UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2019

o 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—31977

CENTRAL VALLEY COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

California	77-0539125
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7100 N. Financial Dr., Suite 101, Fresno, California	93720
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number (559) 298-1775

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

Common Stock, no par value	CVCY	NASDAQ Capital Market
(Title of Each Class)	(Trading Symbol)	(Name of Each Exchange on which Registered)

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 past 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.  Yesý  No  o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý  No  o

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer o	Accelerated filer ý
Non-accelerated filer o	(Do not check if a smaller reporting company)
	Small reporting company ý
	Emerging growth company o

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  o

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

As of August 2, 2019 there were 13,447,553 shares of the registrant’s common stock outstanding.

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

2019 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART 1	FINANCIAL INFORMATION	3
ITEM 1	FINANCIAL STATEMENTS (Unaudited)	4
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61
ITEM 4	CONTROLS AND PROCEDURES	61
PART II	OTHER INFORMATION	61
ITEM 1	LEGAL PROCEEDINGS	61
ITEM 1A	RISK FACTORS	61
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	62
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	62
ITEM 4	MINE SAFETY DISCLOSURES	62
ITEM 5	OTHER INFORMATION	62
ITEM 6	EXHIBITS	63
SIGNATURES		64

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PART 1: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)	June 30, 2019		December 31, 2018
ASSETS
Cash and due from banks	$	33,787	$	24,954
Interest-earning deposits in other banks	14,739		6,725
Federal funds sold	77		48
Total cash and cash equivalents	48,603		31,727
Available-for-sale debt securities	476,211		463,905
Equity securities	7,458		7,254
Loans, less allowance for credit losses of $9,405 at June 30, 2019 and $9,104 at December 31, 2018	950,806		909,591
Bank premises and equipment, net	7,742		8,484
Bank-owned life insurance	29,863		28,502
Federal Home Loan Bank stock	6,062		6,843
Goodwill	53,777		53,777
Core deposit intangibles	2,225		2,572
Accrued interest receivable and other assets	30,480		25,181
Total assets	$	1,613,227	$	1,537,836
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	558,000	$	550,657
Interest bearing	736,087		731,641
Total deposits	1,294,087		1,282,298
Short-term borrowings	54,000		10,000
Junior subordinated deferrable interest debentures	5,155		5,155
Accrued interest payable and other liabilities	28,305		20,645
Total liabilities	1,381,547		1,318,098
Commitments and contingencies (Note 7)
Shareholders’ equity:
Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding	—		—
Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 13,488,983 at June 30, 2019 and 13,754,965 at December 31, 2018	98,210		103,851
Retained earnings	128,723		120,294
Accumulated other comprehensive income (loss), net of tax	4,747		(4,407		)
Total shareholders’ equity	231,680		219,738
Total liabilities and shareholders’ equity	$	1,613,227	$	1,537,836

See notes to unaudited consolidated financial statements.

4

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands, except share and per-share amounts)	2019		2018		2019		2018
INTEREST INCOME:
Interest and fees on loans	$	12,955	$	12,519	$	25,509	$	24,525
Interest on deposits in other banks	59		44		209		142
Interest and dividends on investment securities:
Taxable	3,337		2,185		6,360		4,744
Exempt from Federal income taxes	429		1,045		991		2,112
Total interest income	16,780		15,793		33,069		31,523
INTEREST EXPENSE:
Interest on deposits	469		252		862		490
Interest on junior subordinated deferrable interest debentures	55		52		112		95
Other	310		92		314		115
Total interest expense	834		396		1,288		700
Net interest income before provision for credit losses	15,946		15,397		31,781		30,823
PROVISION FOR CREDIT LOSSES	300		50		275		50
Net interest income after provision for credit losses	15,646		15,347		31,506		30,773
NON-INTEREST INCOME:
Service charges	713		726		1,403		1,481
Appreciation in cash surrender value of bank-owned life insurance	190		176		361		347
Interchange fees	384		380		727		725
Net realized gains on sale of credit card portfolio	—		578		—		578
Net realized gains on sales of investment securities	2,459		82		3,511		897
Federal Home Loan Bank dividends	118		118		239		239
Loan placement fees	220		173		359		339
Other income	514		453		974		851
Total non-interest income	4,598		2,686		7,574		5,457
NON-INTEREST EXPENSES:
Salaries and employee benefits	6,912		6,833		13,402		13,249
Occupancy and equipment	1,452		1,577		2,931		3,114
Professional services	280		363		607		801
Data processing	401		370		796		850
Regulatory assessments	134		160		286		322
ATM/Debit card expenses	186		176		377		377
License and maintenance contracts	605		222		1,382		434
Directors’ expenses	193		133		369		223
Advertising	198		188		400		377
Internet banking expense	199		175		393		370
Acquisition and integration	—		—		—		217
Amortization of core deposit intangibles	173		93		347		187
Other	1,039		1,209		2,149		2,346
Total non-interest expenses	11,772		11,499		23,439		22,867
Income before provision for income taxes	8,472		6,534		15,641		13,363
Provision for income taxes	2,385		1,569		4,338		3,107
Net income	$	6,087	$	4,965	$	11,303	$	10,256
Earnings per common share:
Basic earnings per share	$	0.45	$	0.36	$	0.84	$	0.75
Weighted average common shares used in basic computation	13,533,724		13,692,358		13,515,752		13,681,229
Diluted earnings per share	$	0.45	$	0.36	$	0.83	$	0.74
Weighted average common shares used in diluted computation	13,635,834		13,823,278		13,612,866		13,814,087
Cash dividend per common share	$	0.11	$	0.07	$	0.21	$	0.14

See notes to unaudited consolidated financial statements.

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Net income	$	6,087		$	4,965		$	11,303		$	10,256
Other Comprehensive Income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	7,890			(1,259		)	16,508			(9,831		)
Less: reclassification for net gains included in net income	2,459			82			3,511			897
Other comprehensive income (loss), before tax	5,431			(1,341		)	12,997			(10,728		)
Tax (expense) benefit related to items of other comprehensive income	(1,606		)	335			(3,843		)	3,111
Total other comprehensive income (loss)	3,825			(1,006		)	9,154			(7,617		)
Comprehensive income (loss)	$	9,912		$	3,959		$	20,457		$	2,639

See notes to unaudited consolidated financial statements.

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)

	Common Stock								Accumulated Other Comprehensive Income (Loss) (Net of Taxes)			Total Shareholders’ Equity
						Retained Earnings
(In thousands, except share amounts)	Shares		Amount
Balance, March 31, 2018	13,752,037		$	103,980		$	107,544		$	(3,581	)	$	207,943
Net income	—		—			4,965			—			4,965
Other comprehensive loss	—		—			—			(1,006		)	(1,006		)
Restricted stock granted, net of forfeitures, and related tax benefit	20,448		—			—			—			—
Stock issued under employee stock purchase plan	2,606		45									45
Stock-based compensation expense	—		110			—			—			110
Cash dividend	—		—			(964		)	—			(964		)
Stock options exercised	10,500		91			—			—			91
Balance, June 30, 2018	13,785,591		$	104,226		$	111,545		$	(4,587	)	$	211,184
Balance, March 31, 2019	13,680,930		$	102,395		$	124,138		$	922		$	227,455
Net income	—		—			6,087			—			6,087
Other comprehensive income	—		—			—			3,825			3,825
Restricted stock granted, net of forfeitures, and related tax benefit	20,125		—			—			—			—
Stock issued under employee stock purchase plan	2,865		51			—			—			51
Stock-based compensation expense	—		151			—			—			151
Cash dividend	—		—			(1,502		)	—			(1,502		)
Stock options exercised	8,184		65			—			—			65
Repurchase and retirement of common stock	(223,121	)	(4,452		)	—			—			(4,452		)
Balance, June 30, 2019	13,488,983		$	98,210		$	128,723		$	4,747		$	231,680

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)

	Common Stock								Accumulated Other Comprehensive Income (Loss) (Net of Taxes)			Total Shareholders’ Equity
						Retained Earnings
(In thousands, except share amounts)	Shares		Amount
Balance, January 1, 2018	13,696,722		$	103,314		$	103,419		$	2,826		$	209,559
Cumulative-effect adjustment						(204		)	204
Balance, January 1, 2018, adjusted	13,696,722		103,314			103,215			3,030			209,559
Net income	—		—			10,256			—			10,256
Other comprehensive loss	—		—			—			(7,617		)	(7,617		)
Restricted stock granted, net of forfeitures, and related tax benefit	19,910		—			—			—			—
Stock issued under employee stock purchase plan	5,059		88									88
Stock-based compensation expense	—		184			—			—			184
Cash dividend	—		—			(1,926		)	—			(1,926		)
Stock options exercised	63,900		640			—			—			640
Balance, June 30, 2018	13,785,591		$	104,226		$	111,545		$	(4,587	)	$	211,184
Balance, January 1, 2019	13,754,965		$	103,851		$	120,294		$	(4,407	)	$	219,738
Net income	—		—			11,303			—			11,303
Other comprehensive income	—		—			—			9,154			9,154
Restricted stock granted, net of forfeitures, and related tax benefit	20,035		—			—			—			—
Stock issued under employee stock purchase plan	7,468		131			—			—			131
Stock awarded to employees	5,295		100			—			—			100
Stock-based compensation expense	—		294			—			—			294
Cash dividend	—		—			(2,874		)	—			(2,874		)
Stock options exercised	21,820		160			—			—			160
Repurchase and retirement of common stock	(320,600	)	(6,326		)	—			—			(6,326		)
Balance, June 30, 2019	13,488,983		$	98,210		$	128,723		$	4,747		$	231,680

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
(In thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,303		$	10,256
Adjustments to reconcile net income to net cash provided by operating activities:
Net decrease in deferred loan costs	132			5,948
Depreciation	1,046			915
Accretion	(406		)	(530		)
Amortization	2,545			3,848
Stock-based compensation	294			184
Provision for credit losses	275			50
Net realized gains on sales of available-for-sale investment securities	(3,511		)	(897		)
Net change in equity securities	(204		)	42
Increase in bank-owned life insurance, net of expenses	(361		)	(347		)
Net gain on sale of credit card portfolio	—			(578		)
Net (increase) decrease in accrued interest receivable and other assets	(8,485		)	3,332
Net increase (decrease) in accrued interest payable and other liabilities	7,761			(1,772		)
Deferred income tax (benefit) expense	(713		)	180
Net cash provided by operating activities	9,676			20,631
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investment securities	(212,662		)	(116,785		)
Proceeds from sales or calls of available-for-sale investment securities	203,426			131,617
Proceeds from maturity and principal repayments of available-for-sale investment securities	11,701			23,668
Proceeds from sale of credit card portfolio	—			2,954
Net increase in loans	(41,622		)	(42,515		)
Purchases of premises and equipment	(304		)	(649		)
Purchases of bank-owned life insurance	(1,000		)	—
FHLB stock redeemed	781			—
Net cash used in investing activities	(39,680		)	(1,710		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, interest bearing and savings deposits	11,711			(84,636		)
Net increase (decrease) in time deposits	78			(16,840		)
Proceeds from short-term borrowings from Federal Home Loan Bank	274,500			502,000
Repayments of short-term borrowings to Federal Home Loan Bank	(230,500		)	(472,000		)
Proceeds of borrowings from other financial institutions	2,870			—
Repayments of borrowings from other financial institutions	(2,870		)	—
Purchase and retirement of common stock	(6,326		)	—
Proceeds from stock issued under employee stock purchase plan	131			88
Proceeds from exercise of stock options	160			640
Cash dividend payments on common stock	(2,874		)	(1,926		)
Net cash provided by (used in) financing activities	46,880			(72,674		)
Increase (decrease) in cash and cash equivalents	16,876			(53,753		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	31,727			100,383
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	48,603		$	46,630

	For the Six Months Ended June 30,
(In thousands)	2019		2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest	$	1,238	$	688
Income taxes	$	4,720	$	1,080
Operating cash flows from operating leases	$	1,091	$	—
Non-cash investing and financing activities:
Initial recognition of operating lease right-of-use assets	$	10,129	$	—

See notes to unaudited consolidated financial statements.

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Note 1.  Basis of Presentation

The interim unaudited condensed consolidated financial statements of Central Valley Community Bancorp and subsidiary have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These interim condensed consolidated financial statements include the accounts of Central Valley Community Bancorp and its wholly owned subsidiary Central Valley Community Bank (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2018 Annual Report to Shareholders on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position at June 30, 2019, and the results of its operations and its cash flows for the six-month interim periods ended June 30, 2019 and 2018 have been included. The results of operations for interim periods are not necessarily indicative of results for the full year.

The preparation of these interim unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 periods. Actual results could differ from those estimates.

    Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment, and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank.

Impact of New Financial Accounting Standards:

FASB Accounting Standards Update (ASU) 2016-02 - Leases - Overall (Subtopic 845), was issued February 2016. ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 was effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow- Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a right-of-use asset and lease liability of approximately $10 million on the balance sheet for its operating leases where it is a lessee. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess(i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also did not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.

FASB Accounting Standards Update (ASU) 2016-13 - Measurement of Credit Losses on Financial Instruments (Subtopic 326): Financial Instruments - Credit Losses, commonly referred to as “CECL,” was issued June 2016. The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the contractual term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (“HTM”) debt securities. Under the provisions of the update, credit losses recognized on available for sale (“AFS”) debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at

10

the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. For public business entities that are SEC filers, the amendments of the update will become effective beginning January 1, 2020.

The Company has formed an internal task force that is responsible for oversight of the Company’s implementation strategy for compliance with provisions of the new standard. The Company has also established a project management governance process to manage the implementation across affected disciplines. An external provider specializing in community bank loss driver and CECL reserving model design as well as other related consulting services has been retained, and we have begun to evaluate potential CECL modeling alternatives. As part of this process, the Company has determined potential loan pool segmentation and sub-segmentation under CECL, as well as begun to evaluate the key economic loss drivers for each segment. Further, the Company has begun developing internal controls around the CECL process, data, calculations and implementation. The Company presently plans to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for interim and annual reporting periods during the second half of 2019. While the Company is currently unable to reasonably estimate the impact of adopting this new guidance, management expects the impact of adoption will be significantly influenced by the composition and quality of the Company’s loans as well as the economic conditions as of the date of adoption. The Company also anticipates significant changes to the processes and procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on our consolidated financial statements.

FASB Accounting Standards Update (ASU) 2017-04 - Intangibles Goodwill and Other (Subtopic 350): Simplifying the Test for Goodwill Impairment, was issued January 2017. The provisions of the update eliminate the existing second step of the goodwill impairment test which provides for the allocation of reporting unit fair value among existing assets and liabilities, with the net leftover amount representing the implied fair value of goodwill. In replacement of the existing goodwill impairment rule, the update will provide that impairment should be recognized as the excess of any of the reporting unit’s goodwill over the fair value of the reporting unit. Under the provisions of this update, the amount of the impairment is limited to the carrying value of the reporting unit’s goodwill. For public business entities that are SEC filers, the amendments of the update will become effective in fiscal years beginning after December 15, 2019. The Company adopted ASU 2017-04 effective during the first quarter of 2019 and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

FASB Accounting Standards Update (ASU) 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, was issued March 2017. The provisions of the update require premiums recognized upon the purchase of callable debt securities to be amortized to the earliest call date in order to avoid losses recognized upon call. For public business entities that are SEC filers, the amendments of the update become effective in fiscal years beginning after December 15, 2018. The Company adopted this ASU effective January 1, 2019 and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

FASB Accounting Standards Update (ASU) 2018-13 - Fair Value Measurement (Subtopic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, was issued August 2018. The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

11

Note 2.  Fair Value Measurements

Fair Value Hierarchy

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. In accordance with applicable guidance, the Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  Valuations within these levels are based upon:

Level 1 — Quoted market prices (unadjusted) for identical instruments traded in active exchange markets that the Company has the ability to access as of the measurement date.

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3 — Model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability.  Valuation techniques include management judgment and estimation which may be significant.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, we report the transfer at the beginning of the reporting period. The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands):

	June 30, 2019
	Carrying Amount		Fair Value
(In thousands)			Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	33,787	$	33,787	$	—	$	—	$	33,787
Interest-earning deposits in other banks	14,739		14,739		—		—		14,739
Federal funds sold	77		77		—		—		77
Available-for-sale debt securities	476,211		—		476,211		—		476,211
Equity securities	7,458		7,458		—		—		7,458
Loans, net	950,806		—		—		947,248		947,248
Federal Home Loan Bank stock	6,062		N/A		N/A		N/A		N/A
Accrued interest receivable	5,528		11		1,809		3,708		5,528
Financial liabilities:
Deposits	1,294,087		1,102,613		96,319		—		1,198,932
Short-term borrowings	54,000		—		54,000		—		54,000
Junior subordinated deferrable interest debentures	5,155		—		—		4,129		4,129
Accrued interest payable	185		—		130		55		185

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	December 31, 2018
	Carrying Amount		Fair Value
(In thousands)			Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	24,954	$	24,954	$	—	$	—	$	24,954
Interest-earning deposits in other banks	6,725		6,725		—		—		6,725
Federal funds sold	48		48		—		—		48
Available-for-sale debt securities	463,905		—		463,905		—		463,905
Equity securities	7,254		7,254		—		—		7,254
Loans, net	909,591		—		—		899,214		899,214
Federal Home Loan Bank stock	6,843		N/A		N/A		N/A		N/A
Accrued interest receivable	6,429		32		2,323		4,074		6,429
Financial liabilities:
Deposits	1,282,298		1,031,369		95,633		—		1,127,002
Short-term borrowings	10,000		—		10,000		—		10,000
Junior subordinated deferrable interest debentures	5,155		—		—		4,114		4,114
Accrued interest payable	134		—		81		53		134

These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments.  In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

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

The methods and assumptions used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents— The carrying amounts of cash and due from banks, interest-earning deposits in other banks, and Federal funds sold approximate fair values and are classified as Level 1.

(b) Investment Securities — Investment securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for investment securities classified in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

(c) Loans — Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Purchased credit impaired (PCI) loans are measured at estimated fair value on the date of acquisition. Carrying value is calculated as the present value of expected cash flows and approximates fair value and included in Level 3. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are initially valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors.

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(d) FHLB Stock — It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(e) Deposits — Fair value of demand deposit, savings, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair value for fixed and variable rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities resulting in a Level 2 classification.

(f) Short-Term Borrowings — The fair values of the Company’s federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, are based on the market rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(g) Other Borrowings — The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

(h) Accrued Interest Receivable/Payable — The fair value of accrued interest receivable and payable is based on the fair value hierarchy of the related asset or liability.

(i) Off-Balance Sheet Instruments — Fair values for off-balance sheet, credit-related financial instruments 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 commitments is not considered significant for financial reporting purposes.

Assets Recorded at Fair Value

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2019:

Recurring Basis

The Company is required or permitted to record the following assets at fair value on a recurring basis as of June 30, 2019 (in thousands). 

Description	Fair Value		Level 1		Level 2		Level 3
Available-for-sale debt securities:
U.S. Government agencies	$	17,903	$	—	$	17,903	$	—
Obligations of states and political subdivisions	29,375		—		29,375		—
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	224,941		—		224,941		—
Private label mortgage and asset backed securities	194,813		—		194,813		—
Corporate debt securities	9,179		—		9,179		—
Equity securities	7,458		7,458		—		—
Total assets measured at fair value on a recurring basis	$	483,669	$	7,458	$	476,211	$	—

Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets.  Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the six months ended June 30, 2019, no transfers between levels occurred.

There were no Level 3 assets measured at fair value on a recurring basis at or during the six months ended June 30, 2019. Also there were no liabilities measured at fair value on a recurring basis at June 30, 2019.

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Non-recurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at June 30, 2019.

	Fair Value		Level 1		Level 2		Level 3
Impaired loans:
Consumer:
Consumer and installment	$	9	$	—	$	—	$	9
Total assets measured at fair value on a non-recurring basis	$	9	$	—	$	—	$	9

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. The fair value of impaired loans is based on the fair value of the collateral. Impaired loans were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. Impaired loans evaluated under the discounted cash flow method are excluded from the table above. The discounted cash flow methods as prescribed by ASC Topic 310 is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate which is not a market rate. There were no changes in valuation techniques used during the six months ended June 30, 2019.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value is compared with independent data sources such as recent market data or industry-wide statistics.

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a principal balance of $22,000 with a valuation allowance of $13,000 at June 30, 2019, and a resulting fair value of $9,000. The valuation allowance represents specific allocations for the allowance for credit losses for impaired loans.

There were no charge-offs related to loans carried at fair value during the six months ended June 30, 2019 and 2018. Activity related to changes in the allowance for loan losses related to impaired loans for the three months ended June 30, 2019 and 2018 was not considered significant for disclosure purposes. There were no liabilities measured at fair value on a non-recurring basis at June 30, 2019.

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The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2018:

Recurring Basis

The Company is required or permitted to record the following assets at fair value on a recurring basis as of December 31, 2018 (in thousands).

Description	Fair Value		Level 1		Level 2		Level 3
Available-for-sale debt securities:
U.S. Government agencies	$	21,321	$	—	$	21,321	$	—
Obligations of states and political subdivisions	81,504		—		81,504		—
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	234,930		—		234,930		—
Private label mortgage and asset backed securities	126,150		—		126,150		—
Equity securities	7,254		7,254		—		—
Total assets measured at fair value on a recurring basis	$	471,159	$	7,254	$	463,905	$	—

Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets.  Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

     Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the year ended December 31, 2018, no transfers between levels occurred.

There were no Level 3 assets measured at fair value on a recurring basis at or during the year ended December 31, 2018. Also there were no liabilities measured at fair value on a recurring basis at December 31, 2018.

Non-recurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis.  These include assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at December 31, 2018 (in thousands).

Description	Fair Value		Level 1		Level 2		Level 3
Impaired loans:
Real estate:
Commercial real estate	$	134	$	—	$	—	$	134
Total assets measured at fair value on a non-recurring basis	$	134	$	—	$	—	$	134

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans in which the collateral value did not exceed the loan balance had a principal balance of $161,000 with a valuation allowance of $27,000 at December 31, 2018, resulting in a fair value of $134,000. The valuation allowance represent specific allocation for the allowance for credit losses for impaired loans.

During the year ended December 31, 2018 specific allocation for the allowance for credit losses related to loans carried at fair value was $27,000. During the year ended December 31, 2018, there was no net charge-offs related to loans carried at fair value.

There were no liabilities measured at fair value on a non-recurring basis at December 31, 2018.

Note 3.  Investments

The investment portfolio consists primarily of U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations, private label mortgage and asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivisions securities.  As of June 30, 2019, $72,924,000 of these securities were held as collateral for borrowing arrangements, public funds, and for other purposes.

     The fair value of the available-for-sale investment portfolio reflected a net unrealized gain of $6,740,000 at June 30, 2019 compared to an unrealized loss of $6,257,000 at December 31, 2018. The unrealized gain/(loss) recorded is net of

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$1,993,000 and $(1,850,000) in tax liabilities (benefits) as accumulated other comprehensive income within shareholders’ equity at June 30, 2019 and December 31, 2018, respectively.

     The following table sets forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated (in thousands): 

	June 30, 2019
Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government agencies	$	18,167	$	17	$	(281	)	$	17,903
Obligations of states and political subdivisions	26,577		2,798		—			29,375
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	225,045		1,559		(1,663		)	224,941
Private label mortgage and asset backed securities	190,682		4,296		(165		)	194,813
Corporate debt securities	9,000		179		—			9,179
Total available-for-sale	$	469,471	$	8,849	$	(2,109	)	$	476,211

	December 31, 2018
Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government agencies	$	21,723	$	—	$	(402	)	$	21,321
Obligations of states and political subdivisions	79,886		2,205		(587		)	81,504
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	239,388		253		(4,711		)	234,930
Private label mortgage and asset backed securities	129,165		756		(3,771		)	126,150
Total available-for-sale	$	470,162	$	3,214	$	(9,471	)	$	463,905

Proceeds and gross realized gains (losses) from the sales or calls of investment securities for the periods ended June 30, 2019 and 2018 are shown below (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Available-for-Sale Securities	2019			2018			2019			2018
Proceeds from sales or calls	$	150,441		$	62,301		$	203,426		$	131,617
Gross realized gains from sales or calls	2,508			249			3,607			1,316
Gross realized losses from sales or calls	(49		)	(167		)	(96		)	(419		)

Losses recognized in 2019 and 2018 were incurred in order to reposition the investment securities portfolio based on the current rate environment.  The securities which were sold at a loss were acquired when the rate environment was not as volatile.  As market interest rates or risks associated with a security’s issuer continue to change and impact the actual or perceived values of investment securities, the Company may determine that selling these securities and using proceeds to purchase securities that fit with the Company’s current risk profile is appropriate and beneficial to the Company.

The provision for income taxes includes $1,038,000 and $265,000 income tax impact from the reclassification of unrealized net gains on securities to realized net gains on securities for the six months ended June 30, 2019 and 2018, respectively. The provision for income taxes includes $727,000 and $24,000 income tax impact from the reclassification of unrealized net gains on available-for-sale securities to realized net gains on available-for-sale securities for the three months ended June 30, 2019 and 2018, respectively.

Investment securities, aggregated by investment category, with unrealized losses as of the dates indicated are summarized and classified according to the duration of the loss period as follows (in thousands): 

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	June 30, 2019
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-Sale Securities	Value		Losses			Value		Losses			Value		Losses
Debt securities:
U.S. Government agencies	$	—	$	—		$	16,923	$	(281	)	$	16,923	$	(281	)
Obligations of states and political subdivisions	—		—			—		—			—		—
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	80,111		(953		)	40,549		(710		)	120,660		(1,663		)
Private label mortgage and asset backed securities	19,089		(126		)	2,171		(39		)	21,260		(165		)
Total available-for-sale	$	99,200	$	(1,079	)	$	59,643	$	(1,030	)	$	158,843	$	(2,109	)

	December 31, 2018
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-Sale Securities	Value		Losses			Value		Losses			Value		Losses
Debt securities:
U.S. Government agencies	$	14,891	$	(254	)	$	6,430	$	(148	)	$	21,321	$	(402	)
Obligations of states and political subdivisions	10,056		(99		)	22,945		(488		)	33,001		(587		)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	61,866		(424		)	124,673		(4,287		)	186,539		(4,711		)
Private label mortgage and asset backed securities	31,325		(195		)	84,784		(3,576		)	116,109		(3,771		)
Total available-for-sale	$	118,138	$	(972	)	$	238,832	$	(8,499	)	$	356,970	$	(9,471	)

The Company periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations.  The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings.  The discount rate in this analysis is the original yield expected at time of purchase.

     As of June 30, 2019, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). The Company evaluated all individual available-for-sale investment securities with an unrealized loss at June 30, 2019 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at June 30, 2019 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $10,000.  The Company also analyzed any securities that may have been downgraded by credit rating agencies. 

For those investment securities that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those investment securities.  For those bonds that were obligations of states and political subdivisions with an investment grade rating by the rating agencies, the Company also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded there were no OTTI losses recorded during the six months ended June 30, 2019. There were no OTTI losses recorded during the six months ended June 30, 2018.

U.S. Government Agencies

At June 30, 2019, the Company held six U.S. Government agency securities of which none were in a loss position for less than 12 months and five had been in a loss position for 12 months or more. The unrealized losses on the Company’s investments in direct obligations of U.S. Government agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2019.

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Obligations of States and Political Subdivisions

At June 30, 2019, the Company held 28 obligations of states and political subdivision securities of which none were in a loss position.

U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations

At June 30, 2019, the Company held 126 U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations of which 21 were in a loss position for less than 12 months and 17 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or 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 has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2019.

Private Label Mortgage and Asset Backed Securities

At June 30, 2019, the Company had a total of 47 Private Label Mortgage and Asset Backed Securities (PLMABS). Four of the PLMABS securities were in a loss position for less than 12 months and one has been in loss for more than 12 months at June 30, 2019. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2019. The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary.

Corporate Debt Securities

At June 30, 2019, the Company held two corporate debt securities of which none were in a loss position.

The following tables provide a roll forward for the six months ended June 30, 2019 and 2018 of investment securities credit losses recorded in earnings. The beginning balance represents the credit loss component for which OTTI occurred on debt securities in prior periods.  Additions represent the first time a debt security was credit impaired or when subsequent credit impairments have occurred on securities for which OTTI credit losses have been previously recognized. 

	For the Six Months Ended June 30,
(In thousands)	2019		2018
Beginning balance	$	874	$	874
Amounts related to credit loss for which an OTTI charge was not previously recognized	—		—
Increases to the amount related to credit loss for which OTTI was previously recognized	—		—
Realized gain for securities sold	—		—
Ending balance	$	874	$	874

The amortized cost and estimated fair value of available-for-sale investment securities at June 30, 2019 by contractual maturity is shown below (in thousands).  Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

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	June 30, 2019
Available-for-Sale Securities	Amortized Cost		Estimated Fair Value
Within one year	$	—	$	—
After one year through five years	2,496		2,642
After five years through ten years	9,145		9,763
After ten years	14,936		16,970
	26,577		29,375
Investment securities not due at a single maturity date:
U.S. Government agencies	18,167		17,903
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	225,045		224,941
Private label mortgage and asset backed securities	190,682		194,813
Corporate debt securities	9,000		9,179
Total available-for-sale	$	469,471	$	476,211

Note 4.  Loans and Allowance for Credit Losses

Outstanding loans are summarized as follows:

Loan Type (Dollars in thousands)	June 30, 2019		% of Total Loans		December 31, 2018		% of Total Loans
Commercial:
Commercial and industrial	$	110,178	11.5	%	$	101,533	11.1	%
Agricultural production	25,987		2.7	%	7,998		0.9	%
Total commercial	136,165		14.2	%	109,531		12.0	%
Real estate:
Owner occupied	195,626		20.4	%	183,169		19.9	%
Real estate construction and other land loans	102,927		10.7	%	101,606		11.1	%
Commercial real estate	302,026		31.5	%	305,118		33.2	%
Agricultural real estate	75,077		7.8	%	76,884		8.4	%
Other real estate	33,214		3.6	%	32,799		3.6	%
Total real estate	708,870		74.0	%	699,576