10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

Commission file number:  000-33063

SIERRA BANCORP

(Exact name of Registrant as specified in its charter)

California	33-0937517
(State of Incorporation)	(IRS Employer Identification No)

86 North Main Street, Porterville, California 93257

(Address of principal executive offices)                  (Zip Code)

(559) 782-4900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Large Accelerated Filer	☐	Accelerated Filer:	☒
Non-accelerated Filer:	☐	Smaller Reporting Company:	☐
Emerging Growth Company:	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section7(a)(2)(B) of the Securities Act.  ☐

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

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

As of August 1, 2019, the registrant had 15,338,270 shares of common stock outstanding.

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	BSRR	The NASDAQ Stock Market LLC

FORM 10-Q

Table of Contents

					Page
Part I - Financial Information					1
	Item 1.  Financial Statements (Unaudited)				1
		Consolidated Balance Sheets			1
		Consolidated Statements of Income			2
		Consolidated Statements of Comprehensive Income			3
		Consolidated Statements of Changes In Stockholder’s Equity			4
		Consolidated Statements of Cash Flows			6
		Notes to Consolidated Financial Statements (Unaudited)			7
	Item 2.  Management’s Discussion & Analysis of Financial Condition & Results of Operations				34
		Forward-Looking Statements			34
		Critical Accounting Policies			34
		Overview of the Results of Operations and Financial Condition			35
		Earnings Performance			36
			Net Interest Income and Net Interest Margin		37
			Provision for Loan and Lease Losses		41
			Noninterest Income and Noninterest Expense		42
			Provision for Income Taxes		44
		Balance Sheet Analysis			44
			Earning Assets		44
				Investments	44
				Loan and Lease Portfolio	45
				Nonperforming Assets	47
				Allowance for Loan and Lease Losses	48
				Off-Balance Sheet Arrangements	50
			Other Assets		50
			Deposits and Interest-Bearing Liabilities		51
				Deposits	51
				Other Interest-Bearing Liabilities	52
			Noninterest Bearing Liabilities		53
		Liquidity and Market Risk Management			53
		Capital Resources			55
	Item 3.  Qualitative & Quantitative Disclosures about Market Risk				56
	Item 4.  Controls and Procedures				57
Part II - Other Information					58
	Item 1.  - Legal Proceedings				58
	Item 1A.  - Risk Factors				58
	Item 2.  - Unregistered Sales of Equity Securities and Use of Proceeds				58
	Item 3.  - Defaults upon Senior Securities				58
	Item 4.  - Mine Safety Disclosures				58
	Item 5.  - Other Information				58
	Item 6.  - Exhibits				59
Signatures					60

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

SIERRA BANCORP

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	June 30, 2019		December 31, 2018
ASSETS	(unaudited)		(audited)
Cash and due from banks	$	65,711	$	72,439
Interest-bearing deposits in banks		2,079		1,693
Total cash & cash equivalents		67,790		74,132
Securities available-for-sale		577,266		560,479
Loans and leases:
Gross loans and leases		1,777,899		1,731,928
Allowance for loan and lease losses		(9,883)		(9,750)
Deferred loan and lease costs, net		2,831		2,602
Net loans and leases		1,770,847		1,724,780
Foreclosed assets		770		1,082
Premises and equipment, net		28,385		29,500
Goodwill		27,357		27,357
Other intangible assets, net		5,918		6,455
Bank-owned life insurance		49,211		48,153
Other assets		49,488		50,564
Total assets	$	2,577,032	$	2,522,502
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing	$	658,900	$	662,527
Interest bearing		1,520,198		1,453,813
Total deposits		2,179,098		2,116,340
Repurchase agreements		24,167		16,359
Short-term borrowings		8,500		56,100
Subordinated debentures, net		34,856		34,767
Other liabilities		33,559		25,912
Total liabilities		2,280,180		2,249,478
Commitments and contingent liabilities (Note 7)
Shareholders' equity
Common stock, no par value; 24,000,000 shares authorized; 15,332,550 and 15,300,460 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		113,061		112,507
Additional paid-in capital		3,237		3,066
Retained earnings		176,328		164,117
Accumulated other comprehensive income (loss), net		4,226		(6,666)
Total shareholders' equity		296,852		273,024
Total liabilities and shareholder's equity	$	2,577,032	$	2,522,502

The accompanying notes are an integral part of these consolidated financial statements

1

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands, except per share data, unaudited)

	Three months ended June 30,					Six months ended June 30,
	2019		2018		2019		2018
Interest and dividend income
Loans and leases, including fees	$	24,010	$	21,504	$	47,759	$	41,508
Taxable securities		2,591		2,300		5,207		4,638
Tax-exempt securities		1,072		1,018		2,117		2,034
Federal funds sold and other		115		61		188		180
Total interest income		27,788		24,883		55,271		48,360
Interest expense
Deposits		3,093		1,594		6,048		2,912
Short-term borrowings		26		53		97		66
Subordinated debentures		470		436		954		822
Total interest expense		3,589		2,083		7,099		3,800
Net interest income		24,199		22,800		48,172		44,560
Provision for loan losses		400		300		700		500
Net interest income after provision for loan losses		23,799		22,500		47,472		44,060
Noninterest income
Service charges on deposits		3,151		3,027		6,094		5,974
Other income		2,704		2,402		5,668		4,589
Total noninterest income		5,855		5,429		11,762		10,563
Other operating expense
Salaries and employee benefits		8,994		8,997		18,237		18,180
Occupancy and equipment		2,450		2,451		4,811		4,799
Other		6,212		5,846		12,461		12,202
Total other operating expense		17,656		17,294		35,509		35,181
Income before taxes		11,998		10,635		23,725		19,442
Provision for income taxes		3,169		2,643		6,001		4,740
Net income	$	8,829	$	7,992	$	17,724	$	14,702
PER SHARE DATA
Book value	$	19.36	$	17.06	$	19.36	$	17.06
Cash dividends	$	0.18	$	0.16	$	0.36	$	0.32
Earnings per share basic	$	0.58	$	0.52	$	1.16	$	0.96
Earnings per share diluted	$	0.57	$	0.52	$	1.15	$	0.95
Average shares outstanding, basic		15,329,907		15,254,575		15,320,784		15,243,697
Average shares outstanding, diluted		15,458,320		15,429,129		15,453,212		15,420,886
Total shareholder equity (in thousands)	$	296,852	$	260,238	$	296,852	$	260,238
Shares outstanding		15,332,550		15,258,100		15,332,550		15,258,100
Dividends paid (in thousands)	$	2,759	$	2,441	$	5,513	$	4,878

The accompanying notes are an integral part of these consolidated financial statements.

2

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands, unaudited)

	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Net income	$	8,829	$	7,992	$	17,724	$	14,702
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Unrealized holding gain (loss) arising during period		9,324		(1,192)		15,491		(8,784)
Less: reclassification adjustment for gains included in net income (1)		(22)		—		(28)		—
Other comprehensive income (loss), before tax		9,302		(1,192)		15,463		(8,784)
Income tax expense related to items of other comprehensive income (loss), net of tax		(2,750)		353		(4,571)		2,598
Other comprehensive income (loss)		6,552		(839)		10,892		(6,186)
Comprehensive income	$	15,381	$	7,153	$	28,616	$	8,516

(1) Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest revenue.  Income tax expense associated with the reclassification adjustment for the three months ended June 30, 2019 and 2018 was $7 thousand and $0 thousand respectively.  Income tax expense associated with the reclassification adjustment for the six months ended June 30, 2019 and 2018 was $8 thousand and $0 thousand respectively.

The accompanying notes are an integral part of these consolidated financial statements.

3

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands, except per share data, unaudited)

								Accumulated
				Additional				Other
	Common Stock			Paid In		Retained		Comprehensive		Shareholders'
	Shares	Amount		Capital		Earnings		(Loss) Income		Equity
Balance, March 31, 2018	15,246,780	$	111,598	$	2,929	$	148,470	$	(7,677)	$	255,320
Net income							7,992				7,992
Other comprehensive loss, net of tax									(839)		(839)
Exercise of stock options	11,320		141		(33)						108
Stock compensation costs					98						98
Stock issued-acquisition											—
Cash dividends - $0.16 per share							(2,441)				(2,441)
Balance, June 30, 2018	15,258,100	$	111,739	$	2,994	$	154,021	$	(8,516)	$	260,238
Balance, March 31, 2019	15,328,030	$	113,001	$	3,135	$	170,258	$	(2,326)	$	284,068
Net income							8,829				8,829
Other comprehensive income, net of tax									6,552		6,552
Exercise of stock options	4,520		60		(14)						46
Stock compensation costs					116						116
Stock issued-acquisition											—
Cash dividends - $0.18 per share							(2,759)				(2,759)
Balance, June 30, 2019	15,332,550	$	113,061	$	3,237	$	176,328	$	4,226	$	296,852

The accompanying notes are an integral part of these consolidated financial statements.

4

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands, except per share data, unaudited)

								Accumulated
				Additional				Other
	Common Stock			Paid In		Retained		Comprehensive		Shareholders'
	Shares	Amount		Capital		Earnings		(Loss) Income		Equity
Balance, December 31, 2017	15,223,360	$	111,138	$	2,937	$	144,197	$	(2,330)	$	255,942
Net income							14,702				14,702
Other comprehensive loss, net of tax									(6,186)		(6,186)
Exercise of stock options	34,740		601		(111)						490
Stock compensation costs					174						174
Stock issued-acquisition					(6)						(6)
Cash dividends - $0.32 per share							(4,878)				(4,878)
Balance, June 30, 2018	15,258,100	$	111,739	$	2,994	$	154,021	$	(8,516)	$	260,238
Balance, December 31, 2018	15,300,460	$	112,507	$	3,066	$	164,117	$	(6,666)	$	273,024
Net income							17,724				17,724
Other comprehensive income, net of tax									10,892		10,892
Exercise of stock options	32,090		554		(96)						458
Stock compensation costs					267						267
Stock issued-acquisition											—
Cash dividends - $0.36 per share							(5,513)				(5,513)
Balance, June 30, 2019	15,332,550	$	113,061	$	3,237	$	176,328	$	4,226	$	296,852

The accompanying notes are an integral part of these consolidated financial statements.

5

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands, unaudited)

		Six months ended June 30,
	2019		2018
Cash flows from operating activities:
Net income	$	17,724	$	14,702
Gain on sales of securities		(28)		—
Loss on disposal of fixed assets		28		13
Gain on sale on foreclosed assets		(37)		(713)
Writedowns on foreclosed assets		69		176
Share-based compensation expense		267		174
Provision for loan losses		700		500
Depreciation and amortization		1,496		1,566
Net amortization on securities premiums and discounts		2,107		2,904
Accretion of discounts for loans acquired and net deferred loan fees		(505)		(911)
Increase in cash surrender value of life insurance policies		(1,027)		(626)
Amortization of core deposit intangible		537		484
Increase in interest receivable and other assets		(1,213)		(1,020)
Increase in other liabilities		(2,065)		(5,965)
Deferred income tax benefit		(27)		(962)
Increase in equity securities		(232)		—
Net amortization of partnership investment		900		810
Net cash provided by operating activities		18,694		11,132
Cash flows from investing activities:
Maturities and calls of securities available for sale		4,459		2,310
Proceeds from sales of securities available for sale		22,180		—
Purchases of securities available for sale		(72,330)		(61,999)
Principal pay downs on securities available for sale		42,288		46,363
Net purchases of FHLB stock		(833)		(301)
Loan originations and payments, net		(46,315)		(66,185)
Purchases of premises and equipment		(330)		(2,284)
Proceeds from sale premises and equipment		10		—
Proceeds from sales of foreclosed assets		7,955		3,925
Purchase of bank-owned life insurance		(292)		(327)
Liquidation of bank-owned life insurance		261		—
Net cash from bank acquisition		—		(6)
Net cash used in investing activities		(42,947)		(78,504)
Cash flows from financing activities:
Increase in deposits		62,758		99,536
Decrease in borrowed funds		(47,600)		(21,900)
Increase in repurchase agreements		7,808		9,089
Cash dividends paid		(5,513)		(4,878)
Stock options exercised		458		490
Net cash provided by financing activities		17,911		82,337
(Decrease) increase in cash and due from banks		(6,342)		14,965
Cash and cash equivalents
Beginning of period		74,132		70,137
End of period	$	67,790	$	85,102
Supplemental disclosure of cash flow information:
Interest paid	$	6,917	$	3,914
Income taxes paid	$	7,600	$	10,000
Supplemental noncash disclosures:
Real estate acquired through foreclosure	$	27	$	—
Operating right-of-use asset pursuant to adoption on ASU 2016-02	$	9,712	$	—
Operating lease liability pursuant to adoption of ASU 2016-02	$	10,336	$	—

The accompanying notes are an integral part of these consolidated financial statements.

6

SIERRA BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

Note 1 – The Business of Sierra Bancorp

Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws.  The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”), and has been the Bank’s sole shareholder since August 2001.  The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish.  As of June 30, 2019, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”).  Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements.  References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

Bank of the Sierra, a California state-chartered bank headquartered in Porterville, California, offers a wide range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, and neighboring communities.  The Bank was incorporated in September 1977, and opened for business in January 1978 as a one-branch bank with $1.5 million in capital.  Our growth in the ensuing years has largely been organic in nature, but includes four whole-bank acquisitions:  Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017.  As of the filing date of this report the Bank operates 40 full service branches and an online branch, and maintains ATMs at all but one of our branch locations as well as seven non-branch locations.  Moreover, the Bank has specialized lending units which focus on agricultural borrowers, SBA loans, and mortgage warehouse lending.  The Company had total assets of $2.6 billion at June 30, 2019, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley.  The Bank’s deposit accounts, which totaled $2.2 billion at June 30, 2019, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

Note 2 – Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  The information furnished in these interim statements reflects all adjustments that are, in the opinion of Management, necessary for a fair statement of the results for such periods.  Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10‑Q.  In preparing the accompanying financial statements, Management has taken subsequent events into consideration and recognized them where appropriate.  The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year.  Certain amounts reported for 2018 have been reclassified to be consistent with the reporting for 2019.  The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “SEC”).

Note 3 – Current Accounting Developments

In February 2016 the FASB issued ASU 2016‑02, Leases (Topic 842).  The intention of this standard is to increase the transparency and comparability around lease obligations.  Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements.  ASU 2016‑02 is generally effective for public business entities in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company has leases on 21 branch locations, an administrative office building, and three offsite ATM locations which are considered operating leases and were not previously reflected in our financial statements. 

7

Pursuant to ASU 2016‑02, on January 1, 2019 these lease agreements were recognized on our consolidated statement of condition as right-of-use assets totaling approximately $10 million, and corresponding lease liabilities.  Please see Note 12 to the consolidated financial statements for more detailed disclosure information.

In September 2016 the FASB issued ASU 2016‑13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost.  This is commonly referred to as the current expected credit losses (“CECL”) methodology.  Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts.  Another change from existing U.S. GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards.  When such assets are purchased, institutions will estimate and record an allowance for credit losses that is added to the purchase price rather than being reported as a credit loss expense.  Furthermore, ASU 2016‑13 updates the measurement of credit losses on available-for-sale debt securities, by mandating that institutions record credit losses on available-for-sale debt securities through an allowance for credit losses rather than the current practice of writing down securities for other-than-temporary impairment.  ASU 2016‑13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses.  ASU 2016‑13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value.  As a public business entity that is an SEC filer, ASU 2016‑13 becomes effective for the Company on January 1, 2020, although early application is permitted for 2019.  On the effective date, institutions will apply the new accounting standard as follows:  for financial assets carried at amortized cost, a cumulative-effect adjustment will be recognized on the balance sheet for any change in the related allowance for loan and lease losses generated by the adoption of the new standard; financial assets classified as purchased credit impaired assets prior to the effective date will be reclassified as purchased credit deteriorated assets as of the effective date, and will be grossed up for the related allowance for expected credit losses created as of the effective date; and, debt securities on which other-than-temporary impairment had been recognized prior to the effective date will transition to the new guidance prospectively with no change in their amortized cost basis.  The Company is well under way with transition efforts.  We have established an implementation team which is chaired by our Chief Credit Officer and includes the Company’s other executive officers, along with certain members of our credit administration and finance departments.  Furthermore, after extensive discussion and due diligence, in 2018 we engaged a third-party vendor and purchased a specialized application to assist in our calculation of potential required reserves utilizing the CECL methodology and help validate our current reserving methodology.  While the ultimate impact cannot be definitively determined until the implementation date, a preliminary evaluation indicates that the provisions of ASU 2016‑13 will likely have a material impact on our consolidated financial statements, particularly the level of our allowance for credit losses and shareholders’ equity.  Initial estimates are that our allowance for loan and lease losses could increase by 100% or more relative to current levels if we utilize the discounted cash flow methodology with forecasting.

In January 2017 the FASB issued ASU 2017‑01, Business Combinations (Topic 805): Clarifying the Definition of a Business.  Currently, Topic 805 specifies three elements of a business – inputs, processes, and outputs.  While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required.  In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.  This led many transactions to be accounted for as business combinations rather than asset purchases under legacy GAAP.  The primary goal of ASU 2017‑01 is to narrow the definition of a business, and the guidance in this update provides a screen to determine when a set is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.  This reduces the number of transactions that need to be further evaluated.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and we implemented ASU 2017‑01 on a prospective basis effective January 1, 2018.  This update affected the accounting treatment used for our branch deposit purchase in the second quarter of 2018, and we expect that it will also impact the way we account for certain branch acquisitions in future periods if the opportunity for such arises.

8

In January 2017 the FASB issued ASU 2017‑04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.  This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation, and goodwill impairment will simply be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  All other goodwill impairment guidance will remain largely unchanged.  Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.  The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts.  Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019.  We have not been required to record any goodwill impairment to date, and after a preliminary review do not expect that this guidance would require us to do so given current circumstances.  Nevertheless, we will continue to evaluate ASU 2017‑04 to more definitely determine its potential impact on the Company’s consolidated financial position, results of operations and cash flows.

In March 2017 the FASB issued ASU 2017‑08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities.  The amendments in this update will shorten the amortization period for certain callable debt securities held at a premium, by requiring the premium to be amortized to the earliest call date.  Under current guidance, the premium on a callable debt security is generally amortized as an adjustment to yield over the contractual life of the instrument, and any unamortized premium is recorded as a loss in earnings upon the debtor’s exercise of a call provision.  Under ASU 2017‑08, because the premium will be amortized to the earliest call date, entities will no longer recognize a loss in earnings if a debt security is called prior to the contractual maturity date.  The amendments do not require an accounting change for securities held at a discount; discounts will continue to be amortized as an adjustment to yield over the contractual life of the debt instrument.  ASU 2017‑08 is effective for public business entities, including the Company, for fiscal years and interim periods within those fiscal years beginning after December 15, 2018.  To apply ASU 2017‑08, entities must use a modified retrospective approach, with the cumulative-effect adjustment recognized to retained earnings at the beginning of the period of adoption.  The Company adopted ASU 2017‑08 effective January 1, 2019 with no material impact on our financial statements or operations.

In August 2018 the FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, as part of its disclosure framework project.  Pursuant to this guidance, disclosures that will no longer be required include the following:  transfers between Level 1 and Level 2 of the fair value hierarchy; transfers in and out of Level 3 for nonpublic entities, as well as purchases and issuances and the Level 3 roll forward; a company’s policy for determining when transfers between any of the three levels have occurred; the valuation processes used for Level 3 measurements; and, the changes in unrealized gains or losses presented in earnings for Level 3 instruments held at the balance sheet date for nonpublic entities.  The following are additional disclosure requirements:  for public entities, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the balance sheet date; for public entities, the range and weighted average of significant unobservable inputs used for Level 3 measurements, although for certain unobservable inputs the entity will be allowed to disclose other quantitative information in place of the weighted average to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs; for nonpublic entities, some form of quantitative information about significant unobservable inputs used in Level 3 fair value measurements; and, for certain investments in entities that calculate the net asset value, disclosures will be required about the timing of liquidation and redemption restrictions lapsing if the latter has been communicated to the reporting entity.  The guidance also clarifies that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date.  ASU 2018‑13 is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods.  Early adoption is permitted.  In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date. The Company has evaluated the potential impact of this guidance, and does not expect the adoption of ASU 2018-13 to have a material impact on our financial statements or operations.

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Note 4 – Share Based Compensation

On March 16, 2017 the Company’s Board of Directors approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective May 24, 2017, the date approved by the Company’s shareholders.  The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 2017.  Options to purchase 335,530 shares that were granted under the 2007 Plan were still outstanding as of June 30, 2019 and remain unaffected by that plan’s expiration.  The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors and consultants of the Company.  The 2017 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants, although no restricted stock awards have ever been issued by the Company.  The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2017 Plan was initially 850,000 shares, and the number remaining available for grant as of June 30, 2019 was 667,800.  The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share.

Pursuant to FASB’s standards on stock compensation, the value of each stock option is reflected in our income statement as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option.  The Company utilizes a Black-Scholes model to determine grant date fair values.  A pre-tax charge of $116,000 was reflected in the Company’s income statement during the second quarter of 2019 and $98,000 was charged during the second quarter of 2018, as expense related to stock options.  For the first half, the charges totaled $267,000 in 2019 and $174,000 in 2018.

Note 5 – Earnings per Share

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period.  There were 15,329,907 weighted average shares outstanding during the second quarter of 2019 and 15,254,575 during the second quarter of 2018, while there were 15,320,784 weighted average shares outstanding during the first six months of 2019 and 15,243,697 during the first six months of 2018.

Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options.  For the second quarter of 2019, calculations under the treasury stock method resulted in the equivalent of 128,413 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 258,202 stock options were excluded from the calculation because they were underwater and thus anti-dilutive.  For the second quarter of 2018 the equivalent of 174,554 shares were added in calculating diluted earnings per share, while 106,200 anti-dilutive stock options were not factored into the computation.  Likewise, for the first half of 2019 the equivalent of 132,428 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 228,824 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 177,189 shares and non-inclusion of 166,200 anti-dilutive options in calculating diluted earnings per share for first half of 2018.

Note 6 – Comprehensive Income

As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income.  The Company’s only source of other comprehensive income is unrealized gains and losses on available-for-sale investment securities.  Investment gains or losses that were realized and reflected in net income of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.

Note 7 – Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off‑balance‑sheet risk in the normal course of business.  Those financial instruments currently consist of unused commitments to extend credit and standby letters of credit.  They

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involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet.  The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the balance sheet.  The following financial instruments represent off‑balance‑sheet credit risk (dollars in thousands):

	June 30, 2019		December 31, 2018
Commitments to extend credit	$	596,001	$	781,987
Standby letters of credit	$	9,529	$	8,966

Commitments to extend credit consist primarily of the unused or unfunded portions of the following:  home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many commitments are expected to expire without being drawn upon, the unused portions of committed amounts do not necessarily represent future cash requirements.  Standby letters of credit are issued by the Company to guarantee the performance of a customer to a third party, and the credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers.

At June 30, 2019, the Company was also utilizing a letter of credit in the amount of $105 million issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.  That letter of credit is backed by loans which are pledged to the FHLB by the Company.

Note 8 – Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments.  In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities that are classified as available for sale and any equity securities which have readily determinable fair values be measured and reported at fair value in our statement of financial position.  Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value.  FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but we have not elected the fair value option for any of those financial instruments.

Fair value measurement and disclosure standards also establish a framework for measuring fair values.  Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date.  Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values.  The standards describe three levels of inputs that may be used to measure fair values:

· Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

· Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

· Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability.

Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments.  Fair value disclosures for deposits include demand deposits, which are by definition equal to the

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amount payable on demand at the reporting date.  Fair value calculations for loans and leases reflect exit pricing, and incorporate our assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things.  Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented.

Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:

Fair Value of Financial Instruments

(dollars in thousands, unaudited)

		June 30, 2019
			Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Cash and cash equivalents	$	67,790	$	67,790	$	—	$	—	$	67,790
Investment securities available for sale		577,266		—		577,266		—		577,266
Loans and leases, net held for investment		1,770,838		—		1,791,335		—		1,791,335
Collateral dependent impaired loans		9		—		9		—		9
Financial liabilities:
Deposits		2,179,098		658,900		1,520,424		—		2,179,324
Repurchase agreements		24,167		24,167		—		—		24,167
Short term borrowings		8,500		—		8,500		—		8,500
Subordinated debentures		34,856		—		28,660		—		28,660

		December 31, 2018
			Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Cash and cash equivalents	$	74,132	$	74,132	$	—	$	—	$	74,132
Investment securities available for sale		560,479		—		560,479		—		560,479
Loans and leases, net held for investment		1,724,575		—		1,707,463		—		1,707,463
Collateral dependent impaired loans		205		—		205		—		205
Financial liabilities:
Deposits		2,116,340		662,527		1,453,048		—		2,115,575
Repurchase agreements		16,359		16,359		—		—		16,359
Short term borrowings		56,100		—		56,100		—		56,100
Subordinated debentures		34,767		—		30,311		—		30,311

For financial asset categories that were carried on our balance sheet at fair value as of June 30, 2019 and December 31, 2018, the Company used the following methods and significant assumptions:

· Investment securities:  Fair values are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities.

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· Collateral-dependent impaired loans:  Collateral-dependent impaired loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable.

· Foreclosed assets:  Repossessed real estate (known as other real estate owned, or “OREO”) and other foreclosed assets are carried at the lower of cost or fair value.  Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes; fair values for any other foreclosed assets are represented by estimated sales proceeds as determined using reasonably available sources.  Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals.  Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution.  If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

Assets reported at fair value on a recurring basis are summarized below:

Fair Value Measurements – Recurring

(dollars in thousands, unaudited)

	Fair Value Measurements at June 30, 2019, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies	$	—	$	15,296	$	—	$	15,296	$	—
Mortgage-backed securities		—		406,091		—		406,091		—
State and political subdivisions		—		155,879		—		155,879		—
Total available-for-sale securities	$	—	$	577,266	$	—	$	577,266	$	—

	Fair Value Measurements at December 31, 2018, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies	$	—	$	15,212	$	—	$	15,212	$	—
Mortgage-backed securities		—		404,733		—		404,733		—
State and political subdivisions		—		140,534		—		140,534		—
Total available-for-sale securities	$	—	$	560,479	$	—	$	560,479	$	—

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Assets reported at fair value on a nonrecurring basis are summarized below:

Fair Value Measurements – Nonrecurring

(dollars in thousands, unaudited)

	Fair Value Measurements at June 30, 2019, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—
Other construction/land		—		—		—		—
1-4 family - closed-end		—		—		—		—
Equity lines		—		—		—		—
Multi-family residential		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—
Farmland		—		—		—		—
Total real estate		—		—		—		—
Agricultural		—		—		—		—
Commercial and industrial		—		—		—		—
Consumer loans		—		9		—		9
Total impaired loans	$	—	$	9	$	—	$	9
Foreclosed assets	$	—	$	770	$	—	$	770
Total assets measured on a nonrecurring basis	$	—	$	779	$	—	$	779

	Fair Value Measurements at December 31, 2018, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—
Other construction/land		—		27		—		27
1-4 family - closed-end		—		—		—		—
Equity lines		—		12		—		12
Multi-family residential		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—
Farmland		—		—		—		—
Total real estate		—		39		—		39
Agricultural		—		—		—		—
Commercial and industrial		—		119		—		119
Consumer loans		—		47		—		47
Total impaired loans	$	—	$	205	$	—	$	205
Foreclosed assets	$	—	$	1,082	$	—	$	1,082
Total assets measured on a nonrecurring basis	$	—	$	1,287	$	—	$	1,287

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The table above includes collateral-dependent impaired loan balances for which a specific reserve has been established or on which a write-down has been taken.  Information on the Company’s total impaired loan balances and specific loss reserves associated with those balances is included in Note 11 below, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the “Nonperforming Assets” and “Allowance for Loan and Lease Losses” sections.

The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value.  Adjusting any of those inputs could result in a significantly lower or higher fair value measurement.  For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured impaired loans.

Note 9 – Investments

Investment Securities

Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.  Pursuant to FASB’s guidance on accounting for debt and equity securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity.

The amortized cost and estimated fair value of available-for-sale investment securities are as follows:

Amortized Cost And Estimated Fair Value

(dollars in thousands, unaudited)

	June 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated  Fair Value
U.S. government agencies	$	15,262	$	168	$	(134)	$	15,296
Mortgage-backed securities		405,025		3,261		(2,195)		406,091
State and political subdivisions		150,978		5,000		(99)		155,879
Total securities	$	571,265	$	8,429	$	(2,428)	$	577,266

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated  Fair Value
U.S. government agencies	$	15,553	$	12	$	(353)	$	15,212
Mortgage-backed securities		414,208		398		(9,873)		404,733
State and political subdivisions		140,181		1,206		(853)		140,534
Total securities	$	569,942	$	1,616	$	(11,079)	$	560,479

At June 30, 2019 and December 31, 2018, the Company had 274 securities and 552 securities, respectively, with gross unrealized losses.  Management has evaluated those securities as of the respective dates, and does not believe that any of the unrealized losses are other than temporary.  Gross unrealized losses on our investment securities as of the indicated dates are disclosed in the table below, categorized by investment type and by the duration of time that loss positions on individual securities have continuously existed (over or under twelve months).

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Investment Portfolio - Unrealized Losses

(dollars in thousands, unaudited)

	June 30, 2019
	Less than twelve months				Twelve months or more
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	—	$	—	$	(134)	$	7,825
Mortgage-backed securities		(22)		7,150		(2,173)		185,159
State and political subdivisions		(58)		10,870		(41)		4,497
Total	$	(80)	$	18,020	$	(2,348)	$	197,481

	December 31, 2018
	Less than twelve months				Twelve months or more
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	(54)	$	2,815	$	(299)	$	10,764
Mortgage-backed securities		(717)		69,686		(9,156)		273,230
State and political subdivisions		(249)		33,864		(604)		22,213
Total	$	(1,020)	$	106,365	$	(10,059)	$	306,207

The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:

Investment Portfolio - Realized Gains/(Losses)

(dollars in thousands, unaudited)

	Three months ended June 30,					Six months ended June 30,
	2019		2018		2019		2018
Proceeds from sales, calls and maturities of securities available for sale	$	9,985	$	2,110	$	26,639	$	2,310
Gross gains on sales, calls and maturities of securities available for sale		33		—		127		—
Gross losses on sales, calls and maturities of securities available for sale		(11)		—		(99)		—
Net gains on sale of securities available for sale	$	22	$	—	$	28	$	$—

The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2019 and December 31, 2018 are shown below, grouped by the remaining time to contractual maturity dates.  The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities might have the right to call or prepay obligations with or without penalties.

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Estimated Fair Value of Contractual Maturities

(dollars in thousands, unaudited)

	June 30, 2019
	Amortized Cost		Fair Value
Maturing within one year	$	7,806	$	7,909
Maturing after one year through five years		180,636		180,310
Maturing after five years through ten years		57,344		58,245
Maturing after ten years		100,701		104,331
Securities not due at a single maturity date:
U.S. government agencies collateralized by mortgage obligations		224,778		226,471
	$	571,265	$	577,266

	December 31, 2018
	Amortized Cost		Fair Value
Maturing within one year	$	7,726	$	7,789
Maturing after one year through five years		199,840		195,519
Maturing after five years through ten years		47,802		47,661
Maturing after ten years		83,606		83,444
Securities not due at a single maturity date:
U.S. government agencies collateralized by mortgage obligations		230,968		226,066
	$	569,942	$	560,479

At June 30, 2019, the Company’s investment portfolio included 326 “muni” bonds issued by 262 different government municipalities and agencies located within 29 different states, with an aggregate fair value of $156 million.  The largest exposure to any single municipality or agency was a combined $2.596 million (fair value) in general obligation bonds issued by the Lindsay (CA) Unified School District.

The Company’s investments in bonds issued by states, municipalities and political subdivisions are evaluated in accordance with Supervision and Regulation Letter 12‑15 issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Organization Ratings,” and other regulatory guidance.  Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds.  There have been no significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.

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The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations:

Revenue and General Obligation Bonds by Location

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
General obligation bonds	Cost		Value		Cost		Value
State of issuance
Texas	$	45,855	$	47,243	$	36,331	$	36,199
California		25,817		26,916		26,928		27,357
Washington		15,971		16,688		16,036		16,062
Illinois		7,920		8,179		6,827		6,838
Ohio		7,687		7,793		8,639		8,601
Other (21 and 22 states, respectively)		26,216		26,895		21,530		21,576
Total general obligation bonds		129,466		133,714		116,291		116,633
Revenue bonds
State of issuance
Texas		6,764		6,953		7,526		7,506
Utah		4,672		4,758		5,364		5,353
Indiana		3,147		3,269		2,641		2,654
Washington		1,744		1,853		1,751		1,780
Pennsylvania		1,243		1,264		—		—
Other (9 and 11 states, respectively)		3,942		4,068		6,608		6,608
Total revenue bonds		21,512		22,165		23,890		23,901
Total obligations of states and political subdivisions	$	150,978	$	155,879	$	140,181	$	140,534

The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements.  The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.

Revenue Bonds by Type

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
Revenue bonds	Cost		Value		Cost		Value
Revenue source:
Water	$	6,749	$	6,962	$	6,942	$	6,946
Sales Tax		4,376		4,506		2,932		2,901
College & University		3,001		3,092		2,583		2,604
Sewer		1,481		1,512		1,392		1,398
Other (13 sources)		5,905		6,093		10,041		10,052
Total revenue bonds	$	21,512	$	22,165	$	23,890	$	23,901

Low-Income Housing Tax Credit (“LIHTC”) Fund Investments

The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project.  The primary investment return comes from tax credits that flow through to investors.  Because rent levels are lower than standard

18

market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners.

The Company made investment commitments to nine different LIHTC fund limited partnerships from 2001 through 2017, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act.  We utilize the cost method of accounting for our LIHTC fund investments, under which we initially record on our balance sheet an asset that represents the total cash expected to be invested over the life of the partnership.  Any commitments or contingent commitments for future investment are reflected as a liability.  The income statement reflects tax credits and any other tax benefits from these investments “below the line” within our income tax provision, while the initial book value of the investment is amortized on a straight-line basis as an offset to noninterest income, over the time period in which the tax credits and tax benefits are expected to be received.

As of June 30, 2019 our total LIHTC investment book balance was $5.0 million, which includes $1.8 million in remaining commitments for additional capital contributions.  There were $269,000 in tax credits derived from our LIHTC investments that were recognized during the six months ended June 30, 2019, and amortization expense of $900,000 associated with those investments was netted against pre-tax noninterest income for the same time period.  Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired.

Note 10 – Credit Quality and Nonperforming Assets

Credit Quality Classifications

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize the associated credit risk.  Balances classified as “loss” are immediately charged off.  The Company conforms to the following definitions for its risk classifications:

· Pass:  Larger non-homogeneous loans not meeting the risk rating definitions below, and smaller homogeneous loans that are not assessed on an individual basis.

· Special mention:  Loans which have potential issues that deserve the close attention of Management.  If left uncorrected, those potential weaknesses could eventually diminish the prospects for full repayment of principal and interest according to the contractual terms of the loan agreement, or could result in deterioration of the Company’s credit position at some future date.

· Substandard:  Loans that have at least one clear and well-defined weakness that could jeopardize the ultimate recoverability of all principal and interest, such as a borrower displaying a highly leveraged position, unfavorable financial operating results and/or trends, uncertain repayment sources or an otherwise deteriorated financial condition.

· Impaired:  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Impaired loans include all nonperforming loans and restructured troubled debt (“TDRs”).  A TDR may be nonperforming or performing, depending on its accrual status and the demonstrated ability of the borrower to comply with restructured terms (see “Troubled Debt Restructurings” section below for additional information on TDRs).

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Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated:

Credit Quality Classifications

(dollars in thousands, unaudited)

	June 30, 2019
	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,618	$	—	$	—	$	—	$	105,618
Other construction/land		107,826		97		—		419		108,342
1-4 family - closed end		212,685		1,758		178		3,997		218,618
Equity lines		46,773		2,006		62		4,868		53,709
Multi-family residential		53,240		—		—		362		53,602
Commercial real estate - owner occupied		309,712		5,817		4,418		2,080		322,027
Commercial real estate - non-owner occupied		416,719		3,529		3,393		—		423,641
Farmland		151,393		1,061		140		25		152,619
Total real estate		1,403,966		14,268		8,191		11,751		1,438,176
Agricultural		51,333		170		—		6		51,509
Commercial and industrial		109,530		13,886		721		837		124,974
Mortgage warehouse		154,954		—		—		—		154,954
Consumer loans		7,355		89		70		772		8,286
Total gross loans and leases	$	1,727,138	$	28,413	$	8,982	$	13,366	$	1,777,899

	December 31, 2018
	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,676	$	—	$	—	$	—	$	105,676
Other construction/land		108,304		231		—		488		109,023
1-4 family - closed end		230,022		1,861		1,310		3,632		236,825
Equity lines		49,346		2,194		64		4,716		56,320
Multi-family residential		54,504		—		—		373		54,877
Commercial real estate - owner occupied		292,886		4,192		3,021		1,225		301,324
Commercial real estate - non-owner occupied		429,835		2,730		4,354		1,425		438,344
Farmland		148,680		1,073		146		1,642		151,541
Total real estate		1,419,253		12,281		8,895		13,501		1,453,930
Agricultural		48,517		580		—		6		49,103
Commercial and industrial		110,413		15,686		377		1,744		128,220
Mortgage warehouse		91,813		—		—		—		91,813
Consumer loans		7,851		151		39		821		8,862
Total gross loans and leases	$	1,677,847	$	28,698	$	9,311	$	16,072	$	1,731,928

Past Due and Nonperforming Assets

Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets.  The Company’s foreclosed assets can include mobile homes and/or OREO, which consists of commercial and/or residential real estate properties acquired by foreclosure or similar means that the Company is offering or will offer for sale.  Foreclosed assets totaled $770,000 at June 30, 2019, and $1.082 million at December 31, 2018.  Gross nonperforming loans totaled $4.120 million at June 30, 2019 and $5.156 million at December 31, 2018.  Loans and leases are classified as nonperforming when reasonable doubt surfaces with regard to the ability of the Company to collect all principal and interest.  At that point, we stop accruing interest on the loan or lease in question and reverse any

20

previously-recognized interest to the extent that it is uncollected or associated with interest-reserve loans.  Any asset for which principal or interest has been in default for 90 days or more is also placed on non-accrual status even if interest is still being received, unless the asset is both well secured and in the process of collection.  An aging of the Company’s loan balances is presented in the following tables, by number of days past due as of the indicated dates:

Loan Portfolio Aging

(dollars in thousands, unaudited)

	June 30, 2019
	30-59  Days Past Due		60-89  Days Past Due		90 Days Or More Past Due(1)		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans(2)
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,618	$	105,618	$	—
Other construction/land		—		—		—		—		108,342		108,342		43
1-4 family - closed end		265		—		409		674		217,944		218,618		1,453
Equity lines		134		—		23		157		53,552		53,709		467
Multi-family residential		—		—		—		—		53,602		53,602		—
Commercial real estate - owner occupied		—		895		97		992		321,035		322,027		1,473
Commercial real estate - non-owner occupied		—		—		—		—		423,641		423,641		—
Farmland		—		—		—		—		152,619		152,619		25
Total real estate		399		895		529		1,823		1,436,353		1,438,176		3,461
Agricultural		—		—		—		—		51,509		51,509		—
Commercial and industrial		203		3		74		280		124,694		124,974		569
Mortgage warehouse lines		—		—		—		—		154,954		154,954		—
Consumer		42		59		19		120		8,166		8,286		90
Total gross loans and leases	$	644	$	957	$	622	$	2,223	$	1,775,676	$	1,777,899	$	4,120

(1) As of June 30, 2019 there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

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	December 31, 2018
	30-59  Days Past Due		60-89  Days Past Due		90 Days Or More Past Due(1)		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans(2)
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,676	$	105,676	$	—
Other construction/land		210		—		27		237		108,786		109,023		82
1-4 family - closed end		319		—		775		1,094		235,731		236,825		799
Equity lines		1,471		—		57		1,528		54,792		56,320		408
Multi-family residential		—		—		—		—		54,877		54,877		—
Commercial real estate - owner occupied		183		—		102		285		301,039		301,324		605
Commercial real estate - non-owner occupied		49		—		—		49		438,295		438,344		49
Farmland		1,555		—		—		1,555		149,986		151,541		1,642
Total real estate		3,787		—		961		4,748		1,449,182		1,453,930		3,585
Agricultural		—		—		—		—		49,103		49,103		—
Commercial and industrial		1,567		83		886		2,536		125,684		128,220		1,425
Mortgage warehouse lines		—		—		—		—		91,813		91,813		—
Consumer		95		45		56		196		8,666		8,862		146
Total gross loans and leases	$	5,449	$	128	$	1,903	$	7,480	$	1,724,448	$	1,731,928	$	5,156

(1) As of December 31, 2018 there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

Troubled Debt Restructurings

A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring if the modification constitutes a concession.  At June 30, 2019, the Company had a total of $10.276 million in TDRs, including $1.030 million in TDRs that were on non-accrual status.  Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms.  However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance period or even at the time of loan modification.  Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain then the loan will be kept on non-accrual status.  Moreover, a TDR is generally considered to be in default when it appears that the customer will not likely be able to repay all principal and interest pursuant to restructured terms.

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The Company may agree to different types of concessions when modifying a loan or lease.  The tables below summarize TDRs which were modified during the noted periods, by type of concession:

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

	Three months ended June 30, 2019
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		244		—		—		244
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		244		—		—		244
Agricultural		—		—		—		—		—
Commercial and industrial		—		22		—		52		74
Consumer loans		—		—		—		50		50
Total	$	—	$	266	$	—	$	102	$	368

	Three months ended June 30, 2018
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		295		504		—		799
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		295		504		—		799
Agricultural		—		—		—		—		—
Commercial and industrial		—		63		25		225		313
Consumer loans		—		—		—		—		—
Total	$	—	$	358	$	529	$	225	$	1,112

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Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

		Six months ended June 30, 2019
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		344		—		—		344
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		344		—		—		344
Agricultural		—		—		—		—		—
Commercial and industrial		94		22		—		52		168
Consumer loans		—		9		—		50		59
Total	$	94	$	375	$	—	$	102	$	571

		Six months ended June 30, 2018
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		363		504		—		867
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		363		504		—		867
Agricultural		—		—		—		—		—
Commercial and industrial		—		63		25		225		313
Consumer loans		—		—		—		—		—
Total	$	—	$	426	$	529	$	225	$	1,180

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The following tables present, by class, additional details related to loans classified as TDRs during the referenced periods, including the recorded investment in the loan both before and after modification and balances that were modified during the period:

Troubled Debt Restructurings

(dollars in thousands, unaudited)

	Three months ended June 30, 2019
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	1		244		244		—		1
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			244		244		—		1
Agricultural	0		—		—		—		—
Commercial and industrial	2		74		74		—		45
Consumer loans	1		50		50		(45)		2
Total		$	368	$	368	$	(45)	$	48

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Three months ended June 30, 2018
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	6		799		799		4		10
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			799		799		4		10
Agricultural	0		—		—		—		—
Commercial and industrial	3		313		313		—		26
Consumer loans	0		—		—		—		—
Total		$	1,112	$	1,112	$	4	$	36

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

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Troubled Debt Restructurings

(dollars in thousands, unaudited)

	Six months ended June 30, 2019
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	2		344		344		—		1
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			344		344		—		1
Agricultural	0		—		—		—		—
Commercial and industrial	4		168		168		(20)		46
Consumer loans	2		59		59		(47)		3
Total		$	571	$	571	$	$(67)	$	50

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Six months ended June 30, 2018
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	7		867		867		4		12
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			867		867		4		12
Agricultural	0		—		—		—		—
Commercial and industrial	3		313		313		—		26
Consumer loans	0		—		—		—		—
Total		$	1,180	$	1,180	$	4	$	38

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

The company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the six-month periods ended June 30, 2019 and 2018.

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Purchased Credit Impaired Loans

The Company may acquire loans which show evidence of credit deterioration since origination.  These purchased credit impaired (“PCI”) loans are recorded at the amount paid, since there is no carryover of the seller’s allowance for loan losses.  Potential losses on PCI loans subsequent to acquisition are recognized by an increase in the allowance for loan losses.  PCI loans are accounted for individually or are aggregated into pools of loans based on common risk characteristics.  The Company projects the amount and timing of expected cash flows, and expected cash receipts in excess of the amount paid for any such loans are recorded as interest income over the remaining life of the loan or pool of loans (accretable yield).  The excess of contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).  Expected cash flows are periodically re-evaluated throughout the life of the loan or pool of loans.  If the present value of the expected cash flows is determined at any time to be less than the carrying amount, a reserve is recorded.  If the present value of the expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Our acquisition of Santa Clara Valley Bank in 2014 included certain loans which have shown evidence of credit deterioration since origination, and for which it was probable at acquisition that all contractually required payments would not be collected.  The carrying amount and unpaid principal balance of those PCI loans was as follows, as of the dates indicated:

Purchased Credit Impaired Loans:

(dollars in thousands, unaudited)

	June 30, 2019
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	96	$	—
Total purchased credit impaired loans	$	96	$	—

	December 31, 2018
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	103	$	—
Total purchased credit impaired loans	$	103	$	—

An allowance for loan losses totaling $96,000 was allocated for PCI loans as of June 30, 2019, as compared to $103,000 at December 31, 2018.  There was no discount accretion recorded on PCI loans during the six months ended June 30, 2019.

Note 11 – Allowance for Loan and Lease Losses

The Company’s allowance for loan and lease losses, a contra-asset, is established through a provision for loan and lease losses.  The allowance is maintained at a level that is considered adequate to absorb probable losses on certain specifically identified impaired loans, as well as probable incurred losses inherent in the remaining loan portfolio.  Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when cash payments are received subsequent to the charge off.  We employ a systematic methodology, consistent with FASB guidelines on loss contingencies and impaired loans, for determining the appropriate level of the allowance for loan and lease losses and adjusting it to that level at least quarterly.  Pursuant to our methodology, impaired loans and leases are individually analyzed and a criticized asset action plan is completed specifying the financial status of the borrower and, if applicable, the characteristics and condition of collateral and any associated liquidation plan.  A specific loss allowance is created for each impaired loan, if necessary.

The following tables disclose the unpaid principal balance, recorded investment, average recorded investment, and interest income recognized for impaired loans on our books as of the dates indicated.  Balances are shown by loan type, and are further broken out by those that required an allowance and those that did not, with the associated allowance disclosed for those that required such.  Included in the valuation allowance for impaired loans shown in the tables below

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are specific reserves allocated to TDRs, totaling $1.023 million at June 30, 2019 and $1.048 million at December 31, 2018.

Impaired Loans

(dollars in thousands, unaudited)

	June 30, 2019
	Unpaid Principal Balance(1)		Recorded Investment(2)		Related Allowance		Average Recorded Investment		Interest Income Recognized(3)
With an allowance recorded
Real estate:
Other construction/land	$	554	$	399	$	39	$	667	$	18
1-4 family - closed-end		3,039		3,038		70		3,178		80
Equity lines		4,784		4,730		639		4,941		125
Multi-family residential		362		362		21		378		11
Commercial real estate- owner occupied		823		703		112		262		19
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate		9,562		9,232		881		9,426		253
Agricultural		6		6		1		6		—
Commercial and industrial		728		709		303		906		13
Consumer loans		801		763		137		915		28
Subtotal		11,097		10,710		1,322		11,253		294
With no related allowance recorded
Real estate:
Other construction/land		24		20		—		55		—
1-4 family - closed-end		1,001		959		—		1,073		—
Equity lines		162		138		—		183		—
Commercial real estate- owner occupied		1,376		1,377		—		1,927		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		25		25		—		45		—
Total real estate		2,588		2,519		—		3,283		—
Agricultural		—		—		—		—		—
Commercial and industrial		150		128		—		186		—
Consumer loans		109		9		—		171		—
Subtotal		2,847		2,656		—		3,640		—
Total	$	13,944	$	13,366	$	1,322	$	14,893	$	294

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

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Impaired Loans

(dollars in thousands, unaudited)

	December 31, 2018
	Unpaid Principal Balance(1)		Recorded Investment(2)		Related Allowance		Average Recorded Investment		Interest Income Recognized(3)
With an allowance recorded
Real estate:
Other construction/land	$	593	$	438	$	44	$	648	$	40
1-4 family - closed-end		3,325		3,325		75		3,182		175
Equity lines		4,603		4,550		656		4,368		206
Multi-family residential		373		373		25		359		20
Commercial real estate- owner occupied		842		723		135		740		40
Commercial real estate- non-owner occupied		1,572		1,425		3		1,644		107
Total real estate		11,308		10,834		938		10,941		588
Agricultural		6		6		1		6		—
Commercial and industrial		1,724		1,534		918		1,965		40
Consumer loans		813		764		151		909		61
Subtotal		13,851		13,138		2,008		13,821		689
With no related allowance recorded
Real estate:
Other construction/land		54		50		—		58		—
1-4 family - closed-end		357		307		—		375		3
Equity lines		224		166		—		221		—
Commercial real estate- owner occupied		502		502		—		478		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		1,642		1,642		—		1,538		—
Total real estate		2,779		2,667		—		2,670		3
Agricultural		—		—		—		—		—
Commercial and industrial		238		211		—		838		—
Consumer loans		182		56		—		273		1
Subtotal		3,199		2,934		—		3,781		4
Total	$	17,050	$	16,072	$	2,008	$	17,602	$	693

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

The specific loss allowance for an impaired loan generally represents the difference between the book value of the loan and either the fair value of underlying collateral less estimated disposition costs, or the loan’s net present value as determined by a discounted cash flow analysis.  The discounted cash flow approach is typically used to measure impairment on loans for which it is anticipated that repayment will be provided from cash flows other than those generated solely by the disposition or operation of underlying collateral.  However, historical loss rates may be used by the Company to determine a specific loss allowance if those rates indicate a higher potential reserve need than the discounted cash flow analysis.  Any change in impairment attributable to the passage of time is accommodated by adjusting the loss allowance accordingly.

For loans where repayment is expected to be provided by the disposition or operation of the underlying collateral, impairment is measured using the fair value of the collateral.  If the collateral value, net of the expected costs of disposition, is less than the loan balance, then a specific loss reserve is established for the shortfall in collateral coverage.  If the discounted collateral value is greater than or equal to the loan balance, no specific loss reserve is required.  At the time a collateral-dependent loan is designated as nonperforming, a new appraisal is ordered and typically received within 30 to 60 days if a recent appraisal is not already available.  We generally use external appraisals to determine the fair value of the underlying collateral for nonperforming real estate loans, although the Company’s licensed staff appraisers

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may update older appraisals based on current market conditions and property value trends.  Until an updated appraisal is received, the Company uses the existing appraisal to determine the amount of the specific loss allowance that may be required.  The specific loss allowance is adjusted, as necessary, once a new appraisal is received.  Updated appraisals are generally ordered at least annually for collateral-dependent loans that remain impaired, and current appraisals were available or in process for all of the Company’s impaired real estate loan balances at June 30, 2019.  Furthermore, the Company analyzes collateral-dependent loans on at least a quarterly basis, to determine if any portion of the recorded investment in such loans can be identified as uncollectible and would therefore constitute a confirmed loss.  All amounts deemed to be uncollectible are promptly charged off against the Company’s allowance for loan and lease losses, with the loan then carried at the fair value of the collateral, as appraised, less estimated costs of disposition if applicable.  Once a charge-off or write-down is recorded, it will not be restored to the loan balance on the Company’s accounting books.

Our methodology also provides for the establishment of a “general” allowance for probable incurred losses inherent in loans and leases that are not impaired.  Unimpaired loan balances are segregated by credit quality, and are then evaluated in pools with common characteristics.  At the present time, pools are based on the same segmentation of loan types presented in our regulatory filings.  While this methodology utilizes historical loss data and other measurable information, the credit classification of loans and the establishment of the allowance for loan and lease losses are both to some extent based on Management’s judgment and experience.  Our methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan and lease losses that Management believes is appropriate at each reporting date.  Quantitative information includes our historical loss experience, delinquency and charge-off trends, and current collateral values.  Qualitative factors include the general economic environment in our markets and, in particular, the condition of the agricultural industry and other key industries.  Lending policies and procedures (including underwriting standards), the experience and abilities of lending staff, the quality of loan review, credit concentrations (by geography, loan type, industry and collateral type), the rate of loan portfolio growth, and changes in legal or regulatory requirements are additional factors that are considered.  The total general reserve established for probable incurred losses on unimpaired loans was $8.561 million at June 30, 2019.

There were no material changes to the methodology used to determine our allowance for loan and lease losses during the three months ended June 30, 2019.  As we add new products and expand our geographic coverage, and as regulatory and economic environments change, we expect to enhance our methodology to keep pace with the size and complexity of the loan and lease portfolio and respond to pressures created by external forces.  We engage outside firms on a regular basis to assess our methodology and perform independent credit reviews of our loan and lease portfolio.  In addition, the FDIC and the California DBO review the allowance for loan and lease losses as an integral part of their audit and examination processes.  Management believes that the current methodology is appropriate given our size and level of complexity.

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The tables that follow detail the activity in the allowance for loan and lease losses for the periods noted:

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

		Three months ended June 30, 2019
		Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	6,094	$	219	$	1,914	$	1,129	$	82	$	9,438
Charge-offs		—		—		(254)		(562)		—		(816)
Recoveries		153		—		431		277		—		861
Provision		(278)		(18)		478		288		(70)		400
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
	Six months ended June 30, 2019
	Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Charge-offs		—		—		(832)		(1,114)		—		(1,946)
Recoveries		329		—		472		578		—		1,379
Provision		(191)		(55)		535		429		(18)		700
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
Reserves:
Specific	$	881	$	1	$	303	$	137	$	—	$	1,322
General		5,088		200		2,266		995		12		8,561
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
Loans evaluated for impairment:
Individually	$	11,751	$	6	$	837	$	772	$	—	$	13,366
Collectively		1,426,425		51,503		279,091		7,514		—		1,764,533
Ending balance	$	1,438,176	$	51,509	$	279,928	$	8,286	$	—	$	1,777,899
		Year ended December 31, 2018
	Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	4,786	$	208	$	2,772	$	1,231	$	46	$	9,043
Charge-offs		(2,474)		—		(608)		(2,226)		—		(5,308)
Recoveries		374		23		148		1,120		—		1,665
Provision		3,145		25		82		1,114		(16)		4,350
Ending balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Reserves:
Specific	$	937	$	2	$	918	$	151	$	—	$	2,008
General		4,894		254		1,476		1,088		30		7,742
Ending balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Loans evaluated for impairment:
Individually	$	13,501	$	6	$	1,744	$	821	$	—	$	16,072
Collectively		1,440,429		49,097		218,289		8,041		—		1,715,856
Ending balance	$	1,453,930	$	49,103	$	220,033	$	8,862	$	—	$	1,731,928

(1) Includes mortgage warehouse lines.

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Note 12 – Operating Leases

We lease space under non-cancelable operating leases for 21 branch locations, three off-site ATM locations, one administrative building and a warehouse.  Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs).  Payments for taxes and insurance as well as non-lease components are not included in the accounting of the lease component, but are separately accounted for in occupancy expense. The Company recognized lease expense of $1.095 million during the six month period ended June 30, 2019. Lease expense for the six months ended June 30, 2018, prior to the adoption of ASU 2016‑02, was $1.177 million. Most leases include one or more renewal options available to exercise.  The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably certain of exercise.  We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term. As most of our leases do not provide an implicit rate, we used our incremental borrowing rate in determining the present value of the lease payments.

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the six months ended June 30, 2019.

At June 30, 2019, the Company’s right-of-use assets and operating lease liabilities were $9.044 million and $9.655 million, respectively. The weighted average lease term for the lease liabilities was 5.3 years, and the weighted average discount rate of remaining payments was 5.5 percent. There were no lease liabilities from new right-of-use assets obtained during the six months ended June 30, 2019. Cash paid on operating leases was $680,000 for the six months ended June 30, 2019.

Maturities of our lease liabilities for all operating leases are as follows (dollars in thousands, unaudited):

	Maturities of
	Lease Liabilities
2019 (1)	$	1,096
2020		2,204
2021		1,993
2022		1,558
2023		1,119
Thereafter		3,939
Total		11,909
Less: present value discount		(2,254)
Lease liability (2)	$	9,655

(1) Contractual maturities for the six months remaining in 2019.

(2) Lease liability is included in other liabilities.

The following table presents the future minimum rental payments under leases with terms in excess of one year as of December 31, 2018 presented in accordance with ASC Topic 840, “Leases”:

	December 31, 2018
2019	$	2,190
2020		2,204
2021		1,993
2022		1,558
2023		1,119
Thereafter		3,939
Total	$	13,003

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Note 13 – Revenue Recognition.

The Company utilizes the guidance found in ASU 2014‑09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income.  The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  The Company’s revenue streams that are within the scope of and accounted for under Topic 606 include service charges on deposit accounts, debit card interchange fees, and fees levied for other services the Company provides its customers.  The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP.  In total, approximately 21% of the Company’s noninterest revenue was outside of the scope of the ASC 606 as of June 30, 2019.

All of the company’s revenue from contracts in the scope of ASC 606 is recognized within noninterest income.  The following table presents the Company’s sources of noninterest income for the three- and six-month periods ended June 30, 2019 and 2018.  Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited).

	For the three months ended June 30,				For the six months ended June 30,
	2019		2018		2019		2018
Noninterest income
Service charges on deposits
Returned item and overdraft fees	$	1,657	$	1,575	$	3,223	$	3,142
Other service charges on deposits		1,494		1,452		2,871		2,832
Debit card interchange income		1,687		1,486		3,200		2,885
Loss on limited partnerships(1)		(450)		(405)		(900)		(800)
Dividends on equity investments(1)		175		169		406		394
Unrealized gains recognized on equity investments(1)		232		—		232		—
Net gains on sale of securities(1)		22		—		28		—
Other(1)		1,038		1,152		2,702		2,110
Total noninterest income	$	5,855	$	5,429	$	11,762	$	10,563

(1) Not within scope of ASC 606.  Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP.

With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606.

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PART I - FINANCIAL INFORMATION

ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10‑Q includes forward-looking statements that involve inherent risks and uncertainties.  Words such as “expects”, “anticipates”, “believes”, “projects”, and “estimates” or variations of such words and similar expressions are intended to identify forward-looking statements.  These statements are based on certain underlying assumptions and are not guarantees of future performance, as they could be impacted by a number of potential risks and developments that cannot be predicted with any degree of certainty.  Therefore, actual outcomes and results may differ materially from what is expressed, forecast in, or implied by such forward-looking statements.

A variety of factors could have a material adverse impact on the Company’s financial condition or results of operations, and should be considered when evaluating the Company’s potential future financial performance.  They include, but are not limited to, the risk of unfavorable economic conditions in the Company’s market areas; risks associated with fluctuations in interest rates; liquidity risks; increases in nonperforming assets and credit losses that could occur, particularly in times of weak economic conditions or rising interest rates; reductions in the market value of available-for-sale securities that could result if interest rates increase substantially or an issuer has real or perceived financial difficulties; the Company’s ability to attract and retain skilled employees; the Company’s ability to successfully deploy new technology; the success of acquisitions or branch expansion; and risks associated with the multitude of current and prospective laws and regulations to which the Company is and will be subject.  Risk factors that could cause actual results to differ materially from results that might be implied by forward-looking statements include the risk factors disclosed in the Company’s Form 10‑K for the fiscal year ended December 31, 2018.

CRITICAL ACCOUNTING POLICIES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States.  The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances.  Actual results may differ from those estimates under divergent conditions.

Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Company’s stated results of operations.  In Management’s opinion, the Company’s critical accounting policies deal with the following areas:  the establishment of the allowance for loan and lease losses, as explained in detail in Note 11 to the consolidated financial statements and in the “Provision for Loan and Lease Losses” and “Allowance for Loan and Lease Losses” sections of this discussion and analysis; the valuation of impaired loans and foreclosed assets, as discussed in Note 11 to the consolidated financial statements; income taxes and related deferred tax assets and liabilities, especially with regard to the ability of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this discussion and analysis; and goodwill and other intangible assets, which are evaluated annually for impairment and for which we have determined that no impairment exists, as discussed in the “Other Assets” section of this discussion and analysis.  Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate our most recent expectations with regard to those areas.

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OVERVIEW OF THE RESULTS OF OPERATIONS

AND FINANCIAL CONDITION

RESULTS OF OPERATIONS SUMMARY

Second Quarter 2019 compared to Second Quarter 2018

Net income for the quarter ended June 30, 2019 was $8.829 million, an increase of $837,000, or 10%, relative to net income of $7.992 million for the quarter ended June 30, 2018.  Basic and diluted earnings per share for the second quarter of 2019 were $0.58 and $0.57, respectively, compared to $0.52 basic and diluted earnings per share for the second quarter of 2018.  The Company’s annualized return on average equity was 12.27% and annualized return on average assets was 1.39% for the quarter ended June 30, 2019, compared to 12.44% and 1.34%, respectively, for the quarter ended June 30, 2018.  The primary drivers behind the variance in second quarter net income are as follows:

· Net interest income increased by $1.399 million, or 6%, due to growth in average interest-earning assets totaling $151 million, or 7%, partially offset by a drop of three basis points in our net interest margin for the comparative quarters.  Organic growth in the average balance of real estate loans was the main factor in the increase in average earning assets.  Our net interest margin fell because the cost of interest-bearing liabilities increased more than our yield on interest-earning assets.

· The Company’s provision for loan losses was $400,000 in the second quarter of 2019 relative to $300,000 in the second quarter of 2018.

· Total noninterest income reflects an increase of $426,000, or 8%, despite a large drop in income generated by bank-owned life insurance (BOLI) associated with deferred compensation plans.  Noninterest income for the second quarter of 2019 includes a $232,000 nonrecurring gain resulting from the write up of certain restricted stock pursuant to a periodic assessment of its market value, and a $100,000 nonrecurring gain from the wrap-up of a low-income housing tax credit fund investment.  It also reflects higher service charges on deposits and an increase in debit card interchange income.

· Total noninterest expense increased by $362,000, or 2%.  Compensation costs and occupancy expenses were roughly the same.  However, there was a $615,000 increase in net OREO expense which was largely driven by nonrecurring gains on the sale of OREO that helped offset expenses in 2018.  That increase was partially offset by a $152,000 drop in nonrecurring acquisition costs, and a $198,000 decline in directors’ deferred compensation costs for the quarterly comparison.

· The Company’s provision for income taxes was 26.4% of pre-tax income in the second quarter of 2019 relative to 24.9% in the second quarter of 2018, with the increase resulting from a drop in non-taxable BOLI income and a declining level of tax credits relative to higher taxable income.

First Half 2019 compared to First Half 2018

Net income for the first half of 2019 was $17.724 million, an increase of $3.022 million, or 21%, relative to net income of $14.702 million for the first half of 2018.  Basic and diluted earnings per share for the first half of 2019 were $1.16 and $1.15, respectively, compared to $0.96 and $0.95 basic and diluted earnings per share, respectively, for the first half of 2018.  The Company’s annualized return on average equity was 12.62% and annualized return on average assets was 1.41% for the six months ended June 30, 2019, compared to a return on equity of 11.53% and return on assets of 1.25% for the six months ended June 30, 2018.  The primary drivers behind the variance in year-to-date net income are as follows:

· Net interest income was up by $3.612 million, or 8%, due to the positive impact of an increase of $155 million, or 7%, in average interest-earning assets and a 3 basis point increase in our net interest margin.

· The Company recorded a $700,000 provision for loan losses in the first half of 2019, relative to a $500,000 provision in 2018.

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· Total noninterest income increased by $1.199 million, or 11%.  The year-to-date variance includes the items noted above in the quarterly summary, except that BOLI income reflects an increase of $401,000 for the year-to-date variance instead of a decline.

· Total noninterest expense increased by $328,000, or 1%.  As with the quarterly comparison, neither compensation costs nor occupancy expense increased materially but other noninterest expense was up by $259,000, or 2%.  The year-to-date variance in other noninterest expense includes a $407,000 increase in net OREO expense and a $156,000 increase in directors’ deferred compensation expense (related to the increase in BOLI income), partially offset by a $415,000 drop in nonrecurring acquisition costs.

· The Company’s provision for income taxes was 25.3% of pre-tax income for the first half of 2019 relative to 24.4% for the same period in 2018.  The increase is due primarily to higher pretax income and a lower level of tax credits.

FINANCIAL CONDITION SUMMARY

June 30, 2019 relative to December 31, 2018

The Company’s assets totaled $2.577 billion at June 30, 2019 relative to $2.523 billion at December 31, 2018.  Total liabilities were $2.280 billion at June 30, 2019 compared to $2.249 billion at the end of 2018, and shareholders’ equity totaled $297 million at June 30, 2019 compared to $273 million at December 31, 2018.  The following provides a summary of key balance sheet changes during the first six months of 2019:

· The Company’s balance of cash and cash equivalents was down $6 million, or 9%, due to a drop in cash items in process of collection and lower vault cash balances.

· Gross loans increased by $46 million, or 3%, due to higher outstanding balances on mortgage warehouse lines and growth in agricultural loans.

· Total nonperforming assets, consisting of non-accrual loans and foreclosed assets, were reduced by $1.348 million, or 22%, due to the impact of net loan charge-offs as well as our continued efforts to resolve OREO and nonperforming loan balances.  The Company’s ratio of nonperforming assets to total loans plus foreclosed assets was 0.27% at June 30, 2019 compared to 0.36% at December 31, 2018.

· Other assets did not change materially, since the increase resulting from operating lease right-of-use assets booked at the beginning of 2019, pursuant to our adoption of FASB’s ASU 2016‑02, was largely offset by our first quarter 2019 collection of a receivable established at the end of 2018 for expected proceeds from the sale of a large foreclosed property.

· Deposit balances reflect growth of $63 million, or 3%, during the first six months of 2019.  Core non-maturity deposits increased by $31 million, or 2%, while customer time deposits increased by $32 million, or 7%.

· Other liabilities increased by $8 million, or 30%, due in large part to the operating lease liability booked at the beginning of 2019 pursuant to our adoption of FASB’s ASU 2016‑02.

· Junior subordinated debentures increased slightly from accretion of the discount on trust-preferred securities gained in the Coast acquisition, but other non-deposit borrowings were reduced by $40 million, or 55%.

· Total capital of $297 million at June 30, 2019 reflects an increase of $24 million, or 9%, relative to year-end 2018 due to capital from the addition of net income and stock option exercises as well as an $11 million positive swing in accumulated other comprehensive income, net of $5.5 million in dividends paid.  There were no share repurchases executed by the Company during the first six months of 2019.

EARNINGS PERFORMANCE

The Company earns income from two primary sources.  The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money.  The second is noninterest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such

36

as bank-owned life insurance.  The majority of the Company’s noninterest expense is comprised of operating costs that facilitate offering a broad range of banking services to our customers.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income increased by $1.399 million, or 6%, for the second quarter of 2019 relative to the second quarter of 2018, and by $3.612 million, or 8%, for the first six months of 2019 in comparison to the first six months of 2018.  The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.  Net interest income can also be impacted by nonrecurring items, as discussed in greater detail below.

The following tables show average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for the noted periods.  The tables also display calculated yields on each major component of the Company’s investment and loan portfolios, average rates paid on each key segment of the Company’s interest-bearing liabilities, and our net interest margin for the noted periods.

37

Average Balances and Rates

(dollars in thousands, unaudited)

	For the three months ended					For the three months ended
	June 30, 2019					June 30, 2018
Assets	Average Balance (1)		Income/ Expense		Average Rate/Yield (2)	Average Balance (1)		Income/ Expense		Average Rate/Yield (2)
Investments:
Federal funds sold/due from time	$	18,795	$	115	2.45%	$	13,080	$	61	1.87%
Taxable		425,498		2,591	2.44%		424,446		2,300	2.17%
Non-taxable		149,555		1,072	3.64%		141,224		1,018	3.66%
Total investments		593,848		3,778	2.74%		578,750		3,379	2.53%
Loans and leases:(3)
Real estate		1,459,871		20,098	5.52%		1,325,251		17,800	5.39%
Agricultural		51,285		793	6.20%		53,867		753	5.61%
Commercial		120,081		1,537	5.13%		124,320		1,489	4.80%
Consumer		8,661		292	13.52%		9,760		297	12.21%
Mortgage warehouse lines		98,249		1,239	5.06%		89,633		1,126	5.04%
Other		3,426		51	5.97%		2,503		39	6.25%
Total loans and leases		1,741,573		24,010	5.53%		1,605,334		21,504	5.37%
Total interest earning assets (4)		2,335,421		27,788	4.82%		2,184,084		24,883	4.62%
Other earning assets		12,505					10,436
Non-earning assets		204,491					205,446
Total assets	$	2,552,417				$	2,399,966
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits	$	120,018	$	88	0.29%	$	139,546	$	109	0.31%
NOW		437,040		134	0.12%		422,619		116	0.11%
Savings accounts		289,767		77	0.11%		301,528		80	0.11%
Money market		123,482		43	0.14%		153,143		37	0.10%
Certificates of deposit, under $100,000		90,258		289	1.28%		81,419		136	0.67%
Certificates of deposit, $100,000 or more		399,228		2,178	2.19%		299,359		1,116	1.50%
Brokered deposits		47,890		284	2.38%		—		—	—
Total interest bearing deposits		1,507,683		3,093	0.82%		1,397,614		1,594	0.46%
Borrowed funds:
Federal funds purchased		3		—	—		7		—	—
Repurchase agreements		21,698		21	0.39%		15,727		16	0.41%
Short term borrowings		845		5	2.37%		7,985		37	1.86%
TRUPS		34,830		470	5.41%		34,651		436	5.05%
Total borrowed funds		57,376		496	3.47%		58,370		489	3.36%
Total interest bearing liabilities		1,565,059		3,589	0.92%		1,455,984		2,083	0.57%
Demand deposits - noninterest bearing		655,136					656,486
Other liabilities		43,550					29,786
Shareholders' equity		288,672					257,710
Total liabilities and shareholders' equity	$	2,552,417				$	2,399,966
Interest income/interest earning assets					4.82%					4.62%
Interest expense/interest earning assets					0.61%					0.38%
Net interest income and margin(5)			$	24,199	4.21%			$	22,800	4.24%

(1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.

(2) Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective tax rate.

(3) Loans are gross of the allowance for possible loan losses.  Loan fees have been included in the calculation of interest income.  Net loan fees and loan acquisition FMV amortization were $(186) thousand and $324 thousand for the quarters ended June 30, 2019 and 2018, respectively.

(4) Non-accrual loans have been included in total loans for purposes of computing total earning assets.

(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.

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Average Balances and Rates
(dollars in thousands, unaudited)
	For the six months ended						For the six months ended
	June 30, 2019						June 30, 2018
Assets	Average Balance (1)		Income/ Expense		Average Rate/Yield (2)	Average Balance (1)		Income/ Expense		Average Rate/Yield (2)
Investments:
Federal funds sold/due from time	$	15,152	$	188	2.50%	$	21,730	$	180	1.67%
Taxable		422,217		5,207	2.49%		424,760		4,638	2.20%
Non-taxable		145,962		2,117	3.70%		141,399		2,034	3.67%
Total investments		583,331		7,512	2.79%		587,889		6,852	2.54%
Loans and leases:(3)
Real estate		1,462,061		40,198	5.54%		1,290,119		34,444	5.38%
Agricultural		50,919		1,573	6.23%		52,009		1,411	5.47%
Commercial		121,332		3,116	5.18%		125,810		2,869	4.60%
Consumer		8,689		606	14.06%		10,125		590	11.75%
Mortgage warehouse lines		80,782		2,166	5.41%		86,508		2,103	4.90%
Other		3,268		100	6.17%		2,756		91	6.66%
Total loans and leases		1,727,051		47,759	5.58%		1,567,327		41,508	5.34%
Total interest earning assets (4)		2,310,382		55,271	4.87%		2,155,216		48,360	4.58%
Other earning assets		12,094					10,316
Non-earning assets		207,038					203,433
Total assets	$	2,529,514				$	2,368,965
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits	$	109,692	$	160	0.29%	$	128,250	$	197	0.31%
NOW		437,124		260	0.12%		415,946		233	0.11%
Savings accounts		288,776		151	0.11%		297,644		155	0.11%
Money market		126,070		84	0.13%		158,951		79	0.10%
Certificates of deposit, under $100,000		90,301		567	1.27%		81,558		244	0.60%
Certificates of deposit, $100,000 or more		390,637		4,216	2.18%		296,704		2,004	1.36%
Brokered deposits		48,939		610	2.51%		—		—	—
Total interest bearing deposits		1,491,539		6,048	0.82%		1,379,053		2,912	0.43%
Borrowed funds:
Federal funds purchased		560		—	—		8		—	—
Repurchase agreements		19,500		39	0.40%		12,783		25	0.39%
Short term borrowings		4,463		58	2.62%		4,484		41	1.84%
TRUPS		34,806		954	5.53%		34,628		822	4.79%
Total borrowed funds		59,329		1,051	3.57%		51,903		888	3.45%
Total interest bearing liabilities		1,550,868		7,099	0.92%		1,430,956		3,800	0.54%
Demand deposits - noninterest bearing		654,029					650,041
Other liabilities		41,363					30,855
Shareholders' equity		283,254					257,113
Total liabilities and shareholders' equity	$	2,529,514				$	2,368,965
Interest income/interest earning assets					4.87%					4.58%
Interest expense/interest earning assets					0.62%					0.36%
Net interest income and margin(5)			$	48,172	4.25%			$	44,560	4.22%

(1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.

(2) Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective tax rate.

(3) Loans are gross of the allowance for possible loan losses.  Loan fees have been included in the calculation of interest income.  Net loan fees and loan acquisition FMV amortization were $(177) thousand and $463 thousand for the six months ended June 30, 2019 and 2018, respectively.

(4) Non-accrual loans have been included in total loans for purposes of computing total earning assets.

(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.

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The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates.  Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances.  Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the rate variance.

Volume & Rate Variances

(dollars in thousands, unaudited)

	Three months ended June 30,						Six months ended June 30,
	2019 over 2018						2019 over 2018
	Increase (decrease) due to						Increase (decrease) due to
Assets:	Volume		Rate		Net		Volume		Rate		Net
Investments:
Federal funds sold/due from time	$	27	$	27	$	54	$	(54)	$	62	$	8
Taxable		6		285		291		(28)		597		569
Non-taxable		60		(6)		54		66		17		83
Total investments		93		306		399		(16)		676		660
Loans and leases:
Real estate		1,808		490		2,298		4,591		1,163		5,754
Agricultural		(36)		76		40		(30)		192		162
Commercial		(51)		99		48		(102)		349		247
Consumer		(33)		28		(5)		(84)		100		16
Mortgage warehouse		108		5		113		(139)		202		63
Other		14		(2)		12		17		(8)		9
Total loans and leases		1,810		696		2,506		4,253		1,998		6,251
Total interest earning assets	$	1,903	$	1,002	$	2,905	$	4,237	$	2,674	$	6,911
Liabilities
Interest bearing deposits:
Demand deposits	$	(15)		(6)	$	(21)	$	(29)	$	(8)	$	(37)
NOW		4		14		18		12		15		27
Savings accounts		(3)		—		(3)		(5)		1		(4)
Money market		(7)		13		6		(16)		21		5
Certificates of deposit, under $100,000		15		138		153		26		297		323
Certificates of deposit, $100,000 or more		372		690		1,062		634		1,578		2,212
Brokered deposits		—		284		284		—		610		610
Total interest bearing deposits		366		1,133		1,499		622		2,514		3,136
Borrowed funds:
Repurchase agreements		6		(1)		5		13		1		14
Short term borrowings		(33)		1		(32)		—		17		17
TRUPS		2		32		34		4		128		132
Total borrowed funds		(25)		32		7		17		146		163
Total interest bearing liabilities		341		1,165		1,506		639		2,660		3,299
Net interest income	$	1,562	$	(163)	$	1,399	$	3,598	$	14	$	3,612

The volume variance calculated for the second quarter of 2019 relative to the second quarter of 2018 was a favorable $1.562 million due to an increase of $151 million, or 7%, in the average balance of interest-earning assets, resulting from organic growth in loans and a $15 million increase in the average balance of investments.  There was an unfavorable rate variance of $163,000 for the comparative quarters, since the weighted average cost of interest-bearing liabilities increased by 35 basis points while the weighted average yield on interest-earning assets was up by only 20 basis points.  The comparative results can also be impacted by nonrecurring interest items such as interest recoveries on non-accrual loans, interest reversals for loans placed on non-accrual status, accelerated fee recognition and prepayment penalties for premature loan payoffs, and late fees.  Nonrecurring items added $65,000 to interest income in the second quarter of

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2019 relative to $126,000 in the second quarter of 2018.  With regard to yield and rate increases, loan yields have generally risen due to the impact of higher short-term index rates on variable-rate loans and a relatively large volume of new fixed-rate and adjustable-rate loans booked at higher interest rates, although those increases were partially offset by the impact of competitive forces as well as a drop in discount accretion on acquisition loans.  Investment yields have increased in response to principal reinvested in what has been a rising interest rate environment for much of the past few years.  Rates paid on non-maturity deposits increased slightly for the comparative periods, but the weighted average cost of interest-bearing liabilities went up primarily because of the addition of brokered deposits, and in response to higher rates paid on time deposits and adjustable-rate trust-preferred securities (“TRUPS”).

The Company’s net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, was affected by the same factors discussed above relative to rate and volume variances.  Our net interest margin was 4.21% in the second quarter of 2019, down three basis points relative to the second quarter of 2018.  The drop in discount accretion on loans from whole-bank acquisitions had a significant impact, enhancing our net interest margin by only five basis points in the second quarter of 2019 as compared to 11 basis points in the second quarter of 2018.

Net interest income in the first six months of 2019 relative to the first six months of 2018 reflects a favorable variance of $3.598 million attributable to volume changes, and a small favorable rate variance.  The volume variance for the half was due primarily to an increase of $155 million, or 7%, in average interest-earning assets.  The Company’s net interest margin for the first half of 2019 was 4.25%, as compared to 4.22% in the first half of 2018.  Nonrecurring interest income totaled $272,000 for the first six months of 2019 and $227,000 and for the first six months of 2018, and discount accretion on loans from whole-bank acquisitions enhanced our net interest margin by four basis points in the first half of 2019 as compared to eight basis points in the first half 2018.

PROVISION FOR LOAN AND LEASE LOSSES

Credit risk is inherent in the business of making loans.  The Company sets aside an allowance for loan and lease losses, a contra-asset account, through periodic charges to earnings which are reflected in the income statement as the provision for loan and lease losses.  The Company recorded a loan loss provision of $400,000 in the second quarter of 2019 relative to $300,000 in the second quarter of 2018, and a year-to-date loan loss provision totaling $700,000 in 2019 as compared to $500,000 in 2018.  The 2019 provision was deemed necessary subsequent to Management’s determination of the appropriate level for the Company’s allowance for loan and lease losses, taking into consideration overall credit quality, growth in outstanding loan balances, and reserves required for specifically identified impaired loan balances.  Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance.  The Company recorded net recoveries of $45,000 on charged-off loans in the second quarter of 2019, as compared to $155,000 in net charge-offs in the second quarter of 2018.  For the first six months, net charge-offs were $567,000 in 2019 and $407,000 in 2018.

With the loan loss provision recorded thus far in 2019, we have been able to maintain our allowance for loan and lease losses at a level that, in Management’s judgment, is adequate to absorb probable loan losses related to specifically-identified impaired loans as well as probable incurred losses in the remaining loan portfolio.  The Company’s need for reserve replenishment via a loan loss provision has been favorably impacted in recent periods by the following factors:  all of our acquired loans were booked at their fair values at acquisition, and thus did not initially require a loan loss allowance; some charge-offs in 2019 have been recorded against pre-established reserves, which alleviated what otherwise might have been a need for reserve replenishment; loss rates for most loan types have been declining, thus having a positive impact on general reserves required for performing loans; and, new loans booked during and since the great recession have been underwritten using tighter credit standards than was the case for many legacy loans.

The Company’s policies for monitoring the adequacy of the allowance, determining loan balances that should be charged off, and other detailed information with regard to changes in the allowance are discussed in Note 11 to the consolidated financial statements, and below under “Allowance for Loan and Lease Losses.”  The process utilized to establish an appropriate allowance for loan and lease losses can result in a high degree of variability in the Company’s loan loss provision, and consequently in our net earnings.

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NONINTEREST INCOME AND NONINTEREST EXPENSE

The following table provides details on the Company’s noninterest income and noninterest expense for the three- and six-month periods ended June 30, 2019 and 2018:

Noninterest Income/Expense

(dollars in thousands, unaudited)

	For the three months ended June 30,						For the six months ended June 30,
NONINTEREST INCOME:	2019		% of Total	2018		% of Total	2019		% of Total	2018		% of Total
Service charges on deposit accounts	$	3,151	53.81%	$	3,027	55.76%	$	6,094	51.81%	$	5,974	56.56%
Other service charges and fees		2,514	42.94%		2,225	40.98%		4,777	40.61%		4,375	41.43%
Net gains on sale of securities available-for-sale		22	0.38%		—	—		28	0.24%		—	—
Bank-owned life insurance		127	2.17%		423	7.79%		1,027	8.73%		626	5.93%
Other		41	0.70%		(246)	-4.53%		(164)	-1.39%		(412)	-3.92%
Total noninterest income	$	5,855	100.00%	$	5,429	100.00%	$	11,762	100.00%	$	10,563	100.00%
As a % of average interest-earning assets (1)			1.01%			1.00%			1.03%			0.99%
OTHER OPERATING EXPENSE:
Salaries and employee benefits	$	8,994	50.93%	$	8,997	52.02%	$	18,237	51.36%	$	18,180	51.68%
Occupancy costs
Furniture & equipment		692	3.92%		608	3.52%		1,215	3.42%		1,234	3.51%
Premises		1,758	9.96%		1,843	10.66%		3,596	10.13%		3,565	10.13%
Advertising and marketing costs		560	3.17%		689	3.98%		1,252	3.53%		1,310	3.72%
Data processing costs		1,255	7.11%		1,284	7.42%		2,507	7.06%		2,555	7.26%
Deposit services costs		2,124	12.03%		1,355	7.84%		3,893	10.96%		2,593	7.37%
Loan services costs
Loan processing		205	1.16%		245	1.42%		376	1.06%		566	1.61%
Foreclosed assets		41	0.23%		(574)	-3.32%		61	0.17%		(346)	-0.98%
Other operating costs
Telephone & data communications		317	1.80%		432	2.50%		624	1.76%		759	2.16%
Postage & mail		81	0.46%		235	1.36%		276	0.78%		511	1.45%
Other		459	2.60%		442	2.56%		803	2.26%		769	2.19%
Professional services costs
Legal & accounting		524	2.97%		533	3.08%		935	2.63%		965	2.74%
Acquisition costs		(1)	-0.01%		151	0.87%		22	0.06%		437	1.24%
Other professional service		437	2.48%		653	3.78%		1,374	3.87%		1,232	3.50%
Stationery & supply costs		101	0.57%		344	1.98%		156	0.44%		665	1.89%
Sundry & tellers		109	0.62%		57	0.33%		182	0.51%		186	0.53%
Total noninterest expense	$	17,656	100.00%	$	17,294	100.00%	$	35,509	100.00%	$	35,181	100.00%
As a % of average interest-earning assets (1)			3.03%			3.18%			3.10%			3.29%
Efficiency ratio (2)		58.17%			60.44%			58.46%			63.01%

(1) Annualized

(2) Tax equivalent

Total noninterest income reflects increases of $426,000, or 8%, for the quarterly comparison and $1.199 million, or 11% for the year-to-date period.  Those increases include nonrecurring gains recorded in the second quarter of 2019, including $232,000 from the write up of certain restricted stock pursuant to a periodic assessment of its market value and $100,000 from the wrap-up of a low-income housing tax credit fund investment.  Total noninterest income was an annualized 1.01% of average interest-earning assets in the second quarter of 2019 relative to 1.00% in the second quarter of 2018, and 1.03% for the first six months of 2018 relative to 0.99% for the first six months of 2018.

Service charges on deposit accounts increased by $124,000, or 4%, in the second quarter of 2019 relative to the second quarter of 2018 and by $120,000, or 2%, for the comparative year-to-date periods due to a higher number of deposit accounts and a higher level of account activity .  Other service charges, commissions, and fees increased by $289,000, or 13%, for the second quarter comparison and $402,000, or 9%, for the year-to-date period due in large part to a higher level of debit card interchange fees.  There were minimal net gains on investment securities in 2019, and none in 2018.

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BOLI income fell by $296,000, or 70%, in the second quarter of 2019 but reflects an increase of $401,000, or 64%, for the first six months of 2019, in comparison to the same periods in 2018.  BOLI income is derived from two types of policies owned by the Company, namely “separate account” and “general account” life insurance, and the change in BOLI income in 2019 relative to 2018 is due almost entirely to fluctuations in separate account BOLI income.  The Company had $7.2 million invested in separate account BOLI at June 30, 2019, which produces income that helps offset expense accruals for deferred compensation accounts the Company maintains on behalf of certain directors and senior officers.  Those accounts have returns pegged to participant-directed investment allocations that can include equity, bond, or real estate indices, and are thus subject to gains or losses which often contribute to significant fluctuations in income (and associated expense accruals).  The Company recorded a loss of $118,000 on separate account BOLI in the second quarter of 2019 relative to a gain of $176,000 in the second quarter of 2018, for an absolute decline of $294,000.  For the first six months, net gains on separate account BOLI totaled $544,000 in 2019 as compared $136,000 in 2018, for an increase of $408,000.  As noted, gains and losses on separate account BOLI are related to expense accruals or reversals associated with participant gains and losses on deferred compensation balances, thus their net impact on taxable income tends to be minimal.  The Company’s books also reflect a net cash surrender value of $42.0 million for general account BOLI at June 30, 2019.  General account BOLI generates income that helps offset expenses associated with executive salary continuation plans, director retirement plans and other employee benefits.  Interest credit rates on general account BOLI do not change frequently so the income has typically been fairly consistent.

The “Other” category under noninterest income often reflects negative amounts because it includes amortization expense associated with our investments in low-income housing tax credit funds and other limited partnership investments, which is netted against other noninterest income.  This line item also includes gains and losses on the disposition of assets other than OREO, rent on bank-owned property other than OREO, dividends on restricted stock (including our equity investment in the Federal Home Loan Bank), and other miscellaneous income.  Other noninterest income has favorable variances of $287,000 for the second quarter and $248,000 for the first six months.  It was impacted by nonrecurring items in the second quarter of 2019, as noted above, namely the $232,000 write up of certain restricted stock and the $100,000 gain from the conclusion of a low-income housing tax credit fund investment.

Total noninterest expense increased by $362,000, or 2%, in the second quarter of 2019 relative to the second quarter of 2018, and by $328,000, or 1%, in the first six months of 2019 as compared to the first six months of 2018.  The variances in other noninterest expense include increases in net OREO expense, largely driven by nonrecurring OREO gains that helped offset expenses in 2018, and the offsetting impact of lower nonrecurring acquisition costs in 2019.  The absolute increase in foreclosed asset costs was $615,000 for the second quarter comparison, and $407,000 for the comparative year-to-date periods.  Acquisition costs were minimal in 2019, but totaled $151,000 in the second quarter of 2018 and $437,000 for the first half of 2018.  Noninterest expense dropped to 3.03% of average earning assets in the second quarter of 2019 from 3.18% for the second quarter of 2018, and was 3.10% of average earning assets for the first six months of 2019 relative to 3.29% for the first six months of 2018.

The largest component of operating expense, salaries and employee benefits, did not change materially in 2019 compared to 2018, as selective staff reductions offset salary adjustments in the normal course of business and an increase stemming from a drop in deferred loan origination salaries.  Salaries directly related to successful loan originations are removed from compensation expense and amortized as loan costs over the life of the related loans, which reduces current period compensation expense.  Loan origination salaries that were deferred from current expense totaled $832,000 in the second quarter of 2019 and $992,000 in the second quarter of 2018, and $1.816 million in the first six months of 2019 relative to $2.032 million in the first six months of 2018, representing reductions of $160,000 and $216,000, respectively, due to variability in successful organic loan origination activity.  The Company had 529 full-time equivalent employees at June 30, 2019 relative to 565 at June 30, 2018.  Salaries and benefits were 51% of total operating expense for the second quarter and first six months of 2019, in comparison to 52% in the second quarter and first six months of 2018.

As with compensation expense, total occupancy expense was roughly the same in 2019 as in 2018.  Other expense categories were well-controlled for the most part and were favorably impacted by efficiency gains in some areas.  A notable exception was Deposit Services Costs, which increased due in part to higher ATM costs resulting in large part from nonrecurring expenditures for upgrades and repairs.  Deposit costs were also unfavorably impacted by a mid-first quarter 2019 reclassification of statement costs from supplies and postage expense to Deposit Services Costs, which

43

totaled $399,000 for the second quarter of 2019 and $656,000 for the first six months.  Other Professional Service expense fell by $216,000 for the quarter but increased by $142,000 for the year-to-date comparison due to variability in directors deferred compensation accruals, related to changes in BOLI income.  As discussed above, variances in overhead expense also include increases in foreclosed asset expenses that were partially offset by the positive impact of lower nonrecurring acquisition costs.

The Company’s tax-equivalent overhead efficiency ratio was 58.17% in the second quarter of 2019 relative to 60.44% in the second quarter of 2018, and was 58.46% for the first six months of 2019 in comparison to 63.01% for the same period in 2018.  The overhead efficiency ratio represents total noninterest expense divided by the sum of fully tax-equivalent net interest and noninterest income; the provision for loan losses and investment gains/losses are excluded from the equation.  Our overhead efficiency ratio improved in 2019 due to a higher level of net interest and noninterest income, combined with limited increases in noninterest expense.

PROVISION FOR INCOME TAXES

The Company sets aside a provision for income taxes on a monthly basis.  The amount of that provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits.  Permanent differences include but are not limited to tax-exempt interest income, BOLI income, and certain book expenses that are not allowed as tax deductions.  Our tax credits consist primarily of those generated by investments in low-income housing tax credit funds.  The Company’s provision for income taxes was 26.4% of pre-tax income in the second quarter of 2019 relative to 24.9% in the second quarter of 2018, and 25.3% of pre-tax income for the first half of 2019 relative to 24.4% for the same period in 2018.  The increase for 2019 is due to higher pretax income and a lower level of tax credits; the quarterly comparison was also negatively impacted by a lower level of tax-exempt BOLI income.

BALANCE SHEET ANALYSIS

EARNING ASSETS

The Company’s interest-earning assets are comprised of investments and loans, and the composition, growth characteristics, and credit quality of both of those components are significant determinants of the Company’s financial condition.  Investments are analyzed in the section immediately below, while the loan and lease portfolio and other factors affecting earning assets are discussed in the sections following investments.

INVESTMENTS

The Company’s investments can at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in our Federal Reserve Bank (“FRB”) account, and overnight fed funds sold.  The Company’s investments can serve several purposes:  1) they provide liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than the loan portfolio, to better match changes in the deposit base and other funding sources of the Company; 4) they are another interest-earning option for surplus funds when loan demand is light; and 5) they can provide partially tax exempt income.  Surplus FRB balances and fed funds sold to correspondent banks typically represent the temporary investment of excess liquidity.  Aggregate investments totaled $579 million, or 22% of total assets at June 30, 2019 and $562 million, or 22% of total assets at December 31, 2018.

We had no fed funds sold at the end of the reporting periods, and interest-bearing balances held primarily in our Federal Reserve Bank account totaled $2 million at June 30, 2019 and December 31, 2018.  The Company’s investment securities portfolio had a book balance of $577 million at June 30, 2019, reflecting a net increase of $17 million, or 3%, for the first six months of 2019.  The Company carries investments at their fair market values.  We currently have the intent and ability to hold our investment securities to maturity, but the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.  The

44

expected average life for bonds in our investment portfolio was 3.9 years and their average effective duration was 2.8 years at June 30, 2019, down from an expected average life of 4.1 years and an average effective duration of 3.3 years at year-end 2018.

The following table sets forth the amortized cost and fair market value of Company’s investment portfolio by investment type as of the dates noted:

Investment Portfolio

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
	Cost		Value		Cost		Value
Available for Sale
U.S. government agencies	$	15,262	$	15,296	$	15,553	$	15,212
Mortgage-backed securities		405,025		406,091		414,208		404,733
State and political subdivisions		150,978		155,879		140,181		140,534
Total securities	$	571,265	$	577,266	$	569,942	$	560,479

The net unrealized gain on our investment portfolio, or the amount by which aggregate fair market values exceeded amortized cost, was $6 million at June 30, 2019, an absolute difference of $15 million relative to the net unrealized loss of $9 million at December 31, 2018.  The change was caused by the favorable impact of declining long-term market interest rates on fixed-rate bond values.  The balance of U.S. Government agency securities in our portfolio increased slightly during the first six months of 2019 due primarily to higher market values.  Mortgage-backed securities also increased marginally, since bond purchases and positive changes in fair market values exceeded the impact of prepayments and bond sales.  Municipal bond balances increased by $15 million, or 11%, as bond purchases and higher market valuations offset the impact of bond sales, maturities and redemptions.  Municipal bonds purchased in recent periods have strong underlying ratings, and we review all municipal bonds in our portfolio every quarter for potential impairment.

Investment securities that were pledged as collateral for borrowings and/or potential borrowings from the Federal Home Loan Bank and the Federal Reserve Bank, repurchase agreements, and other purposes as required or permitted by law totaled $223 million at June 30, 2019 and $217 million at December 31, 2018, leaving $354 million in unpledged debt securities at June 30, 2019 and $343 million at December 31, 2018.  Securities that were pledged in excess of actual pledging needs and were thus available for liquidity purposes, if needed, totaled $62 million at June 30, 2019 and $9 million at December 31, 2018.

LOAN AND LEASE PORTFOLIO

Gross loans and leases reflect a net increase of $46 million, or 3%, growing to $1.778 billion at June 30, 2019 from $1.732 billion at December 31, 2018 due primarily to an increase in outstanding balances on mortgage warehouse lines.  A distribution of the Company’s loans showing the balance and percentage of loans by type is presented for the noted periods in the table below.  The balances in the table are before deferred or unamortized loan origination, extension, or commitment fees, and deferred origination costs.  While not reflected in the loan totals and not currently comprising a material segment of our lending activities, the Company also occasionally originates and sells, or participates out portions of, loans to non-affiliated investors.

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Loan and Lease Distribution

(dollars in thousands, unaudited)

	June 30, 2019		December 31, 2018
Real estate:
1-4 family residential construction	$	105,618	$	105,676
Other construction/land		108,342		109,023
1-4 family - closed-end		218,618		236,825
Equity lines		53,709		56,320
Multi-family residential		53,602		54,877
Commercial real estate - owner occupied		322,027		301,324
Commercial real estate - non-owner occupied		423,641		438,344
Farmland		152,619		151,541
Total real estate		1,438,176		1,453,930
Agricultural		51,509		49,103
Commercial and industrial		124,974		128,220
Mortgage warehouse lines		154,954		91,813
Consumer loans		8,286		8,862
Total loans and leases	$	1,777,899	$	1,731,928
Percentage of Total Loans and Leases
Real estate:
1-4 family residential construction		5.94%		6.10%
Other construction/land		6.09%		6.29%
1-4 family - closed-end		12.30%		13.67%
Equity lines		3.02%		3.25%
Multi-family residential		3.01%		3.17%
Commercial real estate - owner occupied		18.11%		17.40%
Commercial real estate - non-owner occupied		23.83%		25.32%
Farmland		8.58%		8.75%
Total real estate		80.88%		83.95%
Agricultural		2.90%		2.84%
Commercial and industrial		7.03%		7.40%
Mortgage warehouse lines		8.72%		5.30%
Consumer loans		0.47%		0.51%
Total loans and leases		100.00%		100.00%

For the first six months of 2019, total real estate loans declined by $16 million, or 1%, due to a drop of $18 million in closed-end residential real estate loans.  Residential real estate loans have been declining since the Company made the deliberate decision to discontinue such lending at the end of 2018, thus maturing balances and prepayments are no longer being replaced.  Commercial real estate loans, on the other hand, grew by a net $6 million, or 1%, with a slight shift into loans secured by owner-occupied properties from loans secured by non-owner occupied properties.  That said, heightened competitive forces have had an adverse impact on our ability to grow commercial real estate loan balances in recent periods.  Loans secured by farmland were up slightly, and agricultural production loans increased by $2 million, or 5%, for the first six months of 2019.  Commercial and industrial loan and lease balances reflect a net decline of $3 million, or 3%.  The Company’s only loan category to experience significant growth during the first six months of 2019 was mortgage warehouse lines, as utilization on those lines doubled to 46% at June 30, 2019 from 23% at December 31, 2018.  The increase is the result of market factors favorably impacting home refinancing and purchase activity, as well as heightened business development efforts and internal pricing adjustments enacted by the Company mid-second quarter 2019.

Management remains focused on quality loan growth, but this year there appear to be fewer lending opportunities which meet our credit and yield criteria and competition for those loans has intensified.  Moreover, we are still experiencing occasional surges in prepayments as well as significant fluctuations in mortgage warehouse lending, thus no assurance can be provided with regard to future net growth in aggregate loan balances.

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NONPERFORMING ASSETS

Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, in addition to foreclosed assets which can include mobile homes and OREO.  If the Company grants a concession to a borrower in financial difficulty, the loan falls into the category of a troubled debt restructuring (“TDR”).  TDRs may be classified as either nonperforming or performing loans depending on their underlying characteristics and circumstances.  The following table presents comparative data for the Company’s nonperforming assets and performing TDRs as of the dates noted:

Nonperforming assets and performing troubled debt restructurings

(dollars in thousands, unaudited)

	June 30, 2019		December 31, 2018		June 30, 2018
NON-ACCRUAL LOANS:
Real estate:
Other construction/land	$	43	$	82	$	66
1-4 family - closed-end		1,454		799		804
Equity lines		467		408		430
Commercial real estate - owner occupied		1,472		605		257
Commercial real estate - non-owner occupied		—		49		85
Farmland		25		1,642		32
TOTAL REAL ESTATE		3,461		3,585		1,674
Agriculture		—		—		—
Commercial and industrial		569		1,425		1,333
Consumer loans		90		146		86
TOTAL NONPERFORMING LOANS		4,120		5,156		3,093
Foreclosed assets		770		1,082		2,112
Total nonperforming assets	$	4,890	$	6,238	$	5,205
Performing TDRs (1)	$	9,246	$	10,920	$	11,981
Nonperforming loans as a % of total gross loans and leases		0.23%		0.30%		0.19%
Nonperforming assets as a % of total gross loans and leases and foreclosed assets		0.27%		0.36%		0.32%

(1) Performing TDRs are not included in nonperforming loans above, nor are they included in the numerators used to calculate the ratios disclosed in this table.

Total nonperforming assets were reduced by $1.348 million, or 22%, during the first six months of 2019, due to reductions resulting from net charge-offs and our continued focus on credit quality improvement.  The $4 million balance of nonperforming loans at June 30, 2019 includes certain TDRs and other loans that were paying as agreed, but which met the technical definition of nonperforming loans and were thus classified as such.  As shown in the table, we also had $9 million in loans classified as performing TDRs on which we were still accruing interest as of June 30, 2019, a reduction of $1.674 million, or 15%, relative to December 31, 2018.

Foreclosed assets had a carrying value of $770,000 at June 30, 2019, comprised of 10 properties classified as OREO and one mobile home.  This represents a reduction of $312,000, or 29%, relative to year-end 2018 when foreclosed assets totaled $1.082 million, consisting of 11 properties classified as OREO.  The balance reduction came from write-downs on OREO and the sale of a few small properties during the first six months of 2019.  All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.

Total nonperforming assets were 0.27% of gross loans and leases plus foreclosed assets at June 30, 2019, down from 0.36% at December 31, 2018 and 0.32% at June 30, 2018.  An action plan is in place for each of our non-accruing loans and foreclosed assets and they are all being actively managed.  Collection efforts are continuously pursued for all

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nonperforming loans, but we cannot provide assurance that they will be resolved in a timely manner or that nonperforming balances will not increase.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses, a contra-asset, is established through periodic provisions for loan and lease losses.  It is maintained at a level that is considered adequate to absorb probable losses on specifically identified impaired loans, as well as probable incurred losses inherent in the remaining loan portfolio.  Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge off.

The Company’s allowance for loan and lease losses was $9.9 million at June 30, 2019, a slight increase relative to December 31, 2018 resulting from a $700,000 loan loss provision plus recoveries recorded during the six-month period, net of loan balances charged-off against the allowance.  Because the increase in the allowance was proportionate with loan growth, the allowance for loan and lease losses was 0.56% of total loans at June 30, 2019, December 31, 2018 and June 30, 2018.  The ratio of the Company’s allowance to total loans has been at relatively low levels in recent periods, as facilitated by the following circumstances:  some charge-offs have been recorded against pre-established reserves, alleviating the need for reserve replenishment; acquisition loans were booked at their fair values, and thus did not initially require a loan loss allowance; favorable trends in loan loss rates have had a positive impact on general reserves established for performing loans; and, new loans booked during and since the great recession have been underwritten using tighter credit standards than was the case for many legacy loans.  The ratio of the allowance to nonperforming loans was 239.88% at June 30, 2019, relative to 189.10% at December 31, 2018 and 295.38% at June 30, 2018.  A separate allowance of $384,000 for potential losses inherent in unused commitments is included in other liabilities at June 30, 2019.

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The following table summarizes activity in the allowance for loan and lease losses for the noted periods:

Allowance for Loan and Lease Losses

(dollars in thousands, unaudited)

	For the three months		For the three months		For the six months		For the six months		For the year
	ended June 30,		ended June 30,		ended June 30,		ended June 30,		ended December 31,
Balances:	2019		2018		2019		2018		2018
Average gross loans and leases outstanding during period (1)	$	1,741,573	$	1,605,334	$	1,727,051	$	1,567,327	$	1,625,732
Gross loans and leases outstanding at end of period	$	1,777,899	$	1,624,344	$	1,777,899	$	1,624,344	$	1,731,928
Allowance for Loan and Lease Losses:
Balance at beginning of period	$	9,438	$	8,991	$	9,750	$	9,043	$	9,043
Provision charged to expense		400		300		700		500		4,350
Charge-offs
Real estate
1-4 family residential construction		—		—		—		—		—
Other construction/land		—		—		—		—		4
1-4 family - closed-end		—		—		—		5		5
Equity lines		—		104		—		125		125
Multi-family residential		—		—		—		—		—
Commercial real estate- owner occupied		—		—		—		—		—
Commercial real estate- non-owner occupied		—		—		—		—		2,341
Farmland		—		—		—		—		—
TOTAL REAL ESTATE		—		104		—		130		2,475
Agricultural		—		—		—		—		—
Commercial and industrial		254		68		832		101		608
Consumer loans		562		523		1,114		1,088		2,225
Total	$	816	$	695	$	1,946	$	1,319	$	5,308
Recoveries
Real estate
1-4 family residential construction		—		—		—		—		—
Other construction/land		—		—		—		—		—
1-4 family - closed-end		4		3		9		5		10
Equity lines		2		19		23		82		134
Multi-family residential		—		—		—		—		—
Commercial real estate- owner occupied		—		230		—		229		230
Commercial real estate- non-owner occupied		147		—		297		—		—
Farmland		—		—		—		—		—
TOTAL REAL ESTATE		153		252		329		316		374
Agricultural		—		—		—		—		22
Commercial and industrial		431		17		472		45		148
Consumer loans		277		271		578		551		1,121
Total	$	861	$	540	$	1,379	$	912	$	1,665
Net loan charge offs (recoveries)	$	(45)	$	155	$	567	$	407	$	3,643
Balance at end of period	$	9,883	$	9,136	$	9,883	$	9,136	$	9,750
RATIOS
Net charge-offs to average loans and leases (annualized)		-0.01%		0.04%		0.07%		0.05%		0.22%
Allowance for loan losses to gross loans and leases at end of period		0.56%		0.56%		0.56%		0.56%		0.56%
Allowance for loan losses to nonperforming loans		239.88%		295.38%		239.88%		295.38%		189.10%
Net loan charge-offs to allowance for loan losses at end of period		-0.46%		1.70%		5.74%		4.45%		37.36%
Net loan charge-offs to provision for loan losses		-11.25%		51.67%		81.00%		81.40%		83.75%

(1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.

As reflected in the table above, the Company recorded a loan loss provision of $400,000 in the second quarter of 2019 compared to $300,000 in the second quarter of 2018, and a loan loss provision of $700,000 for the first half of 2019 relative to $500,000 for the first half of 2018.  Net balances recovered on previously charged-off loans were $45,000 in the second quarter of 2019, while net loans charged off against the allowance totaled $155,000 in the second quarter of

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2018.  Net charge-offs were $567,000 for the first six months of 2019 relative to $407,000 during the first six months of 2018.  Any shortfall in the allowance identified pursuant to our analysis of remaining probable losses is covered by quarter-end.  The “Provision for Loan and Lease Losses” section above includes additional details on our provision and its relationship to actual charge-offs.

The Company’s allowance for loan and lease losses at June 30, 2019 represents Management’s best estimate of probable losses in the loan portfolio as of that date, but no assurance can be given that the Company will not experience substantial losses relative to the size of the allowance.  Furthermore, fluctuations in credit quality, changes in economic conditions, updated accounting or regulatory requirements, and/or other factors could induce us to augment or reduce the allowance.

OFF-BALANCE SHEET ARRANGEMENTS

The Company maintains commitments to extend credit in the normal course of business, as long as there are no violations of conditions established in the outstanding contractual arrangements.  It is unlikely that all unused commitments will ultimately be drawn down.  Unused commitments to extend credit totaled $596 million at June 30, 2019 and $782 million at December 31, 2018, representing approximately 34% of gross loans outstanding at June 30, 2019 and 45% at December 31, 2018.  The drop in unused commitments is due in part to the increase in outstanding balances on mortgage warehouse lines, but commercial and residential construction loan commitments have also declined.  The Company also had undrawn letters of credit issued to customers totaling $10 million at June 30, 2019 and $9 million at December 31, 2018.  The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used.  However, the “Liquidity” section in this Form 10‑Q outlines resources available to draw upon should we be required to fund a significant portion of unused commitments.

In addition to unused commitments to provide credit, the Company is utilizing a $105 million letter of credit issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.  That letter of credit is backed by loans that are pledged to the FHLB by the Company.  For more information on the Company’s off-balance sheet arrangements, see Note 7 to the consolidated financial statements located elsewhere herein.

OTHER ASSETS

Interest-earning cash balances were discussed above in the “Investments” section, but the Company also maintains a certain level of cash on hand in the normal course of business as well as non-earning deposits at other financial institutions.  Our balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the amount of cash held at our branches, and our reserve requirement among other things, and it is subject to significant fluctuations in the normal course of business.  While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to, and borrowings from, correspondent banks, including the Federal Reserve Bank and the Federal Home Loan Bank.  Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits.  If a “long” position is prevalent, we will let brokered deposits or other wholesale borrowings roll off as they mature, or we might invest excess liquidity into longer-term, higher-yielding bonds.  The Company’s balance of non-earning cash and due from banks was $66 million at June 30, 2019 relative to $72 million at December 31, 2018, with the decrease due primarily to a reduction in vault cash and a lower amount of cash items in process of collection.  The average balance of non-earning cash and due from banks, which is a better measure for ascertaining trends, was $60 million for the first six months of 2019 relative to $61 million for the year in 2018.  The reduction in the average balance is due to concentrated efforts to improve cash management efficiency.

Foreclosed assets are discussed above in the section titled “Nonperforming Assets.”  Net premises and equipment declined by $1.115 million, or 4%, during the first six months of 2019 as the result of depreciation recorded on fixed assets.  Goodwill was $27 million at June 30, 2019, unchanged for the first six months of 2019, but other intangible assets were down $537,000, or 8%, due to amortization expense recorded on core deposit intangibles.  The Company’s

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goodwill and other intangible assets are evaluated annually for potential impairment, and pursuant to that analysis Management has concluded that no impairment exists as of June 30, 2019.  Bank-owned life insurance, with a balance of $49 million at June 30, 2019, is discussed in detail above in the “Noninterest Income and Noninterest Expense” section.

The aggregate balance of “Other assets” was $49.5 million at June 30, 2019, compared to $50.6 million at December 31, 2018.  While the ending balance is down only $1 million, or 2%, there were significant changes within other assets during the first six months of 2019 including the following:  a $9.0 million increase resulting from operating lease assets booked at the beginning of 2019, pursuant to our adoption of FASB’s ASU 2016‑02; a reduction of $7.6 million resulting from our first quarter 2019 collection of a receivable established at the end of 2018 for expected proceeds from the sale of a large foreclosed property; a $4.5 million reduction in our deferred tax asset; a $1.5 million increase in current prepaid taxes; and, a $1.0 million increase in restricted stock.  At June 30, 2019, the balance of other assets included as its largest components a $12.7 million investment in restricted stock, an operating lease right-of-use asset totaling $9.0 million, accrued interest receivable totaling $8.9 million, a net deferred tax asset of $4.1 million, a $5.0 million investment in low-income housing tax credit funds, and a $3.0 million investment in a small business investment corporation.  Restricted stock is comprised of Federal Home Loan Bank of San Francisco stock held in conjunction with our FHLB borrowings and an equity investment in a correspondent bank, neither of which is deemed to be marketable or liquid.  Our net deferred tax asset is evaluated as of every reporting date pursuant to FASB guidance, and we have determined that no impairment exists.

DEPOSITS AND INTEREST BEARING LIABILITIES

DEPOSITS

Deposits represent another key balance sheet category impacting the Company’s net interest margin and profitability metrics.  Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity accounts such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts.  Information concerning average balances and rates paid by deposit type for the three- and six-month periods ended June 30, 2019 and 2018 is included in the Average Balances and Rates tables appearing above, in the section titled “Net Interest Income and Net Interest Margin.”  A distribution of the Company’s deposits by type, showing the period-end balance and percentage of total deposits, is presented as of the dates indicated in the following table.

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Deposit Distribution

(dollars in thousands, unaudited)

	June 30, 2019		December 31, 2018
Noninterest bearing demand deposits	$	658,900	$	662,527
Interest bearing demand deposits		129,733		101,243
NOW		441,030		434,483
Savings		289,872		283,953
Money market		117,010		123,807
Time, under $250,000		225,937		212,901
Time, $250,000 or more		266,616		247,426
Brokered deposits		50,000		50,000
Total deposits	$	2,179,098	$	2,116,340
Percentage of Total Deposits
Noninterest bearing demand deposits		30.24%		31.31%
Interest bearing demand deposits		5.95%		4.78%
NOW		20.24%		20.53%
Savings		13.30%		13.42%
Money market		5.37%		5.85%
Time, under $250,000		10.37%		10.06%
Time, $250,000 or more		12.24%		11.69%
Brokered deposits		2.29%		2.36%
Total		100.00%		100.00%

Deposit balances reflect net growth of $63 million, or 3%, during the first six months of 2019.  Non-maturity deposits were up $31 million, or 2%, while customer time deposits increased by $32 million, or 7%, and wholesale brokered deposits were unchanged.  All of our deposit growth was organic in nature, but it does include some seasonal increases in deposit balances.

Management is of the opinion that a relatively high level of core customer deposits is one of the Company’s key strengths, and we continue to strive for core deposit retention and growth.  Our deposit-targeted promotions are still favorably impacting growth in the number of accounts and it is expected that balances in these accounts will grow over time consistent with our past experience, although given the current highly competitive market for deposits no assurance can be provided with regard to future increases in core deposit balances.

OTHER INTEREST-BEARING LIABILITIES

The Company’s non-deposit borrowings may, at any given time, include fed funds purchased from correspondent banks, borrowings from the Federal Home Loan Bank, advances from the Federal Reserve Bank, securities sold under agreements to repurchase, and/or junior subordinated debentures.  The Company uses short-term FHLB advances and fed funds purchased on uncommitted lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes.  The FHLB line is committed, but the amount of available credit depends on the level of pledged collateral.

Total non-deposit interest-bearing liabilities were down $40 million, or 37%, for the first six months of 2019, due to a drop in borrowings from the FHLB that was partially offset by an increase in customer repurchase agreements.  The Company had $8.5 million in borrowings from the FHLB at June 30, 2019 relative to $56.1 million at December 31, 2018, and there were no overnight federal funds purchased from other correspondent banks or advances from the FRB on our books at June 30, 2019 or December 31, 2018.  Repurchase agreements totaled $24 million at June 30, 2019 relative to a balance of $16 million at year-end 2018, for an increase of $8 million.  Repurchase agreements represent “sweep accounts”, where commercial deposit balances above a specified threshold are transferred at the close of each business day into non-deposit accounts secured by investment securities.  The Company had junior subordinated

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debentures totaling $34.9 million at June 30, 2019 and $34.8 million at December 31, 2018, in the form of long-term borrowings from trust subsidiaries formed specifically to issue trust preferred securities.    The small increase resulted from the amortization of discount on junior subordinated debentures that were part of our acquisition of Coast Bancorp in 2016.

OTHER NONINTEREST BEARING LIABILITIES

Other liabilities are principally comprised of accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts.  The Company’s balance of other liabilities increased by $8 million, or 30%, during the first six months of 2019 due in large part to the liability established as an offset to the operating lease right-of-use asset noted above.

LIQUIDITY AND MARKET RISK MANAGEMENT

LIQUIDITY

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner.  Detailed cash flow projections are reviewed by Management on a monthly basis, with various stress scenarios applied to assess our ability to meet liquidity needs under unusual or adverse conditions.  Liquidity ratios are also calculated and reviewed on a regular basis.  While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored and we are committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.

The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments.  To meet short-term needs, we can borrow overnight funds from other financial institutions, draw advances via Federal Home Loan Bank lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources.  Availability on lines of credit from correspondent banks and the FHLB totaled $542 million at June 30, 2019.  An additional $59 million in credit is available from the FHLB if the Company were to pledge sufficient collateral and maintain the required amount of FHLB stock.  The Company was also eligible to borrow approximately $74 million at the Federal Reserve Discount Window based on pledged assets at June 30, 2019.  Furthermore, funds can be obtained by drawing down excess cash that might be available in the Company’s correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets.  In addition, the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments in its portfolio which are not pledged as collateral.  As of June 30, 2019, unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $416 million of the Company’s investment balances, as compared to $352 million at December 31, 2018.  Other sources of potential liquidity include but are not necessarily limited to any outstanding fed funds sold and vault cash.  The Company has a higher level of actual balance sheet liquidity than might otherwise be the case, since we utilize a letter of credit from the FHLB rather than investment securities for certain pledging requirements.  That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $105 million at June 30, 2019 and $95 million at December 31, 2018.  Management is of the opinion that available investments and other potentially liquid assets, along with standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.

The Company’s net loans to assets and available investments to assets ratios were 69% and 16%, respectively, at June 30, 2019, as compared to internal policy guidelines of “less than 78%” and “greater than 3%.”  Other liquidity ratios reviewed periodically by Management and the Board include net loans to total deposits and wholesale funding to total assets, including ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at June 30, 2019.  The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that our liquidity position will continue at current strong levels.

The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, shareholder dividends, and stock repurchases.  Its primary source of funds is dividends from the Bank, since the holding company does not conduct regular banking operations.  Management anticipates that the Bank will have sufficient earnings to provide dividends to the holding company to meet its funding requirements for the foreseeable future.  Both

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the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018 which was filed with the SEC.

INTEREST RATE RISK MANAGEMENT

Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices.  The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates.  Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates.  The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform monthly earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios.  The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes.  Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments.  The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).

In addition to a stable rate scenario, which presumes that there are no changes in interest rates, we typically use at least six other interest rate scenarios in conducting our rolling 12‑month net interest income simulations:  upward shocks of 100, 200, and 300 basis points, and downward shocks of 100, 200, and 300 basis points.  Those scenarios may be supplemented, reduced in number, or otherwise adjusted as determined by Management to provide the most meaningful simulations in light of economic conditions and expectations at the time.  We currently utilize an additional upward rate shock scenario of 400 basis points.  Pursuant to policy guidelines, we generally attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 5% for a 100 basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a 400 bp shock.  As of June 30, 2019 the Company had the following estimated net interest income sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:

	Immediate Change in Rate
	-300 bp	-200 bp	-100 bp	+100 bp	+200 bp	+300 bp	+400 bp
Change in Net Int. Inc. (in $000’s)	-$15,810	-$8,442	-$3,729	+$1,202	+$1,847	+$2,481	+$2,573
% Change	-16.39%	-8.75%	-3.86%	+1.25%	+1.91%	+2.57%	+2.67%

Our current simulations indicate that the Company’s net interest income will increase slightly over the next 12 months in a rising rate environment, but a drop in interest rates could have a substantial negative impact.  In prior periods the simulations projected sizeable gains in net interest income in rising rate scenarios, but balance sheet changes such as the addition of fixed-rate loans and adjustable-rate loans with longer reset periods, and the increase in short-term interest rates over the past few years have significantly diminished that effect.  If there were an immediate and sustained upward adjustment of 100 basis points in interest rates, all else being equal, net interest income over the next 12 months is projected to improve by $1.202 million, or 1.25%, relative to a stable interest rate scenario, with the favorable variance increasing marginally as interest rates rise higher.  If interest rates were to decline by 100 basis points, however, net interest income would likely be around $3.729 million lower than in a stable interest rate scenario, for a negative variance of 3.86%.  The unfavorable variance increases when rates drop 200 or 300 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop.  This effect is exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures.  While we view material interest rate reductions as unlikely in the near term, the potential percentage drop in net interest income in the “down 300 basis points” interest

54

rate scenario exceeds our internal policy guidelines and we will continue to monitor our interest rate risk profile and implement remedial changes as deemed appropriate.

In addition to the net interest income simulations shown above, we run stress scenarios for the unconsolidated Bank modeling the possibility of no balance sheet growth, the potential runoff of “surge” core deposits which flowed into the Bank in the most recent economic cycle, and unfavorable movement in deposit rates relative to yields on earning assets (i.e., higher deposit betas).  When a static balance sheet and a stable interest rate environment are assumed, projected annual net interest income is close to $1 million lower than in our standard simulation.  However, the stressed simulations reveal that the Company’s greatest potential pressure on net interest income would result from excessive non-maturity deposit runoff and/or unfavorable deposit rate changes in rising rate scenarios.

The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed.  The difference between the projected fair value of the Company’s financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate fluctuations.  Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at anticipated replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios.  An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the Company’s balance sheet evolves and interest rate and yield curve assumptions are updated.

The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity.  As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline.  The longer the duration of the financial instrument, the greater the impact a rate change will have on its value.  In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and Management’s best estimates.  Our EVE had been increasing due to asset growth and rising discount rates, which result in a larger benefit assessed to non-maturity deposits, but that trend reversed in the second quarter of 2019 as loan growth slowed and interest rates started to fall.  The table below shows estimated changes in the Company’s EVE as of June 30, 2019, under different interest rate scenarios relative to a base case of current interest rates:

	Immediate Change in Rate
	-300 bp	-200 bp	-100 bp	+100 bp	+200 bp	+300 bp	+400 bp
Change in EVE (in $000’s)	-$147,454	-$162,983	-$84,297	+$43,571	+$69,015	+$83,884	+$92,095
% Change	-24.95%	-27.58%	-14.27%	+7.37%	+11.68%	+14.20%	+15.58%

The table shows that our EVE will generally deteriorate in declining rate scenarios, but should benefit from a parallel shift upward in the yield curve.  The decline in EVE reverses somewhat as interest rates drop more than 200 basis points, while the rate of increase in EVE begins to taper off the higher interest rates rise.  This phenomenon is caused by the relative durations of our fixed-rate assets and liabilities, combined with optionality inherent in our balance sheet.  We also run stress scenarios for the unconsolidated Bank’s EVE to simulate the possibility of adverse movement in loan prepayment rates, unfavorable changes in deposit rates, and higher deposit decay rates.  Model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular, with material unfavorable variances occurring relative to the standard simulations shown above as decay rates are increased.  Furthermore, while not as extreme as the variances produced by increasing non-maturity deposit decay rates, EVE also displays a relatively high level of sensitivity to unfavorable changes in deposit rate betas in rising interest rate scenarios.

CAPITAL RESOURCES

The Company had total shareholders’ equity of $296.9 million at June 30, 2019, comprised of $113.0 million in common stock, $3.2 million in additional paid-in capital, $176.3 million in retained earnings, and accumulated other comprehensive income of $4.2 million.  At the end of 2018, total shareholders’ equity was $273.0 million.  The increase

55

for the first six months of 2019 is due to the addition of capital from net income and stock options exercised as well as a $10.9 million favorable swing in accumulated other comprehensive income (moving from a $6.7 million loss to $4.2 million income), net of the impact of cash dividends paid.  There were no share repurchases executed by the Company during the six months ended June 30, 2019.

The Company uses a variety of measures to evaluate its capital adequacy, including risk-based capital and leverage ratios that are calculated separately for the Company and the Bank.  Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines.  As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital.  The following table sets forth the consolidated Company’s and the Bank’s regulatory capital ratios as of the dates indicated.

Regulatory Capital Ratios

	June 30,		December 31,		Minimum Requirement
	2019		2018		to be Well Capitalized
Sierra Bancorp
Common Equity Tier 1 Capital to Risk-Weighted Assets	12.95	%	12.61	%	6.50	%
Tier 1 Capital to Risk-weighted Assets	14.68	%	14.38	%	8.00	%
Total Capital to Risk-weighted Assets	15.19	%	14.89	%	10.00	%
Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio")	11.73	%	11.49	%	5.00	%
Bank of the Sierra
Common Equity Tier 1 Capital to Risk-Weighted Assets	14.57	%	14.25	%	6.50	%
Tier 1 Capital to Risk-weighted Assets	14.57	%	14.25	%	8.00	%
Total Capital to Risk-weighted Assets	15.08	%	14.77	%	10.00	%
Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio")	11.64	%	11.39	%	5.00	%

Our risk-based capital ratios increased during the first six months of 2019, as growth in risk-based capital outpaced growth in risk-adjusted assets.  Our capital ratios are strong relative to the median for peer financial institutions, and remain well above the threshold for the Company and the Bank to be classified as “well capitalized,” the highest rating of the categories defined under the Bank Holding Company Act and the Federal Deposit Insurance Corporation Improvement Act of 1991.  We do not foresee any circumstances that would cause the Company or the Bank to be less than well capitalized, although no assurance can be given that this will not occur.

PART I – FINANCIAL INFORMATION

Item 3

QUALITATIVE & QUANTITATIVE DISCLOSURES

ABOUT MARKET RISK

The information concerning quantitative and qualitative disclosures about market risk is included in Part I, Item 2 above.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management.”

56

PART I – FINANCIAL INFORMATION

Item 4

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) as of the end of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC.

Changes in Internal Controls

There were no significant changes in the Company’s internal controls over financial reporting that occurred in the second quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

57

PART II - OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The Company is involved in various legal proceedings in the normal course of business.  In the opinion of Management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 1A: RISK FACTORS

There were no material changes from the risk factors disclosed in the Company’s Form 10‑K for the fiscal year ended December 31, 2018.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)   Stock Repurchases

In September 2016 the Board authorized 500,000 shares of common stock for repurchase, subsequent to the completion of previous stock buyback plans.  The authorization of shares for repurchase does not provide assurance that a specific quantity of shares will be repurchased, and the program can be suspended at any time at Management’s discretion.  The Company did not repurchase any shares in the second quarter of 2019 and in fact has not engaged in repurchase activity since the fourth quarter of 2016, thus there were 478,954 authorized shares remaining available for repurchase at June 30, 2019.  Management has recently explored the possibility of resuming stock repurchase activity.  If a decision is made to pursue that course of action, Management intends to file an 8-K at the appropriate time.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable

ITEM 5: OTHER INFORMATION

Not applicable

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ITEM 6: EXHIBITS

Exhibit #	Description
2.1	Agreement and Plan of Consolidation by and among Sierra Bancorp, Bank of the Sierra and Santa Clara Valley Bank, N.A., dated as of July 17, 2014 (1)
2.2	Agreement and Plan of Reorganization and Merger, dated as of January 4, 2016 by and between Sierra Bancorp and Coast Bancorp (2)
2.3	Agreement and Plan of Reorganization and Merger, dated as of April 24, 2017 by and between Sierra Bancorp and OCB Bancorp, as amended by Amendment No.  1 thereto dated May 4, 2017 and Amendment No.  2 thereto dated June 6, 2017 (3)
3.1	Restated Articles of Incorporation of Sierra Bancorp (4)
3.2	Amended and Restated By-laws of Sierra Bancorp (5)
10.1	Salary Continuation Agreement for Kenneth R.  Taylor (6)
10.2	Salary Continuation Agreement and Split Dollar Agreement for James F.  Gardunio (7)
10.3	Split Dollar Agreement for Kenneth R.  Taylor (8)
10.4	Director Retirement and Split dollar Agreements Effective October 1,  2002, for Albert Berra, Morris Tharp, and Gordon Woods (8)
10.5	401 Plus Non-Qualified Deferred Compensation Plan (8)
10.6	Indenture dated as of March 17, 2004 between U.S. Bank N.A., as Trustee, and Sierra Bancorp, as Issuer (9)
10.7	Amended and Restated Declaration of Trust of Sierra Statutory Trust II, dated as of March 17, 2004 (9)
10.8	Indenture dated as of June 15, 2006 between Wilmington Trust Co., as Trustee, and Sierra Bancorp, as Issuer (10)
10.9	Amended and Restated Declaration of Trust of Sierra Capital Trust III, dated as of June 15, 2006 (10)
10.10	2007 Stock Incentive Plan (11)
10.11	Sample Retirement Agreement Entered into with Each Non-Employee Director Effective January 1, 2007 (12)
10.12	Salary Continuation Agreement for Kevin J.  McPhaill (12)
10.13	First Amendment to the Salary Continuation Agreement for Kenneth R.  Taylor (12)
10.14	Second Amendment to the Salary Continuation Agreement for Kenneth R.  Taylor (13)
10.15	First Amendment to the Salary Continuation Agreement for Kevin J.  McPhaill (14)
10.16	Indenture dated as of September 20, 2007 between Wilmington Trust Co., as Trustee, and Coast Bancorp, as Issuer (15)
10.17	Amended and Restated Declaration of Trust of Coast Bancorp Statutory Trust II, dated as of September 20, 2007 (15)
10.18	First Supplemental Indenture dated as of July 8, 2016, between Wilmington Trust Co.  as Trustee, Sierra Bancorp as the “Successor Company”, and Coast Bancorp (15)
10.19	2017 Stock Incentive Plan (16)
10.20	Employment agreements dated as of December 27, 2018 for Kevin McPhaill, CEO, Kenneth  Taylor, CFO, James Gardunio, Chief Credit Officer, and Michael Olague, Chief Banking Officer (17)
10.21	Employment agreement dated as of March 15, 2019 for Matthew Macia, Chief Risk Officer (18)
11	Statement of Computation of Per Share Earnings (19)
31.1	Certification of Chief Executive Officer (Section 302 Certification)
31.2	Certification of Chief Financial Officer (Section 302 Certification)
32	Certification of Periodic Financial Report (Section 906 Certification)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Filed as an Exhibit to the Form 8‑K filed with the SEC on July 18, 2014 and incorporated herein by reference.

(2) Filed as an Exhibit to the Form 8‑K filed with the SEC on January 5, 2016 and incorporated herein by reference.

(3) Original agreement filed as an exhibit to the Form 8‑K filed with the SEC on April 25, 2017 and incorporated herein by reference, and amendments thereto filed as appendices to the proxy statement/prospectus included in the Form S‑4/A filed with the SEC on July 24, 2017 and incorporated herein by reference.

(4) Filed as Exhibit 3.1 to the Form 10‑Q filed with the SEC on August 7, 2009 and incorporated herein by reference.

(5) Filed as an Exhibit to the Form 8‑K filed with the SEC on February 21, 2007 and incorporated herein by reference.

(6) Filed as Exhibit 10.5 to the Form 10‑Q filed with the SEC on May 15, 2003 and incorporated herein by reference.

(7) Filed as an Exhibit to the Form 8‑K filed with the SEC on August 11, 2005 and incorporated herein by reference.

(8) Filed as Exhibits 10.10, 10.18 through 10.20, and 10.22 to the Form 10‑K filed with the SEC on March 15, 2006 and incorporated herein by reference.

(9) Filed as Exhibits 10.9 and 10.10 to the Form 10‑Q filed with the SEC on May 14, 2004 and incorporated herein by reference.

(10) Filed as Exhibits 10.26 and 10.27 to the Form 10‑Q filed with the SEC on August 9, 2006 and incorporated herein by reference.

(11) Filed as Exhibit 10.20 to the Form 10‑K filed with the SEC on March 15, 2007 and incorporated herein by reference.

(12) Filed as Exhibits 10.1 through 10.3 to the Form 8‑K filed with the SEC on January 8, 2007 and incorporated herein by reference.

(13) Filed as Exhibit 10.23 to the Form 10‑K filed with the SEC on March 13, 2014 and incorporated herein by reference.

(14) Filed as Exhibit 10.24 to the Form 10‑Q filed with the SEC on May 7, 2015 and incorporated herein by reference.

(15) Filed as Exhibits 10.1 through 10.3 to the Form 8‑K filed with the SEC on July 11, 2016 and incorporated herein by reference.

(16) Filed as Exhibit 10.1 to the Form 8‑K filed with the SEC on March 17, 2017 and incorporated herein by reference.

(17) Filed as Exhibits 99.1 through 99.4 to the Form 8‑K filed with the SEC on December 28, 2018 and incorporated by reference.

(18) Filed as Exhibit 99.2 to the Form 8‑K filed with the SEC on March 18, 2019 and incorporated by reference.

(19) Computation of earnings per share is incorporated by reference to Note 5 to the Financial Statements included herein.

59

SIGNATURES

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

August 7, 2019	/s/ Kevin J.  McPhaill
Date	SIERRA BANCORP
	Kevin J.  McPhaill
	President & Chief Executive Officer
	(Principal Executive Officer)
August 7, 2019	/s/ Kenneth R.  Taylor
Date	SIERRA BANCORP
	Kenneth R.  Taylor
	Chief Financial Officer
	(Principal Financial and Principal Accounting Officer)

60

EX-31.1

Exhibit 31.1 – Certification of Chief Executive Officer (Section 302 Certification)

I, Kevin J. McPhaill, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Sierra Bancorp (“Registrant”);

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

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

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

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

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

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

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

5.  The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

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

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

Date:  August 7, 2019

/s/  Kevin J. McPhaill

Kevin J. McPhaill

President &

Chief Executive Officer

EX-31.2

Exhibit 31.2 – Certification of Chief Financial Officer (Section 302 Certification)

I, Kenneth R. Taylor, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Sierra Bancorp (“Registrant”);

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

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

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

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

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

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

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

5.  The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

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

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

Date:  August 7, 2019

/s/  Kenneth R. Taylor

Kenneth R. Taylor

Chief Financial Officer &

Chief Accounting Officer

EX-32

Exhibit 32 – Certification of Periodic Financial Report

Kevin J. McPhaill and Kenneth R. Taylor hereby certify as follows:

1.  They are the Chief Executive Officer and Chief Financial Officer, respectively, of Sierra Bancorp.  

2.  The Form 10-Q of Sierra Bancorp for the Quarter ended June 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and the information contained in the report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Sierra Bancorp.

August 7, 2019	/s/	Kevin J. McPhaill
Date		Kevin J. McPhaill
		President &
		Chief Executive Officer
August 7, 2019	/s/	Kenneth R. Taylor
Date		Kenneth R. Taylor
		Chief Financial Officer &
		Chief Accounting Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 01, 2019
Document and Entity Information [Abstract]
Entity Central Index Key	0001130144
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2019
Document Transition Report	false
Entity File Number	000-33063
Entity Registrant Name	SIERRA BANCORP
Entity Incorporation, State or Country Code	CA
Entity Tax Identification Number	33-0937517
Entity Address, Address Line One	86 North Main Street
Entity Address, City or Town	Porterville
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	93257
City Area Code	559
Local Phone Number	782-4900
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock, no par value
Trading Symbol	BSRR
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		15,338,270
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
ASSETS
Cash and due from banks	$ 65,711	$ 72,439
Interest-bearing deposits in banks	2,079	1,693
Total cash & cash equivalents	67,790	74,132
Securities available-for-sale	577,266	560,479
Loans and leases:
Gross loans and leases	1,777,899	1,731,928
Allowance for loan and lease losses	(9,883)	(9,750)
Deferred loan and lease costs, net	2,831	2,602
Net loans and leases	1,770,847	1,724,780
Foreclosed assets	770	1,082
Premises and equipment, net	28,385	29,500
Goodwill	27,357	27,357
Other intangible assets, net	5,918	6,455
Bank-owned life insurance	49,211	48,153
Other assets	49,488	50,564
Total assets	2,577,032	2,522,502
Deposits:
Noninterest bearing	658,900	662,527
Interest bearing	1,520,198	1,453,813
Total deposits	2,179,098	2,116,340
Repurchase agreements	24,167	16,359
Short-term borrowings	8,500	56,100
Subordinated debentures, net	34,856	34,767
Other liabilities	33,559	25,912
Total liabilities	2,280,180	2,249,478
Commitments and contingent liabilities (Note 7)
Shareholders' equity
Common stock, no par value; 24,000,000 shares authorized; 15,332,550 and 15,300,460 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	113,061	112,507
Additional paid-in capital	3,237	3,066
Retained earnings	176,328	164,117
Accumulated other comprehensive income (loss), net	4,226	(6,666)
Total shareholders' equity	296,852	273,024
Total liabilities and shareholder's equity	$ 2,577,032	$ 2,522,502

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common Stock, No Par Value	$ 0	$ 0
Common Stock, Shares Authorized	24,000,000	24,000,000
Common Stock, Shares, Issued	15,332,550	15,300,460
Common Stock, Shares, Outstanding	15,332,550	15,300,460

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CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest and dividend income
Loans and leases, including fees	$ 24,010	$ 21,504	$ 47,759	$ 41,508
Taxable securities	2,591	2,300	5,207	4,638
Tax-exempt securities	1,072	1,018	2,117	2,034
Federal funds sold and other	115	61	188	180
Total interest income	27,788	24,883	55,271	48,360
Interest expense
Deposits	3,093	1,594	6,048	2,912
Short-term borrowings	26	53	97	66
Subordinated debentures	470	436	954	822
Total interest expense	3,589	2,083	7,099	3,800
Net interest income	24,199	22,800	48,172	44,560
Provision for loan losses	400	300	700	500
Net interest income after provision for loan losses	23,799	22,500	47,472	44,060
Noninterest income
Service charges on deposits	3,151	3,027	6,094	5,974
Other income	2,704	2,402	5,668	4,589
Total noninterest income	5,855	5,429	11,762	10,563
Other operating expense
Salaries and employee benefits	8,994	8,997	18,237	18,180
Occupancy and equipment	2,450	2,451	4,811	4,799
Other	6,212	5,846	12,461	12,202
Total other operating expense	17,656	17,294	35,509	35,181
Income before taxes	11,998	10,635	23,725	19,442
Provision for income taxes	3,169	2,643	6,001	4,740
Net income	$ 8,829	$ 7,992	$ 17,724	$ 14,702
PER SHARE DATA
Book value	$ 19.36	$ 17.06	$ 19.36	$ 17.06
Cash dividends	0.18	0.16	0.36	0.32
Earnings per share basic	0.58	0.52	1.16	0.96
Earnings per share diluted	$ 0.57	$ 0.52	$ 1.15	$ 0.95
Average shares outstanding, basic	15,329,907	15,254,575	15,320,784	15,243,697
Average shares outstanding, diluted	15,458,320	15,429,129	15,453,212	15,420,886
Total shareholder equity (in thousands)	$ 296,852	$ 260,238	$ 296,852	$ 260,238
Shares outstanding	15,332,550	15,258,100	15,332,550	15,258,100
Dividends paid (in thousands)	$ 2,759	$ 2,441	$ 5,513	$ 4,878

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income		$ 8,829	$ 7,992	$ 17,724	$ 14,702
Unrealized gains (losses) on securities:
Unrealized holding gain (loss) arising during period		9,324	(1,192)	15,491	(8,784)
Less: reclassification adjustment for gains included in net income	[1]	(22)		(28)
Other comprehensive income (loss), before tax		9,302	(1,192)	15,463	(8,784)
Income tax expense related to items of other comprehensive income (loss), net of tax		(2,750)	353	(4,571)	2,598
Other comprehensive income (loss)		6,552	(839)	10,892	(6,186)
Comprehensive income		$ 15,381	$ 7,153	$ 28,616	$ 8,516

[1] Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest revenue. Income tax expense associated with the reclassification adjustment for the three months ended June 30, 2019 and 2018 was $7 thousand and $0 thousand respectively. Income tax expense associated with the reclassification adjustment for the six months ended June 30, 2019 and 2018 was $8 thousand and $0 thousand respectively.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Reclassification adjustment for gain on securities available-for-sale included in net income, tax	$ 7	$ 0	$ 8	$ 0

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (loss) [Member]	Total
Balance at Dec. 31, 2017	$ 111,138	$ 2,937	$ 144,197	$ (2,330)	$ 255,942
Balance (in shares) at Dec. 31, 2017	15,223,360
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			14,702		14,702
Other comprehensive income (loss), net of tax				(6,186)	(6,186)
Exercise of stock options	$ 601	(111)			490
Exercise of stock options (in shares)	34,740
Stock compensation costs		174			174
Stock issued-acquisition		(6)			(6)
Cash dividends			(4,878)		(4,878)
Balance at Jun. 30, 2018	$ 111,739	2,994	154,021	(8,516)	260,238
Balance (in shares) at Jun. 30, 2018	15,258,100
Balance at Mar. 31, 2018	$ 111,598	2,929	148,470	(7,677)	255,320
Balance (in shares) at Mar. 31, 2018	15,246,780
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			7,992		7,992
Other comprehensive income (loss), net of tax				(839)	(839)
Exercise of stock options	$ 141	(33)			108
Exercise of stock options (in shares)	11,320
Stock compensation costs		98			98
Cash dividends			(2,441)		(2,441)
Balance at Jun. 30, 2018	$ 111,739	2,994	154,021	(8,516)	260,238
Balance (in shares) at Jun. 30, 2018	15,258,100
Balance at Dec. 31, 2018	$ 112,507	3,066	164,117	(6,666)	273,024
Balance (in shares) at Dec. 31, 2018	15,300,460
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			17,724		17,724
Other comprehensive income (loss), net of tax				10,892	10,892
Exercise of stock options	$ 554	(96)			458
Exercise of stock options (in shares)	32,090
Stock compensation costs		267			267
Cash dividends			(5,513)		(5,513)
Balance at Jun. 30, 2019	$ 113,061	3,237	176,328	4,226	296,852
Balance (in shares) at Jun. 30, 2019	15,332,550
Balance at Mar. 31, 2019	$ 113,001	3,135	170,258	(2,326)	284,068
Balance (in shares) at Mar. 31, 2019	15,328,030
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			8,829		8,829
Other comprehensive income (loss), net of tax				6,552	6,552
Exercise of stock options	$ 60	(14)			46
Exercise of stock options (in shares)	4,520
Stock compensation costs		116			116
Cash dividends			(2,759)		(2,759)
Balance at Jun. 30, 2019	$ 113,061	$ 3,237	$ 176,328	$ 4,226	$ 296,852
Balance (in shares) at Jun. 30, 2019	15,332,550

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Stockholders' Equity [Abstract]
Common Stock, Dividends, Per Share, Declared	$ 0.18	$ 0.16	$ 0.36	$ 0.32

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income	$ 17,724	$ 14,702
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of securities	(28)
Loss on disposal of fixed assets	28	13
Gain on sale on foreclosed assets	(37)	(713)
Writedowns on foreclosed assets	69	176
Share-based compensation expense	267	174
Provision for loan losses	700	500
Depreciation and amortization	1,496	1,566
Net amortization on securities premiums and discounts	2,107	2,904
Accretion of discounts for loans acquired and net deferred loan fees	(505)	(911)
Increase in cash surrender value of life insurance policies	(1,027)	(626)
Amortization of core deposit intangible	537	484
Increase in interest receivable and other assets	(1,213)	(1,020)
Increase in other liabilities	(2,065)	(5,965)
Deferred income tax benefit	(27)	(962)
Increase in equity securities	(232)
Net amortization of partnership investment	900	810
Net cash provided by operating activities	18,694	11,132
Cash flows from investing activities:
Maturities and calls of securities available for sale	4,459	2,310
Proceeds from sales of securities available for sale	22,180
Purchases of securities available for sale	(72,330)	(61,999)
Principal pay downs on securities available for sale	42,288	46,363
Net purchases of FHLB stock	(833)	(301)
Loan originations and payments, net	(46,315)	(66,185)
Purchases of premises and equipment	(330)	(2,284)
Proceeds from sale premises and equipment	10
Proceeds from sales of foreclosed assets	7,955	3,925
Purchase of bank-owned life insurance	(292)	(327)
Liquidation of bank-owned life insurance	261
Net cash from bank acquisition		(6)
Net cash used in investing activities	(42,947)	(78,504)
Cash flows from financing activities:
Increase in deposits	62,758	99,536
Decrease in borrowed funds	(47,600)	(21,900)
Increase in repurchase agreements	7,808	9,089
Cash dividends paid	(5,513)	(4,878)
Stock options exercised	458	490
Net cash provided by financing activities	17,911	82,337
(Decrease) increase in cash and due from banks	(6,342)	14,965
Cash and cash equivalents, Beginning of period	74,132	70,137
Cash and cash equivalents, End of period	67,790	85,102
Supplemental disclosure of cash flow information:
Cash paid for interest	6,917	3,914
Income taxes paid	7,600	$ 10,000
Supplemental noncash disclosures:
Real estate acquired through foreclosure	27
Operating right-of-use asset pursuant to adoption on ASU 2016-02	9,712
Operating lease liability pursuant to adoption of ASU 2016-02	$ 10,336

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The Business of Sierra Bancorp

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Business of Sierra Bancorp

Note 1 – The Business of Sierra Bancorp

Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws.  The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”), and has been the Bank’s sole shareholder since August 2001.  The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish.  As of June 30, 2019, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”).  Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements.  References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

Bank of the Sierra, a California state-chartered bank headquartered in Porterville, California, offers a wide range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, and neighboring communities.  The Bank was incorporated in September 1977, and opened for business in January 1978 as a one-branch bank with $1.5 million in capital.  Our growth in the ensuing years has largely been organic in nature, but includes four whole-bank acquisitions:  Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017.  As of the filing date of this report the Bank operates 40 full service branches and an online branch, and maintains ATMs at all but one of our branch locations as well as seven non-branch locations.  Moreover, the Bank has specialized lending units which focus on agricultural borrowers, SBA loans, and mortgage warehouse lending.  The Company had total assets of $2.6 billion at June 30, 2019, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley.  The Bank’s deposit accounts, which totaled $2.2 billion at June 30, 2019, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

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Basis of Presentation

6 Months Ended

Jun. 30, 2019

Basis Of Presentation [Abstract]

Basis of Presentation

Note 2 – Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  The information furnished in these interim statements reflects all adjustments that are, in the opinion of Management, necessary for a fair statement of the results for such periods.  Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10‑Q.  In preparing the accompanying financial statements, Management has taken subsequent events into consideration and recognized them where appropriate.  The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year.  Certain amounts reported for 2018 have been reclassified to be consistent with the reporting for 2019.  The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “SEC”).

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Current Accounting Developments

6 Months Ended

Jun. 30, 2019

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Current Accounting Developments

Note 3 – Current Accounting Developments

In February 2016 the FASB issued ASU 2016‑02, Leases (Topic 842).  The intention of this standard is to increase the transparency and comparability around lease obligations.  Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements.  ASU 2016‑02 is generally effective for public business entities in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company has leases on 21 branch locations, an administrative office building, and three offsite ATM locations which are considered operating leases and were not previously reflected in our financial statements.  Pursuant to ASU 2016‑02, on January 1, 2019 these lease agreements were recognized on our consolidated statement of condition as right-of-use assets totaling approximately $10 million, and corresponding lease liabilities.  Please see Note 12 to the consolidated financial statements for more detailed disclosure information.

In September 2016 the FASB issued ASU 2016‑13,  Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost.  This is commonly referred to as the current expected credit losses (“CECL”) methodology.  Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts.  Another change from existing U.S. GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards.  When such assets are purchased, institutions will estimate and record an allowance for credit losses that is added to the purchase price rather than being reported as a credit loss expense.  Furthermore, ASU 2016‑13 updates the measurement of credit losses on available-for-sale debt securities, by mandating that institutions record credit losses on available-for-sale debt securities through an allowance for credit losses rather than the current practice of writing down securities for other-than-temporary impairment.  ASU 2016‑13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses.  ASU 2016‑13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value.  As a public business entity that is an SEC filer, ASU 2016‑13 becomes effective for the Company on January 1, 2020, although early application is permitted for 2019.  On the effective date, institutions will apply the new accounting standard as follows:  for financial assets carried at amortized cost, a cumulative-effect adjustment will be recognized on the balance sheet for any change in the related allowance for loan and lease losses generated by the adoption of the new standard; financial assets classified as purchased credit impaired assets prior to the effective date will be reclassified as purchased credit deteriorated assets as of the effective date, and will be grossed up for the related allowance for expected credit losses created as of the effective date; and, debt securities on which other-than-temporary impairment had been recognized prior to the effective date will transition to the new guidance prospectively with no change in their amortized cost basis.  The Company is well under way with transition efforts.  We have established an implementation team which is chaired by our Chief Credit Officer and includes the Company’s other executive officers, along with certain members of our credit administration and finance departments.  Furthermore, after extensive discussion and due diligence, in 2018 we engaged a third-party vendor and purchased a specialized application to assist in our calculation of potential required reserves utilizing the CECL methodology and help validate our current reserving methodology.  While the ultimate impact cannot be definitively determined until the implementation date, a preliminary evaluation indicates that the provisions of ASU 2016‑13 will likely have a material impact on our consolidated financial statements, particularly the level of our allowance for credit losses and shareholders’ equity.  Initial estimates are that our allowance for loan and lease losses could increase by 100% or more relative to current levels if we utilize the discounted cash flow methodology with forecasting.

In January 2017 the FASB issued ASU 2017‑01, Business Combinations (Topic 805): Clarifying the Definition of a Business.  Currently, Topic 805 specifies three elements of a business – inputs, processes, and outputs.  While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required.  In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.  This led many transactions to be accounted for as business combinations rather than asset purchases under legacy GAAP.  The primary goal of ASU 2017‑01 is to narrow the definition of a business, and the guidance in this update provides a screen to determine when a set is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.  This reduces the number of transactions that need to be further evaluated.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and we implemented ASU 2017‑01 on a prospective basis effective January 1, 2018.  This update affected the accounting treatment used for our branch deposit purchase in the second quarter of 2018, and we expect that it will also impact the way we account for certain branch acquisitions in future periods if the opportunity for such arises.

In January 2017 the FASB issued ASU 2017‑04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.  This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation, and goodwill impairment will simply be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  All other goodwill impairment guidance will remain largely unchanged.  Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.  The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts.  Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts.  The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019.  We have not been required to record any goodwill impairment to date, and after a preliminary review do not expect that this guidance would require us to do so given current circumstances.  Nevertheless, we will continue to evaluate ASU 2017‑04 to more definitely determine its potential impact on the Company’s consolidated financial position, results of operations and cash flows.

In March 2017 the FASB issued ASU 2017‑08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities.  The amendments in this update will shorten the amortization period for certain callable debt securities held at a premium, by requiring the premium to be amortized to the earliest call date.  Under current guidance, the premium on a callable debt security is generally amortized as an adjustment to yield over the contractual life of the instrument, and any unamortized premium is recorded as a loss in earnings upon the debtor’s exercise of a call provision.  Under ASU 2017‑08, because the premium will be amortized to the earliest call date, entities will no longer recognize a loss in earnings if a debt security is called prior to the contractual maturity date.  The amendments do not require an accounting change for securities held at a discount; discounts will continue to be amortized as an adjustment to yield over the contractual life of the debt instrument.  ASU 2017‑08 is effective for public business entities, including the Company, for fiscal years and interim periods within those fiscal years beginning after December 15, 2018.  To apply ASU 2017‑08, entities must use a modified retrospective approach, with the cumulative-effect adjustment recognized to retained earnings at the beginning of the period of adoption.  The Company adopted ASU 2017‑08 effective January 1, 2019 with no material impact on our financial statements or operations.

In August 2018 the FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, as part of its disclosure framework project.  Pursuant to this guidance, disclosures that will no longer be required include the following:  transfers between Level 1 and Level 2 of the fair value hierarchy; transfers in and out of Level 3 for nonpublic entities, as well as purchases and issuances and the Level 3 roll forward; a company’s policy for determining when transfers between any of the three levels have occurred; the valuation processes used for Level 3 measurements; and, the changes in unrealized gains or losses presented in earnings for Level 3 instruments held at the balance sheet date for nonpublic entities.  The following are additional disclosure requirements:  for public entities, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the balance sheet date; for public entities, the range and weighted average of significant unobservable inputs used for Level 3 measurements, although for certain unobservable inputs the entity will be allowed to disclose other quantitative information in place of the weighted average to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs; for nonpublic entities, some form of quantitative information about significant unobservable inputs used in Level 3 fair value measurements; and, for certain investments in entities that calculate the net asset value, disclosures will be required about the timing of liquidation and redemption restrictions lapsing if the latter has been communicated to the reporting entity.  The guidance also clarifies that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date.  ASU 2018‑13 is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods.  Early adoption is permitted.  In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date. The Company has evaluated the potential impact of this guidance, and does not expect the adoption of ASU 2018-13 to have a material impact on our financial statements or operations.

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Share Based Compensation

6 Months Ended

Jun. 30, 2019

Share Based Compensation [Abstract]

Share Based Compensation

Note 4 – Share Based Compensation

On March 16, 2017 the Company’s Board of Directors approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective May 24, 2017, the date approved by the Company’s shareholders.  The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 2017.  Options to purchase 335,530 shares that were granted under the 2007 Plan were still outstanding as of June 30, 2019 and remain unaffected by that plan’s expiration.  The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors and consultants of the Company.  The 2017 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants, although no restricted stock awards have ever been issued by the Company.  The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2017 Plan was initially 850,000 shares, and the number remaining available for grant as of June 30, 2019 was 667,800.  The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share.

Pursuant to FASB’s standards on stock compensation, the value of each stock option is reflected in our income statement as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option.  The Company utilizes a Black-Scholes model to determine grant date fair values.  A pre-tax charge of $116,000 was reflected in the Company’s income statement during the second quarter of 2019 and $98,000 was charged during the second quarter of 2018, as expense related to stock options.  For the first half, the charges totaled $267,000 in 2019 and $174,000 in 2018.

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Earnings per Share

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Earnings per Share

Note 5 – Earnings per Share

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period.  There were 15,329,907 weighted average shares outstanding during the second quarter of 2019 and 15,254,575 during the second quarter of 2018, while there were 15,320,784 weighted average shares outstanding during the first six months of 2019 and 15,243,697 during the first six months of 2018.

Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options.  For the second quarter of 2019, calculations under the treasury stock method resulted in the equivalent of 128,413 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 258,202 stock options were excluded from the calculation because they were underwater and thus anti-dilutive.  For the second quarter of 2018 the equivalent of 174,554 shares were added in calculating diluted earnings per share, while 106,200 anti-dilutive stock options were not factored into the computation.  Likewise, for the first half of 2019 the equivalent of 132,428 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 228,824 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 177,189 shares and non-inclusion of 166,200 anti-dilutive options in calculating diluted earnings per share for first half of 2018.

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Comprehensive Income

6 Months Ended

Jun. 30, 2019

Stockholders' Equity Note [Abstract]

Comprehensive Income

Note 6 – Comprehensive Income

As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income.  The Company’s only source of other comprehensive income is unrealized gains and losses on available-for-sale investment securities.  Investment gains or losses that were realized and reflected in net income of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.

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Financial Instruments with Off-Balance-Sheet Risk

6 Months Ended

Jun. 30, 2019

Financial Instruments with Off Balance Sheet Risk [Abstract]

Financial Instruments with Off-Balance-Sheet Risk

Note 7 – Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off‑balance‑sheet risk in the normal course of business.  Those financial instruments currently consist of unused commitments to extend credit and standby letters of credit.  They involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet.  The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the balance sheet.  The following financial instruments represent off‑balance‑sheet credit risk (dollars in thousands):

	June 30, 2019		December 31, 2018
Commitments to extend credit	$	596,001	$	781,987
Standby letters of credit	$	9,529	$	8,966

Commitments to extend credit consist primarily of the unused or unfunded portions of the following:  home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many commitments are expected to expire without being drawn upon, the unused portions of committed amounts do not necessarily represent future cash requirements.  Standby letters of credit are issued by the Company to guarantee the performance of a customer to a third party, and the credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers.

At June 30, 2019, the Company was also utilizing a letter of credit in the amount of $105 million issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.  That letter of credit is backed by loans which are pledged to the FHLB by the Company.

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Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements

Note 8 – Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments.  In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities that are classified as available for sale and any equity securities which have readily determinable fair values be measured and reported at fair value in our statement of financial position.  Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value.  FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but we have not elected the fair value option for any of those financial instruments.

Fair value measurement and disclosure standards also establish a framework for measuring fair values.  Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date.  Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values.  The standards describe three levels of inputs that may be used to measure fair values:

· Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

· Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

· Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability.

Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments.  Fair value disclosures for deposits include demand deposits, which are by definition equal to the amount payable on demand at the reporting date.  Fair value calculations for loans and leases reflect exit pricing, and incorporate our assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things.  Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented.

Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:

Fair Value of Financial Instruments

(dollars in thousands, unaudited)

		June 30, 2019
			Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Cash and cash equivalents	$	67,790	$	67,790	$	—	$	—	$	67,790
Investment securities available for sale		577,266		—		577,266		—		577,266
Loans and leases, net held for investment		1,770,838		—		1,791,335		—		1,791,335
Collateral dependent impaired loans		9		—		9		—		9
Financial liabilities:
Deposits		2,179,098		658,900		1,520,424		—		2,179,324
Repurchase agreements		24,167		24,167		—		—		24,167
Short term borrowings		8,500		—		8,500		—		8,500
Subordinated debentures		34,856		—		28,660		—		28,660

		December 31, 2018
			Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Cash and cash equivalents	$	74,132	$	74,132	$	—	$	—	$	74,132
Investment securities available for sale		560,479		—		560,479		—		560,479
Loans and leases, net held for investment		1,724,575		—		1,707,463		—		1,707,463
Collateral dependent impaired loans		205		—		205		—		205
Financial liabilities:
Deposits		2,116,340		662,527		1,453,048		—		2,115,575
Repurchase agreements		16,359		16,359		—		—		16,359
Short term borrowings		56,100		—		56,100		—		56,100
Subordinated debentures		34,767		—		30,311		—		30,311

For financial asset categories that were carried on our balance sheet at fair value as of June 30, 2019 and December 31, 2018, the Company used the following methods and significant assumptions:

· Investment securities:  Fair values are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities.

· Collateral-dependent impaired loans:  Collateral-dependent impaired loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable.

· Foreclosed assets:  Repossessed real estate (known as other real estate owned, or “OREO”) and other foreclosed assets are carried at the lower of cost or fair value.  Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes; fair values for any other foreclosed assets are represented by estimated sales proceeds as determined using reasonably available sources.  Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals.  Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution.  If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

Assets reported at fair value on a recurring basis are summarized below:

Fair Value Measurements – Recurring

(dollars in thousands, unaudited)

	Fair Value Measurements at June 30, 2019, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies	$	—	$	15,296	$	—	$	15,296	$	—
Mortgage-backed securities		—		406,091		—		406,091		—
State and political subdivisions		—		155,879		—		155,879		—
Total available-for-sale securities	$	—	$	577,266	$	—	$	577,266	$	—

	Fair Value Measurements at December 31, 2018, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies	$	—	$	15,212	$	—	$	15,212	$	—
Mortgage-backed securities		—		404,733		—		404,733		—
State and political subdivisions		—		140,534		—		140,534		—
Total available-for-sale securities	$	—	$	560,479	$	—	$	560,479	$	—

Assets reported at fair value on a nonrecurring basis are summarized below:

Fair Value Measurements – Nonrecurring

(dollars in thousands, unaudited)

	Fair Value Measurements at June 30, 2019, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—
Other construction/land		—		—		—		—
1-4 family - closed-end		—		—		—		—
Equity lines		—		—		—		—
Multi-family residential		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—
Farmland		—		—		—		—
Total real estate		—		—		—		—
Agricultural		—		—		—		—
Commercial and industrial		—		—		—		—
Consumer loans		—		9		—		9
Total impaired loans	$	—	$	9	$	—	$	9
Foreclosed assets	$	—	$	770	$	—	$	770
Total assets measured on a nonrecurring basis	$	—	$	779	$	—	$	779

	Fair Value Measurements at December 31, 2018, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—
Other construction/land		—		27		—		27
1-4 family - closed-end		—		—		—		—
Equity lines		—		12		—		12
Multi-family residential		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—
Farmland		—		—		—		—
Total real estate		—		39		—		39
Agricultural		—		—		—		—
Commercial and industrial		—		119		—		119
Consumer loans		—		47		—		47
Total impaired loans	$	—	$	205	$	—	$	205
Foreclosed assets	$	—	$	1,082	$	—	$	1,082
Total assets measured on a nonrecurring basis	$	—	$	1,287	$	—	$	1,287

The table above includes collateral-dependent impaired loan balances for which a specific reserve has been established or on which a write-down has been taken.  Information on the Company’s total impaired loan balances and specific loss reserves associated with those balances is included in Note 11 below, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the “Nonperforming Assets” and “Allowance for Loan and Lease Losses” sections.

The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value.  Adjusting any of those inputs could result in a significantly lower or higher fair value measurement.  For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured impaired loans.

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Investments

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Investments

Note 9 – Investments

Investment Securities

Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.  Pursuant to FASB’s guidance on accounting for debt and equity securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity.

The amortized cost and estimated fair value of available-for-sale investment securities are as follows:

Amortized Cost And Estimated Fair Value

(dollars in thousands, unaudited)

	June 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated  Fair Value
U.S. government agencies	$	15,262	$	168	$	(134)	$	15,296
Mortgage-backed securities		405,025		3,261		(2,195)		406,091
State and political subdivisions		150,978		5,000		(99)		155,879
Total securities	$	571,265	$	8,429	$	(2,428)	$	577,266

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated  Fair Value
U.S. government agencies	$	15,553	$	12	$	(353)	$	15,212
Mortgage-backed securities		414,208		398		(9,873)		404,733
State and political subdivisions		140,181		1,206		(853)		140,534
Total securities	$	569,942	$	1,616	$	(11,079)	$	560,479

At June 30, 2019 and December 31, 2018, the Company had 274 securities and 552 securities, respectively, with gross unrealized losses.  Management has evaluated those securities as of the respective dates, and does not believe that any of the unrealized losses are other than temporary.  Gross unrealized losses on our investment securities as of the indicated dates are disclosed in the table below, categorized by investment type and by the duration of time that loss positions on individual securities have continuously existed (over or under twelve months).

Investment Portfolio - Unrealized Losses

(dollars in thousands, unaudited)

	June 30, 2019
	Less than twelve months				Twelve months or more
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	—	$	—	$	(134)	$	7,825
Mortgage-backed securities		(22)		7,150		(2,173)		185,159
State and political subdivisions		(58)		10,870		(41)		4,497
Total	$	(80)	$	18,020	$	(2,348)	$	197,481

	December 31, 2018
	Less than twelve months				Twelve months or more
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	(54)	$	2,815	$	(299)	$	10,764
Mortgage-backed securities		(717)		69,686		(9,156)		273,230
State and political subdivisions		(249)		33,864		(604)		22,213
Total	$	(1,020)	$	106,365	$	(10,059)	$	306,207

The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:

Investment Portfolio - Realized Gains/(Losses)

(dollars in thousands, unaudited)

	Three months ended June 30,					Six months ended June 30,
	2019		2018		2019		2018
Proceeds from sales, calls and maturities of securities available for sale	$	9,985	$	2,110	$	26,639	$	2,310
Gross gains on sales, calls and maturities of securities available for sale		33		—		127		—
Gross losses on sales, calls and maturities of securities available for sale		(11)		—		(99)		—
Net gains on sale of securities available for sale	$	22	$	—	$	28	$	$—

The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2019 and December 31, 2018 are shown below, grouped by the remaining time to contractual maturity dates.  The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities might have the right to call or prepay obligations with or without penalties.

Estimated Fair Value of Contractual Maturities

(dollars in thousands, unaudited)

	June 30, 2019
	Amortized Cost		Fair Value
Maturing within one year	$	7,806	$	7,909
Maturing after one year through five years		180,636		180,310
Maturing after five years through ten years		57,344		58,245
Maturing after ten years		100,701		104,331
Securities not due at a single maturity date:
U.S. government agencies collateralized by mortgage obligations		224,778		226,471
	$	571,265	$	577,266

	December 31, 2018
	Amortized Cost		Fair Value
Maturing within one year	$	7,726	$	7,789
Maturing after one year through five years		199,840		195,519
Maturing after five years through ten years		47,802		47,661
Maturing after ten years		83,606		83,444
Securities not due at a single maturity date:
U.S. government agencies collateralized by mortgage obligations		230,968		226,066
	$	569,942	$	560,479

At June 30, 2019, the Company’s investment portfolio included 326 “muni” bonds issued by 262 different government municipalities and agencies located within 29 different states, with an aggregate fair value of $156 million.  The largest exposure to any single municipality or agency was a combined $2.596 million (fair value) in general obligation bonds issued by the Lindsay (CA) Unified School District.

The Company’s investments in bonds issued by states, municipalities and political subdivisions are evaluated in accordance with Supervision and Regulation Letter 12‑15 issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Organization Ratings,” and other regulatory guidance.  Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds.  There have been no significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.

The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations:

Revenue and General Obligation Bonds by Location

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
General obligation bonds	Cost		Value		Cost		Value
State of issuance
Texas	$	45,855	$	47,243	$	36,331	$	36,199
California		25,817		26,916		26,928		27,357
Washington		15,971		16,688		16,036		16,062
Illinois		7,920		8,179		6,827		6,838
Ohio		7,687		7,793		8,639		8,601
Other (21 and 22 states, respectively)		26,216		26,895		21,530		21,576
Total general obligation bonds		129,466		133,714		116,291		116,633
Revenue bonds
State of issuance
Texas		6,764		6,953		7,526		7,506
Utah		4,672		4,758		5,364		5,353
Indiana		3,147		3,269		2,641		2,654
Washington		1,744		1,853		1,751		1,780
Pennsylvania		1,243		1,264		—		—
Other (9 and 11 states, respectively)		3,942		4,068		6,608		6,608
Total revenue bonds		21,512		22,165		23,890		23,901
Total obligations of states and political subdivisions	$	150,978	$	155,879	$	140,181	$	140,534

The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements.  The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.

Revenue Bonds by Type

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
Revenue bonds	Cost		Value		Cost		Value
Revenue source:
Water	$	6,749	$	6,962	$	6,942	$	6,946
Sales Tax		4,376		4,506		2,932		2,901
College & University		3,001		3,092		2,583		2,604
Sewer		1,481		1,512		1,392		1,398
Other (13 sources)		5,905		6,093		10,041		10,052
Total revenue bonds	$	21,512	$	22,165	$	23,890	$	23,901

Low-Income Housing Tax Credit (“LIHTC”) Fund Investments

The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project.  The primary investment return comes from tax credits that flow through to investors.  Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners.

The Company made investment commitments to nine different LIHTC fund limited partnerships from 2001 through 2017, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act.  We utilize the cost method of accounting for our LIHTC fund investments, under which we initially record on our balance sheet an asset that represents the total cash expected to be invested over the life of the partnership.  Any commitments or contingent commitments for future investment are reflected as a liability.  The income statement reflects tax credits and any other tax benefits from these investments “below the line” within our income tax provision, while the initial book value of the investment is amortized on a straight-line basis as an offset to noninterest income, over the time period in which the tax credits and tax benefits are expected to be received.

As of June 30, 2019 our total LIHTC investment book balance was $5.0 million, which includes $1.8 million in remaining commitments for additional capital contributions.  There were $269,000 in tax credits derived from our LIHTC investments that were recognized during the six months ended June 30, 2019, and amortization expense of $900,000 associated with those investments was netted against pre-tax noninterest income for the same time period.  Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired.

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Credit Quality and Nonperforming Assets

6 Months Ended

Jun. 30, 2019

Credit Quality and Nonperforming Assets [Abstract]

Credit Quality and Nonperforming Assets

Note 10 – Credit Quality and Nonperforming Assets

Credit Quality Classifications

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize the associated credit risk.  Balances classified as “loss” are immediately charged off.  The Company conforms to the following definitions for its risk classifications:

· Pass:  Larger non-homogeneous loans not meeting the risk rating definitions below, and smaller homogeneous loans that are not assessed on an individual basis.

· Special mention:  Loans which have potential issues that deserve the close attention of Management.  If left uncorrected, those potential weaknesses could eventually diminish the prospects for full repayment of principal and interest according to the contractual terms of the loan agreement, or could result in deterioration of the Company’s credit position at some future date.

· Substandard:  Loans that have at least one clear and well-defined weakness that could jeopardize the ultimate recoverability of all principal and interest, such as a borrower displaying a highly leveraged position, unfavorable financial operating results and/or trends, uncertain repayment sources or an otherwise deteriorated financial condition.

· Impaired:  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Impaired loans include all nonperforming loans and restructured troubled debt (“TDRs”).  A TDR may be nonperforming or performing, depending on its accrual status and the demonstrated ability of the borrower to comply with restructured terms (see “Troubled Debt Restructurings” section below for additional information on TDRs).

Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated:

Credit Quality Classifications

(dollars in thousands, unaudited)

	June 30, 2019
	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,618	$	—	$	—	$	—	$	105,618
Other construction/land		107,826		97		—		419		108,342
1-4 family - closed end		212,685		1,758		178		3,997		218,618
Equity lines		46,773		2,006		62		4,868		53,709
Multi-family residential		53,240		—		—		362		53,602
Commercial real estate - owner occupied		309,712		5,817		4,418		2,080		322,027
Commercial real estate - non-owner occupied		416,719		3,529		3,393		—		423,641
Farmland		151,393		1,061		140		25		152,619
Total real estate		1,403,966		14,268		8,191		11,751		1,438,176
Agricultural		51,333		170		—		6		51,509
Commercial and industrial		109,530		13,886		721		837		124,974
Mortgage warehouse		154,954		—		—		—		154,954
Consumer loans		7,355		89		70		772		8,286
Total gross loans and leases	$	1,727,138	$	28,413	$	8,982	$	13,366	$	1,777,899

	December 31, 2018
	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,676	$	—	$	—	$	—	$	105,676
Other construction/land		108,304		231		—		488		109,023
1-4 family - closed end		230,022		1,861		1,310		3,632		236,825
Equity lines		49,346		2,194		64		4,716		56,320
Multi-family residential		54,504		—		—		373		54,877
Commercial real estate - owner occupied		292,886		4,192		3,021		1,225		301,324
Commercial real estate - non-owner occupied		429,835		2,730		4,354		1,425		438,344
Farmland		148,680		1,073		146		1,642		151,541
Total real estate		1,419,253		12,281		8,895		13,501		1,453,930
Agricultural		48,517		580		—		6		49,103
Commercial and industrial		110,413		15,686		377		1,744		128,220
Mortgage warehouse		91,813		—		—		—		91,813
Consumer loans		7,851		151		39		821		8,862
Total gross loans and leases	$	1,677,847	$	28,698	$	9,311	$	16,072	$	1,731,928

Past Due and Nonperforming Assets

Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets.  The Company’s foreclosed assets can include mobile homes and/or OREO, which consists of commercial and/or residential real estate properties acquired by foreclosure or similar means that the Company is offering or will offer for sale.  Foreclosed assets totaled $770,000 at June 30, 2019, and $1.082 million at December 31, 2018.  Gross nonperforming loans totaled $4.120 million at June 30, 2019 and $5.156 million at December 31, 2018.  Loans and leases are classified as nonperforming when reasonable doubt surfaces with regard to the ability of the Company to collect all principal and interest.  At that point, we stop accruing interest on the loan or lease in question and reverse any previously-recognized interest to the extent that it is uncollected or associated with interest-reserve loans.  Any asset for which principal or interest has been in default for 90 days or more is also placed on non-accrual status even if interest is still being received, unless the asset is both well secured and in the process of collection.  An aging of the Company’s loan balances is presented in the following tables, by number of days past due as of the indicated dates:

Loan Portfolio Aging

(dollars in thousands, unaudited)

	June 30, 2019
	30-59  Days Past Due		60-89  Days Past Due		90 Days Or More Past Due(1)		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans(2)
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,618	$	105,618	$	—
Other construction/land		—		—		—		—		108,342		108,342		43
1-4 family - closed end		265		—		409		674		217,944		218,618		1,453
Equity lines		134		—		23		157		53,552		53,709		467
Multi-family residential		—		—		—		—		53,602		53,602		—
Commercial real estate - owner occupied		—		895		97		992		321,035		322,027		1,473
Commercial real estate - non-owner occupied		—		—		—		—		423,641		423,641		—
Farmland		—		—		—		—		152,619		152,619		25
Total real estate		399		895		529		1,823		1,436,353		1,438,176		3,461
Agricultural		—		—		—		—		51,509		51,509		—
Commercial and industrial		203		3		74		280		124,694		124,974		569
Mortgage warehouse lines		—		—		—		—		154,954		154,954		—
Consumer		42		59		19		120		8,166		8,286		90
Total gross loans and leases	$	644	$	957	$	622	$	2,223	$	1,775,676	$	1,777,899	$	4,120

(1) As of June 30, 2019 there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

	December 31, 2018
	30-59  Days Past Due		60-89  Days Past Due		90 Days Or More Past Due(1)		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans(2)
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,676	$	105,676	$	—
Other construction/land		210		—		27		237		108,786		109,023		82
1-4 family - closed end		319		—		775		1,094		235,731		236,825		799
Equity lines		1,471		—		57		1,528		54,792		56,320		408
Multi-family residential		—		—		—		—		54,877		54,877		—
Commercial real estate - owner occupied		183		—		102		285		301,039		301,324		605
Commercial real estate - non-owner occupied		49		—		—		49		438,295		438,344		49
Farmland		1,555		—		—		1,555		149,986		151,541		1,642
Total real estate		3,787		—		961		4,748		1,449,182		1,453,930		3,585
Agricultural		—		—		—		—		49,103		49,103		—
Commercial and industrial		1,567		83		886		2,536		125,684		128,220		1,425
Mortgage warehouse lines		—		—		—		—		91,813		91,813		—
Consumer		95		45		56		196		8,666		8,862		146
Total gross loans and leases	$	5,449	$	128	$	1,903	$	7,480	$	1,724,448	$	1,731,928	$	5,156

(1) As of December 31, 2018 there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

Troubled Debt Restructurings

A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring if the modification constitutes a concession.  At June 30, 2019, the Company had a total of $10.276 million in TDRs, including $1.030 million in TDRs that were on non-accrual status.  Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms.  However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance period or even at the time of loan modification.  Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain then the loan will be kept on non-accrual status.  Moreover, a TDR is generally considered to be in default when it appears that the customer will not likely be able to repay all principal and interest pursuant to restructured terms.

The Company may agree to different types of concessions when modifying a loan or lease.  The tables below summarize TDRs which were modified during the noted periods, by type of concession:

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

	Three months ended June 30, 2019
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		244		—		—		244
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		244		—		—		244
Agricultural		—		—		—		—		—
Commercial and industrial		—		22		—		52		74
Consumer loans		—		—		—		50		50
Total	$	—	$	266	$	—	$	102	$	368

	Three months ended June 30, 2018
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		295		504		—		799
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		295		504		—		799
Agricultural		—		—		—		—		—
Commercial and industrial		—		63		25		225		313
Consumer loans		—		—		—		—		—
Total	$	—	$	358	$	529	$	225	$	1,112

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

		Six months ended June 30, 2019
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		344		—		—		344
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		344		—		—		344
Agricultural		—		—		—		—		—
Commercial and industrial		94		22		—		52		168
Consumer loans		—		9		—		50		59
Total	$	94	$	375	$	—	$	102	$	571

		Six months ended June 30, 2018
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		363		504		—		867
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		363		504		—		867
Agricultural		—		—		—		—		—
Commercial and industrial		—		63		25		225		313
Consumer loans		—		—		—		—		—
Total	$	—	$	426	$	529	$	225	$	1,180

The following tables present, by class, additional details related to loans classified as TDRs during the referenced periods, including the recorded investment in the loan both before and after modification and balances that were modified during the period:

Troubled Debt Restructurings

(dollars in thousands, unaudited)

	Three months ended June 30, 2019
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	1		244		244		—		1
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			244		244		—		1
Agricultural	0		—		—		—		—
Commercial and industrial	2		74		74		—		45
Consumer loans	1		50		50		(45)		2
Total		$	368	$	368	$	(45)	$	48

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Three months ended June 30, 2018
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	6		799		799		4		10
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			799		799		4		10
Agricultural	0		—		—		—		—
Commercial and industrial	3		313		313		—		26
Consumer loans	0		—		—		—		—
Total		$	1,112	$	1,112	$	4	$	36

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

Troubled Debt Restructurings

(dollars in thousands, unaudited)

	Six months ended June 30, 2019
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	2		344		344		—		1
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			344		344		—		1
Agricultural	0		—		—		—		—
Commercial and industrial	4		168		168		(20)		46
Consumer loans	2		59		59		(47)		3
Total		$	571	$	571	$	$(67)	$	50

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Six months ended June 30, 2018
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	7		867		867		4		12
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			867		867		4		12
Agricultural	0		—		—		—		—
Commercial and industrial	3		313		313		—		26
Consumer loans	0		—		—		—		—
Total		$	1,180	$	1,180	$	4	$	38

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

The company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the six-month periods ended June 30, 2019 and 2018.

Purchased Credit Impaired Loans

The Company may acquire loans which show evidence of credit deterioration since origination.  These purchased credit impaired (“PCI”) loans are recorded at the amount paid, since there is no carryover of the seller’s allowance for loan losses.  Potential losses on PCI loans subsequent to acquisition are recognized by an increase in the allowance for loan losses.  PCI loans are accounted for individually or are aggregated into pools of loans based on common risk characteristics.  The Company projects the amount and timing of expected cash flows, and expected cash receipts in excess of the amount paid for any such loans are recorded as interest income over the remaining life of the loan or pool of loans (accretable yield).  The excess of contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).  Expected cash flows are periodically re-evaluated throughout the life of the loan or pool of loans.  If the present value of the expected cash flows is determined at any time to be less than the carrying amount, a reserve is recorded.  If the present value of the expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Our acquisition of Santa Clara Valley Bank in 2014 included certain loans which have shown evidence of credit deterioration since origination, and for which it was probable at acquisition that all contractually required payments would not be collected.  The carrying amount and unpaid principal balance of those PCI loans was as follows, as of the dates indicated:

Purchased Credit Impaired Loans:

(dollars in thousands, unaudited)

	June 30, 2019
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	96	$	—
Total purchased credit impaired loans	$	96	$	—

	December 31, 2018
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	103	$	—
Total purchased credit impaired loans	$	103	$	—

An allowance for loan losses totaling $96,000 was allocated for PCI loans as of June 30, 2019, as compared to $103,000 at December 31, 2018.  There was no discount accretion recorded on PCI loans during the six months ended June 30, 2019.

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Allowance for Loan and Lease Losses

6 Months Ended

Jun. 30, 2019

Provision for Loan and Lease Losses [Abstract]

Allowance for Loan and Lease Losses

Note 11 – Allowance for Loan and Lease Losses

The Company’s allowance for loan and lease losses, a contra-asset, is established through a provision for loan and lease losses.  The allowance is maintained at a level that is considered adequate to absorb probable losses on certain specifically identified impaired loans, as well as probable incurred losses inherent in the remaining loan portfolio.  Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when cash payments are received subsequent to the charge off.  We employ a systematic methodology, consistent with FASB guidelines on loss contingencies and impaired loans, for determining the appropriate level of the allowance for loan and lease losses and adjusting it to that level at least quarterly.  Pursuant to our methodology, impaired loans and leases are individually analyzed and a criticized asset action plan is completed specifying the financial status of the borrower and, if applicable, the characteristics and condition of collateral and any associated liquidation plan.  A specific loss allowance is created for each impaired loan, if necessary.

The following tables disclose the unpaid principal balance, recorded investment, average recorded investment, and interest income recognized for impaired loans on our books as of the dates indicated.  Balances are shown by loan type, and are further broken out by those that required an allowance and those that did not, with the associated allowance disclosed for those that required such.  Included in the valuation allowance for impaired loans shown in the tables below are specific reserves allocated to TDRs, totaling $1.023 million at June 30, 2019 and $1.048 million at December 31, 2018.

Impaired Loans

(dollars in thousands, unaudited)

	June 30, 2019
	Unpaid Principal Balance(1)		Recorded Investment(2)		Related Allowance		Average Recorded Investment		Interest Income Recognized(3)
With an allowance recorded
Real estate:
Other construction/land	$	554	$	399	$	39	$	667	$	18
1-4 family - closed-end		3,039		3,038		70		3,178		80
Equity lines		4,784		4,730		639		4,941		125
Multi-family residential		362		362		21		378		11
Commercial real estate- owner occupied		823		703		112		262		19
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate		9,562		9,232		881		9,426		253
Agricultural		6		6		1		6		—
Commercial and industrial		728		709		303		906		13
Consumer loans		801		763		137		915		28
Subtotal		11,097		10,710		1,322		11,253		294
With no related allowance recorded
Real estate:
Other construction/land		24		20		—		55		—
1-4 family - closed-end		1,001		959		—		1,073		—
Equity lines		162		138		—		183		—
Commercial real estate- owner occupied		1,376		1,377		—		1,927		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		25		25		—		45		—
Total real estate		2,588		2,519		—		3,283		—
Agricultural		—		—		—		—		—
Commercial and industrial		150		128		—		186		—
Consumer loans		109		9		—		171		—
Subtotal		2,847		2,656		—		3,640		—
Total	$	13,944	$	13,366	$	1,322	$	14,893	$	294

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

Impaired Loans

(dollars in thousands, unaudited)

	December 31, 2018
	Unpaid Principal Balance(1)		Recorded Investment(2)		Related Allowance		Average Recorded Investment		Interest Income Recognized(3)
With an allowance recorded
Real estate:
Other construction/land	$	593	$	438	$	44	$	648	$	40
1-4 family - closed-end		3,325		3,325		75		3,182		175
Equity lines		4,603		4,550		656		4,368		206
Multi-family residential		373		373		25		359		20
Commercial real estate- owner occupied		842		723		135		740		40
Commercial real estate- non-owner occupied		1,572		1,425		3		1,644		107
Total real estate		11,308		10,834		938		10,941		588
Agricultural		6		6		1		6		—
Commercial and industrial		1,724		1,534		918		1,965		40
Consumer loans		813		764		151		909		61
Subtotal		13,851		13,138		2,008		13,821		689
With no related allowance recorded
Real estate:
Other construction/land		54		50		—		58		—
1-4 family - closed-end		357		307		—		375		3
Equity lines		224		166		—		221		—
Commercial real estate- owner occupied		502		502		—		478		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		1,642		1,642		—		1,538		—
Total real estate		2,779		2,667		—		2,670		3
Agricultural		—		—		—		—		—
Commercial and industrial		238		211		—		838		—
Consumer loans		182		56		—		273		1
Subtotal		3,199		2,934		—		3,781		4
Total	$	17,050	$	16,072	$	2,008	$	17,602	$	693

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

The specific loss allowance for an impaired loan generally represents the difference between the book value of the loan and either the fair value of underlying collateral less estimated disposition costs, or the loan’s net present value as determined by a discounted cash flow analysis.  The discounted cash flow approach is typically used to measure impairment on loans for which it is anticipated that repayment will be provided from cash flows other than those generated solely by the disposition or operation of underlying collateral.  However, historical loss rates may be used by the Company to determine a specific loss allowance if those rates indicate a higher potential reserve need than the discounted cash flow analysis.  Any change in impairment attributable to the passage of time is accommodated by adjusting the loss allowance accordingly.

For loans where repayment is expected to be provided by the disposition or operation of the underlying collateral, impairment is measured using the fair value of the collateral.  If the collateral value, net of the expected costs of disposition, is less than the loan balance, then a specific loss reserve is established for the shortfall in collateral coverage.  If the discounted collateral value is greater than or equal to the loan balance, no specific loss reserve is required.  At the time a collateral-dependent loan is designated as nonperforming, a new appraisal is ordered and typically received within 30 to 60 days if a recent appraisal is not already available.  We generally use external appraisals to determine the fair value of the underlying collateral for nonperforming real estate loans, although the Company’s licensed staff appraisers may update older appraisals based on current market conditions and property value trends.  Until an updated appraisal is received, the Company uses the existing appraisal to determine the amount of the specific loss allowance that may be required.  The specific loss allowance is adjusted, as necessary, once a new appraisal is received.  Updated appraisals are generally ordered at least annually for collateral-dependent loans that remain impaired, and current appraisals were available or in process for all of the Company’s impaired real estate loan balances at June 30, 2019.  Furthermore, the Company analyzes collateral-dependent loans on at least a quarterly basis, to determine if any portion of the recorded investment in such loans can be identified as uncollectible and would therefore constitute a confirmed loss.  All amounts deemed to be uncollectible are promptly charged off against the Company’s allowance for loan and lease losses, with the loan then carried at the fair value of the collateral, as appraised, less estimated costs of disposition if applicable.  Once a charge-off or write-down is recorded, it will not be restored to the loan balance on the Company’s accounting books.

Our methodology also provides for the establishment of a “general” allowance for probable incurred losses inherent in loans and leases that are not impaired.  Unimpaired loan balances are segregated by credit quality, and are then evaluated in pools with common characteristics.  At the present time, pools are based on the same segmentation of loan types presented in our regulatory filings.  While this methodology utilizes historical loss data and other measurable information, the credit classification of loans and the establishment of the allowance for loan and lease losses are both to some extent based on Management’s judgment and experience.  Our methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan and lease losses that Management believes is appropriate at each reporting date.  Quantitative information includes our historical loss experience, delinquency and charge-off trends, and current collateral values.  Qualitative factors include the general economic environment in our markets and, in particular, the condition of the agricultural industry and other key industries.  Lending policies and procedures (including underwriting standards), the experience and abilities of lending staff, the quality of loan review, credit concentrations (by geography, loan type, industry and collateral type), the rate of loan portfolio growth, and changes in legal or regulatory requirements are additional factors that are considered.  The total general reserve established for probable incurred losses on unimpaired loans was $8.561 million at June 30, 2019.

There were no material changes to the methodology used to determine our allowance for loan and lease losses during the three months ended June 30, 2019.  As we add new products and expand our geographic coverage, and as regulatory and economic environments change, we expect to enhance our methodology to keep pace with the size and complexity of the loan and lease portfolio and respond to pressures created by external forces.  We engage outside firms on a regular basis to assess our methodology and perform independent credit reviews of our loan and lease portfolio.  In addition, the FDIC and the California DBO review the allowance for loan and lease losses as an integral part of their audit and examination processes.  Management believes that the current methodology is appropriate given our size and level of complexity.

The tables that follow detail the activity in the allowance for loan and lease losses for the periods noted:

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

		Three months ended June 30, 2019
		Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	6,094	$	219	$	1,914	$	1,129	$	82	$	9,438
Charge-offs		—		—		(254)		(562)		—		(816)
Recoveries		153		—		431		277		—		861
Provision		(278)		(18)		478		288		(70)		400
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
	Six months ended June 30, 2019
	Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Charge-offs		—		—		(832)		(1,114)		—		(1,946)
Recoveries		329		—		472		578		—		1,379
Provision		(191)		(55)		535		429		(18)		700
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
Reserves:
Specific	$	881	$	1	$	303	$	137	$	—	$	1,322
General		5,088		200		2,266		995		12		8,561
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
Loans evaluated for impairment:
Individually	$	11,751	$	6	$	837	$	772	$	—	$	13,366
Collectively		1,426,425		51,503		279,091		7,514		—		1,764,533
Ending balance	$	1,438,176	$	51,509	$	279,928	$	8,286	$	—	$	1,777,899
		Year ended December 31, 2018
	Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	4,786	$	208	$	2,772	$	1,231	$	46	$	9,043
Charge-offs		(2,474)		—		(608)		(2,226)		—		(5,308)
Recoveries		374		23		148		1,120		—		1,665
Provision		3,145		25		82		1,114		(16)		4,350
Ending balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Reserves:
Specific	$	937	$	2	$	918	$	151	$	—	$	2,008
General		4,894		254		1,476		1,088		30		7,742
Ending balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Loans evaluated for impairment:
Individually	$	13,501	$	6	$	1,744	$	821	$	—	$	16,072
Collectively		1,440,429		49,097		218,289		8,041		—		1,715,856
Ending balance	$	1,453,930	$	49,103	$	220,033	$	8,862	$	—	$	1,731,928

(1) Includes mortgage warehouse lines.

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Operating Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Operating Leases

Note 12 – Operating Leases

We lease space under non-cancelable operating leases for 21 branch locations, three off-site ATM locations, one administrative building and a warehouse.  Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs).  Payments for taxes and insurance as well as non-lease components are not included in the accounting of the lease component, but are separately accounted for in occupancy expense. The Company recognized lease expense of $1.095 million during the six month period ended June 30, 2019. Lease expense for the six months ended June 30, 2018, prior to the adoption of ASU 2016‑02, was $1.177 million. Most leases include one or more renewal options available to exercise.  The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably certain of exercise.  We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term. As most of our leases do not provide an implicit rate, we used our incremental borrowing rate in determining the present value of the lease payments.

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the six months ended June 30, 2019.

At June 30, 2019, the Company’s right-of-use assets and operating lease liabilities were $9.044 million and $9.655 million, respectively. The weighted average lease term for the lease liabilities was 5.3 years, and the weighted average discount rate of remaining payments was 5.5 percent. There were no lease liabilities from new right-of-use assets obtained during the six months ended June 30, 2019. Cash paid on operating leases was $680,000 for the six months ended June 30, 2019.

Maturities of our lease liabilities for all operating leases are as follows (dollars in thousands, unaudited):

	Maturities of
	Lease Liabilities
2019 (1)	$	1,096
2020		2,204
2021		1,993
2022		1,558
2023		1,119
Thereafter		3,939
Total		11,909
Less: present value discount		(2,254)
Lease liability (2)	$	9,655

(1) Contractual maturities for the six months remaining in 2019.

(2) Lease liability is included in other liabilities.

The following table presents the future minimum rental payments under leases with terms in excess of one year as of December 31, 2018 presented in accordance with ASC Topic 840, “Leases”:

	December 31, 2018
2019	$	2,190
2020		2,204
2021		1,993
2022		1,558
2023		1,119
Thereafter		3,939
Total	$	13,003

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Revenue Recognition

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Note 13 – Revenue Recognition.

The Company utilizes the guidance found in ASU 2014‑09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income.  The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  The Company’s revenue streams that are within the scope of and accounted for under Topic 606 include service charges on deposit accounts, debit card interchange fees, and fees levied for other services the Company provides its customers.  The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP.  In total, approximately 21% of the Company’s noninterest revenue was outside of the scope of the ASC 606 as of June 30, 2019.

All of the company’s revenue from contracts in the scope of ASC 606 is recognized within noninterest income.  The following table presents the Company’s sources of noninterest income for the three- and six-month periods ended June 30, 2019 and 2018.  Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited).

	For the three months ended June 30,				For the six months ended June 30,
	2019		2018		2019		2018
Noninterest income
Service charges on deposits
Returned item and overdraft fees	$	1,657	$	1,575	$	3,223	$	3,142
Other service charges on deposits		1,494		1,452		2,871		2,832
Debit card interchange income		1,687		1,486		3,200		2,885
Loss on limited partnerships(1)		(450)		(405)		(900)		(800)
Dividends on equity investments(1)		175		169		406		394
Unrealized gains recognized on equity investments(1)		232		—		232		—
Net gains on sale of securities(1)		22		—		28		—
Other(1)		1,038		1,152		2,702		2,110
Total noninterest income	$	5,855	$	5,429	$	11,762	$	10,563

(1) Not within scope of ASC 606.  Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP.

With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606.

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Financial Instruments with Off-Balance-Sheet Risk (Tables)

6 Months Ended

Jun. 30, 2019

Financial Instruments with Off Balance Sheet Risk [Abstract]

Schedule of Financial Instruments

.  The following financial instruments represent off‑balance‑sheet credit risk (dollars in thousands):

	June 30, 2019		December 31, 2018
Commitments to extend credit	$	596,001	$	781,987
Standby letters of credit	$	9,529	$	8,966

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Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of carrying amount and estimated fair values of financial instruments

Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:

Fair Value of Financial Instruments

(dollars in thousands, unaudited)

		June 30, 2019
			Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Cash and cash equivalents	$	67,790	$	67,790	$	—	$	—	$	67,790
Investment securities available for sale		577,266		—		577,266		—		577,266
Loans and leases, net held for investment		1,770,838		—		1,791,335		—		1,791,335
Collateral dependent impaired loans		9		—		9		—		9
Financial liabilities:
Deposits		2,179,098		658,900		1,520,424		—		2,179,324
Repurchase agreements		24,167		24,167		—		—		24,167
Short term borrowings		8,500		—		8,500		—		8,500
Subordinated debentures		34,856		—		28,660		—		28,660

		December 31, 2018
			Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Cash and cash equivalents	$	74,132	$	74,132	$	—	$	—	$	74,132
Investment securities available for sale		560,479		—		560,479		—		560,479
Loans and leases, net held for investment		1,724,575		—		1,707,463		—		1,707,463
Collateral dependent impaired loans		205		—		205		—		205
Financial liabilities:
Deposits		2,116,340		662,527		1,453,048		—		2,115,575
Repurchase agreements		16,359		16,359		—		—		16,359
Short term borrowings		56,100		—		56,100		—		56,100
Subordinated debentures		34,767		—		30,311		—		30,311

Schedule of assets reported at fair value on a recurring basis

Assets reported at fair value on a recurring basis are summarized below:

Fair Value Measurements – Recurring

(dollars in thousands, unaudited)

	Fair Value Measurements at June 30, 2019, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies	$	—	$	15,296	$	—	$	15,296	$	—
Mortgage-backed securities		—		406,091		—		406,091		—
State and political subdivisions		—		155,879		—		155,879		—
Total available-for-sale securities	$	—	$	577,266	$	—	$	577,266	$	—

	Fair Value Measurements at December 31, 2018, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Realized Gain/(Loss) (Level 3)
Securities:
U.S. government agencies	$	—	$	15,212	$	—	$	15,212	$	—
Mortgage-backed securities		—		404,733		—		404,733		—
State and political subdivisions		—		140,534		—		140,534		—
Total available-for-sale securities	$	—	$	560,479	$	—	$	560,479	$	—

Schedule of assets reported at fair value on a nonrecurring basis

Assets reported at fair value on a nonrecurring basis are summarized below:

Fair Value Measurements – Nonrecurring

(dollars in thousands, unaudited)

	Fair Value Measurements at June 30, 2019, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—
Other construction/land		—		—		—		—
1-4 family - closed-end		—		—		—		—
Equity lines		—		—		—		—
Multi-family residential		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—
Farmland		—		—		—		—
Total real estate		—		—		—		—
Agricultural		—		—		—		—
Commercial and industrial		—		—		—		—
Consumer loans		—		9		—		9
Total impaired loans	$	—	$	9	$	—	$	9
Foreclosed assets	$	—	$	770	$	—	$	770
Total assets measured on a nonrecurring basis	$	—	$	779	$	—	$	779

	Fair Value Measurements at December 31, 2018, using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Impaired loans
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—
Other construction/land		—		27		—		27
1-4 family - closed-end		—		—		—		—
Equity lines		—		12		—		12
Multi-family residential		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—
Farmland		—		—		—		—
Total real estate		—		39		—		39
Agricultural		—		—		—		—
Commercial and industrial		—		119		—		119
Consumer loans		—		47		—		47
Total impaired loans	$	—	$	205	$	—	$	205
Foreclosed assets	$	—	$	1,082	$	—	$	1,082
Total assets measured on a nonrecurring basis	$	—	$	1,287	$	—	$	1,287

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Investments (Tables)

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Amortized Cost and Estimated Fair Value of Available-For-Sale Investment Securities

The amortized cost and estimated fair value of available-for-sale investment securities are as follows:

Amortized Cost And Estimated Fair Value

(dollars in thousands, unaudited)

	June 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated  Fair Value
U.S. government agencies	$	15,262	$	168	$	(134)	$	15,296
Mortgage-backed securities		405,025		3,261		(2,195)		406,091
State and political subdivisions		150,978		5,000		(99)		155,879
Total securities	$	571,265	$	8,429	$	(2,428)	$	577,266

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated  Fair Value
U.S. government agencies	$	15,553	$	12	$	(353)	$	15,212
Mortgage-backed securities		414,208		398		(9,873)		404,733
State and political subdivisions		140,181		1,206		(853)		140,534
Total securities	$	569,942	$	1,616	$	(11,079)	$	560,479

Information Pertaining to Investment Securities Aggregated by Investment Category and Length of Time that Individual Securities in a Continuous Loss Position

.  Gross unrealized losses on our investment securities as of the indicated dates are disclosed in the table below, categorized by investment type and by the duration of time that loss positions on individual securities have continuously existed (over or under twelve months).

Investment Portfolio - Unrealized Losses

(dollars in thousands, unaudited)

	June 30, 2019
	Less than twelve months				Twelve months or more
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	—	$	—	$	(134)	$	7,825
Mortgage-backed securities		(22)		7,150		(2,173)		185,159
State and political subdivisions		(58)		10,870		(41)		4,497
Total	$	(80)	$	18,020	$	(2,348)	$	197,481

	December 31, 2018
	Less than twelve months				Twelve months or more
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
U.S. government agencies	$	(54)	$	2,815	$	(299)	$	10,764
Mortgage-backed securities		(717)		69,686		(9,156)		273,230
State and political subdivisions		(249)		33,864		(604)		22,213
Total	$	(1,020)	$	106,365	$	(10,059)	$	306,207

Realized Gain (Loss) on Investments

The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:

Investment Portfolio - Realized Gains/(Losses)

(dollars in thousands, unaudited)

	Three months ended June 30,					Six months ended June 30,
	2019		2018		2019		2018
Proceeds from sales, calls and maturities of securities available for sale	$	9,985	$	2,110	$	26,639	$	2,310
Gross gains on sales, calls and maturities of securities available for sale		33		—		127		—
Gross losses on sales, calls and maturities of securities available for sale		(11)		—		(99)		—
Net gains on sale of securities available for sale	$	22	$	—	$	28	$	$—

Investments Classified by Contractual Maturity Date

The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2019 and December 31, 2018 are shown below, grouped by the remaining time to contractual maturity dates.  The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities might have the right to call or prepay obligations with or without penalties.

Estimated Fair Value of Contractual Maturities

(dollars in thousands, unaudited)

	June 30, 2019
	Amortized Cost		Fair Value
Maturing within one year	$	7,806	$	7,909
Maturing after one year through five years		180,636		180,310
Maturing after five years through ten years		57,344		58,245
Maturing after ten years		100,701		104,331
Securities not due at a single maturity date:
U.S. government agencies collateralized by mortgage obligations		224,778		226,471
	$	571,265	$	577,266

	December 31, 2018
	Amortized Cost		Fair Value
Maturing within one year	$	7,726	$	7,789
Maturing after one year through five years		199,840		195,519
Maturing after five years through ten years		47,802		47,661
Maturing after ten years		83,606		83,444
Securities not due at a single maturity date:
U.S. government agencies collateralized by mortgage obligations		230,968		226,066
	$	569,942	$	560,479

Summary of Amortized Cost and Fair Values of General Obligation and Revenue Bonds

The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations:

Revenue and General Obligation Bonds by Location

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
General obligation bonds	Cost		Value		Cost		Value
State of issuance
Texas	$	45,855	$	47,243	$	36,331	$	36,199
California		25,817		26,916		26,928		27,357
Washington		15,971		16,688		16,036		16,062
Illinois		7,920		8,179		6,827		6,838
Ohio		7,687		7,793		8,639		8,601
Other (21 and 22 states, respectively)		26,216		26,895		21,530		21,576
Total general obligation bonds		129,466		133,714		116,291		116,633
Revenue bonds
State of issuance
Texas		6,764		6,953		7,526		7,506
Utah		4,672		4,758		5,364		5,353
Indiana		3,147		3,269		2,641		2,654
Washington		1,744		1,853		1,751		1,780
Pennsylvania		1,243		1,264		—		—
Other (9 and 11 states, respectively)		3,942		4,068		6,608		6,608
Total revenue bonds		21,512		22,165		23,890		23,901
Total obligations of states and political subdivisions	$	150,978	$	155,879	$	140,181	$	140,534

The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements.  The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.

Revenue Bonds by Type

(dollars in thousands, unaudited)

	June 30, 2019				December 31, 2018
	Amortized		Fair Market		Amortized		Fair Market
Revenue bonds	Cost		Value		Cost		Value
Revenue source:
Water	$	6,749	$	6,962	$	6,942	$	6,946
Sales Tax		4,376		4,506		2,932		2,901
College & University		3,001		3,092		2,583		2,604
Sewer		1,481		1,512		1,392		1,398
Other (13 sources)		5,905		6,093		10,041		10,052
Total revenue bonds	$	21,512	$	22,165	$	23,890	$	23,901

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Credit Quality and Nonperforming Assets (Tables)

6 Months Ended

Jun. 30, 2019

Credit Quality and Nonperforming Assets [Abstract]

Credit Quality Classifications for Loan Balances

Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated:

Credit Quality Classifications

(dollars in thousands, unaudited)

	June 30, 2019
	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,618	$	—	$	—	$	—	$	105,618
Other construction/land		107,826		97		—		419		108,342
1-4 family - closed end		212,685		1,758		178		3,997		218,618
Equity lines		46,773		2,006		62		4,868		53,709
Multi-family residential		53,240		—		—		362		53,602
Commercial real estate - owner occupied		309,712		5,817		4,418		2,080		322,027
Commercial real estate - non-owner occupied		416,719		3,529		3,393		—		423,641
Farmland		151,393		1,061		140		25		152,619
Total real estate		1,403,966		14,268		8,191		11,751		1,438,176
Agricultural		51,333		170		—		6		51,509
Commercial and industrial		109,530		13,886		721		837		124,974
Mortgage warehouse		154,954		—		—		—		154,954
Consumer loans		7,355		89		70		772		8,286
Total gross loans and leases	$	1,727,138	$	28,413	$	8,982	$	13,366	$	1,777,899

	December 31, 2018
	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,676	$	—	$	—	$	—	$	105,676
Other construction/land		108,304		231		—		488		109,023
1-4 family - closed end		230,022		1,861		1,310		3,632		236,825
Equity lines		49,346		2,194		64		4,716		56,320
Multi-family residential		54,504		—		—		373		54,877
Commercial real estate - owner occupied		292,886		4,192		3,021		1,225		301,324
Commercial real estate - non-owner occupied		429,835		2,730		4,354		1,425		438,344
Farmland		148,680		1,073		146		1,642		151,541
Total real estate		1,419,253		12,281		8,895		13,501		1,453,930
Agricultural		48,517		580		—		6		49,103
Commercial and industrial		110,413		15,686		377		1,744		128,220
Mortgage warehouse		91,813		—		—		—		91,813
Consumer loans		7,851		151		39		821		8,862
Total gross loans and leases	$	1,677,847	$	28,698	$	9,311	$	16,072	$	1,731,928

Aging of Loan Balances by Number of Days Past Due

Loan Portfolio Aging

(dollars in thousands, unaudited)

	June 30, 2019
	30-59  Days Past Due		60-89  Days Past Due		90 Days Or More Past Due(1)		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans(2)
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,618	$	105,618	$	—
Other construction/land		—		—		—		—		108,342		108,342		43
1-4 family - closed end		265		—		409		674		217,944		218,618		1,453
Equity lines		134		—		23		157		53,552		53,709		467
Multi-family residential		—		—		—		—		53,602		53,602		—
Commercial real estate - owner occupied		—		895		97		992		321,035		322,027		1,473
Commercial real estate - non-owner occupied		—		—		—		—		423,641		423,641		—
Farmland		—		—		—		—		152,619		152,619		25
Total real estate		399		895		529		1,823		1,436,353		1,438,176		3,461
Agricultural		—		—		—		—		51,509		51,509		—
Commercial and industrial		203		3		74		280		124,694		124,974		569
Mortgage warehouse lines		—		—		—		—		154,954		154,954		—
Consumer		42		59		19		120		8,166		8,286		90
Total gross loans and leases	$	644	$	957	$	622	$	2,223	$	1,775,676	$	1,777,899	$	4,120

(1) As of June 30, 2019 there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

	December 31, 2018
	30-59  Days Past Due		60-89  Days Past Due		90 Days Or More Past Due(1)		Total Past Due		Current		Total Financing Receivables		Non-Accrual Loans(2)
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,676	$	105,676	$	—
Other construction/land		210		—		27		237		108,786		109,023		82
1-4 family - closed end		319		—		775		1,094		235,731		236,825		799
Equity lines		1,471		—		57		1,528		54,792		56,320		408
Multi-family residential		—		—		—		—		54,877		54,877		—
Commercial real estate - owner occupied		183		—		102		285		301,039		301,324		605
Commercial real estate - non-owner occupied		49		—		—		49		438,295		438,344		49
Farmland		1,555		—		—		1,555		149,986		151,541		1,642
Total real estate		3,787		—		961		4,748		1,449,182		1,453,930		3,585
Agricultural		—		—		—		—		49,103		49,103		—
Commercial and industrial		1,567		83		886		2,536		125,684		128,220		1,425
Mortgage warehouse lines		—		—		—		—		91,813		91,813		—
Consumer		95		45		56		196		8,666		8,862		146
Total gross loans and leases	$	5,449	$	128	$	1,903	$	7,480	$	1,724,448	$	1,731,928	$	5,156

(1) As of December 31, 2018 there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

Troubled Debt Restructurings, by Type of Loan Modification

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

	Three months ended June 30, 2019
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		244		—		—		244
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		244		—		—		244
Agricultural		—		—		—		—		—
Commercial and industrial		—		22		—		52		74
Consumer loans		—		—		—		50		50
Total	$	—	$	266	$	—	$	102	$	368

	Three months ended June 30, 2018
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		295		504		—		799
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		295		504		—		799
Agricultural		—		—		—		—		—
Commercial and industrial		—		63		25		225		313
Consumer loans		—		—		—		—		—
Total	$	—	$	358	$	529	$	225	$	1,112

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

		Six months ended June 30, 2019
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		344		—		—		344
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		344		—		—		344
Agricultural		—		—		—		—		—
Commercial and industrial		94		22		—		52		168
Consumer loans		—		9		—		50		59
Total	$	94	$	375	$	—	$	102	$	571

		Six months ended June 30, 2018
	Rate Modification		Term Modification		Interest Only Modification		Rate & Term Modification		Total
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		363		504		—		867
Multi-family residential		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		363		504		—		867
Agricultural		—		—		—		—		—
Commercial and industrial		—		63		25		225		313
Consumer loans		—		—		—		—		—
Total	$	—	$	426	$	529	$	225	$	1,180

The following tables present, by class, additional details related to loans classified as TDRs during the referenced periods, including the recorded investment in the loan both before and after modification and balances that were modified during the period:

Troubled Debt Restructurings

(dollars in thousands, unaudited)

	Three months ended June 30, 2019
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	1		244		244		—		1
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			244		244		—		1
Agricultural	0		—		—		—		—
Commercial and industrial	2		74		74		—		45
Consumer loans	1		50		50		(45)		2
Total		$	368	$	368	$	(45)	$	48

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Three months ended June 30, 2018
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	6		799		799		4		10
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			799		799		4		10
Agricultural	0		—		—		—		—
Commercial and industrial	3		313		313		—		26
Consumer loans	0		—		—		—		—
Total		$	1,112	$	1,112	$	4	$	36

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

Troubled Debt Restructurings

(dollars in thousands, unaudited)

	Six months ended June 30, 2019
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	2		344		344		—		1
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			344		344		—		1
Agricultural	0		—		—		—		—
Commercial and industrial	4		168		168		(20)		46
Consumer loans	2		59		59		(47)		3
Total		$	571	$	571	$	$(67)	$	50

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

	Six months ended June 30, 2018
		Pre- Modification		Post- Modification
	Number of Loans	Outstanding Recorded Investment		Outstanding Recorded Investment		Reserve Difference⁽¹⁾		Reserve
Real estate:
Other construction/land	0	$	—	$	—	$	—	$	—
1-4 family - closed-end	0		—		—		—		—
Equity lines	7		867		867		4		12
Multi-family residential	0		—		—		—		—
Commercial real estate - owner occupied	0		—		—		—		—
Farmland	0		—		—		—		—
Total real estate loans			867		867		4		12
Agricultural	0		—		—		—		—
Commercial and industrial	3		313		313		—		26
Consumer loans	0		—		—		—		—
Total		$	1,180	$	1,180	$	4	$	38

(1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

Schedule of Debtor Troubled Debt Restructuring, Subsequent Periods

.  The carrying amount and unpaid principal balance of those PCI loans was as follows, as of the dates indicated:

Purchased Credit Impaired Loans:

(dollars in thousands, unaudited)

	June 30, 2019
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	96	$	—
Total purchased credit impaired loans	$	96	$	—

	December 31, 2018
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	103	$	—
Total purchased credit impaired loans	$	103	$	—

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Allowance for Loan and Lease Losses (Tables)

6 Months Ended

Jun. 30, 2019

Receivables [Abstract]

Impaired Financing Receivables

Impaired Loans

(dollars in thousands, unaudited)

	June 30, 2019
	Unpaid Principal Balance(1)		Recorded Investment(2)		Related Allowance		Average Recorded Investment		Interest Income Recognized(3)
With an allowance recorded
Real estate:
Other construction/land	$	554	$	399	$	39	$	667	$	18
1-4 family - closed-end		3,039		3,038		70		3,178		80
Equity lines		4,784		4,730		639		4,941		125
Multi-family residential		362		362		21		378		11
Commercial real estate- owner occupied		823		703		112		262		19
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate		9,562		9,232		881		9,426		253
Agricultural		6		6		1		6		—
Commercial and industrial		728		709		303		906		13
Consumer loans		801		763		137		915		28
Subtotal		11,097		10,710		1,322		11,253		294
With no related allowance recorded
Real estate:
Other construction/land		24		20		—		55		—
1-4 family - closed-end		1,001		959		—		1,073		—
Equity lines		162		138		—		183		—
Commercial real estate- owner occupied		1,376		1,377		—		1,927		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		25		25		—		45		—
Total real estate		2,588		2,519		—		3,283		—
Agricultural		—		—		—		—		—
Commercial and industrial		150		128		—		186		—
Consumer loans		109		9		—		171		—
Subtotal		2,847		2,656		—		3,640		—
Total	$	13,944	$	13,366	$	1,322	$	14,893	$	294

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

Impaired Loans

(dollars in thousands, unaudited)

	December 31, 2018
	Unpaid Principal Balance(1)		Recorded Investment(2)		Related Allowance		Average Recorded Investment		Interest Income Recognized(3)
With an allowance recorded
Real estate:
Other construction/land	$	593	$	438	$	44	$	648	$	40
1-4 family - closed-end		3,325		3,325		75		3,182		175
Equity lines		4,603		4,550		656		4,368		206
Multi-family residential		373		373		25		359		20
Commercial real estate- owner occupied		842		723		135		740		40
Commercial real estate- non-owner occupied		1,572		1,425		3		1,644		107
Total real estate		11,308		10,834		938		10,941		588
Agricultural		6		6		1		6		—
Commercial and industrial		1,724		1,534		918		1,965		40
Consumer loans		813		764		151		909		61
Subtotal		13,851		13,138		2,008		13,821		689
With no related allowance recorded
Real estate:
Other construction/land		54		50		—		58		—
1-4 family - closed-end		357		307		—		375		3
Equity lines		224		166		—		221		—
Commercial real estate- owner occupied		502		502		—		478		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		1,642		1,642		—		1,538		—
Total real estate		2,779		2,667		—		2,670		3
Agricultural		—		—		—		—		—
Commercial and industrial		238		211		—		838		—
Consumer loans		182		56		—		273		1
Subtotal		3,199		2,934		—		3,781		4
Total	$	17,050	$	16,072	$	2,008	$	17,602	$	693

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

Allowance for Credit Losses on Financing Receivables

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

		Three months ended June 30, 2019
		Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	6,094	$	219	$	1,914	$	1,129	$	82	$	9,438
Charge-offs		—		—		(254)		(562)		—		(816)
Recoveries		153		—		431		277		—		861
Provision		(278)		(18)		478		288		(70)		400
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
	Six months ended June 30, 2019
	Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Charge-offs		—		—		(832)		(1,114)		—		(1,946)
Recoveries		329		—		472		578		—		1,379
Provision		(191)		(55)		535		429		(18)		700
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
Reserves:
Specific	$	881	$	1	$	303	$	137	$	—	$	1,322
General		5,088		200		2,266		995		12		8,561
Ending balance	$	5,969	$	201	$	2,569	$	1,132	$	12	$	9,883
Loans evaluated for impairment:
Individually	$	11,751	$	6	$	837	$	772	$	—	$	13,366
Collectively		1,426,425		51,503		279,091		7,514		—		1,764,533
Ending balance	$	1,438,176	$	51,509	$	279,928	$	8,286	$	—	$	1,777,899
		Year ended December 31, 2018
	Real Estate		Agricultural Products		Commercial and Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	4,786	$	208	$	2,772	$	1,231	$	46	$	9,043
Charge-offs		(2,474)		—		(608)		(2,226)		—		(5,308)
Recoveries		374		23		148		1,120		—		1,665
Provision		3,145		25		82		1,114		(16)		4,350
Ending balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Reserves:
Specific	$	937	$	2	$	918	$	151	$	—	$	2,008
General		4,894		254		1,476		1,088		30		7,742
Ending balance	$	5,831	$	256	$	2,394	$	1,239	$	30	$	9,750
Loans evaluated for impairment:
Individually	$	13,501	$	6	$	1,744	$	821	$	—	$	16,072
Collectively		1,440,429		49,097		218,289		8,041		—		1,715,856
Ending balance	$	1,453,930	$	49,103	$	220,033	$	8,862	$	—	$	1,731,928

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Operating Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Schedule of Maturities for Operating Lease Liabilities

Maturities of our lease liabilities for all operating leases are as follows (dollars in thousands, unaudited):

	Maturities of
	Lease Liabilities
2019 (1)	$	1,096
2020		2,204
2021		1,993
2022		1,558
2023		1,119
Thereafter		3,939
Total		11,909
Less: present value discount		(2,254)
Lease liability (2)	$	9,655

(1) Contractual maturities for the six months remaining in 2019.

(2) Lease liability is included in other liabilities.

The following table presents the future minimum rental payments under leases with terms in excess of one year as of December 31, 2018 presented in accordance with ASC Topic 840, “Leases”:

	December 31, 2018
2019	$	2,190
2020		2,204
2021		1,993
2022		1,558
2023		1,119
Thereafter		3,939
Total	$	13,003

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Schedule of Sources of Non-interest Income

.  The following table presents the Company’s sources of noninterest income for the three- and six-month periods ended June 30, 2019 and 2018.  Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited).

	For the three months ended June 30,				For the six months ended June 30,
	2019		2018		2019		2018
Noninterest income
Service charges on deposits
Returned item and overdraft fees	$	1,657	$	1,575	$	3,223	$	3,142
Other service charges on deposits		1,494		1,452		2,871		2,832
Debit card interchange income		1,687		1,486		3,200		2,885
Loss on limited partnerships(1)		(450)		(405)		(900)		(800)
Dividends on equity investments(1)		175		169		406		394
Unrealized gains recognized on equity investments(1)		232		—		232		—
Net gains on sale of securities(1)		22		—		28		—
Other(1)		1,038		1,152		2,702		2,110
Total noninterest income	$	5,855	$	5,429	$	11,762	$	10,563

(1) Not within scope of ASC 606.  Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP.

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The Business of Sierra Bancorp (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) store	Dec. 31, 2018 USD ($)	Jan. 31, 1978 USD ($) store
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of branches | store			1
Capital | $			$ 1,500
Number of acquired banks | store	4
Number of full service branch offices | store	40
Assets | $	$ 2,577,032	$ 2,522,502
Cash, FDIC Insured Amount | $	$ 2,200,000

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Current Accounting Developments - Leases (Details) $ in Thousands	Jun. 30, 2019 USD ($) Office store		Jan. 01, 2019 USD ($)
Leases
Number of branch locations | store	21
Number of ATM locations | store	3
Number of administration offices | Office	1
Right-of-use assets | $	$ 9,044		$ 10,000
Operating lease liabilities | $	$ 9,655	[1]	$ 10,000

[1] Lease liability is included in other liabilities

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Current Accounting Developments - New Accounting Pronouncements (Details)	Jun. 30, 2019
Accounting Standards Update 2016-02 [Member]
New Accounting Pronouncements or Change in Accounting Principle
Change in Accounting Principle, Accounting Standards Update, Adopted	true
Change in Accounting Principle, Accounting Standards Update, Adoption Date	Jan. 01, 2019
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false
Accounting Standards Update 2016-13 [Member]
New Accounting Pronouncements or Change in Accounting Principle
Change in Accounting Principle, Accounting Standards Update, Adopted	false
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false
Accounting Standards Update 2017-01 [Member]
New Accounting Pronouncements or Change in Accounting Principle
Change in Accounting Principle, Accounting Standards Update, Adopted	true
Change in Accounting Principle, Accounting Standards Update, Adoption Date	Jan. 01, 2018
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false
Change in Accounting Principle, Accounting Standards Update, Transition Option Elected	Prospective
Accounting Standards Update 2017-04 [Member]
New Accounting Pronouncements or Change in Accounting Principle
Change in Accounting Principle, Accounting Standards Update, Adopted	false
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false
Accounting Standards Update 2017-08 [Member]
New Accounting Pronouncements or Change in Accounting Principle
Change in Accounting Principle, Accounting Standards Update, Adopted	true
Change in Accounting Principle, Accounting Standards Update, Adoption Date	Jan. 01, 2019
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false
Change in Accounting Principle, Accounting Standards Update, Transition Option Elected	Modified Retrospective
Accounting Standards Update 2018-13 [Member]
New Accounting Pronouncements or Change in Accounting Principle
Change in Accounting Principle, Accounting Standards Update, Adopted	false
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false

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Share Based Compensation - General Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation, Total	$ 267	$ 174
2007 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options outstanding	335,530
2017 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	850,000
Number of shares remained available for grant	667,800

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Share Based Compensation - Share-based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Payment Arrangement, Additional Disclosure [Abstract]
Pre-tax charge	$ 116	$ 98	$ 267	$ 174

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Earnings per Share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Weighted Average Number of Shares Outstanding, Basic [Abstract]
Weighted Average Number of Shares Outstanding, Basic	15,329,907	15,254,575	15,320,784	15,243,697
Incremental Weighted Average Shares Attributable to Dilutive Effect [Abstract]
Weighted Average Number Diluted Shares Outstanding Adjustment	128,413	174,554	132,428	177,189
Earnings Per Share, Diluted, Other Disclosures [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	258,202	106,200	228,824	166,200

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Financial Instruments with Off-Balance-Sheet Risk - Tabular Disclosure (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments off-balance sheet credit risks	$ 596,001	$ 781,987
Standby Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments off-balance sheet credit risks	$ 9,529	$ 8,966

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Financial Instruments with Off-Balance-Sheet Risk - Additional Information (Details) $ in Millions	Jun. 30, 2019 USD ($)
Financial Instruments with Off Balance Sheet Risk [Abstract]
Letters of Credit Outstanding, Amount	$ 105

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Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financial Assets:
Investment securities available for sale	$ 577,266	$ 560,479
Financial liabilities:
Repurchase agreements	24,167	16,359
Carrying Amount [Member]
Financial Assets:
Cash and cash equivalents	67,790	74,132
Investment securities available for sale	577,266	560,479
Loans and leases, net held for investment	1,770,838	1,724,575
Collateral dependent impaired loans	9	205
Financial liabilities:
Deposits	2,179,098	2,116,340
Repurchase agreements	24,167	16,359
Short term borrowings	8,500	56,100
Subordinated debentures	34,856	34,767
Fair Value [Member]
Financial Assets:
Cash and cash equivalents	67,790	74,132
Investment securities available for sale	577,266	560,479
Loans and leases, net held for investment	1,791,335	1,707,463
Collateral dependent impaired loans	9	205
Financial liabilities:
Deposits	2,179,324	2,115,575
Repurchase agreements	24,167	16,359
Short term borrowings	8,500	56,100
Subordinated debentures	28,660	30,311
Fair Value [Member] | Fair Value, Inputs, Level 1 [Member]
Financial Assets:
Cash and cash equivalents	67,790	74,132
Investment securities available for sale	0	0
Loans and leases, net held for investment	0	0
Collateral dependent impaired loans	0	0
Financial liabilities:
Deposits	658,900	662,527
Repurchase agreements	24,167	16,359
Short term borrowings	0	0
Subordinated debentures	0	0
Fair Value [Member] | Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Cash and cash equivalents	0	0
Investment securities available for sale	577,266	560,479
Loans and leases, net held for investment	1,791,335	1,707,463
Collateral dependent impaired loans	9	205
Financial liabilities:
Deposits	1,520,424	1,453,048
Repurchase agreements	0	0
Short term borrowings	8,500	56,100
Subordinated debentures	28,660	30,311
Fair Value [Member] | Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Cash and cash equivalents	0	0
Investment securities available for sale	0	0
Loans and leases, net held for investment	0	0
Collateral dependent impaired loans	0	0
Financial liabilities:
Deposits	0	0
Repurchase agreements	0	0
Short term borrowings	0	0
Subordinated debentures	$ 0	$ 0

XML

Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements - Fair Value Measurements - Recurring (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	$ 577,266	$ 560,479
U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	15,296	15,212
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	577,266	560,479
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring [Member] | States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	155,879	140,534
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring [Member] | U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	15,296	15,212
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring [Member] | Mortgage-Backed Securities [Member].
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	406,091	404,733
Other-than-temporary impairment losses on equity securities	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage-Backed Securities [Member].
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	577,266	560,479
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	155,879	140,534
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	15,296	15,212
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage-Backed Securities [Member].
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	406,091	404,733
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage-Backed Securities [Member].
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale	$ 0	$ 0

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Fair Value Disclosures and Reporting, the Fair Value Option and Fair Value Measurements - Fair Value Measurements - Nonrecurring (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans	[1]	$ 13,366	$ 16,072
Foreclosed assets		770	1,082
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		9	205
Foreclosed assets		770	1,082
Total assets measured on a nonrecurring basis		779	1,287
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	39
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	27
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	12
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Sector [Member] | Farmland [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Agricultural Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Commercial and Industrial Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	119
Fair Value, Measurements, Nonrecurring [Member] | Consumer Loans Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		9	47
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Foreclosed assets		0	0
Total assets measured on a nonrecurring basis		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Real Estate Sector [Member] | Farmland [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Agricultural Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Commercial and Industrial Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Consumer Loans Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		9	205
Foreclosed assets		770	1,082
Total assets measured on a nonrecurring basis		779	1,287
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	39
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	27
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	12
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Real Estate Sector [Member] | Farmland [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Agricultural Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Commercial and Industrial Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	119
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Consumer Loans Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		9	47
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Foreclosed assets		0	0
Total assets measured on a nonrecurring basis		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Real Estate Sector [Member] | Farmland [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Agricultural Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial and Industrial Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Consumer Loans Sector [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total impaired loans		$ 0	$ 0

[1] Principal balance on Company’s books, less any direct charge offs.

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Investments - Amortized Cost and Estimated Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	$ 571,265	$ 569,942
Gross Unrealized Gains	8,429	1,616
Gross Unrealized Losses	(2,428)	(11,079)
Estimated Fair Value	577,266	560,479
U.S. Government Agencies [Member]
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	15,262	15,553
Gross Unrealized Gains	168	12
Gross Unrealized Losses	(134)	(353)
Estimated Fair Value	15,296	15,212
Mortgage-backed Securities [Member]
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	405,025	414,208
Gross Unrealized Gains	3,261	398
Gross Unrealized Losses	(2,195)	(9,873)
Estimated Fair Value	406,091	404,733
States and Political Subdivisions [Member]
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]
Amortized Cost	150,978	140,181
Gross Unrealized Gains	5,000	1,206
Gross Unrealized Losses	(99)	(853)
Estimated Fair Value	$ 155,879	$ 140,534

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Investments - Gross Unrealized Losses - General Information (Details) - security	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Number of Positions [Abstract]
Available-for-sale, securities in unrealized loss positions, qualitative disclosure, number of positions, total	274	552

XML

Investments - Gross Unrealized Losses - Tabular Disclosure (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss [Abstract]
Gross Unrealized Losses, Less than twelve months	$ (80)	$ (1,020)
Fair Value, Less than twelve months	18,020	106,365
Gross Unrealized Losses, Twelve months or more	(2,348)	(10,059)
Fair Value, Twelve months or more	197,481	306,207
U.S. Government Agencies [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss [Abstract]
Gross Unrealized Losses, Less than twelve months		(54)
Fair Value, Less than twelve months		2,815
Gross Unrealized Losses, Twelve months or more	(134)	(299)
Fair Value, Twelve months or more	7,825	10,764
Mortgage-backed Securities [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss [Abstract]
Gross Unrealized Losses, Less than twelve months	(22)	(717)
Fair Value, Less than twelve months	7,150	69,686
Gross Unrealized Losses, Twelve months or more	(2,173)	(9,156)
Fair Value, Twelve months or more	185,159	273,230
States and Political Subdivisions [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss [Abstract]
Gross Unrealized Losses, Less than twelve months	(58)	(249)
Fair Value, Less than twelve months	10,870	33,864
Gross Unrealized Losses, Twelve months or more	(41)	(604)
Fair Value, Twelve months or more	$ 4,497	$ 22,213

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Investments - Realized Gains (Losses) (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2019		Jun. 30, 2018	Jun. 30, 2019		Jun. 30, 2018
Proceeds from Sale and Maturity of Debt Securities, Available-for-sale [Abstract]
Proceeds from sales, calls and maturities of securities available for sale	$ 9,985		$ 2,110	$ 26,639		$ 2,310
Debt Securities, Available-for-sale, Realized Gain (Loss) [Abstract]
Gross gains on sales, calls and maturities of securities available for sale	33		0	127
Gross losses on sales, calls and maturities of securities available for sale	(11)		0	(99)
Net gains on sale of securities available for sale	$ 22	[1]	$ 0	$ 28	[1]

[1] Not within scope of ASC 606. Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP

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Investments - Estimated Fair Value of Contractual Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Amortized Cost [Abstract]
Maturing within one year, Amortized Cost	$ 7,806	$ 7,726
Maturing after one year through five years, Amortized Cost	180,636	199,840
Maturing after five years through ten years, Amortized Cost	57,344	47,802
Maturing after ten years, Amortized Cost	100,701	83,606
Investment securities not due at a single maturity date, Amortized Cost	224,778	230,968
Amortized Cost	571,265	569,942
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value [Abstract]
Maturing within one year, Fair Value	7,909	7,789
Maturing after one year through five years, Fair Value	180,310	195,519
Maturing after five years through ten years, Fair Value	58,245	47,661
Maturing after ten years, Fair Value	104,331	83,444
Investment securities not due at a single maturity date, Fair Value	226,471	226,066
Fair Value, Total	$ 577,266	$ 560,479

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Investments - Revenue and General Obligation Bonds (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Securities available-for-sale	$ 577,266	$ 560,479
States and Political Subdivisions [Member]
Debt Securities, Available-for-sale [Line Items]
Securities available-for-sale	155,879	140,534
General Obligation Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Securities available-for-sale	133,714	$ 116,633
General Obligation Bonds [Member] | Lindsay, California Unified School District [Member]
Debt Securities, Available-for-sale [Line Items]
Securities available-for-sale	$ 2,596

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Investments - Revenue and General Obligation Bonds by Location (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 571,265	$ 569,942
Fair Market Value	577,266	560,479
States and Political Subdivisions [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	150,978	140,181
Fair Market Value	155,879	140,534
General Obligation Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	129,466	116,291
Fair Market Value	133,714	116,633
General Obligation Bonds [Member] | Texas [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	45,855	36,331
Fair Market Value	47,243	36,199
General Obligation Bonds [Member] | California [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	25,817	26,928
Fair Market Value	26,916	27,357
General Obligation Bonds [Member] | Washington [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	15,971	16,036
Fair Market Value	16,688	16,062
General Obligation Bonds [Member] | Illinois [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	7,687	8,639
Fair Market Value	7,793	8,601
General Obligation Bonds [Member] | Ohio [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	7,920	6,827
Fair Market Value	8,179	6,838
General Obligation Bonds [Member] | Other [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	26,216	21,530
Fair Market Value	26,895	21,576
Revenue Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	21,512	23,890
Fair Market Value	22,165	23,901
Revenue Bonds [Member] | Texas [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	6,764	7,526
Fair Market Value	6,953	7,506
Revenue Bonds [Member] | Utah [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	4,672	5,364
Fair Market Value	4,758	5,353
Revenue Bonds [Member] | Indiana [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	3,147	2,641
Fair Market Value	3,269	2,654
Revenue Bonds [Member] | Washington [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	1,744	1,751
Fair Market Value	1,853	1,780
Revenue Bonds [Member] | Pennsylvania [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	1,243
Fair Market Value	1,264
Revenue Bonds [Member] | Other [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	3,942	6,608
Fair Market Value	$ 4,068	$ 6,608

XML

Investments - Revenue Bonds by Type (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 571,265	$ 569,942
Fair Market Value	577,266	560,479
States and Political Subdivisions [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	150,978	140,181
Fair Market Value	155,879	140,534
Revenue Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	21,512	23,890
Fair Market Value	22,165	23,901
Revenue Bonds [Member] | Water [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	6,749	6,942
Fair Market Value	6,962	6,946
Revenue Bonds [Member] | Sales Tax [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	4,376	2,932
Fair Market Value	4,506	2,901
Revenue Bonds [Member] | College & University [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	3,001	2,583
Fair Market Value	3,092	2,604
Revenue Bonds [Member] | Sewer [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	1,481	1,392
Fair Market Value	1,512	1,398
Revenue Bonds [Member] | Other Revenue Source [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	5,905	10,041
Fair Market Value	$ 6,093	$ 10,052

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Investments - Low-Income Housing Tax Credit Fund Investments (Details) - Low Income Housing Tax Credit Fund Investments [Member] $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Schedule of Equity Method Investments [Line Items]
Investment, book balance	$ 5,000
Investment, remaining commitments for additional capital contributions	1,800
Investment, tax credit	269
Investment, amortization expense	$ 900

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Credit Quality and Nonperforming Assets - Credit Quality Classifications (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	$ 1,777,899	$ 1,731,928
Real Estate Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	1,438,176	1,453,930
Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	105,618	105,676
Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	108,342	109,023
Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	218,618	236,825
Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	53,709	56,320
Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	53,602	54,877
Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	322,027	301,324
Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	423,641	438,344
Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	152,619	151,541
Agricultural Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	51,509	49,103
Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	124,974	128,220
Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	154,954	91,813
Consumer Loans Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	8,286	8,862
Pass [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	1,727,138	1,677,847
Pass [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	1,403,966	1,419,253
Pass [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	105,618	105,676
Pass [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	107,826	108,304
Pass [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	212,685	230,022
Pass [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	46,773	49,346
Pass [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	53,240	54,504
Pass [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	309,712	292,886
Pass [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	416,719	429,835
Pass [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	151,393	148,680
Pass [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	51,333	48,517
Pass [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	109,530	110,413
Pass [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	154,954	91,813
Pass [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	7,355	7,851
Special Mention [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	28,413	28,698
Special Mention [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	14,268	12,281
Special Mention [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Special Mention [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	97	231
Special Mention [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	1,758	1,861
Special Mention [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	2,006	2,194
Special Mention [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Special Mention [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	5,817	4,192
Special Mention [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	3,529	2,730
Special Mention [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	1,061	1,073
Special Mention [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	170	580
Special Mention [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	13,886	15,686
Special Mention [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Special Mention [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	89	151
Substandard [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	8,982	9,311
Substandard [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	8,191	8,895
Substandard [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Substandard [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Substandard [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	178	1,310
Substandard [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	62	64
Substandard [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Substandard [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	4,418	3,021
Substandard [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	3,393	4,354
Substandard [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	140	146
Substandard [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Substandard [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	721	377
Substandard [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Substandard [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	70	39
Impaired [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	13,366	16,072
Impaired [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	11,751	13,501
Impaired [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Impaired [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	419	488
Impaired [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	3,997	3,632
Impaired [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	4,868	4,716
Impaired [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	362	373
Impaired [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	2,080	1,225
Impaired [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	1,425
Impaired [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	25	1,642
Impaired [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	6	6
Impaired [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	837	1,744
Impaired [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	0	0
Impaired [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment [Line Items]
Total gross loans and leases	$ 772	$ 821

XML

Credit Quality and Nonperforming Assets - Past Due and Nonperforming Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2019		Dec. 31, 2018
Credit Quality and Nonperforming Assets [Abstract]
Foreclosed assets	$ 770		$ 1,082
Gross nonperforming loans	$ 4,120	[1]	$ 5,156

[1] Included in total financing receivables

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Credit Quality and Nonperforming Assets - Past Due and Nonaccrual Loans - Tabular Disclosure (Details) - USD ($) $ in Thousands	Jun. 30, 2019		Dec. 31, 2018
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	$ 2,223		$ 7,480
Current	1,775,676		1,724,448
Total Financing Receivables	1,777,899		1,731,928
Non-Accrual Loans	4,120	[1]	5,156
Real Estate Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	1,823		4,748
Current	1,436,353		1,449,182
Total Financing Receivables	1,438,176		1,453,930
Non-Accrual Loans	3,461	[1]	3,585
Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
Current	105,618		105,676
Total Financing Receivables	105,618		105,676
Non-Accrual Loans	0	[1]	0
Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		237
Current	108,342		108,786
Total Financing Receivables	108,342		109,023
Non-Accrual Loans	43	[1]	82
Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	674		1,094
Current	217,944		235,731
Total Financing Receivables	218,618		236,825
Non-Accrual Loans	1,453	[1]	799
Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	157		1,528
Current	53,552		54,792
Total Financing Receivables	53,709		56,320
Non-Accrual Loans	467	[1]	408
Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
Current	53,602		54,877
Total Financing Receivables	53,602		54,877
Non-Accrual Loans	0	[1]	0
Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	992		285
Current	321,035		301,039
Total Financing Receivables	322,027		301,324
Non-Accrual Loans	1,473	[1]	605
Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		49
Current	423,641		438,295
Total Financing Receivables	423,641		438,344
Non-Accrual Loans	0	[1]	49
Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		1,555
Current	152,619		149,986
Total Financing Receivables	152,619		151,541
Non-Accrual Loans	25	[1]	1,642
Agricultural Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
Current	51,509		49,103
Total Financing Receivables	51,509		49,103
Non-Accrual Loans	0	[1]	0
Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	280		2,536
Current	124,694		125,684
Total Financing Receivables	124,974		128,220
Non-Accrual Loans	569	[1]	1,425
Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
Current	154,954		91,813
Total Financing Receivables	154,954		91,813
Non-Accrual Loans	0	[1]	0
Consumer Loans Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	120		196
Current	8,166		8,666
Total Financing Receivables	8,286		8,862
Non-Accrual Loans	90	[1]	146
30-59 Days Past Due [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	644		5,449
30-59 Days Past Due [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	399		3,787
30-59 Days Past Due [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
30-59 Days Past Due [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		210
30-59 Days Past Due [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	265		319
30-59 Days Past Due [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	134		1,471
30-59 Days Past Due [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
30-59 Days Past Due [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		183
30-59 Days Past Due [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		49
30-59 Days Past Due [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		1,555
30-59 Days Past Due [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
30-59 Days Past Due [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	203		1,567
30-59 Days Past Due [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
30-59 Days Past Due [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	42		95
60-89 Days Past Due [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	957		128
60-89 Days Past Due [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	895		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	895		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	3		83
60-89 Days Past Due [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0		0
60-89 Days Past Due [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	59		45
90 Days Or More Past Due [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	622	[2]	1,903	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	529	[2]	961	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | 1-4 Family Residential Construction [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	0	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	27	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	409	[2]	775	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	23	[2]	57	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	0	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	97	[2]	102	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	0	[3]
90 Days Or More Past Due [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	0	[3]
90 Days Or More Past Due [Member] | Agricultural Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	0	[3]
90 Days Or More Past Due [Member] | Commercial and Industrial Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	74	[2]	886	[3]
90 Days Or More Past Due [Member] | Mortgage Warehouse Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	0	[2]	0	[3]
90 Days Or More Past Due [Member] | Consumer Loans Sector [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	$ 19	[2]	$ 56	[3]

[1] Included in total financing receivables

[2] As of June 30, 2019 there were no loans over 90 days past due and still accruing.

[3] As of December 31, 2018 there were no loans over 90 days past due and still accruing.

XML

Credit Quality and Nonperforming Assets - Past Due and Nonaccrual Loans - Additional Information (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Credit Quality and Nonperforming Assets [Abstract]
Financing Receivable, 90 Days or More Past Due, Still Accruing	$ 0	$ 0

XML

Credit Quality and Nonperforming Assets - Troubled Debt Restructurings - General Information (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Credit Quality and Nonperforming Assets [Abstract]
Troubled debt restructurings, total amount	$ 10,276
Troubled debt restructurings on non-accrual status	$ 1,030

XML

Credit Quality and Nonperforming Assets - Troubled Debt Restructurings, by Type of Loan Modification (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	$ 368	$ 1,112	$ 571	$ 1,180
Real Estate Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	244	799	344	867
Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	244	799	344	867
Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Agricultural Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Commercial and Industrial Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	74	313	168	313
Consumer Loans Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	50	0	59	0
Troubled Debt Restructurings Rate Modifications [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	94	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Agricultural Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate Modifications [Member] | Commercial and Industrial Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	94	0
Troubled Debt Restructurings Rate Modifications [Member] | Consumer Loans Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	266	358	375	426
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	244	295	344	363
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	244	295	344	363
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member] | Agricultural Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Term Modifications [Member] | Commercial and Industrial Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	22	63	22	63
Troubled Debt Restructurings Term Modifications [Member] | Consumer Loans Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	9	0
Troubled Debt Restructurings Interest Only Modification [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	529	0	529
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	504	0	504
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	504	0	504
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Interest Only Modification [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Interest Only Modification [Member] | Agricultural Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Interest Only Modification [Member] | Commercial and Industrial Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	25	0	25
Troubled Debt Restructurings Interest Only Modification [Member] | Consumer Loans Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	102	225	102	225
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Agricultural Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	0	0	0	0
Troubled Debt Restructurings Rate And Term Modifications [Member] | Commercial and Industrial Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	52	225	52	225
Troubled Debt Restructurings Rate And Term Modifications [Member] | Consumer Loans Sector [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment During Period	$ 50	$ 0	$ 50	$ 0

XML

Credit Quality and Nonperforming Assets - Troubled Debt Restructurings - Tabular Disclosure (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) item	Jun. 30, 2018 USD ($) item	Jun. 30, 2019 USD ($) item	Jun. 30, 2018 USD ($) item
Financing Receivable, Modifications [Line Items]
Number of Loans	0			0
Pre-Modification Outstanding Recorded Investment	$ 368	$ 1,112	$ 571	$ 1,180
Post-Modification Outstanding Recorded Investment	368	1,112	571	1,180
Reserve Difference	(45)	4	(67)	4
Reserve	$ 48	36	50	$ 38
Real Estate Sector [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0			0
Pre-Modification Outstanding Recorded Investment	$ 244	799	344	$ 867
Post-Modification Outstanding Recorded Investment	244	799	344	867
Reserve Difference	0	4	0	4
Reserve	$ 1	$ 10	$ 1	$ 12
Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Reserve Difference	0	0	0	0
Reserve	$ 0	$ 0	$ 0	$ 0
Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Reserve Difference	0	0	0	0
Reserve	$ 0	$ 0	$ 0	$ 0
Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	1	6	2	7
Pre-Modification Outstanding Recorded Investment	$ 244	$ 799	$ 344	$ 867
Post-Modification Outstanding Recorded Investment	244	799	344	867
Reserve Difference	0	4	0	4
Reserve	$ 1	$ 10	$ 1	$ 12
Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Reserve Difference	0	0	0	0
Reserve	$ 0	$ 0	$ 0	$ 0
Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Reserve Difference	0	0	0	0
Reserve	$ 0	$ 0	$ 0	$ 0
Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Reserve Difference	0	0	0	0
Reserve	$ 0	$ 0	$ 0	$ 0
Agricultural Sector [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Reserve Difference	0	0	0	0
Reserve	$ 0	$ 0	$ 0	$ 0
Commercial and Industrial Sector [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	2	3	4	3
Pre-Modification Outstanding Recorded Investment	$ 74	$ 313	$ 168	$ 313
Post-Modification Outstanding Recorded Investment	74	313	168	313
Reserve Difference	0	0	(20)	0
Reserve	$ 45	$ 26	$ 46	$ 26
Consumer Loans Sector [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans | item	1	0	2	0
Pre-Modification Outstanding Recorded Investment	$ 50	$ 0	$ 59	$ 0
Post-Modification Outstanding Recorded Investment	50	0	59	0
Reserve Difference	(45)	0	(47)	0
Reserve	$ 2	$ 0	$ 3	$ 0

XML

Credit Quality and Nonperforming Assets - Purchased Credit Impaired Loans - Tabular Disclosure (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Unpaid Principal Balance, Total	[1]	$ 13,944	$ 17,050
Impaired Financing Receivable, Carrying Value, Total	[2]	13,366	16,072
Purchased Credit Impaired Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Unpaid Principal Balance, Total		96	103
Real Estate [Member] | Purchased Credit Impaired Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Unpaid Principal Balance, Total		$ 96	$ 103

[1] Contractual principal balance due from customer.

[2] Principal balance on Company’s books, less any direct charge offs.

XML

Credit Quality and Nonperforming Assets - Purchased Credit Impaired Loans - Additional Information (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Credit Quality and Nonperforming Assets [Abstract]
Purchase credit impaired loans, allowance for loan losses	$ 96,000	$ 103,000
Certain loans acquired in transfer accounted for as debt securities, accretable yield, accretion	$ 0

XML

Allowance for Loan and Lease Losses - General Information (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Receivables [Abstract]
Impaired Financing Receivable With Specific Reserves	$ 1,023	$ 1,048
Percentage Of Impaired Loans With Appraisal	97.00%
General	$ 8,561

XML

Allowance for Loan and Lease Losses - Individually Impaired Loans (Details) - USD ($) $ in Thousands		6 Months Ended	12 Months Ended
		Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	$ 11,097	$ 13,851
With an Allowance Recorded Recorded Investment	[2]	10,710	13,138
With an Allowance Recorded Related Allowance		1,322	2,008
With an Allowance Recorded Average Recorded Investment		11,253	13,821
With an Allowance Recorded Interest Income Recognized	[3]	294	689
With no Related Allowance Recorded Unpaid Principal Balance	[1]	2,847	3,199
With no Related Allowance Recorded Recorded Investment	[2]	2,656	2,934
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		3,640	3,781
With no Related Allowance Recorded Interest Income Recognized	[3]	0	4
Individually impaired loans Unpaid Principal Balance	[1]	13,944	17,050
Total impaired loans	[2]	13,366	16,072
Individually impaired loans Related Allowance		1,322	2,008
Individually impaired loans Average Recorded Investment		14,893	17,602
Individually impaired loans Interest Income Recognized	[3]	294	693
Real Estate Sector [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	9,562	11,308
With an Allowance Recorded Recorded Investment	[2]	9,232	10,834
With an Allowance Recorded Related Allowance		881	938
With an Allowance Recorded Average Recorded Investment		9,426	10,941
With an Allowance Recorded Interest Income Recognized	[3]	253	588
With no Related Allowance Recorded Unpaid Principal Balance	[1]	2,588	2,779
With no Related Allowance Recorded Recorded Investment	[2]	2,519	2,667
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		3,283	2,670
With no Related Allowance Recorded Interest Income Recognized	[3]	0	3
Real Estate Sector [Member] | Other construction/land [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	554	593
With an Allowance Recorded Recorded Investment	[2]	399	438
With an Allowance Recorded Related Allowance		39	44
With an Allowance Recorded Average Recorded Investment		667	648
With an Allowance Recorded Interest Income Recognized	[3]	18	40
With no Related Allowance Recorded Unpaid Principal Balance	[1]	24	54
With no Related Allowance Recorded Recorded Investment	[2]	20	50
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		55	58
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Real Estate Sector [Member] | 1-4 Family - Closed-End [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	3,039	3,325
With an Allowance Recorded Recorded Investment	[2]	3,038	3,325
With an Allowance Recorded Related Allowance		70	75
With an Allowance Recorded Average Recorded Investment		3,178	3,182
With an Allowance Recorded Interest Income Recognized	[3]	80	175
With no Related Allowance Recorded Unpaid Principal Balance	[1]	1,001	357
With no Related Allowance Recorded Recorded Investment	[2]	959	307
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		1,073	375
With no Related Allowance Recorded Interest Income Recognized	[3]	0	3
Real Estate Sector [Member] | Equity Lines [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	4,784	4,603
With an Allowance Recorded Recorded Investment	[2]	4,730	4,550
With an Allowance Recorded Related Allowance		639	656
With an Allowance Recorded Average Recorded Investment		4,941	4,368
With an Allowance Recorded Interest Income Recognized	[3]	125	206
With no Related Allowance Recorded Unpaid Principal Balance	[1]	162	224
With no Related Allowance Recorded Recorded Investment	[2]	138	166
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		183	221
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Real Estate Sector [Member] | Multi-Family Residential [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	362	373
With an Allowance Recorded Recorded Investment	[2]	362	373
With an Allowance Recorded Related Allowance		21	25
With an Allowance Recorded Average Recorded Investment		378	359
With an Allowance Recorded Interest Income Recognized	[3]	11	20
Real Estate Sector [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	823	842
With an Allowance Recorded Recorded Investment	[2]	703	723
With an Allowance Recorded Related Allowance		112	135
With an Allowance Recorded Average Recorded Investment		262	740
With an Allowance Recorded Interest Income Recognized	[3]	19	40
With no Related Allowance Recorded Unpaid Principal Balance	[1]	1,376	502
With no Related Allowance Recorded Recorded Investment	[2]	1,377	502
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		1,927	478
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Real Estate Sector [Member] | Commercial Real Estate Non Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	0	1,572
With an Allowance Recorded Recorded Investment	[2]	0	1,425
With an Allowance Recorded Related Allowance		0	3
With an Allowance Recorded Average Recorded Investment		0	1,644
With an Allowance Recorded Interest Income Recognized	[3]	0	107
With no Related Allowance Recorded Unpaid Principal Balance	[1]	0	0
With no Related Allowance Recorded Recorded Investment	[2]	0	0
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		0	0
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Real Estate Sector [Member] | Farmland [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	0
With an Allowance Recorded Recorded Investment	[2]	0
With an Allowance Recorded Related Allowance		0
With an Allowance Recorded Average Recorded Investment		0
With an Allowance Recorded Interest Income Recognized	[3]	0
With no Related Allowance Recorded Unpaid Principal Balance	[1]	25	1,642
With no Related Allowance Recorded Recorded Investment	[2]	25	1,642
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		45	1,538
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Agricultural Sector [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	6	6
With an Allowance Recorded Recorded Investment	[2]	6	6
With an Allowance Recorded Related Allowance		1	1
With an Allowance Recorded Average Recorded Investment		6	6
With an Allowance Recorded Interest Income Recognized	[3]	0	0
With no Related Allowance Recorded Unpaid Principal Balance	[1]	0	0
With no Related Allowance Recorded Recorded Investment	[2]	0	0
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		0	0
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Commercial and Industrial Sector [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	728	1,724
With an Allowance Recorded Recorded Investment	[2]	709	1,534
With an Allowance Recorded Related Allowance		303	918
With an Allowance Recorded Average Recorded Investment		906	1,965
With an Allowance Recorded Interest Income Recognized	[3]	13	40
With no Related Allowance Recorded Unpaid Principal Balance	[1]	150	238
With no Related Allowance Recorded Recorded Investment	[2]	128	211
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		186	838
With no Related Allowance Recorded Interest Income Recognized	[3]	0	0
Consumer Loans Sector [Member]
Financing Receivable, Impaired [Line Items]
With an Allowance Recorded Unpaid Principal Balance	[1]	801	813
With an Allowance Recorded Recorded Investment	[2]	763	764
With an Allowance Recorded Related Allowance		137	151
With an Allowance Recorded Average Recorded Investment		915	909
With an Allowance Recorded Interest Income Recognized	[3]	28	61
With no Related Allowance Recorded Unpaid Principal Balance	[1]	109	182
With no Related Allowance Recorded Recorded Investment	[2]	9	56
With no Related Allowance Recorded Related Allowance		0	0
With no Related Allowance Recorded Average Recorded Investment		171	273
With no Related Allowance Recorded Interest Income Recognized	[3]	$ 0	$ 1

[1] Contractual principal balance due from customer.

[2] Principal balance on Company’s books, less any direct charge offs.

[3] Interest income is recognized on performing balances on a regular accrual basis

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Allowance for Loan and Lease Losses - Allowance for Credit Losses - Roll Forward (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Beginning balance	$ 9,438	$ 9,750	$ 9,043
Charge-offs	(816)	(1,946)	(5,308)
Recoveries	861	1,379	1,665
Provision	400	700	4,350
Ending balance	9,883	9,883	9,750
Unallocated [Member]
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Beginning balance	82	30	46
Provision	(70)	(18)	(16)
Ending balance	12	12	30
Real Estate Sector [Member]
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Beginning balance	6,094	5,831	4,786
Charge-offs			(2,474)
Recoveries	153	329	374
Provision	(278)	(191)	3,145
Ending balance	5,969	5,969	5,831
Agricultural Sector [Member]
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Beginning balance	219	256	208
Recoveries			23
Provision	(18)	(55)	25
Ending balance	201	201	256
Commercial and Industrial and Mortgage Warehouse Sector [Member]
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Beginning balance	1,914	2,394	2,772
Charge-offs	(254)	(832)	(608)
Recoveries	431	472	148
Provision	478	535	82
Ending balance	2,569	2,569	2,394
Consumer Loans Sector [Member]
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Beginning balance	1,129	1,239	1,231
Charge-offs	(562)	(1,114)	(2,226)
Recoveries	277	578	1,120
Provision	288	429	1,114
Ending balance	$ 1,132	$ 1,132	$ 1,239

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Allowance for Loan and Lease Losses - Allowance for Credit Losses - Reserves (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable Allowance For Credit Losses [Line Items]
Specific	$ 1,322		$ 2,008
General	8,561		7,742
Ending balance	9,883	$ 9,438	9,750	$ 9,043
Unallocated [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
General	12		30
Ending balance	12	82	30	46
Real Estate Sector [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Specific	881		937
General	5,088		4,894
Ending balance	5,969	6,094	5,831	4,786
Agricultural Sector [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Specific	1		2
General	200		254
Ending balance	201	219	256	208
Commercial and Industrial and Mortgage Warehouse Sector [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Specific	303		918
General	2,266		1,476
Ending balance	2,569	1,914	2,394	2,772
Consumer Loans Sector [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Specific	137		151
General	995		1,088
Ending balance	$ 1,132	$ 1,129	$ 1,239	$ 1,231

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Allowance for Loan and Lease Losses - Activity in Allowance for Loan and Lease Losses (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Individually	$ 13,366	$ 16,072
Collectively	1,764,533	1,715,856
Total Financing Receivables	1,777,899	1,731,928
Real Estate Sector [Member]
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Individually	11,751	13,501
Collectively	1,426,425	1,440,429
Total Financing Receivables	1,438,176	1,453,930
Agricultural Sector [Member]
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Individually	6	6
Collectively	51,503	49,097
Total Financing Receivables	51,509	49,103
Commercial and Industrial and Mortgage Warehouse Sector [Member]
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Individually	837	1,744
Collectively	279,091	218,289
Total Financing Receivables	279,928	220,033
Consumer Loans Sector [Member]
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Individually	772	821
Collectively	7,514	8,041
Total Financing Receivables	$ 8,286	$ 8,862

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Operating Leases - General Information (Details)	Jun. 30, 2019 Office store
Lessee Disclosure [Abstract]
Number of branch locations	21
Number of ATM locations	3
Number of administration offices | Office	1

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Operating Leases - Lease Expense (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Income and Expenses, Lessee [Abstract]
Operating lease, expense	$ 1,095
Operating Leases, Rent Expense, Net [Abstract]
Rent expense		$ 1,177

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Operating Leases - Assets and Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019		Jan. 01, 2019
Assets and Liabilities, Lessee [Abstract]
Right-of-use assets	$ 9,044		$ 10,000
Operating lease liabilities	$ 9,655	[1]	$ 10,000

[1] Lease liability is included in other liabilities

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Operating Leases - Lease Cost (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Lessee Disclosure [Abstract]
Weighted average lease term (in years)	5 years 3 months 18 days
Weighted average discount rate (as a percent)	5.50%
Lease liabilities from new right-of-use assets obtained during the year	$ 0
Cash paid on operating leases	$ 680

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Operating Leases - Schedule of Maturities of Lease Liabilities for Operating Leases (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Leases [Abstract]
2019	$ 1,096	[1]
2020	2,204
2021	1,993
2022	1,558
2023	1,119
Thereafter	3,939
Total	$ 11,909

[1] Contractual maturities for the six months remaining in 2019

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Operating Leases - Lease Liability (Details) - USD ($) $ in Thousands	Jun. 30, 2019		Jan. 01, 2019
Operating Lease Liabilities, Gross Difference, Amount [Abstract]
Total	$ 11,909
Less: present value discount	(2,254)
Operating lease liabilities	$ 9,655	[1]	$ 10,000

[1] Lease liability is included in other liabilities

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Operating Leases - Schedule of Future Minimum Rental Payments (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Leases [Abstract]
2019	$ 2,190
2020	2,204
2021	1,993
2022	1,558
2023	1,119
Thereafter	3,939
Total	$ 13,003

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Revenue Recognition - General Information (Details)	6 Months Ended
	Jun. 30, 2019
Revenue from Contract with Customer [Abstract]
Percentage of revenue outside of scope of ASC 606	21.00%

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Revenue Recognition - Schedule of Sources of Non-interest Income (Details) - USD ($) $ in Thousands		3 Months Ended			6 Months Ended
		Jun. 30, 2019		Jun. 30, 2018	Jun. 30, 2019		Jun. 30, 2018
Revenue from Contract with Customer [Abstract]
Returned item and overdraft fees		$ 1,657		$ 1,575	$ 3,223		$ 3,142
Other service charges on deposits		1,494		1,452	2,871		2,832
Debit card interchange income		1,687		1,486	3,200		2,885
Loss on limited partnerships	[1]	(450)		(405)	(900)		(800)
Dividends on equity investments	[1]	175		169	406		394
Unrealized gains recognized on equity investments	[1]	232			232
Net gains on sale of securities		22	[1]	0	28	[1]
Other	[1]	1,038		1,152	2,702		2,110
Total noninterest income		$ 5,855		$ 5,429	$ 11,762		$ 10,563

[1] Not within scope of ASC 606. Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP