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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

[Mark One]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 EXCHANGE ACT OF 1934

                  

For the quarterly period ended March 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 EXCHANGE ACT OF 1934
  
 For the transition period from ____________ to ____________

                  

Commission File Number 0-32637

 

AMES NATIONAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Iowa42-1039071
(State of Incorporation)(I. R. S. Employer
 Identification Number)

                                                                

405 Fifth Street

Ames, Iowa 50010

(Address of Principal Executive Offices) (Zip Code)

 

Registrant's Telephone Number, Including Area Code: (515) 232-6251

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

ATLO

NASDAQ

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐Accelerated filer ☐Non-accelerated filerSmaller reporting company Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of April 30, 2021, there were 9,122,747 shares of common stock, par value $2, outstanding.

 

 

 

 

 

AMES NATIONAL CORPORATION

 

INDEX
 
    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited) 3
     
  Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 3
     
  Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 4
     
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 5
     
  Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 6
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 7
     
  Notes to Consolidated Financial Statements 9
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
     
Item 4. Controls and Procedures 47
     
PART II. OTHER INFORMATION  
     
Item 1.  Legal Proceedings 47
     
Item 1.A.  Risk Factors 47
     
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 47
     
Item 3. Defaults Upon Senior Securities 47
     
Item 4.   Mine Safety Disclosures 47
     
Item 5.   Other Information 47
     
Item 6. Exhibits 47
     
  Signatures 49

   

2

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES
 

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

 

  

March 31,

  

December 31,

 

ASSETS

 

2021

  

2020

 
         

Cash and due from banks

 $23,557  $24,819 

Interest-bearing deposits in financial institutions and federal funds sold

  227,159   166,704 

Securities available-for-sale

  672,344   596,999 

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost

  3,427   3,148 

Loans receivable, net

  1,120,211   1,129,505 

Loans held for sale

  598   1,621 

Bank premises and equipment, net

  17,049   17,340 

Accrued income receivable

  10,014   11,143 

Other real estate owned

  227   218 

Bank-owned life insurance

  2,933   2,916 

Deferred income taxes, net

  1,134   - 

Intangible assets, net

  2,973   3,133 

Goodwill

  12,424   12,424 

Other assets

  5,786   5,678 
         

Total assets

 $2,099,836  $1,975,648 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

LIABILITIES

        

Deposits

        

Noninterest-bearing checking

 $368,971  $349,500 

Interest-bearing checking

  583,803   528,796 

Savings and money market

  643,335   581,224 

Time, $250 and over

  54,860   60,019 

Other time

  191,786   196,907 

Total deposits

  1,842,755   1,716,446 
         

Securities sold under agreements to repurchase

  41,421   37,293 

FHLB advances

  3,000   3,000 

Deferred income taxes, net

  -   1,731 

Accrued expenses and other liabilities

  8,307   7,691 

Total liabilities

  1,895,483   1,766,161 
         

STOCKHOLDERS' EQUITY

        

Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,122,747 as of March 31, 2021 and December 31, 2020

  18,245   18,245 

Additional paid-in capital

  17,002   17,002 

Retained earnings

  161,959   158,217 

Accumulated other comprehensive income

  7,147   16,023 

Total stockholders' equity

  204,353   209,487 
         

Total liabilities and stockholders' equity

 $2,099,836  $1,975,648 

 

See Notes to Consolidated Financial Statements.

 

3

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

 

   

Three Months Ended

 
   

March 31,

 
   

2021

   

2020

 
                 

Interest and dividend income:

               

Loans, including fees

  $ 11,984     $ 12,587  

Securities:

               

Taxable

    1,989       1,821  

Tax-exempt

    844       910  

Other interest and dividend income

    178       517  

Total interest income

    14,995       15,835  
                 

Interest expense:

               

Deposits

    1,294       2,650  

Other borrowed funds

    37       139  

Total interest expense

    1,331       2,789  
                 

Net interest income

    13,664       13,046  
                 

Provision (credit) for loan losses

    (426 )     2,316  
                 

Net interest income after provision (credit) for loan losses

    14,090       10,730  
                 

Noninterest income:

               

Wealth management income

    932       862  

Service fees

    333       441  

Securities gains, net

    -       386  

Gain on sale of loans held for sale

    504       267  

Merchant and card fees

    464       426  

Other noninterest income

    273       249  

Total noninterest income

    2,506       2,631  
                 

Noninterest expense:

               

Salaries and employee benefits

    5,507       5,775  

Data processing

    1,372       1,191  

Occupancy expenses, net

    728       691  

FDIC insurance assessments

    139       -  

Professional fees

    396       344  

Business development

    237       264  

Intangible asset amortization

    160       217  

New market tax credit projects amortization

    160       145  

Other operating expenses, net

    307       423  

Total noninterest expense

    9,006       9,050  
                 

Income before income taxes

    7,590       4,311  
                 

Provision for income taxes

    1,567       756  
                 

Net income

  $ 6,023     $ 3,555  
                 

Basic and diluted earnings per share

  $ 0.66     $ 0.39  
                 

Dividends declared per share

  $ 0.25     $ 0.25  

 

See Notes to Consolidated Financial Statements.

 

4

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands)

 

   

Three Months Ended

 
   

March 31,

 
   

2021

   

2020

 
                 
                 

Net income

  $ 6,023     $ 3,555  

Unrealized gains (losses) on securities before tax:

               

Unrealized holding gains (losses) arising during the period

    (11,833 )     870  

Less: reclassification adjustment for gains realized in net income

    -       386  

Other comprehensive income (loss), before tax

    (11,833 )     484  

Tax effect related to other comprehensive income (loss)

    2,957       (121 )

Other comprehensive income (loss), net of tax

    (8,876 )     363  

Comprehensive income (loss)

  $ (2,853 )   $ 3,918  

 

See Notes to Consolidated Financial Statements.

 

5

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (unaudited)

(in thousands, except share and per share data)

Three Months Ended March 31, 2021 and 2020

 

          

 

  

 

  

Accumulated

  

 

 
                  Other     
                  Comprehensive  Total 
  

Common Stock

  Additional Paid-  Retained  Income, Net of  Stockholders' 
  

Shares

  

Amount

  in Capital  Earnings  Taxes  Equity 
                         

Balance, December 31, 2019

  9,222,747  $18,445  $18,795  $146,224  $4,115  $187,579 

Net income

  -   -   -   3,555   -   3,555 

Other comprehensive income

  -   -   -   -   363   363 

Retirement of stock

  (34,153)  (68)  (639)  -   -   (707)

Cash dividends declared, $0.25 per share

  -   -   -   (2,297)  -   (2,297)

Balance, March 31, 2020

  9,188,594  $18,377  $18,156  $147,482  $4,478  $188,493 
                         
                         

Balance, December 31, 2020

  9,122,747  $18,245  $17,002  $158,217  $16,023  $209,487 

Net income

  -   -   -   6,023   -   6,023 

Other comprehensive (loss)

  -   -   -   -   (8,876)  (8,876)

Cash dividends declared, $0.25 per share

  -   -   -   (2,281)  -   (2,281)

Balance, March 31, 2021

  9,122,747  $18,245  $17,002  $161,959  $7,147  $204,353 

 

See Notes to Consolidated Financial Statements.

 

6

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31, 2021 and 2020

 

   

2021

   

2020

 
                 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 6,023     $ 3,555  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision (credit) for loan losses

    (426 )     2,316  

Provision for off-balance sheet commitments

    -       41  

Amortization of securities, available-for-sale, loans and deposits, net

    489       (42 )

Amortization of intangible asset

    160       217  

Depreciation

    356       349  

Deferred income taxes

    93       (639 )

Securities (gains), net

    -       (386 )

(Gain) on sales of loans held for sale

    (504 )     (267 )

Proceeds from loans held for sale

    22,428       14,402  

Originations of loans held for sale

    (20,901 )     (12,266 )

Amortization of investment in new markets tax credit projects

    160       145  

(Gain) on sale of other real estate owned, net

    -       (12 )

Change in assets and liabilities:

               

Decrease in accrued income receivable

    1,129       1,541  

(Increase) decrease in other assets

    (224 )     40  

Increase in accrued expenses and other liabilities

    616       2,692  

Net cash provided by operating activities

    9,399       11,686  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchase of securities available-for-sale

    (113,635 )     (40,121 )

Proceeds from sale of securities available-for-sale

    -       3,385  

Proceeds from maturities and calls of securities available-for-sale

    25,680       27,665  

Purchase of FHLB stock

    (286 )     (117 )

Proceeds from the redemption of FHLB stock

    7       95  

Net (increase) in interest-bearing deposits in financial institutions and federal funds sold

    (60,455 )     (27,519 )

Net (increase) decrease in loans

    9,923       (33,437 )

Net proceeds from the sale of other real estate owned

    -       2,303  

Purchase of bank premises and equipment

    (83 )     (225 )

Cash paid for bank acquired

    -       (310 )

Other

    (17 )     (16 )

Net cash (used in) investing activities

    (138,866 )     (68,297 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Increase in deposits

    126,358       59,387  

Increase (decrease) in securities sold under agreements to repurchase

    4,128       (416 )

Payments on FHLB borrowings

    -       (2,000 )

Dividends paid

    (2,281 )     (2,213 )

Stock repurchases

    -       (707 )

Net cash provided by financing activities

    128,205       54,051  
                 

Net (decrease) in cash and due from banks

    (1,262 )     (2,560 )
                 

CASH AND DUE FROM BANKS

               

Beginning

    24,819       34,617  

Ending

  $ 23,557     $ 32,057  

 

7

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited)

(in thousands)

Three Months Ended March 31, 2021 and 2020

 

   

2021

   

2020

 
                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

               

Cash payments for:

               

Interest

  $ 1,576     $ 3,110  

Income taxes

    70       -  
                 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES

               

Transfer of loans receivable to other real estate owned

  $ 10     $ -  

 

See Notes to Consolidated Financial Statements.

 

8

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements (unaudited)

 

 

1.         Significant Accounting Policies

 

The consolidated financial statements for the three months ended March 31, 2021 and 2020 are unaudited. In the opinion of the management of Ames National Corporation (the "Company"), these financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the requirements for interim financial statements. The interim financial statements and notes thereto should be read in conjunction with the year-end audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). The consolidated financial statements include the accounts of the Company and its wholly-owned banking subsidiaries (the “Banks”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

Goodwill: Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill resulting from acquisitions is not amortized, but is tested for impairment annually or whenever events change and circumstances indicate that it is more likely than not that an impairment loss has occurred. Goodwill is tested for impairment with an estimation of the fair value of a reporting unit.

 

The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Company’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. At March 31, 2021, Company management has performed a goodwill impairment assessment and determined goodwill was not impaired.

 

New and Pending Accounting Pronouncements: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In October 2019, the FASB voted to approve amendments to the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The amendment delays the effective date for our Company until interim and annual periods beginning after December 15, 2022. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models, along with refining the implementation of the software and its approach for determining the expected credit losses under the new guidance. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s financial statements. The Company is continuing to evaluate the extent of the potential impact.

 

9

 

 

2.          Dividends

 

On April 14, 2021, the Company declared a cash dividend on its common stock, payable on May 14, 2021 to stockholders of record as of April 30, 2021, equal to $0.26 per share.

 

 

3. Earnings Per Share

 

Earnings per share amounts were calculated using the weighted average shares outstanding during the periods presented. The weighted average outstanding shares for the three months ended March 31, 2021 and 2020 was 9,122,747 and 9,219,195, respectively. The Company had no potentially dilutive securities outstanding during the periods presented.

 

 

4.         Off-Balance Sheet Arrangements

 

The Company is party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, 2020.

 

 

5.         Fair Value Measurements

 

Assets and liabilities carried at fair value are required to be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

 

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.

 

Level 2: Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatility, prepayment speeds, credit risk); or inputs derived principally from or can be corroborated by observable market data by correlation or other means.         

 

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

 

The following table presents the balances of assets measured at fair value on a recurring basis by level as of March 31, 2021 and December 31, 2020 (in thousands):

 

Description

 

Total

  

Level 1

  

Level 2

  

Level 3

 
                 

2021

                
                 

U.S. government treasuries

 $45,701  $45,701  $-  $- 

U.S. government agencies

  109,101   -   109,101   - 

U.S. government mortgage-backed securities

  181,697   -   181,697   - 

State and political subdivisions

  262,479   -   262,479   - 

Corporate bonds

  73,366   -   73,366   - 
                 
  $672,344  $45,701  $626,643  $- 
                 

2020

                
                 

U.S. government treasuries

 $12,053  $12,053  $-  $- 

U.S. government agencies

  111,199   -   111,199   - 

U.S. government mortgage-backed securities

  150,195   -   150,195   - 

State and political subdivisions

  251,584   -   251,584   - 

Corporate bonds

  71,968   -   71,968   - 
                 
  $596,999  $12,053  $584,946  $- 

 

Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. U.S. government agencies, mortgage-backed securities, state and political subdivisions, and most corporate bonds are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

 

 

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 or a change in previously recognized impairment).  The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of March 31, 2021 and December 31, 2020 (in thousands):

 

Description

 

Total

  

Level 1

  

Level 2

  

Level 3

 
                 

2021

                
                 

Loans receivable

 $8,899  $-  $-  $8,899 

Other real estate owned

  227   -   -   227 
                 

Total

 $9,126  $-  $-  $9,126 
                 

2020

                
                 

Loans receivable

 $10,306  $-  $-  $10,306 

Other real estate owned

  218   -   -   218 
                 

Total

 $10,524  $-  $-  $10,524 

 

The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020 are as follows (in thousands):

 

  

2021

  

Estimated

 

Valuation

 

 

Range

  

Fair Value

 

Techniques

 Unobservable Inputs

(Average)

            

Loans receivable

 $8,899 

Evaluation of collateral

 

Estimation of value

 NM*  
            

Other real estate owned

 $227 

Appraisal

 

Appraisal adjustment

6%-8%(7%)

 

  

2020

  

Estimated

 

Valuation

 

 

Range

  

Fair Value

 

Techniques

  Unobservable Inputs

(Average)

            

Loans receivable

 $10,306 

Evaluation of collateral

 

Estimation of value

 NM*  
            

Other real estate owned

 $218 

Appraisal

 

Appraisal adjustment

6%-8%(7%)

 

* Evaluations of the underlying assets are completed for each collateral dependent 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 included 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.

 

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis. 

 

 

The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of March 31, 2021 and December 31, 2020 (in thousands):

 

   

2021

  

2020

 
 

Fair Value

     

Estimated

      

Estimated

 
 

Hierarchy

 

Carrying

  

Fair

  

Carrying

  

Fair

 
 

Level

 

Amount

  

Value

  

Amount

  

Value

 
                  

Financial assets:

                 

Cash and due from banks

Level 1

 $23,557  $23,557  $24,819  $24,819 

Interest-bearing deposits

Level 1

  227,159   227,159   166,704   166,704 

Securities available-for-sale

See previous table

  672,344   672,344   596,999   596,999 

FHLB and FRB stock

Level 2

  3,427   3,427   3,148   3,148 

Loans receivable, net

Level 2

  1,120,211   1,102,667   1,129,505   1,116,352 

Loans held for sale

Level 2

  598   598   1,621   1,621 

Accrued income receivable

Level 1

  10,014   10,014   11,143   11,143 

Financial liabilities:

                 

Deposits

Level 2

 $1,842,755  $1,845,493  $1,716,446  $1,720,023 

Securities sold under agreements to repurchase

Level 1

  41,421   41,421   37,293   37,293 

FHLB advances

Level 2

  3,000   3,080   3,000   3,111 

Accrued interest payable

Level 1

  635   635   829   829 

 

The methodologies used to determine fair value as of March 31, 2021 did not change from the methodologies described in the December 31, 2020 Annual Financial Statements.

 

Commitments to extend credit and standby letters of credit: The fair values of commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and credit worthiness of the counterparties. The carrying value and fair value of the commitments to extend credit and standby letters of credit are not considered significant.

 

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

13

 

 

6.         Debt Securities

 

The amortized cost of securities available-for-sale and their approximate fair values as of March 31, 2021 and December 31, 2020 are summarized below (in thousands):

 

2021:

     

Gross

  

Gross

     
  

Amortized

  

Unrealized

  

Unrealized

  

Estimated

 
  

Cost

  

Gains

  

Losses

  

Fair Value

 
                 

U.S. government treasuries

 $45,829  $285  $(413) $45,701 

U.S. government agencies

  106,288   3,237   (424)  109,101 

U.S. government mortgage-backed securities

  181,313   2,225   (1,841)  181,697 

State and political subdivisions

  259,256   4,535   (1,312)  262,479 

Corporate bonds

  70,128   3,329   (91)  73,366 
  $662,814  $13,611  $(4,081) $672,344 

 

2020:

     

Gross

  

Gross

     
  

Amortized

  

Unrealized

  

Unrealized

  

Estimated

 
  

Cost

  

Gains

  

Losses

  

Fair Value

 
                 

U.S. government treasuries

 $11,725  $328  $-  $12,053 

U.S. government agencies

  106,337   4,875   (13)  111,199 

U.S. government mortgage-backed securities

  146,889   3,337   (31)  150,195 

State and political subdivisions

  243,438   8,182   (36)  251,584 

Corporate bonds

  67,247   4,722   (1)  71,968 
  $575,636  $21,444  $(81) $596,999 

 

The amortized cost and fair value of debt securities available-for-sale as of March 31, 2021, are shown below by expected maturity. Expected maturity will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

 

  

Amortized

  

Estimated

 
  

Cost

  

Fair Value

 
         

Due in one year or less

 $45,605  $45,892 

Due after one year through five years

  268,458   275,228 

Due after five years through ten years

  303,771   306,179 

Due after ten years

  44,980   45,045 

Total

 $662,814  $672,344 

 

Securities with a carrying value of $203.4 million and $202.0 million at March 31, 2021 and December 31, 2020, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

 

 

The proceeds, gains and losses for securities available-for-sale for the three months ended March 31, 2021 and 2020 are summarized below (in thousands):

 

  

Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 

Proceeds from sales of securities available-for-sale

 $-  $3,385 

Gross realized gains on securities available-for-sale

  -   386 

Gross realized losses on securities available-for-sale

  -   - 

 

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are summarized as of March 31, 2021 and December 31, 2020 are as follows (in thousands):

 

  

Less than 12 Months

  

12 Months or More

  

Total

 

2021:

 

Estimated

Fair Value

  

Unrealized

Losses

  

Estimated

Fair Value

  

Unrealized

Losses

  

Estimated

Fair Value

  

Unrealized

Losses

 
                         

Securities available-for-sale:

                        

U.S. government treasuries

 $36,924  $(413) $-  $-  $36,924  $(413)

U.S. government agencies

  20,716   (418)  875   (6)  21,591   (424)

U.S. government mortgage-backed securities

  113,380   (1,841)  -   -   113,380   (1,841)

State and political subdivisions

  73,842   (1,309)  503   (3)  74,345   (1,312)

Corporate bonds

  3,337   (91)  -   -   3,337   (91)
  $248,199  $(4,072) $1,378  $(9) $249,577  $(4,081)

 

  

Less than 12 Months

  

12 Months or More

  

Total

 

2020:

 

Fair Value

  

Unrealized

Losses

  

Fair Value

  

Unrealized

Losses

  

Fair Value

  

Unrealized

Losses

 
                         

Securities available-for-sale:

                        

U.S. government agencies

 $6,016  $(7) $896  $(6) $6,912  $(13)

U.S. government mortgage-backed securities

  5,097   (31)  -   -   5,097   (31)

State and political subdivisions

  7,875   (34)  180   (2)  8,055   (36)

Corporate bonds

  534   (1)  -   -   534   (1)
  $19,522  $(73) $1,076  $(8) $20,598  $(81)

 

Gross unrealized losses on debt securities totaled $4.1 million as of March 31, 2021. These unrealized losses are generally due to changes in interest rates or general market conditions. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, state or political subdivision, or corporations. Management then determines whether downgrades by bond rating agencies have occurred, and reviews industry analysts’ reports. The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates. Management concluded that the gross unrealized losses on debt securities were temporary. Due to potential changes in conditions, it is at least reasonably possible that changes in fair values and management’s assessments will occur in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.

 

15

 

 

7.

 Loans Receivable and Credit Disclosures

 

The composition of loans receivable as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

 

  

2021

  

2020

 
         

Real estate - construction

 $53,335  $45,497 

Real estate - 1 to 4 family residential

  206,993   213,562 

Real estate - commercial

  497,155   496,357 

Real estate - agricultural

  145,228   151,992 

Commercial 1

  127,440   122,535 

Agricultural

  95,891   102,586 

Consumer and other

  13,919   15,048 
   1,139,961   1,147,577 

Less:

        

Allowance for loan losses

  (16,907)  (17,215)

Deferred loan fees and costs, net 2

  (2,843)  (857)

Loans receivable, net

 $1,120,211  $1,129,505 

 

1 Commercial loan portfolio includes $59.2 million and $50.9 million of Paycheck Protection Program ("PPP")  loans as of March 31, 2021 and December 31, 2020, respectively.

2 Deferred loan fees and costs, net includes $2.9 million and $0.9 million of net fees and costs related to the PPP  loans as of March 31, 2021 and December 31, 2020, respectively.

 

The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The PPP is administered by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA.

 

 

Activity in the allowance for loan losses, on a disaggregated basis, for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

 

  

Three Months Ended March 31, 2021

 
      

1-4 Family