EX-99.3 5 tm2134562d1_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3

 

Item 1. Financial Statements.

 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2021 and December 31, 2020

 

   September 30, 2021   December 31, 2020 
   (unaudited)     
   (dollars in thousands except per share data) 
ASSETS        
Cash and cash equivalents  $105,131   $19,084 
Interest earning cash at other financial institutions   417    416 
Securities available-for-sale, at fair value   338,211    352,854 
FHLB Stock   5,485    5,758 
Loans held for sale   11,139    35,976 
  Loans, net of allowance for loan losses of $10,715 as of September 30, 2021;
  $14,808 as of December 31, 2020
   994,243    981,477 
Premises and equipment, net   20,677    14,898 
Loan servicing rights   19,413    18,396 
Other real estate owned, net   914    1,077 
Cash surrender value of bank owned life insurance   31,885    31,275 
  Core deposit intangible, net of accumulated amortization of $1,798 as
  of September 30, 2021; $1,747 as of December 31, 2020
   2    54 
Accrued interest receivable and other assets   12,476    11,093 
Total assets  $1,539,993   $1,472,358 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $168,008   $163,202 
Interest-bearing   1,013,488    877,624 
Total deposits   1,181,496    1,040,826 
Other borrowings   12,844    49,006 
Advances from FHLB   85,000    129,000 
Subordinated debentures   67,598    67,111 
Deferred tax liability, net   2,420    2,302 
Accrued interest payable and other liabilities   13,316    12,337 
Total liabilities   1,362,674    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; 7,277,097 shares issued
  and 6,053,369 shares outstanding as of September 30, 2021; 7,212,727 shares
  issued and 6,197,965 shares outstanding as of December 31, 2020
   29    29 
Surplus   56,989    55,346 
Retained earnings   131,415    118,712 
  Treasury stock, at cost; 1,223,728 shares at September 30, 2021; 1,014,762 shares
  at December 31, 2020
   (22,346)   (17,606)
Accumulated other comprehensive income   3,232    7,295 
Total shareholders' equity   177,319    171,776 
Total liabilities and shareholders' equity  $1,539,993   $1,472,358 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2021 and 2020

(Unaudited)

 

    For the Three Months Ended September 30,   For the Nine Months Ended September 30,  
    2021   2020*   2021   2020*  
                   
     (dollars in thousands except per share data)
INTEREST AND DIVIDEND INCOME                                
Loans, including fees   $ 11,491     $ 11,594     $ 35,014     $ 36,169  
Taxable securities     1,821       1,293       5,913       3,858  
Tax-exempt securities     260       167       768       335  
Federal funds sold and other     93       52       222       388  
Total interest and dividend income     13,665       13,106       41,917       40,750  
                                 
INTEREST EXPENSE                                
Deposits     1,590       2,914       5,376       10,982  
FHLB advances and other borrowed funds     232       456       830       1,043  
Subordinated debentures     1,106       1,082       3,318       2,524  
Total interest expense     2,928       4,452       9,524       14,549  
Net interest income     10,737       8,654       32,393       26,201  
Provision for (recovery of) loan losses     (634 )     79       (4,670 )     3,439  
Net interest income after provision for loan losses     11,371       8,575       37,063       22,762  
NON-INTEREST INCOME                                
Services charges     137       108       421       360  
Crop insurance commission     309       271       902       729  
Gain on sale of loans     1,701       1,285       5,253       2,856  
Loan servicing fees, net     590       1,503       2,746       4,291  
Gain (loss) on sale of securities     -       101       (1,453 )     671  
Other     470       404       1,302       985  
Total non-interest income     3,207       3,672       9,171       9,892  
NON-INTEREST EXPENSE                                
Employee compensation and benefits     5,846       4,766       17,854       14,620  
Occupancy     331       321       903       980  
Information processing     640       641       1,965       1,974  
Professional fees     503       555       1,755       1,436  
Charitable contributions     301       47       402       143  
Writedown of other real estate owned     -       -       -       1,360  
Goodwill impairment     -       -       -       5,038  
Loss (gain) on sale of fixed assets     (7 )     (2 )     (1,088 )     234  
Merger-related professional fees     322       -       707       -  
Other     1,101       1,339       4,069       4,365  
Total non-interest expense     9,037       7,667       26,567       30,150  
Income before income taxes     5,541       4,580       19,667       2,504  
Income tax expense     1,433       1,164       4,888       1,543  
NET INCOME   $ 4,108     $ 3,416     $ 14,779     $ 961  
Less: Cash dividends declared on preferred stock     (80 )     (80 )     (239 )     (287 )

NET INCOME ATTRIBUTABLE TO

COMMON SHAREHOLDERS

  $ 4,028     $ 3,336     $ 14,540     $ 674  
                                 
NET INCOME PER SHARE:                                
Basic   $ 0.66     $ 0.52     $ 2.36     $ 0.10  
Diluted   $ 0.65     $ 0.52     $ 2.34     $ 0.10  
Dividends paid per share   $ 0.10     $ 0.07     $ 0.30     $ 0.21  

 

*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 Nine Months Ended September 30, 2021 and 2020

(Unaudited)

 

   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2021   2020   2021   2020 
                 
   (dollars in thousands) 
Net income  $4,108   $3,416   $14,779   $961 
Other comprehensive income:                    
Unrealized gain (loss) on securities available-for-sale   (2,372)   (29)   (7,718)   9,103 
Income tax benefit (expense)   646    8    2,103    (2,481)
Reclassification for realized losses (gains) on securities   -    (101)   1,453    (671)
Income tax expense (benefit)   -    28    (396)   184 
Total other comprehensive income (loss) on securities
available-for-sale
   (1,726)   (94)   (4,558)   6,135 
Unrealized gain (loss) on derivatives arising during the period   127    98    680    (1,156)
Income tax benefit (expense)   (34)   (27)   (185)   315 
Total other comprehensive income (loss) on derivatives   93    71    495    (841)
Total other comprehensive income (loss)   (1,633)   (23)   (4,063)   5,294 
Comprehensive income  $2,475   $3,393   $10,716   $6,255 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three and Nine Months Ended September 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 
Net income   -    -    -    3,416    -    -    3,416 
Other comprehensive loss   -    -    -    -    -    (23)   (23)
Stock compensation expense   -    -    189    -    -    -    189 
Cash dividends declared on common stock   -    -    -    (446)   -    -    (446)
Cash dividends declared on preferred stock   -    -    -    (80)   -    -    (80)
Treasury stock purchases (80,475 shares)   -    -    -    -    (1,671)   -    (1,671)
Balance at September 30, 2020  $8,000   $28   $55,002   $114,902   $(15,114)  $7,092   $169,910 
                                    
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 
Net income   -    -    -    4,108    -    -    4,108 
Other comprehensive loss   -    -    -    -    -    (1,633)   (1,633)
Stock compensation expense   -    -    205    -    -    -    205 
Cash dividends declared on common stock   -    -    -    (605)   -    -    (605)
Cash dividends declared on preferred stock   -    -    -    (80)   -    -    (80)
Proceeds from exercise of common stock
options (26,912 shares)
   -    -    512    -    -    -    512 
Balance at September 30, 2021  $8,000   $29   $56,989   $131,415   $(22,346)  $3,232   $177,319 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

COUNTY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2021 and 2020

(Unaudited)

 

   For the Nine Months Ended 
   September 30, 2021   September 30, 2020 
         
   (dollars in thousands) 
Cash flows from operating activities          
Net income  $14,779   $961 
Adjustments to reconcile net income to cash provided by operating activities:          
Depreciation and amortization of premises and equipment   871    1,007 
Amortization of core deposit intangible   52    139 
Amortization of subordinated debentures discount   487    363 
Impairment of goodwill   -    5,038 
Provision for (recovery of) loan losses   (4,670)   3,439 
Realized loss (gain) on sales of securities available-for-sale   1,453    (671)
Realized loss (gain) on sales of premises and equipment   (1,088)   234 
Realized loss on sales of other real estate owned   17    13 
Writedown of other real estate owned   -    1,360 
Increase in cash surrender value of bank owned life insurance   (610)   (535)
Deferred income tax expense (benefit)   1,825    (272)
Stock compensation expense   702    685 
Net amortization of securities   1,577    721 
Net change in:          
Accrued interest receivable and other assets   (1,383)   (996)
Loans held for sale   24,837    (442)
Loan servicing rights   (1,017)   (2,210)
Accrued interest payable and other liabilities   1,474    1,872 
Net cash provided by operating activities   39,306    10,706 
Cash flows from investing activities          
Proceeds from maturities, principal repayments, and call of securities available-for-sale   25,250    18,768 
Purchases of securities available-for-sale   (53,753)   (185,595)
Proceeds from sales of securities available-for-sale   33,852    35,466 
Purchase (redemption) of FHLB stock   273    (4,130)
Purchase of bank owned life insurance   -    (10,000)
Loan originations and principal collections, net   (8,456)   (40,978)
Proceeds from sales of premises and equipment   1,757    1,507 
Purchases of premises and equipment   (7,319)   (3,528)
Proceeds from sales of other real estate owned   506    1,851 
Net cash used in investing activities   (7,890)   (186,639)
Cash flows from financing activities          
Net increase in demand and savings deposits   133,478    129,817 
Net increase (decrease) in certificates of deposits   7,191    (181,088)
Net change in other borrowings   (36,162)   101,015 
Proceeds from FHLB advances   376,000    516,000 
Repayment of FHLB advances   (420,000)   (475,800)
Payments to acquire treasury stock   (4,740)   (10,084)
Proceeds from issuance of subordinated debt   -    21,804 
Proceeds from issuance of common stock   941    195 
Dividends paid on common stock   (1,836)   (1,367)
Dividends paid on preferred stock   (240)   (287)
Net cash provided by financing activities   54,632    100,205 
Net change in cash and cash equivalents   86,048    (75,728)
Cash and cash equivalents, beginning of period   19,500    129,011 
Cash and cash equivalents, end of period  $105,548   $53,283 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $9,896   $16,296 
Income taxes  $2,140   $2,500 
Noncash operating activities:          
Change in accounting principle  $-   $2,484 
Noncash investing activities:          
Transfer from loans to other real estate owned  $360   $767 
Loans charged off  $125   $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 nine months ended September 30, 2021. The results of operations for the three and nine months ended September 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. Nicolet had received all regulatory approvals for the Merger on September 7, 2021, and the Merger was approved by the Company’s and Nicolet’s shareholders on October 5, 2021. Subject to customary closing conditions, the Merger is expected to be completed on December 3, 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. 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 September 30, 2021, loan balances totaling $0.2 million were still outstanding under 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 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 had been approved by Nicolet’s regulators on September 7, 2021, and was approved by the Company’s and Nicolet’s shareholders on October 5, 2021. Subject to certain customary closing conditions, the Merger is expected to be completed on December 3, 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 Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
                 
   (dollars in thousands) 
Net income from continuing operations  $4,108   $3,416   $14,779   $961 
Less: preferred stock dividends   80    80    239    287 
Income available to common shareholders for basic earnings per common share  $4,028   $3,336   $14,540   $674 
Weighted average number of common shares issued   7,260,493    7,202,000    7,240,770    7,194,642 
Less: weighted average treasury shares   1,223,728    882,153    1,161,555    720,654 
Plus: weighted average of participating restricted stock units   97,891    66,492    86,723    57,053 
Weighted average number of common shares and participating securities outstanding   6,134,656    6,386,339    6,165,938    6,531,041 
Effect of dilutive options   81,216    20,915    55,040    32,833 
Weighted average number of common shares outstanding used to calculate diluted earnings per common share   6,215,872    6,407,254    6,220,978    6,563,874 
Weighted average of anti-dilutive options   -    137,740    31,442    85,272 

 

 

 

NOTE 4 - SECURITIES AVAILABLE-FOR-SALE

 

The amortized cost and fair value of securities available-for-sale as of September 30, 2021 and December 31, 2020 were as follows:

 

   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
                 
   (dollars in thousands) 
September 30, 2021                
U.S. government and agency securities  $12,408   $1   $(85)  $12,324 
Municipal securities   126,874    3,061    (1,383)   128,552 
Mortgage-backed securities   132,242    4,923    (960)   136,205 
Corporate bonds   45,000    239    (287)   44,952 
Asset-backed securities   16,012    166    -    16,178 
   $332,536   $8,390   $(2,715)  $338,211 
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 September 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) 
September 30, 2021          
Due in one year or less  $-   $- 
Due from one to five years   -    - 
Due from five to ten years   70,469    70,373 
Due after ten years   113,813    115,455 
Asset-backed securities   16,012    16,178 
Mortgage-backed securities   132,242    136,205 
   $332,536   $338,211 
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 nine months ended September 30, 2021, which resulted in a loss of $1.5 million. For the three months ended September 30, 2020, proceeds from the sale of available-for-sale securities were $7.7 million which resulted in a gain of $0.1 million. For the nine months ended September 30, 2020, proceeds from the sale of available-for-sale securities were $35.5 million which resulted in a gain of $0.7 million.

 

At September 30, 2021 and December 31, 2020, there were $31.2 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 of FHLB stock at September 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 September 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) 
September 30, 2021                              
U.S. government and agency securities  $-   $-   $10,378   $(85)  $10,378   $(85)
Municipal securities   67,126    (1,100)   6,500    (283)   73,626    (1,383)
Mortgage-backed securities   33,244    (960)   -    -    33,244    (960)
Corporate bonds   27,463    (287)   -    -    27,463    (287)
Asset-backed securities   -    -    -    -    -    - 
   $127,833   $(2,347)  $16,878   $(368)  $144,711   $(2,715)
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 September 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 September 30, 2021 and December 31, 2020.

 

NOTE 5 - LOANS

 

The components of loans were as follows:

 

   September 30,   December 31, 
   2021   2020 
         
   (dollars in thousands) 
Agricultural loans  $631,833   $606,881 
Commercial real estate loans   247,520    235,969 
Commercial loans   86,813    115,087 
Residential real estate loans   36,873    38,084 
Installment and consumer other   1,919    264 
Total gross loans   1,004,958    996,285 
Allowance for loan losses   (10,715)   (14,808)
Net loans  $994,243   $981,477 

 

Net unamortized deferred costs totalling $0.7 million and $0.3 million as of September 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 nine months ended September 30, 2021 and 2020 were as follows:

 

   For the Three Months Ended September 30, 2021 
   Beginning Balance   Provision for Loan Losses   Loans Charged Off   Loan Recoveries   Ending Balance 
                     
   (dollars in thousands) 
Agricultural loans  $8,874   $(588)  $-   $               -   $8,286 
Commercial real estate loans   1,819    (105)   (125)   8    1,597 
Commercial loans   565    47    -    -    612 
Residential real estate loans   208    12    -    -    220 
Installment and consumer other   -    -    -    -    - 
Total  $11,466   $(634)  $(125)  $8   $10,715 

 

   For the Nine Months Ended September 30, 2021 
   Beginning Balance   Provision for Loan Losses   Loans Charged Off   Loan Recoveries   Ending Balance 
                     
   (dollars in thousands) 
Agricultural loans  $10,859   $(2,573)  $         -   $-   $8,286 
Commercial real estate loans   3,139    (2,038)   (125)   621    1,597 
Commercial loans   805    (274)   -    81    612 
Residential real estate loans   5    215    -    -    220 
Installment and consumer other   -    -    -                       -    - 
Total  $14,808   $(4,670)  $(125)  $702   $10,715 

 

   For the Three Months Ended September 30, 2020 
   Beginning Balance   Provision for Loan Losses   Loans Charged Off   Loan Recoveries   Ending Balance 
                     
   (dollars in thousands) 
Agricultural loans  $12,670   $(444)  $        -   $            -   $12,226 
Commercial real estate loans   3,859    491    -    1    4,351 
Commercial loans   1,954    (47)   -    -    1,907 
Residential real estate loans   85    3    -    -    88 
Installment and consumer other   1    (1)   -    -    - 
Unallocated   -    77    -    -    77 
Total  $18,569   $79   $-   $1   $18,649 

 

   For the Nine Months Ended September 30, 2020 
   Beginning Balance   Provision for Loan Losses   Loans Charged Off   Loan Recoveries   Ending Balance 
                     
   (dollars in thousands) 
Agricultural loans  $11,737   $466   $         -   $23   $12,226 
Commercial real estate loans   1,913    2,375    -    63    4,351 
Commercial loans   1,599    451    (144)   1    1,907 
Residential real estate loans   15    73    -    -    88 
Installment and consumer other   3    (3)   -    -    - 
Unallocated   -    77    -    -    77 
Total  $15,267   $3,439   $(144  $87   $18,649 

 

 

 

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 September 30, 2021 and December 31, 2020:

 

   September 30, 2021 
   Individually
Evaluated for
Impairment
   Collectively
Evaluated for
Impairment
   Total 
             
   (dollars in thousands) 
Allowance for loan losses:               
Agricultural loans  $1,728   $6,558   $8,286 
Commercial real estate loans   -    1,597    1,597 
Commercial loans   129    483    612 
Residential real estate loans   -    220    220 
Installment and consumer other   -    -    - 
Total ending allowance for loan losses   1,857    8,858    10,715 
Loans:               
Agricultural loans   36,829    595,004    631,833 
Commercial real estate loans   -    247,520    247,520 
Commercial loans   2,230    84,583    86,813 
Residential real estate loans   -    36,873    36,873 
Installment and consumer other   -    1,919    1,919 
Total loans   39,059    965,899    1,004,958 
Net loans  $37,202   $957,041   $994,243 

 

   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 September 30, 2021 and December 31, 2020:

 

   September 30, 2021 
   Unpaid Principal Balance   Recorded Investment   Allowance for Loan Losses Allocated 
             
   (dollars in thousands) 
With no related allowance:               
Agricultural loans  $7,237   $6,883   $- 
Commercial real estate loans   -    -    - 
Commercial loans   1,918    1,914    - 
Residential real estate loans   -    -    - 
   $9,155   $8,797   $- 
With an allowance recorded:               
Agricultural loans  $32,292   $29,946   $1,728 
Commercial real estate loans   -    -    - 
Commercial loans   347    316    129 
Residential real estate loans   -    -    - 
   $32,639   $30,262   $1,857 
Total  $41,794   $39,059   $1,857 

 

 

 

 

   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 September 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) 
September 30, 2021                        
Agricultural loans  $70   $92   $1,582   $1,744   $630,089   $631,833 
Commercial real estate loans   -    -    -    -    247,520    247,520 
Commercial loans   -    -    17    17    86,796    86,813 
Residential real estate loans   26    -    -    26    36,847    36,873 
Installment and consumer other   -    -    -    -    1,919    1,919 
Total  $96   $92   $1,599   $1,787   $1,003,171   $1,004,958 
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:

 

   September 30,   December 31, 
   2021   2020 
         
   (dollars in thousands) 
Agricultural loans  $27,576   $35,067 
Commercial real estate loans   -    6,093 
Commercial loans   316    405 
Residential real estate loans   -    59 
Total  $27,892   $41,624 

 

 

 

 

The following tables present the average recorded investment and interest income recognized on impaired loans by portfolio segment for the three and nine months ended September 30, 2021 and 2020:

 

   As of and for the Three Months Ended September 30, 2021 
   Unpaid Principal Balance   Recorded Investment   Allowance for Loan Losses Allocated   Average Recorded Investment   Interest Income Recognized 
                     
   (dollars in thousands) 
Agricultural loans  $39,529   $36,829   $1,728   $37,103   $669 
Commercial real estate loans   -    -    -    1,361    - 
Commercial loans   2,265    2,230    129    2,367    51 
Residential real estate loans   -    -    -    -    - 
Total  $41,794   $39,059   $1,857   $40,831   $720 

 

   As of and for the Nine Months Ended September 30, 2021 
   Unpaid Principal Balance   Recorded Investment   Allowance for Loan Losses Allocated   Average Recorded Investment   Interest Income Recognized 
                     
   (dollars in thousands) 
Agricultural loans  $39,529   $36,829   $1,728   $50,303   $1,698 
Commercial real estate loans   -    -    -    3,539    - 
Commercial loans   2,265    2,230    129    2,524    104 
Residential real estate loans   -    -    -    30    - 
Total  $41,794   $39,059   $1,857   $56,396   $1,802 

 

   As of and for the Three Months Ended September 30, 2020 
   Unpaid Principal Balance   Recorded Investment   Allowance for Loan Losses Allocated   Average Recorded Investment   Interest Income Recognized 
                     
   (dollars in thousands) 
Agricultural loans  $68,145   $64,384   $3,801   $61,640   $1,507 
Commercial real estate loans   9,411    9,311    2,926    9,331    59 
Commercial loans   3,027    2,930    1,207    2,906    4 
Residential real estate loans   61    60    -    60    - 
Total  $80,644   $76,685   $7,934   $73,937   $1,570 

 

 

 

 

   As of and for the Nine Months Ended September 30, 2020 
   Unpaid Principal Balance   Recorded Investment   Allowance for Loan Losses Allocated   Average Recorded Investment   Interest Income Recognized 
                     
   (dollars in thousands) 
Agricultural loans  $68,145   $64,384   $3,801   $61,609   $3,877 
Commercial real estate loans   9,411    9,311    2,926    6,497    199 
Commercial loans   3,027    2,930    1,207    2,396    73 
Residential real estate loans   61    60    -    61    1 
Total  $80,644   $76,685   $7,934   $70,563   $4,150 

 

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 $0.5 million and $1.7 million for the three months ended September 30, 2021 and 2020, respectively, and $1.3 million and $4.5 million for the nine months ended September 30, 2021 and 2020, respectively.

 

Troubled Debt Restructurings

 

The Company allocated approximately $1.5 million and $3.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at September 30, 2021 and December 31, 2020, respectively. The Company had no additional lending commitments at September 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 September 30, 2021 and December 31, 2020:

 

   Non-Accrual   Restructured and Accruing   Total   Allowance for Loan Losses Allocated 
                 
   (dollars in thousands) 
September 30, 2021                
Agricultural loans  $23,094   $4,856   $27,950   $1,519 
Commercial real estate loans   -    -    -    - 
Commercial loans   17    1,830    1,847    3 
Total  $23,111   $6,686   $29,797   $1,522 
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 by class for the three and nine months ended September 30, 2021 and 2020:

 

   For the Three Months Ended 
   September 30, 2021   September 30, 2020 
   Number of
Loans
   Recorded Investment   Number of
Loans
   Recorded
Investment
 
                 
   (dollars in thousands) 
Troubled debt restructurings:                    
Agricultural loans   8   $2,327    -   $- 
Total   8   $2,327    -   $- 

 

   For the Nine Months Ended 
   September 30, 2021   September 30, 2020 
   Number of
Loans
   Recorded Investment   Number of
Loans
   Recorded Investment 
                 
   (dollars in thousands) 
Troubled debt restructurings:                    
Agricultural loans   13   $3,913    8   $2,872 
Total   13   $3,913    8   $2,872 

 

The following table provides the troubled debt restructurings for the three and nine months ended September 30, 2021 and 2020 grouped by type of concession:

 

   For the Three Months Ended 
   September 30, 2021   September 30, 2020 
   Number of
Loans
   Recorded Investment   Number of
Loans
   Recorded
Investment
 
                 
   (dollars in thousands) 
Agricultural loans                    
Combination of extension of term and interest rate
concessions
   8   $2,327    -   $- 
Total   8   $2,327    -   $- 

 

 

 

 

   For the Nine Months Ended 
   September 30, 2021   September 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 payment concessions and interest rate
concessions
   -    -    3    1,929 
Combination of extension of term and interest rate
concessions
   8    2,327    -    - 
Total   13   $3,913    8   $2,872 

 

No troubled debt restructurings defaulted within twelve months of the restructure date during the three and nine months ended September 30, 2021 and September 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 4013 was $0.2 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 loan.

 

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 September 30, 2021 and December 31, 2020:

 

   As of September 30, 2021 
   Sound/
Acceptable/
Satisfactory/
Low Satisfactory
   Watch   Special
Mention
   Substandard Performing   Substandard
Impaired
   Total
Loans
 
                         
   (dollars in thousands) 
Agricultural loans  $484,545   $100,044   $6,927   $12,741   $27,576   $631,833 
Commercial real estate loans   226,818    19,425    -    1,277    -    247,520 
Commercial loans   78,840    4,956    538    2,163    316    86,813 
Residential real estate loans   36,673    200    -    -    -    36,873 
Installment and consumer other   1,919    -    -    -    -    1,919 
Total  $828,795   $124,625   $7,465   $16,181   $27,892   $1,004,958 

 

   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 $839.4 million and $812.6 million at September 30, 2021 and December 31, 2020, respectively. The fair value of these rights were approximately $19.4 million and $18.4 million at September 30, 2021 and December 31, 2020, respectively.

 

 

 

 

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 September 30, 2021 was determined using an assumed discount rate of 15.13% percent and a weighted average run-off rate of 17.24%, ranging from 16.71% to 24.47%, 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 a 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 September 30, 
   2021   2020 
         
   (dollars in thousands) 
Balance, beginning of period  $19,478   $16,486 
Additions, net   1,631    1,268 
Fair value changes:          
Decay due to increases in principal paydowns or runoff   (1,083)   (386)
Due to changes in valuation inputs or assumptions   (613)   (165)
Balance, end of period  $19,413   $17,203 

 

   For the Nine Months Ended September 30, 
   2021   2020 
         
   (dollars in thousands) 
Balance, beginning of period  $18,396   $15,921 
Additions, net   4,993    2,814 
Fair value changes:          
Decay due to increases in principal paydowns or runoff   (2,213)   (1,378)
Due to changes in valuation inputs or assumptions   (1,763)   (154)
Balance, end of period  $19,413   $17,203 

 

 

 

 

 

NOTE 7 - DEPOSITS

 

Deposits are summarized as follows at September 30, 2021 and December 31, 2020:

 

   September 30,   December 31, 
   2021   2020 
         
   (dollars in thousands) 
Demand deposits  $168,008   $163,202 
NOW and interest checking   143,843    96,624 
Savings   17,258    7,367 
Money market accounts   415,813    344,250 
Certificates of deposit   262,658    304,580 
National time deposits   16,333    44,347 
Brokered deposits   157,583    80,456 
Total deposits  $1,181,496   $1,040,826 

 

NOTE 8-ADVANCES FROM FHLB AND OTHER BORROWINGS

 

The Bank had advances outstanding from the FHLB in the amount of $85.0 million and $129.0 million on September 30, 2021 and December 31, 2020, respectively. These advances, rates, and maturities were as follows:

 

       September 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 
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 
             $85,000   $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 September 30, 2021 and December 31, 2020, the Bank had pledged qualifying mortgage loans of $494.8 million and $367.6 million, respectively.

 

As of September 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 $52.8 million and $111.5 million in loans at September 30, 2021 and December 31, 2020, respectively. The borrowings available to the Company were $45.7 million and $83.3 million, as of September 30, 2021 and December 31, 2020, respectively. There were no outstanding advances included in other borrowings at September 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 September 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 September 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 $11.5 million and $47.5 million at September 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:

 

   September 30,   December 31, 
   2021   2020 
         
   (dollars in thousands) 
Balance outstanding at end of period  $12,844   $49,006 
Average amount outstanding during the period   25,534    61,483 
Maximum amount outstanding at any month-end   49,917    93,709 
Weighted average interest rate during the period   0.44%   0.42%
Weighted average interest rate at end of period   0.51%   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 September 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    1.646%  12/15/2021  N/A  09/15/2035  $6,186 
Junior subordinated notes issued to County Bancorp Statutory Trust III (1)(3)   6,186    1.806%  12/15/2021  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)   29,686    5.875%  06/01/2023  06/01/2023  06/01/2028   29,545 
7.00% Fixed-to-Floating rate subordinated notes (6)   21,930    7.00%  06/30/2025  06/30/2025  06/30/2030   21,858 
Total subordinated debentures  $67,598                 $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 Bancorp, Inc., 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 September 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 nine months ended September 30, 2021 were as follows:

 

   September 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   (51,101)   18.59     
Forfeited/expired   (9,177)   20.38     
Outstanding, end of period   195,459       $3,105 
Options exercisable at period-end   134,422       $2,144 

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 September 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 nine months ended September 30, 2021 was as follows:

 

   September 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 

 

   September 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 September 30, 2021 and 2020, share-based compensation expenses, including options and restricted stock awards and units, applicable to the plan was $0.2 million. For the nine months ended September 30, 2021 and 2020, share-based compensation expense, including options and restricted stock awards and units, applicable to the Plan was $0.7 million.

 

As of September 30, 2021, unrecognized share-based compensation expense related to nonvested share-based compensation instruments amounted to $1.1 million and is expected to be recognized over a weighted average period of 2.29 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 September 30, 2021 and December 31, 2020, that the Company and Bank met all capital adequacy requirements to which they were subject.

 

As of September 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) 
September 30, 2021                        
Total Capital (to risk weighted assets):                              
Consolidated  $252,398    19.05%  $139,122    10.50%   Not applicable      
Bank   213,766    16.18%   138,710    10.50%  $132,104    10.00%
Tier 1 Capital (to risk weighted assets):                              
Consolidated   190,067    14.35%  $112,622    8.50%   Not applicable      
Bank   203,051    15.37%   112,289    8.50%   105,684    8.00%
Tier 1 Capital (to average assets):                              
Consolidated   190,067    12.64%   60,132    4.00%   Not applicable      
Bank   203,051    13.37%   60,765    4.00%   75,957    5.00%
Tier 1 Common Equity Ratio (to risk weighted assets):                              
Consolidated   166,085    12.54%  $92,748    7.00%   Not applicable      
Bank   203,051    15.37%   92,473    7.00%   85,868    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