10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ 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:  0-12668

Hills Bancorporation

(State or other jurisdiction of incorporation or organization)	I.R.S. Employer Identification No.
Iowa	42-1208067

131 MAIN STREET, HILLS, Iowa 52235

Telephone number: (319) 679-2291

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

Indicate by checkmark 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 checkmark 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	☐	Small 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 checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes  ☑ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

		SHARES OUTSTANDING
CLASS		October 31, 2020
Common Stock	No par value	9,341,944

HILLS BANCORPORATION

Index to Form 10-Q

Part I

FINANCIAL INFORMATION

		Page
		Number
Item 1.	Financial Statements
	Consolidated balance sheets, September 30, 2020 (unaudited) and December 31, 2019	4
	Consolidated statements of income (unaudited) for three and nine months ended September 30, 2020 and 2019	5
	Consolidated statements of comprehensive income (unaudited) for three and nine months ended September 30, 2020 and 2019	6
	Consolidated statements of stockholders' equity (unaudited) for three and nine months ended September 30, 2020 and 2019	7
	Consolidated statements of cash flows (unaudited) for nine months ended September 30, 2020 and 2019	9
	Notes to consolidated financial statements (condensed)	11
Item 2.	Management Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	63
	Part II
	OTHER INFORMATION
Item 1.	Legal proceedings	63
Item 1A.	Risk factors	63
Item 2.	Unregistered sales of equity securities and use of proceeds	66
Item 3.	Defaults upon senior securities	67
Item 4.	Mine safety disclosures	67
Item 5.	Other information	67
Item 6.	Exhibits	68
	Signatures	69
	Exhibits Index	70

Page 3

HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS (Amounts In Thousands, Except Share Amounts) 

	September 30, 2020		December 31, 2019
ASSETS	(Unaudited)
Cash and cash equivalents	$	560,738	$	241,965
Investment securities available for sale at fair value (amortized cost September 30, 2020 $362,811; December 31, 2019 $351,069)	375,255		355,303
Stock of Federal Home Loan Bank	11,373		11,065
Loans held for sale	27,980		8,400
Loans, net of allowance for loan losses (September 30, 2020 $37,060; December 31, 2019 $33,760)	2,731,030		2,606,277
Property and equipment, net	35,548		37,146
Tax credit real estate investment	7,160		8,280
Accrued interest receivable	13,731		12,442
Deferred income taxes, net	7,015		8,018
Goodwill	2,500		2,500
Other assets	8,121		9,491
Total Assets	$	3,780,451	$	3,300,887
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits	$	500,272	$	387,612
Interest-bearing deposits	2,614,279		2,273,752
Total deposits	$	3,114,551	$	2,661,364
Other borrowings	43		—
Federal Home Loan Bank borrowings	185,000		185,000
Accrued interest payable	2,198		2,474
Other liabilities	24,505		25,012
Total Liabilities	$	3,326,297	$	2,873,850
Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP)	$	46,895	$	51,826
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 20,000,000 shares; issued September 30, 2020 10,328,875 shares; December 31, 2019 10,327,656 shares	$	—	$	—
Paid in capital	59,972		55,943
Retained earnings	431,401		409,509
Accumulated other comprehensive income	7,031		1,415
Treasury stock at cost (September 30, 2020 982,827 shares; December 31, 2019 975,962 shares)	(44,250)		(39,830)
Total Stockholders' Equity	$	454,154	$	427,037
Less maximum cash obligation related to ESOP shares	46,895		51,826
Total Stockholders' Equity Less Maximum Cash Obligation Related to ESOP Shares	$	407,259	$	375,211
Total Liabilities & Stockholders' Equity	$	3,780,451	$	3,300,887

See Notes to Consolidated Financial Statements.

Page 4

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Amounts In Thousands, Except Per Share Amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income:
Loans, including fees	$	29,750	$	30,857	$	89,975	$	90,825
Investment securities:
Taxable	889		825		2,656		2,375
Nontaxable	933		918		2,941		2,898
Federal funds sold	103		1,369		801		2,954
Total interest income	$	31,675	$	33,969	$	96,373	$	99,052
Interest expense:
Deposits	$	5,077	$	7,662	$	16,854	$	21,418
FHLB borrowings	1,388		1,612		4,118		4,778
Total interest expense	$	6,465	$	9,274	$	20,972	$	26,196
Net interest income	$	25,210	$	24,695	$	75,401	$	72,856
Provision for loan losses	(157)		144		4,500		(1,642)
Net interest income after provision for loan losses	$	25,367	$	24,551	$	70,901	$	74,498
Noninterest income:
Net gain on sale of loans	$	2,303	$	1,197	$	4,859	$	2,060
Trust fees	2,494		2,427		7,450		7,107
Service charges and fees	2,636		2,695		7,427		7,618
Other noninterest income	77		295		462		982
Gain (loss) on sale of investment securities	—		24		10		(28)
	$	7,510	$	6,638	$	20,208	$	17,739
Noninterest expenses:
Salaries and employee benefits	$	10,108	$	9,258	$	29,818	$	27,310
Occupancy	1,067		986		3,248		3,274
Furniture and equipment	2,028		1,699		5,778		5,036
Office supplies and postage	425		469		1,333		1,370
Advertising and business development	340		607		1,479		1,800
Outside services	2,818		2,729		8,020		7,824
FDIC insurance assessment	223		208		617		612
Other noninterest expense	1,046		648		1,861		1,787
	$	18,055	$	16,604	$	52,154	$	49,013
Income before income taxes	$	14,822	$	14,585	$	38,955	$	43,224
Income taxes	3,392		3,303		8,739		9,519
Net income	$	11,430	$	11,282	$	30,216	$	33,705
Earnings per share:
Basic	$	1.22	$	1.21	$	3.22	$	3.61
Diluted	$	1.22	$	1.21	$	3.22	$	3.61

See Notes to Consolidated Financial Statements.

Page 5

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (Amounts In Thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	11,430	$	11,282	$	30,216	$	33,705
Other comprehensive income
Securities:
Net change in unrealized (loss) income on securities available for sale	$	(84)	$	495	$	8,220	$	7,046
Reclassification adjustment for net loss (gains) realized in net income	—		(24)		(10)		28
Income taxes	21		(118)		(2,049)		(1,765)
Other comprehensive (loss) income on securities available for sale	$	(63)	$	353	$	6,161	$	5,309
Derivatives used in cash flow hedging relationships:
Net change in unrealized gain (loss) on derivatives	$	364	$	(103)	$	(726)	$	(1,081)
Income taxes	(91)		26		181		270
Other comprehensive income (loss) on cash flow hedges	$	273	$	(77)	$	(545)	$	(811)
Other comprehensive income, net of tax	$	210	$	276	$	5,616	$	4,498
Comprehensive income	$	11,640	$	11,558	$	35,832	$	38,203

See Notes to Consolidated Financial Statements.

Page 6

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Amounts In Thousands, Except Share Amounts)

Three Months Ended September 30, 2020 and 2019
	Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Maximum Cash Obligation Related To ESOP Shares		Total
Balance, June 30, 2019	$	55,515	$	386,614	$	972	$	(39,352)	$	(50,225)	$	353,524
Issuance of 1,468 shares of common stock	56		—		—		39		—		95
Issuance of 1,786 shares of common stock under the employee stock purchase plan	102		—		—		—		—		102
Unearned restricted stock compensation	165		—		—		—		—		165
Forfeiture of 134 shares of common stock	(8)		—		—		—		—		(8)
Share-based compensation	6		—		—		—		—		6
Change related to ESOP shares	—		—		—		—		(1,077)		(1,077)
Net income	—		11,282		—		—		—		11,282
Purchase of 8,209 shares of common stock	—		—		—		(530)		—		(530)
Other comprehensive income	—		—		276		—		—		276
Balance, September 30, 2019	$	55,836	$	397,896	$	1,248	$	(39,843)	$	(51,302)	$	363,835
Balance, June 30, 2020	$	60,043	$	419,971	$	6,821	$	(42,787)	$	(45,329)	$	398,719
Issuance of 13,120 shares of common stock	458		—		—		351		—		809
Issuance of 1,861 shares of common stock under the employee stock purchase plan	104		—		—		—		—		104
Unearned restricted stock compensation	(474)		—		—		—		—		(474)
Forfeiture of 3,188 shares of common stock	(166)		—		—		—		—		(166)
Share-based compensation	7		—		—		—		—		7
Change related to ESOP shares	—		—		—		—		(1,566)		(1,566)
Net income	—		11,430		—		—		—		11,430
Purchase of 29,807 shares of common stock	—		—		—		(1,814)		—		(1,814)
Other comprehensive income	—		—		210		—		—		210
Balance, September 30, 2020	$	59,972	$	431,401	$	7,031	$	(44,250)	$	(46,895)	$	407,259

Page 7

Nine Months Ended September 30, 2020 and 2019
	Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Maximum Cash Obligation Related To ESOP Shares		Total
Balance, December 31, 2018	52,122		371,848		(3,250)		(36,968)		(48,870)		334,882
Issuance of 87,959 shares of common stock	3,072		—		—		2,302		—		5,374
Issuance of 5,821 shares of common stock under the employee stock purchase plan	325		—		—		—		—		325
Unearned restricted stock compensation	572		—		—		—		—		572
Forfeiture of 5,255 shares of common stock	(262)		—		—		—		—		(262)
Share-based compensation	7		—		—		—		—		7
Change related to ESOP shares	—		—		—		—		(2,432)		(2,432)
Net income	—		33,705		—		—		—		33,705
Cash dividends ($0.82 per share)	—		(7,657)		—		—		—		(7,657)
Purchase of 83,606 shares of common stock	—		—		—		(5,177)		—		(5,177)
Other comprehensive income	—		—		4,498		—		—		4,498
Balance, September 30, 2019	$	55,836	$	397,896	$	1,248	$	(39,843)	$	(51,302)	$	363,835
Balance, December 31, 2019	$	55,943	$	409,509	$	1,415	$	(39,830)	$	(51,826)	$	375,211
Issuance of 105,542 shares of common stock	4,005		—		—		2,810		—		6,815
Issuance of 5,430 shares of common stock under the employee stock purchase plan	304		—		—		—		—		304
Unearned restricted stock compensation	(81)		—		—		—		—		(81)
Forfeiture of 4,211 shares of common stock	(218)		—		—		—		—		(218)
Share-based compensation	19		—		—		—		—		19
Change related to ESOP shares	—		—		—		—		4,931		4,931
Net income	—		30,216		—		—		—		30,216
Cash dividends ($0.89 per share)	—		(8,324)		—		—		—		(8,324)
Purchase of 112,407 shares of common stock	—		—		—		(7,230)		—		(7,230)
Other comprehensive income	—		—		5,616		—		—		5,616
Balance, September 30, 2020	$	59,972	$	431,401	$	7,031	$	(44,250)	$	(46,895)	$	407,259

See Notes to Consolidated Financial Statements.

Page 8

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands)

	Nine Months Ended September 30,
	2020		2019
Cash Flows from Operating Activities
Net income	$	30,216	$	33,705
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation	2,623		2,542
Provision for loan losses	4,500		(1,642)
Net (gain) loss on sale of investment securities available for sale	(10)		28
Forfeiture of common stock	(218)		(262)
Share-based compensation	19		7
Compensation expensed through issuance of common stock	971		348
Provision for deferred income taxes	(865)		484
Net gain on sale of other real estate owned and other repossessed assets	—		(11)
Increase in accrued interest receivable	(1,289)		(1,718)
Amortization of premium on investment securities, net	555		303
Decrease (increase) in other assets	1,320		(1,763)
Amortization of operating lease right-of-use assets	91		265
Decrease in accrued interest payable and other liabilities	(1,590)		(40)
Loans originated for sale	(359,531)		(201,514)
Proceeds on sales of loans	344,810		180,701
Net gain on sales of loans	(4,859)		(2,060)
Net cash and cash equivalents provided by operating activities	$	16,743	$	9,373
Cash Flows from Investing Activities
Proceeds from maturities of investment securities available for sale	$	64,096	$	51,275
Proceeds from sales of investment securities available for sale	313		12,467
Purchases of investment securities available for sale	(77,004)		(61,544)
Loans made to customers, net of collections	(129,294)		(11,296)
Proceeds on sale of other real estate owned and other repossessed assets	—		63
Purchases of property and equipment	(1,025)		(1,637)
Net changes from tax credit real estate investment	1,120		777
Net cash and cash equivalents used in investing activities	$	(141,794)	$	(9,895)
Cash Flows from Financing Activities
Net increase in deposits	$	453,187	$	279,834
Net increase in short-term borrowings	43		—
Issuance of common stock, net of costs	5,844		5,026
Purchase of treasury stock	(7,230)		(5,177)
Proceeds from the issuance of common stock through the employee stock purchase plan	304		325
Dividends paid	(8,324)		(7,657)
Net cash and cash equivalents provided by financing activities	$	443,824	$	272,351

(Continued)

Page 9

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) (Amounts In Thousands)

	Nine Months Ended September 30,
	2020		2019
Increase in cash and cash equivalents	$	318,773	$	271,829
Cash and cash equivalents:
Beginning of period	241,965		43,305
End of period	$	560,738	$	315,134
Supplemental Disclosures
Cash payments for:
Interest paid to depositors	$	17,130	$	20,639
Interest paid on other obligations	4,118		4,778
Income taxes paid	7,329		8,044
Noncash activities:
(Decrease)/increase in maximum cash obligation related to ESOP shares	$	(4,931)	$	2,432
Transfers to other real estate owned	—		712
Right-of-use assets obtained in exchange for operating lease obligations	—		3,581

See Notes to Consolidated Financial Statements.

Page 10

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X.  These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown.  Certain prior year amounts have been reclassified to conform to the current year presentation.  The Company considers that it operates as one business segment, a commercial bank.

Operating results for the nine month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the “Company”) for the year ended December 31, 2019 filed with the Securities Exchange Commission on March 6, 2020.  The consolidated balance sheet as of December 31, 2019, has been derived from the audited consolidated financial statements for that period.

The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit and investment securities. Interest income on loans and investment securities is recognized on the accrual method in accordance with written contracts.

Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606 are the following: Service charges and fees on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue which includes interchange income, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. Trust income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received.

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. As of September 30, 2020, the Company did not have any significant contract balances.

An entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense

Page 11

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. The Company has not incurred or capitalized any contract acquisition costs as of September 30, 2020.

Effect of New Financial Accounting Standards:

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases. The ASU provides guidance requiring lessees to recognize right-of-use (ROU) assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. Under this new ASU, lessees will recognize right-of use assets and lease liabilities for most leases currently accounted for as operating leases under generally accepted accounting principles. For public companies, ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted the ASU on January 1, 2019 and used the alternative transition approach which permits the effects of adoption to be applied at the effective date. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. We elected the 'package of practical expedients', which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also elected the short-term lease exemption and combining the lease and nonlease components practical expedients. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The most significant impact upon adoption relates to the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment and real estate operating leases. Upon adoption, we recognized additional operating liabilities of $3.58 million, with corresponding ROU assets of the same amount based on the present value of the remaining rental payments, including options to extend that are expected to be exercised, under current leasing standards for existing operating leases. There was no cumulative effect of adopting the standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (CECL). The ASU changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. For public companies, ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, early adoption is permitted for the fiscal year beginning after December 15, 2018. With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the option to delay CECL was provided until the earlier of the national health emergency being declared over or December 31, 2020. The Company elected to delay implementing CECL and continued to use the incurred loss method to calculate the allowance for loan losses as of and for the period ending September 30, 2020.

The Company has implemented a software solution provided by a third party vendor to assist in the determination of the CECL estimate. The CECL model has been finalized and we completed the validation process for the CECL model using an independent outside party in January 2020. Our current planned approach for estimating expected life-time credit losses for loans includes the following key components:

•An initial forecast period of one year for all portfolio segments and off-balance-sheet credit exposures. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time.

•A historical loss forecast period covering the remaining contractual life, adjusted for prepayments, by portfolio segment based on the change in key historical economic variables.

•A reversion period of up to 3 years connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.

•We will primarily utilize discounted cash flow (DCF) methods to estimate credit losses by portfolio segment. The DCF methods obtain estimated life-time credit losses using the conceptual components described above.

Page 12

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Upon the expiration of the CECL delay provided by the CARES Act, the adjustment upon adoption at January 1, 2020 will be an overall increase in our Allowance for Credit Losses (ACL) for loans of $3.5 million. We will also record an unfunded commitments liability of $1.45 million upon adoption. The future effects of CECL on our ACL will depend on the size and composition of our portfolio, the portfolio’s credit quality and economic conditions, as well as any refinements to our model, methodology and other key assumptions. We will recognize a one-time cumulative-effect adjustment to our allowance for loan losses upon adoption of the new standard. The increase in the ACL will result in a decrease to our regulatory capital amounts and ratios. Once finalized, we estimate the ACL as of September 30, 2020 to be approximately $41 million to $44 million and the unfunded commitments liability to be approximately $4 million to $5 million.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323), Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This ASU adds an SEC paragraph and amends other Topics pursuant to an SEC staff Announcement made at the September 22, 2016 Emerging Issues Task Force (EITF) meeting. The SEC paragraph applies to ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU provides that a company should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If the company does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced in this announcement is expected to have on the financial statements, then in addition to making a statement to that effect, the company should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the company when adopted. Additional qualitative disclosures should include a description of the effect of the accounting policies that the company expects to apply and a comparison to the company's current accounting policies. Also, the company should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 250), Simplifying the Test for Goodwill Impairment. The ASU simplifies the goodwill impairment test by requiring a company to perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized when the carrying amount exceeds fair value. For public companies, ASU 2017-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU No. 2017-04 for the period ending March 31, 2020. There was no material impact on the financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. This ASU requires companies to change the recognition and presentation of the effects of hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness and requiring companies to present all of the elements of hedge accounting that affect earnings in the same income statement line as the hedged item. Furthermore, the standard eases the requirements for effectiveness testing, hedge documentation and applying the critical terms match method and introduces new alternatives that will permit companies to reduce the risk of material error corrections if they misapply the shortcut method. For public companies, ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2017-12 for the period ending March 31, 2019. There was no material impact on the financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted ASU No. 2018-07 for the period ending March 31, 2019. There was no material impact on the 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 ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including removal of the requirement to disclose the valuation processes for Level 3 fair value measurements and the additional requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop

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(Unaudited)

Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company adopted ASU 2018-13 for the period ending March 31, 2020. There was no material impact on the financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangements That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 for the period ending March 31, 2020. There was no material impact on the financial statements.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The amendments in this ASU are required to be adopted concurrently with the amendments in ASU 2017-12. For public companies, this would be for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2018-16 for the period ending March 31, 2019 concurrently with ASU 2017-12. There was no material impact on the financial statements.

In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. The amendments in this ASU update the Codification to reflect the amendments of various SEC disclosure requirements that the agency determined were redundant, duplicative, overlapping, outdated or superseded. The SEC amended its disclosure rules in 2018 with the aim of providing investors with useful disclosure information and to simplify compliance without significantly altering the mix of the information being provided. This ASU was effective upon release and there was no material impact on the financial statements.

In November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Codification Improvements - Share-Based Consideration Payable to a Customer. The amendments in this ASU require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual understanding of the key terms and conditions of a share-based payment award. The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer. The Company adopted ASU 2019-08 for the period ending December 31, 2019. There was no material impact on the financial statements.

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this ASU clarify or address stakeholders' specific issues about certain aspects of the amendments in ASU 2016-13 in the following areas: expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables and financial assets secured by collateral maintenance provisions. For public companies, ASU 2019-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be adopted concurrently with ASU 2016-13. As noted above, we have elected to delay the adoption of ASU 2016-13 as permitted by the CARES Act.

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(Unaudited)

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing specific exceptions included in Topic 740, introducing other simplifications and making technical corrections. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on the financial statements.

Note 2.Earnings Per Share

Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period.  Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding.  ESOP shares are considered outstanding for this calculation unless unearned.

The computation of basic and diluted earnings per share for the periods presented is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Common shares outstanding at the beginning of the period	9,364,062		9,346,449		9,351,694		9,336,441
Weighted average number of net shares issued (redeemed)	(7,765)		(160)		28,137		21,712
Weighted average shares outstanding (basic)	9,356,297		9,346,289		9,379,831		9,358,153
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method	3,592		4,284		3,673		4,146
Weighted average number of shares (diluted)	9,359,889		9,350,573		9,383,504		9,362,299
Net income (In thousands)	$	11,430	$	11,282	$	30,216	$	33,705
Earnings per share:
Basic	$	1.22	$	1.21	$	3.22	$	3.61
Diluted	$	1.22	$	1.21	$	3.22	$	3.61

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(Unaudited)

Note 3.Other Comprehensive Income

The following table summarizes the balances of each component of accumulated other comprehensive income (AOCI), included in stockholders’ equity, at September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(amounts in thousands)
Net unrealized income on available-for-sale securities	$	12,444	$	4,234
Net unrealized loss on derivatives used for cash flow hedges	(3,075)		(2,349)
Tax effect	$	(2,338)	$	(470)
Net-of-tax amount	$	7,031	$	1,415

Note 4.Securities

The carrying values of investment securities at September 30, 2020 and December 31, 2019 are summarized in the following table (dollars in thousands):

	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
Securities available for sale
U.S. Treasury	$	151,835	40.46	%	$	128,585	36.19	%
Other securities (FHLB, FHLMC and FNMA)	25,209		6.72		15,229		4.29
State and political subdivisions	198,211		52.82		211,489		59.52
Total securities available for sale	$	375,255	100.00	%	$	355,303	100.00	%

Investment securities have been classified in the consolidated balance sheets according to management’s intent.  Available-for-sale securities consist of debt securities not classified as trading or held to maturity.  Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity.  There were no trading or held to maturity securities as of September 30, 2020 or December 31, 2019. The carrying amount of available-for-sale securities and their approximate fair values were as follows as of September 30, 2020 and December 31, 2019 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
September 30, 2020:
U.S. Treasury	$	145,999	$	5,836	$	—	$	151,835
Other securities (FHLB, FHLMC and FNMA)	25,203		37		(31)		25,209
State and political subdivisions	191,609		6,659		(57)		198,211
Total	$	362,811	$	12,532	$	(88)	$	375,255
December 31, 2019:
U.S. Treasury	$	127,096	$	1,626	$	(137)	$	128,585
Other securities (FHLB, FHLMC and FNMA)	15,287		—		(58)		15,229
State and political subdivisions	208,686		2,938		(135)		211,489
Total	$	351,069	$	4,564	$	(330)	$	355,303

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(Unaudited)

The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities at September 30, 2020, were as follows (in thousands):

	Amortized Cost		Fair Value
Due in one year or less	$	46,608	$	46,887
Due after one year through five years	219,240		226,723
Due after five years through ten years	77,290		81,722
Due over ten years	19,673		19,923
Total	$	362,811	$	375,255

As of September 30, 2020 investment securities with a carrying value of $13.75 million were pledged to collateralize derivative financial instruments and other borrowings.

Sales proceeds and gross realized gains and losses on available-for-sale securities for the nine months ended September 30, 2020 and 2019 were as follows (in thousands):

	September 30, 2020		September 30, 2019
Sales proceeds	$	313	$	12,467
Gross realized gains	10		24
Gross realized losses	—		52

The following table shows the fair value, gross unrealized losses and the percentage of fair value represented by gross unrealized losses of applicable investment securities owned by the Company, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019 (in thousands):

	Less than 12 months							12 months or more							Total
September 30, 2020 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	—	$	—	$	—	—	%	—	$	—	$	—	—	%	—	$	—	$	—	—	%
Other securities (FHLB, FHLMC and FNMA)	5	12,540		(31)		0.25		—	—		—		—		5	12,540		(31)		0.25
State and political subdivisions	19	5,552		(50)		0.90		5	621		(7)		1.13		24	6,173		(57)		0.92
Total temporarily impaired securities	24	$	18,092	$	(81)	0.45	%	5	$	621	$	(7)	1.13	%	29	$	18,713	$	(88)	0.47	%

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(Unaudited)

	Less than 12 months							12 months or more							Total
December 31, 2019 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	11	$	27,932	$	(136)	0.49	%	1	$	2,495	$	(1)	0.04	%	12	$	30,427	$	(137)	0.45	%
Other securities (FHLB, FHLMC and FNMA)	—	—		—		—		6	15,229		(58)		0.38		6	15,229		(58)		0.38
State and political subdivisions	66	17,881		(119)		0.67		20	3,825		(16)		0.42		86	21,706		(135)		0.62
Total temporarily impaired securities	77	$	45,813	$	(255)	0.56	%	27	$	21,549	$	(75)	0.35	%	104	$	67,362	$	(330)	0.49	%

The Company considered the following information in reaching the conclusion that the impairments disclosed in the table above are temporary and not other-than-temporary impairments.  None of the unrealized losses in the above table was due to the deterioration in the credit quality of any of the issues that might result in the non-collection of contractual principal and interest.  The unrealized losses are due to changes in interest rates.  The Company has not recognized any unrealized loss in income because management does not have the intent to sell the securities included in the previous table.  Management has concluded that it is more likely than not that the Company will not be required to sell these securities prior to recovery of the amortized cost basis.

Note 5.Loans

Classes of loans are as follows:

	September 30, 2020		December 31, 2019
	(Amounts In Thousands)
Agricultural	$	96,321	$	91,317
Commercial and financial	335,463		221,323
Real estate:
Construction, 1 to 4 family residential	70,527		80,209
Construction, land development and commercial	114,270		108,410
Mortgage, farmland	243,689		242,730
Mortgage, 1 to 4 family first liens	900,224		910,742
Mortgage, 1 to 4 family junior liens	131,477		149,227
Mortgage, multi-family	371,167		350,761
Mortgage, commercial	417,042		402,181
Loans to individuals	30,521		32,308
Obligations of state and political subdivisions	56,424		49,896
	$	2,767,125	$	2,639,104
Net unamortized fees and costs	965		933
	$	2,768,090	$	2,640,037
Less allowance for loan losses	37,060		33,760
	$	2,731,030	$	2,606,277

As of September 30, 2020, the Company has provided $127.10 million of Paycheck Protection Program (PPP) loans recorded with commercial and financial loans above and has $3.77 million of deferred PPP loan fees recorded net of commercial and financial loans. For the nine months ended September 30, 2020, the Company has recognized $1.26 million of fees in interest income.

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(Unaudited)

Changes in the allowance for loan losses, the allowance for loan losses applicable to impaired loans and the related loan balance of impaired loans for the three and nine months ended September 30, 2020 were as follows:

	Three Months Ended September 30, 2020
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,547	$	5,777	$	2,433	$	4,089	$	12,282	$	9,173	$	1,319	$	37,620
Charge-offs	(8)		(478)		—		—		(115)		(210)		(63)		(874)
Recoveries	26		165		27		—		201		10		42		471
Provision	30		(119)		(167)		(41)		(210)		320		30		(157)
Ending balance	$	2,595	$	5,345	$	2,293	$	4,048	$	12,158	$	9,293	$	1,328	$	37,060

	Nine Months Ended September 30, 2020
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,400	$	4,988	$	2,599	$	3,950	$	10,638	$	7,859	$	1,326	$	33,760
Charge-offs	(43)		(1,253)		(43)		(1)		(576)		(290)		(276)		(2,482)
Recoveries	44		374		81		—		636		33		114		1,282
Provision	194		1,236		(344)		99		1,460		1,691		164		4,500
Ending balance	$	2,595	$	5,345	$	2,293	$	4,048	$	12,158	$	9,293	$	1,328	$	37,060
Ending balance, individually evaluated for impairment	$	80	$	477	$	87	$	1	$	86	$	—	$	14	$	745
Ending balance, collectively evaluated for impairment	$	2,515	$	4,868	$	2,206	$	4,047	$	12,072	$	9,293	$	1,314	$	36,315
Loans:
Ending balance	$	96,321	$	335,463	$	184,797	$	243,689	$	1,031,701	$	788,209	$	86,945	$	2,767,125
Ending balance, individually evaluated for impairment	$	1,742	$	5,949	$	7,933	$	2,440	$	6,980	$	3,614	$	14	$	28,672
Ending balance, collectively evaluated for impairment	$	94,579	$	329,514	$	176,864	$	241,249	$	1,024,721	$	784,595	$	86,931	$	2,738,453

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(Unaudited)

Changes in the allowance for loan losses for the three and nine months ended September 30, 2019 were as follows:

	Three Months Ended September 30, 2019
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,535	$	5,603	$	2,646	$	3,891	$	11,384	$	8,194	$	1,397	$	35,650
Charge-offs	(135)		(177)		—		—		(332)		—		(92)		(736)
Recoveries	18		128		2		—		317		12		35		512
Provision	288		(143)		240		96		(166)		(110)		(61)		144
Ending balance	$	2,706	$	5,411	$	2,888	$	3,987	$	11,203	$	8,096	$	1,279	$	35,570

	Nine Months Ended September 30, 2019
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,789	$	5,826	$	3,292	$	3,972	$	12,516	$	8,165	$	1,250	$	37,810
Charge-offs	(135)		(641)		(9)		—		(711)		(133)		(326)		(1,955)
Recoveries	87		451		6		5		576		100		132		1,357
Provision	(35)		(225)		(401)		10		(1,178)		(36)		223		(1,642)
Ending balance	$	2,706	$	5,411	$	2,888	$	3,987	$	11,203	$	8,096	$	1,279	$	35,570
Ending balance, individually evaluated for impairment	$	341	$	1,008	$	—	$	—	$	65	$	1	$	2	$	1,417
Ending balance, collectively evaluated for impairment	$	2,365	$	4,403	$	2,888	$	3,987	$	11,138	$	8,095	$	1,277	$	34,153
Loans:
Ending balance	$	91,621	$	219,362	$	189,631	$	237,513	$	1,063,175	$	751,993	$	84,643	$	2,637,938
Ending balance, individually evaluated for impairment	$	1,865	$	3,176	$	456	$	4,117	$	7,729	$	2,043	$	2	$	19,388
Ending balance, collectively evaluated for impairment	$	89,756	$	216,186	$	189,175	$	233,396	$	1,055,446	$	749,950	$	84,641	$	2,618,550

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(Unaudited)

The following table presents the credit quality indicators by type of loans in each category as of September 30, 2020 and December 31, 2019, respectively (amounts in thousands):

	Agricultural		Commercial and Financial		Real Estate: Construction, 1 to 4 family residential		Real Estate: Construction, land development and commercial
September 30, 2020
Grade:
Excellent	$	3,174	$	15,023	$	1	$	231
Good	11,212		62,843		13,969		16,492
Satisfactory	44,687		181,807		38,486		61,231
Monitor	28,217		61,300		16,441		28,008
Special Mention	6,624		9,147		1,315		7,595
Substandard	2,407		5,343		315		713
Total	$	96,321	$	335,463	$	70,527	$	114,270

	Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family first liens		Real Estate: Mortgage, 1 to 4 family junior liens		Real Estate: Mortgage, multi- family
September 30, 2020
Grade:
Excellent	$	5,968	$	2,395	$	268	$	17,824
Good	42,037		43,348		3,284		56,624
Satisfactory	130,185		710,236		118,885		203,078
Monitor	55,917		114,949		5,575		59,787
Special Mention	6,100		13,424		1,635		15,439
Substandard	3,482		15,872		1,830		18,415
Total	$	243,689	$	900,224	$	131,477	$	371,167

	Real Estate: Mortgage, commercial		Loans to individuals		Obligations of state and political subdivisions		Total
September 30, 2020
Grade:
Excellent	$	28,533	$	—	$	6,970	$	80,387
Good	94,886		160		13,923		358,778
Satisfactory	191,744		29,685		25,561		1,735,585
Monitor	78,640		436		9,822		459,092
Special Mention	19,103		164		148		80,694
Substandard	4,136		76		—		52,589
Total	$	417,042	$	30,521	$	56,424	$	2,767,125

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(Unaudited)

	Agricultural		Commercial and Financial		Real Estate: Construction, 1 to 4 family residential		Real Estate: Construction, land development and commercial
December 31, 2019
Grade:
Excellent	$	3,594	$	3,461	$	260	$	190
Good	12,380		47,843		8,868		23,217
Satisfactory	43,308		117,114		51,093		47,987
Monitor	24,857		44,543		17,505		29,009
Special Mention	3,110		5,157		2,483		7,428
Substandard	4,068		3,205		—		579
Total	$	91,317	$	221,323	$	80,209	$	108,410

	Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family first liens		Real Estate: Mortgage, 1 to 4 family junior liens		Real Estate: Mortgage, multi- family
December 31, 2019
Grade:
Excellent	$	3,630	$	3,209	$	261	$	18,955
Good	40,118		32,474		4,233		47,871
Satisfactory	134,738		751,215		136,079		189,391
Monitor	53,147		96,353		5,473		60,965
Special Mention	3,033		11,167		1,469		27,559
Substandard	8,064		16,324		1,712		6,020
Total	$	242,730	$	910,742	$	149,227	$	350,761

	Real Estate: Mortgage, commercial		Loans to individuals		Obligations of state and political subdivisions		Total
December 31, 2019
Grade:
Excellent	$	27,017	$	—	$	7,444	$	68,021
Good	79,467		221		14,465		311,157
Satisfactory	206,196		31,385		20,274		1,728,780
Monitor	81,381		437		7,323		420,993
Special Mention	4,802		212		390		66,810
Substandard	3,318		53		—		43,343
Total	$	402,181	$	32,308	$	49,896	$	2,639,104

Page 22

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The below are descriptions of the credit quality indicators:

Excellent – Excellent rated loans are prime quality loans covered by highly liquid collateral with generous margins or supported by superior current financial conditions reflecting substantial net worth, relative to total credit extended, and based on assets of a stable and non-speculative nature whose values can be readily verified. Identified repayment source or cash flow is abundant and assured.

Good – Good rated loans are adequately secured by readily marketable collateral or good financial condition characterized by liquidity, flexibility and sound net worth. Loans are supported by sound primary and secondary payment sources and timely and accurate financial information.

Satisfactory – Satisfactory rated loans are loans to borrowers of average financial means not especially vulnerable to changes in economic or other circumstances, where the major support for the extension is sufficient collateral of a marketable nature, and the primary source of repayment is seen to be clear and adequate.

Monitor – Monitor rated loans are identified by management as warranting special attention for a variety of reasons that may bear on ultimate collectability. This may be due to adverse trends, a particular industry, loan structure, or repayment that is dependent on projections, or a one-time occurrence.

Special Mention – Special mention rated loans are supported by a marginal payment capacity and are marginally protected by collateral.  There are identified weaknesses that if not monitored and corrected may adversely affect the Company’s credit position.  A special mention credit would typically have a weakness in one of the general categories (cash flow, collateral position or payment history) but not in all categories.

Substandard – Substandard loans are not adequately supported by the paying capacity of the borrower and may be inadequately collateralized.  These loans have a well-defined weakness or weaknesses.  For these loans, it is more probable than not that the Company could sustain some loss if the deficiency(ies) is not corrected.

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Past due loans as of September 30, 2020 and December 31, 2019 were as follows:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(Amounts In Thousands)
September 30, 2020
Agricultural	$	783	$	6	$	556	$	1,345	$	94,976	$	96,321	$	14
Commercial and financial	1,140		490		2,451		4,081		331,382		335,463		2,288
Real estate:
Construction, 1 to 4 family residential	630		668		—		1,298		69,229		70,527		—
Construction, land development and commercial	928		47		7,000		7,975		106,295		114,270		7,000
Mortgage, farmland	—		315		645		960		242,729		243,689		35
Mortgage, 1 to 4 family first liens	670		1,195		2,724		4,589		895,635		900,224		—
Mortgage, 1 to 4 family junior liens	65		260		109		434		131,043		131,477		—
Mortgage, multi-family	4,008		1,799		—		5,807		365,360		371,167		—
Mortgage, commercial	731		—		311		1,042		416,000		417,042		—
Loans to individuals	108		27		4		139		30,382		30,521		—
Obligations of state and political subdivisions	—		—		—		—		56,424		56,424		—
	$	9,063	$	4,807	$	13,800	$	27,670	$	2,739,455	$	2,767,125	$	9,337
December 31, 2019
Agricultural	$	163	$	275	$	122	$	560	$	90,757	$	91,317	$	48
Commercial and financial	1,076		229		101		1,406		219,917		221,323		65
Real estate:
Construction, 1 to 4 family residential	635		—		—		635		79,574		80,209		—
Construction, land development and commercial	215		101		—		316		108,094		108,410		—
Mortgage, farmland	736		—		610		1,346		241,384		242,730		—
Mortgage, 1 to 4 family first liens	5,026		3,100		4,149		12,275		898,467		910,742		354
Mortgage, 1 to 4 family junior liens	813		126		233		1,172		148,055		149,227		139
Mortgage, multi-family	—		97		—		97		350,664		350,761		—
Mortgage, commercial	321		489		—		810		401,371		402,181		—
Loans to individuals	226		55		15		296		32,012		32,308		—
Obligations of state and political subdivisions	—		—		—		—		49,896		49,896		—
	$	9,211	$	4,472	$	5,230	$	18,913	$	2,620,191	$	2,639,104	$	606

Page 24

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The Company does not have a material amount of loans that are past due less than 90 days where there are serious doubts as to the ability of the borrowers to comply with the loan repayment terms.

Certain impaired loan information by loan type at September 30, 2020 and December 31, 2019, was as follows:

	September 30, 2020						December 31, 2019
	Non-accrual loans (1)		Accruing loans past due 90 days or more		TDR loans		Non- accrual loans (1)		Accruing loans past due 90 days or more		TDR loans
	(Amounts In Thousands)						(Amounts In Thousands)
Agricultural	$	1,537	$	14	$	111	$	1,192	$	48	$	404
Commercial and financial	804		2,288		1,059		679		65		1,934
Real estate:
Construction, 1 to 4 family residential	315		—		—		—		—		—
Construction, land development and commercial	206		7,000		315		—		—		320
Mortgage, farmland	1,117		35		1,288		1,369		—		2,712
Mortgage, 1 to 4 family first liens	5,292		—		1,590		6,558		354		1,626
Mortgage, 1 to 4 family junior liens	195		—		—		94		139		—
Mortgage, multi-family	82		—		1,704		97		—		1,719
Mortgage, commercial	1,328		—		1,833		779		—		593
	$	10,876	$	9,337	$	7,900	$	10,768	$	606	$	9,308

(1)There were $4.20 million and $4.34 million of TDR loans included within nonaccrual loans as of September 30, 2020 and December 31, 2019, respectively.

Loans 90 days or more past due that are still accruing interest increased $8.73 million from December 31, 2019 to September 30, 2020 primarily due to one relationship accounting for $9 million of the accruing loans past due 90 days or more as of September 30, 2020. As of September 30, 2020 there were 6 accruing loans past due 90 days or more. The average accruing loans past due as of September 30, 2020 was $1.56 million. There were 8 accruing loans past due 90 days or more as of December 31, 2019 and the average loan balance was $0.08 million. The accruing loans past due 90 days or more balances are believed to be adequately collateralized and the Company expects to collect all principal and interest as contractually due under these loans. The significant relationship past due 90 days or more also has significant guarantor strength therefore the Company expects to collect all outstanding amounts due.

The Company may modify the terms of a loan to maximize the collection of amounts due.  Such a modification is considered a troubled debt restructuring (“TDR”).  In most cases, the modification is either a reduction in interest rate, conversion to interest only payments or an extension of the maturity date.  The borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term, so a concessionary modification is granted to the borrower that would otherwise not be considered.  TDR loans accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles.

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Below is a summary of information for TDR loans as of September 30, 2020 and December 31, 2019:

	September 30, 2020					December 31, 2019
	Number of contracts	Recorded investment		Commitments outstanding		Number of contracts	Recorded investment		Commitments outstanding
		(Amounts In Thousands)					(Amounts In Thousands)
Agricultural	7	$	1,309	$	10	9	$	1,552	$	3
Commercial and financial	16	1,677		85		16	2,641		95
Real estate:
Construction, 1 to 4 family residential	—	—		—		—	—		—
Construction, land development and commercial	2	315		4		2	320		—
Mortgage, farmland	7	2,352		—		8	4,021		—
Mortgage, 1 to 4 family first liens	18	1,901		—		16	2,083		—
Mortgage, 1 to 4 family junior liens	—	—		—		—	—		—
Mortgage, multi-family	2	1,704		—		2	1,719		—
Mortgage, commercial	9	2,850		—		7	1,373		—
Loans to individuals	—	—		—		—	—		—
	61	$	12,108	$	99	60	$	13,709	$	98

The following is a summary of TDR loans that were modified during the three and nine months ended September 30, 2020:

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Number of contracts	Pre-modification recorded investment		Post-modification recorded investment		Number of contracts	Pre-modification recorded investment		Post-modification recorded investment
		(Amounts In Thousands)
Agricultural	—	$	—	$	—	2	$	93	$	93
Commercial and financial	1	90		90		3	308		308
Real estate:
Construction, 1 to 4 family residential	—	—		—		—	—		—
Construction, land development and commercial	—	—		—		—	—		—
Mortgage, farmland	—	—		—		—	—		—
Mortgage, 1 to 4 family first lien	—	—		—		5	104		104
Mortgage, 1 to 4 family junior liens	—	—		—		—	—		—
Mortgage, multi-family	—	—		—		—	—		—
Mortgage, commercial	2	1,333		1,333		3	1,846		1,846
	3	$	1,423	$	1,423	13	$	2,351	$	2,351

Page 26

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The Company had commitments to lend $0.10 million in additional borrowings to restructured loan customers as of September 30, 2020.  The Company had commitments to lend $0.10 million in additional borrowings to restructured loan customers as of December 31, 2019.  These commitments were in the normal course of business.  The additional borrowings were not used to facilitate payments on these loans.

There were no TDR loans that were in payment default (defined as past due 90 days or more) during the period ended September 30, 2020 and one totaling $0.065 million modified during the year ended December 31, 2019.

Page 27

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Information regarding impaired loans as of and for the three and nine months ended September 30, 2020 is as follows:

	September 30, 2020						Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(Amounts In Thousands)
Agricultural	$	1,648	$	2,308	$	—	$	1,859	$	6	$	1,822	$	18
Commercial and financial	2,974		4,708		—		3,788		38		3,641		110
Real estate:
Construction, 1 to 4 family residential	412		480		—		700		—		575		—
Construction, land development and commercial	521		540		—		528		4		526		13
Mortgage, farmland	2,405		2,936		—		3,420		32		3,242		90
Mortgage, 1 to 4 family first liens	6,135		7,939		—		6,585		18		6,422		51
Mortgage, 1 to 4 family junior liens	108		353		—		161		—		135		—
Mortgage, multi-family	1,786		1,908		—		1,807		21		1,801		61
Mortgage, commercial	1,761		2,592		—		2,019		5		1,917		15
Loans to individuals	—		14		—		—		—		—		—
	$	17,750	$	23,778	$	—	$	20,867	$	124	$	20,081	$	358
With an allowance recorded:
Agricultural	$	94	$	94	$	80	$	109	$	2	$	102	$	6
Commercial and financial	2,975		3,028		477		3,071		33		3,060		99
Real estate:
Construction, 1 to 4 family residential	—		—		—		—		—		—		—
Construction, land development and commercial	7,000		7,000		87		7,000		80		7,000		236
Mortgage, farmland	35		35		1		37		1		37		1
Mortgage, 1 to 4 family first liens	650		701		49		668		3		666		10
Mortgage, 1 to 4 family junior liens	87		92		37		91		—		90		—
Mortgage, multi-family	—		—		—		—		—		—		—
Mortgage, commercial	67		67		—		69		1		69		3
Loans to individuals	14		14		14		14		—		14		1
	$	10,922	$	11,031	$	745	$	11,059	$	120	$	11,038	$	356
Total:
Agricultural	$	1,742	$	2,402	$	80	$	1,968	$	8	$	1,924	$	24
Commercial and financial	5,949		7,736		477		6,859		71		6,701		209
Real estate:
Construction, 1 to 4 family residential	412		480		—		700		—		575		—
Construction, land development and commercial	7,521		7,540		87		7,528		84		7,526		249
Mortgage, farmland	2,440		2,971		1		3,457		33		3,279		91
Mortgage, 1 to 4 family first liens	6,785		8,640		49		7,253		21		7,088		61
Mortgage, 1 to 4 family junior liens	195		445		37		252		—		225		—
Mortgage, multi-family	1,786		1,908		—		1,807		21		1,801		61
Mortgage, commercial	1,828		2,659		—		2,088		6		1,986		18
Loans to individuals	14		28		14		14		—		14		1
	$	28,672	$	34,809	$	745	$	31,926	$	244	$	31,119	$	714

Page 28

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Information regarding impaired loans as of December 31, 2019 is as follows:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(Amounts In Thousands)
Agricultural	$	1,596	$	2,157	$	—
Commercial and financial	1,340		2,220		—
Real estate:
Construction, 1 to 4 family residential	101		144		—
Construction, land development and commercial	320		336		—
Mortgage, farmland	4,081		4,613		—
Mortgage, 1 to 4 family first liens	7,157		9,015		—
Mortgage, 1 to 4 family junior liens	—		246		—
Mortgage, multi-family	1,816		1,930		—
Mortgage, commercial	1,302		1,852		—
Loans to individuals	—		14		—
	$	17,713	$	22,527	$	—
With an allowance recorded:
Agricultural	$	134	$	134	$	87
Commercial and financial	1,402		1,539		792
Real estate:
Construction, 1 to 4 family residential	—		—		—
Construction, land development and commercial	—		—		—
Mortgage, farmland	—		—		—
Mortgage, 1 to 4 family first liens	1,280		1,501		64
Mortgage, 1 to 4 family junior liens	233		233		47
Mortgage, multi-family	—		—		—
Mortgage, commercial	70		70		1
Loans to individuals	93		93		93
	$	3,212	$	3,570	$	1,084
Total:
Agricultural	$	1,730	$	2,291	$	87
Commercial and financial	2,742		3,759		792
Real estate:
Construction, 1 to 4 family residential	101		144		—
Construction, land development and commercial	320		336		—
Mortgage, farmland	4,081		4,613		—
Mortgage, 1 to 4 family first liens	8,437		10,516		64
Mortgage, 1 to 4 family junior liens	233		479		47
Mortgage, multi-family	1,816		1,930		—
Mortgage, commercial	1,372		1,922		1
Loans to individuals	93		107		93
	$	20,925	$	26,097	$	1,084

Page 29

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Impaired loans increased $7.75 million from December 31, 2019 to September 30, 2020.  Impaired loans include any loan that has been placed on nonaccrual status, accruing loans past due 90 days or more and TDR loans.  Impaired loans also include loans that, based on management’s evaluation of current information and events, the Company expects to be unable to collect in full according to the contractual terms of the original loan agreement.  Impaired loans were 1.05% of loans held for investment as of September 30, 2020 and 0.79% as of December 31, 2019.  The increase in impaired loans is due to an increase of $0.46 million in loans with a specific reserve, an increase in nonaccrual loans of $0.11 million and an increase in 90 days or more accruing loans of $8.73 million and is offset by a decrease in TDR loans of $1.41 million from December 31, 2019 to September 30, 2020.

The Company regularly reviews a substantial portion of the loans in the portfolio and assesses whether the loans are impaired in accordance with ASC 310.  If the loans are impaired, the Company determines if a specific allowance is appropriate.  In addition, the Company's management also reviews and, where determined necessary, provides allowances for particular loans based upon (1) reviews of specific borrowers and (2) management’s assessment of areas that management considers are of higher credit risk, including loans that have been restructured.  Loans that are determined not to be impaired and for which there are no specific allowances are classified into one or more risk categories. Based upon the risk category assigned, the Company allocates a percentage, as determined by management, for a required allowance needed.  The determination of the appropriate percentage begins with historical loss experience factors, which are then adjusted for levels and trends in past due loans, levels and trends in charged-off and recovered loans, trends in volume growth, trends in problem and watch loans, trends in restructured loans, local economic trends and conditions, industry and other conditions, and effects of changing interest rates.

Specific allowances for losses on impaired loans are established if the loan balances exceed the net present value of the relevant future cash flows or the fair value of the relevant collateral based on updated appraisals and/or updated collateral analysis for the properties if the loan is collateral dependent.  The Company may recognize a charge off or record a specific allowance related to an impaired loan if there is a collateral shortfall or it is unlikely the borrower can make all principal and interest payments as contractually due.

For loans that are collateral dependent, losses are evaluated based on the portion of a loan that exceeds the fair market value of the collateral.  In general, this is the amount that the carrying value of the loan exceeds the related appraised value less estimated costs to sell the collateral.  Generally, it is the Company’s policy not to rely on appraisals that are older than one year prior to the date the impairment is being measured.  The most recent appraisal values may be adjusted if, in the Company’s judgment, experience and other market data indicate that the property’s value, use, condition, exit market or other variable affecting its value may have changed since the appraisal was performed, consistent with the December 2006 joint interagency guidance on the allowance for loan losses.  The charge off or loss adjustment supported by an appraisal is considered the minimum charge off.  Any adjustments made to the appraised value are to provide an additional charge off or specific reserve based on the applicable facts and circumstances.  In instances where there is an estimated decline in value, a specific reserve may be provided or a charge off taken pending confirmation of the amount of the loss from an updated appraisal.  Upon receipt of the new appraisals, an additional specific reserve may be provided or charge off taken based on the appraised value of the collateral.  On average, appraisals are obtained within one month of order.

Note 6.Leases

The Bank leases branch offices, parking facilities and certain equipment under operating leases. The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. As the options are reasonably certain to be exercised, they are recognized as part of the right-of-use assets and lease liabilities.

For the nine months ended September 30, 2020 and 2019, total operating lease expense was $0.42 million and $0.47 million, respectively, and is included in occupancy expenses in the consolidated statements of income. Included in this for the nine months ended September 30, 2020 and 2019 were $0.35 million and $0.40 million of operating lease costs, respectively, $0.03 million and $0.02 million of short term lease costs, respectively, and $0.04 million and $0.05 million of variable lease costs, respectively.

For the nine months ended September 30, 2020 and 2019, cash paid for amounts included in the measurement of operating lease liabilities was $0.35 million and $0.40 million, respectively, and right-of-use assets obtained in exchange for lease obligations was $0.00 million and $3.58 million, respectively.

Page 30

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

As of September 30, 2020 and December 31, 2019, operating lease right-of-use assets included in other assets was $2.91 million and $3.20 million, respectively. Operating lease liabilities were $2.96 million and $3.23 million as of September 30, 2020 and December 31, 2019. As of September 30, 2020 and December 31, 2019, the weighted average remaining lease term for operating leases was 11.25 years and 10.86 years, respectively, and the weighted average discount rate for operating leases was 3.48% and 3.46%, respectively. Discount rates used were determined from FHLB borrowing rates for comparable terms.

As of September 30, 2020, maturities of lease liabilities were as follows:

Year ending December 31:	(Amounts In Thousands)
2020	$	117
2021	456
2022	447
2023	301
2024	250
Thereafter	2,009
Total lease payments	3,580
Less imputed interest	(625)
Total operating lease liabilities	$	2,955

Page 31

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 7.Fair Value Measurements

The carrying value and estimated fair values of the Company's financial instruments as of September 30, 2020 are as follows:

	September 30, 2020
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	560,738	$	560,738	$	560,738	$	—	$	—
Investment securities	386,628		386,628		151,835		234,793		—
Loans held for sale	27,980		27,980		—		27,980		—
Loans
Agricultural	93,726		94,086		—		—		94,086
Commercial and financial	330,118		330,164		—		—		330,164
Real estate:
Construction, 1 to 4 family residential	69,639		69,819		—		—		69,819
Construction, land development and commercial	112,865		112,610		—		—		112,610
Mortgage, farmland	239,641		238,974		—		—		238,974
Mortgage, 1 to 4 family first liens	890,560		896,881		—		—		896,881
Mortgage, 1 to 4 family junior liens	129,948		127,667		—		—		127,667
Mortgage, multi-family	366,800		367,834		—		—		367,834
Mortgage, commercial	412,116		413,699		—		—		413,699
Loans to individuals	29,832		30,070		—		—		30,070
Obligations of state and political subdivisions	55,785		56,945		—		—		56,945
Accrued interest receivable	13,731		13,731		—		13,731		—
Total financial instrument assets	$	3,720,107	$	3,727,826	$	712,573	$	276,504	$	2,738,749
Financial instrument liabilities
Deposits
Noninterest-bearing deposits	$	500,272	$	500,272	$	—	$	500,272	$	—
Interest-bearing deposits	2,614,279		2,630,803		—		2,630,803		—
Other borrowings	43		43		—		43		—
Federal Home Loan Bank borrowings	185,000		185,869		—		185,869		—
Interest rate swaps	3,075		3,075		—		3,075		—
Accrued interest payable	2,198		2,198		—		2,198		—
Total financial instrument liabilities	$	3,304,867	$	3,322,260	$	—	$	3,322,260	$	—
	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	476,859	$	—	$	—	$	—	$	—
Letters of credit	8,300		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	485,159	$	—	$	—	$	—	$	—

(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).

(2)Considered Level 2 under ASC 820.

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(Unaudited)

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

The carrying value and estimated fair values of the Company's financial instruments as of December 31, 2019 are as follows:

	December 31, 2019
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	241,965	$	241,965	$	241,965	$	—	$	—
Investment securities	366,368		366,368		128,585		237,783		—
Loans held for sale	8,400		8,400		—		8,400		—
Loans
Agricultural	88,917		90,118		—		—		90,118
Commercial and financial	216,335		217,640		—		—		217,640
Real estate:
Construction, 1 to 4 family residential	79,096		79,954		—		—		79,954
Construction, land development and commercial	106,924		107,276		—		—		107,276
Mortgage, farmland	238,780		239,521		—		—		239,521
Mortgage, 1 to 4 family first liens	902,630		896,676		—		—		896,676
Mortgage, 1 to 4 family junior liens	147,634		143,261		—		—		143,261
Mortgage, multi-family	346,938		349,663		—		—		349,663
Mortgage, commercial	398,145		395,838		—		—		395,838
Loans to individuals	31,455		32,722		—		—		32,722
Obligations of state and political subdivisions	49,423		50,564		—		—		50,564
Accrued interest receivable	12,442		12,442		—		12,442		—
Total financial instrument assets	$	3,235,452	$	3,232,408	$	370,550	$	258,625	$	2,603,233
Financial instrument liabilities:
Deposits
Noninterest-bearing deposits	$	387,612	$	387,612	$	—	$	387,612	$	—
Interest-bearing deposits	2,273,752		2,292,332		—		2,292,332		—
Federal Home Loan Bank borrowings	185,000		186,091		—		186,091		—
Interest rate swaps	2,349		2,349				2,349
Accrued interest payable	2,474		2,474		—		2,474		—
Total financial instrument liabilities	$	2,851,187	$	2,870,858	$	—	$	2,870,858	$	—
	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	424,165	$	—	$	—	$	—	$	—
Letters of credit	8,569		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	432,734	$	—	$	—	$	—	$	—

(1)Considered Level 1 under ASC 820.

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(Unaudited)

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

Fair value of financial instruments:  FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a single definition for fair value, a framework for measuring fair value and expanded disclosures concerning fair value.  Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company determines the fair market value of its financial instruments based on the fair value hierarchy established in ASC 820.  There are three levels of inputs that may be used to measure fair value as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than quoted prices included within Level 1.  Observable inputs include the quoted prices for similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability.

Level 3 Unobservable inputs supported by little or no market activity for financial instruments.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.  The Company is required to use observable inputs, to the extent available, in the fair value estimation process unless that data results from forced liquidations or distressed sales. 

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

ASSETS

Investment securities available for sale:  Investment securities available for sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted prices, if available.  If a quoted price is not available, the fair value is obtained from benchmarking the security against similar securities.  U.S. Treasury securities are considered Level 1 with the remaining securities considered Level 2.

The pricing for investment securities is obtained from an independent source.  There are no Level 3 investment securities owned by the Company.  The Company obtains an understanding of the independent source’s valuation methodologies used to determine fair value by level of security. The Company validates assigned fair values on a sample basis using an additional third-party provider pricing service to determine if the fair value measurement is reasonable.  Due to the nature of our investment portfolio, we do not expect significant and unusual fluctuations as fair value changes primarily relate to interest rate changes.   No unusual fluctuations were identified during the nine months ended September 30, 2020.   If a fluctuation requiring investigation was identified, the Company would research the change with the independent source or other available information.

Loans held for sale and Loans:  ASU 2016-01, Financial Instruments -Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Methodologies utilized for this financial statement period are as follows:

•Income Approach: Fair value is determined based on a discounted cash flow analysis. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk.

•Asset Approach: Fair value is determined based on the estimated values of the underlying collateral or individual analysis of receipts. This provides a better indication of value than the contractual income streams as these loans are not performing or exhibit strong signs indicative of non-performance.

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(Unaudited)

Fair value has been estimated in accordance with ASC 820, Fair Value Measurements and Disclosures, and is intended to represent the price that would be received in an orderly transaction between market participants as of the measurement date. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, at least one significant assumption not observable in the market was utilized. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Inputs to these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore cannot be determined with precision. Accordingly, the fair value estimates presented are not necessarily indicative of the amounts to be realized in a current market exchange. Loans are classified as Level 3.

Loans held for sale are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the short time between origination of the loan and its sale on the secondary market (Level 2). The market is active for these loans and as a result prices for similar assets are available.

Impaired loans: A loan is considered to be impaired when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a loan is considered impaired, the amount of reserve required under ASC 310, Receivables, is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material loans deemed impaired using the fair value of the collateral for collateral dependent loans or based on the present value of the estimated future cash flows of interest and principal discounted at the loans effective interest rate or the fair value of the loan if determinable. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. All appraised values are adjusted for market-related trends based on the Company's experience in sales and other appraisals of similar property types as well as estimated selling costs. Each quarter management reviews all collateral dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals are necessary based on loan performance, collateral type and guarantor support. At times, the Company measures the fair value of collateral dependent impaired loans using appraisals with dates prior to one year from the date of review. These appraisals are discounted by applying current, observable market data about similar property types such as sales contracts, estimations of value by individuals familiar with the market, other appraisals, sales or collateral assessments based on current market activity until updated appraisals are obtained. Depending on the length of time since an appraisal was performed, the data provided through reviews and estimated selling costs, collateral values are typically discounted by 0-35%. These loans are considered Level 3 as the instruments used to determine fair market value require significant management judgment and estimation.

Foreclosed assets:  The Company does not record foreclosed assets at fair value on a recurring basis.  Foreclosed assets consist mainly of other real estate owned but may include other types of assets repossessed by the Company.  Foreclosed assets are adjusted to the lower of carrying value or fair value less the cost of disposal.   Fair value is generally based upon independent market prices or appraised values of the collateral, and may include a marketability discount as deemed necessary by management based on its experience with similar types of real estate.  The value of foreclosed assets is evaluated periodically as a nonrecurring fair value adjustment.  Foreclosed assets are classified as Level 3.

Off-balance sheet instruments:  Fair values for outstanding letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.  The fair value of the outstanding letters of credit is not significant. Unfunded loan commitments are not valued since the loans are generally priced at market at the time of funding (Level 2).

LIABILITIES

Interest Rate Swap Agreements: The fair value is estimated using forward-looking interest rate curves and is calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2).

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(Unaudited)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below represents the balances of assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	151,835	$	—	$	—	$	151,835
State and political subdivisions	—		198,211		—		198,211
Other securities (FHLB, FHLMC and FNMA)	—		25,209		—		25,209
Derivative Financial Instruments
Interest rate swaps	$	—	(3,075)		$	—	(3,075)
Total	$	151,835	$	220,345	$	—	$	372,180

	December 31, 2019
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	128,585	$	—	$	—	$	128,585
State and political subdivisions	—		211,489		—		211,489
Other securities (FHLB, FHLMC and FNMA)	—		15,229		—		15,229
Derivative Financial Instruments
Interest rate swaps	—		(2,349)		—		(2,349)
Total	$	128,585	$	224,369	$	—	$	352,954

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

There were no transfers between Levels 1, 2 or 3 during the nine months ended September 30, 2020 and the year ended December 31, 2019.

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(Unaudited)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company is required to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP.  These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.  The valuation methodologies used to measure these fair value adjustments are described above.    The following tables present the Company’s assets that are measured at fair value on a nonrecurring basis.

	September 30, 2020								Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value		Total Losses		Total Losses
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,376	$	1,376	$	—	$	—
Commercial and financial	—		—		1,843		1,843		—		385
Real Estate:											—
Construction, 1 to 4 family residential	—		—		419		419		—		—
Construction, land development and commercial	—		—		315		315		—		—
Mortgage, farmland	—		—		2,062		2,062		—		—
Mortgage, 1 to 4 family first liens	—		—		6,702		6,702		20		176
Mortgage, 1 to 4 family junior liens	—		—		158		158		—		—
Mortgage, multi-family	—		—		1,786		1,786		—		—
Mortgage, commercial	—		—		3,094		3,094		175		250
Loans to individuals	—		—		—		—		—		—
Foreclosed assets (5)	—		—		—		—		—		—
Total	$	—	$	—	$	17,755	$	17,755	$	195	$	811

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

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(Unaudited)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis (continued)

	December 31, 2019								Year Ended December 31, 2019
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value		Total Losses
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,272	$	1,272	$	36
Commercial and financial	—		—		1,803		1,803		499
Real Estate:
Construction, 1 to 4 family residential	—		—		—		—		—
Construction, land development and commercial	—		—		215		215		8
Mortgage, farmland	—		—		3,576		3,576		—
Mortgage, 1 to 4 family first liens	—		—		7,986		7,986		370
Mortgage, 1 to 4 family junior liens	—		—		49		49		—
Mortgage, multi-family	—		—		1,816		1,816		—
Mortgage, commercial	—		—		1,237		1,237		125
Loans to individuals	—		—		—		—		—
Foreclosed assets (5)	—		—		—		—		—
Total	$	—	$	—	$	17,954	$	17,954	$	1,038

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

Note 8.Stock Repurchase Program

On July 26, 2005, the Company’s Board of Directors authorized a program to repurchase up to a total of 1,500,000 shares of the Company’s common stock (the “2005 Stock Repurchase Program”).  The Company’s Board of Directors has authorized the 2005 Stock Repurchase Program through December 31, 2021.  The Company expects the purchases pursuant to the 2005 Stock Repurchase Program to be made from time to time in private transactions at a price equal to the most recent quarterly independent appraisal of the shares of the Company’s common stock and with the Board reviewing the overall results of the 2005 Stock Repurchase Program on a quarterly basis.  All purchases made pursuant to the 2005 Stock Repurchase Program since its inception have been made on that basis.  The amount and timing of stock repurchases will be based on various factors, such as the Board’s assessment of the Company’s capital structure and liquidity, the amount of interest shown by shareholders in selling shares of stock to the Company at their appraised value, and applicable regulatory, legal and accounting factors.  The Company has purchased 1,328,410 shares of its common stock in privately negotiated transactions from August 1, 2005 through September 30, 2020.  Of these 1,328,410 shares, 29,807 shares were purchased during the quarter ended September 30, 2020, at an average price per share of $60.86.

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(Unaudited)

Note 9. Commitments and Contingencies

Concentrations of credit risk:  The Bank’s loans, commitments to extend credit, unused lines of credit and outstanding letters of credit have been granted to customers within the Bank's market area.  Investments in securities issued by state and political subdivisions within the state of Iowa totaled approximately $81.42 million.  The concentrations of credit by type of loan are set forth in Note 5 to the Consolidated Financial Statements.  Outstanding letters of credit were granted primarily to commercial borrowers.  Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic conditions in Johnson, Linn and Washington Counties, Iowa.

Contingencies:  In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages.  While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Company’s business, financial conditions, or results of operations.

As initially reported in the Company’s quarterly report filed with the SEC on November 4, 2019, Hills Bank was sued in a class action lawsuit in the Iowa District Court for Johnson County on April 10, 2019. The lawsuit sought class action status for customers who had paid overdraft fees on debit card transactions that were authorized into a positive account but settled into a negative account. The Plaintiff subsequently amended the petition to assert additional claims involving overdraft charges and NSF fees. The parties have negotiated a class-wide settlement, which was preliminarily approved by the Court on October 9, 2020. While the Bank disputes the merits of the claim, management determined that settlement avoids added expenses, distractions to Bank management and personnel, and the attendant risks related to litigating the claims. The Bank’s Management believes that the settlement will have no material impact on the Company's financial condition and results of operation when taken as a whole. The final hearing to address the fairness of the proposed settlement has been scheduled for June 25, 2021.

The outbreak of Coronavirus Disease 2019 (“COVID-19”) has and will continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.  The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak has caused significant disruptions in the U.S. economy and is highly likely to disrupt banking and other financial activity in the areas in which the Company operates and could also potentially create widespread business continuity issues for the Company.  The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.  If the global response to contain COVID-19 escalates or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

On August 10, 2020, a derecho impacted Eastern Iowa, primarily Cedar Rapids, Iowa and the surrounding areas. The derecho caused widespread high winds up to 140 mph, the equivalent of a Category 4 hurricane, torrential rain, large hail and low-class tornadoes. The damage from the derecho was significant across the east central Iowa area, including wide-scale utility disruptions, residential and commercial property damage, severe damage to corn and soybeans crops.

A substantial number of the Bank's branches in Cedar Rapids and surrounding communities were without power and closed in the immediate aftermath of the derecho, though most were able to reopen within a week of the derecho. The Bank responded to the derecho by providing employees time away from the office to help them recover from the derecho and to assist with neighborhood clean-up efforts, as well as supporting city and county employees, utility workers and area non-profits with food and monetary donations to help with basic needs. The Bank assisted customers impacted by the derecho by providing short-term loan modifications of two to six months to defer principal payments on loans totaling $15.38 million, primarily for 1 to 4 family non-owner occupied, multifamily and commercial real estate loans. The Bank anticipates that the majority of costs incurred to repair damages to the Bank branches will be covered by insurance.

Financial instruments with off-balance sheet risk:  The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit, credit card participations and standby letters of credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, credit card participations and standby letters of credit is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. 

A summary of the Bank’s commitments at September 30, 2020 and December 31, 2019 is as follows:

	September 30, 2020		December 31, 2019
	(Amounts In Thousands)
Firm loan commitments and unused portion of lines of credit:
Home equity loans	$	70,765	$	65,203
Credit cards	60,661		57,421
Commercial, real estate and home construction	112,534		94,490
Commercial lines and real estate purchase loans	232,899		207,051
Outstanding letters of credit	8,300		8,569

Note 10.Income Taxes

Federal income tax expense for the nine months ended September 30, 2020 and 2019 was computed using the consolidated effective federal tax rate.  The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the subsidiary bank.  The Company files a consolidated tax return for federal purposes and separate tax returns for State of Iowa purposes.  The tax years ended December 31, 2019, 2018 and 2017 remain subject to examination by the Internal Revenue Service.  For state tax purposes, the tax years ended December 31, 2019, 2018 and 2017 remain open for examination.  There were no material unrecognized tax benefits at September 30, 2020  and December 31, 2019 and therefore no interest or penalties on unrecognized tax benefits has been recorded.  As of September 30, 2020, the Company does not anticipate any significant increase in unrecognized tax benefits during the twelve-month period ending September 30, 2021. Income taxes as a percentage of income before taxes were 22.43% for the nine months ended September 30, 2020 and 22.02% for the same period in 2019. 

Note 11.Derivative Financial Instruments

In the normal course of business, the Bank may use derivative financial instruments to manage its interest rate risk.  These instruments carry varying degrees of credit, interest rate and market or liquidity risks.  Derivative instruments are recognized as either assets or liabilities in the accompanying financial statement and are measured at fair value.  The Bank’s objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates.  The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amount to be exchanged between the counterparties.  The Bank is exposed to credit risk in the event of nonperformance by counterparties to financial instruments.  The Bank minimizes this risk by entering into derivative contracts with large, stable financial institutions.  The Bank has not experienced any losses from nonperformance by counterparties.  The Bank monitors counterparty risk in accordance with the provisions of ASC 815.  In addition, the Bank’s interest rate-related derivative instruments contain language outlining collateral pledging requirements for each counterparty.  Collateral must be posted when the market value exceeds certain threshold limits which are determined by credit ratings of each counterparty.  The Bank was required to pledge $3.08 million of collateral as of September 30, 2020.

Cash Flow Hedges:

The Bank executed two forward-starting interest rate swap transactions on November 7, 2013.  One of the interest rate swap transactions had an effective date of November 9, 2015, and an expiration date of November 9, 2020, effectively converting $25.00 million of variable rate debt to fixed rate debt.  The other interest rate swap transaction had an effective date of November 7, 2016 and an expiration date of November 7, 2023, effectively converting $25.00 million of variable rate debt to fixed rate debt.  For accounting purposes, these swap transactions are designated as a cash flow hedge of the changes in cash flows attributable to changes in three-month LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on an amount of the Bank’s debt principal equal to the then-outstanding swap notional amount.  At inception,

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(Unaudited)

the Bank asserted that the underlying principal balance would remain outstanding throughout the hedge transaction making it probable that sufficient LIBOR-based interest payments would exist through the maturity date of the swaps.

The table below identifies the balance sheet category and fair values of the Bank’s derivative instruments designated as cash flow hedges as of September 30, 2020 and December 31, 2019:

	Notional Amount		Fair Value		Balance Sheet Category	Maturity
	(Amounts in Thousands)
September 30, 2020
Interest rate swap	$	25,000	$	(170)	Other Liabilities	11/9/2020
Interest rate swap	25,000		(2,905)		Other Liabilities	11/7/2023
December 31, 2019
Interest rate swap	$	25,000	$	(279)	Other Liabilities	11/9/2020
Interest rate swap	25,000		(2,070)		Other Liabilities	11/7/2023

The table below identifies the gains and losses recognized on the Bank’s derivative instruments designated as cash flow hedges for the nine months ended September 30, 2020 and year ended December 31, 2019:

	Recognized in OCI		Reclassified from AOCI into Income			Recognized in Income on Derivatives
	Amount of Gain (Loss)		Category	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
	(Amounts in Thousands)
September 30, 2020
Interest rate swap	$	81	Interest Expense	$	—	Other Income	$	—
Interest rate swap	(626)		Interest Expense	—		Other Income	—
December 31, 2019
Interest rate swap	$	(119)	Interest Expense	$	—	Other Income	$	—
Interest rate swap	(446)		Interest Expense	—		Other Income	—

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of the financial condition of Hills Bancorporation (“Hills Bancorporation” or “the Company”) and its banking subsidiary Hills Bank and Trust Company (“the Bank”) for the dates and periods indicated.  The discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying footnotes.

Special Note Regarding Forward Looking Statements

This report contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of such term in the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Actual results may differ materially from those included in the forward-looking statements.  Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,”

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HILLS BANCORPORATION

“will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, the following:

•The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets.

•The effects of recent financial market disruptions, and monetary and other governmental actions designed to address such disruptions.

•The financial strength of the counterparties with which the Company or the Company’s customers do business and as to which the Company has investment or financial exposure.

•The credit quality and credit agency ratings of the securities in the Company’s investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the affected securities and the recognition of an impairment loss.

•The effects of, and changes in, laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters as well as any laws otherwise affecting the Company.

•The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System.

•The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.

•The ability of the Company to obtain new customers and to retain existing customers.

•The timely development and acceptance of products and services, including products and services offered through alternative electronic delivery channels.

•Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers.

•The ability of the Company to develop and maintain secure and reliable electronic systems.

•The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.

•Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely.

•The economic impact of natural disasters, diseases and/or pandemics, terrorist attacks and military actions.

•Business combinations and the integration of acquired businesses and assets which may be more difficult or expensive than expected.

•The costs, effects and outcomes of existing or future litigation.

•Changes in accounting policies and practices that may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.

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•The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

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Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these financial statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policies to be those which are related to the allowance for loan losses. The Company's allowance for loan losses methodology incorporates a variety of risk considerations, both quantitative and qualitative in establishing an allowance for loan losses that management believes is appropriate at each reporting date. Quantitative factors include the Company's historical loss experience, delinquency and charge-off trends, collateral values, changes in impaired loans, and other factors. Quantitative factors also incorporate known information about individual loans, including borrowers' sensitivity to interest rate movements. Qualitative factors include the general economic environment in the Company's markets, including economic conditions throughout the Midwest and the state of certain industries.  Determinations relating to the possible level of future loan losses are based in part on subjective judgments by management.  Future loan losses in excess of current estimates, could materially adversely affect our results of operations or financial position.  Size and complexity of individual credits in relation to loan structure, existing loan policies and pace of portfolio growth are other qualitative factors that are considered in the methodology. As the Company adds new products and increases the complexity of its loan portfolio, it will enhance its methodology accordingly. This discussion of the Company’s critical accounting policies should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes presented elsewhere herein, as well as other relevant portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations.  Although management believes the levels of the allowance as of September 30, 2020 and December 31, 2019 were adequate to absorb probable losses inherent in the loan portfolio, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.

With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the option to delay CECL was provided until the earlier of the national health emergency being declared over or December 31, 2020. The Company elected to delay implementing CECL and continued to use the incurred loss method to calculate the allowance for loan losses as of and for the period ending September 30, 2020.

COVID-19: What the Company knows and what steps we have taken.

The outbreak of Coronavirus Disease 2019 (“COVID-19”) has and will continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.  The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak has caused significant disruptions in the U.S. economy and is highly likely to disrupt banking and other financial activity in the areas in which the Company operates and could also potentially create widespread business continuity issues for the Company.  The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.  If the global response to contain COVID-19 escalates or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

Shareholders

Dividend declaration

The Company expects to continue to maintain the payment of its annual dividend consistent with its past practices. 

Communities

Offices

With the health of our employees and customers being our top concern, as of March 17, 2020, the Bank temporarily suspended branch lobby hours to the public for walk-in transactions. The Bank has since reopened all branch lobbies with the following changes:

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• Plexiglass windows on our teller stations and reception areas

•A limit on the number of people who can be in the lobbies at one time

•Transaction areas and reusable items will be frequently wiped down

•Hand sanitizing stations located at each entrance

•Floor stickers to guide social distancing while waiting in line

•Require all customers and non-customers entering lobbies to wear face masks.

Drive-thru services remain available as well as all ATM’s to complete needed transactions. Customers are also able to directly contact our bankers through the HERE by Hills Bank app and Hills Bank Online is available 24/7.

Consumers

Home Loans

With the Federal Reserve rate drops of 150 basis points in March (100 basis points of which was directly related to the effects of the virus on the economy), a surge in home loan activity has occurred, a significant portion of which is refinance related. The Bank sells most of its home loans into the secondary market and has seen a significant increase in the net gain on the sale of these loans.

The Bank is working with customers who request forbearance agreements, though this has not been a significant number or dollar amount of agreements as of September 30, 2020. The Bank has also provided short-term modifications for customers primarily through deferrals of principal only payments for three or four months. Commercial related modifications including commercial and financial and multifamily and commercial real estate mortgages were provided for 512 loans totaling $318.79 million. 1 to 4 family and consumer related modifications were provided for 626 loans totaling $74.27 million and agricultural related modifications were provided for 12 loans totaling $3.30 million. As these short-term deferrals have now expired, a minimal number of customers have requested additional modifications related to the pandemic. These modifications totaled $3.35 million for 54 loans, the majority of which were 43 1 to 4 family loans totaling $3.01 million through October 26, 2020.

The Bank continues to assist our customers through this difficult time in the best manner possible by providing $127.10 million of Paycheck Protection Program (PPP) loans as of September 30, 2020.

Employees

The Bank continues to promote social distancing by encouraging employees who can work remotely to do so and in other cases, departments have been dispersed to keep the team separated. 

Financial - Exposures

Given the timing of the outbreak in the United States of the COVID-19 pandemic, the Company’s first quarter performance was not significantly impacted with the exception of the provision for loan losses. In the second quarter, the Company provided a significant number of PPP loans to customers as well as short-term loan modifications deferring principal and interest or principal only for three to four months. As discussed above, the initial short-term loan modifications have now expired and only a minimal number of customers have requested additional pandemic-related modifications described above. The COVID-19 pandemic represents an unprecedented challenge to the global economy in general and the financial services sector in particular.  However, there is still significant uncertainty regarding the overall length of the pandemic and the aggregate impact that it will have on global and regional economies, including uncertainties regarding the potential positive effects of governmental actions taken in response to the pandemic during 2020.  With so much uncertainty, it is impossible for the Bank to accurately predict the impact that the pandemic will have on the Company’s primary markets and the overall extent to which it will affect the Company’s financial condition and results of operations during the remainder of the current fiscal year.  At a minimum, the actions taken by the Company to assist its customers experiencing challenges from the pandemic will likely have a material impact on the Company’s performance in 2020.  Nonetheless, management believes that the Company’s current regulatory capital position is adequate to face the coming challenges.

To account for potential exposures resulting from the pandemic, the Bank has increased its allowance for loan losses for the nine months ended September 30, 2020 by approximately $3.3 million since December 31, 2019. The Bank is fully prepared to make additional provisions as warranted by the COVID-19 situation.

Our credit administration is closely monitoring and analyzing the higher risk segments within the loan portfolio, tracking loan payment deferrals, customer liquidity and providing timely reports to senior management and the board of directors. Based on

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the Company’s capital levels, prudent underwriting policies, loan concentration diversification and our geographic footprint, we currently expect to be able to manage the economic risks and uncertainties associated with the pandemic and remain adequately capitalized.   

Government Response

Congress, the FRB and the other U.S. state and federal financial regulatory agencies have taken actions to mitigate disruptions to economic activity and financial stability resulting from the COVID-19 pandemic. The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and passed measures to provide relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. The descriptions below summarize additional significant government actions taken in response to the COVID-19 pandemic. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions or government programs summarized.

The CARES Act

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020. Among other provisions, the CARES Act includes funding for the SBA to expand lending, relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be categorized as troubled debt restructurings and a range of incentives to encourage deferment, forbearance or modification of consumer credit and mortgage contracts. One of the key CARES Act programs is the Paycheck Protection Program, which temporarily expanded the SBA’s business loan guarantee program to include forgivable loans used for permissible purposes, which were issued under the program through August 8, 2020. Paycheck Protection Program loans are available to a broader range of entities than ordinary SBA loans, and the loan may be forgiven in an amount equal to payroll costs and certain other expenses during either an eight-week or twenty-four week “covered period.” The Bank is participating in this program as described above.

The CARES Act contains additional protections for homeowners and renters of properties with federally-backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings beginning on March 18, 2020 and a 120-day moratorium on initiating eviction proceedings effective March 27, 2020. These foreclosure and eviction moratoriums have been extended through year-end by the Federal Housing Administration. Borrowers of federally-backed mortgages have the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the coronavirus-related public health emergency.

Also pursuant to the CARES Act, the U.S. Treasury has the authority to provide loans, guarantees and other investments in support of eligible businesses, states and municipalities affected by the economic effects of COVID-19. Some of these funds have been used to support several FRB programs and facilities described below or additional programs or facilities that are established by its authority under Section 13(3) of the Federal Reserve Act and meeting certain criteria.

FRB Actions

The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the FRB reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020.

In addition, the FRB has established, or has taken steps to establish, a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with COVID-19. Through these facilities and programs, the FRB, relying on its authority under Section 13(3) of the Federal Reserve Act, has taken steps to directly or indirectly purchase assets from, or make loans to, U.S. companies, financial institutions, municipalities and other market participants.

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Overview

This overview highlights selected information and may not contain all of the information that is important to you in understanding our performance during the period.  For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should carefully read this entire report.

The Company is a holding company engaged in the business of commercial banking.  The Company’s subsidiary is Hills Bank and Trust Company, Hills, Iowa (the “Bank”), which is wholly-owned.  The Bank was formed in Hills, Iowa in 1904.  The Bank is a full-service commercial bank extending its services to individuals, businesses, governmental units and institutional customers primarily in the communities of Hills, Iowa City, Coralville, North Liberty, Lisbon, Mount Vernon, Kalona, Wellman, Cedar Rapids, Marion, and Washington, Iowa.  At September 30, 2020, the Bank has nineteen full-service locations.

Net income for the nine month period ended September 30, 2020 was $30.22 million compared to $33.71 million for the same nine months of 2019, a decrease of 10.35%.  The $3.49 million decrease in net income was caused by a number of factors.  The principal factors in the decrease in net income for the first nine months of 2020 are an increase in the provision for loan losses of $6.14 million, primarily due to the uncertainty created by the COVID-19 pandemic, and an increase in noninterest expenses of $3.14 million. This change was offset by an increase in net interest income of $2.55 million, an increase in noninterest income of $2.47 million and a decrease in income tax expense of $0.78 million.

The Company achieved a return on average assets of 1.22% and a return on average equity of 11.00% for the twelve months ended September 30, 2020, compared to the twelve months ended September 30, 2019, which were 1.25% and 11.58%, respectively.  Dividends of $0.89 per share were paid in January 2020 to 2,644 shareholders.  The 2019 dividend was $0.82 per share.

The Company’s net interest income is the largest component of revenue and it is primarily a function of the average earning assets and the net interest margin percentage.  The Company achieved a net interest margin on a tax-equivalent basis of 3.05% for the nine months ended September 30, 2020 compared to 3.20% for the same nine months of 2019.  Average earning assets were $3.362 billion year to date in 2020 and $3.108 billion in 2019.

Highlights noted on the balance sheet as of September 30, 2020 for the Company included the following:

•Total assets were $3.780 billion, an increase of $479.56 million since December 31, 2019.

•Cash and cash equivalents were $560.74 million, an increase of $318.77 million since December 31, 2019. Cash and cash equivalents growth included approximately $115 million of temporary public funds. A portion of the increase can also be attributed to increased savings with the current negative economic environment due to the pandemic and equity investors fleeing volatile capital markets in an effort to preserve principal.

•Net loans were $2.759 billion, an increase of $144.33 million since December 31, 2019.  The increase was primarily due to PPP loans provided to customers totaling $127.10 million. Loans held for sale increased $19.58 million since December 31, 2019.

•Deposits increased $453.19 million since December 31, 2019. Deposit growth included approximately $115 million in temporary public funds. A portion of the increase can also be attributed to the current negative economic environment.

Reference is made to Note 7 for a discussion of fair value measurements which relate to methods used by the Company in recording assets and liabilities on its financial statements.

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Financial Condition

As indicated in the table below, growth in the loan portfolio since year end was primarily in agricultural, commercial and financial, multi-family and commercial real estate loans. The significant increase in commercial and financial is due to PPP loans totaling $127.10 million being provided to customers. The Company anticipates most PPP loans will be forgiven in accordance with the SBA's requirements.

The COVID-19 pandemic has created significant uncertainty regarding projecting loan demand throughout the remainder of 2020 and into 2021. 

The following table sets forth the composition of the loan portfolio as of September 30, 2020 and December 31, 2019:

	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
	(Amounts In Thousands)				(Amounts In Thousands)
Agricultural	$	96,321	3.48	%	$	91,317	3.46	%
Commercial and financial	335,463		12.12		221,323		8.39
Real estate:
Construction, 1 to 4 family residential	70,527		2.55		80,209		3.04
Construction, land development and commercial	114,270		4.13		108,410		4.11
Mortgage, farmland	243,689		8.81		242,730		9.20
Mortgage, 1 to 4 family first liens	900,224		32.53		910,742		34.51
Mortgage, 1 to 4 family junior liens	131,477		4.75		149,227		5.65
Mortgage, multi-family	371,167		13.41		350,761		13.29
Mortgage, commercial	417,042		15.07		402,181		15.24
Loans to individuals	30,521		1.10		32,308		1.22
Obligations of state and political subdivisions	56,424		2.05		49,896		1.89
	$	2,767,125	100.00	%	$	2,639,104	100.00	%
Net unamortized fees and costs	965				933
	$	2,768,090			$	2,640,037
Less allowance for loan losses	37,060				33,760
	$	2,731,030			$	2,606,277

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The Bank has an established formal loan origination policy.  In general, the loan origination policy attempts to reduce the risk of credit loss to the Bank by requiring, among other things, maintenance of minimum loan to value ratios, evidence of appropriate levels of insurance carried by borrowers and documentation of appropriate types and amounts of collateral and sources of expected payment.  The collateral relied upon in the loan origination policy is generally the property being financed by the Bank.  The source of expected payment is generally the income produced from the property being financed.  Personal guarantees are required of individuals owning or controlling at least 20% of the ownership of an entity.  Limited or proportional guarantees may be accepted in circumstances if approved by the Company’s Board of Directors.  Financial information provided by the borrower is verified as considered necessary by reference to tax returns, or audited, reviewed or compiled financial statements.  The Bank does not originate subprime loans.  In order to modify, restructure or otherwise change the terms of a loan, the Bank’s policy is to evaluate each borrower situation individually.  Modifications, restructures, extensions and other changes are done to improve the Bank’s position and to protect the Bank’s capital.  If a borrower is not current with its payments, any additional loans to such borrowers are evaluated on an individual borrower basis.

The Company has not experienced any significant time lapses in recognizing the required provisions for collateral dependent loans, nor has the Company delayed appropriate charge offs.  When an updated appraisal value has been obtained, the Company has used the appraisal amount in determining the appropriate charge off or required reserve.  The Company also evaluates any changes in the financial condition of the borrower and guarantors (if applicable), economic conditions, and the Company’s loss experience with the type of property in question.  Any information utilized in addition to the appraisal is intended to identify additional charge offs or provisions, not to override the appraised value.

In accordance with Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues, the Company determines and assigns ratings to loans using factors that include the following: an assessment of the financial condition of the borrower; a realistic determination of the value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; an analysis of the levels and trends of loan categories; and a review of delinquent and classified loans.

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status, a charge-off or the establishment of a specific impairment reserve. In the event a collateral shortfall is identified during the credit review process, the Company will work with the borrower for a principal reduction and/or a pledge of additional collateral and/or additional guarantees. In the event that these options are not available, the loan may be subject to a downgrade of the credit risk rating. If the Company determines a loan amount or portion thereof, is uncollectible, the loan’s credit risk rating may be downgraded and the uncollectible amount charged-off or recorded as a specific allowance for losses.  The Bank’s credit and legal departments undertake a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the loan to minimize actual losses.

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The following table presents the allowance for loan losses on loans by loan category, the percentage of the allowance for each category to the total allowance, and the percentage of all loans in each category to total loans as of September 30, 2020 and December 31, 2019:

	September 30, 2020						December 31, 2019
	Amount		% of Total Allowance		% of Loans to Total Loans		Amount		% of Total Allowance		% of Loans to Total Loans
	(In Thousands)						(In Thousands)
Agricultural	$	2,595	7.00	%	3.48	%	$	2,400	7.11	%	3.46	%
Commercial and financial	5,345		14.42		12.12		4,988		14.77		8.39
Real estate:
Construction, 1 to 4 family residential	888		2.40		2.55		1,113		3.30		3.04
Construction, land development and commercial	1,405		3.79		4.13		1,486		4.40		4.11
Mortgage, farmland	4,048		10.92		8.81		3,950		11.70		9.20
Mortgage, 1 to 4 family first liens	10,629		28.68		32.53		9,045		26.79		34.51
Mortgage, 1 to 4 family junior liens	1,529		4.13		4.75		1,593		4.72		5.65
Mortgage, multi-family	4,367		11.78		13.41		3,823		11.32		13.29
Mortgage, commercial	4,926		13.29		15.07		4,036		11.95		15.24
Loans to individuals	689		1.86		1.10		853		2.53		1.22
Obligations of state and political subdivisions	639		1.73		2.05		473		1.41		1.89
	$	37,060	100.00	%	100.00	%	$	33,760	100.00	%	100.00	%

The allowance for loan losses totaled $37.06 million at September 30, 2020 compared to $33.76 million at December 31, 2019.  The percentage of the allowance to outstanding loans was 1.34% and 1.28% at September 30, 2020 and December 31, 2019, respectively.  The allowance was based on management’s consideration of a number of factors, including composition of the loan portfolio, loans with higher credit risks and the overall amount of loans outstanding.  The increase in the allowance in 2020 is due to anticipated declines in the credit quality of the Bank's loan portfolio primarily due to the significant uncertainty created by the COVID-19 pandemic and increases in qualitative factors primarily in the areas of 1 to 4 family mortgages, commercial and financial, multi-family and commercial mortgages also primarily due to COVID-19.

The adequacy of the allowance is reviewed quarterly and adjusted as appropriate after consideration has been given to the impact of economic conditions on the borrowers’ ability to repay, loan collateral values, past collection experience, the risk characteristics of the loan portfolio and such other factors that deserve current recognition. The growth of the loan portfolio and the trends in problem and watch loans are significant elements in the determination of the provision for loan losses.  Quantitative factors include the Company’s historical loss experience, which is then adjusted for levels and trends in past due, levels and trends in charged-off and recovered loans, trends in volume growth, trends in problem and watch loans, trends in restructured loans, local economic trends and conditions, industry and other conditions, and effects of changing interest rates.

Management has determined that the allowance for loan losses was appropriate at September 30, 2020, and that the loan portfolio is diversified and secured, without undue concentration in any specific risk area. This process involves a high degree of management judgment; however, the allowance for loan losses is based on a comprehensive, well documented, and consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for loan losses is reviewed and compared to industry data. This review encompasses levels of total impaired loans, portfolio mix, portfolio concentrations, current geographic risks and overall levels of net charge-offs.

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Residential real estate loan products that include features such as loan-to-values in excess of 100% or interest only payments, which expose a borrower to payment increases in excess of changes in the market interest rate, increase the credit risk of a loan.  The Bank has not offered and does not intend to offer this type of loan product.

Investment securities available for sale held by the Company increased by $19.95 million from December 31, 2019 to September 30, 2020.  The fair value of securities available for sale was $12.44 million more than the amortized cost of such securities as of September 30, 2020.  At December 31, 2019, the fair value of the securities available for sale was $4.23 million more than the amortized cost of such securities.

Deposits increased $453.19 million in the first nine months of 2020 primarily due to the disbursement of Paycheck Protection Program (PPP) funds to customers' accounts. A portion of the increase can also be attributed to the current negative economic environment creating volatility in the equity markets. In the opinion of the Company’s management, the Company continues to have sufficient liquidity resources available to fund expected additional loan growth.

Brokered deposits are included in total deposits and totaled $72.27 million as of September 30, 2020 with an average rate of 0.34%.  Brokered deposits were $109.29 million as of December 31, 2019 with an average interest rate of 1.65%. As of September 30, 2020 and December 31, 2019, brokered deposits were 2.32% and 4.11% of total deposits, respectively.

Federal Home Loan Bank (FHLB) borrowings were $185 million as of September 30, 2020 and December 31, 2019. It is expected that the FHLB funding source will be considered in the future if loan growth were to exceed core deposit increases and the interest rates on funds borrowed from the FHLB are favorable compared to other funding alternatives.

Dividends and Equity

In January 2020, Hills Bancorporation paid a dividend of $8.32 million or $0.89 per share.  The dividend was $0.82 per share in January 2019.  After payment of the dividend and the adjustment for accumulated other comprehensive income, stockholders’ equity as of September 30, 2020 totaled $407.26 million. On January 1, 2015, the final rules of the Federal Reserve Board went into effect implementing in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision. The final rule also adopted changes to the agencies’ regulatory capital requirements that meet the requirements of section 171 and section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the BASEL III rules, the minimum capital ratios are 4% for Tier 1 Leverage Capital Ratio, 4.5% for the Common Equity Tier 1 Capital Ratio, 6% for the Tier 1 Risk-Based Capital Ratio and 8% for the Total Risk-Based Capital Ratio. As of March 31, 2020, the Bank elected to use the Community Bank Leverage Ratio (CBLR) framework as provided for in the Economic Growth, Regulatory Relief and Consumer Protection Act. Under the CBLR framework, the Bank is required to maintain a CBLR of greater than 9%. The CARES Act reduced the minimum ratio to 8% beginning in the 2nd quarter of 2020 through December 31, 2020, increasing to 8.5% for 2021 and returning to 9% beginning January 1, 2022. As of September 30, 2020 and December 31, 2019, the Company had regulatory capital in excess of the Federal Reserve’s minimum and well-capitalized definition requirements. The actual amounts and capital ratios as of September 30, 2020 and December 31, 2019 are presented below (amounts in thousands):

	Actual				For Capital Adequacy Purposes	To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Ratio	Ratio
As of September 30, 2020:
Company:
Community Bank Leverage ratio	$	444,623	12.23	%	8.000	11.000
Bank:
Community Bank Leverage ratio	444,460		12.23		8.000	11.000

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	Actual				For Capital Adequacy Purposes		To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Ratio		Ratio
As of December 31, 2019
Company:
Total risk-based capital	$	454,452	18.15	%	8.00	%	10.00	%
Tier 1 risk-based capital	423,122		16.90		6.00		8.00
Tier 1 common equity	423,122		16.90		4.50		6.50
Leverage ratio	423,122		12.77		4.00		5.00
Bank:
Total risk-based capital	455,440		18.20		8.00		10.00
Tier 1 risk-based capital	424,127		16.95		6.00		8.00
Tier 1 common equity	424,127		16.95		4.50		6.50
Leverage ratio	424,127		12.81		4.00		5.00

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Discussion of operations for the nine months ended September 30, 2020 and 2019

Net Income Overview

Net income decreased $3.49 million for the nine months ended September 30, 2020 compared to the first nine months of 2019.  Total net income was $30.22 million in 2020 and $33.71 million in the comparable period in 2019, a decrease of 10.35%.  The changes in net income in 2020 from the first nine months of 2019 were primarily the result of the following:

•Net interest income increased by $2.55 million, before provision expense.

•The provision for loan losses increased by $6.14 million.

•Noninterest income increased by $2.47 million.

•Noninterest expenses increased by $3.14 million.

•Income tax expense decreased by $0.78 million.

For the nine month period ended September 30, 2020 and September 30, 2019 basic earnings per share was $3.22 and $3.61, respectively. Diluted earnings per share was $3.22 for the nine months ended September 30, 2020 compared to $3.61 for the same period in 2019.

The Company’s net income is driven primarily by three important factors. The first important factor affecting the Company’s net income is the provision for loan losses. The majority of the Company’s interest-earning assets are in loans outstanding, which amounted to more than $2.759 billion at September 30, 2020.  The provision is computed on a quarterly basis and is a result of management’s determination of the quality of the loan portfolio.  The provision reflects a number of factors, including the size of the loan portfolio, the overall composition of the loan portfolio and loan concentrations, the borrowers’ ability to repay, past loss experience, loan collateral values, the level of impaired loans and loans past due ninety days or more.  In addition, management considers the credit quality of the loans based on management’s review of problem and watch loans, including loans with historically higher credit risk.  The provision for loan losses was an expense of $4.50 million in 2020 compared to a reduction of expense of $1.64 million in 2019.  The increase is primarily attributable to increases in qualitative factors due to the COVID-19 pandemic's economic impact. The Company believes that the provision for loan losses may increase for the foreseeable future resulting from and further deterioration in credit quality due to COVID-19.

The second important factor is the interaction between changes in net interest margin and changes in average volumes of the Bank's earnings assets.  Net interest income of $75.40 million for the first nine months of 2020 was derived from the Company’s $3.362 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.05%.  Average earning assets in the nine months ended September 30, 2019 were $3.108 billion and the tax-equivalent net interest margin was 3.20%.  The importance of net interest margin is illustrated by the fact that an increase or decrease in the net interest margin of 10 basis points would have resulted approximately in a $2.52 million change in income before income taxes in the nine month period ended September 30, 2020.  Net interest income for the Company increased primarily as a result of growth in the volume of earning assets (offsetting reductions in interest income caused by declines in interest rates) and the continued low interest rates on interest bearing deposits resulting in decreased interest expense.  The Company expects net interest compression to impact earnings for the foreseeable future due to competition for loans and deposits combined with the interest rate decreases by the Federal Reserve Board.  The Company believes growth in net interest income will be contingent on the growth of the Company’s earnings assets. For the nine months ended September 30, 2020, a significant portion of the increase in the loan portfolio is attributable to PPP loans. The Company anticipates most PPP loans will be forgiven in accordance with the SBA's requirements.

The third important factor affecting the Company’s net income is net gain on the sale of loans. The net gain on the sale of loans was $4.86 million and $2.06 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of 135.87% for the nine months ended September 30, 2020 compared to the same period in 2019. Loans originated for sale in the first nine months of 2020 totaled $359.53 million compared to $201.51 million in the same period in 2019, an increase of 78.41%. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates and has been significantly impacted by the Federal Reserve Board's reduction of the federal funds rate to 0.25%, resulting in a significant amount of mortgage loan refinance activity.

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HILLS BANCORPORATION

Discussion of operations for the nine months ended September 30, 2020 and 2019

Net Interest Income

Net interest income increased for the nine months ended September 30, 2020 compared to the comparable period in 2019.  The increase was as a result of growth in the average volume of earning assets and the continued low interest rates on interest bearing deposits resulting in decreased interest expense.  Net interest income is the excess of the interest and fees earned on interest-earning bearing assets over the interest expense of the interest-bearing liabilities.  The factors that have the greatest impact on net interest income are the average respective volumes of earning assets and liabilities for the period and the net interest margin. Net interest margin is the ratio of the Company's net interest income to the average volume of its earning assets.The net interest margin for the first nine months of 2020 was 3.05% compared to 3.20% in 2019 for the same period.  Interest expense decreased $5.22 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to decreasing interest rates on deposits. The measure is shown on a tax-equivalent basis using a tax rate of 21% to make the interest earned on taxable and non-taxable assets more comparable.  The change in average balances and average rates between periods and the effect on the net interest income on a tax equivalent basis for the nine months ended in 2020 compared to the comparable period in 2019 are shown in the following table:

					Increase (Decrease) in Net Interest Income
	Change in Average Balance		Change in Average Rate		Volume Changes		Rate Changes		Net Change
	(Amounts in Thousands)
Interest income:
Loans, net	$	87,500	(0.21)	%	$	4,802	$	(5,645)	$	(843)
Taxable securities	36,706		(0.26)		685		(404)		281
Nontaxable securities	6,881		(0.06)		141		(86)		55
Federal funds sold	123,017		(1.93)		2,139		(4,292)		(2,153)
	$	254,104			$	7,767	$	(10,427)	$	(2,660)
Interest expense:
Interest-bearing demand deposits	$	140,254	(0.33)	%	$	(945)	$	2,128	$	1,183
Savings deposits	(6,857)		(0.61)		731		3,230		3,961
Time deposits	42,647		(0.03)		(729)		149		(580)
FHLB borrowings	(30,000)		(0.01)		652		8		660
Interest-bearing other liabilities	(2)		(1.69)		—		—		—
	$	146,042			$	(291)	$	5,515	$	5,224
Change in net interest income					$	7,476	$	(4,912)	$	2,564

Rate/volume variances are allocated on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates.  Loan fees included in interest income are not material.  Interest on nontaxable securities and loans is shown on a tax-equivalent basis.

A summary of the net interest spread and margin is as follows:

(Tax Equivalent Basis)	2020		2019
Yield on average interest-earning assets	3.88	%	4.32	%
Rate on average interest-bearing liabilities	1.08		1.44
Net interest spread	2.80	%	2.88	%
Effect of noninterest-bearing funds	0.25		0.32
Net interest margin (tax equivalent interest income divided by average interest-earning assets)	3.05	%	3.20	%

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HILLS BANCORPORATION

Discussion of operations for the nine months ended September 30, 2020 and 2019

In pricing loans and deposits, the Bank considers the U.S. Treasury indexes as benchmarks in determining interest rates.  The Federal Open Market Committee met seven times during the first nine months of 2020.  The target rate remained at 0.25% as of September 30, 2020.  Interest rates on loans are generally affected by the target rate since interest rates for the U.S. Treasury market normally increase or decrease when the Federal Reserve Board raises or lowers the federal funds rate.  As of September 30, 2020, the rate indexes for the one, three and five year indexes were 0.12%, 0.16% and 0.28%, respectively.  The one year index decreased 93.14% from 1.75% at September 30, 2019, the three year index decreased 89.74% and the five year index decreased 81.94%.  The three year index was 1.56% and the five year index was 1.55% at September 30, 2019.  The targeted federal funds rate was 0.25% and 2.00% at September 30, 2020 and 2019, respectively.  The Company anticipates short term and long term rates in the indexes to remain consistent for the remainder of 2020.

Provision for Loan Losses

The provision for loan losses was an expense of $4.50 million for the nine months ended September 30, 2020 compared to a reduction of expense of $1.64 million in 2019, an increase of expense of $6.14 million, which resulted in an overall increase to the allowance of $3.30 million since year end. In the first nine months of 2020, there was an increase of $3.41 million due to changes in average balances, composition of loans outstanding and changes in qualitative factors and a $0.11 million decrease in the amount allocated to the allowance due to changes in credit quality. The loan loss provision is the amount necessary to adjust the allowance for loan losses to the level considered by management to appropriately account for the estimated impairment to the Bank's loan portfolio.  The provision expense taken to fund the allowance for loan losses is computed on a quarterly basis and is a result of management’s determination of the quality of the loan portfolio.  The provision reflects a number of factors, including the size of the loan portfolio, the overall composition of the loan portfolio and loan concentrations, the impact on the borrowers’ ability to repay, past loss experience, loan collateral values, the level of impaired loans and loans past due ninety days or more.  In addition, management considers the credit quality of the loans based on management’s review of problem and watch loans, including loans with historically higher credit risks.  The increase in expense in 2020 is primarily attributable to significant uncertainties with respect to the qualitative factors considered by management due to the COVID-19 pandemic's economic impact as compared to September 30, 2019.

The allowance for loan losses balance is affected by charge-offs, net of recoveries, for the periods presented.  For the nine months ended September 30, 2020 and 2019, recoveries were $1.28 million and $1.36 million, respectively; and charge-offs were $2.48 million in 2020 and $1.96 million in 2019.  The allowance for loan losses totaled $37.06 million at September 30, 2020 compared to $33.76 million at December 31, 2019.  The allowance represented 1.34% and 1.28% of loans held for investment at September 30, 2020 and December 31, 2019.

Noninterest Income

The following table sets forth the various categories of noninterest income for the nine months ended September 30, 2020 and 2019.

	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
	(Amounts in thousands)
Net gain on sale of loans	$	4,859	$	2,060	$	2,799	135.87	%
Trust fees	7,450		7,107		343		4.83
Service charges and fees	7,427		7,618		(191)		(2.51)
Other noninterest income	462		982		(520)		(52.95)
Gain (loss) on sale of investment securities	10		(28)		38		135.71
	$	20,208	$	17,739	$	2,469	13.92

Loans originated for sale in the first nine months of 2020, which consist primarily of fixed rate residential mortgage loans, totaled $359.53 million compared to $201.51 million in the same period in 2019, an increase of 78.41%. In the nine months ended September 30, 2020 and 2019, the net gain on sale of loans was $4.86 million and $2.06 million, respectively.  The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly.  The volume of activity in these types of loans is directly related to the level of interest rates and has been significantly impacted by the Federal Reserve Board's reduction of the federal funds rate to 0.25%, resulting in a significant amount of mortgage loan refinance activity. The servicing of the loans sold into the secondary market is not retained by the Company so these loans do not provide an ongoing stream of income. 

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HILLS BANCORPORATION

Discussion of operations for the nine months ended September 30, 2020 and 2019

Other noninterest income categories experienced marginal period-to-period fluctuations for the nine months ended September 30, 2020.

Noninterest Expenses

The following table sets forth the various categories of noninterest expenses for the nine months ended September 30, 2020 and 2019.

	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
	(Amounts in thousands)
Salaries and employee benefits	$	29,818	$	27,310	$	2,508	9.18	%
Occupancy	3,248		3,274		(26)		(0.79)
Furniture and equipment	5,778		5,036		742		14.73
Office supplies and postage	1,333		1,370		(37)		(2.70)
Advertising and business development	1,479		1,800		(321)		(17.83)
Outside services	8,020		7,824		196		2.51
FDIC insurance assessment	617		612		5		0.82
Other noninterest expense	1,861		1,787		74		4.14
	$	52,154	$	49,013	$	3,141	6.41

In the nine months ended September 30, 2020 and 2019, salaries and employee benefits expense increased $2.51 million. The increase is primarily the result of annual salary adjustments, hiring of additional employees to staff growth and increased variable compensation due to the increase in loans originated for sale described above.

Other noninterest expense categories experienced marginal period-to-period fluctuations for the nine months ended September 30, 2020.

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HILLS BANCORPORATION

Discussion of operations for the three months ended September 30, 2020 and 2019

Net Income Overview

Net income increased $0.15 million for the three months ended September 30, 2020 compared to the same period in 2019.  Total net income was $11.43 million in 2020 and $11.28 million in the comparable period in 2019, an increase of 1.31%.  For the three month period ended September 30, 2020 and September 30, 2019 basic earnings per share was $1.22 and $1.21, respectively. Diluted earnings per share was $1.22 for the three months ended September 30, 2020 compared to $1.21 for the same period in 2019.

Net Interest Income

Net interest income increased for the three months ended September 30, 2020 compared to the comparable period in 2019.  The increase was primarily the result of growth in the volume of earning assets and the continued low interest rates on interest bearing deposits resulting in decreased interest expense.  Net interest income is the excess of the interest and fees earned on interest-earning bearing assets over the interest expense of the interest-bearing liabilities.  Interest expense decreased $2.81 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to decreasing interest rates on deposits. The factors that have the greatest impact on net interest income are the average respective volumes of earning assets and liabilities and the net interest margin.  The net interest margin for the three months ended September 30, 2020 was 2.90% compared to 3.13% in 2019 for the same period.  The measure is shown on a tax-equivalent basis using a tax rate of 21% to make the interest earned on taxable and non-taxable assets more comparable.  The change in average balances and average rates between periods and the effect on the net interest income on a tax equivalent basis for the three months ended in 2020 compared to the comparable period in 2019 are shown in the following table:

					Increase (Decrease) in Net Interest Income
	Change in Average Balance		Change in Average Rate		Volume Changes		Rate Changes		Net Change
	(Amounts in Thousands)
Interest income:
Loans, net	$	125,487	(0.38)	%	$	2,009	$	(3,114)	$	(1,105)
Taxable securities	42,481		(0.38)		233		(169)		64
Nontaxable securities	8,396		(0.08)		57		(39)		18
Federal funds sold	152,008		(2.09)		832		(2,098)		(1,266)
	$	328,372			$	3,131	$	(5,420)	$	(2,289)
Interest expense:
Interest-bearing demand deposits	$	163,620	(0.51)	%	$	(377)	$	1,141	$	764
Savings deposits	28,613		(0.69)		198		1,288		1,486
Time deposits	15,355		(0.23)		(88)		423		335
FHLB borrowings	(30,000)		0.01		224		—		224
Interest-bearing other liabilities	2		(2.41)		—		—		—
	$	177,590			$	(43)	$	2,852	$	2,809
Change in net interest income					$	3,088	$	(2,568)	$	520

Rate/volume variances are allocated on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates.  Loan fees included in interest income are not material.  Interest on nontaxable securities and loans is shown on a tax-equivalent basis.

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HILLS BANCORPORATION

Discussion of operations for the three months ended September 30, 2020 and 2019

A summary of the net interest spread and margin is as follows:

(Tax Equivalent Basis)	2020		2019
Yield on average interest-earning assets	3.62	%	4.28	%
Rate on average interest-bearing liabilities	0.96		1.47
Net interest spread	2.66	%	2.81	%
Effect of noninterest-bearing funds	0.24		0.32
Net interest margin (tax equivalent interest income divided by average interest-earning assets)	2.90	%	3.13	%

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HILLS BANCORPORATION

Discussion of operations for the three months ended September 30, 2020 and 2019

Provision for Loan Losses

The provision for loan losses was a reduction of expense of $0.16 million for the three months ended September 30, 2020 compared to an expense of $0.14 million in 2019, an expense decrease of $0.30 million. The loan loss provision is the amount necessary to adjust the allowance for loan losses to the level considered by management to appropriately account for the estimated impairment to the Bank's loan portfolio.  The provision expense taken to fund the allowance for loan losses is computed on a quarterly basis and is a result of management’s determination of the quality of the loan portfolio.  The provision reflects a number of factors, including the size of the loan portfolio, the overall composition of the loan portfolio and loan concentrations, the impact on the borrowers’ ability to repay, past loss experience, loan collateral values, the level of impaired loans and loans past due ninety days or more.  In addition, management considers the credit quality of the loans based on management’s review of problem and watch loans, including loans with historical higher credit risks. The decrease in expense in 2020 is the result of changes in the composition and allocation of loans within credit quality ratings as compared to September 30, 2019 and a reduction in specific reserves as of September 30, 2020 as compared to September 30, 2019.

The allowance for loan losses decreased $0.56 million during the three months ended September 30, 2020 compared to June 30, 2020.  In the three months ended September 30, 2020, there was a $0.35 million decrease in the amount allocated to the allowance due to credit quality and a $0.21 decrease due to the composition of loans outstanding.

The allowance for loan losses balance is affected by charge-offs, net of recoveries, for the periods presented.  For the three months ended September 30, 2020 and 2019, recoveries were $0.47 million and $0.51 million, respectively; and charge-offs were $0.87 million in 2020 and $0.74 million in 2019.  The allowance for loan losses totaled $37.06 million at September 30, 2020 compared to $33.76 million at December 31, 2019.  The allowance represented 1.34% and 1.28% of loans held for investment at September 30, 2020 and December 31, 2019, respectively.

Noninterest Income

The following table sets forth the various categories of noninterest income for the three months ended September 30, 2020 and 2019.

	Three Months Ended September 30,
	2020		2019		$ Change		% Change
	(Amounts in thousands)
Net gain on sale of loans	$	2,303	$	1,197	$	1,106	92.40	%
Trust fees	2,494		2,427		67		2.76
Service charges and fees	2,636		2,695		(59)		(2.19)
Other noninterest income	77		295		(218)		(73.90)
Gain on sale of investment securities	—		24		(24)		—
	$	7,510	$	6,638	$	872	13.14

In the three months ended September 30, 2020 and 2019, the net gain on sale of loans was $2.30 million and $1.20 million, respectively, which consist primarily of fixed rate residential mortgage loans.  The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly.  The volume of activity in these types of loans is directly related to the level of interest rates and has been significantly impacted by the Federal Reserve Board's reduction of the federal funds rate to 0.25%, resulting in a significant amount of mortgage loan refinance activity.  The servicing of the loans sold into the secondary market is not retained by the Company so these loans do not provide an ongoing stream of income. 

Other noninterest income categories experienced marginal period-to-period fluctuations for the three months ended September 30, 2020.

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HILLS BANCORPORATION

Discussion of operations for the three months ended September 30, 2020 and 2019

Noninterest Expenses

The following table sets forth the various categories of noninterest expenses for the three months ended September 30, 2020 and 2019.

	Three Months Ended September 30,
	2020		2019		$ Change		% Change
	(Amounts in thousands)
Salaries and employee benefits	$	10,108	$	9,258	$	850	9.18	%
Occupancy	1,067		986		81		8.22
Furniture and equipment	2,028		1,699		329		19.36
Office supplies and postage	425		469		(44)		(9.38)
Advertising and business development	340		607		(267)		(43.99)
Outside services	2,818		2,729		89		3.26
FDIC insurance assessment	223		208		15		7.21
Other noninterest expense	1,046		648		398		61.42
	$	18,055	$	16,604	$	1,451	8.74

In the three months ended September 30, 2020 and 2019, salaries and employee benefits expense increased $0.85 million. The increase is primarily the result of annual salary adjustments, hiring of additional employees to staff branch growth and increased variable compensation due to the increase in loans originated for sale described above.

Other noninterest expense categories experienced marginal period-to-period fluctuations for the three months ended September 30, 2020.

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HILLS BANCORPORATION

Income Taxes

Federal and state income tax expenses were $8.74 million and $9.52 million for the nine months ended September 30, 2020 and 2019, respectively. Income taxes as a percentage of income before taxes were 22.43% in 2020 and 22.02% in 2019.

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HILLS BANCORPORATION

Liquidity

The Company actively monitors and manages its liquidity position with the objective of maintaining sufficient cash flows to fund operations, meet client commitments, take advantage of market opportunities and provide a margin against unforeseeable liquidity needs.  Federal funds sold and investment securities available for sale are readily marketable assets.  Maturities of all investment securities are managed to meet the Company’s normal liquidity needs, to respond to market changes or to adjust the Company’s interest rate risk position.  Investment securities available for sale comprised 9.93% of the Company’s total assets at September 30, 2020 compared to 10.76% at December 31, 2019.

The Company has historically maintained a stable deposit base and a relatively low level of large deposits, which has mitigated the volatility in the Company’s liquidity position.  As of September 30, 2020, the Company had borrowed $185.00 million from the Federal Home Loan Bank (“FHLB”) of Des Moines.  Advances are used as a means of providing both long and short-term, fixed-rate funding for certain assets and for managing interest rate risk.  The Company had additional borrowing capacity available from the FHLB of approximately $683.83 million at September 30, 2020.

As additional sources of liquidity, the Company has the ability to borrow up to $10.00 million from the Federal Reserve Bank of Chicago, and has lines of credit with three banks totaling $504.46 million.  The borrowings under these credit lines would be secured by the Bank’s investment securities.  The combination of high levels of potentially liquid assets, low dependence on volatile liabilities and additional borrowing capacity provided sources of liquidity for the Company which management considered sufficient at September 30, 2020.

As of September 30, 2020, investment securities with a carrying value of $13.75 million were pledged to collateralize public and trust deposits, derivative financial instruments, and other borrowings.  As of December 31, 2019, investment securities with a carrying value of $12.93 million were pledged.

Contractual Obligations

There have been no material changes with regard to contractual obligations disclosed in the Company’s Form 10-K for the year ended December 31, 2019.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company's primary market risk exposure is to changes in interest rates.  Interest rate risk is the risk to current or anticipated earnings or capital arising from movements in interest rates.  Interest rate risk arises from repricing risk, basis risk, yield curve risk and options risk.  Repricing risk is the difference between the timing of rate changes and the timing of cash flows.  Basis risk is the difference from changing rate relationships among different yield curve affecting Bank activities.  Yield curve risk is the difference from changing rate relationships across the spectrum of maturities.  Option risk is the difference resulting from interest-related options imbedded in Bank products.  The Bank’s primary source of interest rate risk exposure arises from repricing risk.  To measure this risk the Bank uses a static gap measurement system that identifies the repricing gaps across the full maturity spectrum of the Bank’s assets and liabilities and an earnings simulation approach.  The gap schedule is known as the interest rate sensitivity report.  The report reflects the repricing characteristics of the Bank’s assets and liabilities.  The report details the calculation of the gap ratio.  This ratio indicates the amount of interest-earning assets repricing within a given period in comparison to the amount of interest-bearing liabilities repricing within the same period of time.  A gap ratio of 1.0 indicates a matched position, in which case the effect on net interest income due to interest rate movements will be minimal.  A gap ratio of less than 1.0 indicates that more liabilities than assets reprice within the time period, and a ratio greater than 1.0 indicates that more assets reprice than liabilities.

The Company's asset/liability management, or its management of interest rate risk, is focused primarily on evaluating and managing net interest income given various risk criteria.  Factors beyond the Company's control, such as market interest rates and competition, may also have an impact on the Company's interest income and interest expense.  In the absence of other factors, the Company's overall yield on interest-earning assets will increase as will its cost of funds on its interest-bearing liabilities when market interest rates increase over an extended period of time.  Inversely, the Company's yields and cost of funds will decrease when market rates decline.  The Company is able to manage these swings to some extent by attempting to control the maturity or rate adjustments of its interest-earning assets and interest-bearing liabilities over given periods of time.

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HILLS BANCORPORATION

The Bank maintains an Asset/Liability Committee, which meets at least quarterly to review the interest rate sensitivity position and to review and develop various strategies for managing interest rate risk within the context of the following factors: 1) capital adequacy, 2) asset/liability mix, 3) economic outlook, 4) market characteristics and 5) the interest rate forecast.  In addition, the Bank uses a simulation model to review various assumptions relating to interest rate movement.  The model attempts to limit rate risk even if it appears the Bank’s asset and liability maturities are perfectly matched and a favorable interest margin is present.  The Bank’s policy is to generally maintain a balance between profitability and interest rate risk.

In order to minimize the potential effects of adverse material and prolonged increases or decreases in market interest rates on the Company's operations, management has implemented an asset/liability program designed to mitigate the Company's interest rate sensitivity.  The program emphasizes the origination of adjustable rate loans, which are held in the portfolio, the investment of excess cash in short or intermediate term interest-earning assets, and the solicitation of transaction deposit accounts, which are less sensitive to changes in interest rates and can be re-priced rapidly.

The Bank's cumulative gap ratio over the immediate 90 day horizon has increased from 2.2 at December 31, 2019 to 3.3 at September 30, 2020. As a consequence, the Bank's interest rate risk, as monitored by management, has increased from December 31, 2019 due to the significant Federal Reserve rate cuts in the first quarter of 2020 and the continued low interest rate environment.

Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Interim Principal Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, the Company’s Chief Executive Officer and Interim Principal Accounting Officer concluded that the Company’s disclosure controls and procedures are effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports it files with the Securities and Exchange Commission.  There have been no changes in the Company’s internal controls over financial reporting during the nine months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

HILLS BANCORPORATION

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages.  While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Company’s business, financial conditions, or results of operations.

As initially reported in the Company’s quarterly report filed with the SEC on November 4, 2019, Hills Bank was sued in a class action lawsuit in the Iowa District Court for Johnson County on April 10, 2019. The lawsuit sought class action status for customers who had paid overdraft fees on debit card transactions that were authorized into a positive account but settled into a negative account. The Plaintiff subsequently amended the petition to assert additional claims involving overdraft charges and NSF fees. The parties have negotiated a class-wide settlement, which was preliminarily approved by the Court on October 9, 2020. While the Bank disputes the merits of the claim, management determined that settlement avoids added expenses, distractions to Bank management and personnel, and the attendant risks related to litigating the claim. The aggregate amount of the settlement was significantly below the disclosure threshold under this item for legal claims, and the Bank’s Management believes that the settlement will have no material impact on the Company's financial condition and results of operation. The final hearing to address the fairness of the proposed settlement has been scheduled for June 25, 2021.

Item 1A. Risk Factors

Except as otherwise provided below, there have been no material changes from the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2019.

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The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 65 million people have filed claims for unemployment, and stock markets have experienced significant volatility and, in particular, bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation to provide relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

Finally, the spread of the coronavirus has caused the Company to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. The Company may take further actions as may be required by government authorities or that it determines are in the best interests of employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities. In addition, the success of the Company’s operations substantially depends on the management skills of its executive officers and directors, many of whom have held officer and director positions with the Company for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy.

Given the ongoing and dynamic nature of the circumstances, it remains difficult to predict the full impact of the COVID-19 outbreak on our business. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. As the result, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

•demand for our products and services may decline, making it difficult to grow assets and income;

•if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

•as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

•a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

•we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

Page 64

•Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

The ongoing impact of the derecho storm could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

On August 10, 2020, a derecho impacted Eastern Iowa, primarily Cedar Rapids, Iowa and the surrounding areas. The derecho caused widespread high winds up to 140 mph, the equivalent of a Category 4 hurricane, torrential rain, large hail and low-class tornadoes. The damage from the derecho was significant across the east central Iowa area, including wide-scale utility disruptions, residential and commercial property damage and severe damage to corn and soybeans crops. The Bank has assisted customers impacted by the derecho by providing short-term loan modifications to defer principal payments on loans totaling $15.38 million, primarily for 1 to 4 family non-owner occupied, multifamily and commercial real estate loans. Further deterioration to the local economy caused by the derecho could have a materially negative impact on the Bank’s financial condition and results of operation in future periods.

Page 65

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information about the Company’s stock purchases, all of which were made pursuant to the 2005 Stock Repurchase Program, for the nine months ended September 30, 2020:

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs (1)
July 1 to July 30	1,417	$	59.98	1,417	199,980
August 1 to August 31	17,431	60.22		17,431	182,549
September 1 to September 30	10,959	62.00		10,959	171,590
Total	29,807	$	60.86	29,807	171,590

(1)  On July 26, 2005, the Company’s Board of Directors authorized a program to repurchase up to 1,500,000 shares of the Company’s common stock (the “2005 Stock Repurchase Program”).  The Company’s Board of Directors has authorized the 2005 Stock Repurchase Program through December 31, 2021.  The Company expects the purchases pursuant to the 2005 Stock Repurchase Program to be made from time to time in private transactions at a price equal to the most recent quarterly independent appraisal of the shares of the Company’s common stock and with the Board reviewing the overall results of the 2005 Stock Repurchase Program on a quarterly basis.  All purchases made pursuant to the 2005 Stock Repurchase Program since its inception have been made on that basis.  The amount and timing of stock repurchases will be based on various factors, such as the Board’s assessment of the Company’s capital structure and liquidity, the amount of interest shown by shareholders in selling shares of stock to the Company at their appraised value, and applicable regulatory, legal and accounting factors. 

Page 66

Item 3. Defaults upon Senior Securities

Hills Bancorporation has no senior securities.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Page 67

Item 6. Exhibits

3.1	Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q Filed with the Commission on May 6, 2015.
3.2	Amended and Restated Bylaws of Hills Bancorporation, incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q Filed with the Commission on May 6, 2019.
4.1	Description of Registered Securities, incorporated by reference to Exhibit 4.1 to the Company's Form 10-K filed with the Commission on March 6, 2020.
31	Certifications under Section 302 of the Sarbanes-Oxley Act of 2002
32	Certifications under Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document (1), (2)
101.SCH	XBRL Taxonomy Extension Schema Document (1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (1)

(1)Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, and are otherwise not subject to liability under these sections.

(2)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Page 68

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		HILLS BANCORPORATION
Date:	November 5, 2020	By:  /s/ Dwight O. Seegmiller
		Dwight O. Seegmiller, Director, President and Chief Executive Officer
Date:	November 5, 2020	By:  /s/ Jason S. Weeks
		Jason S. Weeks, Interim Treasurer and Interim Principal Accounting Officer

Page 69

HILLS BANCORPORATION

QUARTERLY REPORT OF FORM 10-Q FOR THE

QUARTER ENDED SEPTEMBER 30, 2020

Exhibit Number	Description	Page Number In The Sequential Numbering System September 30, 2020 Form 10-Q
31	Certifications under Section 302 of the Sarbanes-Oxley Act of 2002	71-72
32	Certifications under Section 906 of the Sarbanes-Oxley Act of 2002	73

Page 70

EX-31

Exhibit 31

CERTIFICATIONS

I, Dwight O. Seegmiller, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Hills Bancorporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 5, 2020	By:  /s/ Dwight O. Seegmiller
		Dwight O. Seegmiller, Director, President and Chief Executive Officer

71

Exhibit 31

CERTIFICATIONS

I, Jason S. Weeks, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Hills Bancorporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 5, 2020	By:  /s/ Jason S. Weeks
		Jason S. Weeks, Interim Treasurer and Interim Principal Accounting Officer

72

EX-32

EXHIBIT 32

SECTION 906 CERTIFICATION BY DWIGHT O. SEEGMILLER

In connection with the quarterly report of Hills Bancorporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dwight O. Seegmiller, Director, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 5, 2020	By:  /s/ Dwight O. Seegmiller
		Dwight O. Seegmiller, Director, President and Chief Executive Officer

SECTION 906 CERTIFICATION BY JASON S. WEEKS

In connection with the quarterly report of Hills Bancorporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jason S. Weeks, Interim Treasurer and Interim Principal Accounting Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 5, 2020	By:  /s/ Jason S. Weeks
		Jason S. Weeks, Interim Treasurer and Interim Principal Accounting Officer

73

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Oct. 31, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	0-12668
Entity Registrant Name	Hills Bancorporation
Entity Incorporation, State or Country Code	IA
Entity Tax Identification Number	42-1208067
Entity Address, Address Line One	131 MAIN STREET
Entity Address, City or Town	HILLS
Entity Address, State or Province	IA
Entity Address, Postal Zip Code	52235
City Area Code	319
Local Phone Number	679-2291
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Smaller Reporting Company	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		9,341,944
Entity Central Index Key	0000732417
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
ASSETS
Cash and cash equivalents	$ 560,738	$ 241,965
Investment securities available for sale at fair value (amortized cost September 30, 2020 $362,811; December 31, 2019 $351,069)	375,255	355,303
Stock of Federal Home Loan Bank	11,373	11,065
Loans held for sale	27,980	8,400
Loans, net of allowance for loan losses (September 30, 2020 $37,060; December 31, 2019 $33,760)	2,731,030	2,606,277
Property and equipment, net	35,548	37,146
Tax credit real estate investment	7,160	8,280
Accrued interest receivable	13,731	12,442
Deferred income taxes, net	7,015	8,018
Goodwill	2,500	2,500
Other assets	8,121	9,491
Total Assets	3,780,451	3,300,887
Liabilities
Noninterest-bearing deposits	500,272	387,612
Interest-bearing deposits	2,614,279	2,273,752
Total deposits	3,114,551	2,661,364
Other borrowings	43	0
Federal Home Loan Bank borrowings	185,000	185,000
Accrued interest payable	2,198	2,474
Other liabilities	24,505	25,012
Total Liabilities	3,326,297	2,873,850
Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP)	46,895	51,826
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 20,000,000 shares; issued September 30, 2020 10,328,875 shares; December 31, 2019 10,327,656 shares	0	0
Paid in capital	59,972	55,943
Retained earnings	431,401	409,509
Accumulated other comprehensive income	7,031	1,415
Treasury stock at cost (September 30, 2020 982,827 shares; December 31, 2019 975,962 shares)	(44,250)	(39,830)
Total Stockholders' Equity	454,154	427,037
Less maximum cash obligation related to ESOP shares	46,895	51,826
Total Stockholders' Equity Less Maximum Cash Obligation Related to ESOP Shares	407,259	375,211
Total Liabilities & Stockholders' Equity	$ 3,780,451	$ 3,300,887

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
ASSETS
Amortized Cost	$ 362,811	$ 351,069
Loans, allowance for loan losses	$ 37,060	$ 33,760
STOCKHOLDERS' EQUITY
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, authorized (in shares)	20,000,000	20,000,000
Common stock, issued (in shares)	10,328,875	10,327,656
Treasury stock at cost (in shares)	982,827	975,962

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Interest income:
Loans, including fees	$ 29,750	$ 30,857	$ 89,975	$ 90,825
Investment securities:
Taxable	889	825	2,656	2,375
Nontaxable	933	918	2,941	2,898
Federal funds sold	103	1,369	801	2,954
Total interest income	31,675	33,969	96,373	99,052
Interest expense:
Deposits	5,077	7,662	16,854	21,418
FHLB borrowings	1,388	1,612	4,118	4,778
Total interest expense	6,465	9,274	20,972	26,196
Net interest income	25,210	24,695	75,401	72,856
Provision for loan losses	(157)	144	4,500	(1,642)
Net interest income after provision for loan losses	25,367	24,551	70,901	74,498
Noninterest income:
Net gain on sale of loans	2,303	1,197	4,859	2,060
Other noninterest income	77	295	462	982
Gain (loss) on sale of investment securities	0	24	10	(28)
Noninterest income	7,510	6,638	20,208	17,739
Noninterest expenses:
Salaries and employee benefits	10,108	9,258	29,818	27,310
Occupancy	1,067	986	3,248	3,274
Furniture and equipment	2,028	1,699	5,778	5,036
Office supplies and postage	425	469	1,333	1,370
Advertising and business development	340	607	1,479	1,800
Outside services	2,818	2,729	8,020	7,824
FDIC insurance assessment	223	208	617	612
Other noninterest expense	1,046	648	1,861	1,787
Noninterest expenses	18,055	16,604	52,154	49,013
Income before income taxes	14,822	14,585	38,955	43,224
Income taxes	3,392	3,303	8,739	9,519
Net income	$ 11,430	$ 11,282	$ 30,216	$ 33,705
Earnings per share:
Basic (in dollars per share)	$ 1.22	$ 1.21	$ 3.22	$ 3.61
Diluted (in dollars per share)	$ 1.22	$ 1.21	$ 3.22	$ 3.61
Trust fees
Noninterest income:
Fee income	$ 2,494	$ 2,427	$ 7,450	$ 7,107
Service charges and fees
Noninterest income:
Fee income	$ 2,636	$ 2,695	$ 7,427	$ 7,618

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 11,430	$ 11,282	$ 30,216	$ 33,705
Securities:
Net change in unrealized (loss) income on securities available for sale	(84)	495	8,220	7,046
Reclassification adjustment for net loss (gains) realized in net income	0	(24)	(10)	28
Income taxes	21	(118)	(2,049)	(1,765)
Other comprehensive (loss) income on securities available for sale	(63)	353	6,161	5,309
Derivatives used in cash flow hedging relationships:
Net change in unrealized gain (loss) on derivatives	364	(103)	(726)	(1,081)
Income taxes	(91)	26	181	270
Other comprehensive income (loss) on cash flow hedges	273	(77)	(545)	(811)
Other comprehensive income, net of tax	210	276	5,616	4,498
Comprehensive income	$ 11,640	$ 11,558	$ 35,832	$ 38,203

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Paid In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Maximum Cash Obligation Related To ESOP Shares [Member]
Beginning Balance at Dec. 31, 2018	$ 334,882	$ 52,122	$ 371,848	$ (3,250)	$ (36,968)	$ (48,870)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of 1,468, 13,120, 87,959 and 105,542 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	5,374	3,072			2,302
Issuance 1,786, 1,861, 5,821, and 5,430 shares of common stock under the employee stock purchase plan for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	325	325
Unearned restricted stock compensation	572	572
Forfeiture of 134, 3,188, 5,255 and 4,211 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(262)	(262)
Share-based compensation	7	7
Change related to ESOP shares	(2,432)					(2,432)
Net income	33,705		33,705
Cash dividends ($0.82 and $0.89 per share for 9 months ended September 30, 2019 and 2020, respectively)	(7,657)		(7,657)
Purchase of 8,209, 29,807, 83,606 and 112,407 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(5,177)				(5,177)
Other comprehensive income	4,498			4,498
Ending Balance at Sep. 30, 2019	363,835	55,836	397,896	1,248	(39,843)	(51,302)
Beginning Balance at Jun. 30, 2019	353,524	55,515	386,614	972	(39,352)	(50,225)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of 1,468, 13,120, 87,959 and 105,542 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	95	56			39
Issuance 1,786, 1,861, 5,821, and 5,430 shares of common stock under the employee stock purchase plan for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	102	102
Unearned restricted stock compensation	165	165
Forfeiture of 134, 3,188, 5,255 and 4,211 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(8)	(8)
Share-based compensation	6	6
Change related to ESOP shares	(1,077)					(1,077)
Net income	11,282		11,282
Purchase of 8,209, 29,807, 83,606 and 112,407 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(530)				(530)
Other comprehensive income	276			276
Ending Balance at Sep. 30, 2019	363,835	55,836	397,896	1,248	(39,843)	(51,302)
Beginning Balance at Dec. 31, 2019	375,211	55,943	409,509	1,415	(39,830)	(51,826)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of 1,468, 13,120, 87,959 and 105,542 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	6,815	4,005			2,810
Issuance 1,786, 1,861, 5,821, and 5,430 shares of common stock under the employee stock purchase plan for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	304	304
Unearned restricted stock compensation	(81)	(81)
Forfeiture of 134, 3,188, 5,255 and 4,211 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(218)	(218)
Share-based compensation	19	19
Change related to ESOP shares	4,931					4,931
Net income	30,216		30,216
Cash dividends ($0.82 and $0.89 per share for 9 months ended September 30, 2019 and 2020, respectively)	(8,324)		(8,324)
Purchase of 8,209, 29,807, 83,606 and 112,407 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(7,230)				(7,230)
Other comprehensive income	5,616			5,616
Ending Balance at Sep. 30, 2020	407,259	59,972	431,401	7,031	(44,250)	(46,895)
Beginning Balance at Jun. 30, 2020	398,719	60,043	419,971	6,821	(42,787)	(45,329)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of 1,468, 13,120, 87,959 and 105,542 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	809	458			351
Issuance 1,786, 1,861, 5,821, and 5,430 shares of common stock under the employee stock purchase plan for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	104	104
Unearned restricted stock compensation	(474)	(474)
Forfeiture of 134, 3,188, 5,255 and 4,211 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(166)	(166)
Share-based compensation	7	7
Change related to ESOP shares	(1,566)					(1,566)
Net income	11,430		11,430
Purchase of 8,209, 29,807, 83,606 and 112,407 shares of common stock for 3 months ended September 30, 2019 and 2020 and the 9 months ended September 30, 2019 and 2020, respectively	(1,814)				(1,814)
Other comprehensive income	210			210
Ending Balance at Sep. 30, 2020	$ 407,259	$ 59,972	$ 431,401	$ 7,031	$ (44,250)	$ (46,895)

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]
Issuance of common stock (in shares)	13,120	1,468	105,542	87,959
Issuance of common stock purchased under the employee stock purchase plan (in shares)	1,861	1,786	5,430	5,821
Forfeiture of common stock (in shares)	3,188	134	4,211	5,255
Cash dividend (in dollars per share)			$ 0.89	$ 0.82
Purchase of common stock (in shares)	29,807	8,209	112,407	83,606

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash Flows from Operating Activities
Net income	$ 30,216	$ 33,705
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation	2,623	2,542
Provision for loan losses	4,500	(1,642)
Net (gain) loss on sale of investment securities available for sale	(10)	28
Forfeiture of common stock	(218)	(262)
Share-based compensation	19	7
Compensation expensed through issuance of common stock	971	348
Provision for deferred income taxes	(865)	484
Net gain on sale of other real estate owned and other repossessed assets	0	(11)
Increase in accrued interest receivable	(1,289)	(1,718)
Amortization of premium on investment securities, net	555	303
Decrease (increase) in other assets	1,320	(1,763)
Amortization of operating lease right-of-use assets	91	265
Decrease in accrued interest payable and other liabilities	(1,590)	(40)
Loans originated for sale	(359,531)	(201,514)
Proceeds on sales of loans	344,810	180,701
Net gain on sales of loans	(4,859)	(2,060)
Net cash and cash equivalents provided by operating activities	16,743	9,373
Cash Flows from Investing Activities
Proceeds from maturities of investment securities available for sale	64,096	51,275
Proceeds from sales of investment securities available for sale	313	12,467
Purchases of investment securities available for sale	(77,004)	(61,544)
Loans made to customers, net of collections	(129,294)	(11,296)
Proceeds on sale of other real estate owned and other repossessed assets	0	63
Purchases of property and equipment	(1,025)	(1,637)
Net changes from tax credit real estate investment	1,120	777
Net cash and cash equivalents used in investing activities	(141,794)	(9,895)
Cash Flows from Financing Activities
Net increase in deposits	453,187	279,834
Net increase in short-term borrowings	43	0
Issuance of common stock, net of costs	5,844	5,026
Purchase of treasury stock	(7,230)	(5,177)
Proceeds from the issuance of common stock through the employee stock purchase plan	304	325
Dividends paid	(8,324)	(7,657)
Net cash and cash equivalents provided by financing activities	443,824	272,351
Increase in cash and cash equivalents	318,773	271,829
Cash and cash equivalents:
Beginning of period	241,965	43,305
End of period	560,738	315,134
Cash payments for:
Interest paid to depositors	17,130	20,639
Interest paid on other obligations	4,118	4,778
Income taxes paid	7,329	8,044
Noncash activities:
(Decrease)/increase in maximum cash obligation related to ESOP shares	(4,931)	2,432
Transfers to other real estate owned	0	712
Right-of-use assets obtained in exchange for operating lease obligations	$ 0	$ 3,581

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X.  These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown.  Certain prior year amounts have been reclassified to conform to the current year presentation.  The Company considers that it operates as one business segment, a commercial bank.

Operating results for the nine month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the “Company”) for the year ended December 31, 2019 filed with the Securities Exchange Commission on March 6, 2020.  The consolidated balance sheet as of December 31, 2019, has been derived from the audited consolidated financial statements for that period.

The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit and investment securities. Interest income on loans and investment securities is recognized on the accrual method in accordance with written contracts.

Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606 are the following: Service charges and fees on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue which includes interchange income, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. Trust income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received.

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. As of September 30, 2020, the Company did not have any significant contract balances.

An entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense

contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. The Company has not incurred or capitalized any contract acquisition costs as of September 30, 2020.

Effect of New Financial Accounting Standards:

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases. The ASU provides guidance requiring lessees to recognize right-of-use (ROU) assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. Under this new ASU, lessees will recognize right-of use assets and lease liabilities for most leases currently accounted for as operating leases under generally accepted accounting principles. For public companies, ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted the ASU on January 1, 2019 and used the alternative transition approach which permits the effects of adoption to be applied at the effective date. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. We elected the 'package of practical expedients', which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also elected the short-term lease exemption and combining the lease and nonlease components practical expedients. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The most significant impact upon adoption relates to the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment and real estate operating leases. Upon adoption, we recognized additional operating liabilities of $3.58 million, with corresponding ROU assets of the same amount based on the present value of the remaining rental payments, including options to extend that are expected to be exercised, under current leasing standards for existing operating leases. There was no cumulative effect of adopting the standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (CECL). The ASU changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. For public companies, ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, early adoption is permitted for the fiscal year beginning after December 15, 2018. With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the option to delay CECL was provided until the earlier of the national health emergency being declared over or December 31, 2020. The Company elected to delay implementing CECL and continued to use the incurred loss method to calculate the allowance for loan losses as of and for the period ending September 30, 2020.

The Company has implemented a software solution provided by a third party vendor to assist in the determination of the CECL estimate. The CECL model has been finalized and we completed the validation process for the CECL model using an independent outside party in January 2020. Our current planned approach for estimating expected life-time credit losses for loans includes the following key components:

•An initial forecast period of one year for all portfolio segments and off-balance-sheet credit exposures. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time.

•A historical loss forecast period covering the remaining contractual life, adjusted for prepayments, by portfolio segment based on the change in key historical economic variables.

•A reversion period of up to 3 years connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.

•We will primarily utilize discounted cash flow (DCF) methods to estimate credit losses by portfolio segment. The DCF methods obtain estimated life-time credit losses using the conceptual components described above.

Upon the expiration of the CECL delay provided by the CARES Act, the adjustment upon adoption at January 1, 2020 will be an overall increase in our Allowance for Credit Losses (ACL) for loans of $3.5 million. We will also record an unfunded commitments liability of $1.45 million upon adoption. The future effects of CECL on our ACL will depend on the size and composition of our portfolio, the portfolio’s credit quality and economic conditions, as well as any refinements to our model, methodology and other key assumptions. We will recognize a one-time cumulative-effect adjustment to our allowance for loan losses upon adoption of the new standard. The increase in the ACL will result in a decrease to our regulatory capital amounts and ratios. Once finalized, we estimate the ACL as of September 30, 2020 to be approximately $41 million to $44 million and the unfunded commitments liability to be approximately $4 million to $5 million.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323), Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This ASU adds an SEC paragraph and amends other Topics pursuant to an SEC staff Announcement made at the September 22, 2016 Emerging Issues Task Force (EITF) meeting. The SEC paragraph applies to ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU provides that a company should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If the company does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced in this announcement is expected to have on the financial statements, then in addition to making a statement to that effect, the company should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the company when adopted. Additional qualitative disclosures should include a description of the effect of the accounting policies that the company expects to apply and a comparison to the company's current accounting policies. Also, the company should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 250), Simplifying the Test for Goodwill Impairment. The ASU simplifies the goodwill impairment test by requiring a company to perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized when the carrying amount exceeds fair value. For public companies, ASU 2017-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU No. 2017-04 for the period ending March 31, 2020. There was no material impact on the financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. This ASU requires companies to change the recognition and presentation of the effects of hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness and requiring companies to present all of the elements of hedge accounting that affect earnings in the same income statement line as the hedged item. Furthermore, the standard eases the requirements for effectiveness testing, hedge documentation and applying the critical terms match method and introduces new alternatives that will permit companies to reduce the risk of material error corrections if they misapply the shortcut method. For public companies, ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2017-12 for the period ending March 31, 2019. There was no material impact on the financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted ASU No. 2018-07 for the period ending March 31, 2019. There was no material impact on the 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 ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including removal of the requirement to disclose the valuation processes for Level 3 fair value measurements and the additional requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop

Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company adopted ASU 2018-13 for the period ending March 31, 2020. There was no material impact on the financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangements That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 for the period ending March 31, 2020. There was no material impact on the financial statements.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The amendments in this ASU are required to be adopted concurrently with the amendments in ASU 2017-12. For public companies, this would be for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2018-16 for the period ending March 31, 2019 concurrently with ASU 2017-12. There was no material impact on the financial statements.

In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. The amendments in this ASU update the Codification to reflect the amendments of various SEC disclosure requirements that the agency determined were redundant, duplicative, overlapping, outdated or superseded. The SEC amended its disclosure rules in 2018 with the aim of providing investors with useful disclosure information and to simplify compliance without significantly altering the mix of the information being provided. This ASU was effective upon release and there was no material impact on the financial statements.

In November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Codification Improvements - Share-Based Consideration Payable to a Customer. The amendments in this ASU require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual understanding of the key terms and conditions of a share-based payment award. The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer. The Company adopted ASU 2019-08 for the period ending December 31, 2019. There was no material impact on the financial statements.

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this ASU clarify or address stakeholders' specific issues about certain aspects of the amendments in ASU 2016-13 in the following areas: expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables and financial assets secured by collateral maintenance provisions. For public companies, ASU 2019-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be adopted concurrently with ASU 2016-13. As noted above, we have elected to delay the adoption of ASU 2016-13 as permitted by the CARES Act.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing specific exceptions included in Topic 740, introducing other simplifications and making technical corrections. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on the financial statements.

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Earnings Per Share

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period.  Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding.  ESOP shares are considered outstanding for this calculation unless unearned.

The computation of basic and diluted earnings per share for the periods presented is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Common shares outstanding at the beginning of the period	9,364,062		9,346,449		9,351,694		9,336,441
Weighted average number of net shares issued (redeemed)	(7,765)		(160)		28,137		21,712
Weighted average shares outstanding (basic)	9,356,297		9,346,289		9,379,831		9,358,153
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method	3,592		4,284		3,673		4,146
Weighted average number of shares (diluted)	9,359,889		9,350,573		9,383,504		9,362,299
Net income (In thousands)	$	11,430	$	11,282	$	30,216	$	33,705
Earnings per share:
Basic	$	1.22	$	1.21	$	3.22	$	3.61
Diluted	$	1.22	$	1.21	$	3.22	$	3.61

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Other Comprehensive Income

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Other Comprehensive Income

Other Comprehensive Income

The following table summarizes the balances of each component of accumulated other comprehensive income (AOCI), included in stockholders’ equity, at September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(amounts in thousands)
Net unrealized income on available-for-sale securities	$	12,444	$	4,234
Net unrealized loss on derivatives used for cash flow hedges	(3,075)		(2,349)
Tax effect	$	(2,338)	$	(470)
Net-of-tax amount	$	7,031	$	1,415

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Securities

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Securities

Securities

The carrying values of investment securities at September 30, 2020 and December 31, 2019 are summarized in the following table (dollars in thousands):

	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
Securities available for sale
U.S. Treasury	$	151,835	40.46	%	$	128,585	36.19	%
Other securities (FHLB, FHLMC and FNMA)	25,209		6.72		15,229		4.29
State and political subdivisions	198,211		52.82		211,489		59.52
Total securities available for sale	$	375,255	100.00	%	$	355,303	100.00	%

Investment securities have been classified in the consolidated balance sheets according to management’s intent.  Available-for-sale securities consist of debt securities not classified as trading or held to maturity.  Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity.  There were no trading or held to maturity securities as of September 30, 2020 or December 31, 2019. The carrying amount of available-for-sale securities and their approximate fair values were as follows as of September 30, 2020 and December 31, 2019 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
September 30, 2020:
U.S. Treasury	$	145,999	$	5,836	$	—	$	151,835
Other securities (FHLB, FHLMC and FNMA)	25,203		37		(31)		25,209
State and political subdivisions	191,609		6,659		(57)		198,211
Total	$	362,811	$	12,532	$	(88)	$	375,255
December 31, 2019:
U.S. Treasury	$	127,096	$	1,626	$	(137)	$	128,585
Other securities (FHLB, FHLMC and FNMA)	15,287		—		(58)		15,229
State and political subdivisions	208,686		2,938		(135)		211,489
Total	$	351,069	$	4,564	$	(330)	$	355,303

The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities at September 30, 2020, were as follows (in thousands):

	Amortized Cost		Fair Value
Due in one year or less	$	46,608	$	46,887
Due after one year through five years	219,240		226,723
Due after five years through ten years	77,290		81,722
Due over ten years	19,673		19,923
Total	$	362,811	$	375,255

As of September 30, 2020 investment securities with a carrying value of $13.75 million were pledged to collateralize derivative financial instruments and other borrowings.

Sales proceeds and gross realized gains and losses on available-for-sale securities for the nine months ended September 30, 2020 and 2019 were as follows (in thousands):

	September 30, 2020		September 30, 2019
Sales proceeds	$	313	$	12,467
Gross realized gains	10		24
Gross realized losses	—		52

The following table shows the fair value, gross unrealized losses and the percentage of fair value represented by gross unrealized losses of applicable investment securities owned by the Company, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019 (in thousands):

	Less than 12 months							12 months or more							Total
September 30, 2020 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	—	$	—	$	—	—	%	—	$	—	$	—	—	%	—	$	—	$	—	—	%
Other securities (FHLB, FHLMC and FNMA)	5	12,540		(31)		0.25		—	—		—		—		5	12,540		(31)		0.25
State and political subdivisions	19	5,552		(50)		0.90		5	621		(7)		1.13		24	6,173		(57)		0.92
Total temporarily impaired securities	24	$	18,092	$	(81)	0.45	%	5	$	621	$	(7)	1.13	%	29	$	18,713	$	(88)	0.47	%

	Less than 12 months							12 months or more							Total
December 31, 2019 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	11	$	27,932	$	(136)	0.49	%	1	$	2,495	$	(1)	0.04	%	12	$	30,427	$	(137)	0.45	%
Other securities (FHLB, FHLMC and FNMA)	—	—		—		—		6	15,229		(58)		0.38		6	15,229		(58)		0.38
State and political subdivisions	66	17,881		(119)		0.67		20	3,825		(16)		0.42		86	21,706		(135)		0.62
Total temporarily impaired securities	77	$	45,813	$	(255)	0.56	%	27	$	21,549	$	(75)	0.35	%	104	$	67,362	$	(330)	0.49	%

The Company considered the following information in reaching the conclusion that the impairments disclosed in the table above are temporary and not other-than-temporary impairments.  None of the unrealized losses in the above table was due to the deterioration in the credit quality of any of the issues that might result in the non-collection of contractual principal and interest.  The unrealized losses are due to changes in interest rates.  The Company has not recognized any unrealized loss in income because management does not have the intent to sell the securities included in the previous table.  Management has concluded that it is more likely than not that the Company will not be required to sell these securities prior to recovery of the amortized cost basis.

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Loans

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Loans

Loans

Classes of loans are as follows:

	September 30, 2020		December 31, 2019
	(Amounts In Thousands)
Agricultural	$	96,321	$	91,317
Commercial and financial	335,463		221,323
Real estate:
Construction, 1 to 4 family residential	70,527		80,209
Construction, land development and commercial	114,270		108,410
Mortgage, farmland	243,689		242,730
Mortgage, 1 to 4 family first liens	900,224		910,742
Mortgage, 1 to 4 family junior liens	131,477		149,227
Mortgage, multi-family	371,167		350,761
Mortgage, commercial	417,042		402,181
Loans to individuals	30,521		32,308
Obligations of state and political subdivisions	56,424		49,896
	$	2,767,125	$	2,639,104
Net unamortized fees and costs	965		933
	$	2,768,090	$	2,640,037
Less allowance for loan losses	37,060		33,760
	$	2,731,030	$	2,606,277

As of September 30, 2020, the Company has provided $127.10 million of Paycheck Protection Program (PPP) loans recorded with commercial and financial loans above and has $3.77 million of deferred PPP loan fees recorded net of commercial and financial loans. For the nine months ended September 30, 2020, the Company has recognized $1.26 million of fees in interest income.

Changes in the allowance for loan losses, the allowance for loan losses applicable to impaired loans and the related loan balance of impaired loans for the three and nine months ended September 30, 2020 were as follows:

	Three Months Ended September 30, 2020
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,547	$	5,777	$	2,433	$	4,089	$	12,282	$	9,173	$	1,319	$	37,620
Charge-offs	(8)		(478)		—		—		(115)		(210)		(63)		(874)
Recoveries	26		165		27		—		201		10		42		471
Provision	30		(119)		(167)		(41)		(210)		320		30		(157)
Ending balance	$	2,595	$	5,345	$	2,293	$	4,048	$	12,158	$	9,293	$	1,328	$	37,060

	Nine Months Ended September 30, 2020
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,400	$	4,988	$	2,599	$	3,950	$	10,638	$	7,859	$	1,326	$	33,760
Charge-offs	(43)		(1,253)		(43)		(1)		(576)		(290)		(276)		(2,482)
Recoveries	44		374		81		—		636		33		114		1,282
Provision	194		1,236		(344)		99		1,460		1,691		164		4,500
Ending balance	$	2,595	$	5,345	$	2,293	$	4,048	$	12,158	$	9,293	$	1,328	$	37,060
Ending balance, individually evaluated for impairment	$	80	$	477	$	87	$	1	$	86	$	—	$	14	$	745
Ending balance, collectively evaluated for impairment	$	2,515	$	4,868	$	2,206	$	4,047	$	12,072	$	9,293	$	1,314	$	36,315
Loans:
Ending balance	$	96,321	$	335,463	$	184,797	$	243,689	$	1,031,701	$	788,209	$	86,945	$	2,767,125
Ending balance, individually evaluated for impairment	$	1,742	$	5,949	$	7,933	$	2,440	$	6,980	$	3,614	$	14	$	28,672
Ending balance, collectively evaluated for impairment	$	94,579	$	329,514	$	176,864	$	241,249	$	1,024,721	$	784,595	$	86,931	$	2,738,453

Changes in the allowance for loan losses for the three and nine months ended September 30, 2019 were as follows:

	Three Months Ended September 30, 2019
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,535	$	5,603	$	2,646	$	3,891	$	11,384	$	8,194	$	1,397	$	35,650
Charge-offs	(135)		(177)		—		—		(332)		—		(92)		(736)
Recoveries	18		128		2		—		317		12		35		512
Provision	288		(143)		240		96		(166)		(110)		(61)		144
Ending balance	$	2,706	$	5,411	$	2,888	$	3,987	$	11,203	$	8,096	$	1,279	$	35,570

	Nine Months Ended September 30, 2019
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,789	$	5,826	$	3,292	$	3,972	$	12,516	$	8,165	$	1,250	$	37,810
Charge-offs	(135)		(641)		(9)		—		(711)		(133)		(326)		(1,955)
Recoveries	87		451		6		5		576		100		132		1,357
Provision	(35)		(225)		(401)		10		(1,178)		(36)		223		(1,642)
Ending balance	$	2,706	$	5,411	$	2,888	$	3,987	$	11,203	$	8,096	$	1,279	$	35,570
Ending balance, individually evaluated for impairment	$	341	$	1,008	$	—	$	—	$	65	$	1	$	2	$	1,417
Ending balance, collectively evaluated for impairment	$	2,365	$	4,403	$	2,888	$	3,987	$	11,138	$	8,095	$	1,277	$	34,153
Loans:
Ending balance	$	91,621	$	219,362	$	189,631	$	237,513	$	1,063,175	$	751,993	$	84,643	$	2,637,938
Ending balance, individually evaluated for impairment	$	1,865	$	3,176	$	456	$	4,117	$	7,729	$	2,043	$	2	$	19,388
Ending balance, collectively evaluated for impairment	$	89,756	$	216,186	$	189,175	$	233,396	$	1,055,446	$	749,950	$	84,641	$	2,618,550

The following table presents the credit quality indicators by type of loans in each category as of September 30, 2020 and December 31, 2019, respectively (amounts in thousands):

	Agricultural		Commercial and Financial		Real Estate: Construction, 1 to 4 family residential		Real Estate: Construction, land development and commercial
September 30, 2020
Grade:
Excellent	$	3,174	$	15,023	$	1	$	231
Good	11,212		62,843		13,969		16,492
Satisfactory	44,687		181,807		38,486		61,231
Monitor	28,217		61,300		16,441		28,008
Special Mention	6,624		9,147		1,315		7,595
Substandard	2,407		5,343		315		713
Total	$	96,321	$	335,463	$	70,527	$	114,270

	Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family first liens		Real Estate: Mortgage, 1 to 4 family junior liens		Real Estate: Mortgage, multi- family
September 30, 2020
Grade:
Excellent	$	5,968	$	2,395	$	268	$	17,824
Good	42,037		43,348		3,284		56,624
Satisfactory	130,185		710,236		118,885		203,078
Monitor	55,917		114,949		5,575		59,787
Special Mention	6,100		13,424		1,635		15,439
Substandard	3,482		15,872		1,830		18,415
Total	$	243,689	$	900,224	$	131,477	$	371,167

	Real Estate: Mortgage, commercial		Loans to individuals		Obligations of state and political subdivisions		Total
September 30, 2020
Grade:
Excellent	$	28,533	$	—	$	6,970	$	80,387
Good	94,886		160		13,923		358,778
Satisfactory	191,744		29,685		25,561		1,735,585
Monitor	78,640		436		9,822		459,092
Special Mention	19,103		164		148		80,694
Substandard	4,136		76		—		52,589
Total	$	417,042	$	30,521	$	56,424	$	2,767,125

	Agricultural		Commercial and Financial		Real Estate: Construction, 1 to 4 family residential		Real Estate: Construction, land development and commercial
December 31, 2019
Grade:
Excellent	$	3,594	$	3,461	$	260	$	190
Good	12,380		47,843		8,868		23,217
Satisfactory	43,308		117,114		51,093		47,987
Monitor	24,857		44,543		17,505		29,009
Special Mention	3,110		5,157		2,483		7,428
Substandard	4,068		3,205		—		579
Total	$	91,317	$	221,323	$	80,209	$	108,410

	Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family first liens		Real Estate: Mortgage, 1 to 4 family junior liens		Real Estate: Mortgage, multi- family
December 31, 2019
Grade:
Excellent	$	3,630	$	3,209	$	261	$	18,955
Good	40,118		32,474		4,233		47,871
Satisfactory	134,738		751,215		136,079		189,391
Monitor	53,147		96,353		5,473		60,965
Special Mention	3,033		11,167		1,469		27,559
Substandard	8,064		16,324		1,712		6,020
Total	$	242,730	$	910,742	$	149,227	$	350,761

	Real Estate: Mortgage, commercial		Loans to individuals		Obligations of state and political subdivisions		Total
December 31, 2019
Grade:
Excellent	$	27,017	$	—	$	7,444	$	68,021
Good	79,467		221		14,465		311,157
Satisfactory	206,196		31,385		20,274		1,728,780
Monitor	81,381		437		7,323		420,993
Special Mention	4,802		212		390		66,810
Substandard	3,318		53		—		43,343
Total	$	402,181	$	32,308	$	49,896	$	2,639,104

The below are descriptions of the credit quality indicators:

Excellent – Excellent rated loans are prime quality loans covered by highly liquid collateral with generous margins or supported by superior current financial conditions reflecting substantial net worth, relative to total credit extended, and based on assets of a stable and non-speculative nature whose values can be readily verified. Identified repayment source or cash flow is abundant and assured.

Good – Good rated loans are adequately secured by readily marketable collateral or good financial condition characterized by liquidity, flexibility and sound net worth. Loans are supported by sound primary and secondary payment sources and timely and accurate financial information.

Satisfactory – Satisfactory rated loans are loans to borrowers of average financial means not especially vulnerable to changes in economic or other circumstances, where the major support for the extension is sufficient collateral of a marketable nature, and the primary source of repayment is seen to be clear and adequate.

Monitor – Monitor rated loans are identified by management as warranting special attention for a variety of reasons that may bear on ultimate collectability. This may be due to adverse trends, a particular industry, loan structure, or repayment that is dependent on projections, or a one-time occurrence.

Special Mention – Special mention rated loans are supported by a marginal payment capacity and are marginally protected by collateral.  There are identified weaknesses that if not monitored and corrected may adversely affect the Company’s credit position.  A special mention credit would typically have a weakness in one of the general categories (cash flow, collateral position or payment history) but not in all categories.

Substandard – Substandard loans are not adequately supported by the paying capacity of the borrower and may be inadequately collateralized.  These loans have a well-defined weakness or weaknesses.  For these loans, it is more probable than not that the Company could sustain some loss if the deficiency(ies) is not corrected.

Past due loans as of September 30, 2020 and December 31, 2019 were as follows:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(Amounts In Thousands)
September 30, 2020
Agricultural	$	783	$	6	$	556	$	1,345	$	94,976	$	96,321	$	14
Commercial and financial	1,140		490		2,451		4,081		331,382		335,463		2,288
Real estate:
Construction, 1 to 4 family residential	630		668		—		1,298		69,229		70,527		—
Construction, land development and commercial	928		47		7,000		7,975		106,295		114,270		7,000
Mortgage, farmland	—		315		645		960		242,729		243,689		35
Mortgage, 1 to 4 family first liens	670		1,195		2,724		4,589		895,635		900,224		—
Mortgage, 1 to 4 family junior liens	65		260		109		434		131,043		131,477		—
Mortgage, multi-family	4,008		1,799		—		5,807		365,360		371,167		—
Mortgage, commercial	731		—		311		1,042		416,000		417,042		—
Loans to individuals	108		27		4		139		30,382		30,521		—
Obligations of state and political subdivisions	—		—		—		—		56,424		56,424		—
	$	9,063	$	4,807	$	13,800	$	27,670	$	2,739,455	$	2,767,125	$	9,337
December 31, 2019
Agricultural	$	163	$	275	$	122	$	560	$	90,757	$	91,317	$	48
Commercial and financial	1,076		229		101		1,406		219,917		221,323		65
Real estate:
Construction, 1 to 4 family residential	635		—		—		635		79,574		80,209		—
Construction, land development and commercial	215		101		—		316		108,094		108,410		—
Mortgage, farmland	736		—		610		1,346		241,384		242,730		—
Mortgage, 1 to 4 family first liens	5,026		3,100		4,149		12,275		898,467		910,742		354
Mortgage, 1 to 4 family junior liens	813		126		233		1,172		148,055		149,227		139
Mortgage, multi-family	—		97		—		97		350,664		350,761		—
Mortgage, commercial	321		489		—		810		401,371		402,181		—
Loans to individuals	226		55		15		296		32,012		32,308		—
Obligations of state and political subdivisions	—		—		—		—		49,896		49,896		—
	$	9,211	$	4,472	$	5,230	$	18,913	$	2,620,191	$	2,639,104	$	606

The Company does not have a material amount of loans that are past due less than 90 days where there are serious doubts as to the ability of the borrowers to comply with the loan repayment terms.

Certain impaired loan information by loan type at September 30, 2020 and December 31, 2019, was as follows:

	September 30, 2020						December 31, 2019
	Non-accrual loans (1)		Accruing loans past due 90 days or more		TDR loans		Non- accrual loans (1)		Accruing loans past due 90 days or more		TDR loans
	(Amounts In Thousands)						(Amounts In Thousands)
Agricultural	$	1,537	$	14	$	111	$	1,192	$	48	$	404
Commercial and financial	804		2,288		1,059		679		65		1,934
Real estate:
Construction, 1 to 4 family residential	315		—		—		—		—		—
Construction, land development and commercial	206		7,000		315		—		—		320
Mortgage, farmland	1,117		35		1,288		1,369		—		2,712
Mortgage, 1 to 4 family first liens	5,292		—		1,590		6,558		354		1,626
Mortgage, 1 to 4 family junior liens	195		—		—		94		139		—
Mortgage, multi-family	82		—		1,704		97		—		1,719
Mortgage, commercial	1,328		—		1,833		779		—		593
	$	10,876	$	9,337	$	7,900	$	10,768	$	606	$	9,308

(1)There were $4.20 million and $4.34 million of TDR loans included within nonaccrual loans as of September 30, 2020 and December 31, 2019, respectively.

Loans 90 days or more past due that are still accruing interest increased $8.73 million from December 31, 2019 to September 30, 2020 primarily due to one relationship accounting for $9 million of the accruing loans past due 90 days or more as of September 30, 2020. As of September 30, 2020 there were 6 accruing loans past due 90 days or more. The average accruing loans past due as of September 30, 2020 was $1.56 million. There were 8 accruing loans past due 90 days or more as of December 31, 2019 and the average loan balance was $0.08 million. The accruing loans past due 90 days or more balances are believed to be adequately collateralized and the Company expects to collect all principal and interest as contractually due under these loans. The significant relationship past due 90 days or more also has significant guarantor strength therefore the Company expects to collect all outstanding amounts due.

The Company may modify the terms of a loan to maximize the collection of amounts due.  Such a modification is considered a troubled debt restructuring (“TDR”).  In most cases, the modification is either a reduction in interest rate, conversion to interest only payments or an extension of the maturity date.  The borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term, so a concessionary modification is granted to the borrower that would otherwise not be considered.  TDR loans accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles.

Below is a summary of information for TDR loans as of September 30, 2020 and December 31, 2019:

	September 30, 2020					December 31, 2019
	Number of contracts	Recorded investment		Commitments outstanding		Number of contracts	Recorded investment		Commitments outstanding
		(Amounts In Thousands)					(Amounts In Thousands)
Agricultural	7	$	1,309	$	10	9	$	1,552	$	3
Commercial and financial	16	1,677		85		16	2,641		95
Real estate:
Construction, 1 to 4 family residential	—	—		—		—	—		—
Construction, land development and commercial	2	315		4		2	320		—
Mortgage, farmland	7	2,352		—		8	4,021		—
Mortgage, 1 to 4 family first liens	18	1,901		—		16	2,083		—
Mortgage, 1 to 4 family junior liens	—	—		—		—	—		—
Mortgage, multi-family	2	1,704		—		2	1,719		—
Mortgage, commercial	9	2,850		—		7	1,373		—
Loans to individuals	—	—		—		—	—		—
	61	$	12,108	$	99	60	$	13,709	$	98

The following is a summary of TDR loans that were modified during the three and nine months ended September 30, 2020:

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Number of contracts	Pre-modification recorded investment		Post-modification recorded investment		Number of contracts	Pre-modification recorded investment		Post-modification recorded investment
		(Amounts In Thousands)
Agricultural	—	$	—	$	—	2	$	93	$	93
Commercial and financial	1	90		90		3	308		308
Real estate:
Construction, 1 to 4 family residential	—	—		—		—	—		—
Construction, land development and commercial	—	—		—		—	—		—
Mortgage, farmland	—	—		—		—	—		—
Mortgage, 1 to 4 family first lien	—	—		—		5	104		104
Mortgage, 1 to 4 family junior liens	—	—		—		—	—		—
Mortgage, multi-family	—	—		—		—	—		—
Mortgage, commercial	2	1,333		1,333		3	1,846		1,846
	3	$	1,423	$	1,423	13	$	2,351	$	2,351

The Company had commitments to lend $0.10 million in additional borrowings to restructured loan customers as of September 30, 2020.  The Company had commitments to lend $0.10 million in additional borrowings to restructured loan customers as of December 31, 2019.  These commitments were in the normal course of business.  The additional borrowings were not used to facilitate payments on these loans.

There were no TDR loans that were in payment default (defined as past due 90 days or more) during the period ended September 30, 2020 and one totaling $0.065 million modified during the year ended December 31, 2019.

Information regarding impaired loans as of and for the three and nine months ended September 30, 2020 is as follows:

	September 30, 2020						Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(Amounts In Thousands)
Agricultural	$	1,648	$	2,308	$	—	$	1,859	$	6	$	1,822	$	18
Commercial and financial	2,974		4,708		—		3,788		38		3,641		110
Real estate:
Construction, 1 to 4 family residential	412		480		—		700		—		575		—
Construction, land development and commercial	521		540		—		528		4		526		13
Mortgage, farmland	2,405		2,936		—		3,420		32		3,242		90
Mortgage, 1 to 4 family first liens	6,135		7,939		—		6,585		18		6,422		51
Mortgage, 1 to 4 family junior liens	108		353		—		161		—		135		—
Mortgage, multi-family	1,786		1,908		—		1,807		21		1,801		61
Mortgage, commercial	1,761		2,592		—		2,019		5		1,917		15
Loans to individuals	—		14		—		—		—		—		—
	$	17,750	$	23,778	$	—	$	20,867	$	124	$	20,081	$	358
With an allowance recorded:
Agricultural	$	94	$	94	$	80	$	109	$	2	$	102	$	6
Commercial and financial	2,975		3,028		477		3,071		33		3,060		99
Real estate:
Construction, 1 to 4 family residential	—		—		—		—		—		—		—
Construction, land development and commercial	7,000		7,000		87		7,000		80		7,000		236
Mortgage, farmland	35		35		1		37		1		37		1
Mortgage, 1 to 4 family first liens	650		701		49		668		3		666		10
Mortgage, 1 to 4 family junior liens	87		92		37		91		—		90		—
Mortgage, multi-family	—		—		—		—		—		—		—
Mortgage, commercial	67		67		—		69		1		69		3
Loans to individuals	14		14		14		14		—		14		1
	$	10,922	$	11,031	$	745	$	11,059	$	120	$	11,038	$	356
Total:
Agricultural	$	1,742	$	2,402	$	80	$	1,968	$	8	$	1,924	$	24
Commercial and financial	5,949		7,736		477		6,859		71		6,701		209
Real estate:
Construction, 1 to 4 family residential	412		480		—		700		—		575		—
Construction, land development and commercial	7,521		7,540		87		7,528		84		7,526		249
Mortgage, farmland	2,440		2,971		1		3,457		33		3,279		91
Mortgage, 1 to 4 family first liens	6,785		8,640		49		7,253		21		7,088		61
Mortgage, 1 to 4 family junior liens	195		445		37		252		—		225		—
Mortgage, multi-family	1,786		1,908		—		1,807		21		1,801		61
Mortgage, commercial	1,828		2,659		—		2,088		6		1,986		18
Loans to individuals	14		28		14		14		—		14		1
	$	28,672	$	34,809	$	745	$	31,926	$	244	$	31,119	$	714

Information regarding impaired loans as of December 31, 2019 is as follows:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(Amounts In Thousands)
Agricultural	$	1,596	$	2,157	$	—
Commercial and financial	1,340		2,220		—
Real estate:
Construction, 1 to 4 family residential	101		144		—
Construction, land development and commercial	320		336		—
Mortgage, farmland	4,081		4,613		—
Mortgage, 1 to 4 family first liens	7,157		9,015		—
Mortgage, 1 to 4 family junior liens	—		246		—
Mortgage, multi-family	1,816		1,930		—
Mortgage, commercial	1,302		1,852		—
Loans to individuals	—		14		—
	$	17,713	$	22,527	$	—
With an allowance recorded:
Agricultural	$	134	$	134	$	87
Commercial and financial	1,402		1,539		792
Real estate:
Construction, 1 to 4 family residential	—		—		—
Construction, land development and commercial	—		—		—
Mortgage, farmland	—		—		—
Mortgage, 1 to 4 family first liens	1,280		1,501		64
Mortgage, 1 to 4 family junior liens	233		233		47
Mortgage, multi-family	—		—		—
Mortgage, commercial	70		70		1
Loans to individuals	93		93		93
	$	3,212	$	3,570	$	1,084
Total:
Agricultural	$	1,730	$	2,291	$	87
Commercial and financial	2,742		3,759		792
Real estate:
Construction, 1 to 4 family residential	101		144		—
Construction, land development and commercial	320		336		—
Mortgage, farmland	4,081		4,613		—
Mortgage, 1 to 4 family first liens	8,437		10,516		64
Mortgage, 1 to 4 family junior liens	233		479		47
Mortgage, multi-family	1,816		1,930		—
Mortgage, commercial	1,372		1,922		1
Loans to individuals	93		107		93
	$	20,925	$	26,097	$	1,084

Impaired loans increased $7.75 million from December 31, 2019 to September 30, 2020.  Impaired loans include any loan that has been placed on nonaccrual status, accruing loans past due 90 days or more and TDR loans.  Impaired loans also include loans that, based on management’s evaluation of current information and events, the Company expects to be unable to collect in full according to the contractual terms of the original loan agreement.  Impaired loans were 1.05% of loans held for investment as of September 30, 2020 and 0.79% as of December 31, 2019.  The increase in impaired loans is due to an increase of $0.46 million in loans with a specific reserve, an increase in nonaccrual loans of $0.11 million and an increase in 90 days or more accruing loans of $8.73 million and is offset by a decrease in TDR loans of $1.41 million from December 31, 2019 to September 30, 2020.

The Company regularly reviews a substantial portion of the loans in the portfolio and assesses whether the loans are impaired in accordance with ASC 310.  If the loans are impaired, the Company determines if a specific allowance is appropriate.  In addition, the Company's management also reviews and, where determined necessary, provides allowances for particular loans based upon (1) reviews of specific borrowers and (2) management’s assessment of areas that management considers are of higher credit risk, including loans that have been restructured.  Loans that are determined not to be impaired and for which there are no specific allowances are classified into one or more risk categories. Based upon the risk category assigned, the Company allocates a percentage, as determined by management, for a required allowance needed.  The determination of the appropriate percentage begins with historical loss experience factors, which are then adjusted for levels and trends in past due loans, levels and trends in charged-off and recovered loans, trends in volume growth, trends in problem and watch loans, trends in restructured loans, local economic trends and conditions, industry and other conditions, and effects of changing interest rates.

Specific allowances for losses on impaired loans are established if the loan balances exceed the net present value of the relevant future cash flows or the fair value of the relevant collateral based on updated appraisals and/or updated collateral analysis for the properties if the loan is collateral dependent.  The Company may recognize a charge off or record a specific allowance related to an impaired loan if there is a collateral shortfall or it is unlikely the borrower can make all principal and interest payments as contractually due.

For loans that are collateral dependent, losses are evaluated based on the portion of a loan that exceeds the fair market value of the collateral.  In general, this is the amount that the carrying value of the loan exceeds the related appraised value less estimated costs to sell the collateral.  Generally, it is the Company’s policy not to rely on appraisals that are older than one year prior to the date the impairment is being measured.  The most recent appraisal values may be adjusted if, in the Company’s judgment, experience and other market data indicate that the property’s value, use, condition, exit market or other variable affecting its value may have changed since the appraisal was performed, consistent with the December 2006 joint interagency guidance on the allowance for loan losses.  The charge off or loss adjustment supported by an appraisal is considered the minimum charge off.  Any adjustments made to the appraised value are to provide an additional charge off or specific reserve based on the applicable facts and circumstances.  In instances where there is an estimated decline in value, a specific reserve may be provided or a charge off taken pending confirmation of the amount of the loss from an updated appraisal.  Upon receipt of the new appraisals, an additional specific reserve may be provided or charge off taken based on the appraised value of the collateral.  On average, appraisals are obtained within one month of order.

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Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

Leases

The Bank leases branch offices, parking facilities and certain equipment under operating leases. The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. As the options are reasonably certain to be exercised, they are recognized as part of the right-of-use assets and lease liabilities.

For the nine months ended September 30, 2020 and 2019, total operating lease expense was $0.42 million and $0.47 million, respectively, and is included in occupancy expenses in the consolidated statements of income. Included in this for the nine months ended September 30, 2020 and 2019 were $0.35 million and $0.40 million of operating lease costs, respectively, $0.03 million and $0.02 million of short term lease costs, respectively, and $0.04 million and $0.05 million of variable lease costs, respectively.

For the nine months ended September 30, 2020 and 2019, cash paid for amounts included in the measurement of operating lease liabilities was $0.35 million and $0.40 million, respectively, and right-of-use assets obtained in exchange for lease obligations was $0.00 million and $3.58 million, respectively.

As of September 30, 2020 and December 31, 2019, operating lease right-of-use assets included in other assets was $2.91 million and $3.20 million, respectively. Operating lease liabilities were $2.96 million and $3.23 million as of September 30, 2020 and December 31, 2019. As of September 30, 2020 and December 31, 2019, the weighted average remaining lease term for operating leases was 11.25 years and 10.86 years, respectively, and the weighted average discount rate for operating leases was 3.48% and 3.46%, respectively. Discount rates used were determined from FHLB borrowing rates for comparable terms.

As of September 30, 2020, maturities of lease liabilities were as follows:

Year ending December 31:	(Amounts In Thousands)
2020	$	117
2021	456
2022	447
2023	301
2024	250
Thereafter	2,009
Total lease payments	3,580
Less imputed interest	(625)
Total operating lease liabilities	$	2,955

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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The carrying value and estimated fair values of the Company's financial instruments as of September 30, 2020 are as follows:

	September 30, 2020
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	560,738	$	560,738	$	560,738	$	—	$	—
Investment securities	386,628		386,628		151,835		234,793		—
Loans held for sale	27,980		27,980		—		27,980		—
Loans
Agricultural	93,726		94,086		—		—		94,086
Commercial and financial	330,118		330,164		—		—		330,164
Real estate:
Construction, 1 to 4 family residential	69,639		69,819		—		—		69,819
Construction, land development and commercial	112,865		112,610		—		—		112,610
Mortgage, farmland	239,641		238,974		—		—		238,974
Mortgage, 1 to 4 family first liens	890,560		896,881		—		—		896,881
Mortgage, 1 to 4 family junior liens	129,948		127,667		—		—		127,667
Mortgage, multi-family	366,800		367,834		—		—		367,834
Mortgage, commercial	412,116		413,699		—		—		413,699
Loans to individuals	29,832		30,070		—		—		30,070
Obligations of state and political subdivisions	55,785		56,945		—		—		56,945
Accrued interest receivable	13,731		13,731		—		13,731		—
Total financial instrument assets	$	3,720,107	$	3,727,826	$	712,573	$	276,504	$	2,738,749
Financial instrument liabilities
Deposits
Noninterest-bearing deposits	$	500,272	$	500,272	$	—	$	500,272	$	—
Interest-bearing deposits	2,614,279		2,630,803		—		2,630,803		—
Other borrowings	43		43		—		43		—
Federal Home Loan Bank borrowings	185,000		185,869		—		185,869		—
Interest rate swaps	3,075		3,075		—		3,075		—
Accrued interest payable	2,198		2,198		—		2,198		—
Total financial instrument liabilities	$	3,304,867	$	3,322,260	$	—	$	3,322,260	$	—
	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	476,859	$	—	$	—	$	—	$	—
Letters of credit	8,300		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	485,159	$	—	$	—	$	—	$	—

(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

The carrying value and estimated fair values of the Company's financial instruments as of December 31, 2019 are as follows:

	December 31, 2019
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	241,965	$	241,965	$	241,965	$	—	$	—
Investment securities	366,368		366,368		128,585		237,783		—
Loans held for sale	8,400		8,400		—		8,400		—
Loans
Agricultural	88,917		90,118		—		—		90,118
Commercial and financial	216,335		217,640		—		—		217,640
Real estate:
Construction, 1 to 4 family residential	79,096		79,954		—		—		79,954
Construction, land development and commercial	106,924		107,276		—		—		107,276
Mortgage, farmland	238,780		239,521		—		—		239,521
Mortgage, 1 to 4 family first liens	902,630		896,676		—		—		896,676
Mortgage, 1 to 4 family junior liens	147,634		143,261		—		—		143,261
Mortgage, multi-family	346,938		349,663		—		—		349,663
Mortgage, commercial	398,145		395,838		—		—		395,838
Loans to individuals	31,455		32,722		—		—		32,722
Obligations of state and political subdivisions	49,423		50,564		—		—		50,564
Accrued interest receivable	12,442		12,442		—		12,442		—
Total financial instrument assets	$	3,235,452	$	3,232,408	$	370,550	$	258,625	$	2,603,233
Financial instrument liabilities:
Deposits
Noninterest-bearing deposits	$	387,612	$	387,612	$	—	$	387,612	$	—
Interest-bearing deposits	2,273,752		2,292,332		—		2,292,332		—
Federal Home Loan Bank borrowings	185,000		186,091		—		186,091		—
Interest rate swaps	2,349		2,349				2,349
Accrued interest payable	2,474		2,474		—		2,474		—
Total financial instrument liabilities	$	2,851,187	$	2,870,858	$	—	$	2,870,858	$	—
	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	424,165	$	—	$	—	$	—	$	—
Letters of credit	8,569		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	432,734	$	—	$	—	$	—	$	—

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

Fair value of financial instruments:  FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a single definition for fair value, a framework for measuring fair value and expanded disclosures concerning fair value.  Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company determines the fair market value of its financial instruments based on the fair value hierarchy established in ASC 820.  There are three levels of inputs that may be used to measure fair value as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than quoted prices included within Level 1.  Observable inputs include the quoted prices for similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability.

Level 3 Unobservable inputs supported by little or no market activity for financial instruments.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.  The Company is required to use observable inputs, to the extent available, in the fair value estimation process unless that data results from forced liquidations or distressed sales. 

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

ASSETS

Investment securities available for sale:  Investment securities available for sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted prices, if available.  If a quoted price is not available, the fair value is obtained from benchmarking the security against similar securities.  U.S. Treasury securities are considered Level 1 with the remaining securities considered Level 2.

The pricing for investment securities is obtained from an independent source.  There are no Level 3 investment securities owned by the Company.  The Company obtains an understanding of the independent source’s valuation methodologies used to determine fair value by level of security. The Company validates assigned fair values on a sample basis using an additional third-party provider pricing service to determine if the fair value measurement is reasonable.  Due to the nature of our investment portfolio, we do not expect significant and unusual fluctuations as fair value changes primarily relate to interest rate changes.   No unusual fluctuations were identified during the nine months ended September 30, 2020.   If a fluctuation requiring investigation was identified, the Company would research the change with the independent source or other available information.

Loans held for sale and Loans:  ASU 2016-01, Financial Instruments -Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Methodologies utilized for this financial statement period are as follows:

•Income Approach: Fair value is determined based on a discounted cash flow analysis. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk.

•Asset Approach: Fair value is determined based on the estimated values of the underlying collateral or individual analysis of receipts. This provides a better indication of value than the contractual income streams as these loans are not performing or exhibit strong signs indicative of non-performance.

Fair value has been estimated in accordance with ASC 820, Fair Value Measurements and Disclosures, and is intended to represent the price that would be received in an orderly transaction between market participants as of the measurement date. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, at least one significant assumption not observable in the market was utilized. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Inputs to these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore cannot be determined with precision. Accordingly, the fair value estimates presented are not necessarily indicative of the amounts to be realized in a current market exchange. Loans are classified as Level 3.

Loans held for sale are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the short time between origination of the loan and its sale on the secondary market (Level 2). The market is active for these loans and as a result prices for similar assets are available.

Impaired loans: A loan is considered to be impaired when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a loan is considered impaired, the amount of reserve required under ASC 310, Receivables, is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material loans deemed impaired using the fair value of the collateral for collateral dependent loans or based on the present value of the estimated future cash flows of interest and principal discounted at the loans effective interest rate or the fair value of the loan if determinable. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. All appraised values are adjusted for market-related trends based on the Company's experience in sales and other appraisals of similar property types as well as estimated selling costs. Each quarter management reviews all collateral dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals are necessary based on loan performance, collateral type and guarantor support. At times, the Company measures the fair value of collateral dependent impaired loans using appraisals with dates prior to one year from the date of review. These appraisals are discounted by applying current, observable market data about similar property types such as sales contracts, estimations of value by individuals familiar with the market, other appraisals, sales or collateral assessments based on current market activity until updated appraisals are obtained. Depending on the length of time since an appraisal was performed, the data provided through reviews and estimated selling costs, collateral values are typically discounted by 0-35%. These loans are considered Level 3 as the instruments used to determine fair market value require significant management judgment and estimation.

Foreclosed assets:  The Company does not record foreclosed assets at fair value on a recurring basis.  Foreclosed assets consist mainly of other real estate owned but may include other types of assets repossessed by the Company.  Foreclosed assets are adjusted to the lower of carrying value or fair value less the cost of disposal.   Fair value is generally based upon independent market prices or appraised values of the collateral, and may include a marketability discount as deemed necessary by management based on its experience with similar types of real estate.  The value of foreclosed assets is evaluated periodically as a nonrecurring fair value adjustment.  Foreclosed assets are classified as Level 3.

Off-balance sheet instruments:  Fair values for outstanding letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.  The fair value of the outstanding letters of credit is not significant. Unfunded loan commitments are not valued since the loans are generally priced at market at the time of funding (Level 2).

LIABILITIES

Interest Rate Swap Agreements: The fair value is estimated using forward-looking interest rate curves and is calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2).

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below represents the balances of assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	151,835	$	—	$	—	$	151,835
State and political subdivisions	—		198,211		—		198,211
Other securities (FHLB, FHLMC and FNMA)	—		25,209		—		25,209
Derivative Financial Instruments
Interest rate swaps	$	—	(3,075)		$	—	(3,075)
Total	$	151,835	$	220,345	$	—	$	372,180

	December 31, 2019
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	128,585	$	—	$	—	$	128,585
State and political subdivisions	—		211,489		—		211,489
Other securities (FHLB, FHLMC and FNMA)	—		15,229		—		15,229
Derivative Financial Instruments
Interest rate swaps	—		(2,349)		—		(2,349)
Total	$	128,585	$	224,369	$	—	$	352,954

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

There were no transfers between Levels 1, 2 or 3 during the nine months ended September 30, 2020 and the year ended December 31, 2019.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company is required to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP.  These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.  The valuation methodologies used to measure these fair value adjustments are described above.    The following tables present the Company’s assets that are measured at fair value on a nonrecurring basis.

	September 30, 2020								Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value		Total Losses		Total Losses
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,376	$	1,376	$	—	$	—
Commercial and financial	—		—		1,843		1,843		—		385
Real Estate:											—
Construction, 1 to 4 family residential	—		—		419		419		—		—
Construction, land development and commercial	—		—		315		315		—		—
Mortgage, farmland	—		—		2,062		2,062		—		—
Mortgage, 1 to 4 family first liens	—		—		6,702		6,702		20		176
Mortgage, 1 to 4 family junior liens	—		—		158		158		—		—
Mortgage, multi-family	—		—		1,786		1,786		—		—
Mortgage, commercial	—		—		3,094		3,094		175		250
Loans to individuals	—		—		—		—		—		—
Foreclosed assets (5)	—		—		—		—		—		—
Total	$	—	$	—	$	17,755	$	17,755	$	195	$	811

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis (continued)

	December 31, 2019								Year Ended December 31, 2019
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value		Total Losses
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,272	$	1,272	$	36
Commercial and financial	—		—		1,803		1,803		499
Real Estate:
Construction, 1 to 4 family residential	—		—		—		—		—
Construction, land development and commercial	—		—		215		215		8
Mortgage, farmland	—		—		3,576		3,576		—
Mortgage, 1 to 4 family first liens	—		—		7,986		7,986		370
Mortgage, 1 to 4 family junior liens	—		—		49		49		—
Mortgage, multi-family	—		—		1,816		1,816		—
Mortgage, commercial	—		—		1,237		1,237		125
Loans to individuals	—		—		—		—		—
Foreclosed assets (5)	—		—		—		—		—
Total	$	—	$	—	$	17,954	$	17,954	$	1,038

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

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Stock Repurchase Program	9 Months Ended
	Sep. 30, 2020
Equity [Abstract]
Stock Repurchase Program	Stock Repurchase ProgramOn July 26, 2005, the Company’s Board of Directors authorized a program to repurchase up to a total of 1,500,000 shares of the Company’s common stock (the “2005 Stock Repurchase Program”).  The Company’s Board of Directors has authorized the 2005 Stock Repurchase Program through December 31, 2021.  The Company expects the purchases pursuant to the 2005 Stock Repurchase Program to be made from time to time in private transactions at a price equal to the most recent quarterly independent appraisal of the shares of the Company’s common stock and with the Board reviewing the overall results of the 2005 Stock Repurchase Program on a quarterly basis.  All purchases made pursuant to the 2005 Stock Repurchase Program since its inception have been made on that basis.  The amount and timing of stock repurchases will be based on various factors, such as the Board’s assessment of the Company’s capital structure and liquidity, the amount of interest shown by shareholders in selling shares of stock to the Company at their appraised value, and applicable regulatory, legal and accounting factors.  The Company has purchased 1,328,410 shares of its common stock in privately negotiated transactions from August 1, 2005 through September 30, 2020.  Of these 1,328,410 shares, 29,807 shares were purchased during the quarter ended September 30, 2020, at an average price per share of $60.86.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Concentrations of credit risk:  The Bank’s loans, commitments to extend credit, unused lines of credit and outstanding letters of credit have been granted to customers within the Bank's market area.  Investments in securities issued by state and political subdivisions within the state of Iowa totaled approximately $81.42 million.  The concentrations of credit by type of loan are set forth in Note 5 to the Consolidated Financial Statements.  Outstanding letters of credit were granted primarily to commercial borrowers.  Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic conditions in Johnson, Linn and Washington Counties, Iowa.

Contingencies:  In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages.  While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Company’s business, financial conditions, or results of operations.

As initially reported in the Company’s quarterly report filed with the SEC on November 4, 2019, Hills Bank was sued in a class action lawsuit in the Iowa District Court for Johnson County on April 10, 2019. The lawsuit sought class action status for customers who had paid overdraft fees on debit card transactions that were authorized into a positive account but settled into a negative account. The Plaintiff subsequently amended the petition to assert additional claims involving overdraft charges and NSF fees. The parties have negotiated a class-wide settlement, which was preliminarily approved by the Court on October 9, 2020. While the Bank disputes the merits of the claim, management determined that settlement avoids added expenses, distractions to Bank management and personnel, and the attendant risks related to litigating the claims. The Bank’s Management believes that the settlement will have no material impact on the Company's financial condition and results of operation when taken as a whole. The final hearing to address the fairness of the proposed settlement has been scheduled for June 25, 2021.

The outbreak of Coronavirus Disease 2019 (“COVID-19”) has and will continue to adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company.  The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak has caused significant disruptions in the U.S. economy and is highly likely to disrupt banking and other financial activity in the areas in which the Company operates and could also potentially create widespread business continuity issues for the Company.  The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.  If the global response to contain COVID-19 escalates or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

On August 10, 2020, a derecho impacted Eastern Iowa, primarily Cedar Rapids, Iowa and the surrounding areas. The derecho caused widespread high winds up to 140 mph, the equivalent of a Category 4 hurricane, torrential rain, large hail and low-class tornadoes. The damage from the derecho was significant across the east central Iowa area, including wide-scale utility disruptions, residential and commercial property damage, severe damage to corn and soybeans crops.

A substantial number of the Bank's branches in Cedar Rapids and surrounding communities were without power and closed in the immediate aftermath of the derecho, though most were able to reopen within a week of the derecho. The Bank responded to the derecho by providing employees time away from the office to help them recover from the derecho and to assist with neighborhood clean-up efforts, as well as supporting city and county employees, utility workers and area non-profits with food and monetary donations to help with basic needs. The Bank assisted customers impacted by the derecho by providing short-term loan modifications of two to six months to defer principal payments on loans totaling $15.38 million, primarily for 1 to 4 family non-owner occupied, multifamily and commercial real estate loans. The Bank anticipates that the majority of costs incurred to repair damages to the Bank branches will be covered by insurance.

Financial instruments with off-balance sheet risk:  The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit, credit card participations and standby letters of credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, credit card participations and standby letters of credit is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. 

A summary of the Bank’s commitments at September 30, 2020 and December 31, 2019 is as follows:

	September 30, 2020		December 31, 2019
	(Amounts In Thousands)
Firm loan commitments and unused portion of lines of credit:
Home equity loans	$	70,765	$	65,203
Credit cards	60,661		57,421
Commercial, real estate and home construction	112,534		94,490
Commercial lines and real estate purchase loans	232,899		207,051
Outstanding letters of credit	8,300		8,569

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Income Taxes	9 Months Ended
	Sep. 30, 2020
Income Tax Disclosure [Abstract]
Income Taxes	Income TaxesFederal income tax expense for the nine months ended September 30, 2020 and 2019 was computed using the consolidated effective federal tax rate.  The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the subsidiary bank.  The Company files a consolidated tax return for federal purposes and separate tax returns for State of Iowa purposes.  The tax years ended December 31, 2019, 2018 and 2017 remain subject to examination by the Internal Revenue Service.  For state tax purposes, the tax years ended December 31, 2019, 2018 and 2017 remain open for examination.  There were no material unrecognized tax benefits at September 30, 2020  and December 31, 2019 and therefore no interest or penalties on unrecognized tax benefits has been recorded.  As of September 30, 2020, the Company does not anticipate any significant increase in unrecognized tax benefits during the twelve-month period ending September 30, 2021. Income taxes as a percentage of income before taxes were 22.43% for the nine months ended September 30, 2020 and 22.02% for the same period in 2019.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

In the normal course of business, the Bank may use derivative financial instruments to manage its interest rate risk.  These instruments carry varying degrees of credit, interest rate and market or liquidity risks.  Derivative instruments are recognized as either assets or liabilities in the accompanying financial statement and are measured at fair value.  The Bank’s objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates.  The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amount to be exchanged between the counterparties.  The Bank is exposed to credit risk in the event of nonperformance by counterparties to financial instruments.  The Bank minimizes this risk by entering into derivative contracts with large, stable financial institutions.  The Bank has not experienced any losses from nonperformance by counterparties.  The Bank monitors counterparty risk in accordance with the provisions of ASC 815.  In addition, the Bank’s interest rate-related derivative instruments contain language outlining collateral pledging requirements for each counterparty.  Collateral must be posted when the market value exceeds certain threshold limits which are determined by credit ratings of each counterparty.  The Bank was required to pledge $3.08 million of collateral as of September 30, 2020.

Cash Flow Hedges:

The Bank executed two forward-starting interest rate swap transactions on November 7, 2013.  One of the interest rate swap transactions had an effective date of November 9, 2015, and an expiration date of November 9, 2020, effectively converting $25.00 million of variable rate debt to fixed rate debt.  The other interest rate swap transaction had an effective date of November 7, 2016 and an expiration date of November 7, 2023, effectively converting $25.00 million of variable rate debt to fixed rate debt.  For accounting purposes, these swap transactions are designated as a cash flow hedge of the changes in cash flows attributable to changes in three-month LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on an amount of the Bank’s debt principal equal to the then-outstanding swap notional amount.  At inception,

the Bank asserted that the underlying principal balance would remain outstanding throughout the hedge transaction making it probable that sufficient LIBOR-based interest payments would exist through the maturity date of the swaps.

The table below identifies the balance sheet category and fair values of the Bank’s derivative instruments designated as cash flow hedges as of September 30, 2020 and December 31, 2019:

	Notional Amount		Fair Value		Balance Sheet Category	Maturity
	(Amounts in Thousands)
September 30, 2020
Interest rate swap	$	25,000	$	(170)	Other Liabilities	11/9/2020
Interest rate swap	25,000		(2,905)		Other Liabilities	11/7/2023
December 31, 2019
Interest rate swap	$	25,000	$	(279)	Other Liabilities	11/9/2020
Interest rate swap	25,000		(2,070)		Other Liabilities	11/7/2023

The table below identifies the gains and losses recognized on the Bank’s derivative instruments designated as cash flow hedges for the nine months ended September 30, 2020 and year ended December 31, 2019:

	Recognized in OCI		Reclassified from AOCI into Income			Recognized in Income on Derivatives
	Amount of Gain (Loss)		Category	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
	(Amounts in Thousands)
September 30, 2020
Interest rate swap	$	81	Interest Expense	$	—	Other Income	$	—
Interest rate swap	(626)		Interest Expense	—		Other Income	—
December 31, 2019
Interest rate swap	$	(119)	Interest Expense	$	—	Other Income	$	—
Interest rate swap	(446)		Interest Expense	—		Other Income	—

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X.  These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown.  Certain prior year amounts have been reclassified to conform to the current year presentation.  The Company considers that it operates as one business segment, a commercial bank.

Revenue Recognition

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit and investment securities. Interest income on loans and investment securities is recognized on the accrual method in accordance with written contracts.

Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606 are the following: Service charges and fees on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue which includes interchange income, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. Trust income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received.

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. As of September 30, 2020, the Company did not have any significant contract balances.

An entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense

contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less.

Effect of New Financial Accounting Standards

Effect of New Financial Accounting Standards:

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases. The ASU provides guidance requiring lessees to recognize right-of-use (ROU) assets and lease liabilities for all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. Under this new ASU, lessees will recognize right-of use assets and lease liabilities for most leases currently accounted for as operating leases under generally accepted accounting principles. For public companies, ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted the ASU on January 1, 2019 and used the alternative transition approach which permits the effects of adoption to be applied at the effective date. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. We elected the 'package of practical expedients', which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also elected the short-term lease exemption and combining the lease and nonlease components practical expedients. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The most significant impact upon adoption relates to the recognition of new ROU assets and lease liabilities on our balance sheet for our equipment and real estate operating leases. Upon adoption, we recognized additional operating liabilities of $3.58 million, with corresponding ROU assets of the same amount based on the present value of the remaining rental payments, including options to extend that are expected to be exercised, under current leasing standards for existing operating leases. There was no cumulative effect of adopting the standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (CECL). The ASU changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. For public companies, ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, early adoption is permitted for the fiscal year beginning after December 15, 2018. With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the option to delay CECL was provided until the earlier of the national health emergency being declared over or December 31, 2020. The Company elected to delay implementing CECL and continued to use the incurred loss method to calculate the allowance for loan losses as of and for the period ending September 30, 2020.

The Company has implemented a software solution provided by a third party vendor to assist in the determination of the CECL estimate. The CECL model has been finalized and we completed the validation process for the CECL model using an independent outside party in January 2020. Our current planned approach for estimating expected life-time credit losses for loans includes the following key components:

•An initial forecast period of one year for all portfolio segments and off-balance-sheet credit exposures. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time.

•A historical loss forecast period covering the remaining contractual life, adjusted for prepayments, by portfolio segment based on the change in key historical economic variables.

•A reversion period of up to 3 years connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.

•We will primarily utilize discounted cash flow (DCF) methods to estimate credit losses by portfolio segment. The DCF methods obtain estimated life-time credit losses using the conceptual components described above.

Upon the expiration of the CECL delay provided by the CARES Act, the adjustment upon adoption at January 1, 2020 will be an overall increase in our Allowance for Credit Losses (ACL) for loans of $3.5 million. We will also record an unfunded commitments liability of $1.45 million upon adoption. The future effects of CECL on our ACL will depend on the size and composition of our portfolio, the portfolio’s credit quality and economic conditions, as well as any refinements to our model, methodology and other key assumptions. We will recognize a one-time cumulative-effect adjustment to our allowance for loan losses upon adoption of the new standard. The increase in the ACL will result in a decrease to our regulatory capital amounts and ratios. Once finalized, we estimate the ACL as of September 30, 2020 to be approximately $41 million to $44 million and the unfunded commitments liability to be approximately $4 million to $5 million.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323), Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This ASU adds an SEC paragraph and amends other Topics pursuant to an SEC staff Announcement made at the September 22, 2016 Emerging Issues Task Force (EITF) meeting. The SEC paragraph applies to ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU provides that a company should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If the company does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced in this announcement is expected to have on the financial statements, then in addition to making a statement to that effect, the company should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the company when adopted. Additional qualitative disclosures should include a description of the effect of the accounting policies that the company expects to apply and a comparison to the company's current accounting policies. Also, the company should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 250), Simplifying the Test for Goodwill Impairment. The ASU simplifies the goodwill impairment test by requiring a company to perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized when the carrying amount exceeds fair value. For public companies, ASU 2017-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU No. 2017-04 for the period ending March 31, 2020. There was no material impact on the financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. This ASU requires companies to change the recognition and presentation of the effects of hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness and requiring companies to present all of the elements of hedge accounting that affect earnings in the same income statement line as the hedged item. Furthermore, the standard eases the requirements for effectiveness testing, hedge documentation and applying the critical terms match method and introduces new alternatives that will permit companies to reduce the risk of material error corrections if they misapply the shortcut method. For public companies, ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2017-12 for the period ending March 31, 2019. There was no material impact on the financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted ASU No. 2018-07 for the period ending March 31, 2019. There was no material impact on the 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 ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including removal of the requirement to disclose the valuation processes for Level 3 fair value measurements and the additional requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop

Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company adopted ASU 2018-13 for the period ending March 31, 2020. There was no material impact on the financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangements That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 for the period ending March 31, 2020. There was no material impact on the financial statements.

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The amendments in this ASU are required to be adopted concurrently with the amendments in ASU 2017-12. For public companies, this would be for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2018-16 for the period ending March 31, 2019 concurrently with ASU 2017-12. There was no material impact on the financial statements.

In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. The amendments in this ASU update the Codification to reflect the amendments of various SEC disclosure requirements that the agency determined were redundant, duplicative, overlapping, outdated or superseded. The SEC amended its disclosure rules in 2018 with the aim of providing investors with useful disclosure information and to simplify compliance without significantly altering the mix of the information being provided. This ASU was effective upon release and there was no material impact on the financial statements.

In November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Codification Improvements - Share-Based Consideration Payable to a Customer. The amendments in this ASU require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual understanding of the key terms and conditions of a share-based payment award. The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer. The Company adopted ASU 2019-08 for the period ending December 31, 2019. There was no material impact on the financial statements.

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this ASU clarify or address stakeholders' specific issues about certain aspects of the amendments in ASU 2016-13 in the following areas: expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables and financial assets secured by collateral maintenance provisions. For public companies, ASU 2019-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be adopted concurrently with ASU 2016-13. As noted above, we have elected to delay the adoption of ASU 2016-13 as permitted by the CARES Act.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing specific exceptions included in Topic 740, introducing other simplifications and making technical corrections. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on the financial statements.

Earnings Per Share

Earnings Per ShareBasic earnings per share is computed using the weighted average number of actual common shares outstanding during the period.  Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding.  ESOP shares are considered outstanding for this calculation unless unearned.

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Schedule of computation of basic and diluted earnings per share

The computation of basic and diluted earnings per share for the periods presented is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Common shares outstanding at the beginning of the period	9,364,062		9,346,449		9,351,694		9,336,441
Weighted average number of net shares issued (redeemed)	(7,765)		(160)		28,137		21,712
Weighted average shares outstanding (basic)	9,356,297		9,346,289		9,379,831		9,358,153
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method	3,592		4,284		3,673		4,146
Weighted average number of shares (diluted)	9,359,889		9,350,573		9,383,504		9,362,299
Net income (In thousands)	$	11,430	$	11,282	$	30,216	$	33,705
Earnings per share:
Basic	$	1.22	$	1.21	$	3.22	$	3.61
Diluted	$	1.22	$	1.21	$	3.22	$	3.61

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Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Components of accumulated other comprehensive income (AOCI)

The following table summarizes the balances of each component of accumulated other comprehensive income (AOCI), included in stockholders’ equity, at September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(amounts in thousands)
Net unrealized income on available-for-sale securities	$	12,444	$	4,234
Net unrealized loss on derivatives used for cash flow hedges	(3,075)		(2,349)
Tax effect	$	(2,338)	$	(470)
Net-of-tax amount	$	7,031	$	1,415

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Securities (Tables)

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Carrying values of investment securities

The carrying values of investment securities at September 30, 2020 and December 31, 2019 are summarized in the following table (dollars in thousands):

	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
Securities available for sale
U.S. Treasury	$	151,835	40.46	%	$	128,585	36.19	%
Other securities (FHLB, FHLMC and FNMA)	25,209		6.72		15,229		4.29
State and political subdivisions	198,211		52.82		211,489		59.52
Total securities available for sale	$	375,255	100.00	%	$	355,303	100.00	%

Carrying amount of available-for-sale securities and approximate fair values

The carrying amount of available-for-sale securities and their approximate fair values were as follows as of September 30, 2020 and December 31, 2019 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
September 30, 2020:
U.S. Treasury	$	145,999	$	5,836	$	—	$	151,835
Other securities (FHLB, FHLMC and FNMA)	25,203		37		(31)		25,209
State and political subdivisions	191,609		6,659		(57)		198,211
Total	$	362,811	$	12,532	$	(88)	$	375,255
December 31, 2019:
U.S. Treasury	$	127,096	$	1,626	$	(137)	$	128,585
Other securities (FHLB, FHLMC and FNMA)	15,287		—		(58)		15,229
State and political subdivisions	208,686		2,938		(135)		211,489
Total	$	351,069	$	4,564	$	(330)	$	355,303

Sales proceeds and gross realized gains and losses on available-for-sale securities for the nine months ended September 30, 2020 and 2019 were as follows (in thousands):

	September 30, 2020		September 30, 2019
Sales proceeds	$	313	$	12,467
Gross realized gains	10		24
Gross realized losses	—		52

Available-for-sale securities classified as per contractual maturities

The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities at September 30, 2020, were as follows (in thousands):

	Amortized Cost		Fair Value
Due in one year or less	$	46,608	$	46,887
Due after one year through five years	219,240		226,723
Due after five years through ten years	77,290		81,722
Due over ten years	19,673		19,923
Total	$	362,811	$	375,255

Available-for-sale securities, summary of proceeds, gains and losses

The carrying amount of available-for-sale securities and their approximate fair values were as follows as of September 30, 2020 and December 31, 2019 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
September 30, 2020:
U.S. Treasury	$	145,999	$	5,836	$	—	$	151,835
Other securities (FHLB, FHLMC and FNMA)	25,203		37		(31)		25,209
State and political subdivisions	191,609		6,659		(57)		198,211
Total	$	362,811	$	12,532	$	(88)	$	375,255
December 31, 2019:
U.S. Treasury	$	127,096	$	1,626	$	(137)	$	128,585
Other securities (FHLB, FHLMC and FNMA)	15,287		—		(58)		15,229
State and political subdivisions	208,686		2,938		(135)		211,489
Total	$	351,069	$	4,564	$	(330)	$	355,303

Sales proceeds and gross realized gains and losses on available-for-sale securities for the nine months ended September 30, 2020 and 2019 were as follows (in thousands):

	September 30, 2020		September 30, 2019
Sales proceeds	$	313	$	12,467
Gross realized gains	10		24
Gross realized losses	—		52

Available-for-sale securities, continuous unrealized loss position, fair value

The following table shows the fair value, gross unrealized losses and the percentage of fair value represented by gross unrealized losses of applicable investment securities owned by the Company, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019 (in thousands):

	Less than 12 months							12 months or more							Total
September 30, 2020 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	—	$	—	$	—	—	%	—	$	—	$	—	—	%	—	$	—	$	—	—	%
Other securities (FHLB, FHLMC and FNMA)	5	12,540		(31)		0.25		—	—		—		—		5	12,540		(31)		0.25
State and political subdivisions	19	5,552		(50)		0.90		5	621		(7)		1.13		24	6,173		(57)		0.92
Total temporarily impaired securities	24	$	18,092	$	(81)	0.45	%	5	$	621	$	(7)	1.13	%	29	$	18,713	$	(88)	0.47	%

	Less than 12 months							12 months or more							Total
December 31, 2019 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	11	$	27,932	$	(136)	0.49	%	1	$	2,495	$	(1)	0.04	%	12	$	30,427	$	(137)	0.45	%
Other securities (FHLB, FHLMC and FNMA)	—	—		—		—		6	15,229		(58)		0.38		6	15,229		(58)		0.38
State and political subdivisions	66	17,881		(119)		0.67		20	3,825		(16)		0.42		86	21,706		(135)		0.62
Total temporarily impaired securities	77	$	45,813	$	(255)	0.56	%	27	$	21,549	$	(75)	0.35	%	104	$	67,362	$	(330)	0.49	%

XML

Loans (Tables)

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Schedule of classes of loans

Classes of loans are as follows:

	September 30, 2020		December 31, 2019
	(Amounts In Thousands)
Agricultural	$	96,321	$	91,317
Commercial and financial	335,463		221,323
Real estate:
Construction, 1 to 4 family residential	70,527		80,209
Construction, land development and commercial	114,270		108,410
Mortgage, farmland	243,689		242,730
Mortgage, 1 to 4 family first liens	900,224		910,742
Mortgage, 1 to 4 family junior liens	131,477		149,227
Mortgage, multi-family	371,167		350,761
Mortgage, commercial	417,042		402,181
Loans to individuals	30,521		32,308
Obligations of state and political subdivisions	56,424		49,896
	$	2,767,125	$	2,639,104
Net unamortized fees and costs	965		933
	$	2,768,090	$	2,640,037
Less allowance for loan losses	37,060		33,760
	$	2,731,030	$	2,606,277

Schedule of changes in allowance for loan losses

Changes in the allowance for loan losses, the allowance for loan losses applicable to impaired loans and the related loan balance of impaired loans for the three and nine months ended September 30, 2020 were as follows:

	Three Months Ended September 30, 2020
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,547	$	5,777	$	2,433	$	4,089	$	12,282	$	9,173	$	1,319	$	37,620
Charge-offs	(8)		(478)		—		—		(115)		(210)		(63)		(874)
Recoveries	26		165		27		—		201		10		42		471
Provision	30		(119)		(167)		(41)		(210)		320		30		(157)
Ending balance	$	2,595	$	5,345	$	2,293	$	4,048	$	12,158	$	9,293	$	1,328	$	37,060

	Nine Months Ended September 30, 2020
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,400	$	4,988	$	2,599	$	3,950	$	10,638	$	7,859	$	1,326	$	33,760
Charge-offs	(43)		(1,253)		(43)		(1)		(576)		(290)		(276)		(2,482)
Recoveries	44		374		81		—		636		33		114		1,282
Provision	194		1,236		(344)		99		1,460		1,691		164		4,500
Ending balance	$	2,595	$	5,345	$	2,293	$	4,048	$	12,158	$	9,293	$	1,328	$	37,060
Ending balance, individually evaluated for impairment	$	80	$	477	$	87	$	1	$	86	$	—	$	14	$	745
Ending balance, collectively evaluated for impairment	$	2,515	$	4,868	$	2,206	$	4,047	$	12,072	$	9,293	$	1,314	$	36,315
Loans:
Ending balance	$	96,321	$	335,463	$	184,797	$	243,689	$	1,031,701	$	788,209	$	86,945	$	2,767,125
Ending balance, individually evaluated for impairment	$	1,742	$	5,949	$	7,933	$	2,440	$	6,980	$	3,614	$	14	$	28,672
Ending balance, collectively evaluated for impairment	$	94,579	$	329,514	$	176,864	$	241,249	$	1,024,721	$	784,595	$	86,931	$	2,738,453

Changes in the allowance for loan losses for the three and nine months ended September 30, 2019 were as follows:

	Three Months Ended September 30, 2019
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,535	$	5,603	$	2,646	$	3,891	$	11,384	$	8,194	$	1,397	$	35,650
Charge-offs	(135)		(177)		—		—		(332)		—		(92)		(736)
Recoveries	18		128		2		—		317		12		35		512
Provision	288		(143)		240		96		(166)		(110)		(61)		144
Ending balance	$	2,706	$	5,411	$	2,888	$	3,987	$	11,203	$	8,096	$	1,279	$	35,570

	Nine Months Ended September 30, 2019
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
Allowance for loan losses:
Beginning balance	$	2,789	$	5,826	$	3,292	$	3,972	$	12,516	$	8,165	$	1,250	$	37,810
Charge-offs	(135)		(641)		(9)		—		(711)		(133)		(326)		(1,955)
Recoveries	87		451		6		5		576		100		132		1,357
Provision	(35)		(225)		(401)		10		(1,178)		(36)		223		(1,642)
Ending balance	$	2,706	$	5,411	$	2,888	$	3,987	$	11,203	$	8,096	$	1,279	$	35,570
Ending balance, individually evaluated for impairment	$	341	$	1,008	$	—	$	—	$	65	$	1	$	2	$	1,417
Ending balance, collectively evaluated for impairment	$	2,365	$	4,403	$	2,888	$	3,987	$	11,138	$	8,095	$	1,277	$	34,153
Loans:
Ending balance	$	91,621	$	219,362	$	189,631	$	237,513	$	1,063,175	$	751,993	$	84,643	$	2,637,938
Ending balance, individually evaluated for impairment	$	1,865	$	3,176	$	456	$	4,117	$	7,729	$	2,043	$	2	$	19,388
Ending balance, collectively evaluated for impairment	$	89,756	$	216,186	$	189,175	$	233,396	$	1,055,446	$	749,950	$	84,641	$	2,618,550

Schedule of credit quality indicators by type of loans

The following table presents the credit quality indicators by type of loans in each category as of September 30, 2020 and December 31, 2019, respectively (amounts in thousands):

	Agricultural		Commercial and Financial		Real Estate: Construction, 1 to 4 family residential		Real Estate: Construction, land development and commercial
September 30, 2020
Grade:
Excellent	$	3,174	$	15,023	$	1	$	231
Good	11,212		62,843		13,969		16,492
Satisfactory	44,687		181,807		38,486		61,231
Monitor	28,217		61,300		16,441		28,008
Special Mention	6,624		9,147		1,315		7,595
Substandard	2,407		5,343		315		713
Total	$	96,321	$	335,463	$	70,527	$	114,270

	Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family first liens		Real Estate: Mortgage, 1 to 4 family junior liens		Real Estate: Mortgage, multi- family
September 30, 2020
Grade:
Excellent	$	5,968	$	2,395	$	268	$	17,824
Good	42,037		43,348		3,284		56,624
Satisfactory	130,185		710,236		118,885		203,078
Monitor	55,917		114,949		5,575		59,787
Special Mention	6,100		13,424		1,635		15,439
Substandard	3,482		15,872		1,830		18,415
Total	$	243,689	$	900,224	$	131,477	$	371,167

	Real Estate: Mortgage, commercial		Loans to individuals		Obligations of state and political subdivisions		Total
September 30, 2020
Grade:
Excellent	$	28,533	$	—	$	6,970	$	80,387
Good	94,886		160		13,923		358,778
Satisfactory	191,744		29,685		25,561		1,735,585
Monitor	78,640		436		9,822		459,092
Special Mention	19,103		164		148		80,694
Substandard	4,136		76		—		52,589
Total	$	417,042	$	30,521	$	56,424	$	2,767,125

	Agricultural		Commercial and Financial		Real Estate: Construction, 1 to 4 family residential		Real Estate: Construction, land development and commercial
December 31, 2019
Grade:
Excellent	$	3,594	$	3,461	$	260	$	190
Good	12,380		47,843		8,868		23,217
Satisfactory	43,308		117,114		51,093		47,987
Monitor	24,857		44,543		17,505		29,009
Special Mention	3,110		5,157		2,483		7,428
Substandard	4,068		3,205		—		579
Total	$	91,317	$	221,323	$	80,209	$	108,410

	Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family first liens		Real Estate: Mortgage, 1 to 4 family junior liens		Real Estate: Mortgage, multi- family
December 31, 2019
Grade:
Excellent	$	3,630	$	3,209	$	261	$	18,955
Good	40,118		32,474		4,233		47,871
Satisfactory	134,738		751,215		136,079		189,391
Monitor	53,147		96,353		5,473		60,965
Special Mention	3,033		11,167		1,469		27,559
Substandard	8,064		16,324		1,712		6,020
Total	$	242,730	$	910,742	$	149,227	$	350,761

	Real Estate: Mortgage, commercial		Loans to individuals		Obligations of state and political subdivisions		Total
December 31, 2019
Grade:
Excellent	$	27,017	$	—	$	7,444	$	68,021
Good	79,467		221		14,465		311,157
Satisfactory	206,196		31,385		20,274		1,728,780
Monitor	81,381		437		7,323		420,993
Special Mention	4,802		212		390		66,810
Substandard	3,318		53		—		43,343
Total	$	402,181	$	32,308	$	49,896	$	2,639,104

Schedule of past due loans

Past due loans as of September 30, 2020 and December 31, 2019 were as follows:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(Amounts In Thousands)
September 30, 2020
Agricultural	$	783	$	6	$	556	$	1,345	$	94,976	$	96,321	$	14
Commercial and financial	1,140		490		2,451		4,081		331,382		335,463		2,288
Real estate:
Construction, 1 to 4 family residential	630		668		—		1,298		69,229		70,527		—
Construction, land development and commercial	928		47		7,000		7,975		106,295		114,270		7,000
Mortgage, farmland	—		315		645		960		242,729		243,689		35
Mortgage, 1 to 4 family first liens	670		1,195		2,724		4,589		895,635		900,224		—
Mortgage, 1 to 4 family junior liens	65		260		109		434		131,043		131,477		—
Mortgage, multi-family	4,008		1,799		—		5,807		365,360		371,167		—
Mortgage, commercial	731		—		311		1,042		416,000		417,042		—
Loans to individuals	108		27		4		139		30,382		30,521		—
Obligations of state and political subdivisions	—		—		—		—		56,424		56,424		—
	$	9,063	$	4,807	$	13,800	$	27,670	$	2,739,455	$	2,767,125	$	9,337
December 31, 2019
Agricultural	$	163	$	275	$	122	$	560	$	90,757	$	91,317	$	48
Commercial and financial	1,076		229		101		1,406		219,917		221,323		65
Real estate:
Construction, 1 to 4 family residential	635		—		—		635		79,574		80,209		—
Construction, land development and commercial	215		101		—		316		108,094		108,410		—
Mortgage, farmland	736		—		610		1,346		241,384		242,730		—
Mortgage, 1 to 4 family first liens	5,026		3,100		4,149		12,275		898,467		910,742		354
Mortgage, 1 to 4 family junior liens	813		126		233		1,172		148,055		149,227		139
Mortgage, multi-family	—		97		—		97		350,664		350,761		—
Mortgage, commercial	321		489		—		810		401,371		402,181		—
Loans to individuals	226		55		15		296		32,012		32,308		—
Obligations of state and political subdivisions	—		—		—		—		49,896		49,896		—
	$	9,211	$	4,472	$	5,230	$	18,913	$	2,620,191	$	2,639,104	$	606

Schedule of impaired loan information

Certain impaired loan information by loan type at September 30, 2020 and December 31, 2019, was as follows:

	September 30, 2020						December 31, 2019
	Non-accrual loans (1)		Accruing loans past due 90 days or more		TDR loans		Non- accrual loans (1)		Accruing loans past due 90 days or more		TDR loans
	(Amounts In Thousands)						(Amounts In Thousands)
Agricultural	$	1,537	$	14	$	111	$	1,192	$	48	$	404
Commercial and financial	804		2,288		1,059		679		65		1,934
Real estate:
Construction, 1 to 4 family residential	315		—		—		—		—		—
Construction, land development and commercial	206		7,000		315		—		—		320
Mortgage, farmland	1,117		35		1,288		1,369		—		2,712
Mortgage, 1 to 4 family first liens	5,292		—		1,590		6,558		354		1,626
Mortgage, 1 to 4 family junior liens	195		—		—		94		139		—
Mortgage, multi-family	82		—		1,704		97		—		1,719
Mortgage, commercial	1,328		—		1,833		779		—		593
	$	10,876	$	9,337	$	7,900	$	10,768	$	606	$	9,308

(1)There were $4.20 million and $4.34 million of TDR loans included within nonaccrual loans as of September 30, 2020 and December 31, 2019, respectively.

Schedule of information for TDR loans

Below is a summary of information for TDR loans as of September 30, 2020 and December 31, 2019:

	September 30, 2020					December 31, 2019
	Number of contracts	Recorded investment		Commitments outstanding		Number of contracts	Recorded investment		Commitments outstanding
		(Amounts In Thousands)					(Amounts In Thousands)
Agricultural	7	$	1,309	$	10	9	$	1,552	$	3
Commercial and financial	16	1,677		85		16	2,641		95
Real estate:
Construction, 1 to 4 family residential	—	—		—		—	—		—
Construction, land development and commercial	2	315		4		2	320		—
Mortgage, farmland	7	2,352		—		8	4,021		—
Mortgage, 1 to 4 family first liens	18	1,901		—		16	2,083		—
Mortgage, 1 to 4 family junior liens	—	—		—		—	—		—
Mortgage, multi-family	2	1,704		—		2	1,719		—
Mortgage, commercial	9	2,850		—		7	1,373		—
Loans to individuals	—	—		—		—	—		—
	61	$	12,108	$	99	60	$	13,709	$	98

The following is a summary of TDR loans that were modified during the three and nine months ended September 30, 2020:

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Number of contracts	Pre-modification recorded investment		Post-modification recorded investment		Number of contracts	Pre-modification recorded investment		Post-modification recorded investment
		(Amounts In Thousands)
Agricultural	—	$	—	$	—	2	$	93	$	93
Commercial and financial	1	90		90		3	308		308
Real estate:
Construction, 1 to 4 family residential	—	—		—		—	—		—
Construction, land development and commercial	—	—		—		—	—		—
Mortgage, farmland	—	—		—		—	—		—
Mortgage, 1 to 4 family first lien	—	—		—		5	104		104
Mortgage, 1 to 4 family junior liens	—	—		—		—	—		—
Mortgage, multi-family	—	—		—		—	—		—
Mortgage, commercial	2	1,333		1,333		3	1,846		1,846
	3	$	1,423	$	1,423	13	$	2,351	$	2,351

Schedule of impaired loans

Information regarding impaired loans as of and for the three and nine months ended September 30, 2020 is as follows:

	September 30, 2020						Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(Amounts In Thousands)
Agricultural	$	1,648	$	2,308	$	—	$	1,859	$	6	$	1,822	$	18
Commercial and financial	2,974		4,708		—		3,788		38		3,641		110
Real estate:
Construction, 1 to 4 family residential	412		480		—		700		—		575		—
Construction, land development and commercial	521		540		—		528		4		526		13
Mortgage, farmland	2,405		2,936		—		3,420		32		3,242		90
Mortgage, 1 to 4 family first liens	6,135		7,939		—		6,585		18		6,422		51
Mortgage, 1 to 4 family junior liens	108		353		—		161		—		135		—
Mortgage, multi-family	1,786		1,908		—		1,807		21		1,801		61
Mortgage, commercial	1,761		2,592		—		2,019		5		1,917		15
Loans to individuals	—		14		—		—		—		—		—
	$	17,750	$	23,778	$	—	$	20,867	$	124	$	20,081	$	358
With an allowance recorded:
Agricultural	$	94	$	94	$	80	$	109	$	2	$	102	$	6
Commercial and financial	2,975		3,028		477		3,071		33		3,060		99
Real estate:
Construction, 1 to 4 family residential	—		—		—		—		—		—		—
Construction, land development and commercial	7,000		7,000		87		7,000		80		7,000		236
Mortgage, farmland	35		35		1		37		1		37		1
Mortgage, 1 to 4 family first liens	650		701		49		668		3		666		10
Mortgage, 1 to 4 family junior liens	87		92		37		91		—		90		—
Mortgage, multi-family	—		—		—		—		—		—		—
Mortgage, commercial	67		67		—		69		1		69		3
Loans to individuals	14		14		14		14		—		14		1
	$	10,922	$	11,031	$	745	$	11,059	$	120	$	11,038	$	356
Total:
Agricultural	$	1,742	$	2,402	$	80	$	1,968	$	8	$	1,924	$	24
Commercial and financial	5,949		7,736		477		6,859		71		6,701		209
Real estate:
Construction, 1 to 4 family residential	412		480		—		700		—		575		—
Construction, land development and commercial	7,521		7,540		87		7,528		84		7,526		249
Mortgage, farmland	2,440		2,971		1		3,457		33		3,279		91
Mortgage, 1 to 4 family first liens	6,785		8,640		49		7,253		21		7,088		61
Mortgage, 1 to 4 family junior liens	195		445		37		252		—		225		—
Mortgage, multi-family	1,786		1,908		—		1,807		21		1,801		61
Mortgage, commercial	1,828		2,659		—		2,088		6		1,986		18
Loans to individuals	14		28		14		14		—		14		1
	$	28,672	$	34,809	$	745	$	31,926	$	244	$	31,119	$	714

Information regarding impaired loans as of December 31, 2019 is as follows:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(Amounts In Thousands)
Agricultural	$	1,596	$	2,157	$	—
Commercial and financial	1,340		2,220		—
Real estate:
Construction, 1 to 4 family residential	101		144		—
Construction, land development and commercial	320		336		—
Mortgage, farmland	4,081		4,613		—
Mortgage, 1 to 4 family first liens	7,157		9,015		—
Mortgage, 1 to 4 family junior liens	—		246		—
Mortgage, multi-family	1,816		1,930		—
Mortgage, commercial	1,302		1,852		—
Loans to individuals	—		14		—
	$	17,713	$	22,527	$	—
With an allowance recorded:
Agricultural	$	134	$	134	$	87
Commercial and financial	1,402		1,539		792
Real estate:
Construction, 1 to 4 family residential	—		—		—
Construction, land development and commercial	—		—		—
Mortgage, farmland	—		—		—
Mortgage, 1 to 4 family first liens	1,280		1,501		64
Mortgage, 1 to 4 family junior liens	233		233		47
Mortgage, multi-family	—		—		—
Mortgage, commercial	70		70		1
Loans to individuals	93		93		93
	$	3,212	$	3,570	$	1,084
Total:
Agricultural	$	1,730	$	2,291	$	87
Commercial and financial	2,742		3,759		792
Real estate:
Construction, 1 to 4 family residential	101		144		—
Construction, land development and commercial	320		336		—
Mortgage, farmland	4,081		4,613		—
Mortgage, 1 to 4 family first liens	8,437		10,516		64
Mortgage, 1 to 4 family junior liens	233		479		47
Mortgage, multi-family	1,816		1,930		—
Mortgage, commercial	1,372		1,922		1
Loans to individuals	93		107		93
	$	20,925	$	26,097	$	1,084

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Leases (Tables)

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Maturities of lease liabilities, Topic 842

As of September 30, 2020, maturities of lease liabilities were as follows:

Year ending December 31:	(Amounts In Thousands)
2020	$	117
2021	456
2022	447
2023	301
2024	250
Thereafter	2,009
Total lease payments	3,580
Less imputed interest	(625)
Total operating lease liabilities	$	2,955

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Carrying value and estimated fair values of entity's financial instruments

The carrying value and estimated fair values of the Company's financial instruments as of September 30, 2020 are as follows:

	September 30, 2020
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	560,738	$	560,738	$	560,738	$	—	$	—
Investment securities	386,628		386,628		151,835		234,793		—
Loans held for sale	27,980		27,980		—		27,980		—
Loans
Agricultural	93,726		94,086		—		—		94,086
Commercial and financial	330,118		330,164		—		—		330,164
Real estate:
Construction, 1 to 4 family residential	69,639		69,819		—		—		69,819
Construction, land development and commercial	112,865		112,610		—		—		112,610
Mortgage, farmland	239,641		238,974		—		—		238,974
Mortgage, 1 to 4 family first liens	890,560		896,881		—		—		896,881
Mortgage, 1 to 4 family junior liens	129,948		127,667		—		—		127,667
Mortgage, multi-family	366,800		367,834		—		—		367,834
Mortgage, commercial	412,116		413,699		—		—		413,699
Loans to individuals	29,832		30,070		—		—		30,070
Obligations of state and political subdivisions	55,785		56,945		—		—		56,945
Accrued interest receivable	13,731		13,731		—		13,731		—
Total financial instrument assets	$	3,720,107	$	3,727,826	$	712,573	$	276,504	$	2,738,749
Financial instrument liabilities
Deposits
Noninterest-bearing deposits	$	500,272	$	500,272	$	—	$	500,272	$	—
Interest-bearing deposits	2,614,279		2,630,803		—		2,630,803		—
Other borrowings	43		43		—		43		—
Federal Home Loan Bank borrowings	185,000		185,869		—		185,869		—
Interest rate swaps	3,075		3,075		—		3,075		—
Accrued interest payable	2,198		2,198		—		2,198		—
Total financial instrument liabilities	$	3,304,867	$	3,322,260	$	—	$	3,322,260	$	—
	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	476,859	$	—	$	—	$	—	$	—
Letters of credit	8,300		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	485,159	$	—	$	—	$	—	$	—

(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

The carrying value and estimated fair values of the Company's financial instruments as of December 31, 2019 are as follows:

	December 31, 2019
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	241,965	$	241,965	$	241,965	$	—	$	—
Investment securities	366,368		366,368		128,585		237,783		—
Loans held for sale	8,400		8,400		—		8,400		—
Loans
Agricultural	88,917		90,118		—		—		90,118
Commercial and financial	216,335		217,640		—		—		217,640
Real estate:
Construction, 1 to 4 family residential	79,096		79,954		—		—		79,954
Construction, land development and commercial	106,924		107,276		—		—		107,276
Mortgage, farmland	238,780		239,521		—		—		239,521
Mortgage, 1 to 4 family first liens	902,630		896,676		—		—		896,676
Mortgage, 1 to 4 family junior liens	147,634		143,261		—		—		143,261
Mortgage, multi-family	346,938		349,663		—		—		349,663
Mortgage, commercial	398,145		395,838		—		—		395,838
Loans to individuals	31,455		32,722		—		—		32,722
Obligations of state and political subdivisions	49,423		50,564		—		—		50,564
Accrued interest receivable	12,442		12,442		—		12,442		—
Total financial instrument assets	$	3,235,452	$	3,232,408	$	370,550	$	258,625	$	2,603,233
Financial instrument liabilities:
Deposits
Noninterest-bearing deposits	$	387,612	$	387,612	$	—	$	387,612	$	—
Interest-bearing deposits	2,273,752		2,292,332		—		2,292,332		—
Federal Home Loan Bank borrowings	185,000		186,091		—		186,091		—
Interest rate swaps	2,349		2,349				2,349
Accrued interest payable	2,474		2,474		—		2,474		—
Total financial instrument liabilities	$	2,851,187	$	2,870,858	$	—	$	2,870,858	$	—
	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	424,165	$	—	$	—	$	—	$	—
Letters of credit	8,569		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	432,734	$	—	$	—	$	—	$	—

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

Schedule of assets and liabilities measured at fair value on a recurring basis

The table below represents the balances of assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	151,835	$	—	$	—	$	151,835
State and political subdivisions	—		198,211		—		198,211
Other securities (FHLB, FHLMC and FNMA)	—		25,209		—		25,209
Derivative Financial Instruments
Interest rate swaps	$	—	(3,075)		$	—	(3,075)
Total	$	151,835	$	220,345	$	—	$	372,180

	December 31, 2019
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	128,585	$	—	$	—	$	128,585
State and political subdivisions	—		211,489		—		211,489
Other securities (FHLB, FHLMC and FNMA)	—		15,229		—		15,229
Derivative Financial Instruments
Interest rate swaps	—		(2,349)		—		(2,349)
Total	$	128,585	$	224,369	$	—	$	352,954

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

Schedule of assets measured at fair value on a nonrecurring basis

The following tables present the Company’s assets that are measured at fair value on a nonrecurring basis.

	September 30, 2020								Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value		Total Losses		Total Losses
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,376	$	1,376	$	—	$	—
Commercial and financial	—		—		1,843		1,843		—		385
Real Estate:											—
Construction, 1 to 4 family residential	—		—		419		419		—		—
Construction, land development and commercial	—		—		315		315		—		—
Mortgage, farmland	—		—		2,062		2,062		—		—
Mortgage, 1 to 4 family first liens	—		—		6,702		6,702		20		176
Mortgage, 1 to 4 family junior liens	—		—		158		158		—		—
Mortgage, multi-family	—		—		1,786		1,786		—		—
Mortgage, commercial	—		—		3,094		3,094		175		250
Loans to individuals	—		—		—		—		—		—
Foreclosed assets (5)	—		—		—		—		—		—
Total	$	—	$	—	$	17,755	$	17,755	$	195	$	811

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis (continued)

	December 31, 2019								Year Ended December 31, 2019
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value		Total Losses
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,272	$	1,272	$	36
Commercial and financial	—		—		1,803		1,803		499
Real Estate:
Construction, 1 to 4 family residential	—		—		—		—		—
Construction, land development and commercial	—		—		215		215		8
Mortgage, farmland	—		—		3,576		3,576		—
Mortgage, 1 to 4 family first liens	—		—		7,986		7,986		370
Mortgage, 1 to 4 family junior liens	—		—		49		49		—
Mortgage, multi-family	—		—		1,816		1,816		—
Mortgage, commercial	—		—		1,237		1,237		125
Loans to individuals	—		—		—		—		—
Foreclosed assets (5)	—		—		—		—		—
Total	$	—	$	—	$	17,954	$	17,954	$	1,038

(1)Considered Level 1 under ASC 820.

(2)Considered Level 2 under ASC 820.

(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Schedule of banks commitments

A summary of the Bank’s commitments at September 30, 2020 and December 31, 2019 is as follows:

	September 30, 2020		December 31, 2019
	(Amounts In Thousands)
Firm loan commitments and unused portion of lines of credit:
Home equity loans	$	70,765	$	65,203
Credit cards	60,661		57,421
Commercial, real estate and home construction	112,534		94,490
Commercial lines and real estate purchase loans	232,899		207,051
Outstanding letters of credit	8,300		8,569

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Identification of the balance sheet category and fair values of the derivative instruments designated as cash flow hedges

The table below identifies the balance sheet category and fair values of the Bank’s derivative instruments designated as cash flow hedges as of September 30, 2020 and December 31, 2019:

	Notional Amount		Fair Value		Balance Sheet Category	Maturity
	(Amounts in Thousands)
September 30, 2020
Interest rate swap	$	25,000	$	(170)	Other Liabilities	11/9/2020
Interest rate swap	25,000		(2,905)		Other Liabilities	11/7/2023
December 31, 2019
Interest rate swap	$	25,000	$	(279)	Other Liabilities	11/9/2020
Interest rate swap	25,000		(2,070)		Other Liabilities	11/7/2023

Identification of the gains and losses recognized on the derivative instruments designated as cash flow hedges

The table below identifies the gains and losses recognized on the Bank’s derivative instruments designated as cash flow hedges for the nine months ended September 30, 2020 and year ended December 31, 2019:

	Recognized in OCI		Reclassified from AOCI into Income			Recognized in Income on Derivatives
	Amount of Gain (Loss)		Category	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
	(Amounts in Thousands)
September 30, 2020
Interest rate swap	$	81	Interest Expense	$	—	Other Income	$	—
Interest rate swap	(626)		Interest Expense	—		Other Income	—
December 31, 2019
Interest rate swap	$	(119)	Interest Expense	$	—	Other Income	$	—
Interest rate swap	(446)		Interest Expense	—		Other Income	—

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Summary of Significant Accounting Policies (Details) $ in Thousands		9 Months Ended
	Jan. 01, 2020 USD ($)	Sep. 30, 2020 USD ($) segment	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)	Sep. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of operating segments | segment		1
Operating lease, right-of-use asset		$ 2,910		$ 3,200
Estimated allowance for credit losses (ACL)		37,060	$ 37,620	$ 33,760	$ 35,570	$ 35,650		$ 37,810
Cumulative Effective, Period Of Adoption, Estimated Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Estimated overall increase in Allowance for Credit Losses (ACL) for loans	$ 3,500
Anticipated unfunded commitments liability	$ 1,450
Cumulative Effective, Period Of Adoption, Estimated Finalized Adjustment [Member] | Minimum [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Anticipated unfunded commitments liability		4,000
Estimated allowance for credit losses (ACL)		41,000
Cumulative Effective, Period Of Adoption, Estimated Finalized Adjustment [Member] | Maximum [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Anticipated unfunded commitments liability		5,000
Estimated allowance for credit losses (ACL)		$ 44,000
Accounting Standards Update 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Additional operating liabilities							$ 3,580
Operating lease, right-of-use asset							$ 3,580

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Summary of computation of basic and diluted earnings per share [Abstract]
Common shares outstanding at the beginning of the period (shares)					9,364,062	9,351,694	9,346,449	9,336,441
Weighted average number of net shares (redeemed) issued (shares)	(7,765)	(160)	28,137	21,712
Weighted average shares outstanding (basic) (shares)	9,356,297	9,346,289	9,379,831	9,358,153
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method (shares)	3,592	4,284	3,673	4,146
Weighted average number of shares (diluted) (shares)	9,359,889	9,350,573	9,383,504	9,362,299
Net income (In thousands)	$ 11,430	$ 11,282	$ 30,216	$ 33,705
Earnings per share:
Basic (in dollars per share)	$ 1.22	$ 1.21	$ 3.22	$ 3.61
Diluted (in dollars per share)	$ 1.22	$ 1.21	$ 3.22	$ 3.61

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Other Comprehensive Income (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Accumulated Other Comprehensive Income Loss [Line Items]
Tax effect	$ (2,338)	$ (470)
Net-of-tax amount	7,031	1,415
Net unrealized loss on available-for-sale securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Net unrealized gain (loss)	12,444	4,234
Net unrealized loss on derivatives used for cash flow hedges [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Net unrealized gain (loss)	$ (3,075)	$ (2,349)

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Securities (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($) security	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($) security
Securities available for sale
Securities available for sale, Percent	100.00%		100.00%
Available-for-sale Securities Reconciliation [Abstract]
Amortized Cost	$ 362,811		$ 351,069
Gross Unrealized Gains	12,532		4,564
Gross Unrealized (Losses)	(88)		(330)
Amortized Cost
Due in one year or less	46,608
Due after one year through five years	219,240
Due after five years through ten years	77,290
Due over ten years	19,673
Fair Value
Due in one year or less	46,887
Due after one year through five years	226,723
Due after five years through ten years	81,722
Due over ten years	19,923
Carrying value of investment securities pledged to collateralize short-term borrowings	375,255		$ 355,303
Debt Securities, Available-for-sale, Realized Gain (Loss) [Abstract]
Sales proceeds	313	$ 12,467
Gross realized gains	10	24
Gross realized losses	$ 0	$ 52
Less than 12 months
Number of securities | security	24		77
Fair Value	$ 18,092		$ 45,813
Unrealized Loss	$ (81)		$ (255)
Percentage	0.45%		0.56%
12 months or more
Number of securities | security	5		27
Fair Value	$ 621		$ 21,549
Unrealized Loss	$ (7)		$ (75)
Percentage	1.13%		0.35%
Total
Number of securities | security	29		104
Fair Value	$ 18,713		$ 67,362
Unrealized Loss	$ (88)		$ (330)
Percentage	0.47%		0.49%
Collateralized Securities [Member]
Fair Value
Carrying value of investment securities pledged to collateralize short-term borrowings	$ 13,750
U.S. Treasury [Member]
Securities available for sale
Securities available for sale, Percent	40.46%		36.19%
Available-for-sale Securities Reconciliation [Abstract]
Amortized Cost	$ 145,999		$ 127,096
Gross Unrealized Gains	5,836		1,626
Gross Unrealized (Losses)	0		(137)
Fair Value
Carrying value of investment securities pledged to collateralize short-term borrowings	$ 151,835		$ 128,585
Less than 12 months
Number of securities | security	0		11
Fair Value	$ 0		$ 27,932
Unrealized Loss	$ 0		$ (136)
Percentage	0.00%		0.49%
12 months or more
Number of securities | security	0		1
Fair Value	$ 0		$ 2,495
Unrealized Loss	$ 0		$ (1)
Percentage	0.00%		0.04%
Total
Number of securities | security	0		12
Fair Value	$ 0		$ 30,427
Unrealized Loss	$ 0		$ (137)
Percentage	0.00%		0.45%
Other securities [Member]
Securities available for sale
Securities available for sale, Percent	6.72%		4.29%
Available-for-sale Securities Reconciliation [Abstract]
Amortized Cost	$ 25,203		$ 15,287
Gross Unrealized Gains	37		0
Gross Unrealized (Losses)	(31)		(58)
Fair Value
Carrying value of investment securities pledged to collateralize short-term borrowings	$ 25,209		$ 15,229
Less than 12 months
Number of securities | security	5		0
Fair Value	$ 12,540		$ 0
Unrealized Loss	$ (31)		$ 0
Percentage	0.25%		0.00%
12 months or more
Number of securities | security	0		6
Fair Value	$ 0		$ 15,229
Unrealized Loss	$ 0		$ (58)
Percentage	0.00%		0.38%
Total
Number of securities | security	5		6
Fair Value	$ 12,540		$ 15,229
Unrealized Loss	$ (31)		$ (58)
Percentage	0.25%		0.38%
State and political subdivisions [Member]
Securities available for sale
Securities available for sale, Percent	52.82%		59.52%
Available-for-sale Securities Reconciliation [Abstract]
Amortized Cost	$ 191,609		$ 208,686
Gross Unrealized Gains	6,659		2,938
Gross Unrealized (Losses)	(57)		(135)
Fair Value
Carrying value of investment securities pledged to collateralize short-term borrowings	$ 198,211		$ 211,489
Less than 12 months
Number of securities | security	19		66
Fair Value	$ 5,552		$ 17,881
Unrealized Loss	$ (50)		$ (119)
Percentage	0.90%		0.67%
12 months or more
Number of securities | security	5		20
Fair Value	$ 621		$ 3,825
Unrealized Loss	$ (7)		$ (16)
Percentage	1.13%		0.42%
Total
Number of securities | security	24		86
Fair Value	$ 6,173		$ 21,706
Unrealized Loss	$ (57)		$ (135)
Percentage	0.92%		0.62%

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Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Summary of classes of loans (abstract)
Loans and receivable	$ 2,767,125	$ 2,637,938	$ 2,767,125	$ 2,637,938	$ 2,639,104
Net unamortized fees and costs	965		965		933
Loans and receivable, gross	2,768,090		2,768,090		2,640,037
Less allowance for loan losses	37,060		37,060		33,760
Loans and receivable, net	2,731,030		2,731,030		2,606,277
Interest income	29,750	30,857	89,975	90,825
Small Business Administration (SBA), CARES Act, Paycheck Protection Program [Member]
Summary of classes of loans (abstract)
Amount of loans provided to customers	127,100		127,100
Deferred loan fees	3,770		3,770
Interest income			1,260
Agricultural [Member]
Summary of classes of loans (abstract)
Loans and receivable	96,321	91,621	96,321	91,621	91,317
Commercial and financial [Member]
Summary of classes of loans (abstract)
Loans and receivable	335,463	219,362	335,463	219,362	221,323
Real Estate: Construction, 1 to 4 family residential [Member]
Summary of classes of loans (abstract)
Loans and receivable	70,527		70,527		80,209
Real Estate: Construction, land development and commercial [Member]
Summary of classes of loans (abstract)
Loans and receivable	114,270		114,270		108,410
Real Estate: Mortgage, farmland [Member]
Summary of classes of loans (abstract)
Loans and receivable	243,689	$ 237,513	243,689	$ 237,513	242,730
Real Estate: Mortgage, 1 to 4 family first liens [Member]
Summary of classes of loans (abstract)
Loans and receivable	900,224		900,224		910,742
Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Summary of classes of loans (abstract)
Loans and receivable	131,477		131,477		149,227
Real Estate: Mortgage, multi-family [Member]
Summary of classes of loans (abstract)
Loans and receivable	371,167		371,167		350,761
Real Estate: Mortgage, commercial [Member]
Summary of classes of loans (abstract)
Loans and receivable	417,042		417,042		402,181
Loans to individuals [Member]
Summary of classes of loans (abstract)
Loans and receivable	30,521		30,521		32,308
Obligations of state and political subdivisions [Member]
Summary of classes of loans (abstract)
Loans and receivable	$ 56,424		$ 56,424		$ 49,896

XML

Loans, Allowance For Credit Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	$ 37,620	$ 35,650	$ 33,760	$ 37,810
Charge-offs	(874)	(736)	(2,482)	(1,955)
Recoveries	471	512	1,282	1,357
Provision	(157)	144	4,500	(1,642)
Ending balance	37,060	35,570	37,060	35,570
Ending balance, individually evaluated for impairment	745	1,417	745	1,417
Ending balance, collectively evaluated for impairment	36,315	34,153	36,315	34,153
Loan [Abstract]
Total Loans Receivable	2,767,125	2,637,938	2,767,125	2,637,938	$ 2,639,104
Ending balance, individually evaluated for impairment	28,672	19,388	28,672	19,388
Ending balance, collectively evaluated for impairment	2,738,453	2,618,550	2,738,453	2,618,550
Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	2,547	2,535	2,400	2,789
Charge-offs	(8)	(135)	(43)	(135)
Recoveries	26	18	44	87
Provision	30	288	194	(35)
Ending balance	2,595	2,706	2,595	2,706
Ending balance, individually evaluated for impairment	80	341	80	341
Ending balance, collectively evaluated for impairment	2,515	2,365	2,515	2,365
Loan [Abstract]
Total Loans Receivable	96,321	91,621	96,321	91,621	91,317
Ending balance, individually evaluated for impairment	1,742	1,865	1,742	1,865
Ending balance, collectively evaluated for impairment	94,579	89,756	94,579	89,756
Commercial and Financial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	5,777	5,603	4,988	5,826
Charge-offs	(478)	(177)	(1,253)	(641)
Recoveries	165	128	374	451
Provision	(119)	(143)	1,236	(225)
Ending balance	5,345	5,411	5,345	5,411
Ending balance, individually evaluated for impairment	477	1,008	477	1,008
Ending balance, collectively evaluated for impairment	4,868	4,403	4,868	4,403
Loan [Abstract]
Total Loans Receivable	335,463	219,362	335,463	219,362	221,323
Ending balance, individually evaluated for impairment	5,949	3,176	5,949	3,176
Ending balance, collectively evaluated for impairment	329,514	216,186	329,514	216,186
Real Estate: Construction and land development [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	2,433	2,646	2,599	3,292
Charge-offs	0	0	(43)	(9)
Recoveries	27	2	81	6
Provision	(167)	240	(344)	(401)
Ending balance	2,293	2,888	2,293	2,888
Ending balance, individually evaluated for impairment	87	0	87	0
Ending balance, collectively evaluated for impairment	2,206	2,888	2,206	2,888
Loan [Abstract]
Total Loans Receivable	184,797	189,631	184,797	189,631
Ending balance, individually evaluated for impairment	7,933	456	7,933	456
Ending balance, collectively evaluated for impairment	176,864	189,175	176,864	189,175
Real Estate: Mortgage, farmland [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	4,089	3,891	3,950	3,972
Charge-offs	0	0	(1)	0
Recoveries	0	0	0	5
Provision	(41)	96	99	10
Ending balance	4,048	3,987	4,048	3,987
Ending balance, individually evaluated for impairment	1	0	1	0
Ending balance, collectively evaluated for impairment	4,047	3,987	4,047	3,987
Loan [Abstract]
Total Loans Receivable	243,689	237,513	243,689	237,513	$ 242,730
Ending balance, individually evaluated for impairment	2,440	4,117	2,440	4,117
Ending balance, collectively evaluated for impairment	241,249	233,396	241,249	233,396
Real Estate: Mortgage, 1 to 4 family [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	12,282	11,384	10,638	12,516
Charge-offs	(115)	(332)	(576)	(711)
Recoveries	201	317	636	576
Provision	(210)	(166)	1,460	(1,178)
Ending balance	12,158	11,203	12,158	11,203
Ending balance, individually evaluated for impairment	86	65	86	65
Ending balance, collectively evaluated for impairment	12,072	11,138	12,072	11,138
Loan [Abstract]
Total Loans Receivable	1,031,701	1,063,175	1,031,701	1,063,175
Ending balance, individually evaluated for impairment	6,980	7,729	6,980	7,729
Ending balance, collectively evaluated for impairment	1,024,721	1,055,446	1,024,721	1,055,446
Real Estate: Mortgage, multi-family and commercial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	9,173	8,194	7,859	8,165
Charge-offs	(210)	0	(290)	(133)
Recoveries	10	12	33	100
Provision	320	(110)	1,691	(36)
Ending balance	9,293	8,096	9,293	8,096
Ending balance, individually evaluated for impairment	0	1	0	1
Ending balance, collectively evaluated for impairment	9,293	8,095	9,293	8,095
Loan [Abstract]
Total Loans Receivable	788,209	751,993	788,209	751,993
Ending balance, individually evaluated for impairment	3,614	2,043	3,614	2,043
Ending balance, collectively evaluated for impairment	784,595	749,950	784,595	749,950
Others [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	1,319	1,397	1,326	1,250
Charge-offs	(63)	(92)	(276)	(326)
Recoveries	42	35	114	132
Provision	30	(61)	164	223
Ending balance	1,328	1,279	1,328	1,279
Ending balance, individually evaluated for impairment	14	2	14	2
Ending balance, collectively evaluated for impairment	1,314	1,277	1,314	1,277
Loan [Abstract]
Total Loans Receivable	86,945	84,643	86,945	84,643
Ending balance, individually evaluated for impairment	14	2	14	2
Ending balance, collectively evaluated for impairment	$ 86,931	$ 84,641	$ 86,931	$ 84,641

XML

Loans, Credit Quality Indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	$ 2,767,125	$ 2,639,104	$ 2,637,938
Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	80,387	68,021
Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	358,778	311,157
Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	1,735,585	1,728,780
Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	459,092	420,993
Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	80,694	66,810
Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	52,589	43,343
Agricultural [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	96,321	91,317	91,621
Agricultural [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	3,174	3,594
Agricultural [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	11,212	12,380
Agricultural [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	44,687	43,308
Agricultural [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	28,217	24,857
Agricultural [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	6,624	3,110
Agricultural [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	2,407	4,068
Commercial and Financial [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	335,463	221,323	219,362
Commercial and Financial [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	15,023	3,461
Commercial and Financial [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	62,843	47,843
Commercial and Financial [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	181,807	117,114
Commercial and Financial [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	61,300	44,543
Commercial and Financial [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	9,147	5,157
Commercial and Financial [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	5,343	3,205
Real Estate: Construction, 1 to 4 family residential [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	70,527	80,209
Real Estate: Construction, 1 to 4 family residential [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	1	260
Real Estate: Construction, 1 to 4 family residential [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	13,969	8,868
Real Estate: Construction, 1 to 4 family residential [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	38,486	51,093
Real Estate: Construction, 1 to 4 family residential [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	16,441	17,505
Real Estate: Construction, 1 to 4 family residential [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	1,315	2,483
Real Estate: Construction, 1 to 4 family residential [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	315	0
Real Estate: Construction, land development and commercial [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	114,270	108,410
Real Estate: Construction, land development and commercial [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	231	190
Real Estate: Construction, land development and commercial [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	16,492	23,217
Real Estate: Construction, land development and commercial [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	61,231	47,987
Real Estate: Construction, land development and commercial [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	28,008	29,009
Real Estate: Construction, land development and commercial [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	7,595	7,428
Real Estate: Construction, land development and commercial [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	713	579
Real Estate: Mortgage, farmland [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	243,689	242,730	$ 237,513
Real Estate: Mortgage, farmland [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	5,968	3,630
Real Estate: Mortgage, farmland [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	42,037	40,118
Real Estate: Mortgage, farmland [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	130,185	134,738
Real Estate: Mortgage, farmland [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	55,917	53,147
Real Estate: Mortgage, farmland [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	6,100	3,033
Real Estate: Mortgage, farmland [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	3,482	8,064
Real Estate: Mortgage, 1 to 4 family first liens [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	900,224	910,742
Real Estate: Mortgage, 1 to 4 family first liens [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	2,395	3,209
Real Estate: Mortgage, 1 to 4 family first liens [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	43,348	32,474
Real Estate: Mortgage, 1 to 4 family first liens [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	710,236	751,215
Real Estate: Mortgage, 1 to 4 family first liens [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	114,949	96,353
Real Estate: Mortgage, 1 to 4 family first liens [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	13,424	11,167
Real Estate: Mortgage, 1 to 4 family first liens [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	15,872	16,324
Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	131,477	149,227
Real Estate: Mortgage, 1 to 4 family junior liens [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	268	261
Real Estate: Mortgage, 1 to 4 family junior liens [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	3,284	4,233
Real Estate: Mortgage, 1 to 4 family junior liens [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	118,885	136,079
Real Estate: Mortgage, 1 to 4 family junior liens [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	5,575	5,473
Real Estate: Mortgage, 1 to 4 family junior liens [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	1,635	1,469
Real Estate: Mortgage, 1 to 4 family junior liens [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	1,830	1,712
Real Estate: Mortgage, multi-family [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	371,167	350,761
Real Estate: Mortgage, multi-family [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	17,824	18,955
Real Estate: Mortgage, multi-family [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	56,624	47,871
Real Estate: Mortgage, multi-family [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	203,078	189,391
Real Estate: Mortgage, multi-family [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	59,787	60,965
Real Estate: Mortgage, multi-family [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	15,439	27,559
Real Estate: Mortgage, multi-family [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	18,415	6,020
Real Estate: Mortgage, commercial [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	417,042	402,181
Real Estate: Mortgage, commercial [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	28,533	27,017
Real Estate: Mortgage, commercial [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	94,886	79,467
Real Estate: Mortgage, commercial [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	191,744	206,196
Real Estate: Mortgage, commercial [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	78,640	81,381
Real Estate: Mortgage, commercial [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	19,103	4,802
Real Estate: Mortgage, commercial [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	4,136	3,318
Loans to individuals [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	30,521	32,308
Loans to individuals [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	0	0
Loans to individuals [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	160	221
Loans to individuals [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	29,685	31,385
Loans to individuals [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	436	437
Loans to individuals [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	164	212
Loans to individuals [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	76	53
Obligations of state and political subdivisions [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	56,424	49,896
Obligations of state and political subdivisions [Member] | Excellent [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	6,970	7,444
Obligations of state and political subdivisions [Member] | Good [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	13,923	14,465
Obligations of state and political subdivisions [Member] | Satisfactory [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	25,561	20,274
Obligations of state and political subdivisions [Member] | Monitor [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	9,822	7,323
Obligations of state and political subdivisions [Member] | Special Mention [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	148	390
Obligations of state and political subdivisions [Member] | Substandard [Member]
Summary of credit quality indicators by type of loans [Abstract]
Loans and receivable	$ 0	$ 0

XML

Loans, Past Due Receivables (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019
Schedule of past due loans [Abstract]
Total Past Due	$ 27,670	$ 18,913
Current	2,739,455	2,620,191
Total Loans Receivable	2,767,125	2,639,104	$ 2,637,938
Accruing Loans Past Due 90 Days or More	9,337	606
Agricultural [Member]
Schedule of past due loans [Abstract]
Total Past Due	1,345	560
Current	94,976	90,757
Total Loans Receivable	96,321	91,317	91,621
Accruing Loans Past Due 90 Days or More	14	48
Commercial and Financial [Member]
Schedule of past due loans [Abstract]
Total Past Due	4,081	1,406
Current	331,382	219,917
Total Loans Receivable	335,463	221,323	219,362
Accruing Loans Past Due 90 Days or More	2,288	65
Real Estate: Construction, 1 to 4 family residential [Member]
Schedule of past due loans [Abstract]
Total Past Due	1,298	635
Current	69,229	79,574
Total Loans Receivable	70,527	80,209
Accruing Loans Past Due 90 Days or More	0	0
Real Estate: Construction, land development and commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	7,975	316
Current	106,295	108,094
Total Loans Receivable	114,270	108,410
Accruing Loans Past Due 90 Days or More	7,000	0
Real Estate: Mortgage, farmland [Member]
Schedule of past due loans [Abstract]
Total Past Due	960	1,346
Current	242,729	241,384
Total Loans Receivable	243,689	242,730	$ 237,513
Accruing Loans Past Due 90 Days or More	35	0
Real Estate: Mortgage, 1 to 4 family first liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	4,589	12,275
Current	895,635	898,467
Total Loans Receivable	900,224	910,742
Accruing Loans Past Due 90 Days or More	0	354
Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	434	1,172
Current	131,043	148,055
Total Loans Receivable	131,477	149,227
Accruing Loans Past Due 90 Days or More	0	139
Real Estate: Mortgage, multi-family [Member]
Schedule of past due loans [Abstract]
Total Past Due	5,807	97
Current	365,360	350,664
Total Loans Receivable	371,167	350,761
Accruing Loans Past Due 90 Days or More	0	0
Real Estate: Mortgage, commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	1,042	810
Current	416,000	401,371
Total Loans Receivable	417,042	402,181
Accruing Loans Past Due 90 Days or More	0	0
Loans to individuals [Member]
Schedule of past due loans [Abstract]
Total Past Due	139	296
Current	30,382	32,012
Total Loans Receivable	30,521	32,308
Accruing Loans Past Due 90 Days or More	0	0
State and political subdivisions [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	0
Current	56,424	49,896
Total Loans Receivable	56,424	49,896
Accruing Loans Past Due 90 Days or More	0	0
30 - 59 Days Past Due [Member]
Schedule of past due loans [Abstract]
Total Past Due	9,063	9,211
30 - 59 Days Past Due [Member] | Agricultural [Member]
Schedule of past due loans [Abstract]
Total Past Due	783	163
30 - 59 Days Past Due [Member] | Commercial and Financial [Member]
Schedule of past due loans [Abstract]
Total Past Due	1,140	1,076
30 - 59 Days Past Due [Member] | Real Estate: Construction, 1 to 4 family residential [Member]
Schedule of past due loans [Abstract]
Total Past Due	630	635
30 - 59 Days Past Due [Member] | Real Estate: Construction, land development and commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	928	215
30 - 59 Days Past Due [Member] | Real Estate: Mortgage, farmland [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	736
30 - 59 Days Past Due [Member] | Real Estate: Mortgage, 1 to 4 family first liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	670	5,026
30 - 59 Days Past Due [Member] | Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	65	813
30 - 59 Days Past Due [Member] | Real Estate: Mortgage, multi-family [Member]
Schedule of past due loans [Abstract]
Total Past Due	4,008	0
30 - 59 Days Past Due [Member] | Real Estate: Mortgage, commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	731	321
30 - 59 Days Past Due [Member] | Loans to individuals [Member]
Schedule of past due loans [Abstract]
Total Past Due	108	226
30 - 59 Days Past Due [Member] | State and political subdivisions [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	0
60 - 89 Days Past Due [Member]
Schedule of past due loans [Abstract]
Total Past Due	4,807	4,472
60 - 89 Days Past Due [Member] | Agricultural [Member]
Schedule of past due loans [Abstract]
Total Past Due	6	275
60 - 89 Days Past Due [Member] | Commercial and Financial [Member]
Schedule of past due loans [Abstract]
Total Past Due	490	229
60 - 89 Days Past Due [Member] | Real Estate: Construction, 1 to 4 family residential [Member]
Schedule of past due loans [Abstract]
Total Past Due	668	0
60 - 89 Days Past Due [Member] | Real Estate: Construction, land development and commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	47	101
60 - 89 Days Past Due [Member] | Real Estate: Mortgage, farmland [Member]
Schedule of past due loans [Abstract]
Total Past Due	315	0
60 - 89 Days Past Due [Member] | Real Estate: Mortgage, 1 to 4 family first liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	1,195	3,100
60 - 89 Days Past Due [Member] | Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	260	126
60 - 89 Days Past Due [Member] | Real Estate: Mortgage, multi-family [Member]
Schedule of past due loans [Abstract]
Total Past Due	1,799	97
60 - 89 Days Past Due [Member] | Real Estate: Mortgage, commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	489
60 - 89 Days Past Due [Member] | Loans to individuals [Member]
Schedule of past due loans [Abstract]
Total Past Due	27	55
60 - 89 Days Past Due [Member] | State and political subdivisions [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	0
90 Days or More Past Due [Member]
Schedule of past due loans [Abstract]
Total Past Due	13,800	5,230
90 Days or More Past Due [Member] | Agricultural [Member]
Schedule of past due loans [Abstract]
Total Past Due	556	122
90 Days or More Past Due [Member] | Commercial and Financial [Member]
Schedule of past due loans [Abstract]
Total Past Due	2,451	101
90 Days or More Past Due [Member] | Real Estate: Construction, 1 to 4 family residential [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	0
90 Days or More Past Due [Member] | Real Estate: Construction, land development and commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	7,000	0
90 Days or More Past Due [Member] | Real Estate: Mortgage, farmland [Member]
Schedule of past due loans [Abstract]
Total Past Due	645	610
90 Days or More Past Due [Member] | Real Estate: Mortgage, 1 to 4 family first liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	2,724	4,149
90 Days or More Past Due [Member] | Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Schedule of past due loans [Abstract]
Total Past Due	109	233
90 Days or More Past Due [Member] | Real Estate: Mortgage, multi-family [Member]
Schedule of past due loans [Abstract]
Total Past Due	0	0
90 Days or More Past Due [Member] | Real Estate: Mortgage, commercial [Member]
Schedule of past due loans [Abstract]
Total Past Due	311	0
90 Days or More Past Due [Member] | Loans to individuals [Member]
Schedule of past due loans [Abstract]
Total Past Due	4	15
90 Days or More Past Due [Member] | State and political subdivisions [Member]
Schedule of past due loans [Abstract]
Total Past Due	$ 0	$ 0

XML

Loans, Impaired Financing Receivable Loan Type (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($) loan	Dec. 31, 2019 USD ($)
Summary of certain impaired loan information [Abstract]
Non-accrual loans	$ 10,876	$ 10,768
Accruing loans past due 90 days or more	9,337	606
TDR loans	7,900	$ 9,308
Increase accruing loans past due 90 days or more	$ 8,730
Primary increase accruing loans past due 90 days or more, number of loans | loan	1
Primary increase included in accruing loans past due 90 days or more during period	$ 9,000
Number of accruing loans past due 90 days or more	6	8
Average 90 days or more past due loan balance	$ 1,560	$ 80
Agricultural [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	1,537	1,192
Accruing loans past due 90 days or more	14	48
TDR loans	111	404
Commercial and financial [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	804	679
Accruing loans past due 90 days or more	2,288	65
TDR loans	1,059	1,934
Real Estate: Construction, 1 to 4 family residential [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	315	0
Accruing loans past due 90 days or more	0	0
TDR loans	0	0
Real Estate: Construction, land development and commercial [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	206	0
Accruing loans past due 90 days or more	7,000	0
TDR loans	315	320
Real Estate: Mortgage, farmland [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	1,117	1,369
Accruing loans past due 90 days or more	35	0
TDR loans	1,288	2,712
Real Estate: Mortgage, 1 to 4 family first liens [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	5,292	6,558
Accruing loans past due 90 days or more	0	354
TDR loans	1,590	1,626
Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	195	94
Accruing loans past due 90 days or more	0	139
TDR loans	0	0
Real Estate: Mortgage, multi-family [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	82	97
Accruing loans past due 90 days or more	0	0
TDR loans	1,704	1,719
Real Estate: Mortgage, commercial [Member]
Summary of certain impaired loan information [Abstract]
Non-accrual loans	1,328	779
Accruing loans past due 90 days or more	0	0
TDR loans	1,833	593
Troubled Debt Restructuring [Member]
Summary of certain impaired loan information [Abstract]
TDR Loans included within nonaccrual loans	$ 4,200	$ 4,340

XML

Loans, Troubled Debt Restructuring (Details) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2020 USD ($) contract	Sep. 30, 2020 USD ($) contract loan	Dec. 31, 2019 USD ($) contract loan
Summary of information for TDR loans [Abstract]
Number of contracts | contract		61	60
Recorded investment	$ 12,108	$ 12,108	$ 13,709
Commitments outstanding	$ 99	$ 99	98
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	3	13
Pre-modification recorded investment	$ 1,423	$ 2,351
Post-modification recorded investment	1,423	2,351
Commitments to lend additional borrowings	100	$ 100	$ 100
Number of TDR loans default payment | loan		0	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment			$ 65
Agricultural [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		7	9
Recorded investment	1,309	$ 1,309	$ 1,552
Commitments outstanding	$ 10	$ 10	$ 3
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	2
Pre-modification recorded investment	$ 0	$ 93
Post-modification recorded investment	0	$ 93
Commercial and Financial [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		16	16
Recorded investment	1,677	$ 1,677	$ 2,641
Commitments outstanding	$ 85	$ 85	$ 95
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	1	3
Pre-modification recorded investment	$ 90	$ 308
Post-modification recorded investment	90	$ 308
Real Estate: Construction, 1 to 4 family residential [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		0	0
Recorded investment	0	$ 0	$ 0
Commitments outstanding	$ 0	$ 0	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	0
Pre-modification recorded investment	$ 0	$ 0
Post-modification recorded investment	0	$ 0
Real Estate: Construction, land development and commercial [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		2	2
Recorded investment	315	$ 315	$ 320
Commitments outstanding	$ 4	$ 4	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	0
Pre-modification recorded investment	$ 0	$ 0
Post-modification recorded investment	0	$ 0
Real Estate: Mortgage, farmland [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		7	8
Recorded investment	2,352	$ 2,352	$ 4,021
Commitments outstanding	$ 0	$ 0	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	0
Pre-modification recorded investment	$ 0	$ 0
Post-modification recorded investment	0	$ 0
Real Estate: Mortgage, 1 to 4 family first liens [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		18	16
Recorded investment	1,901	$ 1,901	$ 2,083
Commitments outstanding	$ 0	$ 0	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	5
Pre-modification recorded investment	$ 0	$ 104
Post-modification recorded investment	0	$ 104
Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		0	0
Recorded investment	0	$ 0	$ 0
Commitments outstanding	$ 0	$ 0	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	0
Pre-modification recorded investment	$ 0	$ 0
Post-modification recorded investment	0	$ 0
Real Estate: Mortgage, multi-family [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		2	2
Recorded investment	1,704	$ 1,704	$ 1,719
Commitments outstanding	$ 0	$ 0	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	0	0
Pre-modification recorded investment	$ 0	$ 0
Post-modification recorded investment	0	$ 0
Real Estate: Mortgage, commercial [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		9	7
Recorded investment	2,850	$ 2,850	$ 1,373
Commitments outstanding	$ 0	$ 0	$ 0
Summary of troubled debt restructuring loans were modified [Abstract]
Number of contracts | contract	2	3
Pre-modification recorded investment	$ 1,333	$ 1,846
Post-modification recorded investment	1,333	$ 1,846
Loans to individuals [Member]
Summary of information for TDR loans [Abstract]
Number of contracts | contract		0	0
Recorded investment	0	$ 0	$ 0
Commitments outstanding	$ 0	$ 0	$ 0

XML

Loans, Impaired Financing Receivables Activity (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Dec. 31, 2019
Recorded Investment
With no related allowance recorded	$ 17,750	$ 17,750	$ 17,713
With an allowance recorded	10,922	10,922	3,212
Total impaired loans	28,672	28,672	20,925
Unpaid Principal Balance
With no related allowance recorded	23,778	23,778	22,527
With an allowance recorded	11,031	11,031	3,570
Total	34,809	34,809	26,097
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	745	745	1,084
Total	745	745	$ 1,084
Average Recorded Investment
With no related allowance recorded	20,867	20,081
With an allowance recorded	11,059	11,038
Total	31,926	31,119
Interest Income Recognized
With no related allowance recorded	124	358
With an allowance recorded	120	356
Total	$ 244	714
Increase in impaired loans		$ 7,750
Percentages of impaired loans to loans held for investment (in hundredths)	1.05%	1.05%	0.79%
Increase in nonaccrual loans		$ 110
Decrease in TDR loans		1,410
Increase (Decrease) accruing loans past days or more financing receivable unpaid principal balance		$ 8,730
Prior period within which impairment is being measured		1 year
Number of period within which average appraisals obtained		1 month
Agricultural and Farmland Real Estate [Member]
Interest Income Recognized
Increase in impaired loans		$ 460
Agricultural [Member]
Recorded Investment
With no related allowance recorded	$ 1,648	1,648	$ 1,596
With an allowance recorded	94	94	134
Total impaired loans	1,742	1,742	1,730
Unpaid Principal Balance
With no related allowance recorded	2,308	2,308	2,157
With an allowance recorded	94	94	134
Total	2,402	2,402	2,291
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	80	80	87
Total	80	80	87
Average Recorded Investment
With no related allowance recorded	1,859	1,822
With an allowance recorded	109	102
Total	1,968	1,924
Interest Income Recognized
With no related allowance recorded	6	18
With an allowance recorded	2	6
Total	8	24
Commercial and Financial [Member]
Recorded Investment
With no related allowance recorded	2,974	2,974	1,340
With an allowance recorded	2,975	2,975	1,402
Total impaired loans	5,949	5,949	2,742
Unpaid Principal Balance
With no related allowance recorded	4,708	4,708	2,220
With an allowance recorded	3,028	3,028	1,539
Total	7,736	7,736	3,759
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	477	477	792
Total	477	477	792
Average Recorded Investment
With no related allowance recorded	3,788	3,641
With an allowance recorded	3,071	3,060
Total	6,859	6,701
Interest Income Recognized
With no related allowance recorded	38	110
With an allowance recorded	33	99
Total	71	209
Real Estate: Construction, 1 to 4 family residential [Member]
Recorded Investment
With no related allowance recorded	412	412	101
With an allowance recorded	0	0	0
Total impaired loans	412	412	101
Unpaid Principal Balance
With no related allowance recorded	480	480	144
With an allowance recorded	0	0	0
Total	480	480	144
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	0	0	0
Total	0	0	0
Average Recorded Investment
With no related allowance recorded	700	575
With an allowance recorded	0	0
Total	700	575
Interest Income Recognized
With no related allowance recorded	0	0
With an allowance recorded	0	0
Total	0	0
Real Estate: Construction, land development and commercial [Member]
Recorded Investment
With no related allowance recorded	521	521	320
With an allowance recorded	7,000	7,000	0
Total impaired loans	7,521	7,521	320
Unpaid Principal Balance
With no related allowance recorded	540	540	336
With an allowance recorded	7,000	7,000	0
Total	7,540	7,540	336
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	87	87	0
Total	87	87	0
Average Recorded Investment
With no related allowance recorded	528	526
With an allowance recorded	7,000	7,000
Total	7,528	7,526
Interest Income Recognized
With no related allowance recorded	4	13
With an allowance recorded	80	236
Total	84	249
Real Estate: Mortgage, farmland [Member]
Recorded Investment
With no related allowance recorded	2,405	2,405	4,081
With an allowance recorded	35	35	0
Total impaired loans	2,440	2,440	4,081
Unpaid Principal Balance
With no related allowance recorded	2,936	2,936	4,613
With an allowance recorded	35	35	0
Total	2,971	2,971	4,613
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	1	1	0
Total	1	1	0
Average Recorded Investment
With no related allowance recorded	3,420	3,242
With an allowance recorded	37	37
Total	3,457	3,279
Interest Income Recognized
With no related allowance recorded	32	90
With an allowance recorded	1	1
Total	33	91
Real Estate: Mortgage, 1 to 4 family first liens [Member]
Recorded Investment
With no related allowance recorded	6,135	6,135	7,157
With an allowance recorded	650	650	1,280
Total impaired loans	6,785	6,785	8,437
Unpaid Principal Balance
With no related allowance recorded	7,939	7,939	9,015
With an allowance recorded	701	701	1,501
Total	8,640	8,640	10,516
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	49	49	64
Total	49	49	64
Average Recorded Investment
With no related allowance recorded	6,585	6,422
With an allowance recorded	668	666
Total	7,253	7,088
Interest Income Recognized
With no related allowance recorded	18	51
With an allowance recorded	3	10
Total	21	61
Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Recorded Investment
With no related allowance recorded	108	108	0
With an allowance recorded	87	87	233
Total impaired loans	195	195	233
Unpaid Principal Balance
With no related allowance recorded	353	353	246
With an allowance recorded	92	92	233
Total	445	445	479
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	37	37	47
Total	37	37	47
Average Recorded Investment
With no related allowance recorded	161	135
With an allowance recorded	91	90
Total	252	225
Interest Income Recognized
With no related allowance recorded	0	0
With an allowance recorded	0	0
Total	0	0
Real Estate: Mortgage, multi-family [Member]
Recorded Investment
With no related allowance recorded	1,786	1,786	1,816
With an allowance recorded	0	0	0
Total impaired loans	1,786	1,786	1,816
Unpaid Principal Balance
With no related allowance recorded	1,908	1,908	1,930
With an allowance recorded	0	0	0
Total	1,908	1,908	1,930
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	0	0	0
Total	0	0	0
Average Recorded Investment
With no related allowance recorded	1,807	1,801
With an allowance recorded	0	0
Total	1,807	1,801
Interest Income Recognized
With no related allowance recorded	21	61
With an allowance recorded	0	0
Total	21	61
Real Estate: Mortgage, commercial [Member]
Recorded Investment
With no related allowance recorded	1,761	1,761	1,302
With an allowance recorded	67	67	70
Total impaired loans	1,828	1,828	1,372
Unpaid Principal Balance
With no related allowance recorded	2,592	2,592	1,852
With an allowance recorded	67	67	70
Total	2,659	2,659	1,922
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	0	0	1
Total	0	0	1
Average Recorded Investment
With no related allowance recorded	2,019	1,917
With an allowance recorded	69	69
Total	2,088	1,986
Interest Income Recognized
With no related allowance recorded	5	15
With an allowance recorded	1	3
Total	6	18
Loans to individuals [Member]
Recorded Investment
With no related allowance recorded	0	0	0
With an allowance recorded	14	14	93
Total impaired loans	14	14	93
Unpaid Principal Balance
With no related allowance recorded	14	14	14
With an allowance recorded	14	14	93
Total	28	28	107
Related Allowance
With no related allowance recorded	0	0	0
With an allowance recorded	14	14	93
Total	14	14	$ 93
Average Recorded Investment
With no related allowance recorded	0	0
With an allowance recorded	14	14
Total	14	14
Interest Income Recognized
With no related allowance recorded	0	0
With an allowance recorded	0	1
Total	$ 0	$ 1

XML

Leases (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Lessee, Lease, Description [Line Items]
Lease term, option to extend (up to)	10 years
Lease term, option to terminate (within)	1 year
Operating lease expense	$ 420	$ 470
Operating lease cost	350	400
Short-term lease cost	30	20
Variable lease cost	40	50
Operating lease payments	350	400
Right-of-use assets obtained in exchange for lease obligations	0	$ 3,581
Operating lease, right-of-use asset	2,910		$ 3,200
Total operating lease liabilities	$ 2,955		$ 3,230
Weighted average remaining lease term	11 years 3 months		10 years 10 months 9 days
Weighted average discount rate	3.48%		3.46%
Minimum [Member]
Lessee, Lease, Description [Line Items]
Lease term	1 year
Maximum [Member]
Lessee, Lease, Description [Line Items]
Lease term	15 years

XML

Leases - Minimum Future Rental Commitments, Topic 842 (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Leases [Abstract]
2020	$ 117
2021	456
2022	447
2023	301
2024	250
Thereafter	2,009
Total lease payments	3,580
Less imputed interest	(625)
Total operating lease liabilities	$ 2,955	$ 3,230

XML

Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Deposits
Other borrowings	$ 43	$ 0
Readily Available Market Prices [Member]
Financial instrument assets:
Cash and cash equivalents	560,738	241,965
Investment securities	151,835	128,585
Loans held for sale	0	0
Loans
Agricultural	0	0
Commercial and financial	0	0
Real estate:
Construction, 1 to 4 family residential	0	0
Construction, land development and commercial	0	0
Mortgage, farmland	0	0
Mortgage, 1 to 4 family first liens	0	0
Mortgage, 1 to 4 family junior liens	0	0
Mortgage, multi-family	0	0
Mortgage, commercial	0	0
Loans to individuals	0	0
Obligations of state and political subdivisions	0	0
Accrued interest receivable	0	0
Total financial instrument assets	712,573	370,550
Deposits
Noninterest-bearing deposits	0	0
Interest-bearing deposits	0	0
Other borrowings	0
Federal Home Loan Bank borrowings	0	0
Interest rate swaps	0
Accrued interest payable	0	0
Total financial instrument liabilities	0	0
Financial instrument with off-balance sheet risk:
Loan commitments	0	0
Letters of credit	0	0
Total financial instrument liabilities with off-balance-sheet risk	0	0
Observable Market Prices [Member]
Financial instrument assets:
Cash and cash equivalents	0	0
Investment securities	234,793	237,783
Loans held for sale	27,980	8,400
Loans
Agricultural	0	0
Commercial and financial	0	0
Real estate:
Construction, 1 to 4 family residential	0	0
Construction, land development and commercial	0	0
Mortgage, farmland	0	0
Mortgage, 1 to 4 family first liens	0	0
Mortgage, 1 to 4 family junior liens	0	0
Mortgage, multi-family	0	0
Mortgage, commercial	0	0
Loans to individuals	0	0
Obligations of state and political subdivisions	0	0
Accrued interest receivable	13,731	12,442
Total financial instrument assets	276,504	258,625
Deposits
Noninterest-bearing deposits	500,272	387,612
Interest-bearing deposits	2,630,803	2,292,332
Other borrowings	43
Federal Home Loan Bank borrowings	185,869	186,091
Interest rate swaps	3,075	2,349
Accrued interest payable	2,198	2,474
Total financial instrument liabilities	3,322,260	2,870,858
Financial instrument with off-balance sheet risk:
Loan commitments	0	0
Letters of credit	0	0
Total financial instrument liabilities with off-balance-sheet risk	0	0
Company Determined Market Prices [Member]
Financial instrument assets:
Cash and cash equivalents	0	0
Investment securities	0	0
Loans held for sale	0	0
Loans
Agricultural	94,086	90,118
Commercial and financial	330,164	217,640
Real estate:
Construction, 1 to 4 family residential	69,819	79,954
Construction, land development and commercial	112,610	107,276
Mortgage, farmland	238,974	239,521
Mortgage, 1 to 4 family first liens	896,881	896,676
Mortgage, 1 to 4 family junior liens	127,667	143,261
Mortgage, multi-family	367,834	349,663
Mortgage, commercial	413,699	395,838
Loans to individuals	30,070	32,722
Obligations of state and political subdivisions	56,945	50,564
Accrued interest receivable	0	0
Total financial instrument assets	2,738,749	2,603,233
Deposits
Noninterest-bearing deposits	0	0
Interest-bearing deposits	0	0
Other borrowings	0
Federal Home Loan Bank borrowings	0	0
Interest rate swaps	0
Accrued interest payable	0	0
Total financial instrument liabilities	0	0
Financial instrument with off-balance sheet risk:
Loan commitments	0	0
Letters of credit	0	0
Total financial instrument liabilities with off-balance-sheet risk	0	0
Carrying Amount [Member]
Financial instrument assets:
Cash and cash equivalents	560,738	241,965
Investment securities	386,628	366,368
Loans held for sale	27,980	8,400
Loans
Agricultural	93,726	88,917
Commercial and financial	330,118	216,335
Real estate:
Construction, 1 to 4 family residential	69,639	79,096
Construction, land development and commercial	112,865	106,924
Mortgage, farmland	239,641	238,780
Mortgage, 1 to 4 family first liens	890,560	902,630
Mortgage, 1 to 4 family junior liens	129,948	147,634
Mortgage, multi-family	366,800	346,938
Mortgage, commercial	412,116	398,145
Loans to individuals	29,832	31,455
Obligations of state and political subdivisions	55,785	49,423
Accrued interest receivable	13,731	12,442
Total financial instrument assets	3,720,107	3,235,452
Deposits
Noninterest-bearing deposits	500,272	387,612
Interest-bearing deposits	2,614,279	2,273,752
Other borrowings	43
Federal Home Loan Bank borrowings	185,000	185,000
Interest rate swaps	3,075	2,349
Accrued interest payable	2,198	2,474
Total financial instrument liabilities	3,304,867	2,851,187
Financial instrument with off-balance sheet risk:
Loan commitments	476,859	424,165
Letters of credit	8,300	8,569
Total financial instrument liabilities with off-balance-sheet risk	485,159	432,734
Estimated Fair Value [Member]
Financial instrument assets:
Cash and cash equivalents	560,738	241,965
Investment securities	386,628	366,368
Loans held for sale	27,980	8,400
Loans
Agricultural	94,086	90,118
Commercial and financial	330,164	217,640
Real estate:
Construction, 1 to 4 family residential	69,819	79,954
Construction, land development and commercial	112,610	107,276
Mortgage, farmland	238,974	239,521
Mortgage, 1 to 4 family first liens	896,881	896,676
Mortgage, 1 to 4 family junior liens	127,667	143,261
Mortgage, multi-family	367,834	349,663
Mortgage, commercial	413,699	395,838
Loans to individuals	30,070	32,722
Obligations of state and political subdivisions	56,945	50,564
Accrued interest receivable	13,731	12,442
Total financial instrument assets	3,727,826	3,232,408
Deposits
Noninterest-bearing deposits	500,272	387,612
Interest-bearing deposits	2,630,803	2,292,332
Other borrowings	43
Federal Home Loan Bank borrowings	185,869	186,091
Interest rate swaps	3,075	2,349
Accrued interest payable	2,198	2,474
Total financial instrument liabilities	3,322,260	2,870,858
Financial instrument with off-balance sheet risk:
Loan commitments	0	0
Letters of credit	0	0
Total financial instrument liabilities with off-balance-sheet risk	$ 0	$ 0

XML

Fair Value Measurements, Assets and Liabilities Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	$ 375,255	$ 355,303
U.S. Treasury [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	151,835	128,585
State and political subdivisions [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	198,211	211,489
Readily Available Market Prices [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	0
Total	712,573	370,550
Observable Market Prices [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	(3,075)	(2,349)
Total	276,504	258,625
Company Determined Market Prices [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	0
Total	2,738,749	2,603,233
Recurring Basis [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Total	372,180	352,954
Recurring Basis [Member] | U.S. Treasury [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	151,835	128,585
Recurring Basis [Member] | State and political subdivisions [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	198,211	211,489
Recurring Basis [Member] | Other securities (FHLB, FHLMC and FNMA) [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	25,209	15,229
Recurring Basis [Member] | Interest rate swaps [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	(3,075)	(2,349)
Recurring Basis [Member] | Readily Available Market Prices [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Total	151,835	128,585
Recurring Basis [Member] | Readily Available Market Prices [Member] | U.S. Treasury [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	151,835	128,585
Recurring Basis [Member] | Readily Available Market Prices [Member] | State and political subdivisions [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	0	0
Recurring Basis [Member] | Readily Available Market Prices [Member] | Other securities (FHLB, FHLMC and FNMA) [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	0	0
Recurring Basis [Member] | Readily Available Market Prices [Member] | Interest rate swaps [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	0
Recurring Basis [Member] | Observable Market Prices [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Total	220,345	224,369
Recurring Basis [Member] | Observable Market Prices [Member] | U.S. Treasury [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	0	0
Recurring Basis [Member] | Observable Market Prices [Member] | State and political subdivisions [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	198,211	211,489
Recurring Basis [Member] | Observable Market Prices [Member] | Other securities (FHLB, FHLMC and FNMA) [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	25,209	15,229
Recurring Basis [Member] | Observable Market Prices [Member] | Interest rate swaps [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	(3,075)	(2,349)
Recurring Basis [Member] | Company Determined Market Prices [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Total	0	0
Recurring Basis [Member] | Company Determined Market Prices [Member] | U.S. Treasury [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	0	0
Recurring Basis [Member] | Company Determined Market Prices [Member] | State and political subdivisions [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	0	0
Recurring Basis [Member] | Company Determined Market Prices [Member] | Other securities (FHLB, FHLMC and FNMA) [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Securities available for sale	0	$ 0
Recurring Basis [Member] | Company Determined Market Prices [Member] | Interest rate swaps [Member]
Summary of assets and liabilities measured at fair value on a recurring basis [Abstract]
Derivative Financial Instruments	$ 0

XML

Fair Value Measurements, Assets and Liabilities on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Dec. 31, 2019
Readily Available Market Prices [Member]
Loans
Agricultural	$ 0	$ 0	$ 0
Commercial and financial	0	0	0
Real Estate:
Construction, land development and commercial	0	0	0
Mortgage, farmland	0	0	0
Mortgage, 1 to 4 family first liens	0	0	0
Mortgage, 1 to 4 family junior liens	0	0	0
Mortgage, multi-family	0	0	0
Mortgage, commercial	0	0	0
Loans to individuals	0	0	0
Total financial instrument assets	712,573	712,573	370,550
Observable Market Prices [Member]
Loans
Agricultural	0	0	0
Commercial and financial	0	0	0
Real Estate:
Construction, land development and commercial	0	0	0
Mortgage, farmland	0	0	0
Mortgage, 1 to 4 family first liens	0	0	0
Mortgage, 1 to 4 family junior liens	0	0	0
Mortgage, multi-family	0	0	0
Mortgage, commercial	0	0	0
Loans to individuals	0	0	0
Total financial instrument assets	276,504	276,504	258,625
Company Determined Market Prices [Member]
Loans
Agricultural	94,086	94,086	90,118
Commercial and financial	330,164	330,164	217,640
Real Estate:
Construction, land development and commercial	112,610	112,610	107,276
Mortgage, farmland	238,974	238,974	239,521
Mortgage, 1 to 4 family first liens	896,881	896,881	896,676
Mortgage, 1 to 4 family junior liens	127,667	127,667	143,261
Mortgage, multi-family	367,834	367,834	349,663
Mortgage, commercial	413,699	413,699	395,838
Loans to individuals	30,070	30,070	32,722
Total financial instrument assets	2,738,749	2,738,749	2,603,233
Nonrecurring Basis [Member]
Loans
Agricultural	1,376	1,376	1,272
Commercial and financial	1,843	1,843	1,803
Real Estate:
Construction, 1 to 4 family residential	419	419	0
Construction, land development and commercial	315	315	215
Mortgage, farmland	2,062	2,062	3,576
Mortgage, 1 to 4 family first liens	6,702	6,702	7,986
Mortgage, 1 to 4 family junior liens	158	158	49
Mortgage, multi-family	1,786	1,786	1,816
Mortgage, commercial	3,094	3,094	1,237
Loans to individuals	0	0	0
Foreclosed assets	0	0	0
Total financial instrument assets	17,755	17,755	17,954
Total Losses	195	811	1,038
Nonrecurring Basis [Member] | Agricultural [Member]
Real Estate:
Total Losses	0	0	36
Nonrecurring Basis [Member] | Commercial and financial [Member]
Real Estate:
Total Losses	0	385	499
Nonrecurring Basis [Member] | Real Estate: Construction, 1 to 4 family residential [Member]
Real Estate:
Total Losses	0	0	0
Nonrecurring Basis [Member] | Real Estate: Construction, land development and commercial [Member]
Real Estate:
Total Losses	0	0	8
Nonrecurring Basis [Member] | Real Estate: Mortgage, farmland [Member]
Real Estate:
Total Losses	0	0	0
Nonrecurring Basis [Member] | Real Estate: Mortgage, 1 to 4 family first liens [Member]
Real Estate:
Total Losses	20	176	370
Nonrecurring Basis [Member] | Real Estate: Mortgage, 1 to 4 family junior liens [Member]
Real Estate:
Total Losses	0	0	0
Nonrecurring Basis [Member] | Real Estate: Mortgage, multi-family [Member]
Real Estate:
Total Losses	0	0	0
Nonrecurring Basis [Member] | Real Estate: Mortgage, commercial [Member]
Real Estate:
Total Losses	175	250	125
Nonrecurring Basis [Member] | Loans to individuals [Member]
Real Estate:
Total Losses	0	0	0
Nonrecurring Basis [Member] | Foreclosed assets [Member]
Real Estate:
Total Losses	0	0	0
Nonrecurring Basis [Member] | Readily Available Market Prices [Member]
Loans
Agricultural	0	0	0
Commercial and financial	0	0	0
Real Estate:
Construction, 1 to 4 family residential	0	0	0
Construction, land development and commercial	0	0	0
Mortgage, farmland	0	0	0
Mortgage, 1 to 4 family first liens	0	0	0
Mortgage, 1 to 4 family junior liens	0	0	0
Mortgage, multi-family	0	0	0
Mortgage, commercial	0	0	0
Loans to individuals	0	0	0
Foreclosed assets	0	0	0
Total financial instrument assets	0	0	0
Nonrecurring Basis [Member] | Observable Market Prices [Member]
Loans
Agricultural	0	0	0
Commercial and financial	0	0	0
Real Estate:
Construction, 1 to 4 family residential	0	0	0
Construction, land development and commercial	0	0	0
Mortgage, farmland	0	0	0
Mortgage, 1 to 4 family first liens	0	0	0
Mortgage, 1 to 4 family junior liens	0	0	0
Mortgage, multi-family	0	0	0
Mortgage, commercial	0	0	0
Loans to individuals	0	0	0
Foreclosed assets	0	0	0
Total financial instrument assets	0	0	0
Nonrecurring Basis [Member] | Company Determined Market Prices [Member]
Loans
Agricultural	1,376	1,376	1,272
Commercial and financial	1,843	1,843	1,803
Real Estate:
Construction, 1 to 4 family residential	419	419	0
Construction, land development and commercial	315	315	215
Mortgage, farmland	2,062	2,062	3,576
Mortgage, 1 to 4 family first liens	6,702	6,702	7,986
Mortgage, 1 to 4 family junior liens	158	158	49
Mortgage, multi-family	1,786	1,786	1,816
Mortgage, commercial	3,094	3,094	1,237
Loans to individuals	0	0	0
Foreclosed assets	0	0	0
Total financial instrument assets	$ 17,755	$ 17,755	$ 17,954

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Stock Repurchase Program (Details) - $ / shares	3 Months Ended		9 Months Ended		182 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Jul. 26, 2005
Equity [Abstract]
Maximum number of share authorized to repurchase under the program (in shares)						1,500,000
Common stock purchased during the period (in shares)	29,807	8,209	112,407	83,606	1,328,410
Average price per share (in dollars per share)	$ 60.86

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Commitments and Contingencies - Narrative (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Derecho Storm, 2020 [Member]
Concentration Risk [Line Items]
Short-term loan modification, primarily 1 to 4 family non-owner occupied, multifamily, and commercial real estate loans	$ 15,380
State and political subdivisions [Member]
Concentration Risk [Line Items]
Investment in securities issued by state and political subdivisions within the state of Iowa	$ 81,420

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Commitments and Contingencies - Bank Commitments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Home equity loans
Firm loan commitments and unused portion of lines of credit:
Total financial instrument liabilities with off-balance-sheet risk	$ 70,765	$ 65,203
Credit cards
Firm loan commitments and unused portion of lines of credit:
Total financial instrument liabilities with off-balance-sheet risk	60,661	57,421
Commercial, real estate and home construction
Firm loan commitments and unused portion of lines of credit:
Total financial instrument liabilities with off-balance-sheet risk	112,534	94,490
Commercial lines and real estate purchase loans
Firm loan commitments and unused portion of lines of credit:
Total financial instrument liabilities with off-balance-sheet risk	232,899	207,051
Outstanding letters of credit
Firm loan commitments and unused portion of lines of credit:
Total financial instrument liabilities with off-balance-sheet risk	$ 8,300	$ 8,569

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Income Taxes (Details)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Tax Examination [Line Items]
Effective tax rate	22.43%	22.02%
Internal Revenue Service (IRS) [Member]
Income Tax Examination [Line Items]
Income tax examination, years under examination	December 31, 2019, 2018 and 2017
State and Local Jurisdiction [Member]
Income Tax Examination [Line Items]
Income tax examination, years under examination	December 31, 2019, 2018 and 2017

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Derivative Financial Instruments (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Nov. 07, 2013 USD ($) derivative
Derivatives, Fair Value [Line Items]
Owned and pledged as collateral	$ 3,080,000.00		$ 3,080,000.00
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Recognized in OCI	364,000	$ (103,000)	(726,000)	$ (1,081,000)
Interest Rate Swap 1 [Member] | Interest Expense [Member]
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Reclassified from AOCI into Income			0		$ 0
Interest Rate Swap 1 [Member] | Other Income [Member]
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Recognized in Income on Derivatives			0		0
Interest Rate Swap 1 [Member] | Other Liabilities [Member]
Derivative instrument according to type of hedges [Abstract]
Notional Amount	25,000,000		25,000,000		25,000,000	$ 25,000,000.00
Fair Value	(170,000)		$ (170,000)		$ (279,000)
Maturity			Nov. 09, 2020		Nov. 09, 2020
Interest Rate Swap 1 [Member] | Accumulated Other Comprehensive Income (Loss) [Member]
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Recognized in OCI			$ 81,000		$ (119,000)
Interest Rate Swap 2 [Member] | Interest Expense [Member]
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Reclassified from AOCI into Income			0		0
Interest Rate Swap 2 [Member] | Other Income [Member]
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Recognized in Income on Derivatives			0		0
Interest Rate Swap 2 [Member] | Other Liabilities [Member]
Derivative instrument according to type of hedges [Abstract]
Notional Amount	25,000,000		25,000,000		25,000,000	$ 25,000,000.00
Fair Value	$ (2,905,000)		$ (2,905,000)		$ (2,070,000)
Maturity			Nov. 07, 2023		Nov. 07, 2023
Interest Rate Swap 2 [Member] | Accumulated Other Comprehensive Income (Loss) [Member]
Gain (Loss) Recognized in Other Comprehensive Income, Net [Abstract]
Amount of Gain (Loss), Recognized in OCI			$ (626,000)		$ (446,000)
Designated as Hedging Instrument [Member]
Derivatives, Fair Value [Line Items]
Number of interest rate swaps held | derivative						2
Designated as Hedging Instrument [Member] | Interest Rate Swap 1 [Member]
Derivatives, Fair Value [Line Items]
Number of interest rate swaps held | derivative						1