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 June 30, 2017
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: 000-26099
FARMERS & MERCHANTS BANCORP
(Exact name of registrant as specified in its charter)
Delaware
|
|
94-3327828
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
111 W. Pine Street, Lodi, California
|
|
95240
|
(Address of principal Executive offices)
|
|
(Zip Code)
|
Registrant's telephone number, including area code (209) 367-2300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer ☐
|
Accelerated filer ☒
|
Non-accelerated filer ☐
|
Smaller Reporting Company ☐
|
|
(Do not check if a smaller reporting company)
|
|
Emerging Growth ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock of the registrant 808,704 outstanding as of July 31, 2017.
FARMERS & MERCHANTS BANCORP
FORM 10-Q
31(a) Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b) Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
PART I. FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
FARMERS & MERCHANTS BANCORP
Consolidated Balance Sheets
(in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
June 30,
2016
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
Cash and Due from Banks
|
|
$
|
50,004
|
|
|
$
|
54,896
|
|
|
$
|
46,524
|
|
Interest Bearing Deposits with Banks
|
|
|
97,187
|
|
|
|
43,964
|
|
|
|
23,232
|
|
Total Cash and Cash Equivalents
|
|
|
147,191
|
|
|
|
98,860
|
|
|
|
69,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
461,867
|
|
|
|
448,263
|
|
|
|
362,223
|
|
Held-to-Maturity
|
|
|
56,381
|
|
|
|
58,109
|
|
|
|
60,949
|
|
Total Investment Securities
|
|
|
518,248
|
|
|
|
506,372
|
|
|
|
423,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans & Leases:
|
|
|
2,204,082
|
|
|
|
2,177,601
|
|
|
|
2,068,107
|
|
Less: Allowance for Credit Losses
|
|
|
49,064
|
|
|
|
47,919
|
|
|
|
44,118
|
|
Loans & Leases, Net
|
|
|
2,155,018
|
|
|
|
2,129,682
|
|
|
|
2,023,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and Equipment, Net
|
|
|
29,312
|
|
|
|
29,229
|
|
|
|
26,055
|
|
Bank Owned Life Insurance
|
|
|
58,671
|
|
|
|
57,761
|
|
|
|
56,846
|
|
Interest Receivable and Other Assets
|
|
|
104,159
|
|
|
|
100,217
|
|
|
|
91,047
|
|
Total Assets
|
|
$
|
3,012,599
|
|
|
$
|
2,922,121
|
|
|
$
|
2,690,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
736,077
|
|
|
$
|
756,236
|
|
|
$
|
646,408
|
|
Interest Bearing Transaction
|
|
|
527,568
|
|
|
|
495,063
|
|
|
|
452,758
|
|
Savings and Money Market
|
|
|
801,506
|
|
|
|
760,119
|
|
|
|
726,580
|
|
Time
|
|
|
596,727
|
|
|
|
570,293
|
|
|
|
502,200
|
|
Total Deposits
|
|
|
2,661,878
|
|
|
|
2,581,711
|
|
|
|
2,327,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Debentures
|
|
|
10,310
|
|
|
|
10,310
|
|
|
|
10,310
|
|
Interest Payable and Other Liabilities
|
|
|
48,691
|
|
|
|
50,119
|
|
|
|
87,337
|
|
Total Liabilities
|
|
|
2,720,879
|
|
|
|
2,642,140
|
|
|
|
2,425,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock: No Par Value, 1,000,000 Shares Authorized, None Issued or Outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common Stock: Par Value $0.01, 7,500,000 Shares Authorized, 808,704, 807,329 and 792,387 Shares Issued and Outstanding at June 30, 2017, December 31, 2016 and June 30, 2016, Respectively
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
Additional Paid-In Capital
|
|
|
91,482
|
|
|
|
90,671
|
|
|
|
82,004
|
|
Retained Earnings
|
|
|
199,862
|
|
|
|
189,313
|
|
|
|
179,382
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
368
|
|
|
|
(11
|
)
|
|
|
3,878
|
|
Total Shareholders' Equity
|
|
|
291,720
|
|
|
|
279,981
|
|
|
|
265,272
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
3,012,599
|
|
|
$
|
2,922,121
|
|
|
$
|
2,690,865
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
FARMERS & MERCHANTS BANCORP
Consolidated Statements of Income (Unaudited)
(in thousands except per share data)
|
|
Three Months
Ended June 30,
|
|
|
Six Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Fees on Loans & Leases
|
|
$
|
25,248
|
|
|
$
|
22,492
|
|
|
$
|
49,779
|
|
|
$
|
44,386
|
|
Interest on Deposits with Banks
|
|
|
258
|
|
|
|
36
|
|
|
|
507
|
|
|
|
82
|
|
Interest on Investment Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2,124
|
|
|
|
1,301
|
|
|
|
4,136
|
|
|
|
2,903
|
|
Exempt from Federal Tax
|
|
|
439
|
|
|
|
485
|
|
|
|
889
|
|
|
|
969
|
|
Total Interest Income
|
|
|
28,069
|
|
|
|
24,314
|
|
|
|
55,311
|
|
|
|
48,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,433
|
|
|
|
859
|
|
|
|
2,709
|
|
|
|
1,687
|
|
Borrowed Funds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Subordinated Debentures
|
|
|
105
|
|
|
|
92
|
|
|
|
205
|
|
|
|
180
|
|
Total Interest Expense
|
|
|
1,538
|
|
|
|
951
|
|
|
|
2,914
|
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
26,531
|
|
|
|
23,363
|
|
|
|
52,397
|
|
|
|
46,469
|
|
Provision for Credit Losses
|
|
|
650
|
|
|
|
-
|
|
|
|
1,250
|
|
|
|
2,600
|
|
Net Interest Income After Provision for Credit Losses
|
|
|
25,881
|
|
|
|
23,363
|
|
|
|
51,147
|
|
|
|
43,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposit Accounts
|
|
|
848
|
|
|
|
826
|
|
|
|
1,694
|
|
|
|
1,640
|
|
Net Gain (Loss) on Sale of Investment Securities
|
|
|
131
|
|
|
|
-
|
|
|
|
131
|
|
|
|
(289
|
)
|
Increase in Cash Surrender Value of Life Insurance
|
|
|
454
|
|
|
|
474
|
|
|
|
909
|
|
|
|
948
|
|
Debit Card and ATM Fees
|
|
|
977
|
|
|
|
858
|
|
|
|
1,887
|
|
|
|
1,693
|
|
Net Gain (Loss) on Deferred Compensation Investments
|
|
|
399
|
|
|
|
48
|
|
|
|
1,193
|
|
|
|
339
|
|
Other
|
|
|
730
|
|
|
|
669
|
|
|
|
3,131
|
|
|
|
1,265
|
|
Total Non-Interest Income
|
|
|
3,539
|
|
|
|
2,875
|
|
|
|
8,945
|
|
|
|
5,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits
|
|
|
11,450
|
|
|
|
10,083
|
|
|
|
23,942
|
|
|
|
21,789
|
|
Net Gain (Loss) on Deferred Compensation Investments
|
|
|
399
|
|
|
|
48
|
|
|
|
1,193
|
|
|
|
339
|
|
Occupancy
|
|
|
868
|
|
|
|
713
|
|
|
|
1,716
|
|
|
|
1,454
|
|
Equipment
|
|
|
1,026
|
|
|
|
842
|
|
|
|
2,013
|
|
|
|
1,699
|
|
Marketing
|
|
|
363
|
|
|
|
363
|
|
|
|
538
|
|
|
|
662
|
|
FDIC Insurance
|
|
|
233
|
|
|
|
324
|
|
|
|
461
|
|
|
|
640
|
|
Gain on Sale of ORE
|
|
|
(300
|
)
|
|
|
(257
|
)
|
|
|
(414
|
)
|
|
|
(5,941
|
)
|
Other
|
|
|
2,486
|
|
|
|
2,621
|
|
|
|
5,498
|
|
|
|
6,114
|
|
Total Non-Interest Expense
|
|
|
16,525
|
|
|
|
14,737
|
|
|
|
34,947
|
|
|
|
26,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
12,895
|
|
|
|
11,501
|
|
|
|
25,145
|
|
|
|
22,709
|
|
Provision for Income Taxes
|
|
|
4,708
|
|
|
|
4,169
|
|
|
|
9,137
|
|
|
|
8,205
|
|
Net Income
|
|
$
|
8,187
|
|
|
$
|
7,332
|
|
|
$
|
16,008
|
|
|
$
|
14,504
|
|
Basic Earnings Per Common Share
|
|
$
|
10.12
|
|
|
$
|
9.25
|
|
|
$
|
19.80
|
|
|
$
|
18.31
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
FARMERS & MERCHANTS BANCORP
Consolidated Statements of
Comprehensive Income (Unaudited)
(in thousands)
|
|
Three Months
Ended June 30,
|
|
|
Six Months
Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net Income
|
|
$
|
8,187
|
|
|
$
|
7,332
|
|
|
$
|
16,008
|
|
|
$
|
14,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Net Unrealized Gains on Available-for-Sale Securities
|
|
|
898
|
|
|
|
1,181
|
|
|
|
784
|
|
|
|
5,376
|
|
Deferred Tax Expense Related to Unrealized Gains
|
|
|
(378
|
)
|
|
|
(497
|
)
|
|
|
(330
|
)
|
|
|
(2,261
|
)
|
Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income
|
|
|
(130
|
)
|
|
|
-
|
|
|
|
(130
|
)
|
|
|
289
|
|
Deferred Tax Benefit Related to Reclassification Adjustment
|
|
|
55
|
|
|
|
(410
|
)
|
|
|
55
|
|
|
|
(121
|
)
|
Change in Net Unrealized Gains on Available-for-Sale Securities, Net of Tax
|
|
|
445
|
|
|
|
274
|
|
|
|
379
|
|
|
|
3,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income
|
|
|
445
|
|
|
|
274
|
|
|
|
379
|
|
|
|
3,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
8,632
|
|
|
$
|
7,606
|
|
|
$
|
16,387
|
|
|
$
|
17,787
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
FARMERS & MERCHANTS BANCORP
Consolidated Statements of
Changes in Shareholders' Equity (Unaudited)
(in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
Shares
Outstanding
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
|
|
|
Other
Comprehensive
(Loss) Income, net
|
|
|
Total
Shareholders'
Equity
|
|
|
|
Balance, January 1, 2016
|
|
|
790,787
|
|
|
$
|
8
|
|
|
$
|
81,164
|
|
|
$
|
170,068
|
|
|
$
|
595
|
|
|
$
|
251,835
|
|
Net Income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,504
|
|
|
|
-
|
|
|
|
14,504
|
|
Cash Dividends Declared on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common Stock ($6.55 per share)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,190
|
)
|
|
|
-
|
|
|
|
(5,190
|
)
|
Issuance of Common Stock
|
|
|
1,600
|
|
|
|
-
|
|
|
|
840
|
|
|
|
-
|
|
|
|
-
|
|
|
|
840
|
|
Change in Net Unrealized Gains on Securities Available-for-Sale, net of tax
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,283
|
|
|
|
3,283
|
|
Balance, June 30, 2016
|
|
|
792,387
|
|
|
$
|
8
|
|
|
$
|
82,004
|
|
|
$
|
179,382
|
|
|
$
|
3,878
|
|
|
$
|
265,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017
|
|
|
807,329
|
|
|
$
|
8
|
|
|
$
|
90,671
|
|
|
$
|
189,313
|
|
|
$
|
(11
|
)
|
|
$
|
279,981
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
16,008
|
|
|
|
-
|
|
|
|
16,008
|
|
Cash Dividends Declared on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common Stock ($6.75 per share)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,459
|
)
|
|
|
-
|
|
|
|
(5,459
|
)
|
Issuance of Common Stock
|
|
|
1,375
|
|
|
|
-
|
|
|
|
811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
811
|
|
Change in Net Unrealized Gains on Securities Available-for-Sale, net of tax
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
379
|
|
|
|
379
|
|
Balance, June 30, 2017
|
|
|
808,704
|
|
|
$
|
8
|
|
|
$
|
91,482
|
|
|
$
|
199,862
|
|
|
$
|
368
|
|
|
$
|
291,720
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
FARMERS & MERCHANTS BANCORP
Consolidated
Statements of Cash Flows (Unaudited)
|
|
Six Months Ended
|
|
(in thousands)
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
Operating Activities:
|
|
|
|
|
|
|
Net Income
|
|
$
|
16,008
|
|
|
$
|
14,504
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
Provision for Credit Losses
|
|
|
1,250
|
|
|
|
2,600
|
|
Depreciation and Amortization
|
|
|
1,030
|
|
|
|
950
|
|
Net Amortization of Investment Security Premiums & Discounts
|
|
|
771
|
|
|
|
730
|
|
Amortization of Core Deposit Intangible
|
|
|
55
|
|
|
|
-
|
|
Accretion of Discount on Acquired Loans
|
|
|
(126
|
)
|
|
|
-
|
|
Net (Gain) Loss on Sale of Investment Securities
|
|
|
(131
|
)
|
|
|
289
|
|
Net (Gain) Loss on Sale of Property & Equipment
|
|
|
(1,162
|
)
|
|
|
4
|
|
Net Gain on Sale of Other Real Estate
|
|
|
(414
|
)
|
|
|
(5,941
|
)
|
Net Change in Operating Assets & Liabilities:
|
|
|
|
|
|
|
|
|
Net Increase in Interest Receivable and Other Assets
|
|
|
(6,943
|
)
|
|
|
(2,666
|
)
|
Net (Decrease) Increase in Interest Payable and Other Liabilities
|
|
|
(1,114
|
)
|
|
|
194
|
|
Net Cash Provided by Operating Activities
|
|
|
9,224
|
|
|
|
10,664
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of Investment Securities Available-for-Sale
|
|
|
(140,417
|
)
|
|
|
(188,885
|
)
|
Proceeds from Sold, Matured or Called Securities Available-for-Sale
|
|
|
126,657
|
|
|
|
212,313
|
|
Purchase of Investment Securities Held-to-Maturity
|
|
|
(475
|
)
|
|
|
(1,246
|
)
|
Proceeds from Matured or Called Securities Held-to-Maturity
|
|
|
2,173
|
|
|
|
1,668
|
|
Net Loans & Leases Paid, Originated or Acquired
|
|
|
(26,531
|
)
|
|
|
(71,853
|
)
|
Principal Collected on Loans & Leases Previously Charged Off
|
|
|
71
|
|
|
|
100
|
|
Additions to Premises and Equipment
|
|
|
(2,235
|
)
|
|
|
(434
|
)
|
Purchase of Other Investments
|
|
|
(314
|
)
|
|
|
(5,523
|
)
|
Proceeds from Sale of Property & Equipment
|
|
|
2,284
|
|
|
|
-
|
|
Proceeds from Sale of Other Real Estate
|
|
|
3,186
|
|
|
|
8,282
|
|
Net Cash Provided by Investing Activities
|
|
|
(35,601
|
)
|
|
|
(45,578
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Net Increase in Deposits
|
|
|
80,167
|
|
|
|
50,414
|
|
Cash Dividends
|
|
|
(5,459
|
)
|
|
|
(5,190
|
)
|
Net Cash Provided by Financing Activities
|
|
|
74,708
|
|
|
|
45,224
|
|
Increase in Cash and Cash Equivalents
|
|
|
48,331
|
|
|
|
10,310
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
98,860
|
|
|
|
59,446
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
147,191
|
|
|
$
|
69,756
|
|
Supplementary Data
|
|
|
|
|
|
|
|
|
Loans Transferred to Foreclosed Assets (ORE)
|
|
$
|
-
|
|
|
$
|
538
|
|
Cash Payments Made for Income Taxes
|
|
$
|
9,611
|
|
|
$
|
7,461
|
|
Issuance of Common Stock to the Bank's Non-Qualified Retirement Plans
|
|
$
|
811
|
|
|
$
|
840
|
|
Interest Paid
|
|
$
|
2,752
|
|
|
$
|
1,814
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
FARMERS & MERCHANTS BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies
Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.
The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. F & M Bancorp, Inc. was created in March 2002 to protect the name F & M Bank. During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name “F & M Bank” as part of a larger effort to enhance the Company’s image and build brand name recognition. In December 2003, the Company formed a wholly owned subsidiary, FMCB Statutory Trust I. FMCB Statutory Trust I is a non-consolidated subsidiary per Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and was formed for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures.
On November 18, 2016, Farmers & Merchants Bancorp completed the acquisition of Delta National Bancorp, headquartered in Manteca, California, and the parent holding company for Delta Bank N.A., a locally owned and operated community bank established in 1973. As of the acquisition date, Delta National Bancorp had approximately $112 million in assets and four branch locations in the communities of Manteca, Riverbank, Modesto and Turlock. At the effective time of the acquisition, Delta National Bancorp was merged into Farmers & Merchants Bancorp and Delta Bank, N.A. was merged into Farmers & Merchants Bank of Central California.
The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.
Basis of Presentation
The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the three-month and six-month periods ended June 30, 2017 may not necessarily be indicative of future operating results.
The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Certain amounts in the prior years' financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.
Investment Securities
Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.
Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. These securities are reported at fair value with aggregate unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.
Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.
Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.
Loans & Leases
Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.
A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease's observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.
A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & leases typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure, management may keep the loan or lease on accrual. Loans & leases that are on nonaccrual status at the time they become TDR, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified terms. However, these loans or leases continue to be classified as impaired and are individually evaluated for impairment as described above.
Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.
Allowance for Credit Losses
The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company's loan & lease portfolio as of the balance sheet date. The allowance is established through a provision for credit losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan & lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of three primary components: specific reserves related to impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.
The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company's service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company's underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.
The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company's overall allowance, which is included on the consolidated balance sheet.
The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:
Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management's close attention.
Special Mention – A special mention loan or lease has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company's credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.
Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.
The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management's assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:
Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.
Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.
Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.
Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.
Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.
Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower's ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.
Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers' capacity to repay their obligations may be deteriorating.
At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.
Acquired Loans
Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.
Premises and Equipment
Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.
Other Real Estate
Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.
Income Taxes
The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.
The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.
Basic Earnings Per Common Share
The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 6 for additional information.
Segment Reporting
The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Therefore, the Company only reports one segment.
Low Income Housing Tax Credit Investments (LIHTC)
The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.
Comprehensive Income
The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.
Business Combinations And Related Matters
Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition. Acquisition-related costs, including conversion charges, are expensed as incurred. The Company applied this guidance to the acquisition of Delta National Bancorp which was consummated on November 18, 2016. The Company's consolidated financial statements reflect the operations of Delta National Bancorp beginning November 19, 2016.
Intangible Assets
Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition and included in other assets. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.
2. Investment Securities
The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows
(in thousands):
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair/Book
|
|
June 30, 2017
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
3,103
|
|
|
$
|
92
|
|
|
$
|
-
|
|
|
$
|
3,195
|
|
US Treasury Notes
|
|
|
134,689
|
|
|
|
3
|
|
|
|
272
|
|
|
|
134,420
|
|
US Govt SBA
|
|
|
32,889
|
|
|
|
30
|
|
|
|
119
|
|
|
|
32,800
|
|
Mortgage Backed Securities (1)
|
|
|
288,121
|
|
|
|
1,821
|
|
|
|
919
|
|
|
|
289,023
|
|
Other
|
|
|
2,429
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,429
|
|
Total
|
|
$
|
461,231
|
|
|
$
|
1,946
|
|
|
$
|
1,310
|
|
|
$
|
461,867
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair/Book
|
|
December 31, 2016
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
3,127
|
|
|
$
|
114
|
|
|
$
|
-
|
|
|
$
|
3,241
|
|
US Treasury Notes
|
|
|
134,755
|
|
|
|
5
|
|
|
|
332
|
|
|
|
134,428
|
|
US Govt SBA
|
|
|
36,532
|
|
|
|
42
|
|
|
|
260
|
|
|
|
36,314
|
|
Mortgage Backed Securities (1)
|
|
|
272,858
|
|
|
|
1,725
|
|
|
|
1,313
|
|
|
|
273,270
|
|
Other
|
|
|
1,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,010
|
|
Total
|
|
$
|
448,282
|
|
|
$
|
1,886
|
|
|
$
|
1,905
|
|
|
$
|
448,263
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair/Book
|
|
June 30, 2016
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
93,139
|
|
|
$
|
192
|
|
|
$
|
-
|
|
|
$
|
93,331
|
|
US Treasury Notes
|
|
|
65,522
|
|
|
|
457
|
|
|
|
-
|
|
|
|
65,979
|
|
Mortgage Backed Securities (1)
|
|
|
195,860
|
|
|
|
6,043
|
|
|
|
-
|
|
|
|
201,903
|
|
Other
|
|
|
1,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,010
|
|
Total
|
|
$
|
355,531
|
|
|
$
|
6,692
|
|
|
$
|
-
|
|
|
$
|
362,223
|
|
(1) All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.
The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):
|
|
Book
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
June 30, 2017
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations of States and Political Subdivisions
|
|
$
|
56,381
|
|
|
$
|
746
|
|
|
$
|
-
|
|
|
$
|
57,127
|
|
Total
|
|
$
|
56,381
|
|
|
$
|
746
|
|
|
$
|
-
|
|
|
$
|
57,127
|
|
|
|
Book
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
December 31, 2016
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations of States and Political Subdivisions
|
|
$
|
58,109
|
|
|
$
|
339
|
|
|
$
|
40
|
|
|
$
|
58,408
|
|
Total
|
|
$
|
58,109
|
|
|
$
|
339
|
|
|
$
|
40
|
|
|
$
|
58,408
|
|
|
|
Book
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
June 30, 2016
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations of States and Political Subdivisions
|
|
$
|
60,949
|
|
|
$
|
1,894
|
|
|
$
|
-
|
|
|
$
|
62,843
|
|
Total
|
|
$
|
60,949
|
|
|
$
|
1,894
|
|
|
$
|
-
|
|
|
$
|
62,843
|
|
Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.
The amortized cost and estimated fair values of investment securities at June 30, 2017 by contractual maturity are shown in the following table (in thousands):
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
June 30, 2017
|
|
Amortized
Cost
|
|
|
Fair/Book
Value
|
|
|
Book
Value
|
|
|
Fair
Value
|
|
Within one year
|
|
$
|
97,484
|
|
|
$
|
97,396
|
|
|
$
|
1,250
|
|
|
$
|
1,252
|
|
After one year through five years
|
|
|
35,556
|
|
|
|
35,475
|
|
|
|
9,718
|
|
|
|
9,739
|
|
After five years through ten years
|
|
|
13,500
|
|
|
|
13,475
|
|
|
|
14,247
|
|
|
|
14,452
|
|
After ten years
|
|
|
26,570
|
|
|
|
26,498
|
|
|
|
31,166
|
|
|
|
31,684
|
|
|
|
|
173,110
|
|
|
|
172,844
|
|
|
|
56,381
|
|
|
|
57,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities not due at a single maturity date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
288,121
|
|
|
|
289,023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
461,231
|
|
|
$
|
461,867
|
|
|
$
|
56,381
|
|
|
$
|
57,127
|
|
Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousands):
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
June 30, 2017
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Notes
|
|
$
|
74,423
|
|
|
$
|
272
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
74,423
|
|
|
$
|
272
|
|
US Govt SBA
|
|
|
22,775
|
|
|
|
119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,775
|
|
|
|
119
|
|
Mortgage Backed Securities
|
|
|
141,268
|
|
|
|
919
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,268
|
|
|
|
919
|
|
Total
|
|
$
|
238,466
|
|
|
$
|
1,310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
238,466
|
|
|
$
|
1,310
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
December 31, 2016
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Notes
|
|
$
|
99,429
|
|
|
$
|
332
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
99,429
|
|
|
$
|
332
|
|
US Govt SBA
|
|
|
27,483
|
|
|
|
260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,483
|
|
|
|
260
|
|
Mortgage Backed Securities
|
|
|
123,157
|
|
|
|
1,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
123,157
|
|
|
|
1,313
|
|
Total
|
|
$
|
250,069
|
|
|
$
|
1,905
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,069
|
|
|
$
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and Political Subdivisions
|
|
$
|
7,251
|
|
|
$
|
40
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,251
|
|
|
$
|
40
|
|
Total
|
|
$
|
7,251
|
|
|
$
|
40
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,251
|
|
|
$
|
40
|
|
There were no available-for-sale or held-to-maturity investments with gross unrealized losses at June 30, 2016.
As of June 30, 2017, the Company held 462 investment securities of which 179 were in a loss position for less than twelve months. No securities were in a loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.
Securities of Government Agency and Government Sponsored Entities – At June 30, 2017, December 31, 2016 and June 30, 2016, no securities of government agency and government sponsored entities were in a loss position for less than 12 months or for 12 months or more.
U.S. Treasury Notes – At June 30, 2017, six U.S. Treasury Note security investments were in a loss position for less than 12 months and none were in a loss position for 12 months or more. The unrealized losses on the Company's investment in U.S. Treasury Notes were $272,000 at June 30, 2017 and $332,000 at December 31, 2016. There were no U.S. Treasury Notes in a loss position at June 30, 2016. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2017 and December 31, 2016.
U.S. Government SBA – At June 30, 2017, 116 U.S. Government SBA security investments were in a loss position for less than 12 months and none were in a loss position for 12 months or more. The unrealized losses on the Company's investment in U.S. Government SBA securities were $119,000 at June 30, 2017 and $260,000 at December 31, 2016. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2017 and December 31, 2016. The Company did not own any U.S. Government SBA securities prior to December 2016.
Mortgage Backed Securities – At June 30, 2017, 56 mortgage backed security investments were in a loss position for less than 12 months and none were in a loss position for 12 months or more. The unrealized losses on the Company's investment in mortgage backed securities were $919,000, $1.3 million, and $0 at June 30, 2017, December 31, 2016, and June 30, 2016, respectively. The unrealized losses on the Company’s investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017 and December 31, 2016.
Obligations of States and Political Subdivisions - At June 30, 2017, no obligations of states and political subdivisions were in a loss position for less than 12 months. None were in a loss position for 12 months or more. As of June 30, 2017, over ninety-eight percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the two percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.
The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $0, $40,000 and $0 at June 30, 2017, December 31, 2016 and June 30, 2016, respectively. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were primarily caused by interest rate fluctuations. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017 and December 31, 2016.
Proceeds from sales and calls of securities were as follows:
|
|
Three Months
Ended June 30,
|
|
|
Six Months
Ended June 30,
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Proceeds
|
|
$
|
7,831
|
|
|
$
|
-
|
|
|
$
|
7,831
|
|
|
$
|
102,895
|
|
Gains
|
|
|
143
|
|
|
|
-
|
|
|
|
143
|
|
|
|
245
|
|
Losses
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
|
|
534
|
|
Pledged Securities
As of June 30, 2017, securities carried at $211.6 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $171.9 million at December 31, 2016, and $197.0 million at June 30, 2016.
3. Loans & Leases and Allowance for Credit Losses
The following tables show the allocation of the allowance for credit losses by portfolio segment and by impairment methodology at the dates indicated (in thousands):
June 30, 2017
|
|
Commercial Real
Estate
|
|
|
Agricultural
Real Estate
|
|
|
Real Estate
Construction
|
|
|
Residential 1st
Mortgages
|
|
|
Home Equity
Lines & Loans
|
|
|
Agricultural
|
|
|
Commercial
|
|
|
Consumer &
Other
|
|
|
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-To-Date Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- January 1, 2017
|
|
$
|
11,110
|
|
|
$
|
9,450
|
|
|
$
|
3,223
|
|
|
$
|
865
|
|
|
$
|
2,140
|
|
|
$
|
7,381
|
|
|
$
|
8,515
|
|
|
$
|
200
|
|
|
$
|
3,586
|
|
|
$
|
1,449
|
|
|
$
|
47,919
|
|
Charge-Offs
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(60
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(176
|
)
|
Recoveries
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
5
|
|
|
|
-
|
|
|
|
4
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
Provision
|
|
|
231
|
|
|
|
815
|
|
|
|
(536
|
)
|
|
|
(12
|
)
|
|
|
25
|
|
|
|
(138
|
)
|
|
|
1,025
|
|
|
|
32
|
|
|
|
(634
|
)
|
|
|
442
|
|
|
|
1,250
|
|
Ending Balance- June 30, 2017
|
|
$
|
11,242
|
|
|
$
|
10,265
|
|
|
$
|
2,687
|
|
|
$
|
872
|
|
|
$
|
2,170
|
|
|
$
|
7,236
|
|
|
$
|
9,544
|
|
|
$
|
205
|
|
|
$
|
2,952
|
|
|
$
|
1,891
|
|
|
$
|
49,064
|
|
Second Quarter Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- April 1, 2017
|
|
$
|
11,665
|
|
|
$
|
9,393
|
|
|
$
|
2,946
|
|
|
$
|
880
|
|
|
$
|
2,125
|
|
|
$
|
6,511
|
|
|
$
|
8,479
|
|
|
$
|
198
|
|
|
$
|
3,866
|
|
|
$
|
2,337
|
|
|
$
|
48,400
|
|
Charge-Offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
Recoveries
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
Provision
|
|
|
(426
|
)
|
|
|
872
|
|
|
|
(259
|
)
|
|
|
(24
|
)
|
|
|
42
|
|
|
|
725
|
|
|
|
1,065
|
|
|
|
15
|
|
|
|
(914
|
)
|
|
|
(446
|
)
|
|
|
650
|
|
Ending Balance- June 30, 2017
|
|
$
|
11,242
|
|
|
$
|
10,265
|
|
|
$
|
2,687
|
|
|
$
|
872
|
|
|
$
|
2,170
|
|
|
$
|
7,236
|
|
|
$
|
9,544
|
|
|
$
|
205
|
|
|
$
|
2,952
|
|
|
$
|
1,891
|
|
|
$
|
49,064
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
468
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
|
15
|
|
|
|
322
|
|
|
|
266
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,138
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
10,774
|
|
|
|
10,265
|
|
|
|
2,687
|
|
|
|
811
|
|
|
|
2,155
|
|
|
|
6,914
|
|
|
|
9,278
|
|
|
|
199
|
|
|
|
2,952
|
|
|
|
1,891
|
|
|
|
47,926
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
670,591
|
|
|
$
|
473,153
|
|
|
$
|
168,487
|
|
|
$
|
252,653
|
|
|
$
|
32,174
|
|
|
$
|
265,899
|
|
|
$
|
254,887
|
|
|
$
|
7,533
|
|
|
$
|
78,705
|
|
|
$
|
-
|
|
|
$
|
2,204,082
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
4,890
|
|
|
|
976
|
|
|
|
-
|
|
|
|
1,894
|
|
|
|
344
|
|
|
|
688
|
|
|
|
1,624
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,444
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
$
|
665,701
|
|
|
$
|
472,177
|
|
|
$
|
168,487
|
|
|
$
|
250,759
|
|
|
$
|
31,830
|
|
|
$
|
265,211
|
|
|
$
|
253,263
|
|
|
$
|
7,505
|
|
|
$
|
78,705
|
|
|
$
|
-
|
|
|
$
|
2,193,638
|
|
December 31, 2016
|
|
Commercial Real
Estate
|
|
|
Agricultural
Real Estate
|
|
|
Real Estate Construction
|
|
|
Residential 1st Mortgages
|
|
|
Home Equity Lines & Loans
|
|
|
Agricultural
|
|
|
Commercial
|
|
|
Consumer &
Other
|
|
|
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-To-Date Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- January 1, 2016
|
|
$
|
10,063
|
|
|
$
|
6,881
|
|
|
$
|
2,485
|
|
|
$
|
789
|
|
|
$
|
2,146
|
|
|
$
|
6,308
|
|
|
$
|
7,836
|
|
|
$
|
175
|
|
|
$
|
3,294
|
|
|
$
|
1,546
|
|
|
$
|
41,523
|
|
Charge-Offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(105
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(172
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
|
103
|
|
|
|
-
|
|
|
|
47
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
233
|
|
Provision
|
|
|
1,045
|
|
|
|
2,569
|
|
|
|
738
|
|
|
|
71
|
|
|
|
(63
|
)
|
|
|
1,073
|
|
|
|
632
|
|
|
|
75
|
|
|
|
292
|
|
|
|
(97
|
)
|
|
|
6,335
|
|
Ending Balance- December 31, 2016
|
|
$
|
11,110
|
|
|
$
|
9,450
|
|
|
$
|
3,223
|
|
|
$
|
865
|
|
|
$
|
2,140
|
|
|
$
|
7,381
|
|
|
$
|
8,515
|
|
|
$
|
200
|
|
|
$
|
3,586
|
|
|
$
|
1,449
|
|
|
$
|
47,919
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
18
|
|
|
|
128
|
|
|
|
608
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
831
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
11,110
|
|
|
|
9,450
|
|
|
|
3,223
|
|
|
|
795
|
|
|
|
2,122
|
|
|
|
7,253
|
|
|
|
7,907
|
|
|
|
193
|
|
|
|
3,586
|
|
|
|
1,449
|
|
|
|
47,088
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
668,046
|
|
|
$
|
467,685
|
|
|
$
|
176,462
|
|
|
$
|
242,247
|
|
|
$
|
31,625
|
|
|
$
|
295,325
|
|
|
$
|
217,577
|
|
|
$
|
6,913
|
|
|
$
|
71,721
|
|
|
$
|
-
|
|
|
$
|
2,177,601
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
1,932
|
|
|
|
1,304
|
|
|
|
-
|
|
|
|
2,126
|
|
|
|
402
|
|
|
|
625
|
|
|
|
4,464
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,863
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
$
|
666,114
|
|
|
$
|
466,381
|
|
|
$
|
176,462
|
|
|
$
|
240,121
|
|
|
$
|
31,223
|
|
|
$
|
294,700
|
|
|
$
|
213,113
|
|
|
$
|
6,903
|
|
|
$
|
71,721
|
|
|
$
|
-
|
|
|
$
|
2,166,738
|
|
June 30, 2016
|
|
Commercial Real Estate
|
|
|
Agricultural Real Estate
|
|
|
Real Estate Construction
|
|
|
Residential 1st Mortgages
|
|
|
Home Equity Lines & Loans
|
|
|
Agricultural
|
|
|
Commercial
|
|
|
Consumer & Other
|
|
|
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-To-Date Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- January 1, 2016
|
|
$
|
10,063
|
|
|
$
|
6,881
|
|
|
$
|
2,485
|
|
|
$
|
789
|
|
|
$
|
2,146
|
|
|
$
|
6,308
|
|
|
$
|
7,836
|
|
|
$
|
175
|
|
|
$
|
3,294
|
|
|
$
|
1,546
|
|
|
$
|
41,523
|
|
Charge-Offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(105
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
33
|
|
|
|
-
|
|
|
|
29
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
Provision
|
|
|
171
|
|
|
|
2,620
|
|
|
|
(43
|
)
|
|
|
46
|
|
|
|
16
|
|
|
|
(85
|
)
|
|
|
(16
|
)
|
|
|
20
|
|
|
|
148
|
|
|
|
(277
|
)
|
|
|
2,600
|
|
Ending Balance- June 30, 2016
|
|
$
|
10,236
|
|
|
$
|
9,501
|
|
|
$
|
2,442
|
|
|
$
|
837
|
|
|
$
|
2,149
|
|
|
$
|
6,223
|
|
|
$
|
7,849
|
|
|
$
|
170
|
|
|
$
|
3,442
|
|
|
$
|
1,269
|
|
|
$
|
44,118
|
|
Second Quarter Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- April 1, 2016
|
|
$
|
10,099
|
|
|
$
|
9,162
|
|
|
$
|
2,594
|
|
|
$
|
796
|
|
|
$
|
2,064
|
|
|
$
|
5,904
|
|
|
$
|
7,725
|
|
|
$
|
187
|
|
|
$
|
3,239
|
|
|
$
|
2,359
|
|
|
$
|
44,129
|
|
Charge-Offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(61
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
31
|
|
|
|
-
|
|
|
|
2
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
Provision
|
|
|
137
|
|
|
|
339
|
|
|
|
(152
|
)
|
|
|
38
|
|
|
|
81
|
|
|
|
326
|
|
|
|
122
|
|
|
|
(4
|
)
|
|
|
203
|
|
|
|
(1,090
|
)
|
|
|
-
|
|
Ending Balance- June 30, 2016
|
|
$
|
10,236
|
|
|
$
|
9,501
|
|
|
$
|
2,442
|
|
|
$
|
837
|
|
|
$
|
2,149
|
|
|
$
|
6,223
|
|
|
$
|
7,849
|
|
|
$
|
170
|
|
|
$
|
3,442
|
|
|
$
|
1,269
|
|
|
$
|
44,118
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66
|
|
|
|
24
|
|
|
|
138
|
|
|
|
756
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
992
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
10,236
|
|
|
|
9,501
|
|
|
|
2,442
|
|
|
|
771
|
|
|
|
2,125
|
|
|
|
6,085
|
|
|
|
7,093
|
|
|
|
162
|
|
|
|
3,442
|
|
|
|
1,269
|
|
|
|
43,126
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
626,498
|
|
|
$
|
454,069
|
|
|
$
|
166,218
|
|
|
$
|
217,176
|
|
|
$
|
32,150
|
|
|
$
|
276,039
|
|
|
$
|
220,284
|
|
|
$
|
6,830
|
|
|
$
|
68,843
|
|
|
$
|
-
|
|
|
$
|
2,068,107
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
3,351
|
|
|
|
485
|
|
|
|
-
|
|
|
|
2,018
|
|
|
|
511
|
|
|
|
838
|
|
|
|
4,668
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,885
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
$
|
623,147
|
|
|
$
|
453,584
|
|
|
$
|
166,218
|
|
|
$
|
215,158
|
|
|
$
|
31,639
|
|
|
$
|
275,201
|
|
|
$
|
215,616
|
|
|
$
|
6,816
|
|
|
$
|
68,843
|
|
|
$
|
-
|
|
|
$
|
2,056,222
|
|
The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $3.2 million at June 30, 2017, $3.3 million at December 31, 2016 and $5.1 million at June 30, 2016, which are no longer classified as TDRs.
The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at the dates indicated (in thousands):
June 30, 2017
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total Loans
& Leases
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
664,606
|
|
|
$
|
4,491
|
|
|
$
|
1,494
|
|
|
$
|
670,591
|
|
Agricultural Real Estate
|
|
|
466,831
|
|
|
|
1,316
|
|
|
|
5,006
|
|
|
|
473,153
|
|
Real Estate Construction
|
|
|
160,112
|
|
|
|
8,375
|
|
|
|
-
|
|
|
|
168,487
|
|
Residential 1st Mortgages
|
|
|
252,252
|
|
|
|
44
|
|
|
|
357
|
|
|
|
252,653
|
|
Home Equity Lines & Loans
|
|
|
32,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,174
|
|
Agricultural
|
|
|
256,026
|
|
|
|
6,302
|
|
|
|
3,571
|
|
|
|
265,899
|
|
Commercial
|
|
|
249,173
|
|
|
|
5,128
|
|
|
|
586
|
|
|
|
254,887
|
|
Consumer & Other
|
|
|
7,341
|
|
|
|
-
|
|
|
|
192
|
|
|
|
7,533
|
|
Leases
|
|
|
76,313
|
|
|
|
2,392
|
|
|
|
-
|
|
|
|
78,705
|
|
Total
|
|
$
|
2,164,828
|
|
|
$
|
28,048
|
|
|
$
|
11,206
|
|
|
$
|
2,204,082
|
|
December 31, 2016
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total Loans
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
659,694
|
|
|
$
|
6,817
|
|
|
$
|
1,535
|
|
|
$
|
668,046
|
|
Agricultural Real Estate
|
|
|
464,997
|
|
|
|
1,384
|
|
|
|
1,304
|
|
|
|
467,685
|
|
Real Estate Construction
|
|
|
176,462
|
|
|
|
-
|
|
|
|
-
|
|
|
|
176,462
|
|
Residential 1st Mortgages
|
|
|
241,816
|
|
|
|
47
|
|
|
|
384
|
|
|
|
242,247
|
|
Home Equity Lines and Loans
|
|
|
31,558
|
|
|
|
-
|
|
|
|
67
|
|
|
|
31,625
|
|
Agricultural
|
|
|
283,525
|
|
|
|
11,366
|
|
|
|
434
|
|
|
|
295,325
|
|
Commercial
|
|
|
208,172
|
|
|
|
6,974
|
|
|
|
2,431
|
|
|
|
217,577
|
|
Consumer & Other
|
|
|
6,705
|
|
|
|
-
|
|
|