AMES NATIONAL CORP - Quarter Report: 2020 March (Form 10-Q)

 

 

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, 2020

 

☐	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)

 

IOWA	42-1039071
(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 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 ☒

 

As of April 30, 2020, there were 9,122,747 shares of common stock, par value $2, outstanding.

 

AMES NATIONAL CORPORATION

 

 

		March 31,				December 31,
		2020				2019
ASSETS
Cash and due from banks		$	32,056,710			$	34,616,880
Interest bearing deposits in financial institutions and federal funds sold			136,466,280				108,947,624
Securities available-for-sale			489,303,666				479,843,448
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost			3,160,000				3,138,900
Loans receivable, net			1,079,657,447				1,048,147,496
Loans held for sale			907,295				2,776,785
Bank premises and equipment, net			17,686,951				17,810,605
Accrued income receivable			10,247,519				11,788,409
Other real estate owned			1,712,661				4,003,684
Bank-owned life insurance			2,860,761				2,842,713
Deferred income taxes, net			1,669,013				1,151,016
Intangible assets, net			3,742,037				3,959,260
Goodwill			12,424,434				12,114,559
Other assets			5,851,660				6,041,126
Total assets		$	1,797,746,434			$	1,737,182,505
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing checking		$	267,144,851			$	267,441,988
Interest bearing checking			496,017,100				461,857,728
Savings and money market			505,757,908				481,642,221
Time, $250,000 and over			75,667,723				74,206,421
Other time			207,837,426				208,026,740
Total deposits			1,552,425,008				1,493,175,098
Securities sold under agreements to repurchase			41,617,753				42,033,570
FHLB advances			3,000,000				5,000,000
Dividends payable			2,297,149				2,213,459
Accrued expenses and other liabilities			9,913,147				7,180,906
Total liabilities			1,609,253,057				1,549,603,033
STOCKHOLDERS' EQUITY
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,188,594 and 9,222,747 as of March 31, 2020 and December 31, 2019, respectively			18,377,188				18,445,494
Additional paid-in capital			18,155,547				18,794,141
Retained earnings			147,482,450				146,225,085
Accumulated other comprehensive income			4,478,192				4,114,752
Total stockholders' equity			188,493,377				187,579,472
Total liabilities and stockholders' equity		$	1,797,746,434			$	1,737,182,505

 

		Three Months Ended
		March 31,
		2020				2019
Interest and dividend income:
Loans, including fees		$	12,587,014			$	10,701,429
Securities:
Taxable			1,821,240				1,488,852
Tax-exempt			909,897				1,100,574
Other interest and dividend income			517,312				237,568
Total interest income			15,835,463				13,528,423
Interest expense:
Deposits			2,650,366				2,358,832
Other borrowed funds			139,172				199,214
Total interest expense			2,789,538				2,558,046
Net interest income			13,045,925				10,970,377
Provision for loan losses			2,316,155				98,094
Net interest income after provision for loan losses			10,729,770				10,872,283
Noninterest income:
Wealth management income			861,733				784,614
Service fees			440,693				370,296
Securities gains, net			386,015				-
Gain on sale of loans held for sale			266,740				172,726
Merchant and card fees			425,840				361,141
Other noninterest income			250,171				236,931
Total noninterest income			2,631,192				1,925,708
Noninterest expense:
Salaries and employee benefits			5,775,196				4,715,828
Data processing			1,191,052				891,381
Occupancy expenses, net			691,186				599,005
FDIC insurance assessments			-				100,229
Professional fees			343,724				388,846
Business development			264,143				268,597
Intangible asset amortization			217,223				163,664
New market tax credit projects amortization			145,381				-
Other operating expenses, net			422,144				329,206
Total noninterest expense			9,050,049				7,456,756
Income before income taxes			4,310,913				5,341,235
Provision for income taxes			756,400				1,103,800
Net income		$	3,554,513			$	4,237,435
Basic and diluted earnings per share		$	0.39			$	0.46
Dividends declared per share		$	0.25			$	0.24

 

		Three Months Ended
		March 31,
		2020				2019
Net income		$	3,554,513			$	4,237,435
Other comprehensive income, before tax:
Unrealized gains on securities before tax:
Unrealized holding gains arising during the period			870,602				5,571,784
Less: reclassification adjustment for gains realized in net income			386,015				-
Other comprehensive income, before tax			484,587				5,571,784
Tax effect related to other comprehensive income			(121,147	)			(1,392,946	)
Other comprehensive income, net of tax			363,440				4,178,838
Comprehensive income		$	3,917,953			$	8,416,273

 

																		Accumulated Other Comprehensive				Total
		Common Stock								Additional Paid-				Retained				Income, Net of				Stockholders'
		Shares				Amount				in Capital				Earnings				Taxes				Equity
Balance, December 31, 2018			9,293,305			$	18,586,610			$	20,461,724			$	137,891,821			$	(4,075,091	)		$	172,865,064
Net income			-				-				-				4,237,435				-				4,237,435
Other comprehensive income			-				-				-				-				4,178,838				4,178,838
Retirement of stock			(50,483	)			(100,966	)			(1,185,336	)			-				-				(1,286,302	)
Cash dividends declared, $0.24 per share			-				-				-				(2,218,277	)			-				(2,218,277	)
Balance, March 31, 2019			9,242,822			$	18,485,644			$	19,276,388			$	139,910,979			$	103,747			$	177,776,758
Balance, December 31, 2019			9,222,747			$	18,445,494			$	18,794,141			$	146,225,085			$	4,114,752			$	187,579,472
Net income			-				-				-				3,554,513				-				3,554,513
Other comprehensive income			-				-				-				-				363,440				363,440
Retirement of stock			(34,153	)			(68,306	)			(638,594	)			-				-				(706,900	)
Cash dividends declared, $0.25 per share			-				-				-				(2,297,148	)			-				(2,297,148	)
Balance, March 31, 2020			9,188,594			$	18,377,188			$	18,155,547			$	147,482,450			$	4,478,192			$	188,493,377

 

		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	3,554,513			$	4,237,435
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			2,316,155				98,094
Provision for off-balance sheet commitments			41,000				-
Amortization (accretion), net			(42,387	)			389,806
Amortization of intangible asset			217,223				163,664
Depreciation			348,964				283,521
Deferred income taxes			(639,144	)			100,750
Securities (gains), net			(386,015	)			-
(Gain) on sales of loans held for sale			(266,740	)			(172,726	)
Proceeds from loans held for sale			14,402,499				6,681,879
Originations of loans held for sale			(12,266,269	)			(6,364,366	)
Amortization of investment in new market tax credit projects			145,381				-
(Gain) loss on sale and foreclosure of other real estate owned, net			(11,631	)			11,106
Change in assets and liabilities:
Decrease in accrued income receivable			1,540,890				313,872
(Increase) decrease in other assets			40,180				(543,520	)
Increase in accrued expenses and other liabilities			2,691,241				1,084,907
Net cash provided by operating activities			11,685,860				6,284,422
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale			(40,121,405	)			(3,781,499	)
Proceeds from sale of securities available-for-sale			3,385,170				-
Proceeds from maturities and calls of securities available-for-sale			27,665,281				12,251,722
Purchase of FHLB stock			(116,500	)			(2,112,500	)
Proceeds from the redemption of FHLB stock			95,400				2,642,100
Net (increase) in interest bearing deposits in financial institutions			(27,518,656	)			(32,680,488	)
Net (increase) decrease in loans			(33,436,517	)			3,927,737
Net proceeds from the sale of other real estate owned			2,302,654				253,830
Purchase of bank premises and equipment			(224,535	)			(163,999	)
Cash paid for bank acquired			(309,875	)			-
Other			(18,048	)			(15,982	)
Net cash (used in) investing activities			(68,297,031	)			(19,679,079	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits			59,387,176				31,445,418
Decrease in securities sold under agreements to repurchase			(415,817	)			(8,277,729	)
Payments on FHLB borrowings			(2,000,000	)			(12,600,000	)
Dividends paid			(2,213,458	)			(2,137,460	)
Stock repurchases			(706,900	)			(1,286,302	)
Net cash provided by financing activities			54,051,001				7,143,927
Net (decrease) in cash and due from banks			(2,560,170	)			(6,250,730	)
CASH AND DUE FROM BANKS
Beginning			34,616,880				30,384,066
Ending		$	32,056,710			$	24,133,336

		2020				2019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest		$	3,109,791			$	2,405,437
Income taxes			-				-

 

1.     Significant Accounting Policies

 

The consolidated financial statements for the three months ended March 31, 2020 and 2019 are unaudited. In the opinion of the management of Ames National Corporation (the "Company"), these financial statements reflect all adjustments, consisting only of normal recurring accruals, 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, 2019 (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.

 

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, 2020, 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.

 

 

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in this update eliminates Step 2 from the goodwill impairment test. For public companies, this update became effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment tests with a measurement date after January 1, 2017. ASU 2017-04 was adopted on January 1, 2020 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update became effective for interim and annual periods in fiscal years beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis, and the new disclosures were adopted on a prospective basis. The adoption did not have a material effect on the Company’s consolidated financial statements.

 

2.      Bank Acquisition

 

On October 25, 2019, the Company completed the purchase of Iowa State Savings Bank (“ISSB”), including its’ four branches in Creston, Diagonal, Lennox and Corning, Iowa (the “Acquisition”). The Acquisition was consistent with the Bank’s strategy to strengthen and expand its Iowa market share. ISSB’s acquired assets and liabilities were recorded at fair value at the date of acquisition. This bank was purchased for cash consideration of $22.6 million. As a result of the acquisition, the Company recorded a core deposit intangible asset of $1,891,000 and goodwill of approximately $2,680,000. The results of operations for this acquisition have been included since the transaction date of October 25, 2019. Since the acquisition date, there has been no significant credit deterioration of the acquired loans.

 

 

The following table summarizes the fair value of the total consideration transferred as a part of the ISSB Acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transactions. (in thousands)

 

 

On October 25, 2019, associated with the ISSB Acquisition, the contractual balance of loans receivable acquired was $139,703,000 and the contractual balance of the deposits assumed was $188,068,000. Loans receivable acquired include commercial real estate, 1-4 family real estate, agricultural real estate, commercial operating, agricultural operating and consumer loans. During the first quarter of 2020, an additional $310,000 of goodwill was recorded due to an adjustment to the initial purchase price.

 

The acquired loans associated with the ISSB Acquisition at contractual values as of October 25, 2019 were determined to be risk rated as follows (in thousands):

 

 

 

The core deposit intangible asset is amortized to expense on a declining basis over a period of ten years. The loan market valuation is accreted to income on the effective yield method over a ten year period. The time deposits market valuation is amortized to expense on a declining basis over a two year period.

 

3.      Dividends

 

On February 12, 2020, the Company declared a cash dividend on its common stock, payable on May 15, 2020 to stockholders of record as of May 1, 2020, equal to $0.25 per share

 

4.    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, 2020 and 2019 was 9,219,195 and 9,258,047, respectively. The Company had no potentially dilutive securities outstanding during the periods presented.

 

5.     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, 2019.

 

6.     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. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

 

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, 2020 and December 31, 2019. (in thousands)

 

 

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, 2020 and December 31, 2019. (in thousands)

 

 

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, 2020 and December 31, 2019 are as follows: (in thousands)

 

 

 

* Not Meaningful.

 

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, 2020 and December 31, 2019: (in thousands)

 

 

The methodologies used to determine fair value as of March 31, 2020 did not change from the methodologies described in the December 31, 2019 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.

 

 

7.     Debt and Equity Securities

 

The amortized cost of securities available-for-sale and their approximate fair values as of March 31, 2020 and December 31, 2019 are summarized below: (in thousands)

 

 

 

The amortized cost and fair value of debt securities available-for-sale as of March 31, 2020, 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)

 

 

Securities with a carrying value of $207.1 million and $180.0 million at March 31, 2020 and December 31, 2019, 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, 2020 and 2019 are summarized below (in thousands):

 

 

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, 2020 and December 31, 2019 are as follows: (in thousands)

 

 

 

 

Gross unrealized losses on debt securities totaled $3,321,000 as of March 31, 2020. 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.

 

8.	Loans Receivable and Credit Disclosures

 

The composition of loans receivable as of March 31, 2020 and December 31, 2019 is as follows (in thousands):

 

 

 

Activity in the allowance for loan losses, on a disaggregated basis, for the three months ended March 31, 2020 and 2019 is as follows: (in thousands)

 

  

 

Allowance for loan losses disaggregated on the basis of impairment analysis method as of March 31, 2020 and December 31, 2019 is as follows: (in thousands)

 

 

 

 

Loans receivable disaggregated on the basis of impairment analysis method as of March 31, 2020 and December 31, 2019 is as follows (in thousands):

 

 

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payment of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company will apply its normal loan review procedures to identify loans that should be evaluated for impairment.

 

 

Impaired loans, on a disaggregated basis, as of March 31, 2020 and December 31, 2019: (in thousands)

 

 

 

Average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2020 and 2019: (in thousands)

 

 

The interest foregone on nonaccrual loans for the three months ended March 31, 2020 and 2019 was approximately $189,000 and $58,000, respectively.

 

Nonaccrual loans at March 31, 2020 and December 31, 2019 were $17,712,000 and $4,788,000 respectively.

 

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $1,372,000 as of March 31, 2020, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $1,171,000 as of December 31, 2019, all of which were included in impaired and nonaccrual loans.

 

 

The Company’s TDR, on a disaggregated basis, occurring in the three months ended March 31, 2020 and 2019, is as follows: (dollars in thousands)

 

 

During the three months ended March 31, 2020, the Company granted concessions to two related borrowers in the hospitality industry that are facing financial difficulties. One loan was secured by commercial real estate and the second loan was secured by a commercial operating note. Payments on these loans were deferred for six months and the interest rate was reduced below the market interest rate. During the three months ended March 31, 2019, the Company did not grant concessions to any borrowers.

 

There were no TDR loans that were modified during the three months ended March 31, 2020 and twelve months ended March 31, 2019 that had payment defaults. The Company considers TDR loans to have payment default when it is past due 60 days or more.

 

There were $16,000 of net charge-offs related to TDRs for the three months ended March 31, 2020 and no charge-offs related to TDRs for the three months ended March 31, 2019. No additional specific reserve was provided for the three months ended March 31, 2020 and March 31, 2019.

 

 

An aging analysis of the recorded investments in loans, on a disaggregated basis, as of March 31, 2020 and December 31, 2019, is as follows: (in thousands)

 

 

 

The increase in the 90 days or greater loans from December 31, 2019 is primarily due to agricultural loans that are well secured as of March 31, 2020.

 

 

The credit risk profile by internally assigned grade, on a disaggregated basis, as of March 31, 2020 and December 31, 2019 is as follows: (in thousands)

 

 

 

The credit risk profile based on payment activity, on a disaggregated basis, as of March 31, 2020 and December 31, 2019 is as follows: