|
|
15,000
|
|
Fixed rate, fixed term
|
|
|
03/25/2022
|
|
|
|
0.75
|
%
|
|
|
10,000
|
|
|
|
10,000
|
|
Fixed rate, fixed term
|
|
|
05/16/2022
|
|
|
|
0.00
|
%
|
|
|
5,000
|
|
|
|
-
|
|
Fixed rate, fixed term
|
|
|
11/16/2022
|
|
|
|
0.38
|
%
|
|
|
20,000
|
|
|
|
20,000
|
|
Fixed rate, putable, 2 years no call
|
|
|
01/12/2023
|
|
|
|
2.03
|
%
|
|
|
8,000
|
|
|
|
8,000
|
|
Fixed rate, fixed term
|
|
|
03/23/2023
|
|
|
|
1.26
|
%
|
|
|
10,000
|
|
|
|
10,000
|
|
Fixed rate, fixed term
|
|
|
03/27/2023
|
|
|
|
0.82
|
%
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,000
|
|
|
$
|
129,000
|
|
The terms of security agreements with the FHLB
require the Bank to pledge collateral for its borrowings. The collateral consists of qualifying first mortgage loans and stock of the
FHLB. At June 30, 2021 and December 31, 2020, the Bank had pledged qualifying mortgage loans of $453.8 million and $367.6 million, respectively.
As of
June 30, 2021 and December 31, 2020, the Bank also had a line-of-credit available with the Federal Reserve Bank of Chicago. Borrowings
under this line of credit are limited by the amount of collateral pledged by the Bank, which totaled $53.6 million and $111.5 million
in loans at June 30, 2021 and December 31, 2020, respectively. The borrowings available to the Company were $46.2 million and $83.3 million,
as of June 30, 2021 and December 31, 2020, respectively. There were no outstanding advances included in other borrowings at June 30, 2021
and December 31, 2020.
Other borrowings are borrowings as a result of
sold loans that do not qualify for sale accounting. These agreements are recorded as financing transactions as the Bank maintains effective
control over the transferred loans. The dollar amount of the loans underlying the sale agreements continues to be carried in the Bank’s
loan portfolio, and the transfer is reported as a secured borrowing with pledge of collateral. At June 30, 2021 and December 31, 2020,
the amounts of these borrowings were $0.1 million and $0.2 million, respectively.
Also included in other borrowings is the
financing lease for our full-service banking location in Manitowoc, Wisconsin. This branch location was owned by the Bank and was
sold to a third party in March 2020. The Bank is leasing back a portion of the building for its full-service branch. Under the terms
of the current lease which began on March 2, 2020, the Company is obligated to pay monthly rent of $16 thousand with an initial
lease term of ten years with two renewal options of five years each. As of June 30, 2021 and December 31, 2020, the liability
remaining under the financing lease was $1.2 million and $1.3 million, respectively.
The Company largely funded the Small Business
Administration’s Paycheck Protection Program (“PPP”) loans through the Federal Reserve’s PPP Liquidity Facility,
which allowed for 12-month advances collateralized by PPP loans at an interest rate of 0.35%. The balance of these advances was $34.2
million and $47.5 million at June 30, 2021 and December 31, 2020, respectively, and were secured by PPP loans of the same amount.
The following table sets forth information concerning
balances and interest rates on other borrowings as of and for the periods indicated:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance outstanding at end of period
|
|
$
|
35,557
|
|
|
$
|
49,006
|
|
Average amount outstanding during the period
|
|
|
43,803
|
|
|
|
61,483
|
|
Maximum amount outstanding at any month-end
|
|
|
49,917
|
|
|
|
93,709
|
|
Weighted average interest rate during the period
|
|
|
0.39
|
%
|
|
|
0.42
|
%
|
Weighted average interest rate at end of period
|
|
|
0.41
|
%
|
|
|
0.39
|
%
|
NOTE 9 - SUBORDINATED DEBENTURES
The following is a summary of the carrying values,
including unamortized issuance costs, of the Company’s subordinated debt as of the dates indicated:
|
|
As
of June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
As
of
December
31,2020
|
|
|
|
Balance
Outstanding
|
|
|
Interest
Rate
|
|
|
Interest
Reset
Date
|
|
|
Call
Date
|
|
|
Maturity
Date
|
|
|
Balance
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Junior
subordinated notes issued to County Bancorp Statutory Trust II (1)(2)
|
|
$
|
6,186
|
|
|
|
1.65
|
%
|
|
|
09/15/2021
|
|
|
|
N/A
|
|
|
|
09/15/2035
|
|
|
$
|
6,186
|
|
Junior
subordinated notes issued to County Bancorp Statutory Trust III (1)(3)
|
|
|
6,186
|
|
|
|
1.81
|
%
|
|
|
09/15/2021
|
|
|
|
N/A
|
|
|
|
06/15/2036
|
|
|
|
6,186
|
|
Junior
subordinated notes issued to Fox River Valley Capital Trust I (4)
|
|
|
3,610
|
|
|
|
6.40
|
%
|
|
|
11/30/2023
|
|
|
|
N/A
|
|
|
|
05/30/2033
|
|
|
|
3,336
|
|
5.875%
Fixed-to-Floating rate subordinated notes (5)
|
|
|
29,639
|
|
|
|
5.875
|
%
|
|
|
06/01/2023
|
|
|
|
06/01/2023
|
|
|
|
06/01/2028
|
|
|
|
29,545
|
|
7.00%
Fixed-to-Floating rate subordinated notes (6)
|
|
|
21,898
|
|
|
|
7.00
|
%
|
|
|
06/30/2025
|
|
|
|
06/30/2025
|
|
|
|
06/30/2030
|
|
|
|
21,858
|
|
Total
subordinated debentures
|
|
$
|
67,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67,111
|
|
|
(1)
|
The company formed wholly owned subsidiary business trusts County Bancorp Statutory Trust II (“Trust II”) and County Bancorp Statutory Trust III (“Trust III”) (together, the “Trusts”), which are both Delaware statutory trusts. The Company owns all of the outstanding common securities of Trust II and Trust III, which qualify as Tier 1 capital for regulatory purposes. The Trusts used the proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures (“debentures”) issued by the Company. These debentures are the Trusts’ only assets, and interest payments from these debentures finance the distributions paid on the capital securities. These debentures are unsecured, rank junior, and are subordinate in the right of payment to all senior debt of the Company.
|
|
(2)
|
The debentures issued to Trust II bear an interest rate of three-month LIBOR plus 1.53% through maturity.
|
|
(3)
|
The debentures issued to Trust III bear an interest rate of three-month LIBOR plus 1.69% through maturity.
|
|
(4)
|
In connection with the merger with Fox River Valley, the Company acquired all of the common securities of Fox River Valley’s wholly-owned subsidiary, Fox River Valley Capital Trust I, a Delaware statutory trust (the “FRV Trust I”), which qualify as Tier 1 capital for regulatory purposes. The debentures of the Company owned by FRV Trust I carry an interest rate equal to 5-year LIBOR plus 3.40%, which resets every five years.
|
|
(5)
|
The notes bear interest at a fixed rate of 5.875% per year, from and including May 30, 2018 to, but excluding, June 1, 2023. From and including June 1, 2023 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current 3-month LIBOR plus 2.88%. The notes qualify as Tier 2 capital of the Company. Debt issuance costs of $0.9 million are being amortized over the life of the notes.
|
|
(6)
|
The notes bear interest at a fixed rate of 7.00% per year, from and including June 30, 2020 to, but excluding, June 30, 2025. From and including June 30, 2025 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term secured overnight financing rate (SOFR) plus 687.5 basis points. The notes qualify as Tier 2 capital of the Company. The Company incurred $0.6 million of costs related to the issuance of the notes. These costs have been capitalized and are being amortized over the life of the notes.
|
NOTE 10 - EQUITY INCENTIVE
PLAN
Under the
Company’s 2021 Long Term Incentive Plan (the “Plan”), the Company may grant options to purchase shares of common
stock and issue restricted stock to its directors, officers, and employees. Both qualified and non-qualified stock options and restricted
stock may be granted and issued, respectively, under the Plan. As of June 30, 2021, 270,455 options or shares of restricted stock remained
available under the Plan.
The exercise
price of each option equals the market price of the Company’s stock on the date of grant and an option’s maximum term
is ten years. Vesting periods range from one to five years from the date of grant. The restricted stock vesting periods range from one
to five years from the date of issuance.
Activity in outstanding stock options for the six months ended June
30, 2021 were as follows:
|
|
June 30, 2021
|
|
|
|
Number
of
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except option and per share data)
|
|
Outstanding, beginning of year
|
|
|
249,667
|
|
|
$
|
19.75
|
|
|
|
|
|
Granted
|
|
|
6,070
|
|
|
|
24.73
|
|
|
|
|
|
Exercised
|
|
|
(24,480
|
)
|
|
|
17.91
|
|
|
|
|
|
Forfeited/expired
|
|
|
(9,177
|
)
|
|
|
20.38
|
|
|
|
|
|
Outstanding, end of period
|
|
|
222,080
|
|
|
$
|
20.06
|
|
|
$
|
3,087
|
|
Options exercisable at period-end
|
|
|
156,703
|
|
|
|
|
|
|
$
|
2,198
|
|
Weighted-average fair value of options granted during
the period (2)
|
|
|
|
|
|
$
|
8.03
|
|
|
|
|
|
(1)
|
The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on June 30, 2021. This amount changes based on changes in the market value of the Company’s stock.
|
(2)
|
The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
|
Activity in restricted stock awards and restricted stock units for
the six months ended June 30, 2021 was as follows:
|
|
June 30, 2021
|
|
|
|
Restricted Stock Awards
|
|
|
Weighted
Average Grant
Price
|
|
Outstanding, beginning of year
|
|
|
6,299
|
|
|
$
|
24.80
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(3,500
|
)
|
|
|
22.90
|
|
Forfeited/expired
|
|
|
(493
|
)
|
|
|
27.15
|
|
Outstanding, end of period
|
|
|
2,306
|
|
|
$
|
27.19
|
|
|
|
June 30, 2021
|
|
|
|
Restricted Stock Units
|
|
|
Weighted
Average Grant
Price
|
|
Outstanding, beginning of year
|
|
|
66,856
|
|
|
$
|
19.38
|
|
Granted
|
|
|
42,437
|
|
|
|
22.87
|
|
Vested
|
|
|
(17,849
|
)
|
|
|
20.27
|
|
Forfeited/expired
|
|
|
(3,332
|
)
|
|
|
18.25
|
|
Outstanding, end of period
|
|
|
88,112
|
|
|
$
|
20.92
|
|
Restricted shares vested not yet issued, end of period
|
|
|
9,779
|
|
|
|
|
|
For the three months ended June 30, 2021 and 2020,
share-based compensation expenses, including options and restricted stock awards and units, applicable to the plan was $0.2 million and
$0.3 million, respectively. For the six months ended June 30, 2021 and 2020, share-based compensation expense, including options and restricted
stock awards and units, applicable to the Plan was $0.5 million.
As of June 30, 2021, unrecognized share-based
compensation expense related to nonvested share-based compensation instruments amounted to $1.3 million and is expected to be recognized
over a weighted average period of 2.09 years.
NOTE 11 - REGULATORY MATTERS
The Company (on a consolidated basis) and Bank
are each subject to various regulatory capital requirements administered by the federal and state banking agencies. The
Basel III rules, a comprehensive capital framework for U.S. banking organizations, includes quantitative measures designed to
ensure capital adequacy. The Basel III rules designed the capital conservation buffer to absorb losses during periods of economic
stress and effectively increase the minimum required risk-weighted capital ratios. The Basel III rules require the Company and the
Bank to maintain:
|
(i)
|
Tier 1 Common Equity ratio to risk weighted assets minimum of 4.50% plus a 2.50% “capital conservation buffer” (effectively resulting in minimum Tier 1 Common Equity ratio of 7.00%);
|
|
(ii)
|
Tier 1 Capital ratio to risk weighted assets minimum of 6.00% plus the capital conservation buffer (effectively resulting in a minimum Tier 1 Capital to risk-based capital ratio of 8.50%);
|
|
(iii)
|
Total Capital ratio to risk weighted assets minimum of 8.00% plus the capital conservation buffer (effectively resulting in a minimum Total Capital to risk weighted assets ratio of 10.50%); and
|
|
(iv)
|
Tier 1 Leverage Capital ratio minimum of 4.00%.
|
Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action (applicable only to the Bank), the Company and Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank holding companies. Management believed, as of June 30, 2021 and December
31, 2020, that the Company and Bank met all capital adequacy requirements to which they were subject.
As of June 30, 2021, the most recent notification
from the banking regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There
were no conditions or events since the notification that management believes have changed the Bank’s category
The Company and Bank’s actual capital amounts and ratios are
presented in the following table:
|
|
Actual
|
|
|
Minimum
For
Capital Adequacy
Purposes
(including the capital
conservation buffer):
|
|
|
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions:
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
248,921
|
|
|
|
19.14
|
%
|
|
$
|
136,589
|
|
|
|
10.50
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
215,028
|
|
|
|
16.58
|
%
|
|
|
136,182
|
|
|
|
10.50
|
%
|
|
$
|
129,697
|
|
|
|
10.00
|
%
|
Tier 1
Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
185,917
|
|
|
|
14.29
|
%
|
|
$
|
110,572
|
|
|
|
8.50
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
203,562
|
|
|
|
15.70
|
%
|
|
|
110,243
|
|
|
|
8.50
|
%
|
|
|
103,758
|
|
|
|
8.00
|
%
|
Tier 1
Capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
185,917
|
|
|
|
12.78
|
%
|
|
|
58,177
|
|
|
|
4.00
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
203,562
|
|
|
|
13.94
|
%
|
|
|
58,399
|
|
|
|
4.00
|
%
|
|
|
72,998
|
|
|
|
5.00
|
%
|
Tier 1
Common Equity Ratio (to risk
weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
161,935
|
|
|
|
12.45
|
%
|
|
$
|
91,060
|
|
|
|
7.00
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
203,562
|
|
|
|
15.70
|
%
|
|
|
90,788
|
|
|
|
7.00
|
%
|
|
|
84,303
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
246,275
|
|
|
|
19.50
|
%
|
|
$
|
132,603
|
|
|
|
10.50
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
211,864
|
|
|
|
16.83
|
%
|
|
|
132,174
|
|
|
|
10.50
|
%
|
|
$
|
125,880
|
|
|
|
10.00
|
%
|
Tier 1
Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
180,135
|
|
|
|
14.26
|
%
|
|
|
107,345
|
|
|
|
8.50
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
197,056
|
|
|
|
15.65
|
%
|
|
|
106,998
|
|
|
|
8.50
|
%
|
|
|
100,704
|
|
|
|
8.00
|
%
|
Tier 1
Capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
180,135
|
|
|
|
13.01
|
%
|
|
|
55,403
|
|
|
|
4.00
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
197,056
|
|
|
|
14.06
|
%
|
|
|
56,047
|
|
|
|
4.00
|
%
|
|
|
70,059
|
|
|
|
5.00
|
%
|
Tier 1
Common Equity Ratio (to risk
weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
156,427
|
|
|
|
12.39
|
%
|
|
|
88,402
|
|
|
|
7.00
|
%
|
|
|
Not
applicable
|
|
|
|
|
|
Bank
|
|
|
197,056
|
|
|
|
15.65
|
%
|
|
|
88,116
|
|
|
|
7.00
|
%
|
|
|
81,822
|
|
|
|
6.50
|
%
|
NOTE 12 - FAIR
VALUE MEASUREMENTS
ASC 820-10 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most
advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction
is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that
are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are
buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.
ASC 820-10 requires the use of valuation techniques
that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other
relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The
cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants
would use in pricing the asset or liability. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market
participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable
inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1-Valuation is based on quoted prices in
active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level
1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained
from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2-Valuation is based on inputs other than
quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be
based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable
or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3-Valuation is based on unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used
by the Company in estimating the fair value disclosures for financial instruments recorded at fair value on a recurring basis:
Securities Available-for-Sale
Where quoted prices are available in an active
market, the Company classifies the securities within Level 1 of the valuation hierarchy. Securities are defined as both long and short
positions. Level 1 securities include highly liquid government bonds and exchange-traded equities.
If quoted market prices are not available, the
Company estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market
data, benchmark yields, interest rate volatilities, broker/dealer quotes and credit spreads.
Examples of such instruments, which would generally
be classified within Level 2 of the valuation hierarchy, include U.S. government and agency securities, corporate bonds and other securities.
Mortgage-backed securities are included in Level 2 if observable inputs are available. In certain cases where there is limited activity
or less transparency around inputs to the valuation, the Company classifies those securities in Level 3.
Loan Servicing Rights
The Company’s loan servicing rights do not
trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models
having significant inputs of discount rate, prepayment speed, and default rate. Due to the nature of the valuation inputs, loan servicing
rights are classified in Level 3 of the valuation hierarchy.
Derivative Instruments
The Company's derivative instruments consist of
interest rate swaps, which are accounted for as cash flow hedges. The Company's derivative positions are classified within Level 2 of
the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted
or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the
derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the
respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.
Assets and liabilities measured at fair value on a recurring basis
are summarized below:
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
-
|
|
|
$
|
12,841
|
|
|
$
|
-
|
|
|
$
|
12,841
|
|
Municipal securities
|
|
|
-
|
|
|
|
130,004
|
|
|
|
-
|
|
|
|
130,004
|
|
Mortgage-backed securities
|
|
|
-
|
|
|
|
145,054
|
|
|
|
-
|
|
|
|
145,054
|
|
Corporate bonds
|
|
|
-
|
|
|
|
45,049
|
|
|
|
-
|
|
|
|
45,049
|
|
Asset-backed securities
|
|
|
-
|
|
|
|
16,386
|
|
|
|
-
|
|
|
|
16,386
|
|
Loan servicing rights (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
19,478
|
|
|
|
19,478
|
|
Total assets at fair value
|
|
$
|
-
|
|
|
$
|
349,334
|
|
|
$
|
19,478
|
|
|
$
|
368,812
|
|
Derivative instruments, interest rate swaps
|
|
|
-
|
|
|
|
1,360
|
|
|
|
-
|
|
|
|
1,360
|
|
Total liabilities at fair value
|
|
$
|
-
|
|
|
$
|
1,360
|
|
|
$
|
-
|
|
|
$
|
1,360
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
-
|
|
|
$
|
14,593
|
|
|
$
|
-
|
|
|
$
|
14,593
|
|
Municipal securities
|
|
|
-
|
|
|
|
153,654
|
|
|
|
-
|
|
|
|
153,654
|
|
Mortgage-backed securities
|
|
|
-
|
|
|
|
135,378
|
|
|
|
-
|
|
|
|
135,378
|
|
Corporate bonds
|
|
|
-
|
|
|
|
32,511
|
|
|
|
-
|
|
|
|
32,511
|
|
Asset-backed securities
|
|
|
-
|
|
|
|
16,718
|
|
|
|
-
|
|
|
|
16,718
|
|
Loan servicing rights (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
18,396
|
|
|
|
18,396
|
|
Total assets at fair value
|
|
$
|
-
|
|
|
$
|
352,854
|
|
|
$
|
18,396
|
|
|
$
|
371,250
|
|
Derivative instruments, interest rate swaps
|
|
|
-
|
|
|
|
1,914
|
|
|
|
-
|
|
|
|
1,914
|
|
Total liabilities at fair value
|
|
$
|
-
|
|
|
$
|
1,914
|
|
|
$
|
-
|
|
|
$
|
1,914
|
|
|
(1)
|
See Note 6 for quantitative information on the significant inputs and a rollforward of activity related to the loan servicing rights.
|
Certain assets are measured at fair value on a
nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence
of impairment). The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level
in the fair value hierarchy for which a nonrecurring change in fair value has been recorded:
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,486
|
|
Other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
914
|
|
Total assets at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32,400
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
46,521
|
|
Other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
1,077
|
|
Total assets at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,598
|
|
The significant inputs used in the fair value
measurements for Level 3 assets measured at fair value on a nonrecurring basis were as follows:
|
|
June 30, 2021
|
|
|
Valuation
Techniques
|
|
Unobservable
Inputs
|
|
Range
(Average)
|
Impaired loans
|
|
Evaluation of collateral
|
|
Estimation of value
|
|
NM*
|
Other real estate owned
|
|
Appraisal
|
|
Appraisal adjustment
|
|
6%-7% (7%)
|
|
|
December 31, 2020
|
|
|
Valuation
Techniques
|
|
Unobservable
Inputs
|
|
Range
(Average)
|
Impaired loans
|
|
Evaluation of collateral
|
|
Estimation of value
|
|
NM*
|
Other real estate owned
|
|
Appraisal
|
|
Appraisal adjustment
|
|
6%-9% (7%)
|
*
|
Not Meaningful. Evaluations of the underlying assets are completed for each impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivable, inventory, a variety of equipment, and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered include aging of receivables, condition of the collateral, potential market for the collateral, and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful.
|
The estimated fair values, and related carrying or notional amounts,
of the Company’s financial instruments were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Input
Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
72,329
|
|
|
$
|
72,329
|
|
|
$
|
19,084
|
|
|
$
|
19,084
|
|
|
|
1
|
|
Interest
earning cash at other financial institutions
|
|
|
416
|
|
|
|
416
|
|
|
|
416
|
|
|
|
416
|
|
|
|
1
|
|
FHLB Stock
|
|
|
5,485
|
|
|
|
5,485
|
|
|
|
5,758
|
|
|
|
5,758
|
|
|
|
2
|
|
Securities
available for sale
|
|
|
349,334
|
|
|
|
349,334
|
|
|
|
352,854
|
|
|
|
352,854
|
|
|
|
2
|
|
Loans, net
of allowance for loan losses
|
|
|
990,424
|
|
|
|
1,002,823
|
|
|
|
981,477
|
|
|
|
991,342
|
|
|
|
3
|
|
Loans held
for sale
|
|
|
15,805
|
|
|
|
15,805
|
|
|
|
35,976
|
|
|
|
35,976
|
|
|
|
3
|
|
Accrued
interest receivable
|
|
|
4,511
|
|
|
|
4,511
|
|
|
|
3,240
|
|
|
|
3,240
|
|
|
|
2
|
|
Loan servicing
rights
|
|
|
19,478
|
|
|
|
19,478
|
|
|
|
18,396
|
|
|
|
18,396
|
|
|
|
3
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
|
|
|
437,121
|
|
|
|
429,991
|
|
|
|
419,542
|
|
|
|
426,092
|
|
|
|
2
|
|
Other deposits
|
|
|
698,605
|
|
|
|
698,605
|
|
|
|
621,284
|
|
|
|
621,284
|
|
|
|
1
|
|
Other borrowings
|
|
|
35,557
|
|
|
|
35,557
|
|
|
|
49,006
|
|
|
|
49,006
|
|
|
|
3
|
|
Advances
from FHLB
|
|
|
88,000
|
|
|
|
88,907
|
|
|
|
129,000
|
|
|
|
130,361
|
|
|
|
2
|
|
Subordinated
debentures
|
|
|
67,519
|
|
|
|
66,435
|
|
|
|
67,111
|
|
|
|
67,111
|
|
|
|
3
|
|
Accrued
interest payable
|
|
|
1,408
|
|
|
|
1,408
|
|
|
|
2,496
|
|
|
|
2,496
|
|
|
|
2
|
|
Derivative
instruments, interest rate swaps
|
|
|
1,360
|
|
|
|
1,360
|
|
|
|
1,914
|
|
|
|
1,914
|
|
|
|
2
|
|
NOTE 13 - OTHER
REAL ESTATE OWNED
Changes in other real estate
owned were as follows:
|
|
For the Three Months
Ended
|
|
|
For the Six Months
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance, beginning
of period
|
|
$
|
739
|
|
|
$
|
3,247
|
|
|
$
|
1,077
|
|
|
$
|
5,521
|
|
Assets foreclosed
|
|
|
360
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
Write-down
of other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,360
|
)
|
Net loss
on sales of other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
(4
|
)
|
Proceeds
from sale of other real estate owned
|
|
|
(185
|
)
|
|
|
(618
|
)
|
|
|
(506
|
)
|
|
|
(1,528
|
)
|
Balance,
end of period
|
|
$
|
914
|
|
|
$
|
2,629
|
|
|
$
|
914
|
|
|
$
|
2,629
|
|
Expenses applicable to other
real estate owned included in non-interest expense included the following:
|
|
For the Three Months
Ended
|
|
|
For the Six Months
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net
loss on sales of other real estate owned
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(17
|
)
|
|
$
|
(4
|
)
|
Write-down
of other real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,360
|
)
|
Operating
expenses, net of rental income
|
|
|
(52
|
)
|
|
|
(50
|
)
|
|
|
(71
|
)
|
|
|
(166
|
)
|
|
|
$
|
(52
|
)
|
|
$
|
(50
|
)
|
|
$
|
(88
|
)
|
|
$
|
(1,530
|
)
|
NOTE
14 - DERIVATIVE FINANCIAL INSTRUMENTS
On June 15, 2018, the Company executed an interest
rate swap to manage interest rate risk on two sets of its trust preferred securities. This derivative contract involves the receipt of
floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without
the exchange of the underlying notional value. This instrument is designated as a cash flow hedge as the receipt of floating rate interest
from the counterparty is used to manage interest rate risk associated with three-month LIBOR advances. The change in the fair value of
this hedging instrument is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period
that the hedged transaction affects earnings.
The Company had two outstanding interest rate
swaps designated as a cash flow hedge each with an aggregate notional value of $6.0 million at June 30, 2021 and December 31, 2020. Both
interest rate swaps mature on June 15, 2028. A pre-tax unrealized gain of $0.6 million was recognized in accumulated other comprehensive
income for the six months ended June 30, 2021, and a pre-tax loss of $1.3 million was recognized in accumulated other comprehensive income
for the six months ended June 30, 2020. There was no ineffective portion of this hedge.
The Company is exposed to credit risk in the event
of nonperformance by the interest rate swaps counterparty. The Company minimizes this risk by entering into derivative contracts with
only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance
on the interest rate swaps. The Company monitors counterparty risk in accordance with the provisions of FASB ASC 815. In addition, the
interest rate swap agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted
when the market value exceeds certain threshold limits. Derivative contracts are executed with a Credit Support Annex, which is a bilateral
ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests
of the Company and its counterparties should either party suffer a credit rating deterioration. The Company was required to pledge $2.4
million of cash as collateral to the counterparty as of June 30, 2021.
NOTE
15 - SUBSEQUENT EVENTS
Management evaluated subsequent events through
the date the financial statements were issued.
There were no other significant events or transactions
occurring after June 30, 2021, but prior to August 6, 2021, that provided additional evidence about conditions that existed at June 30,
2021.
APPENDIX A
INDEX TO COUNTY BANCORP, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2020
APPENDIX A
COUNTY BANCORP, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2020
Report of Independent Registered Public Accounting
Firm
To the Stockholders and Board of Directors
County Bancorp, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheets of County Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019; the related consolidated
statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period
ended December 31, 2020; and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December
31, 2020 and 2019 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31,
2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements,
the Company has elected to change its method of accounting for the subsequent measurement of loan servicing rights from the amortized
cost method to fair value as of January 1, 2020.
Basis for Opinion
The Company's management is responsible for these
financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion under Section
404(b) of the Sarbanes-Oxley Act.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is
a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the
audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses – Qualitative
Factors – Refer to Notes 1 and 4 to the Financial Statements
Critical Audit Matter Description
The allowance for loan losses (allowance) is an
estimate of credit losses inherent in the Company’s loan portfolio. The allowance consists of two primary components, general reserves
and specific reserves related to impaired loans. The general component covers non-impaired loans and is based on historical losses adjusted
for current factors. The historical loss experience is determined by portfolio segment and is based on a weighted average of the actual
loss history experienced by the Company over the most recent four years. The Company places more emphasis, or weight, on the more current
quarters in the loss history period. This actual loss experience is adjusted for qualitative factors based on the risks present within
each portfolio segment including adjustments for levels of classified loans, credit concentrations, and economic trends. These
factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment. During 2020,
the Company added an additional qualitative factor for loans in industries for which it anticipated to be more significantly impacted
by COVID-19. These qualitative factors are inherently subjective and are driven by the assessed repayment risk associated with
each portfolio segment.
Auditing management’s determination of general
reserves within its allowance involved a high degree of subjectivity and judgement in the selection and measurement of the qualitative
factors.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures related to the qualitative
factors with the allowance included the following, among others:
|
·
|
We obtained an understanding of management’s process for determining the need for qualitative factor adjustments, identifying appropriate factors, and measuring the direction and magnitude of the adjustment.
|
|
·
|
We evaluated the design of controls over the application of management’s qualitative factor methodology in the estimate of general reserves.
|
|
·
|
We evaluated management's rationale for determining qualitative adjustments was relevant and warranted for each loan segment and assessed the measurement of qualitative factor adjustments applied by management.
|
|
·
|
Where applicable, we tested the accuracy and completeness of data used by management in the measurement of qualitative factor adjustments or vouched factors to relevant external data sources.
|
|
·
|
We assessed changes in qualitative factors year-over-year against overall trends in credit quality within the Company and broader trends within the industry and local and national economies to evaluate reasonableness of management’s qualitative factor adjustments.
|
/s/ Plante & Moran, PLLC
We have served as the Company’s auditor
since 2018.
Chicago, Illinois
March 12, 2021
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2020 and 2019
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except per share data)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,084
|
|
|
$
|
108,457
|
|
Interest earning cash at other financial institutions
|
|
|
416
|
|
|
|
20,554
|
|
Securities available for sale, at fair value
|
|
|
352,854
|
|
|
|
158,733
|
|
FHLB Stock
|
|
|
5,758
|
|
|
|
1,628
|
|
Loans held for sale
|
|
|
35,976
|
|
|
|
2,151
|
|
Loans, net of allowance for loan losses of $14,808 as of
December 31, 2020; $15,267 as of December 31, 2019
|
|
|
981,477
|
|
|
|
1,020,506
|
|
Premises and equipment, net
|
|
|
14,898
|
|
|
|
13,603
|
|
Loan servicing rights
|
|
|
18,396
|
|
|
|
12,509
|
|
Other real estate owned, net
|
|
|
1,077
|
|
|
|
5,521
|
|
Cash surrender value of bank owned life insurance
|
|
|
31,275
|
|
|
|
18,302
|
|
Deferred tax asset, net
|
|
|
—
|
|
|
|
1,453
|
|
Goodwill
|
|
|
—
|
|
|
|
5,038
|
|
Core deposit intangible, net
|
|
|
54
|
|
|
|
225
|
|
Accrued interest receivable and other assets
|
|
|
11,093
|
|
|
|
10,099
|
|
Total assets
|
|
$
|
1,472,358
|
|
|
$
|
1,378,779
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
163,202
|
|
|
$
|
138,489
|
|
Interest-bearing
|
|
|
877,624
|
|
|
|
962,953
|
|
Total deposits
|
|
|
1,040,826
|
|
|
|
1,101,442
|
|
Other borrowings
|
|
|
49,006
|
|
|
|
794
|
|
Advances from FHLB
|
|
|
129,000
|
|
|
|
44,400
|
|
Subordinated debentures, net
|
|
|
67,111
|
|
|
|
44,858
|
|
Deferred tax liability, net
|
|
|
2,302
|
|
|
|
—
|
|
Accrued interest payable and other liabilities
|
|
|
12,337
|
|
|
|
15,256
|
|
Total liabilities
|
|
|
1,300,582
|
|
|
|
1,206,750
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock - $1,000 stated value; 15,000 shares authorized; 8,000 shares issued
|
|
|
8,000
|
|
|
|
8,000
|
|
Common stock - $0.01 par value; 50,000,000 authorized; 7,212,727 shares issued and 6,197,965 shares outstanding as of December 31, 2020; 7,178,052 shares issued and 6,734,132 shares outstanding as of December 31, 2019
|
|
|
29
|
|
|
|
28
|
|
Surplus
|
|
|
55,346
|
|
|
|
54,122
|
|
Retained earnings
|
|
|
118,712
|
|
|
|
113,111
|
|
Treasury stock, at cost, 1,014,762 and
443,920 shares at December 31, 2020 and 2019, respectively
|
|
|
(17,606
|
)
|
|
|
(5,030
|
)
|
Accumulated other comprehensive gain
|
|
|
7,295
|
|
|
|
1,798
|
|
Total shareholders' equity
|
|
|
171,776
|
|
|
|
172,029
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,472,358
|
|
|
$
|
1,378,779
|
|
See accompanying notes to the consolidated financial
statements
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2020 and 2019
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except per share data)
|
|
INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
48,906
|
|
|
$
|
59,706
|
|
Taxable securities
|
|
|
5,550
|
|
|
|
4,586
|
|
Tax-exempt securities
|
|
|
536
|
|
|
|
257
|
|
Federal funds sold and other
|
|
|
483
|
|
|
|
1,783
|
|
Total interest and dividend income
|
|
|
55,475
|
|
|
|
66,332
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
13,463
|
|
|
|
21,457
|
|
FHLB advances and other borrowings
|
|
|
1,405
|
|
|
|
1,350
|
|
Subordinated debentures
|
|
|
3,631
|
|
|
|
2,743
|
|
Total interest expense
|
|
|
18,499
|
|
|
|
25,550
|
|
Net interest income
|
|
|
36,976
|
|
|
|
40,782
|
|
Provision for loan losses
|
|
|
2,984
|
|
|
|
423
|
|
Net interest income after provision for loan losses
|
|
|
33,992
|
|
|
|
40,359
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
Services charges
|
|
|
469
|
|
|
|
550
|
|
Crop insurance commission
|
|
|
1,245
|
|
|
|
1,107
|
|
Gain on sale of loans, net
|
|
|
278
|
|
|
|
146
|
|
Loan servicing fees
|
|
|
10,255
|
|
|
|
9,998
|
|
Gain on sale of securities
|
|
|
671
|
|
|
|
341
|
|
Other
|
|
|
1,332
|
|
|
|
1,251
|
|
Total non-interest income
|
|
|
14,250
|
|
|
|
13,393
|
|
NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
21,306
|
|
|
|
19,112
|
|
Occupancy
|
|
|
1,277
|
|
|
|
1,402
|
|
Information processing
|
|
|
2,630
|
|
|
|
2,482
|
|
Professional fees
|
|
|
2,019
|
|
|
|
1,670
|
|
Depreciation and amortization
|
|
|
1,188
|
|
|
|
1,303
|
|
Writedown of other real estate owned
|
|
|
1,508
|
|
|
|
626
|
|
Cost of operation of other real estate owned, net
|
|
|
(86
|
)
|
|
|
873
|
|
Goodwill impairment
|
|
|
5,038
|
|
|
|
—
|
|
Investment tax credit impairment
|
|
|
—
|
|
|
|
1,149
|
|
Other
|
|
|
4,765
|
|
|
|
4,067
|
|
Total non-interest expense
|
|
|
39,645
|
|
|
|
32,684
|
|
Income before income taxes
|
|
|
8,597
|
|
|
|
21,068
|
|
Income tax expense
|
|
|
3,118
|
|
|
|
4,616
|
|
NET INCOME
|
|
$
|
5,479
|
|
|
$
|
16,452
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.79
|
|
|
$
|
2.37
|
|
Diluted
|
|
$
|
0.79
|
|
|
$
|
2.36
|
|
Dividends paid per share
|
|
$
|
0.31
|
|
|
$
|
0.20
|
|
See accompanying notes to the consolidated financial
statements
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2020 and 2019
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
5,479
|
|
|
$
|
16,452
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available-for-sale
|
|
|
9,167
|
|
|
|
6,835
|
|
Income tax expense
|
|
|
(2,498
|
)
|
|
|
(1,861
|
)
|
Reclassification for realized gains on securities
|
|
|
(671
|
)
|
|
|
(341
|
)
|
Income tax (benefit)
|
|
|
183
|
|
|
|
93
|
|
Total other comprehensive income on securities available-for-sale
|
|
|
6,181
|
|
|
|
4,726
|
|
Unrealized loss on derivatives arising during the period
|
|
|
(940
|
)
|
|
|
(793
|
)
|
Income tax benefit
|
|
|
256
|
|
|
|
216
|
|
Total other comprehensive loss on derivatives
|
|
|
(684
|
)
|
|
|
(577
|
)
|
Total other comprehensive income
|
|
|
5,497
|
|
|
|
4,149
|
|
Comprehensive income
|
|
$
|
10,976
|
|
|
$
|
20,601
|
|
See accompanying notes to the consolidated financial
statements
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
Years Ended December 31, 2020 and 2019
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance at December 31, 2018
|
|
$
|
8,000
|
|
|
$
|
28
|
|
|
$
|
53,162
|
|
|
$
|
98,475
|
|
|
$
|
(5,030
|
)
|
|
$
|
(2,351
|
)
|
|
$
|
152,284
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,452
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,452
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,149
|
|
|
|
4,149
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
695
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
695
|
|
Cash dividends declared on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,344
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,344
|
)
|
Cash dividends declared on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(472
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(472
|
)
|
Issuance of common stock (21,224 shares)
|
|
|
—
|
|
|
|
—
|
|
|
|
265
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
265
|
|
Balance at December 31, 2019
|
|
$
|
8,000
|
|
|
$
|
28
|
|
|
$
|
54,122
|
|
|
$
|
113,111
|
|
|
$
|
(5,030
|
)
|
|
$
|
1,798
|
|
|
$
|
172,029
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
2,484
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,479
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,479
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,497
|
|
|
|
5,497
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
867
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
867
|
|
Cash dividends declared on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,994
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,994
|
)
|
Cash dividends declared on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(368
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(368
|
)
|
Treasury stock purchases (570,842 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,576
|
)
|
|
|
|
|
|
|
(12,576
|
)
|
Issuance of common stock (34,675 shares)
|
|
|
—
|
|
|
|
1
|
|
|
|
357
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
358
|
|
Balance at December 31, 2020
|
|
$
|
8,000
|
|
|
$
|
29
|
|
|
$
|
55,346
|
|
|
$
|
118,712
|
|
|
$
|
(17,606
|
)
|
|
$
|
7,295
|
|
|
$
|
171,776
|
|
See accompanying notes to the consolidated financial
statements
COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2020 and 2019
|
|
2020
|
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,479
|
|
|
$
|
16,452
|
|
Adjustments to reconcile net income to cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment
|
|
|
1,335
|
|
|
|
1,391
|
|
Amortization of core deposit intangible
|
|
|
171
|
|
|
|
288
|
|
Amortization of subordinated debenture costs
|
|
|
449
|
|
|
|
155
|
|
Impairment of goodwill
|
|
|
5,038
|
|
|
|
—
|
|
Provision for loan losses
|
|
|
2,984
|
|
|
|
423
|
|
Realized gain on sales of securities available for sale
|
|
|
(671
|
)
|
|
|
(341
|
)
|
Realized gain on sales of other real estate owned
|
|
|
(313
|
)
|
|
|
(40
|
)
|
Write-down of other real estate owned
|
|
|
1,508
|
|
|
|
626
|
|
Realized loss (gain) on sales of premises and equipment
|
|
|
243
|
|
|
|
(6
|
)
|
Increase in cash surrender value of bank owned life insurance
|
|
|
(729
|
)
|
|
|
(460
|
)
|
Deferred income tax expense
|
|
|
1,700
|
|
|
|
1,401
|
|
Stock compensation expense
|
|
|
867
|
|
|
|
695
|
|
Net amortization of premiums paid on securities
|
|
|
1,042
|
|
|
|
441
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable and other assets
|
|
|
(2,166
|
)
|
|
|
(405
|
)
|
Loans held for sale
|
|
|
(33,825
|
)
|
|
|
798
|
|
Loan servicing rights
|
|
|
(3,403
|
)
|
|
|
(3,462
|
)
|
Accrued interest payable and other liabilities
|
|
|
(3,861
|
)
|
|
|
3,997
|
|
Net cash (used in) provided by operating activities
|
|
|
(24,152
|
)
|
|
|
21,953
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from maturities, principal repayments, and call of securities available for sale
|
|
|
25,693
|
|
|
|
24,368
|
|
Purchases of securities available for sale
|
|
|
(247,155
|
)
|
|
|
(10,122
|
)
|
Proceeds from sales of securities available-for-sale
|
|
|
35,466
|
|
|
|
29,361
|
|
Net (purchases) redemptions of FHLB stock
|
|
|
(4,130
|
)
|
|
|
1,184
|
|
Purchases of bank owned life insurance
|
|
|
(12,244
|
)
|
|
|
—
|
|
Loan originations and principal collections, net
|
|
|
35,277
|
|
|
|
163,546
|
|
Proceeds from sales of premises and equipment
|
|
|
1,508
|
|
|
|
6
|
|
Purchases of premises and equipment
|
|
|
(3,211
|
)
|
|
|
(659
|
)
|
Proceeds from sales of other real estate owned
|
|
|
4,017
|
|
|
|
6,776
|
|
Net cash (used in) provided by investing activities
|
|
|
(164,779
|
)
|
|
|
214,460
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net increase in demand and savings deposits
|
|
|
265,648
|
|
|
|
52,491
|
|
Net decrease in certificates of deposits
|
|
|
(326,264
|
)
|
|
|
(174,396
|
)
|
Proceeds from other borrowings
|
|
|
101,120
|
|
|
|
—
|
|
Repayment of other borrowings
|
|
|
(52,908
|
)
|
|
|
(33
|
)
|
Proceeds from FHLB advances
|
|
|
627,000
|
|
|
|
115,000
|
|
Repayment of FHLB advances
|
|
|
(542,400
|
)
|
|
|
(160,000
|
)
|
Payments to acquire treasury stock
|
|
|
(12,576
|
)
|
|
|
—
|
|
Proceeds from issuance of subordinated debt
|
|
|
22,400
|
|
|
|
—
|
|
Issuance cost of subordinated debt
|
|
|
(596
|
)
|
|
|
—
|
|
Proceeds from issuance of common stock
|
|
|
358
|
|
|
|
265
|
|
Dividends paid on preferred stock
|
|
|
(368
|
)
|
|
|
(472
|
)
|
Dividends paid on common stock
|
|
|
(1,994
|
)
|
|
|
(1,344
|
)
|
Net cash provided by (used in) financing activities
|
|
|
79,420
|
|
|
|
(168,489
|
)
|
Net change in cash and cash equivalents
|
|
|
(109,511
|
)
|
|
|
67,924
|
|
Cash and cash equivalents, beginning of period
|
|
|
129,011
|
|
|
|
61,087
|
|
Cash and cash equivalents, end of period
|
|
$
|
19,500
|
|
|
$
|
129,011
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
21,735
|
|
|
$
|
23,833
|
|
Income taxes
|
|
|
2,950
|
|
|
|
1,725
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
Transfer of assets held for sale from premises and equipment to other assets
|
|
$
|
695
|
|
|
$
|
1,500
|
|
Transfer from loans to other real estate owned
|
|
|
768
|
|
|
|
6,315
|
|
See accompanying notes to the consolidated financial
statements
COUNTY BANCORP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accounting and reporting policies of County
Bancorp, Inc. and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”)
and to general practice within the banking industry. The following is a description of the more significant of those policies.
Nature of Business and Significant Concentrations of Credit Risk
The Company is the sole shareholder of Investors
Community Bank. The Bank is the sole member of Investors Insurance Services, LLC and ABS 1, LLC, which are both Wisconsin limited liability
companies. The Company commenced operations in May 1996; the Bank commenced operations in March 1997. In July 2010, the Bank formed Investors
Insurance Services, LLC for the sole purpose of protecting the Bank from liability risk when selling crop insurance. Selling crop insurance
had historically been a business function performed within the Bank. In August 2011, the Bank formed ABS 1, LLC for the sole purpose of
holding real estate and personal property for sale which was obtained through repossession.
The Bank provides a full range of banking and
related financial services, which include real estate lending, business services, and agricultural finance, to individual and corporate
customers primarily located within the state of Wisconsin. The Bank’s primary source of revenue is providing loans to customers,
the majority of which are predominantly engaged in dairy farming and commercial activities. Its primary deposit products are savings and
term certificate accounts. The Bank is subject to competition from other financial institutions and is regulated by federal and state
banking agencies and undergoes periodic examinations by those agencies.
Agricultural loans, including agricultural operating,
real estate and construction loans, represented 60.9% and 63.7% of our total loan portfolio at December 31, 2020 and 2019, respectively.
Commercial real estate loans, including commercial construction loans, represented 23.7% and 22.8% of our total loan portfolio at December 31,
2020 and 2019, respectively.
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. The Company also has three wholly owned subsidiaries, County
Bancorp Statutory Trust II, County Bancorp Statutory Trust III, and Fox River Valley Capital Trust I, that are Delaware statutory trusts
which have not been consolidated in accordance with accounting guidance related to variable interest entities.
Use of Estimates in Preparing Financial Statements
The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting periods. Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, and the valuation of investment securities available for sale, loan
servicing rights, other real estate owned, financial instruments, and deferred tax assets (liabilities). Actual results could differ from
those estimates.
Cash and Cash Equivalents
For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and balances due from banks and federal funds sold, all of which mature within 90 days.
In the normal course of business, the Company
maintains balances with correspondent banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up
to specified limits. Management believes these financial institutions have strong credit ratings and the credit risk related to these
deposits is minimal.
Securities Available for Sale
Available for sale securities are carried at fair
value with unrealized gains and losses excluded from earnings and reported separately in other comprehensive income. The Company currently
has no securities designated as trading or held-to-maturity. Interest income is recognized at the coupon rate adjusted for amortization
and accretion of premiums and discounts. Discounts are accreted into interest income over the estimated life of the related security and
premiums are amortized against income to the earlier of the call date or weighted average life of the related security using the interest
method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification
method. They are included in non-interest income or expense and, when applicable, are reported as a reclassification adjustment in other
comprehensive income.
Declines in the fair value of individual available
for sale securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value.
The Company monitors the investment security portfolio for impairment on an individual security basis and has a process in place to identify
securities that could potentially have a credit impairment that is other than temporary. This process involves analyzing the length of
time and the extent to which the fair value has been less than the amortized cost basis, the market liquidity for the security, the financial
condition and near-term prospects of the issuer, expected cash flows, and the Company’s intent and ability to hold the investment
for a period of time sufficient to recover the temporary impairment. A decline in value due to a credit event that is considered other
than temporary is recorded as a loss in non-interest income.
Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan
Bank of Chicago (“FHLB”), is required to maintain an investment in the capital stock of the FHLB based on the level of borrowings
and other factors, and may invest additional amounts. Based on the redemption provisions of the FHLB, the stock has no quoted market value
and is carried at cost which approximates fair value. It is periodically evaluated by management for impairment. Because it is viewed
as a long term investment, impairment is based on ultimate recovery of par value. Both stock and cash dividends are reported as income.
Loans Held for Sale
Loans intended for sale in the secondary market
are carried at the lower of cost or fair value. Gains and losses on loan sales (sale proceeds minus carrying value) are recorded in non-interest
income, and direct loan origination costs and fees deferred at origination of the loan are recognized in non-interest income upon sale
of the loan.
Loans
Loans that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances adjusted for
unearned income and the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees,
non-refundable fees and direct loan origination costs are amortized over the life of the loan and accounted for as an adjustment of yield
of the related loan categories.
The accrual of interest on mortgage and commercial
loans is discontinued at the time the principal and interest is 90 days delinquent unless the credit is well-secured and in the process
of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off
at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for
loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on nonaccrual loans is applied
to reduce the principal balance outstanding. Once the loans qualify for a return to accrual status, the interest is
accounted for on a cash-basis. Loans are returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses (hereinafter referred
to as “allowance”) is an estimate of loan losses inherent in the Company’s loan portfolio. The allowance is established
through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the
total allowance after loan losses and loan growth. Loan losses are charged off against the allowance when the Company determines the loan
balance to be uncollectible. Cash received on previously charged off amounts is recorded as a recovery to the allowance.
The allowance consists of two primary components,
general reserves and specific reserves related to impaired loans. The general component covers non-impaired loans and is based on historical
losses adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on a weighted average
of the actual loss history experienced by the Company over the most recent four years. The Company places more emphasis, or weight, on
the more current quarters in the loss history period. This actual loss experience is adjusted for qualitative factors based on the risks
present within each portfolio segment including adjustments for levels of classified loans, credit concentrations, and economic trends. These
factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment. During 2020,
the Company provided for additional reserves for loans in industries deemed to be high risk to account for additional losses driven by
COVID-19 that have not yet been specifically identified.
A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount
of the shortfall in relation to the principal and interest owed. Impairment is generally measured on a loan-by-loan basis by either the
present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral
if the loan is collateral dependent.
Under certain circumstances, the Company will
provide borrowers relief through loan restructurings. A restructuring of debt constitutes a troubled debt restructuring (“TDR”)
if the Company for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower
that it would not otherwise consider. Restructured loans typically present an elevated level of credit risk as the borrowers are not able
to perform according to the original contractual terms. Loans that are reported as TDRs are considered impaired and measured for impairment
as described above. TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal or
interest due, or acceptance of other assets in full or partial satisfaction of the debt. Restructured loans can involve loans remaining
on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower.
Nonaccrual restructured loans are included and treated with other nonaccrual loans. On March 22, 2020, issued a revision to
the Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the COVID-19 pandemic. The
Statement provides guidance on handling payment modification requests for impacted borrowers without triggering TDR classifications, by
allowing up to 6-months of payment deferrals or interest only to assist our customers during that time. During 2020, we processed
184 customer payment modification for loans totaling $200.4 million, and at December 31, 2020, 24 customers remained on payment relief
with loan balances totaling $16.8 million.
Large groups of small balance homogeneous loans
are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans
for credit quality disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The Company maintains separate general reserves
for each portfolio segment. These portfolio segments include agricultural, commercial, commercial real estate, residential real estate,
and installment and consumer other with risk characteristics described as follows:
Agricultural: Agricultural loans generally
possess a lower inherent risk of loss than real estate portfolio segments because these loans are generally underwritten to existing cash
flows of operating businesses. Debt coverage is provided by business cash flows. Adverse economic conditions and trends influenced
by Class III milk prices and other key economic indicators are closely correlated to the credit quality of these loans.
Commercial Real Estate: Commercial real
estate loans, including land and construction, generally possess a higher inherent risk of loss than other real estate portfolio segments.
Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in
vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the
ability of the properties to produce sufficient cash flow to service debt obligations.
Commercial: Commercial loans generally
possess a lower inherent risk of loss than real estate portfolio segments because these loans are generally underwritten to existing cash
flows of operating businesses. Debt coverage is provided by business cash flows, and economic trends influenced by unemployment rates
and other key economic indicators are closely correlated to the credit quality of these loans.
Residential Real Estate: The degree of
risk in residential mortgage and home equity lending depends primarily on the loan amount in relation to collateral value, the interest
rate and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of loss than
other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated
to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may
be deteriorating.
Installment and Consumer Other: The installment
and consumer other loan portfolio is usually comprised of a large number of small loans. Most loans are made directly for consumer purchases.
Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these
loans. Weak economic trends indicate the borrowers’ capacity to repay their obligations may be deteriorating.
Bank Premises and Equipment
Land is carried at cost. Bank premises and equipment
are carried at cost, less accumulated depreciation. Depreciation is computed on the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the accounts, and any recognized gain or loss is reflected
in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and improvements
are capitalized, and a deduction is made from the property accounts for retirements of capitalized renewals or improvements.
Off-Balance Sheet Credit-Related Financial Instruments
In the ordinary course of business, the Company
has entered into commitments to extend credit, including commitments under credit arrangements, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded when they are funded.
Loan Servicing Rights
As discussed in Note 1, the Company changed its
method of accounting form loan servicing rights to fair market value effective January 1, 2020. Servicing assets are recognized
as separate assets when rights are acquired through the sale of financial assets. Servicing rights resulting from the sale
or securitization of loans originated by the Company are initially measured at fair value at the date of transfer.
Fair value is based on a discounted cash flow
model. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income,
such as the cost to service, the discount rate, the runoff rate, and ancillary income.
Servicing fee income is recorded for fees earned
for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned.
Prior to January 1, 2020, The Company subsequently
measured each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in
proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation
based on fair value at each reporting date.
Impairment is determined by stratifying rights
into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through
a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets
for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measure of
the impairment.
Under the amortized cost method, changes in the
valuation allowances are reported with loan servicing fees on the income statement. Fair value in excess of the carrying amount of servicing
assets for that stratum is not recognized. The amortization of loan servicing rights is netted against loan servicing fee income.
Other Real Estate Owned
Land and assets acquired through, or in lieu of,
loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure less estimated costs to sell, establishing
a new cost basis with any loss on transfer recorded as a charge against the allowance for loan losses. Subsequent to foreclosure, valuations
are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs
to sell. Revenue and expenses from operations and changes in the valuation allowance are included in non-interest expense.
Impairment losses on assets to be held and used
are measured at the amount by which the carrying amount of a property exceeds its fair value. The evaluation of impairment is inherently
subjective and requires estimates that are susceptible to significant revisions as more information becomes available. Due to potential
changes in conditions, it is at least reasonably possible that changes in fair values will occur in the near term and that such changes
could materially affect the amounts reported in the Company’s financial statements. Costs of significant asset improvements are
capitalized, whereas costs relating to holding assets are expensed. Revenue and expenses from operations and changes in the valuation
allowance are included in non-interest expense.
Cash Surrender Value of Bank Owned Life Insurance
The Company has purchased life insurance policies
on certain key executives. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized, if lower.
Goodwill and Core Deposit Intangible
Goodwill represents the excess of the purchase
price over the fair value of the net identifiable assets acquired and is included as an asset on the balance sheets. Goodwill is not amortized
but is subject to impairment tests on at least an annual basis. Core deposit intangible represents the value of the acquired customer
core deposit bases and is included as an asset on the consolidated balance sheets. The core deposit intangible has an estimated finite
life, is amortized on an accelerated basis over a 66-month period and is subject to periodic impairment evaluation.
Management will periodically review the carrying
value of its long-lived and intangible assets to determine if any impairment has occurred or whether changes in circumstances have occurred
that would require a revision to the remaining useful life, in which case an impairment charge would be recorded as an expense in the
period of impairment. In making such determination, management evaluates whether there are any adverse qualitative factors indicating
that an impairment may exist, as well as the performance, on an undiscounted basis, of the underlying operations or assets which give
rise to the intangible.
Income Taxes
The income tax accounting guidance results
in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for
the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.
The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes
in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the
technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood
of more than 50%; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.
A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount
of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge
of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold
considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred
tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion
or all of the deferred tax asset will not be realized. As of December 31, 2020 and 2019, there was no valuation allowance.
The Company files income taxes returns in the
U.S. federal jurisdiction and in the state of Wisconsin. The Company is no longer subject to U.S. federal or state income tax examinations
by tax authorities for years before 2017.
The Company recognizes interest and penalties
on income taxes, if any, as a component of other non-interest expense.
The Company accounts for income taxes in accordance
with income tax accounting guidance, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain
for uncertain tax positions.
Comprehensive Income
Recognized revenue, expenses, gains, and losses
are included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for
sale and interest rate swap contracts designed as hedges, are reported as a separate component of the equity section of the consolidated
balance sheet. Such items, along with net income, are components of comprehensive income. Accumulated other comprehensive income
included unrealized gains on securities available for sale and unrealized losses on interest rate swap contracts of $8,687 and $(1,392),
respectively, net of tax of $(3,251) and $525, respectively, as of December 31, 2020. Accumulated other comprehensive loss
as of December 31, 2019 included unrealized gains on securities available for sale and unrealized losses on interest rate swap contracts
of $2,564 and $(766), respectively, net of tax of $(878) and $206, respectively.
Derivatives
Derivative financial instruments are recognized
as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives
and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate
risk, our derivatives consist of interest rate swap agreements that qualify for hedge accounting. We do not use derivatives for trading
purposes.
Changes in the fair value of derivatives that
are designated, for accounting purposes, as a hedge of the variability of cash flows to be received or paid on certain assets and are
effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged
transaction affects earnings and are included in the line item in which the hedged cash flows are recorded.
We formally document the relationship between
the derivative instrument and the hedged item, as well as the risk-management objective and the strategy for undertaking the hedge transaction.
This documentation includes linking cash flow hedges to specific assets on the balance sheet. If designated as a hedge, we also formally
assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instrument that is used is highly effective
in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses would be recognized immediately in current
earnings as noninterest income or expense.
Equity Incentive Plan
Stock compensation accounting guidance requires
that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured
based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a
wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans.
The stock compensation accounting guidance requires
that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as
the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service
period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the market price of the
Company’s common stock at the date of grant is used for restricted stock awards. All grants and awards out of the equity
incentive plan are newly issued shares.
Treasury Stock
Common stock shares repurchased are recorded as
treasury stock at cost.
Earnings per Share
Basic earnings per share represent income available
to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share
reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well
as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate
solely to outstanding stock options and are determined using the treasury stock method.
Treasury shares are not deemed outstanding for
earnings per share calculations.
Transfers of Financial Assets
Transfers of financial assets are accounted for
as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the
assets have been isolated from the Company and put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy
or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
The transfer of a participating interest in an
entire financial asset must also meet the definition of a participating interest. A participating interest in a financial asset has all
of the following characteristics: (1) from the date of transfer, it must represent a proportionate (pro rata) ownership interest
in the financial asset, (2) from the date of transfer, all cash flows received, except any cash flows allocated as compensation for
servicing or other services performed, must be divided proportionately among participating interest holders in the amount equal to their
share ownership, (3) the rights of each participating interest holder must have the same priority, and (4) no party has the
right to pledge or exchange the entire financial asset unless all participating interest holders agree to do so.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in Note 20. Fair value estimates involve uncertainties
and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Segments
The Company’s operations consist of one
segment, community banking. The operating results of this segment are regularly reviewed by management to make decisions about
resource allocations and to assess performance. Selected information is not presented separately for the Company's reportable segment,
as there is no material difference between that information and the corresponding information in the consolidated financial statements.
New Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards
Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses, to provide financial statement users with
more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held
by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP
with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates. In October 2019, the FASB voted to delay the effective date for the credit losses
standard to January 2023 for certain entities, including SEC filers that qualified as smaller reporting companies and private companies. As
a smaller reporting company, the Company was eligible for the delay and will be deferring adoption until January 2023. Entities
should apply this amendment a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning
of the first reporting period in which the guidance is effective. At this time, the effect this ASU will have on its consolidated
financial statements is still being quantified as the Company ensures data assumptions, and methods all comply with the requirements of
ASU 2016-13. The Company is also developing internal control processes and disclosure documentation related to the adoption
of this standard. Management will continue to progress on its implementation project plan and improve the Company’s approach
throughout the deferral period.
In August 2018, the FASB
issued ASU No. 2018-13, Fair Value Measurement (Topic 842) – Disclosure Framework-Changes to the Disclosure Requirements for
Fair Value Measurement, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The
amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the
most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date. The amendment became effective January 1, 2020, and the
adoption did not have a material effect on the Company’s financial statements.
In March 2020, the FASB issued ASU No. 2020-04,
Reference Rate Reform (Topic 848). The ASU provides optional, temporary expedients and exceptions for applying GAAP
to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The
amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected
to be discontinued because of reference rate reform. The main provisions of this ASU include: (1) a change in the contract’s
reference rate would be accounted for as a continuation of that contract rather than as the creation of a new contract and (2) an entity
would be allowed to preserve its hedge accounting when updating it hedging strategies in response to the reference rate reform. The
ASU was effective upon issuance on March 12, 2020 and can be applied through December 31, 2022 allowing for different elections over the
effective date range for legacy and new activity. The Company is evaluating and reassessing the impact of this standard but
does not expect this standard to have a material impact on its results of operations, financial position, and liquidity.
On March 27, 2020, the Coronavirus Aid, Relief,
and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act allows financial institutions
to elect to suspend troubled debt restructuring accounting under certain circumstances when the temporary restructuring is related to
the Coronavirus Disease 2019 (COVID-19) pandemic. The Company has elected to implement Section 4013, and for the year ended
December 31, 2020, the Company has processed 184 requests with loan balances totaling $200.7 million. At December, 24 clients
with loan balances totaling $16.8 million were still participating in the payment deferral program.
Change in Accounting
Principle
As of January 1, 2020, the Company elected to
make an accounting principle change for the valuation of the loan servicing assets from amortized cost to fair market value.
We believe that the fair value method is the
preferred method of presenting these assets and is more widely recognized by current and potential investors. These
assets represent the value of future net revenue streams. Updating the estimate of these cash flow streams based on both
observable and unobservable trends and inputs at each reporting period provides meaningful changes in the economic value to
shareholders. The amortized cost approach requires a periodic impairment test; however, it does not provide any
transparency if the portfolio, or certain tranches within the portfolio, have significant increases in value. Therefore,
the fair value method provides a balanced, measurement policy for the benefit of the investing public. As a result of
this accounting principle change, servicing assets increased by $3.4 million and deferred tax assets decreased by $0.9
million. The adoption of the change was recorded through a cumulative effect adjustment to retained earnings as of
January 1, 2020, of $2.5 million. All future adjustments to fair value will be reflected in the consolidated statement of
operations.
NOTE 2 – RESTRICTIONS ON CASH AND CASH
EQUIVALENTS
The Bank is generally required to maintain average
balances on hand or with the Federal Reserve Bank. However, the reserve balance was suspended by the Board of Governors of
the Federal Reserve System on March 15, 2020. At December 31, 2020 there was no required reserve balance. At December 31,
2019 the reserve balance amounted to approximately $7.2 million.
NOTE 3 – SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of securities
available for sale are as follows:
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
14,745
|
|
|
$
|
—
|
|
|
$
|
(152
|
)
|
|
$
|
14,593
|
|
Municipal securities
|
|
|
149,203
|
|
|
|
4,736
|
|
|
|
(285
|
)
|
|
|
153,654
|
|
Mortgage-backed securities
|
|
|
127,804
|
|
|
|
7,872
|
|
|
|
(298
|
)
|
|
|
135,378
|
|
Corporate bonds
|
|
|
32,500
|
|
|
|
21
|
|
|
|
(10
|
)
|
|
|
32,511
|
|
Asset-backed securities
|
|
|
16,664
|
|
|
|
55
|
|
|
|
(1
|
)
|
|
|
16,718
|
|
|
|
$
|
340,916
|
|
|
$
|
12,684
|
|
|
$
|
(746
|
)
|
|
$
|
352,854
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
3,490
|
|
|
$
|
—
|
|
|
$
|
(32
|
)
|
|
$
|
3,458
|
|
U.S treasury securities
|
|
|
2,499
|
|
|
|
7
|
|
|
|
—
|
|
|
|
2,506
|
|
Mortgage-backed securities
|
|
|
149,302
|
|
|
|
3,633
|
|
|
|
(166
|
)
|
|
|
152,769
|
|
|
|
$
|
155,291
|
|
|
$
|
3,640
|
|
|
$
|
(198
|
)
|
|
$
|
158,733
|
|
The amortized cost and fair value of securities
at December 31, 2020 and 2019, 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.
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
Due from one to five years
|
|
|
—
|
|
|
|
—
|
|
Due from five to ten years
|
|
|
55,024
|
|
|
|
55,120
|
|
Due after ten years
|
|
|
141,424
|
|
|
|
145,638
|
|
Asset-backed securities
|
|
|
16,664
|
|
|
|
16,718
|
|
Mortgage-backed securities
|
|
|
127,804
|
|
|
|
135,378
|
|
|
|
$
|
340,916
|
|
|
$
|
352,854
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
2,499
|
|
|
$
|
2,506
|
|
Due from one to five years
|
|
|
—
|
|
|
|
—
|
|
Due from five to ten years
|
|
|
3,490
|
|
|
|
3,458
|
|
Due after ten years
|
|
|
—
|
|
|
|
—
|
|
Mortgage-backed securities
|
|
|
149,302
|
|
|
|
152,769
|
|
|
|
$
|
155,291
|
|
|
$
|
158,733
|
|
Proceeds from the sale of securities available
for sale were $ 35.5 million and $29.4 million and the gross gain was $0.7 million $0.3 million for the year ended December 31, 2020 and
December 31, 2019, respectively. There were no securities available for sale sold at a loss during 2020 or 2019.
At December 31, 2020 and 2019 no securities
were pledged to secure the FHLB advances besides FHLB stock of $5.8 million and $1.6 million, respectively. There were no securities
pledged to secure the Federal Reserve Bank line of credit at December 31, 2020 and 2019; however, there were $23.0 million and $63.0
million of securities pledged to secure municipal customer deposits at December 31, 2020 and 2019, respectively.
The following
table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed
to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at December 31, 2020 and 2019.
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
12,217
|
|
|
$
|
(134
|
)
|
|
$
|
2,376
|
|
|
$
|
(18
|
)
|
|
$
|
14,593
|
|
|
$
|
(152
|
)
|
Municipal securities
|
|
|
30,849
|
|
|
|
(285
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
30,849
|
|
|
|
(285
|
)
|
Mortgage-backed securities
|
|
|
7,781
|
|
|
|
(298
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7,781
|
|
|
|
(298
|
)
|
Corporate bonds
|
|
|
7,990
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7,990
|
|
|
$
|
(10
|
)
|
Asset-backed securities
|
|
|
3,817
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,817
|
|
|
$
|
(1
|
)
|
|
|
$
|
62,654
|
|
|
$
|
(728
|
)
|
|
$
|
2,376
|
|
|
$
|
(18
|
)
|
|
$
|
65,030
|
|
|
$
|
(746
|
)
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,458
|
|
|
$
|
(32
|
)
|
|
$
|
3,458
|
|
|
$
|
(32
|
)
|
Mortgage-backed securities
|
|
|
9,873
|
|
|
|
(41
|
)
|
|
|
11,867
|
|
|
|
(125
|
)
|
|
|
21,740
|
|
|
|
(166
|
)
|
|
|
$
|
9,873
|
|
|
$
|
(41
|
)
|
|
$
|
15,325
|
|
|
$
|
(157
|
)
|
|
$
|
25,198
|
|
|
$
|
(198
|
)
|
The unrealized loss on the investments at December 31,
2020 and 2019 was due to normal fluctuations and pricing inefficiencies. The contractual terms of the investments do not permit the issuers
to settle the securities at a price less than the amortized cost basis of the investment. Because the Company does not intend to sell
the investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized
cost basis, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at December 31,
2020 and 2019.
Other-Than-Temporary Impairment
The Company routinely conducts periodic reviews
to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. There were no
securities with material unrealized losses existing longer than 12 months, and no securities with unrealized losses which management believed
were other-than-temporarily impaired, at December 31, 2020 or 2019.
At December 31, 2020, 26 debt
securities with unrealized losses totaling 1.15% of the related securities; amortized cost basis. At December 31, 2019, 34 debt
securities had unrealized losses with aggregate depreciation of 0.78% from the Company’s amortized cost
basis. These unrealized losses related principally to Government National Mortgage Association mortgage-backed and
municipal debt securities. In analyzing an issuer’s financial condition, management considers whether the securities are
issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry
analysts’ reports. Since none of the unrealized losses relate to deterioration in the underlying repayment sources and
management has the indent and ability hold debt securities until maturity, the decline is not deemed to be
other-than-temporary.
NOTE 4 – LOANS
The components of the loan portfolio were as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
606,881
|
|
|
$
|
659,725
|
|
Commercial real estate loans
|
|
|
235,969
|
|
|
|
235,936
|
|
Commercial loans
|
|
|
115,087
|
|
|
|
95,787
|
|
Residential real estate loans
|
|
|
38,084
|
|
|
|
43,958
|
|
Installment and consumer other
|
|
|
264
|
|
|
|
367
|
|
Total gross loans
|
|
|
996,285
|
|
|
|
1,035,773
|
|
Allowance for loan losses
|
|
|
(14,808
|
)
|
|
|
(15,267
|
)
|
Loans, net
|
|
$
|
981,477
|
|
|
$
|
1,020,506
|
|
Net unamortized deferred costs totaling $0.3 million
and $0.6 million as of December 31, 2020 and 2019, respectively, are included in total gross loans above.
The following table presents the aging of the
recorded investment in past due loans at December 31, 2020 and 2019:
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
90+
Days
Past Due
|
|
|
Total
Past Due
|
|
|
Loans
Not
Past Due
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
loans
|
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
5,041
|
|
|
$
|
5,088
|
|
|
$
|
601,793
|
|
|
$
|
606,881
|
|
Commercial
real estate loans
|
|
|
82
|
|
|
|
—
|
|
|
|
4,283
|
|
|
|
4,365
|
|
|
|
231,604
|
|
|
|
235,969
|
|
Commercial
loans
|
|
|
—
|
|
|
|
—
|
|
|
|
96
|
|
|
|
96
|
|
|
|
114,991
|
|
|
|
115,087
|
|
Residential
real estate loans
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
38,080
|
|
|
|
38,084
|
|
Installment
and consumer other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
264
|
|
|
|
264
|
|
Total
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
9,420
|
|
|
$
|
9,553
|
|
|
$
|
986,732
|
|
|
$
|
996,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
loans
|
|
$
|
1,489
|
|
|
$
|
71
|
|
|
$
|
4,974
|
|
|
$
|
6,534
|
|
|
$
|
653,191
|
|
|
$
|
659,725
|
|
Commercial
real estate loans
|
|
|
—
|
|
|
|
288
|
|
|
|
—
|
|
|
|
288
|
|
|
|
235,648
|
|
|
|
235,936
|
|
Commercial
loans
|
|
|
—
|
|
|
|
28
|
|
|
|
228
|
|
|
|
256
|
|
|
|
95,531
|
|
|
|
95,787
|
|
Residential
real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
62
|
|
|
|
62
|
|
|
|
43,896
|
|
|
|
43,958
|
|
Installment
and consumer other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
367
|
|
|
|
367
|
|
Total
|
|
$
|
1,489
|
|
|
$
|
387
|
|
|
$
|
5,264
|
|
|
$
|
7,140
|
|
|
$
|
1,028,633
|
|
|
$
|
1,035,773
|
|
The following table lists information on nonaccrual, restructured,
and certain past due loans:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Nonaccrual loans, 90 days or more past due
|
|
$
|
9,420
|
|
|
$
|
5,264
|
|
Nonaccrual loans 30-89 days past due
|
|
|
—
|
|
|
|
1,781
|
|
Nonaccrual loans, less than 30 days past due
|
|
|
32,204
|
|
|
|
23,923
|
|
Troubled debt restructured loans not on nonaccrual status
|
|
|
18,592
|
|
|
|
21,783
|
|
90 days or more past due and still accruing
|
|
|
—
|
|
|
|
—
|
|
The following table presents the recorded investment in nonaccrual
loans and loans past due over 90 days on accrual by class of loan:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
35,067
|
|
|
$
|
26,415
|
|
Commercial real estate loans
|
|
|
6,093
|
|
|
|
2,673
|
|
Commercial loans
|
|
|
405
|
|
|
|
1,818
|
|
Residential real estate loans
|
|
|
59
|
|
|
|
62
|
|
Total
|
|
$
|
41,624
|
|
|
$
|
30,968
|
|
The average recorded investment in total impaired
loans for the years ended December 31, 2020 and 2019 amounted to approximately $69.1 million and $60.6 million, respectively. Interest
income recognized on total impaired loans for the years ended December 31, 2020 and 2019 amounted to approximately $5.6 million and
$5.7 million, respectively. For nonaccrual loans included in impaired loans, the interest income that would have been recognized had those
loans been performing in accordance with their original terms would have been approximately $3.4 million and $2.9 million for the
years ended December 31, 2020 and 2019, respectively.
The following tables present loans individually
evaluated for impairment by class of loans at December 31, 2020 and 2019:
|
|
December 31, 2020
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
20,245
|
|
|
$
|
20,120
|
|
|
$
|
—
|
|
Commercial real estate loans
|
|
|
288
|
|
|
|
288
|
|
|
|
—
|
|
Commercial loans
|
|
|
2,504
|
|
|
|
2,481
|
|
|
|
—
|
|
Residential real estate loans
|
|
|
61
|
|
|
|
59
|
|
|
|
—
|
|
|
|
$
|
23,098
|
|
|
$
|
22,948
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
47,971
|
|
|
$
|
43,657
|
|
|
$
|
3,504
|
|
Commercial real estate loans
|
|
|
8,245
|
|
|
|
6,790
|
|
|
|
672
|
|
Commercial loans
|
|
|
357
|
|
|
|
336
|
|
|
|
86
|
|
Residential real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
56,573
|
|
|
|
50,783
|
|
|
|
4,262
|
|
Total
|
|
$
|
79,671
|
|
|
$
|
73,731
|
|
|
$
|
4,262
|
|
|
|
December 31, 2019
|
|
|
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
14,151
|
|
|
$
|
14,131
|
|
|
$
|
—
|
|
Commercial real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate loans
|
|
|
62
|
|
|
|
62
|
|
|
|
—
|
|
|
|
$
|
14,213
|
|
|
$
|
14,193
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
47,225
|
|
|
$
|
44,702
|
|
|
$
|
3,515
|
|
Commercial real estate loans
|
|
|
3,681
|
|
|
|
3,682
|
|
|
|
836
|
|
Commercial loans
|
|
|
2,155
|
|
|
|
1,862
|
|
|
|
1,238
|
|
Residential real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
53,061
|
|
|
|
50,246
|
|
|
|
5,589
|
|
Total
|
|
$
|
67,274
|
|
|
$
|
64,439
|
|
|
$
|
5,589
|
|
Changes in the allowance for loan losses by portfolio
segment were as follows:
|
|
December 31, 2020
|
|
|
|
Beginning
Balance
|
|
|
Provision for
Loan Losses
|
|
|
Loans
Charged
Off
|
|
|
Loan
Recoveries
|
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
11,737
|
|
|
$
|
(901
|
)
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
10,859
|
|
Commercial real estate loans
|
|
|
1,913
|
|
|
|
3,357
|
|
|
|
(2,195
|
)
|
|
|
64
|
|
|
|
3,139
|
|
Commercial loans
|
|
|
1,599
|
|
|
|
541
|
|
|
|
(1,336
|
)
|
|
|
1
|
|
|
|
805
|
|
Residential real estate loans
|
|
|
15
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
Installment and consumer other
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
15,267
|
|
|
$
|
2,984
|
|
|
$
|
(3,531
|
)
|
|
$
|
88
|
|
|
$
|
14,808
|
|
|
|
December 31, 2019
|
|
|
|
Beginning
Balance
|
|
|
Provision
for
Loan Losses
|
|
|
Loans
Charged
Off
|
|
|
Loan
Recoveries
|
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
12,258
|
|
|
$
|
(518
|
)
|
|
$
|
(61
|
)
|
|
$
|
58
|
|
|
$
|
11,737
|
|
Commercial real estate loans
|
|
|
2,779
|
|
|
|
613
|
|
|
|
(3,585
|
)
|
|
|
2,106
|
|
|
|
1,913
|
|
Commercial loans
|
|
|
1,414
|
|
|
|
364
|
|
|
|
(282
|
)
|
|
|
103
|
|
|
|
1,599
|
|
Residential real estate loans
|
|
|
53
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
Installment and consumer other
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Total
|
|
$
|
16,505
|
|
|
$
|
423
|
|
|
$
|
(3,928
|
)
|
|
$
|
2,267
|
|
|
$
|
15,267
|
|
The following tables present the balances in the
allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method:
|
|
December 31, 2020
|
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
3,504
|
|
|
$
|
7,355
|
|
|
$
|
10,859
|
|
Commercial real estate loans
|
|
|
672
|
|
|
|
2,467
|
|
|
|
3,139
|
|
Commercial loans
|
|
|
86
|
|
|
|
719
|
|
|
|
805
|
|
Residential real estate loans
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
Installment and consumer other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total ending allowance for loan losses
|
|
|
4,262
|
|
|
|
10,546
|
|
|
|
14,808
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
63,777
|
|
|
|
543,104
|
|
|
|
606,881
|
|
Commercial real estate loans
|
|
|
7,077
|
|
|
|
228,892
|
|
|
|
235,969
|
|
Commercial loans
|
|
|
2,818
|
|
|
|
112,269
|
|
|
|
115,087
|
|
Residential real estate loans
|
|
|
59
|
|
|
|
38,025
|
|
|
|
38,084
|
|
Installment and consumer other
|
|
|
—
|
|
|
|
264
|
|
|
|
264
|
|
Total loans
|
|
|
73,731
|
|
|
|
922,554
|
|
|
|
996,285
|
|
Net loans
|
|
$
|
69,469
|
|
|
$
|
912,008
|
|
|
$
|
981,477
|
|
|
|
December 31, 2019
|
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
$
|
3,515
|
|
|
$
|
8,222
|
|
|
$
|
11,737
|
|
Commercial real estate loans
|
|
|
836
|
|
|
|
1,077
|
|
|
|
1,913
|
|
Commercial loans
|
|
|
1,238
|
|
|
|
361
|
|
|
|
1,599
|
|
Residential real estate loans
|
|
|
—
|
|
|
|
15
|
|
|
|
15
|
|
Installment and consumer other
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
Total ending allowance for loan losses
|
|
|
5,589
|
|
|
|
9,678
|
|
|
|
15,267
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
58,833
|
|
|
|
600,892
|
|
|
|
659,725
|
|
Commercial real estate loans
|
|
|
3,682
|
|
|
|
232,254
|
|
|
|
235,936
|
|
Commercial loans
|
|
|
1,862
|
|
|
|
93,925
|
|
|
|
95,787
|
|
Residential real estate loans
|
|
|
62
|
|
|
|
43,896
|
|
|
|
43,958
|
|
Installment and consumer other
|
|
|
—
|
|
|
|
367
|
|
|
|
367
|
|
Total loans
|
|
|
64,439
|
|
|
|
971,334
|
|
|
|
1,035,773
|
|
Net loans
|
|
$
|
58,850
|
|
|
$
|
961,656
|
|
|
$
|
1,020,506
|
|
Troubled Debt Restructurings
The Company had allocated $3.8 million and $3.5
million of specific reserves for loans where terms have been modified in troubled debt restructurings at December 31, 2020 and
2019, respectively. The Company had no additional lending commitments at December 31, 2020 and 2019 to customers with outstanding
loans that are classified as troubled debt restructurings.
A TDR on nonaccrual status is classified as a
nonaccrual loan until evaluation supports reasonable assurance of repayment and recent performance according to the modified terms of
the loan. Once this assurance is reached, the TDR is classified as an accruing loan. At December 31, 2020, there were
$47.7 million of TDR loans, of which $29.1 million were classified as nonaccrual and $18.6 million were classified as accruing, and there
were $0.8 million unfunded commitments on these loans. At December 31, 2019, there were $41.0 million of TDR loans, of which $19.3
million were classified as nonaccrual and $21.7 million were classified as accruing. There were $0.3 million unfunded commitments on these
loans.
The following table provides the number of loans
modified in a troubled debt restructuring investment by class for the year ended December 31, 2020 and 2019:
|
|
Year Ended December 31, 2020
|
|
|
Year Ended December 31, 2019
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural loans
|
|
|
14
|
|
|
$
|
9,460
|
|
|
|
42
|
|
|
$
|
17,595
|
|
Commercial real estate loans
|
|
|
3
|
|
|
|
3,728
|
|
|
|
1
|
|
|
|
1,021
|
|
Commercial loans
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
1,115
|
|
Total
|
|
|
17
|
|
|
$
|
13,188
|
|
|
|
47
|
|
|
$
|
19,731
|
|
During the years ended December 31, 2020 and 2019,
there were no loans modified as troubled debt restructurings within the previous 12 months that subsequently defaulted.
The following table provides the troubled debt
restructurings for the year ended December 31, 2020 and 2019 grouped by type of concession:
|
|
Year Ended December 31, 2020
|
|
|
Year Ended December 31, 2019
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment concessions
|
|
|
1
|
|
|
$
|
214
|
|
|
|
4
|
|
|
$
|
844
|
|
Extension of interest-only payments
|
|
|
2
|
|
|
|
258
|
|
|
|
24
|
|
|
|
12,436
|
|
Combination of extension of term and interest rate concession
|
|
|
9
|
|
|
|
8,367
|
|
|
|
—
|
|
|
|
—
|
|
Rate concession
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
85
|
|
Capitalized interest
|
|
|
1
|
|
|
|
152
|
|
|
|
1
|
|
|
|
152
|
|
Term concession
|
|
|
1
|
|
|
|
469
|
|
|
|
12
|
|
|
|
4,078
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment concessions
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1,021
|
|
Extension of interest-only payments
|
|
|
3
|
|
|
|
3,728
|
|
|
|
—
|
|
|
|
—
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment concessions
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
69
|
|
Extension of interest-only payments
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1,046
|
|
Total
|
|
|
17
|
|
|
$
|
13,188
|
|
|
|
47
|
|
|
$
|
19,731
|
|
Credit Quality Indicators
The Company 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 agricultural,
commercial, and commercial real estate loans individually by classifying the credits as to credit risk. The process of analyzing loans
for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits with
total exposure in excess of $1.0 million. The Company uses the following definitions for credit risk ratings:
Sound. Credits classified as sound show
very good probability of ongoing ability to meet and/or exceed obligations.
Acceptable. Credits classified as acceptable
show a good probability of ongoing ability to meet and/or exceed obligations.
Satisfactory. Credits classified as satisfactory
show an average probability of ongoing ability to meet and/or exceed obligations.
Low Satisfactory. Credits classified as
low satisfactory may have more inconsistent earnings but have a fair probability of ongoing ability to meet and/or exceed obligations.
Watch. Credits classified as watch show
some questionable probability of ongoing ability to meet and/or exceed obligations.
Special Mention. Credits classified as
special mention show potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.
Substandard – Performing. Credits
classified as substandard – performing generally have well-defined weaknesses. Collateral coverage is adequate, and the loans are
not considered impaired. Payments are being made and the loans are on accrual status.
Substandard - Impaired. Credits classified
as substandard – impaired generally have well-defined weaknesses that jeopardize the repayment of the debt. They have a distinct
possibility that a loss will be sustained if the deficiencies are not corrected. Loans are considered impaired. Loans
are either exhibiting signs of delinquency or are on non-accrual.
Doubtful. Credits classified as doubtful
have all the weaknesses inherent in those classified as substandard – impaired with the added characteristic that the weaknesses
make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable.
The Company categorizes residential real estate,
installment, and consumer other loans as satisfactory at the time of origination based on information obtained as to the ability of the
borrower(s) to service their debt, such as current financial information, employment status and history, historical payment experience,
credit scores and type and amount of collateral among other factors. The Company updates relevant information on these types of loans
at the time of refinance, troubled debt restructuring or other indications of financial difficulty, downgrading as needed using the same
category descriptions as for agricultural, commercial, and commercial real estate loans. In addition, the Company further considers current
payment status as an indicator of which risk category to assign the borrower.
The greater the level of deteriorated risk as
indicated by a loan’s assigned risk category, the greater the likelihood a loss will occur in the future.
Based on the most recent analysis performed by
management, the risk category of loans by class of loans was as follows:
|
|
As of December 31, 2020
|
|
|
|
Sound/
Acceptable/
Satisfactory/
Low Satisfactory
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
Performing
|
|
|
Substandard
Impaired
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
374,595
|
|
|
$
|
155,546
|
|
|
$
|
1,854
|
|
|
$
|
34,452
|
|
|
$
|
40,434
|
|
|
$
|
606,881
|
|
Commercial real estate loans
|
|
|
200,208
|
|
|
|
26,266
|
|
|
|
—
|
|
|
|
3,402
|
|
|
|
6,093
|
|
|
|
235,969
|
|
Commercial loans
|
|
|
103,488
|
|
|
|
8,022
|
|
|
|
647
|
|
|
|
2,566
|
|
|
|
364
|
|
|
|
115,087
|
|
Residential real estate loans
|
|
|
37,758
|
|
|
|
267
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
|
|
38,084
|
|
Installment and consumer other
|
|
|
264
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
264
|
|
Total
|
|
$
|
716,313
|
|
|
$
|
190,101
|
|
|
$
|
2,501
|
|
|
$
|
40,420
|
|
|
$
|
46,950
|
|
|
$
|
996,285
|
|
|
|
As
of December 31, 2019 (1)
|
|
|
|
Sound/
Acceptable/
Satisfactory/
Low Satisfactory
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
Performing
|
|
|
Substandard
Impaired
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural loans
|
|
$
|
388,184
|
|
|
$
|
184,050
|
|
|
$
|
9,239
|
|
|
$
|
46,587
|
|
|
$
|
31,665
|
|
|
$
|
659,725
|
|
Commercial real estate loans
|
|
|
209,279
|
|
|
|
21,703
|
|
|
|
—
|
|
|
|
2,281
|
|
|
|
2,673
|
|
|
|
235,936
|
|
Commercial loans
|
|
|
83,141
|
|
|
|
10,091
|
|
|
|
—
|
|
|
|
737
|
|
|
|
1,818
|
|
|
|
95,787
|
|
Residential real estate loans
|
|
|
43,473
|
|
|
|
254
|
|
|
|
—
|
|
|
|
169
|
|
|
|
62
|
|
|
|
43,958
|
|
Installment and consumer other
|
|
|
367
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
367
|
|
Total
|
|
$
|
724,444
|
|
|
$
|
216,098
|
|
|
$
|
9,239
|
|
|
$
|
49,774
|
|
|
$
|
36,218
|
|
|
$
|
1,035,773
|
|
|
(1)
|
Performing troubled debt restructurings have been reclassified to be reflected in their internal risk rating category rather than Substandard Impaired as previously reported to conform with current year’s presentation.
|
NOTE 5 – PREMISES AND
EQUIPMENT
Premises and equipment consisted of the following:
|
|
December 31,
|
|
|
Estimated
|
|
|
2020
|
|
|
2019
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Land
|
|
$
|
1,965
|
|
|
$
|
2,240
|
|
|
N/A
|
Construction in process
|
|
|
2,456
|
|
|
|
1,319
|
|
|
N/A
|
Bank premises
|
|
|
9,373
|
|
|
|
10,038
|
|
|
35-40 years
|
Leasehold improvements
|
|
|
1,643
|
|
|
|
44
|
|
|
5-39 years
|
Furniture, fixtures, and equipment
|
|
|
5,165
|
|
|
|
6,110
|
|
|
3-7 years
|
|
|
|
20,602
|
|
|
|
19,751
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(5,704
|
)
|
|
|
(6,148
|
)
|
|
|
|
|
$
|
14,898
|
|
|
$
|
13,603
|
|
|
|
Depreciation and amortization expense charged
to operations for the years ended December 31, 2020 and 2019 totaled $1.3 million and $1.4 million, respectively.
NOTE 6 – LOAN SERVICING RIGHTS
Loans serviced for others are not included in
the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in payment patterns that
result from shifts in interest rates. The unpaid principal balances of mortgage and other loans serviced for others were approximately
$812.6 million and $751.7 million at December 31, 2020 and 2019, respectively. All sales of loans are executed on
a servicing retained basis. The standard loan sale agreement provides the Company with a “servicing spread” paid
from a portion of the interest cash flow of the loan. Industry practice recognizes adequate compensation for SBA and FSA loans
to be 1.0% and 2.0% respectively. Loans sold with servicing spread that is greater than or equal to adequate compensation are
recognized as a servicing asset, while loans with a servicing spread less than adequate compensation are recognized as a servicing liability. Loans
with a servicing fee significantly above an amount that would fairly compensate a substitute servicer are reported as “Other Borrowings”
on the consolidated balance sheet.
The fair value of servicing rights is highly
sensitive to changes in underlying assumptions. The Company’s portfolio of loan serviced for others is mostly
comprised of fixed rate loans. Generally, as market interest rates rise, prepayments on fixed rate loans decrease due to a decline in
refinancing activity, which results in an increase in the fair value of servicing rights. However, due to the cross-collateralization
of loans in the portfolio and the government guarantee programs under which many of the loans were originated, prepayments on the portfolio
tend to be muted in comparison to those of other types of loans, such as mortgage loans. Measurement
of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may
not be appropriate at a different time.
Loan servicing
fee income is recorded on the consolidated statements of operations for fees earned for servicing loans. The fees are based
on the contractual percentage of the outstanding principal and are recorded as income when earned.
The fair
value of servicing rights at December 31, 2020 was $18.4 million and was determined using an assumed discount rate of 14.3% and a weighted
average run-off rate of 6.16%, primarily ranging from 6.04% to 7.75%. The fair value of servicing rights at December 31, 2019
was $15.9 million and was determined using a discount rate of 14.0% and weighted average prepayment speed of 7.33%, ranging from 5.00%
to 10.00%, depending upon the stratification of the specific right, and nominal credit losses.
Changes
to the fair value are also reported in loan servicing fees within the consolidated statements of operations.
The following
tables summarize servicing rights capitalized for the years ending December 31, 2020 and 2019, along with the aggregate activity in related
valuation allowance for the year ended December 31, 2019. The year ended December 31, 2020 is presented at fair value, and
the year ended December 31, 2019 is presented using the amortized cost method.
|
|
For the Year Ended
December 31, 2020
|
|
|
|
(dollars in thousands)
|
|
Balance, December 31, 2019
|
|
$
|
12,509
|
|
Impact of cumulative effect of change in accounting principle
|
|
|
3,412
|
|
Balance, January 1, 2020
|
|
$
|
15,921
|
|
Additions, net
|
|
|
4,707
|
|
Fair value changes:
|
|
|
|
|
Decay due to increases in principal paydowns or runoff
|
|
|
(3,330
|
)
|
Due to changes in valuation inputs or assumptions
|
|
|
1,098
|
|
Balance, December 31, 2020
|
|
$
|
18,396
|
|
|
|
For the Year Ended
December 31, 2019
|
|
|
|
(dollars in thousands)
|
|
Balance, December 31, 2018
|
|
$
|
9,047
|
|
Additions related to new loans
|
|
|
6,539
|
|
Impairment due to prepayment
|
|
|
(757
|
)
|
Amortization of existing asset
|
|
|
(2,320
|
)
|
Balance, December 31, 2019
|
|
$
|
12,509
|
|
NOTE 7 – GOODWILL AND
CORE DEPOSIT INTANGIBLE
During the
first quarter of 2020, goodwill was evaluated for impairment due to economic disruption and unknown growth and credit risk related to
the COVID-19 pandemic. Three valuation models were weighted and evaluated: discounted cash flow model (60%), guideline
public company method (30%) and transaction method (10%). The transaction method was weighted the lowest as the identified
transactions happened prior to the COVID-19 pandemic and could not be relied upon as comparable values as of March 31, 2020. More
weighting was put toward cash flows as management believes the value of the Company is still tied to overall earnings. For
the discounted cash flow method, the analysis discounted projected earnings by 14.5% based on an evaluation of required returns for similar
public companies adjusted for an expected size and company-specific premium. Through
this evaluation, it was determined that as of March 31, 2020, the fair value of the Company did not exceed the current carrying value
by an amount in excess of the carrying amount of the goodwill; therefore, the goodwill was deemed to be impaired.
Goodwill: Goodwill
resulted from the acquisition of Fox River Valley on May 13, 2016. Goodwill was fully impaired and had no carrying valued at
December 31, 2020. There was no impairment to goodwill as of December 31, 2019.
Core
deposit intangible: Core deposit intangible, primarily related to acquired customer relationships, is amortized over its
estimated finite life. There was no impairment charge to core deposit intangible for the year ended December 31, 2020 and 2019. The
core deposit intangible related to the Fox River Valley acquisition is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Core deposit intangible:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
1,801
|
|
|
$
|
1,801
|
|
Accumulated amortization
|
|
|
(1,747
|
)
|
|
|
(1,576
|
)
|
Net book value
|
|
$
|
54
|
|
|
$
|
225
|
|
NOTE 8 – OTHER REAL ESTATE
OWNED
Changes in other real estate owned were as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance, beginning of period
|
|
$
|
5,521
|
|
|
$
|
6,568
|
|
Assets foreclosed
|
|
|
768
|
|
|
|
6,315
|
|
Write-down of other real estate owned
|
|
|
(1,508
|
)
|
|
|
(626
|
)
|
Net gain on sales of other real estate owned
|
|
|
313
|
|
|
|
40
|
|
Proceeds from sale of other real estate owned
|
|
|
(4,017
|
)
|
|
|
(6,776
|
)
|
Balance, end of period
|
|
$
|
1,077
|
|
|
$
|
5,521
|
|
Income (expenses) attributable to other real estate owned include the
following:
|
|
For the Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net gain on sales of other real estate owned
|
|
$
|
313
|
|
|
$
|
40
|
|
Write-down of other real estate owned
|
|
|
(1,508
|
)
|
|
|
(626
|
)
|
Operating expenses, net of rental income
|
|
|
(227
|
)
|
|
|
(162
|
)
|
|
|
$
|
(1,422
|
)
|
|
$
|
(748
|
)
|
NOTE 9 – DEPOSITS
Deposits are summarized as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Non-interest-bearing
|
|
$
|
163,202
|
|
|
$
|
138,489
|
|
NOW and interest checking
|
|
|
96,624
|
|
|
|
67,805
|
|
Savings
|
|
|
7,367
|
|
|
|
6,395
|
|
Money market accounts
|
|
|
344,250
|
|
|
|
247,828
|
|
Certificates of deposit
|
|
|
304,580
|
|
|
|
375,100
|
|
National time deposits
|
|
|
44,347
|
|
|
|
99,485
|
|
Brokered deposits
|
|
|
80,456
|
|
|
|
166,340
|
|
Total deposits
|
|
$
|
1,040,826
|
|
|
$
|
1,101,442
|
|
Certificates of deposit in amounts of more than
$250,000 at December 31, 2020 and 2019 were approximately $153.4 million and $240.6 million, respectively.
The scheduled maturities of certificates of deposit
were as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
1 year or less
|
|
$
|
262,138
|
|
|
$
|
378,098
|
|
1 to 2 years
|
|
|
83,511
|
|
|
|
161,251
|
|
2 to 3 years
|
|
|
39,182
|
|
|
|
50,736
|
|
3 to 4 years
|
|
|
19,809
|
|
|
|
26,321
|
|
Over 4 years
|
|
|
14,669
|
|
|
|
14,394
|
|
|
|
$
|
419,309
|
|
|
$
|
630,800
|
|
NOTE 10 – ADVANCES FROM FHLB AND OTHER
BORROWINGS
The Bank had advances outstanding from the FHLB
in the amount of $129.0 million and $44.4 million on December 31, 2020 and 2019, respectively. These advances, rates, and maturities
were as follows:
|
|
|
|
Amount
outstanding as of
December 31,
|
|
|
|
Maturity
|
|
Rate
|
|
2020
|
|
|
2019
|
|
|
|
|
|
(dollars in thousands)
|
|
Loan
Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate, fixed
term
|
|
02/20/2020
|
|
|
1.71
|
%
|
|
—
|
|
|
|
5,000
|
|
Fixed rate, fixed term
|
|
07/16/2020
|
|
|
1.85
|
%
|
|
—
|
|
|
|
800
|
|
Fixed rate, fixed term
|
|
08/25/2020
|
|
|
1.84
|
%
|
|
—
|
|
|
|
3,000
|
|
Fixed rate, fixed term
|
|
08/27/2020
|
|
|
1.88
|
%
|
|
—
|
|
|
|
5,000
|
|
Fixed rate, fixed term
|
|
12/30/2020
|
|
|
2.09
|
%
|
|
—
|
|
|
|
4,000
|
|
Fixed rate, fixed term
|
|
12/31/2020
|
|
|
1.94
|
%
|
|
—
|
|
|
|
600
|
|
Fixed rate, fixed term
|
|
01/04/2021
|
|
|
0.23
|
%
|
|
29,000
|
|
|
|
—
|
|
Fixed rate, fixed term
|
|
04/12/2021
|
|
|
1.92
|
%
|
|
8,000
|
|
|
|
8,000
|
|
Fixed rate, fixed term
|
|
05/03/2021
|
|
|
0.00
|
%
|
|
4,000
|
|
|
|
—
|
|
Fixed rate, fixed term
|
|
06/15/2021
|
|
|
1.39
|
%
|
|
5,000
|
|
|
|
5,000
|
|
Fixed rate, fixed term
|
|
08/16/2021
|
|
|
2.29
|
%
|
|
3,000
|
|
|
|
3,000
|
|
Fixed rate, fixed term
|
|
12/30/2021
|
|
|
2.29
|
%
|
|
2,000
|
|
|
|
2,000
|
|
Fixed rate, fixed term
|
|
03/18/2022
|
|
|
1.03
|
%
|
|
15,000
|
|
|
|
—
|
|
Fixed rate, fixed term
|
|
03/25/2022
|
|
|
0.75
|
%
|
|
10,000
|
|
|
|
—
|
|
Fixed rate, fixed term
|
|
11/16/2022
|
|
|
0.38
|
%
|
|
20,000
|
|
|
|
—
|
|
Fixed rate, putable, no call
2 years
|
|
01/12/2023
|
|
|
2.03
|
%
|
|
8,000
|
|
|
|
8,000
|
|
Fixed rate, fixed term
|
|
03/23/2023
|
|
|
1.26
|
%
|
|
10,000
|
|
|
|
—
|
|
Fixed rate,
fixed term
|
|
03/27/2023
|
|
|
0.82
|
%
|
|
15,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
$
|
129,000
|
|
|
$
|
44,400
|
|
The terms of security agreements with the FHLB
require the Bank to pledge collateral for its borrowings. The collateral consists of qualifying first mortgage loans and stock of the
FHLB. At December 31, 2020 and 2019, the Bank had pledged qualifying mortgage loans of $367.6 million and $393.7 million, respectively. At
December 31, 2020, we had $29.0 million of overnight advances with FHLB that is included in total amount outstanding. We did
not have overnight advances with the FHLB at December 31, 2019.
The Bank had no irrevocable letters of credit
with the FHLB as of December 31, 2020 and 2019.
As of December 31, 2020 and 2019, the Bank
also had a line-of-credit available with the Federal Reserve Bank of Chicago. Borrowings under this line of credit are limited
by the amount collateral pledged by the Company, which totaled $111.5 million and $127.3 million in loans at December 31, 2020 and December
31, 2019, respectively. The borrowings available to the Company were $83.3 million and $96.0 million, as of December 31, 2020
and December 31, 2019, respectively. There were no outstanding advances included in other borrowings at December
31, 2020 or 2019, respectively.
As of December 31, 2019, the Company had an unsecured
credit agreement with U.S. Bank, National Association for a $10.0 million revolving line-of-credit with an interest rate equal to the
one-month LIBOR rate plus 2.25%. The line also bears a non-usage fee of 0.275% per annum. The non-usage fee for
year ended December 31, 2019 was $22 thousand. The line did not have an outstanding balance as of December 31, 2019. The
line of credit expired on September 30, 2020 and was not renewed.
Other borrowings consist of a financing lease
for a branch location and sold loans that do not qualify for sale accounting treatment and are recorded as financing transactions as the
Bank maintains effective control over the transferred loans.
During 2020, the Company largely funded the Small
Business Administration’s Paycheck Protection Program (“PPP”) loans through the Federal Reserve’s PPP Liquidity
Facility, which allowed for 12-month advances collateralized by PPP loans at an interest rate of 0.35%. The balance of these
advances was $47.5 million at December 31, 2020 and was secured by PPP loans of the same amount.
The following table sets forth information concerning
balances and interest rates on other borrowings as of the dates and for the periods indicated:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance outstanding at end of period
|
|
$
|
49,006
|
|
|
$
|
794
|
|
Average amount outstanding during the period
|
|
|
61,483
|
|
|
|
800
|
|
Maximum amount outstanding at any month end
|
|
|
93,709
|
|
|
|
1,412
|
|
Weighted average interest rate during the period
|
|
|
0.42
|
%
|
|
|
4.60
|
%
|
Weighted average interest rate at end of period
|
|
|
0.39
|
%
|
|
|
4.51
|
%
|
NOTE 11 – SUBORDINATED DEBENTURES
The following table is a summary of the carrying
values, including unamortized issuance costs, of the Company’s subordinated debt as of the dates indicated:
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
As of
December
31, 2019
|
|
|
|
Balance
Outstanding
|
|
|
Interest Rate
|
|
|
Interest Reset
Date
|
|
Call Date
|
|
Maturity Date
|
|
Balance
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Junior subordinated notes issued to County Bancorp Statutory
Trust II (1)(2)
|
|
$
|
6,186
|
|
|
|
1.75
|
%
|
|
03/15/2021
|
|
N/A
|
|
09/15/2035
|
|
$
|
6,186
|
|
Junior subordinated notes issued to County Bancorp Statutory Trust
III (1)(3)
|
|
|
6,186
|
|
|
|
1.91
|
%
|
|
03/15/2021
|
|
N/A
|
|
06/15/2036
|
|
|
6,186
|
|
Junior subordinated notes issued to Fox River Valley Capital Trust I (4)
|
|
|
3,336
|
|
|
|
6.40
|
%
|
|
11/30/2023
|
|
N/A
|
|
05/30/2033
|
|
|
3,279
|
|
5.875% Fixed-to-Floating rate subordinated notes (5)
|
|
|
29,545
|
|
|
|
5.875
|
%
|
|
06/01/2023
|
|
06/01/2023
|
|
06/01/2028
|
|
|
29,207
|
|
7.00% Fixed-to-Floating rate subordinated notes (6)
|
|
|
21,858
|
|
|
|
7.00
|
%
|
|
06/30/2025
|
|
06/30/2025
|
|
06/30/2030
|
|
|
—
|
|
|
|
$
|
67,111
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,858
|
|
|
(1)
|
The company formed wholly owned subsidiary business trusts County Bancorp Statutory Trust II (“Trust II”) and County Bancorp Statutory Trust III (“Trust III”) (together, the “Trusts”), which are both Delaware statutory trusts. The Company owns all of the outstanding common securities of Trust II and Trust III, which qualify as Tier 1 capital for regulatory purposes. The Trusts used the proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures (“debentures”) issued by the Company. These debentures are the Trusts’ only assets, and interest payments from these debentures finance the distributions paid on the capital securities. These debentures are unsecured, rank junior, and are subordinate in the right of payment to all senior debt of the Company.
|
|
(2)
|
The debentures issued to Trust II bear an interest rate of three-month LIBOR plus 1.53% through maturity.
|
|
(3)
|
The debentures issued to Trust III bear an interest rate of three-month LIBOR plus 1.69% through maturity.
|
|
(4)
|
In connection with the merger with Fox River Valley, the Company acquired all of the common securities of Fox River Valley’s wholly-owned subsidiary, Fox River Valley Capital Trust I, a Delaware statutory trust (the “FRV Trust I”), which qualify as Tier 1 capital for regulatory purposes. The debentures of the Company owned by FRV Trust I carry an interest rate equal to 5-year LIBOR plus 3.40%, which resets every five years.
|
|
(5)
|
The notes bear interest at a fixed rate of 5.875% per year, from and including May 30, 2018 to, but excluding, June 1, 2023. From and including June 1, 2023 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current 3-month LIBOR plus 2.88%. The notes qualify as Tier II capital of the Company. Debt issuance costs of $0.9 million are being amortized over the life of the notes.
|
|
(6)
|
The notes bear interest at a fixed rate of 7.00% per year, from and including June 30, 2020 to, but excluding, June 30, 2025. From and including June 30, 2025 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term secured overnight financing rate (SOFR) plus 687.5 basis points. The notes qualify as Tier II capital of the Company. The Company incurred $0.6 million of costs related to the issuance of the notes. These costs have been capitalized and are being amortized over the life of the notes.
|
NOTE 12 – PREFERRED STOCK
The Company has 15,000 shares of non-cumulative,
nonparticipating preferred stock authorized with a $1,000 per share stated value. This preferred stock pays a quarterly dividend
at a variable rate equivalent to the prime rate plus fifty basis points with a minimum dividend of 4.0%. The variable rate
at December 31, 2020 was 4.0%. There were 8,000 shares issued and outstanding at both December 31, 2020 and 2019.
NOTE 13 – INCOME TAXES
Allocation of income tax expense between current
and deferred portions consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Current
|
|
|
|
|
|
|
Federal income tax
|
|
$
|
1,219
|
|
|
$
|
1,766
|
|
State income tax
|
|
|
199
|
|
|
|
1,449
|
|
Total current
|
|
|
1,418
|
|
|
|
3,215
|
|
Deferred income tax expense
|
|
|
1,700
|
|
|
|
1,401
|
|
Total income tax expense
|
|
$
|
3,118
|
|
|
$
|
4,616
|
|
The reasons for the difference between income
tax expense and the amount computed by applying the statutory tax rates to income before taxes were as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Statutory federal tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax at statutory federal rate
|
|
$
|
1,805
|
|
|
$
|
4,425
|
|
Increase (reduction) resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
858
|
|
|
|
1,319
|
|
Tax exempt interest
|
|
|
(153
|
)
|
|
|
(119
|
)
|
Increase in cash surrender value
|
|
|
(160
|
)
|
|
|
(100
|
)
|
Goodwill impairment
|
|
|
1,058
|
|
|
|
—
|
|
Historical tax credit
|
|
|
—
|
|
|
|
(1,465
|
)
|
Other
|
|
|
(290
|
)
|
|
|
556
|
|
Income tax expense
|
|
$
|
3,118
|
|
|
$
|
4,616
|
|
Effective tax rate
|
|
|
36
|
%
|
|
|
22
|
%
|
The components of the net deferred tax asset were
as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Management salary continuation accrued
|
|
$
|
585
|
|
|
$
|
571
|
|
Allowance for loan losses
|
|
|
4,034
|
|
|
|
4,159
|
|
Deferred compensation
|
|
|
1,050
|
|
|
|
842
|
|
Other real estate owned
|
|
|
475
|
|
|
|
265
|
|
Net operating loss
|
|
|
1,098
|
|
|
|
1,282
|
|
Interest rate swap contracts
|
|
|
525
|
|
|
|
266
|
|
Other
|
|
|
63
|
|
|
|
63
|
|
Total deferred tax assets
|
|
$
|
7,830
|
|
|
$
|
7,448
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Loan servicing rights
|
|
|
5,011
|
|
|
|
3,407
|
|
Deferred loan costs
|
|
|
378
|
|
|
|
220
|
|
Depreciation and amortization
|
|
|
1,100
|
|
|
|
1,034
|
|
FHLB stock dividend
|
|
|
21
|
|
|
|
21
|
|
Available for sale investment securities
|
|
|
3,251
|
|
|
|
878
|
|
Other
|
|
|
371
|
|
|
|
435
|
|
Total deferred tax liabilities
|
|
$
|
10,132
|
|
|
$
|
5,995
|
|
Net deferred tax assets
|
|
$
|
(2,302
|
)
|
|
$
|
1,453
|
|
The Company has federal net operating loss carryforwards
of approximately $2.9 million as of December 31, 2020. These losses begin to expire in 2035. The Company also has
state net operating loss carryforwards totaling approximately $7.7 million as of December 31, 2020 which begin to expire in 2032. These
net operating loss carryforwards may be applied against future taxable income.
NOTE 14 – OFF-BALANCE SHEET ACTIVITIES
Credit-Related Financial Instruments
The Bank is a party to credit-related financial
instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank’s exposure to credit loss is represented
by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance
sheet instruments.
Financial instruments with contract amounts representing
credit risk as of December 31, 2020 and 2019 were as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Commitments to extend credit and unused lines of credit, including unused credit card lines
|
|
$
|
239,159
|
|
|
$
|
171,101
|
|
Standby letters of credit
|
|
|
3,948
|
|
|
|
3,930
|
|
Commitments to extend credit are agreements to
lend funds to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained,
if deemed necessary by the Bank, is based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of
credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing
customers. These lines of credit are usually collateralized and contain a specified maturity date and may not be drawn upon to the total
extent to which the Bank is committed.
Standby letters of credit are conditional commitments
issued by the Bank to guarantee the payment or the performance of a Bank customer to a third party. Both standby and performance letters
of credit are generally issued for terms of one to four years. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting these commitments.
NOTE 15 – HEDGING ACTIVITIES
On June 15, 2018, the Company executed an interest
rate swap to manage interest rate risk on two sets of its trust preferred securities. This derivative contract involves the
receipt of floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement,
without the exchange of the underlying notional value. This instrument is designated as a cash flow hedge as the receipt of
floating rate interest from the counterparty is used to manage interest rate risk associated with fluctuations in the three-month LIBOR
interest rate. The change in the fair value of this hedging instrument is recorded in accumulated other comprehensive income
and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings.
As of December 31, 2020, the Company had two outstanding
interest rate swaps designated as a cash flow hedge each with an aggregate notional value of $6.0 million. Both interest rate
swaps mature on June 15, 2028. A pre-tax unrealized loss of $0.9 million and $0.8 million was recognized in other comprehensive
income for the years ended December 31, 2020 and December 31, 2019, respectively, and there was no ineffective portion of this hedge.
The Company is exposed to credit risk in the
event of nonperformance by the interest rate swap’s counterparty. The Company minimizes this risk by entering into
derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any
losses from counterparty nonperformance on the interest rate swaps. The Company monitors counterparty risk in accordance with the
provisions of FASB ASC 815. In addition, the interest rate swap agreements contain language outlining collateral-pledging
requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits.
Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires
collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its
counterparties should either party suffer a credit rating deterioration. The Company pledged $2.4 million and $1.6 million of
cash as collateral to the counterparty as of December 31, 2020 and December 31, 2019, respectively.
NOTE 16 – EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan covering substantially
all employees. As of January 1, 2020, all employees are eligible to receive safe harbor matching contributions equal to 4.0% of qualifying
compensation as well as additional contributions at the discretion of the board of directors. For the year ended December 31,
2020, the Company’s contributions are based only upon the discretion of the board of directors; for 2019 and prior years, the plan
did not provide for a safe harbor matching contribution. Total expense was $1.1 million and $0.8 million for the years ended December
31, 2020 and 2019, respectively.
On May 1, 2006, the Company entered into
salary continuation agreements with five key employees. Under these agreements, the key employees will receive $60,000 per year beginning
on the later of attaining age 65 or their separation from service and continuing for 15 years. During 2011, the Company entered
into a salary continuation agreement with an additional key employee. Under this agreement, the key employee will receive an amount ranging
between $36,000 and $60,000 annually, depending on the employee’s age at separation, commencing upon retirement and continuing for
15 years. Each of these agreements allow for early retirement opportunities or modifications that may reduce the annual payment.
As of December 31, 2020 and 2019, the Company
had accrued $2.1 million and $2.1 million, respectively, in conjunction with these salary continuation agreements. The payouts
under these agreements for the years ending December 31, 2020 and 2019 were $0.1 million in each year.
NOTE 17 – EQUITY INCENTIVE PLAN
In 2016, the Company’s shareholders approved
the Company’s 2016 Equity Incentive Compensation Plan (the “Plan”). Under the Plan, the Company may grant
options and stock awards to its directors, officers and employees for shares of the Company’s common stock. Both qualified and non-qualified
stock options, stock appreciation rights, restricted stock, and restricted stock units may be granted and issued, respectively, under
the Plan. As of December 31, 2020, 46,637 shares remained available under the Plan.
The exercise price of options is no less than
the market price of the Company’s stock on the date of grant and an option’s maximum term is ten years. Vesting periods for
options and stock awards range from one to five years from the date of grant.
The Company grants restricted stock awards and
restricted stock units to certain members of management and directors. The shares and units have a grant date fair value equal
to the company’s stock’s Nasdaq Official Closing Price on the grant date.
The fair value of each option grant was estimated
on the grant date using the Black-Scholes option-pricing model with the following assumptions:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Risk-free interest rates
|
|
|
0.59%-1.73
|
%
|
|
|
1.42%-2.56
|
%
|
Dividend yields
|
|
|
0.76-1.85
|
%
|
|
|
0.76%-1.59
|
%
|
Expected volatility
|
|
|
33.00
|
%
|
|
|
34.00
|
%
|
Weighted-average expected life of options
|
|
|
7.00 years
|
|
|
|
7.00 years
|
|
The expected volatility is based on historical
volatility. The risk-free interest rates are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life
is based on historical exercise experience. The dividend yield assumption is based on the Company’s history of declaring dividends
on its common stock.
The activity of the Company’s outstanding
stock options for the years ended December 31, 2020 and 2019 were as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Number
of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
|
Number
of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except option and per share data)
|
|
Outstanding, beginning of year
|
|
|
214,904
|
|
|
$
|
18.94
|
|
|
|
|
|
|
|
208,988
|
|
|
$
|
18.15
|
|
|
|
|
|
Granted
|
|
|
62,398
|
|
|
|
19.52
|
|
|
|
|
|
|
|
30,495
|
|
|
|
19.91
|
|
|
|
|
|
Exercised
|
|
|
(27,635
|
)
|
|
|
12.94
|
|
|
|
|
|
|
|
(21,224
|
)
|
|
|
12.47
|
|
|
|
|
|
Forfeited/expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(3,355
|
)
|
|
|
19.88
|
|
|
|
|
|
Outstanding, end of period
|
|
|
249,667
|
|
|
$
|
19.75
|
|
|
$
|
797
|
|
|
|
214,904
|
|
|
$
|
18.94
|
|
|
$
|
2,405
|
|
Options exercisable at period-end
|
|
|
160,274
|
|
|
$
|
19.60
|
|
|
$
|
535
|
|
|
|
164,083
|
|
|
$
|
17.96
|
|
|
$
|
2,023
|
|
Weighted-average fair value of options granted during the period (2)
|
|
|
|
|
|
$
|
5.74
|
|
|
|
|
|
|
|
|
|
|
$
|
6.86
|
|
|
|
|
|
(1)
|
The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2020 and 2019. This amount changes based on changes in the market value of the Company’s stock.
|
(2)
|
The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
|
Information pertaining to options outstanding
at December 31, 2020 and 2019 was as follows:
|
|
December 31, 2020
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
Weighted Average Remaining Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
Number Exercisable
|
|
Weighted Average Remaining Contractual
Life
|
|
|
Weighted Average
Exercise
Price
|
|
$12.00
|
|
|
5,000
|
|
|
0.09 Years
|
|
|
$
|
12.00
|
|
|
5,000
|
|
|
0.09 Years
|
|
|
$
|
12.00
|
|
13.02-14.83
|
|
|
32,250
|
|
|
2.66 Years
|
|
|
|
13.83
|
|
|
32,250
|
|
|
2.66 Years
|
|
|
|
13.83
|
|
15.12-16.41
|
|
|
4,831
|
|
|
9.22 Years
|
|
|
|
15.53
|
|
|
—
|
|
|
N/A
|
|
|
|
—
|
|
17.14-19.88
|
|
|
144,125
|
|
|
6.65 Years
|
|
|
|
19.00
|
|
|
84,029
|
|
|
4.94 Years
|
|
|
|
19.52
|
|
20.92-24.98
|
|
|
22,089
|
|
|
7.85 Years
|
|
|
|
22.30
|
|
|
12,742
|
|
|
7.02 Years
|
|
|
|
23.39
|
|
25.24-27.31
|
|
|
41,372
|
|
|
7.36 Years
|
|
|
|
26.49
|
|
|
26,253
|
|
|
6.70 Years
|
|
|
|
26.52
|
|
Outstanding, end of period
|
|
|
249,667
|
|
|
|
|
|
$
|
19.75
|
|
|
160,274
|
|
|
|
|
|
$
|
19.60
|
|
|
|
December 31, 2019
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
Weighted Average Remaining Contractual
Life
|
|
|
Weighted Average
Exercise
Price
|
|
Number Exercisable
|
|
Weighted Average Remaining Contractual
Life
|
|
|
Weighted Average
Exercise
Price
|
|
$12.00
|
|
|
26,400
|
|
|
1.02 Years
|
|
|
$
|
12.00
|
|
|
26,400
|
|
|
1.02 Years
|
|
|
$
|
12.00
|
|
13.02-14.83
|
|
|
36,220
|
|
|
3.70 Years
|
|
|
|
13.88
|
|
|
36,220
|
|
|
3.70 Years
|
|
|
|
13.88
|
|
17.15-19.88
|
|
|
100,060
|
|
|
6.42 Years
|
|
|
|
19.28
|
|
|
78,178
|
|
|
5.62 Years
|
|
|
|
19.68
|
|
20.92-24.98
|
|
|
20,291
|
|
|
8.59 Years
|
|
|
|
23.42
|
|
|
7,672
|
|
|
7.23 Years
|
|
|
|
22.82
|
|
25.24-27.31
|
|
|
31,933
|
|
|
7.85 Years
|
|
|
|
26.49
|
|
|
15,613
|
|
|
7.60 Years
|
|
|
|
26.54
|
|
Outstanding, end of period
|
|
|
214,904
|
|
|
|
|
|
$
|
18.94
|
|
|
164,083
|
|
|
|
|
|
$
|
17.96
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
Nonvested options, December 31, 2018
|
|
|
|
49,532
|
|
|
$
|
7.86
|
|
Granted
|
|
|
|
30,495
|
|
|
|
6.86
|
|
Vested
|
|
|
|
(27,528
|
)
|
|
|
6.94
|
|
Forfeited/exercised
|
|
|
|
(1,678
|
)
|
|
|
4.88
|
|
Nonvested options, December 31, 2019
|
|
|
|
50,821
|
|
|
$
|
7.86
|
|
Granted
|
|
|
|
62,398
|
|
|
|
5.74
|
|
Vested
|
|
|
|
(23,826
|
)
|
|
|
8.31
|
|
Forfeited/exercised
|
|
|
|
—
|
|
|
|
—
|
|
Nonvested options, December 31, 2020
|
|
|
|
89,393
|
|
|
$
|
6.26
|
|
Activity in restricted stock awards and restricted
stock units during 2020 and 2019 was as follows:
|
|
December 31, 2020
|
|
|
|
Restricted Stock Awards
|
|
|
Weighted
Average Grant
Price
|
|
Outstanding, beginning of year
|
|
|
12,896
|
|
|
$
|
22.75
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(6,597
|
)
|
|
|
20.57
|
|
Forfeited/expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding, end of period
|
|
|
6,299
|
|
|
$
|
24.80
|
|
|
|
December 31, 2019
|
|
|
|
Restricted Stock
Awards (1)
|
|
|
Weighted
Average Grant
Price
|
|
Outstanding, beginning of year
|
|
|
28,701
|
|
|
$
|
21.02
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(15,579
|
)
|
|
|
19.50
|
|
Forfeited/expired
|
|
|
(226
|
)
|
|
|
27.15
|
|
Outstanding, end of period
|
|
|
12,896
|
|
|
$
|
22.75
|
|
|
|
December 31, 2020
|
|
|
|
Restricted Stock
Units
|
|
|
Weighted
Average Grant
Price
|
|
Outstanding, beginning of year
|
|
|
32,125
|
|
|
$
|
19.80
|
|
Granted
|
|
|
50,410
|
|
|
|
19.11
|
|
Issued
|
|
|
(15,679
|
)
|
|
|
19.27
|
|
Forfeited/expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding, end of period
|
|
|
66,856
|
|
|
$
|
19.38
|
|
|
|
December 31, 2019
|
|
|
|
Restricted Stock
Units (1)
|
|
|
Weighted
Average Grant
Price
|
|
Outstanding, beginning of year
|
|
|
11,772
|
|
|
$
|
25.53
|
|
Granted
|
|
|
24,382
|
|
|
|
17.54
|
|
Issued
|
|
|
(3,654
|
)
|
|
|
27.42
|
|
Forfeited/expired
|
|
|
(375
|
)
|
|
|
18.11
|
|
Outstanding, end of period
|
|
|
32,125
|
|
|
$
|
19.80
|
|
|
(1)
|
2019 amounts have been reclassified in include restricted stock awards and units for individuals that have reached retirement age as defined by the Plan. Previously, these were considered vested and removed from the schedule; however, the Plan only accelerates the vesting of these options if the participant leaves employment
|
For the years ended December 31, 2020 and
2019, share-based compensation expense, including options, restricted stock awards, and restricted stock units, applicable to the Plan
was $0.9 million and $0.7 million, respectively, and the recognized tax benefit related to this expense was $0.2 million and $0.2 million,
respectively.
As of December 31, 2020, unrecognized share-based
compensation expense related to nonvested options and restricted stock amounted to $0.9 million and is expected to be recognized over
a weighted average period of 1.66 years.
NOTE 18 – REGULATORY MATTERS
The Company (on a consolidated basis) and Bank
are each subject to various regulatory capital requirements administered by the federal and state banking agencies. The
Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, includes quantitative measures designed to
ensure capital adequacy. The Basel III Rules designed the capital conservation buffer to absorb losses during periods of economic
stress and effectively increases the minimum required risk-weighted capital ratios. The Basel III rules require the Company
and the Bank to maintain (set forth in the table below):
|
(i)
|
Tier 1 Common Equity ratio to risk weighted assets minimum of 4.50% plus a 2.50% “capital conservation buffer” (effectively resulting in minimum Tier 1 Common Equity ratio of 7.00%)
|
|
(ii)
|
Tier 1 Capital ratio to risk weighted assets minimum of 6.00% plus the capital conservation buffer (effectively resulting in a minimum Tier 1 Capital to risk-based capital ratio of 8.50%)
|
|
(iii)
|
Total Capital ratio to risk weighted assets minimum of 8.00% plus the capital conservation buffer (effectively resulting in a minimum Total Capital to risk weighted assets ratio of 10.50%)
|
|
(iv)
|
Tier 1 Leverage Capital ratio minimum of 4.00%.
|
Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action (applicable only to the Bank), the Company and Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank holding companies. Management believed, as of December 31, 2020
and 2019, that the Company and Bank met all capital adequacy requirements to which they were subject.
As of December 31, 2020, the most recent
notification from the banking regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. There were no conditions or events since the notification that management believes have changed the Bank’s category.
The Company’s and Bank’s actual capital
amounts and ratios are presented in the following table:
|
|
Actual
|
|
|
Minimum For
Capital Adequacy
Purposes
(including the capital
conservation buffer):
|
|
|
Minimum To Be Well
Capitalized Under
Prompt Corrective
Action Provisions:
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
246,275
|
|
|
|
19.50
|
%
|
|
|
132,603
|
|
|
|
10.50
|
%
|
|
Not applicable
|
Bank
|
|
|
211,864
|
|
|
|
16.83
|
%
|
|
|
132,174
|
|
|
|
10.50
|
%
|
|
$125,880
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
180,135
|
|
|
|
14.26
|
%
|
|
|
107,345
|
|
|
|
8.50
|
%
|
|
Not applicable
|
Bank
|
|
|
197,056
|
|
|
|
15.65
|
%
|
|
|
106,998
|
|
|
|
8.50
|
%
|
|
100,704
|
|
|
8.00
|
%
|
Tier 1 Capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
180,135
|
|
|
|
13.01
|
%
|
|
|
55,403
|
|
|
|
4.00
|
%
|
|
Not applicable
|
Bank
|
|
|
197,056
|
|
|
|
14.06
|
%
|
|
|
56,047
|
|
|
|
4.00
|
%
|
|
70,059
|
|
|
5.00
|
%
|
Tier 1 Common Equity (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
156,427
|
|
|
|
12.39
|
%
|
|
|
88,402
|
|
|
|
7.00
|
%
|
|
Not applicable
|
Bank
|
|
|
197,056
|
|
|
|
15.65
|
%
|
|
|
88,116
|
|
|
|
7.00
|
%
|
|
81,822
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
225,094
|
|
|
|
19.41
|
%
|
|
|
121,746
|
|
|
|
10.50
|
%
|
|
Not applicable
|
Bank
|
|
|
216,198
|
|
|
|
18.70
|
%
|
|
|
121,396
|
|
|
|
10.50
|
%
|
|
$115,615
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
180,620
|
|
|
|
15.58
|
%
|
|
|
98,557
|
|
|
|
8.50
|
%
|
|
Not applicable
|
Bank
|
|
|
201,735
|
|
|
|
17.45
|
%
|
|
|
98,273
|
|
|
|
8.50
|
%
|
|
92,492
|
|
|
8.00
|
%
|
Tier 1 Capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
180,620
|
|
|
|
12.42
|
%
|
|
|
58,182
|
|
|
|
4.00
|
%
|
|
Not applicable
|
Bank
|
|
|
201,735
|
|
|
|
14.68
|
%
|
|
|
54,962
|
|
|
|
4.00
|
%
|
|
68,702
|
|
|
5.00
|
%
|
Tier 1 Common Equity (to risk weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
156,969
|
|
|
|
13.54
|
%
|
|
|
81,164
|
|
|
|
7.00
|
%
|
|
Not applicable
|
Bank
|
|
|
201,735
|
|
|
|
17.45
|
%
|
|
|
80,930
|
|
|
|
7.00
|
%
|
|
75,150
|
|
|
6.50
|
%
|
NOTE 19 – RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has
granted loans to principal officers and directors and their affiliates.
Activity consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Balance, beginning of period
|
|
$
|
4,074
|
|
|
$
|
5,637
|
|
New loans
|
|
|
709
|
|
|
|
2,174
|
|
Repayments
|
|
|
(2,622
|
)
|
|
|
(3,737
|
)
|
Balance, end of period
|
|
$
|
2,161
|
|
|
$
|
4,074
|
|
Deposits from related parties held by the Bank
at December 31, 2020 and 2019 amounted to $4.8 million and $6.0 million, respectively.
NOTE 20 – FAIR VALUE
MEASUREMENTS
Determination of Fair Value
The Company uses fair value measurements to record
fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument
is the price that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there
are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimate of future cash flows. Accordingly, the fair value estimates may not be realized
in an immediate settlement of the instrument.
Guidance provides a consistent definition of fair
value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants
at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity
for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances,
determining the price at which willing market participants would transact at the measurement date under current market conditions depends
on the facts and circumstances and requires the use of significant judgment. The fair value is considered a reasonable point within the
range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
The Company groups its financial assets and financial
liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability
of the assumptions used to determine fair value.
Level 1—Valuation is based on quoted prices
in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level
1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained
from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2—Valuation is based on inputs other
than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may
be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable
or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3—Valuation is based on unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level
3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used
by the Company in estimating the fair value of financial instruments:
Cash and Cash Equivalents and Interest Earning
Deposits in Banks
The carrying amounts of cash and cash equivalents
approximate fair values based on the short-term nature of the assets.
Fair values of interest bearing deposits in banks
are estimated using discounted cash flow analyses based on current rates for similar types of deposits.
Securities Available for Sale
Where quoted prices are available in an active
market, the Company classifies the securities within Level 1 of the valuation hierarchy. Securities are defined as both long and
short positions. Level 1 securities include highly liquid government bonds and exchange-traded equities.
If quoted market prices are not available, the
Company estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market
data, benchmark yields, interest rate volatilities, broker/dealer quotes and credit spreads.
Examples of such instruments, which would generally
be classified within Level 2 of the valuation hierarchy, include U.S. government and agency securities, corporate bonds and other
securities. Mortgage-backed securities that are included in Level 2 if observable inputs are available. In certain cases where there
is limited activity or less transparency around inputs to the valuation, the Company classifies those securities in Level 3.
Loans
For variable-rate loans that reprice frequently
and that have no significant change in credit risk, carrying values approximate fair value. Fair values for certain mortgage loans (e.g.,
one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial
and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using discounted cash flow analyses
or underlying collateral values adjusted for selling costs , where applicable.
Loans Held for Sale
The carrying value of loans held for sale generally
approximates fair value based on the short-term nature of the assets. If management identifies a loan held for sale that will ultimately
sell at a value less than its carrying value, it is recorded at the estimated value.
Loan Servicing Rights
Fair value is based on a discounted cash flow
model based on estimates of future net servicing income.
Other Real Estate Owned
Property recognized as other real estate owned
is initially recorded at fair value. Subsequently, other real estate owned is carried at the lower of carrying value or fair value. Fair
value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the
collateral reduced for estimated selling costs. Due to the significance of the unobservable inputs, all other real estate owned is classified
as Level 3.
Deposits
The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to
the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money
market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates
of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
Other Borrowings
The carrying amounts of federal funds purchased,
other borrowings and other short-term borrowings maturing within ninety days approximate their fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on current market rates for similar types of borrowing arrangements.
Advances from FHLB
Current market rates for debt with similar terms
and remaining maturities are used to estimate fair value of existing debt. Fair values are estimated using discounted cash flow analyses
based on current market rates for similar types of borrowing arrangements.
Subordinated Debentures
The carrying amounts approximate fair value.
Hedging Activities
Interest rate swap agreements are measured at
fair value on a recurring basis. We measure fair value utilizing models that use primarily market observable inputs, such as
forecasted yield curves.
Accrued Interest
The carrying amounts approximate fair value.
Commitments to Extend Credit and Standby Letters
of Credit
As of December 31, 2020 and 2019, the carrying
and fair values of commitments to extend credit and standby letters of credit are not considered significant.
Assets and Liabilities Measured at Fair Value
on a Recurring Basis
Assets and liabilities measured at fair value
on a recurring basis are summarized below:
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
—
|
|
|
$
|
14,593
|
|
|
$
|
—
|
|
|
$
|
14,593
|
|
Municipal securities
|
|
|
—
|
|
|
|
153,654
|
|
|
|
—
|
|
|
|
153,654
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
135,378
|
|
|
|
—
|
|
|
|
135,378
|
|
Corporate bonds
|
|
|
—
|
|
|
|
32,511
|
|
|
|
—
|
|
|
|
32,511
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
16,718
|
|
|
|
—
|
|
|
|
16,718
|
|
Loan servicing rights (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
18,396
|
|
|
|
18,396
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
352,854
|
|
|
$
|
18,396
|
|
|
$
|
371,250
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments, interest rate swaps
|
|
$
|
—
|
|
|
$
|
1,914
|
|
|
$
|
—
|
|
|
$
|
1,914
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
—
|
|
|
$
|
3,458
|
|
|
$
|
—
|
|
|
$
|
3,458
|
|
U.S treasury securities
|
|
|
—
|
|
|
|
2,506
|
|
|
|
—
|
|
|
|
2,506
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
152,769
|
|
|
|
—
|
|
|
|
152,769
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
158,733
|
|
|
$
|
—
|
|
|
$
|
158,733
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments, interest rate swaps
|
|
$
|
—
|
|
|
$
|
972
|
|
|
$
|
—
|
|
|
$
|
972
|
|
|
(1)
|
See Note 6 for quantitative information on the significant inputs and a rollforward of activity related to the loan servicing rights
|
Assets Measured at Fair Value on a Nonrecurring
Basis
Certain assets and liabilities are measured at
fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there
is evidence of impairment). The following table presents the financial instruments carried on the consolidated balance sheet by caption
and by level in the fair value hierarchy for which a nonrecurring change in fair value has been recorded:
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,521
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
1,077
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,598
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,657
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
5,521
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50,178
|
|
The significant inputs used in the fair value
measurements for Level 3 assets measured at fair value on a nonrecurring basis are as follows:
|
|
December 31, 2020
|
|
|
|
Valuation
Techniques
|
|
Unobservable
Inputs
|
|
|
Range
(Average)
|
|
Impaired loans
|
|
Evaluation of collateral
|
|
Estimation of value
|
|
|
NM*
|
|
Other real estate owned
|
|
Appraisal
|
|
Appraisal adjustment
|
|
|
6%-9% (7%)
|
|
|
|
December 31, 2019
|
|
|
|
Valuation
Techniques
|
|
Unobservable
Inputs
|
|
|
Range
(Average)
|
|
Impaired loans
|
|
Evaluation of collateral
|
|
Estimation of value
|
|
|
NM*
|
|
Other real estate owned
|
|
Appraisal
|
|
Appraisal adjustment
|
|
|
5%-64% (29%)
|
|
*
|
Not Meaningful. Evaluations of the underlying assets are completed for each impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered include aging of receivables, condition of the collateral, potential market for the collateral, and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful.
|
Impaired Loans
In accordance with the provisions of the loan
impairment guidance, impairment was measured on loans for which it is probable that payment of interest and principal will not be made
in accordance with the contractual terms of the loan agreement. The fair value of impaired loans is estimated using one of several methods,
including collateral value, market value of similar debt, or discounted cash flows. Those impaired loans not requiring an allowance represent
loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans
for which an allowance is established require classification in the fair value hierarchy. Collateral values are estimated using Level
3 inputs based on management judgement of discounts to collateral valuations and estimates of costs to sell.
Impairment amounts on impaired loans represent
specific valuation allowance and write-downs during the period presented on impaired loans that were individually evaluated for impairment
based on the estimated fair value of the collateral less estimated selling costs, excluding impaired loans fully charged-off.
Other Real Estate Owned
Foreclosed assets are recorded at fair value based
on property appraisals, less estimated selling costs, at the date of the transfer with any impairment amount charged to the allowance
for loan losses. Subsequent to the transfer, foreclosed assets are carried at the lower of carrying value or fair value, less estimated
selling costs with changes in fair value or any impairment amount recorded in the other non-interest expense. Values are estimated using
Level 3 inputs based on customized discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a
recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.
The estimated fair values, and related carrying
or notional amounts, of the Company’s financial instruments were as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Input
Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,084
|
|
|
$
|
19,084
|
|
|
$
|
108,457
|
|
|
$
|
108,457
|
|
|
|
1
|
|
Interest earning cash at other financial institutions
|
|
|
416
|
|
|
|
416
|
|
|
|
20,554
|
|
|
|
20,554
|
|
|
|
1
|
|
FHLB Stock
|
|
|
5,758
|
|
|
|
5,758
|
|
|
|
1,628
|
|
|
|
1,628
|
|
|
|
2
|
|
Securities available for sale
|
|
|
352,854
|
|
|
|
352,854
|
|
|
|
158,733
|
|
|
|
158,733
|
|
|
|
2
|
|
Loans, net of allowance for loan losses
|
|
|
981,477
|
|
|
|
991,342
|
|
|
|
1,020,506
|
|
|
|
1,024,062
|
|
|
|
3
|
|
Loans held for sale
|
|
|
35,976
|
|
|
|
35,976
|
|
|
|
2,151
|
|
|
|
2,151
|
|
|
|
3
|
|
Accrued interest receivable
|
|
|
3,240
|
|
|
|
3,240
|
|
|
|
2,571
|
|
|
|
2,571
|
|
|
|
2
|
|
Loan servicing rights
|
|
|
18,396
|
|
|
|
18,396
|
|
|
|
12,509
|
|
|
|
15,921
|
|
|
|
3
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
|
|
|
419,542
|
|
|
|
426,092
|
|
|
|
640,925
|
|
|
|
635,558
|
|
|
|
2
|
|
Other deposits
|
|
|
621,284
|
|
|
|
621,284
|
|
|
|
460,517
|
|
|
|
460,517
|
|
|
|
1
|
|
Other borrowings
|
|
|
49,006
|
|
|
|
49,006
|
|
|
|
794
|
|
|
|
794
|
|
|
|
3
|
|
Advances from FHLB
|
|
|
129,000
|
|
|
|
130,361
|
|
|
|
44,400
|
|
|
|
44,578
|
|
|
|
2
|
|
Subordinated debentures
|
|
|
67,111
|
|
|
|
67,111
|
|
|
|
44,858
|
|
|
|
44,858
|
|
|
|
3
|
|
Accrued interest payable
|
|
|
2,496
|
|
|
|
2,496
|
|
|
|
4,769
|
|
|
|
4,769
|
|
|
|
2
|
|
Derivative instruments, interest rate swaps
|
|
|
1,914
|
|
|
|
1,914
|
|
|
|
972
|
|
|
|
972
|
|
|
|
2
|
|
NOTE 21 – EARNINGS PER SHARE
Earnings per common share (“EPS”) was computed based on
the following:
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands except share data)
|
|
Net income from continuing operations
|
|
$
|
5,479
|
|
|
$
|
16,452
|
|
Less: preferred stock dividends
|
|
|
368
|
|
|
|
472
|
|
Income available to common shareholders for basic EPS
|
|
$
|
5,111
|
|
|
$
|
15,980
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares issued
|
|
|
7,197,557
|
|
|
|
7,163,650
|
|
Less: weighted average treasury shares
|
|
|
780,070
|
|
|
|
443,873
|
|
Plus: weighted average nonvested equity incentive plan shares
|
|
|
59,686
|
|
|
|
27,804
|
|
Weighted average number of common shares outstanding
|
|
|
6,477,173
|
|
|
|
6,747,581
|
|
Effect of dilutive options
|
|
|
28,025
|
|
|
|
21,344
|
|
Weighted average number of common shares outstanding used to calculate diluted earnings per common share
|
|
|
6,505,198
|
|
|
|
6,768,925
|
|
NOTE 22 – DIVIDEND AND CAPITAL RESTRICTIONS
Federal and state banking regulations place certain
restrictions on dividends paid and loans or advances made by the Bank to the Company. In addition, dividends paid by the Bank to the Company
would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.
Cash dividends paid to the Company by the Bank were $22.0 million and $6.0 million for the years ended December 31, 2020 and 2019,
respectively.
NOTE 23 – SUBSEQUENT EVENTS
Management evaluated subsequent events through
the date the financial statements were issued.
On February 16, 2021, the Company announced the
authorization of a stock repurchase plan that allows for the repurchase of up to 609,000 shares of its common stock through February 16,
2024.
On February 16, 2021, our Board of Directors declared
a quarterly dividend totaling $0.10 per share for shareholders of record as of March 5, 2021, and payable on March 19, 2021.
NOTE 24 – UNAUDITED INTERIM FINANCIAL
DATA
Unaudited quarterly financial data for the periods
indicated is summarized below:
|
|
2020
|
|
|
|
Fourth
Quarter
|
|
|
Third Quarter
|
|
|
Second
Quarter
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except share data)
|
|
Interest income
|
|
$
|
14,588
|
|
|
$
|
13,106
|
|
|
$
|
13,686
|
|
|
$
|
14,095
|
|
Interest expense
|
|
|
3,950
|
|
|
|
4,452
|
|
|
|
4,800
|
|
|
|
5,297
|
|
Net interest income
|
|
|
10,638
|
|
|
|
8,654
|
|
|
|
8,886
|
|
|
|
8,798
|
|
Provision for loan losses
|
|
|
(455
|
)
|
|
|
79
|
|
|
|
1,142
|
|
|
|
2,218
|
|
Net interest income after provision for loan losses
|
|
|
11,093
|
|
|
|
8,575
|
|
|
|
7,744
|
|
|
|
6,580
|
|
Non-interest income
|
|
|
4,495
|
|
|
|
3,672
|
|
|
|
3,380
|
|
|
|
2,703
|
|
Non-interest expense
|
|
|
9,495
|
|
|
|
7,667
|
|
|
|
7,465
|
|
|
|
15,018
|
|
Income tax expense (benefit)
|
|
|
1,575
|
|
|
|
1,164
|
|
|
|
926
|
|
|
|
(547
|
)
|
Net income (loss)
|
|
$
|
4,518
|
|
|
$
|
3,416
|
|
|
$
|
2,733
|
|
|
$
|
(5,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.70
|
|
|
$
|
0.52
|
|
|
$
|
0.40
|
|
|
$
|
(0.79
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.70
|
|
|
$
|
0.52
|
|
|
$
|
0.40
|
|
|
$
|
(0.78
|
)
|
Dividends declared per share
|
|
$
|
0.10
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
|
2019
|
|
|
|
Fourth
Quarter
|
|
|
Third Quarter
|
|
|
Second
Quarter
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except share data)
|
|
Interest income
|
|
$
|
15,239
|
|
|
$
|
16,759
|
|
|
$
|
17,208
|
|
|
$
|
17,126
|
|
Interest expense
|
|
|
5,701
|
|
|
|
6,507
|
|
|
|
6,776
|
|
|
|
6,566
|
|
Net interest income
|
|
|
9,538
|
|
|
|
10,252
|
|
|
|
10,432
|
|
|
|
10,560
|
|
Provision for loan losses
|
|
|
(51
|
)
|
|
|
(1,154
|
)
|
|
|
876
|
|
|
|
752
|
|
Net interest income after provision for loan losses
|
|
|
9,589
|
|
|
|
11,406
|
|
|
|
9,556
|
|
|
|
9,808
|
|
Non-interest income
|
|
|
3,722
|
|
|
|
4,034
|
|
|
|
2,887
|
|
|
|
2,750
|
|
Non-interest expense
|
|
|
10,265
|
|
|
|
7,668
|
|
|
|
7,446
|
|
|
|
7,305
|
|
Income tax expense
|
|
|
(258
|
)
|
|
|
2,090
|
|
|
|
1,293
|
|
|
|
1,491
|
|
Net income
|
|
$
|
3,304
|
|
|
$
|
5,682
|
|
|
$
|
3,704
|
|
|
$
|
3,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.47
|
|
|
$
|
0.82
|
|
|
$
|
0.53
|
|
|
$
|
0.54
|
|
Diluted earnings per share
|
|
$
|
0.47
|
|
|
$
|
0.82
|
|
|
$
|
0.53
|
|
|
$
|
0.54
|
|
Dividends declared per share
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
NOTE 25 – COUNTY BANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,327
|
|
|
$
|
5,016
|
|
Investment in bank subsidiary
|
|
|
205,743
|
|
|
|
204,240
|
|
Goodwill
|
|
|
—
|
|
|
|
5,038
|
|
Other assets
|
|
|
4,135
|
|
|
|
3,566
|
|
Total assets
|
|
$
|
241,205
|
|
|
$
|
217,860
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
$
|
2,318
|
|
|
$
|
1,239
|
|
Subordinated debentures, net
|
|
|
67,111
|
|
|
|
44,858
|
|
Shareholders' equity
|
|
|
171,776
|
|
|
|
171,763
|
|
Total liabilities and shareholders' equity
|
|
$
|
241,205
|
|
|
$
|
217,860
|
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
For the year ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
INTEREST AND DIVIDEND INCOME
|
|
$
|
281
|
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3,631
|
|
|
|
2,743
|
|
Goodwill impairment
|
|
|
5,038
|
|
|
|
—
|
|
Other operating expenses
|
|
|
1,473
|
|
|
|
1,398
|
|
Total expenses
|
|
|
10,142
|
|
|
|
4,141
|
|
Income before income taxes and equity in undistributed net income of subsidiary
|
|
|
(9,861
|
)
|
|
|
(3,994
|
)
|
Income tax benefit
|
|
|
1,369
|
|
|
|
1,085
|
|
Equity in undistributed net income of subsidiary
|
|
|
13,971
|
|
|
|
19,361
|
|
NET INCOME
|
|
$
|
5,479
|
|
|
$
|
16,452
|
|
CONDENSED STATEMENT OF CASH FLOWS
|
|
For the year ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,479
|
|
|
$
|
16,452
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Equity in undistributed net income of subsidiary
|
|
|
(13,971
|
)
|
|
|
(19,361
|
)
|
Amortization of core deposit intangible
|
|
|
171
|
|
|
|
288
|
|
Amortization of subordinated debenture costs
|
|
|
449
|
|
|
|
155
|
|
Impairment of goodwill
|
|
|
5,038
|
|
|
|
—
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(485
|
)
|
|
|
(1,559
|
)
|
Other liabilities
|
|
|
406
|
|
|
|
102
|
|
Net cash used in operating activities
|
|
|
(2,913
|
)
|
|
|
(3,923
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Dividends received from subsidiary
|
|
|
22,000
|
|
|
|
6,000
|
|
Net cash provided by investing activities
|
|
|
22,000
|
|
|
|
6,000
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
358
|
|
|
|
265
|
|
Increase in subordinated debentures
|
|
|
21,804
|
|
|
|
—
|
|
Payments to acquire treasury stock
|
|
|
(12,576
|
)
|
|
|
—
|
|
Dividends paid on preferred stock
|
|
|
(368
|
)
|
|
|
(472
|
)
|
Dividends paid on common stock
|
|
|
(1,994
|
)
|
|
|
(1,344
|
)
|
Net cash provided by (used in) financing activities
|
|
|
7,224
|
|
|
|
(1,551
|
)
|
Net change in cash and cash equivalents
|
|
|
26,311
|
|
|
|
526
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,016
|
|
|
|
4,490
|
|
Cash and cash equivalents, end of period
|
|
$
|
31,327
|
|
|
$
|
5,016
|
|