10-Q 1 mbcn20230930_10q.htm FORM 10-Q mbcn20230630_10q.htm
0000836147 Middlefield Banc Corp. false --12-31 Q3 2023 0 0 25,000,000 25,000,000 9,928,028 9,916,466 8,092,576 8,245,235 1,835,452 1,671,231 0.20 63,214 0.17 164,221 0.60 95,364 0.34 44 6 0 0 0 12.0 8.4 0 0 Not within scope of ASC 606 All amounts are net of tax. Amounts in parentheses indicate debits to AOCI. Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs that are not identifiable, less any associated allowance. Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level II versus Level II criteria. The level designation of each financial instrument is reassessed at the end of each period. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. 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Table of Contents



Washington, D.C. 20549




(Mark One)




For the quarterly period ended September 30, 2023





For the transition period from ___________ to ___________


Commission File Number 001-36613



Middlefield Banc Corp.

(Exact Name of Registrant as Specified in its Charter)





State or Other Jurisdiction of


I.R.S. Employer Identification No.

Incorporation or Organization


15985 East High Street, Middlefield, Ohio



Address of Principal Executive Offices


Zip Code





Registrant’s Telephone Number, Including Area Code



Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report


Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, Without Par Value


The NASDAQ Stock Market, LLC

(NASDAQ Capital Market)


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


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


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


Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒  

Smaller reporting company 

Emerging growth company  



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


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


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding at November 13, 2023: 8,092,576







Part 1 – Financial Information


Item 1.

Financial Statements (unaudited)



Consolidated Balance Sheet



Consolidated Statement of Income



Consolidated Statement of Comprehensive (Loss) Income



Consolidated Statement of Changes in Stockholders’ Equity



Consolidated Statement of Cash Flows



Notes to Unaudited Consolidated Financial Statements


Item 2.

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


Item 3.

Quantitative and Qualitative Disclosures about Market Risk


Item 4.

Controls and Procedures


PART II – Other Information


Item 1.

Legal Proceedings


Item 1a.

Risk Factors


Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


Item 3.

Defaults Upon Senior Securities


Item 4.

Mine Safety Disclosures


Item 5.

Other information


Item 6.





Exhibit 31.1


Exhibit 31.2


Exhibit 32







(Dollar amounts in thousands, except share data)




September 30,


December 31,








Cash and due from banks

 $56,228  $51,404 

Federal funds sold

  9,274   2,405 

Cash and cash equivalents

  65,502   53,809 

Investment securities available for sale, at fair value

  159,414   164,967 

Other investments

  958   915 

Loans held for sale

  632   - 



Commercial real estate:


Owner occupied

  185,593   191,748 

Non-owner occupied

  382,676   380,580 


  82,578   58,251 

Residential real estate

  321,331   296,308 

Commercial and industrial

  214,334   195,602 

Home equity lines of credit

  127,494   128,065 

Construction and other

  127,106   94,199 

Consumer installment

  7,481   8,119 

Total loans

  1,448,593   1,352,872 

Less: allowance for credit losses

  20,986   14,438 

Net loans

  1,427,607   1,338,434 

Premises and equipment, net

  21,708   21,961 


  36,197   31,735 

Core deposit intangibles

  6,906   7,701 

Bank-owned life insurance

  34,153   33,811 

Other real estate owned

  5,792   5,821 

Accrued interest receivable and other assets

  34,551   28,528 


 $1,793,420  $1,687,682 





Noninterest-bearing demand

 $424,055  $503,907 

Interest-bearing demand

  243,973   164,677 

Money market

  275,766   187,498 


  216,453   307,917 


  296,732   238,020 

Total deposits

  1,456,979   1,402,019 

Short-term borrowings:


Federal Home Loan Bank advances

  118,000   65,000 

Other borrowings

  11,912   12,059 

Accrued interest payable and other liabilities

  12,780   10,913 


  1,599,671   1,489,991 



Common stock, no par value; 25,000,000 shares authorized, 9,928,028 and 9,916,466 shares issued; 8,092,576 and 8,245,235 shares outstanding

  161,312   161,029 

Retained earnings

  98,717   94,154 

Accumulated other comprehensive loss

  (26,426)  (22,144)

Treasury stock, at cost; 1,835,452 and 1,671,231 shares

  (39,854)  (35,348)


  193,749   197,691 


 $1,793,420  $1,687,682 


See accompanying notes to unaudited consolidated financial statements.






(Dollar amounts in thousands, except per share data)




Three Months Ended


Nine Months Ended


September 30,


September 30,












Interest and fees on loans

  $ 20,899     $ 11,892     $ 59,935     $ 34,145  

Interest-earning deposits in other institutions

    300       134       920       232  

Federal funds sold

    266       51       678       100  

Investment securities:


Taxable interest

    477       449       1,415       1,334  

Tax-exempt interest

    980       982       2,938       2,721  

Dividends on stock

    148       59       326       116  

Total interest and dividend income

    23,070       13,567       66,212       38,648  




    5,632       812       12,472       2,247  

Short-term borrowings

    1,258       44       3,373       44  

Other borrowings

    213       112       539       262  

Total interest expense

    7,103       968       16,384       2,553  


    15,967       12,599       49,828       36,095  

Provision for credit losses

    1,127       -       2,449       -  


    14,840       12,599       47,379       36,095  



Service charges on deposit accounts

    954       1,004       2,880       2,874  

Gain (loss) on equity securities

    48       (57 )     (157 )     (96 )

Gain on sale of other real estate owned

    -       -       2       -  

Earnings on bank-owned life insurance

    207       108       627       322  

Gain on sale of loans

    45       7       74       28  

Revenue from investment services

    190       233       550       527  

Gross rental income

    110       -       290       -  

Other income

    263       251       822       677  

Total noninterest income

    1,817       1,546       5,088       4,332  



Salaries and employee benefits

    5,994       4,491       17,865       12,662  

Occupancy expense

    699       458       2,054       1,546  

Equipment expense

    297       233       969       822  

Data processing and information technology costs

    1,209       985       3,415       2,650  

Ohio state franchise tax

    398       293       1,180       878  

Federal deposit insurance expense

    207       84       576       224  

Professional fees

    545       280       1,633       1,118  

Other real estate owned writedowns

    -       -       -       200  

Advertising expense

    414       268       1,315       725  

Software amortization expense

    24       27       73       115  

Core deposit intangible amortization

    265       78       794       232  

Gross other real estate owned expenses

    195       1       390       15  

Merger-related costs

    22       390       472       969  

Other expense

    1,849       1,298       5,228       3,531  

Total noninterest expense

    12,118       8,886       35,964       25,687  

Income before income taxes

    4,539       5,259       16,503       14,740  

Income taxes

    703       1,010       2,678       2,569  


  $ 3,836     $ 4,249     $ 13,825     $ 12,171  




  $ 0.47     $ 0.73     $ 1.71     $ 2.08  


  $ 0.47     $ 0.73     $ 1.70     $ 2.08  


See accompanying notes to unaudited consolidated financial statements.






(Dollar amounts in thousands)




Three Months Ended


Nine Months Ended


September 30,


September 30,










Net income

  $ 3,836     $ 4,250     $ 13,825     $ 12,170  

Other comprehensive loss:


Unrealized holding loss on securities available-for-sale

    (7,336 )     (9,479 )     (5,420 )     (36,129 )

Tax effect

    1,540       1,990       1,138       7,587  

Total other comprehensive loss

    (5,796 )     (7,489 )     (4,282 )     (28,542 )

Comprehensive (loss) income

  $ (1,960 )   $ (3,239 )   $ 9,543     $ (16,372 )


See accompanying notes to unaudited consolidated financial statements.






(Dollar amounts in thousands, except share and per share data)










Common Stock






















Balance, June 30, 2023

  9,924,245  $161,211  $96,500  $(20,630) $(39,854) $197,227 

Net income

          3,836           3,836 

Other comprehensive loss

            (5,796)     (5,796)

Stock-based compensation, net

  3,783   101            101 

Cash dividends ($0.20 per share)

          (1,619)          (1,619)

Balance, September 30, 2023

  9,928,028  $161,312  $98,717  $(26,426) $(39,854) $193,749 









Common Stock






















Balance, June 30, 2022

  7,347,526  $87,562  $89,900  $(17,591) $(31,651) $128,220 

Net income

          4,249           4,249 

Other comprehensive loss

            (7,489)     (7,489)

Stock-based compensation, net

  3,090   78            78 

Common shares repurchased (63,214)

               (1,220)  (1,220)

Cash dividends ($0.17 per share)

          (983)          (983)

Balance, September 30, 2022

  7,350,616  $87,640  $93,166  $(25,080) $(32,871) $122,855 


See accompanying notes to unaudited consolidated financial statements.





(Dollar amounts in thousands, except share and per share data)










Common Stock
















Income (Loss)






Balance, December 31, 2022

  9,916,466  $161,029  $94,154  $(22,144) $(35,348) $197,691 

Net income

          13,825           13,825 

Other comprehensive loss

            (4,282)     (4,282)

Cumulative impact of ASC 326 adoption (CECL)

          (4,421)          (4,421)

Authorization of additional common shares

      (37)              (37)

Stock-based compensation, net

  11,562   320               320 

Common shares repurchased (164,221)

               (4,506)  (4,506)

Cash dividends ($0.60 per share)

          (4,841)          (4,841)

Balance, September 30, 2023

  9,928,028  $161,312  $98,717  $(26,426) $(39,854) $193,749 









Common Stock
















Income (Loss)






Balance, December 31, 2021

  7,330,548  $87,131  $83,971  $3,462  $(29,229) $145,335 

Net income

          12,171           12,171 

Other comprehensive loss

            (28,542)     (28,542)

Stock-based compensation, net

  20,068   509               509 

Common shares repurchased (95,364)

               (3,642)  (3,642)

Cash dividends ($0.34 per share)

          (2,976)          (2,976)

Balance, September 30, 2022

  7,350,616  $87,640  $93,166  $(25,080) $(32,871) $122,855 


See accompanying notes to unaudited consolidated financial statements.






(Dollar amounts in thousands)




For the Nine Months Ended


September 30,








Net income

  $ 13,825     $ 12,171  

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


Provision for credit losses

    2,449       -  

Loss on equity securities

    157       96  

Depreciation and amortization of premises and equipment, net

    1,125       968  

Software amortization expense

    73       115  

Financing lease amortization expense

    186       114  

Amortization of premium and discount on investment securities, net

    453       470  

Accretion of deferred loan fees, net

    (727 )     (1,678 )

Accretion of acquired loans






Amortization of core deposit intangibles

    794       232  

Accretion of acquired deposits






Stock-based compensation income, net

    78       113  

Origination of loans held for sale

    (4,549 )     (1,341 )

Proceeds from sale of loans held for sale

    3,991       1,636  

Gain on sale of loans held for sale

    (74 )     (28 )

Earnings on bank-owned life insurance

    (627 )     (322 )

Deferred income tax (benefit)

    485       48  

Other real estate owned (gains) losses

    (2 )     200  

(increase) in accrued interest receivable

    (1,002 )     (143 )

Increase in accrued interest payable

    1,607       94  

Other, net

    (2,941 )     (271 )

Net cash provided by operating activities

    14,617       12,430  



Investment securities available for sale:


Proceeds from repayments and maturities

    1,680       3,576  


    (2,000 )     (32,290 )

Purchase of other investments

    (200 )     -  

Increase in loans, net

    (99,059 )     (10,808 )

Proceeds from the sale of other real estate owned

    31       -  

Proceeds from bank-owned life insurance

    289       -  

Purchase of premises and equipment

    (1,058 )     (636 )

Purchase of restricted stock

    (5,507 )     (1,448 )

Redemption of restricted stock

    4,237       1,183  

Net cash used in investing activities

    (101,587 )     (40,423 )



Net increase (decrease) in deposits

    55,157       (36,123 )

Net increase in short-term borrowings

    53,000       80,000  

Repayment of other borrowings

    (147 )     (183 )

Repurchase of common shares

    (4,506 )     (3,642 )

Cash dividends

    (4,841 )     (2,976 )

Net cash provided by financing activities

    98,663       37,076  

Increase in cash and cash equivalents

    11,693       9,083  


    53,809       119,494  


  $ 65,502     $ 128,577  


See accompanying notes to unaudited consolidated financial statements.




For the Nine Months Ended


September 30,








Cash paid during the year for:


Interest on deposits and borrowings

  $ 14,777     $ 2,459  

Income taxes

    2,168       2,727  

Noncash investing transactions:


Transfers from loans held for sale to loans held for investment

  $ -     $ 784  

Increase in finance lease assets included in premises and equipment

    -       611  

Purchased loan fair value adjustment






Noncash financing transactions:


Increase in finance lease liabilities included in other borrowings

  $ -     $ (611 )


See accompanying notes to unaudited consolidated financial statements.










The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MBC” or “Bank”), and a nonbank asset resolution subsidiary EMORECO, Inc. The consolidated financial statements also include the accounts of MBC’s subsidiaries, Middlefield Investments, Inc. (“MI”) and MB Insurance Services (“MIS”). All significant inter-company items have been eliminated.


On March 13, 2019, MBC established MI as an operating subsidiary to hold and manage an investment portfolio. On September 30, 2023, MI’s assets consist of a cash account, investments, and related accrued interest accounts. MI may only hold and manage investments and may not engage in any other activity without prior approval of the Ohio Division of Financial Institutions. In the first quarter of 2022, MBC established MIS as an operating subsidiary to offer retail and business customers various insurance services, including home, renters, automobile, pet, identity theft, travel, and professional liability insurance. On September 30, 2023, MIS assets consist of a cash account, a prepaid asset, and an accounts receivable. As a result of the bank merger of Liberty National Bank and MBC on December 1, 2022, Middlefield Banc Corp. acquired a 100% ownership interest in LBSI Insurance, LLC (“LBSI”), a wholly owned financial subsidiary of Liberty National Bank. LBSI is no longer in operation following the merger. All significant intercompany items have been eliminated between MBC and these subsidiaries.


On December 1, 2022, the Company completed its merger with Liberty Bancshares, Inc. (“Liberty’), pursuant to a previously announced definitive merger agreement. Under the terms of the merger agreement, Liberty shareholders received 2.752 shares of the Company’s common stock in exchange for each share of Liberty common stock they owned immediately before the merger. The Company issued 2,561,513 shares of its common stock in the merger, and the aggregate merger consideration was approximately $73.3 million. Upon closing, Liberty’s bank subsidiary was merged into MBC, and Liberty’s six full-service bank offices, in Ada and Kenton in Hardin County, Bellefontaine North and Bellefontaine South in Logan County, Marysville in Union County, and Westerville in Franklin County, became offices of MBC.


The unaudited consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022. The interim consolidated financial statements include all adjustments (consisting of only normal recurring items) that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.  


In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from those estimates.


Summary of Significant Accounting Policies


The Company’s significant accounting policies involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2023, have remained unchanged from December 31, 2022. However, the Company has identified accounting policies that are critical accounting policies and an understanding of these policies is necessary to understand the Company’s financial statements. These policies relate to determining the adequacy of the allowance for credit losses for the investment securities held for sale, loan portfolios, and unfunded commitments.




Management determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date.


Investment securities classified as available for sale are those securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Unrealized gains or losses are reported as increases or decreases in other comprehensive income (loss), net of the deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.




Investment securities classified as held to maturity are those securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions. These securities are carried at cost, adjusted for the amortization of premium and accretion of discount, and computed by a method that approximates the interest method over the terms of the securities. As of September 30, 2023, the Company did not hold any held-to-maturity securities.


Equity securities, which are included in other investments on the Consolidated Balance Sheet, are measured at fair value with changes in fair value recognized in net income.


Allowance for Credit Losses Investment Securities Available for Sale


The Bank measures expected credit losses on available for sale investment securities when the Bank intends to sell, or when it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available for sale investment securities that do not meet the aforementioned criteria, the Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Bank considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is used to calculate the present value of expected cash flows. The Bank obtains its forecast data through a subscription to a widely recognized and relied-upon company that publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario and uses a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.


The allowance for credit losses is included within investment securities available for sale on the Consolidated Balance Sheet. Changes in the allowance for credit losses are recorded within the provision for credit losses on the Consolidated Statement of Income. Losses are charged against the allowance when the Bank believes the collectability of an available for sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.


Accrued interest receivable on available for sale investment securities totaled $1.7 million on September 30, 2023, and is included within accrued interest receivable and other assets on the Consolidated Balance Sheet. This amount is excluded from the estimate of expected credit losses. Available for sale investment securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale investment securities are placed on nonaccrual status, unpaid interest credited to income is reversed.


Credit Losses on Investment Securities Prior to adopting ASU 2016-13


The Bank adopted ASU No. 2016-13, Financial Instruments - Credit Loses - Topic (326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), effective January 1, 2023. Financial statement amounts related to investment securities recorded as of December 31, 2022, and for the periods ending December 31, 2022, are presented in accordance with the accounting policies described in the following sections. The following sections were carried forward from the Annual Report on Form 10-K for the year ended December 31, 2022


Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are stated at cost, adjusted for amortization of premium and accretion of discount, computed using a level yield method, and recognized as interest income adjustments. Certain other debt securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available for sale securities are reported as a separate component of stockholders’ equity, net of tax until realized. Realized security gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned. For 2022, this category includes common stocks of public companies that the Company has the positive intent and ability to hold for an indeterminate amount of time. Such securities are reported at fair value, with unrealized holding gains and losses included in earnings.


Securities are evaluated quarterly and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other-than-temporary. For debt securities, management considers whether the present value of cash flows expected to be collected is less than the security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Bank’s intent to sell the security or whether it is more likely than not that the Bank would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other-than-temporary. Once a decline in value is determined to be other-than-temporary, if the Bank does not intend to sell the security, and it is more likely than not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the noncredit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the difference between fair value and the amortized cost is charged to earnings.






Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of any deferred fees or costs. Accrued interest receivable totaled $5.2 million on September 30, 2023, and was included within accrued interest receivable and other assets on the Consolidated Balance Sheet and is excluded from the calculation of the allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loans’ yield (interest income). The Bank amortizes these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.


The loan portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial construction, commercial and industrial loans, and commercial real estate loans. Consumer loans consist of the following classes: residential real estate loans, home equity loans, and consumer loans.


For all classes of loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses. Interest received on nonaccrual loans, including impaired loans, generally is either applied against the principal or reported as interest income on a cash basis, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past-due status of all classes of loans is determined based on contractual due dates for loan payments.


Allowance for Credit Losses ("ACL") Loans


The allowance for credit losses ("ACL") is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.


The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions, and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.


Management uses a discounted cash flow ("DCF") model to calculate the present value of the expected cash flows for pools of loans that share similar risk characteristics and compares the results of this calculation to the amortized cost basis to determine its allowance for credit loss balance.




The contractual term used in projecting the cash flows of a loan is based on the maturity date of a loan, and is adjusted for prepayment or curtailment assumptions which may shorten that contractual time period. Options to extend are considered by management in determining the contractual term.


The key inputs to the DCF model are (1) probability of default, (2) loss given default, (3) prepayment and curtailment rates, (4) reasonable and supportable economic forecasts, (5) forecast reversion period, (6) expected recoveries on charged off loans, and (7) discount rate.


Probability of Default ("PD")

In order to incorporate economic factors into forecasting within the DCF model, management elected to use the Loss Driver method to generate the PD rate inputs. The Loss Driver method analyzes how one or more economic factors change the default rate using statistical regression analysis. Management selected economic factors that have strong correlations to historical default rates.


Loss Given Default ("LGD")

Management elected to use the Frye Jacobs parameter for determining the LGD input, which is an estimation technique that derives an LGD input from segment-specific risk curves that correlates LGD with PD.


Prepayment and Curtailment Rates

Prepayment Rates: Loan-level transaction data is used to calculate semi-annual prepayment rates. These semi-annual rates are annualized, and the average of the annualized rates is used in the DCF calculation for fixed payment or term loans. Rates are calculated for each pool.


Curtailment Rates: Loan-level transaction data is used to calculate annual curtailment rates using available historical loan-level data. The average of the historical rates is used in the DCF model for interest-only payment or line-of-credit type loans. Rates are calculated for each pool.


Reasonable and Supportable Forecasts

The forecast data used in the DCF model is obtained via a subscription to a widely recognized and relied-upon company that publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario.


Forecast Reversion Period

Management uses forecasts to predict how economic factors will perform and has determined to use a four-quarter forecast period as well as an eight-quarter straight-line reversion period to historical averages (also commonly referred to as the mean reversion period).


Expected Recoveries on Charged-off Loans

Management performs an analysis to estimate recoveries that could be reasonably expected based on historical experience in order to account for expected recoveries on loans that have already been fully charged off and are not included in the ACL calculation.


Discount Rate

The effective interest rate of the underlying loans of the Company serves as the discount rate applied to the expected periodic cash flows. Management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.


Individual Evaluation

Management evaluates individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. These instruments will not be included in the collective analyses. The individual analysis will establish a specific reserve for instruments in scope.


Management considers a financial asset as collateral dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral, based on management's assessment as of the reporting date. Measurement of the expected credit losses on collateral-dependent loans is based on the fair value of the collateral, less any costs to sell.




The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial Real Estate (“CRE”), which is further segmented into Owner Occupied (“CRE OO”), Non-owner Occupied (“CRE NOO”), and Multifamily Residential, Residential Real Estate (“RRE”), Commercial and Industrial (“C&I”), Home Equity Lines of Credit (“HELOC”), Construction and Other (“Construction”), and Consumer Installment Loans. The CRE loan segments consist of loans made to finance the activities of CRE owners and operators and certain agricultural loans. The RRE and HELOC loan segments consist of loans made to finance the activities of residential homeowners. The C&I loan segment consists of loans made to finance the activities of commercial customers and certain agricultural loans. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.


Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. The qualitative adjustments for current conditions are based upon national and local economic trends and conditions, levels of and trends in delinquency rates and nonaccrual loans, trends in volumes and terms of loans, effects of changes in lending policies, experience, ability, and depth of lending staff, the value of underlying collateral, concentrations of credit from a loan type, industry, and/or geographic standpoint. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve.


The Bank has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against interest income.


The ACL calculation for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and should, therefore, be individually assessed. Beginning in the third quarter of 2023, the Bank will automatically consider all non-accrual loans greater than $250,000 for individual analysis. Additional identification of loans to be individually evaluated is accomplished through the Bank’s normal loan review, criticized asset review, and portfolio management processes. The Bank previously evaluated all commercial loans greater than $150,000 for individual analysis that met the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful, and nonperforming loans when repayment is expected to be  provided substantially through the operation or sale of the collateral, and 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate, 2) the loan’s observable market price, or 3) the fair value of the collateral when the loan is collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance. Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual residential real estate loans, home equity loans, and consumer loans for impairment disclosures.


Allowance for Loan Losses ("ALL")  Prior to adopting ASU 2016-13


The Bank adopted ASU No. 2016-13 effective January 1, 2023. Prior to the adoption of ASU 2016-13, the Bank calculated the ALL using an incurred loan loss methodology in accordance with ASC 310, Receivables. +Financial statement amounts related to the ALLL recorded as of December 31, 2022, and for the periods ending December 31, 2022, are presented in accordance with the accounting policies described in the following section. The following section was carried forward from the Annual Report on Form 10-K for the year ended December 31, 2022.


The allowance for loan and lease losses represents the amount that management estimates are adequate to provide for probable loan losses inherent in the loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan and lease losses is established through a provision for loan losses charged to operations. The provision is based on management’s periodic evaluation of the adequacy of the allowance for loan and lease losses, which encompasses the overall risk characteristics of the various portfolio segments, experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan and lease losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to a significant change in the near term.


The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity, and other consumer loans. Management has identified several additional qualitative factors to supplement the historical charge-off factor. These factors likely cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are:


national and local economic trends and conditions;


levels of and trends in delinquency rates and nonaccrual loans;




trends in volumes and terms of loans;


effects of changes in lending policies;


experience, ability, and depth of lending staff;


value of underlying collateral;


and concentrations of credit from a loan type, industry, and/or geographic standpoint.


A majority of the Bank’s loan assets are loans to business owners of many types. The Bank makes commercial loans for real estate development and other business purposes required by the customer base.


The Bank’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable, and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or terms of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan-to-value ratio of not greater than 80 percent and vary in terms.


Residential mortgages and home equity loans are secured by the borrower’s residential real estate in either a first or second-lien position. Residential mortgages and home equity loans have varying loan rates depending on the financial condition of the borrower and the loan-to-value ratio. Residential mortgages have amortizations up to 30 years and home equity loans have maturities up to 20 years.


Consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are unsecured.


A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Loans that experience insignificant payment delays, which are defined as 89 days or less, generally are not classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued, at the contractual interest rate for the period of delay. All loans identified as impaired are evaluated independently by management. The Company estimates credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment is expected to come from the sale or operation of such collateral. Impaired loans, or portions thereof, are charged off when a realized loss has occurred. An allowance for loan and lease losses is maintained for estimated losses until such time. Cash receipts on impaired loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an impaired loan is also a nonaccrual loan, in which case the portion of the payment related to interest is used to reduce principal.


The Bank originates commercial and residential construction loans to developers and builders and, in some cases, to other commercial borrowers for approved construction projects. These loans are typically structured on a non-revolving basis and the draw of funds is dependent on successfully completed and verified progress of the project. These loans are generally secured by the real estate to be developed and may also be secured by additional real estate to mitigate the risk. Sources of repayment for these types of loans may be from conversion to permanent loans extended by the Bank, sales of developed property, or permanent financing obtained elsewhere. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans because their ultimate collateral value and repayment are sensitive to various factors affecting the successful completion of the project.


For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate-secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.


For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory, and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings, equipment appraisals, or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.


Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Management determines the significance of payment delays on a case-by-case basis, considering all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall concerning the principal and interest owed.




Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual residential real estate loans, home equity loans, and consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement or unless such loans are in the process of foreclosure or are being evaluated for foreclosure.


Loans whose terms are modified are classified as troubled debt restructurings if the Bank grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.


The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects. Loans classified as substandard have well-defined weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Doubtful contain all of the weaknesses of a Substandard loan with the added characteristic that the weaknesses are so pronounced that the collection or liquidation in full of both principal and interest is highly questionable or improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.


In addition, federal regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.


Allowance for Credit Losses on Off-Balance Sheet Credit Exposures


The Bank adopted ASU No. 2016-13 effective January 1, 2023. The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Bank. The allowance for credit losses on off-balance sheet credit exposures is included in accrued interest payable and other liabilities on the balance sheet and adjusted through provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, consistent with the estimation process on the loan portfolio.


Accounting Pronouncements Adopted in 2023


In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This standard, along with several other subsequent codification updates, replaces the incurred loss impairment methodology in the current GAAP with a methodology that reflects expected credit losses that are expected to occur over the remaining life of a financial asset and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The new current expected credit losses model (“CECL”) applies to the allowance for loan losses, available for sale and held-to-maturity debt securities, purchased financial assets with credit deterioration, and certain off-balance sheet credit exposures. On January 1, 2023, the Bank adopted CECL. Upon adoption, the reserve for credit losses on loans increased by $5.4 million, and the reserve for credit losses for unfunded commitments increased by $622,000. This resulted in an after-tax retained earnings adjustment of $4.4 million. 


The Bank adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans, investment securities available for sale and unfunded commitments. 




The Bank adopted the provisions of ASC 326 related to financial assets purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, using the prospective transition approach. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $121,000 for the ACL.


The Bank adopted the provisions of ASC 326 related to the presentation of other-than-temporary impairment on available for sale debt securities prior to January 1, 2023 using the prospective transition approach. No such charges had been recorded on the securities held by the Bank as of the date of adoption.


The following table illustrates the pre-tax impact of the adoption of this ASU:



January 1, 2023


Allowance for Credit Losses



  Adoption Impact  

As Reported


ACL on loans:


Commercial real estate:


Owner occupied

 $2,203  $811  $3,014 

Non-owner occupied

  5,597   (1,206)  4,391 


  662   591   1,253 

Residential real estate

  2,047   2,744   4,791 

Commercial and industrial

  1,483   2,320   3,803 

Home equity lines of credit

  1,753   (1,031)  722 

Construction and other

  609   956   1,565 

Consumer installment

  84   197   281 


 $14,438  $5,382  $19,820 

ACL on unfunded commitments

 $-  $622  $622 


In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02). The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made to borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables in the existing vintage disclosures. This ASU became effective on January 1, 2023 for the Company. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Company's financial statements.


In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. All other goodwill impairment guidance remained unchanged. The ASU became effective on January 1, 2023 for the Bank. This ASU did not have a material impact on the Company's financial statements.




On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a statutory transition to a replacement rate selected by the Federal Reserve based on the SOFR for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute. On December 16, 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts effective February 27, 2023. As of September 30, 2023, the Bank has transitioned substantially all of its financial instruments to an alternative benchmark rate.


Reclassification of Comparative Amounts


Certain comparative amounts for prior years have been reclassified to conform to current-year presentations. Such reclassifications did not affect net income or retained earnings.


Recent Accounting Pronouncements


In March 2023, the FASB issued ASU 2023-02, Equity Method and Joint Ventures (Topic 323):  Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.  The amendments allow entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related tax credits.  This method of accounting had been available only for qualifying investments in qualified affordable housing projects.  The guidance also requires certain disclosures regarding an entity’s tax equity investments.  The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2023.  This ASU is not expected to have a significant impact on the Bank’s financial statements.


In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 Issued December 2022, which was issued in December 2022, extended the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024.  The ASUs are not expected to have a significant impact on the Bank’s financial statements.


In June 2022, FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):  Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.  The amendment clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit account of the equity security and is not considered in measuring its fair value.  The ASU clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.  The ASU also requires certain disclosures for equity securities subject to contractual sale restrictions.  The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2024.  This ASU is not expected to have a significant impact on the Company’s financial statements.






Following ASC Topic 606, Revenue from Contracts with Customers (Topic 606), management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from investment security gains (losses), gains on the sale of loans, rental income, and BOLI income, are not within the scope of ASC 606. For the nine months ended September 30, 2023 these revenue sources cumulatively comprise 94.0% of the total revenue of the Company.


The main types of noninterest income within the scope of the standard are as follows:


Service charges on deposit accounts – The Company has contracts with its deposit customers whereby fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be canceled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized monthly as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific customer requests or activities that include overdraft fees, online banking fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, which is the completion of the requested service/transaction.


Gain on sale of other real estate owned (OREO) – Gains and losses are recognized after the property sale when the buyer obtains control of the real estate, and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset includes the transfer of the property title, physical possession of the asset, and the buyer securing control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, the payment terms, that the contract has an actual commercial substance, and that amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted, impacting the gain/loss and the carrying value of the asset. Gains and losses on the sale of OREO are reported in the Consolidated Statement of Income.


Revenue from investment services – The Company earns investment services revenue through its referral agreement with LPL Financial. The performance obligation to investment management customers is satisfied over time, and therefore, revenue is recognized over time. The Company generally receives trailing investment services revenue in arrears and recognizes the revenue when the monthly statement with referral revenue is received.


Miscellaneous fee income – Fees earned on other services, such as ATM surcharge fees, money order fees, and check fees, are recognized at the time of the event or the applicable billing cycle.




The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows:



For the Three Months Ended September 30,


For the Nine Months Ended September 30,


Noninterest Income










(Dollar amounts in thousands)


Service charges on deposit accounts:


Overdraft fees

 $258  $237  $734  $661 

ATM banking fees

  484   397   1,447   1,065 

Service charges and other fees

  212   370   699   1,148 

Gain (loss) on equity securities ⁽ª⁾

  48   (57)  (157)  (96)

Gain on sale of other real estate owned

  -   -