Quarterly Report (10-q)

Date : 05/07/2019 @ 7:47PM
Source : Edgar (US Regulatory)
Stock : American River Bankshares (AMRB)
Quote : 12.58  0.22 (1.78%) @ 9:00PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended           March 31, 2019

 

or

 

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

 

For the transition period from                                                                                           to    

 

Commission File Number: 0-31525

 

AMERICAN RIVER BANKSHARES
(Exact name of registrant as specified in its charter)

 

California   68-0352144
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     

3100 Zinfandel Drive, Suite 450, Rancho Cordova, California   95670
(Address of principal executive offices)   (Zip Code)

 

(916) 851-0123
(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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

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 o Accelerated filer x
  Non-accelerated filer o Smaller reporting company o
 

Emerging growth company o  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

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 AMRB Nasdaq Global Select Market

 

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

 

No par value Common Stock – 5,887,654 shares outstanding at May 7, 2019

 
 

AMERICAN RIVER BANKSHARES

 

INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2019

Part I.    Page
     
   Item 1. Financial Statements   3
   Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
   Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
   Item 4. Controls and Procedures 42
     
Part II.    
     
   Item 1. Legal Proceedings 42
   Item 1A. Risk Factors 43
   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43
   Item 3. Defaults Upon Senior Securities 43
   Item 4. Mine Safety Disclosures 43
   Item 5. Other Information 43
   Item 6. Exhibits 43
     
Signatures 44
   

Exhibit Index

 

45
31.1

Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

46

31.2

Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

47

32.1 Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

48

       
   101.INS XBRL Instance Document
   101.SCH XBRL Taxonomy Extension Schema
   101.CAL XBRL Taxonomy Extension Calculation
   101.DEF XBRL Taxonomy Extension Definition
   101.LAB XBRL Taxonomy Extension Label
   101.PRE XBRL Taxonomy Extension Presentation

2
 

PART I-FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AMERICAN RIVER BANKSHARES

CONSOLIDATED BALANCE SHEET

(Unaudited)

(dollars in thousands)  

March 31,

2019

   

December 31,

2018

 
ASSETS                
Cash and due from banks   $ 16,610     $ 20,987  
Interest-bearing deposits in banks     2,835       1,746  
Federal funds sold           7,000  
Total cash and cash equivalents     19,445       29,733  
Investment securities:                
Available-for-sale, at fair value     286,602       294,933  
Held-to-maturity, at amortized cost fair value of $293 in 2019 and $306 in 2018     277       292  
Loans and leases, less allowance for loan and lease losses of $4,577 at March 31, 2019 and $4,392 at December 31, 2018     336,007       318,516  
Premises and equipment, net     1,151       1,071  
Federal Home Loan Bank stock     3,932       3,932  
Goodwill and other intangible assets     16,321       16,321  
Other real estate owned     957       957  
Bank owned life insurance     15,509       15,429  
Accrued interest receivable and other assets     9,167       6,908  
    $ 689,368     $ 688,092  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                 
Deposits:                
Noninterest bearing   $ 213,012     $ 214,745  
Interest-bearing     359,367       375,929  
 Total deposits     572,379       590,674  
                 
Short-term borrowings     19,000       5,000  
Long-term borrowings     10,500       10,500  
Accrued interest payable and other liabilities     9,913       7,197  
                 
Total liabilities     611,792       613,371  
                 
                 
Shareholders’ equity:                
Preferred stock, no par value; 10,000,000 shares authorized; none outstanding                
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding – 5,887,962 shares at March 31, 2019 and 5,858,428 shares at December 31, 2018     30,281       30,103  
Retained earnings     47,347       46,494  
Accumulated other comprehensive loss, net of taxes     (52 )     (1,876 )
                 
Total shareholders’ equity     77,576       74,721  
    $ 689,368     $ 688,092  

 

See Notes to Unaudited Consolidated Financial Statements

3
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

(dollars in thousands, except per share data)

For the three months ended March 31,   2019     2018  
                 
Interest income:                
Interest and fees on loans and leases:                
Taxable   $ 3,818     $ 3,328  
Exempt from Federal income taxes     149       128  
Interest on Federal funds sold     5       50  
Interest on deposits in banks     44       6  
Interest and dividends on investment securities:                
Taxable     2,024       1,391  
Exempt from Federal income taxes     92       163  
Total interest income     6,132       5,066  
Interest expense:                
Interest on deposits     489       275  
Interest on borrowings     94       54  
Total interest expense     583       329  
                 
Net interest income     5,549       4,737  
                 
Provision for loan and lease losses     180        
                 
Net interest income after provision for loan and lease losses     5,369       4,737  
                 
Noninterest income:                
Service charges on deposit accounts     121       117  
Gain on sale of securities     36       1  
Other noninterest income     254       254  
Total noninterest income     411       372  
                 
Noninterest expense:                
Salaries and employee benefits     2,781       2,206  
Occupancy     257       262  
Furniture and equipment     140       138  
Federal Deposit Insurance Corporation assessments     50       53  
Expenses related to other real estate owned     4       5  
Other expense     1,028       686  
Total noninterest expense     4,260       3,350  
Income before provision for income taxes     1,520       1,759  
Provision for income taxes     374       406  
Net income   $ 1,146     $ 1,353  
                 
Basic earnings per share   $ 0.20     $ 0.23  
Diluted earnings per share   $ 0.20     $ 0.22  

 

See notes to Unaudited Consolidated Financial Statements

4
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

(dollars in thousands)

For the three months ended March 31,   2019     2018  
             
Net income   $ 1,146     $ 1,353  
Other comprehensive income (loss):                
Increase (decrease) in net unrealized gains on investment securities     2,626       (2,730 )
Deferred tax (expense) benefit     (776 )     821  
Increase in net unrealized gains (losses) on investment securities, net of tax     1,850       (1,909 )
                 
Reclassification adjustment for realized gains included in net income     (36 )     (1 )
Tax effect     10        
Realized gains, net of tax     (26 )     (1 )
                 
Total other comprehensive income (loss)     1,824       (1,908 )
Comprehensive income (loss)   $ 2,970     $ (555 )

 

See notes to Unaudited Consolidated Financial Statements

5
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

                      Accumulated        
  Common Stock           Other     Total  
(dollars in thousands)               Retained     Comprehensive     Shareholders’  
    Shares     Amount     Earnings     Income (Loss)     Equity  
Balance, January 1, 2018     6,132,362     $ 34,463     $ 42,779     $ (321 )   $ 76,921  
Net income                     1,353               1,353  
Other comprehensive loss, net of tax:                                        
Net change in unrealized gains on available-for-sale investment securities                             (1,908 )     (1,908 )
                                         
Cash dividends ($0.05 per share)                     (307 )             (307 )
Net restricted stock award activity and related compensation expense     6,944       65       1               66  
Stock options exercised     7,086       65                       65  
Stock option compensation expense             7                       7  
Retirement of common stock     (264,178 )     (4,099 )                     (4,099 )
                                         
Balance, March 31, 2018     5,882,214     $ 30,501     $ 43,826     $ (2,229 )   $ 72,098  
                                         
Balance, January 1, 2019     5,858,428     $ 30,103     $ 46,494     $ (1,876 )   $ 74,721  
Net income                     1,146               1,146  
Other comprehensive income, net of tax:                                        
Net change in unrealized gains on available-for-sale investment securities                             1,824       1,824  
                                         
Cash dividends ($0.05 per share)                     (293 )             (293 )
Net restricted stock award activity and related compensation expense     18,394       79                       79  
Stock options exercised     11,140       95                       95  
Stock option compensation expense             4                       4  
                                         
Balance, March 31, 2019     5,887,962     $ 30,281     $ 47,347     $ (52 )   $ 77,576  

See Notes to Unaudited Consolidated Financial Statements

6
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 

(dollars in thousands)

For the three months ended March 31,   2019     2018  
             
Cash flows from operating activities:                
Net income   $ 1,146     $ 1,353  
Adjustments to reconcile net income to net cash provided by operating activities:                
Provision for loan and lease losses     180        
Decrease in deferred loan origination fees and costs, net     (231 )     (16 )
Depreciation and amortization     66       70  
Gain on sale and call of investment securities     (36 )     (1 )
Amortization of investment security premiums and discounts, net     404       792  
Increase in cash surrender values of life insurance policies     (81 )     (75 )
Stock based compensation expense     83       73  
Decrease (increase) in accrued interest receivable and other assets     349       (729 )
(Decrease) increase in accrued interest payable and other liabilities     (656 )     241  
                 
Net cash provided by operating activities     1,224       1,708  
                 
Cash flows from investing activities:                
Proceeds from the sale of available-for-sale investment securities     2,022        
Proceeds from called available-for-sale investment securities           500  
Proceeds from matured available-for-sale investment Securities     3,000        
Purchases of available-for-sale investment securities     (4,702 )     (39,933 )
Proceeds from principal repayments for available-for-sale investment securities     10,232       9,867  
Proceeds from principal repayments for held-to-maturity investment securities     15       21  
Net (increase) decrease in loans     (11,746 )     9,662  
Purchases of loans     (5,694 )      
Purchases of equipment     (146 )     (35 )
                 
Net cash used in investing activities     (7,019 )     (19,918 )
7
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)

 

(dollars in thousands)            
For the three months ended March 31,   2019     2018  
                 
Cash flows from financing activities:                
Net (decrease) increase in demand, interest-bearing and savings deposits   $ (17,895 )   $ 44,041  
Net (decrease) increase in time deposits     (400 )     66  
Increase in short term borrowing     14,000        
Proceeds from exercised options     95       65  
Cash dividends paid     (293 )     (307 )
Cash paid to repurchase common stock           (4,099 )
                 
Net cash (used in) provided by financing activities   $ (4,493 )   $ 39,766  
                 
(Decrease) increase in cash and cash equivalents     (10,288 )     21,556  
                 
Cash and cash equivalents at beginning of year     29,733       38,467  
                 
Cash and cash equivalents at end of period   $ 19,445     $ 60,023  
                 
Supplemental noncash disclosures:                
Right of use asset and obligation recorded upon adoption of ASU 2016-02   $ 3,570     $  

 

See Notes to Unaudited Consolidated Financial Statements

8
 

AMERICAN RIVER BANKSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

 

1. CONSOLIDATED FINANCIAL STATEMENTS

 

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of American River Bankshares (the “Company”) at March 31, 2019 and December 31, 2018, the results of its operations and its cash flows for the three-month periods ended March 31, 2019 and 2018 in conformity with accounting principles generally accepted in the United States of America.

 

Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018. The results of operations for the three-month period ended March 31, 2019 may not necessarily be indicative of the operating results for the full year.

 

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.

 

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

 

Adoption of New Accounting Standard: On January 1, 2019, the Company adopted ASU No. 2016-02, “ Leases ”, utilizing the effective date method under the modified retrospective approach. The Company currently leases nine of its office leases under operating leases. The Company’s present value of future lease payments as of January 1, 2019 was $3,570,000 which was recorded as a right-of-use asset included in accrued interest receivable and other assets with an offsetting liability included in accrued interest payable and other liabilities on the consolidated balance sheet. The effects of adopting ASU No. 2016-02 did not have a material impact on the Company’s financial position, results of operations or cash flows.

2. STOCK-BASED COMPENSATION 

Equity Plans

On March 17, 2010, the Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. In 2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”). There were 11,140 stock options outstanding at December 31, 2018, all of which were exercised during the first quarter of 2019; accordingly, there are no further grants outstanding under the 2000 Plan. At March 31, 2019, there were 29,958 stock options and 47,058 restricted shares outstanding and the total number of authorized shares that remain available for issuance under the 2010 Plan was 1,283,232. The 2010 Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock; restricted performance stock; unrestricted Company stock; and performance units. Under the 2010 Plan, the awards may be granted to employees and directors under incentive and nonqualified option agreements, restricted stock agreements, and other awards agreements. The 2010 Plan requires that the option price may not be less than the fair market value of the stock at the date the option is awarded. The option awards under the 2010 Plan expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is generally five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. Outstanding option awards under the 2010 Plan are exercisable until their expiration. New shares are issued upon exercise of an option.

9
 

The award date fair value of awards is determined by the market price of the Company’s common stock on the date of award and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock awarded pursuant to such agreements vest in increments over one to five years from the date of award. The shares awarded to employees and directors under the restricted stock agreements vest on the applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated.

Equity Compensation

For the three-month periods ended March 31, 2019 and 2018, the compensation cost recognized for equity compensation was $83,000 and $73,000, respectively. The recognized tax benefit for equity compensation expense was $21,000 and $18,000, for the three-month periods ended March 31, 2019 and 2018, respectively.

At March 31, 2019, the total compensation cost related to nonvested stock option awards not yet recorded is $13,000. This amount will be recognized over the next 1.3 years and the weighted average period of recognizing these costs is expected to be 0.6 years. At March 31, 2019, the total compensation cost related to restricted stock awards not yet recorded is $497,000. This amount will be recognized over the next 4.2 years and the weighted average period of recognizing these costs is expected to be 1.2 years.

Equity Plans Activity

Stock Options

 

There were no stock options awarded during the three-month periods ended March 31, 2019 and 2018. A summary of option activity under the Plans as of March 31, 2018 and changes during the period then ended is presented below:

 

 

Options

  Shares     Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value ($000)
 
Outstanding at January 1, 2019     41,098     $ 8.71       2.3 years     $ 215  
Granted                        
Exercised     11,140       8.50              
Expired, forfeited or cancelled                        
Outstanding at March 31, 2019     29,958     $ 8.79       5.2 years     $ 126  
Vested at March 31, 2019     22,822     $ 8.64       5.0 years     $ 100  
Non-vested at March 31, 2019     7,136     $ 9.29       5.8 years     $ 26  

Restricted Stock

 

There were 18,394 shares of restricted stock awarded during the three-month period ended March 31, 2019 and 11,599 shares of restricted stock awarded during the three-month period ended March 31, 2018. There were 3,864 and 14,917 restricted stock awards that were fully vested during the three-month periods ended March 31, 2019 and 2018, respectively. The intrinsic value of nonvested restricted stock at March 31, 2019 was $612,000.

10
 

 

Restricted Stock

  Shares     Weighted
Average Grant
Date Fair Value
 
Nonvested at January 1, 2019     32,528     $ 14.60  
Awarded     18,394       14.05  
Less: Vested     3,864       15.30  
Less: Expired, forfeited or cancelled            
Nonvested at March 31, 2019     47,058     $ 14.32  

 

Other Equity Awards

 

There were no stock appreciation rights, restricted performance stock, unrestricted Company stock, or performance units awarded during the three-month periods ended March 31, 2019 or 2018 or outstanding at March 31, 2019 or December 31, 2018.

 

The intrinsic value used for stock options and restricted stock was derived from the market price of the Company’s common stock of $13.00 as of March 31, 2019.

 

3. COMMITMENTS AND CONTINGENCIES

 

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $32,047,000 and standby letters of credit of approximately $240,000 at March 31, 2019 and loan commitments of approximately $34,276,000 and standby letters of credit of approximately $361,000 at December 31, 2018. Such commitments relate primarily to real estate construction loans, revolving lines of credit and other commercial loans. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during 2019 as some of these are expected to expire without being fully drawn upon.

 

Standby letters of credit are commitments issued to guarantee the performance or financial obligation of a client to a third party. These guarantees are issued primarily relating to purchases of inventory, insurance programs, performance obligations to government agencies, or as security for real estate rents by commercial clients and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The majority of all such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at March 31, 2019 or December 31, 2018.

4. EARNINGS PER SHARE COMPUTATION

 

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period (5,836,579 shares and 5,996,146 shares for the three-month periods ended March 31, 2019 and 2018, respectively). Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance of common stock. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of stock based awards (21,048 shares for the three-month period ended March 31, 2019 and 36,641 shares for the three-month period ended March 31, 2018). For the three-month periods ended March 31, 2019 and 2018, there were zero stock options that were excluded from the calculation as they were considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for all periods presented.

11
 

5. INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at March 31, 2019 and December 31, 2018 consisted of the following (dollars in thousands):

 

Available-for-Sale

    March 31, 2019  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair
Value
 
Debt securities:                                
US Government Agencies and Sponsored Agencies   $ 265,796     $ 1,922     $ (2,291 )   $ 265,427  
Obligations of states and political subdivisions     12,398       287       (46 )     12,639  
Corporate bonds     6,494       80       (27 )     6,547  
US Treasury securities     1,988       1             1,989  
    $ 286,676     $ 2,290     $ (2,364 )   $ 286,602  

 

    December 31, 2018  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair
Value
 
Debt securities:                                
US Government Agencies and Sponsored Agencies   $ 271,685     $ 984     $ (3,620 )   $ 269,049  
Obligations of states and political subdivisions     14,440       165       (205 )     14,400  
Corporate bonds     6,493       74       (59 )     6,508  
US Treasury securities     4,979             (3 )     4,976  
    $ 297,597     $ 1,223     $ (3,887 )   $ 294,933  

 

Net unrealized losses on available-for-sale investment securities totaling $74,000 were recorded, net of $22,000 in tax assets, as accumulated other comprehensive loss within shareholders’ equity at March 31, 2019. Net unrealized losses on available-for-sale investment securities totaling $2,664,000 were recorded, net of $788,000 in tax liabilities, as accumulated other comprehensive loss within shareholders’ equity at December 31, 2018. There were no transfers of available-for-sale investment securities for the three-month periods ended March 31, 2019 or March 31, 2018.

 

Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2019 totaled $2,022,000 and $36,000, respectively. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2018 totaled $500,000 and $1,000, respectively.

 

Held-to-Maturity

March 31, 2019

          Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
Debt securities:                                
US Government Agencies and Sponsored Agencies   $ 277     $ 16     $     $ 293  
                                 
December 31, 2018         Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
Debt securities:                                
US Government Agencies and Sponsored Agencies   $ 292     $ 14     $     $ 306  

12
 

There were no sales or transfers of held-to-maturity investment securities for the periods ended March 31, 2019 and March 31, 2018. Investment securities with unrealized losses at March 31, 2019 and December 31, 2018 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

 

March 31, 2019   Less than 12 Months     12 Months or More     Total  
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
 
Available-for-Sale                                              
                                                 
Debt securities:                                                
US Government Agencies and Sponsored Agencies   $ 14,404     $ (99 )   $ 144,192     $ (2,192 )   $ 158,596     $ (2,291 )
Obligations of states and political subdivisions                 1,179       (46 )     1,179       (46 )
Corporate bonds                 2,467       (27 )     2,467       (27 )
    $ 14,404     $ (99 )   $ 147,838     $ (2,265 )   $ 162,242     $ (2,364 )

 

December 31, 2018   Less than 12 Months     12 Months or More     Total  
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
 
Available-for-Sale                                              
                                                 
Debt securities:                                                
US Government Agencies and Sponsored Agencies   $ 39,267     $ (310 )   $ 138,894     $ (3,310 )   $ 178,161     $ (3,620 )
Obligations of states and political subdivisions     2,168       (28 )     5,583       (177 )     7,751       (205 )
Corporate bonds     497       (4 )     1,938       (55 )     2,435       (59 )
US Treasury securities     4,976       (3 )                 4,976       (3 )
    $ 46,908     $ (345 )   $ 146,415     $ (3,542 )   $ 193,323     $ (3,887 )

There were no held-to-maturity investment securities with unrealized losses as of March 31, 2019 or December 31, 2018.

 

At March 31, 2019, the Company held 217 securities of which 8 were in a loss position for less than twelve months and 97 were in a loss position for twelve months or more. Of the 97 securities in a loss position for greater than twelve months at March 31, 2019, one was a municipal security, two were corporate securities, and 94 were US Government Agencies and Sponsored Agencies securities. At December 31, 2018, the Company held 220 securities of which 26 were in a loss position for less than twelve months and 97 were in a loss position for twelve months or more. Of the 97 securities in a loss position for greater than twelve months at December 31, 2018, one was a corporate securities, five were municipal securities and 91 were US Government Agencies and Sponsored Agencies securities.

 

The unrealized loss on the Company’s investment securities is primarily driven by interest rates. Because the decline in market value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be until maturity, management does not consider these investments to be other-than-temporarily impaired.

13
 

The amortized cost and estimated fair values of investment securities at March 31, 2019 by contractual maturity are shown below (dollars in thousands).

 

    Available-for-Sale     Held-to-Maturity  
    Amortized
Cost
    Estimated
Fair
Value
    Amortized
Cost
    Estimated
Fair
Value
 
                         
Within one year   $ 2,243     $ 2,244                  
After one year through five years     3,596       3,609                  
After five years through ten years     11,893       12,061                  
After ten years     3,148       3,261                  
      20,880       21,175                  
Investment securities not due at a single maturity date:                                
US Government Agencies and Sponsored Agencies     265,796       265,427     $ 277     $ 293  
    $ 286,676     $ 286,602     $ 277     $ 293  

 

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

 

6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

 

At March 31, 2019 and December 31, 2018, the recorded investment in nonperforming loans and leases was approximately $25,000 and $27,000, respectively. Nonperforming loans and leases include all such loans and leases that are either placed on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the original loan agreement. At March 31, 2019, the recorded investment in loans and leases that were considered to be impaired totaled $8,640,000. Of the total impaired loans of $8,640,000, loans totaling $5,936,000 were deemed to require no specific reserve and loans totaling $2,704,000 were deemed to require a related valuation allowance of $164,000. At December 31, 2018, the recorded investment in loans and leases that were considered to be impaired totaled $8,702,000 and had a related valuation allowance of $185,000.

 

At March 31, 2019 and December 31, 2018, the recorded investment in other real estate owned (“OREO”) was $957,000. During the first quarter of 2019, the Company did not add any new or sell or impair any of the OREO properties. The March 31, 2019 and December 31, 2018 OREO balance of $957,000 consisted of one commercial land property.

 

Nonperforming loans and leases and other assets and OREO at March 31, 2019 and December 31, 2018 are summarized as follows (in thousands):

 

    March 31,
2019
    December 31,
2018
 
Nonaccrual loans and leases that are current to terms (less than 30 days past due)   $ 25     $ 27  
Nonaccrual loans and leases that are past due            
Loans and leases past due 90 days and accruing interest            
Other real estate owned     957       957  
Total nonperforming assets   $ 982     $ 984  
                 
Nonperforming loans and leases to total loans and leases     0.01 %     0.01 %
Total nonperforming assets to total assets     0.14 %     0.14 %

14
 

Impaired loans and leases as of and for the periods ended March 31, 2019 and December 31, 2018 are summarized as follows:

 

(in thousands)   As of March 31, 2019     As of December 31, 2018  
   

 

Recorded
Investment

   

Unpaid
Principal
Balance

   

 

Related
Allowance

   

 

Recorded
Investment

   

Unpaid
Principal
Balance

   

 

Related
Allowance

 
With no related allowance recorded:                                                
                                                 
Real estate-commercial   $ 5,613     $ 5,746     $     $ 5,645     $ 5,879     $  
Real estate-residential     323       410             323       410        
Subtotal   $ 5,936     $ 6,156     $     $ 5,968     $ 6,289     $  
                                                 
With an allowance recorded:                                                
                                                 
Real estate-commercial   $ 2,116     $ 2,193     $ 117       2,138       2,217       132  
Real estate-residential     588       588       47       596       596       53  
Subtotal   $ 2,704     $ 2,781     $ 164     $ 2,734     $ 2,813     $ 185  
                                                 
Total:                                                
                                                 
Real estate-commercial   $ 7,729     $ 7,939     $ 117     $ 7,783     $ 8,096     $ 32  
Real estate-residential     911       998       47       919       1,006       53  
    $ 8,640     $ 8,937     $ 164     $ 8,702     $ 9,102     $ 185  

The following table presents the average balance related to impaired loans and leases for the periods indicated (in thousands):

 

    Average Recorded Investments
for the three months ended
 
    March 31,
2019
    March 31,
2018
 
             
Commercial   $     $ 1,580  
Real estate-commercial     7,823       8,861  
Real estate-multi-family           473  
Real estate-residential     915       1,609  
Total   $ 8,738     $ 12,523  

The following table presents the interest income recognized on impaired loans and leases for the periods indicated (in thousands):

 

    Interest Income Recognized
for the three months ended
 
    March 31,
2019
    March 31,
2018
 
             
Commercial   $     $  
Real estate-commercial     114       108  
Real estate-multi-family           8  
Real estate-residential     11       22  
Agriculture            
Total   $ 125     $ 138  

 

7. TROUBLED DEBT RESTRUCTURINGS

 

During the periods ended March 31, 2019 and 2018, there were no loans that were modified as troubled debt restructurings.

 

There were no payment defaults during the three months ended March 31, 2019 or March 31, 2018 on troubled debt restructurings made in the preceding twelve months. At March 31, 2019 and December 31, 2018, there were no unfunded commitments on those loans considered troubled debt restructures. See also “Impaired Loans and Leases” in Item 2.

15
 

8. ALLOWANCE FOR LOAN AND LEASE LOSSES

 

The Company’s loan and lease portfolio allocated by management’s internal risk ratings as of March 31, 2019 and December 31, 2019 are summarized below:

 

March 31, 2019   Credit Risk Profile by Internally Assigned Grade  
(dollars in thousands)         Real Estate  
    Commercial     Commercial     Multi-family     Construction     Residential  
Grade:                                        
Pass   $ 29,754     $ 185,247     $ 50,904     $ 8,862     $ 24,941  
Watch     48       10,016       3,821             951  
Special mention           1,069                    
Substandard     25       139                    
Doubtful or loss                              
Total   $ 29,827     $ 196,471     $ 54,725     $ 8,862     $ 25,892  

 

    Credit Risk Profile by Internally Assigned Grade
Other Credit Exposure
             
    Leases     Agriculture     Consumer           Total  
Grade:                                        
Pass   $ 10     $ 8,787     $ 15,719             $ 324,224  
Watch                 22               14,858  
Special mention                 1               1,070  
Substandard                               164  
Doubtful or loss                                
Total   $ 10     $ 8,787     $ 15,742             $ 340,316  

 

December 31, 2018   Credit Risk Profile by Internally Assigned Grade  
(dollars in thousands)         Real Estate  
    Commercial     Commercial     Multi-family     Construction     Residential  
Grade:                                        
Pass   $ 29,570     $ 185,548     $ 52,301     $ 5,685     $ 15,373  
Watch     53       13,118       3,838             965  
Special mention           1,087                    
Substandard     27       141                    
Doubtful or loss                              
Total   $ 29,650     $ 199,894     $ 56,139     $ 5,685     $ 16,338  

 

    Credit Risk Profile by Internally Assigned Grade
Other Credit Exposure
             
    Leases     Agriculture     Consumer           Total  
Grade:                                        
Pass   $ 32     $ 4,419     $ 10,691             $ 303,619  
Watch                 22               17,996  
Special mention                 1               1,088  
Substandard                               168  
Doubtful or loss                                
Total   $ 32     $ 4,419     $ 10,714             $ 322,871  

16
 

The allocation of the Company’s allowance for loan and lease losses and by portfolio segment and by impairment methodology are summarized below:

 

March 31, 2019                                                            
(dollars in thousands)           Real Estate     Other                
    Commercial     Commercial     Multi-Family     Construction     Residential     Leases     Agriculture     Consumer     Unallocated     Total  
Allowance for Loan and Lease Losses                                                                                
                                                                                 
Beginning balance, January 1, 2019   $ 668     $ 2,114     $ 564     $ 267     $ 220     $     $ 88     $ 192     $ 279     $ 4,392  
Provision for loan losses     (9 )     (86 )     (144 )     141       129             80       65       4       180  
Loans charged-off                                                            
Recoveries     2       3                                                 5  
                                                                                 
Ending balance, March 31, 2019   $ 661     $ 2,031     $ 420     $ 408     $ 349     $     $ 168     $ 257     $ 283     $ 4,577  
                                                                                 
Ending balance:                                                                                
Individually evaluated for impairment   $     $ 117     $     $     $ 47     $     $     $     $     $ 164  
                                                                                 
Ending balance:                                                                                
Collectively evaluated for impairment   $ 661     $ 1,914     $ 420     $ 408     $ 302     $     $ 168     $ 257     $ 283     $ 4,413  
                                                                                 
Loans                                                                                
                                                                                 
Ending balance   $ 29,827     $ 196,471     $ 54,725     $ 8,862     $ 25,892     $   10     $ 8,787     $ 15,742     $     $ 340,316  
                                                                                 
Ending balance:                                                                                
Individually evaluated for impairment   $     $ 7,729     $     $     $ 911     $     $     $     $     $ 8,640  
                                                                                 
Ending balance:                                                                                
Collectively evaluated for impairment   $ 29,827     $ 188,742     $ 54,725     $ 8,862     $ 24,981     $   10     $ 8,787     $ 15,742     $     $ 331,676  
17
 
December 31, 2018                                                            
(dollars in thousands)         Real Estate     Other              
    Commercial     Commercial     Multi-Family     Construction     Residential     Leases     Agriculture     Consumer     Unallocated     Total  
Ending balance:                                                                                
Individually evaluated for impairment   $     $ 132     $     $     $ 53     $     $     $     $     $ 185  
                                                                                 
Ending balance:                                                                                
Collectively evaluated for impairment   $ 668     $ 1,982     $ 564     $ 267     $ 167     $     $ 88     $ 192     $ 279     $ 4,207  
                                                                                 
Loans                                                                                
                                                                                 
Ending balance   $ 29,650     $ 199,894     $ 56,139     $ 5,685     $ 16,338     $ 32     $ 4,419     $ 10,714     $     $ 322,871  
                                                                                 
Ending balance:                                                                                
Individually evaluated for impairment   $     $ 7,783     $     $     $ 919     $     $     $     $     $ 8,702  
                                                                                 
Ending balance:                                                                                
Collectively evaluated for impairment   $ 29,650     $ 192,111     $ 56,139     $ 5,685     $ 15,419     $ 32     $ 4,419     $ 10,714     $     $ 314,169  

 

March 31, 2018                                                            
(dollars in thousands)         Real Estate     Other              
    Commercial     Commercial     Multi-Family     Construction     Residential     Leases     Agriculture     Consumer     Unallocated     Total  
Beginning balance, January 1, 2018   $ 447     $ 2,174     $ 1,047     $ 269     $ 205     $     $ 31     $ 14     $ 291     $ 4,478  
Provision for loan losses     92       (33 )     (81 )     19       13       (1 )           1       (10 )      
Loans charged-off                                                            
Recoveries     7       2                         1                         10  
                                                                                 
Ending balance, March 31, 2018   $ 546     $ 2,143     $ 966     $ 288     $ 218     $     $ 31     $ 15     $ 281     $ 4,488  
18
 

The Company’s aging analysis of the loan and lease portfolio at March 31, 2019 and December 31, 2018 are summarized below:

 

March 31, 2019                                       Past Due        
(dollars in thousands)               Past Due                       Greater Than        
    30-59 Days
    60-89 Days
    Greater Than     Total Past                 90 Days and        
    Past Due     Past Due     90 Days     Due     Current     Total Loans     Accruing     Nonaccrual  
Commercial:                                                                
Commercial   $     $     $     $     $ 29,827     $ 29,827     $       $ 25  
Real estate:                                                                
Commercial     423                   423       196,048       196,471              
Multi-family                             54,725       54,725              
Construction                             8,862       8,862              
Residential                             25,892       25,892              
Other:                                                                
Leases                             10       10              
Agriculture                             8,787       8,787              
Consumer                             15,742       15,742              
Total   $   423     $     $     $   423     $ 339,893     $ 340,316     $     $   25  

 

December 31, 2018                                       Past Due        
(dollars in thousands)               Past Due                       Greater Than        
    30-59 Days
    60-89 Days  
  Greater Than     Total Past                 90 Days and        
    Past Due     Past Due     90 Days     Due     Current     Total Loans     Accruing     Nonaccrual  
Commercial:                                                                
Commercial   $     $     $     $     $ 29,650     $ 29,650     $     $ 27  
                                                                 
Real estate:                                                                
Commercial                             199,894       199,894              
Multi-family                             56,139       56,139              
Construction                             5,685       5,685              
Residential                             16,338       16,338              
                                                                 
Other:                                                                
Leases                             32       32              
Agriculture                             4,419       4,419              
Consumer                             10,714       10,714              
Total   $     $     $     $     $ 322,871     $ 322,871     $     $ 27  
19
 

9. LEASES

 

The Company adopted ASU 2016-02,  Leases (Topic 842), on January 1, 2019, using the alternative transition method whereby comparative periods were not restated. No cumulative effect adjustment to the opening balance of retained earnings was required. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things allowed the Company to carry forward the historical lease classifications. Additionally, the Company elected the hindsight practical expedient to determine the lease term for existing leases.

 

The Company leases nine locations for administrative offices and branch locations. All leases were classified as operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term. The Company elected to use the practical expedient to not recognize short-term leases on the consolidated balance sheet and instead account for them as executory contracts.

Certain leases include options to renew, with renewal terms that can extend the lease term, typically for five years. Lease assets and liabilities include related options that are reasonably certain of being exercised, however, in the case of those leases that have renewal options, the Company is not including those additional lease terms as the rates are undeterminable and it has been the Company’s historical practice to renegotiate lease terms upon expiration of the original lease terms. The depreciable life of leased assets are limited by the expected lease term.

 

Adoption of this standard resulted in the Company recognizing a right of use asset and a corresponding lease liability of $3,570,000 on January 1, 2019.

 

Supplemental lease information at or for the three months ended March 31, 2019 is as follows:

 

Balance Sheet        
         
Operating lease asset classified as premises and equipment   $ 3,372,000  
Operating lease liability classified as other liabilities     3,372,000  
         
Income Statement        
         
Operating lease cost classified as occupancy and equipment expense   $ 188,000  
Weighted average lease term, in years     6.33  
Weighted average discount rate (1)     3.03 %
Operating cash flows   $ 189,000  

 

(1) The discount rate was developed by using the fixed rate credit advance borrowing rate at the Federal Home Loan Bank of San Francisco for a term correlating to the remaining life of each lease.

 

A maturity analysis of the Company’s lease liabilities at March 31, 2019 was as follows:

 

    Balance  
April 1, 2019 to March 31, 2020   $ 728,000  
April 1, 2020 to March 31, 2021     689,000  
April 1, 2021 to March 31, 2022     653,000  
April 1, 2022 to March 31, 2023     539,000  
April 1, 2023 to March 31, 2024     283,000  
Thereafter     859,000  
Total lease payments     3,751,000  
Less: Interest     (379,000 )
Present value of lease liabilities   $ 3,372,000  

 

10. BORROWING ARRANGEMENTS

 

At March 31, 2019, the Company had $17,000,000 of unsecured short-term borrowing arrangements with two of its correspondent banks. There were no advances under the borrowing arrangements as of March 31, 2019 or December 31, 2018.

20
 

The Company has a line of credit available with the Federal Home Loan Bank of San Francisco (the “FHLB”) which is secured by pledged mortgage loans and investment securities. Borrowings may include overnight advances as well as loans with terms of up to thirty years. Advances (both short-term and long-term) totaling $29,500,000 were outstanding from the FHLB at March 31, 2019, bearing interest rates ranging from 1.18% to 3.17% and maturing between April 1, 2021 and November 24, 2023. Advances totaling $15,500,000 were outstanding from the FHLB at December 31, 2018, bearing interest rates ranging from 1.18% to 3.17% and maturing between April 30, 2019 and November 24, 2023. Remaining amounts available under the borrowing arrangement with the FHLB at March 31, 2019 and December 31, 2018 totaled $92,451,000 and $107,262,000, respectively. In addition, the Company has a secured borrowing agreement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. Borrowings generally are short-term including overnight advances as well as loans with terms up to ninety days. Amounts available under this borrowing arrangement at March 31, 2019 and December 31, 2018 were $6,465,000 and $8,340,000, respectively. There were no advances outstanding under this borrowing arrangement as of March 31, 2019 and December 31, 2018.

 

11. INCOME TAXES

 

The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for (benefit from) income taxes.

The Company accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if applicable, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There have been no unrecognized tax benefits or accrued interest and penalties for the three-month periods ended March 31, 2019 and 2018.

12. FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2019 and December 31, 2018. They indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In 2018, the Company adopted the provisions of Accounting Standard Update 2016-01 “ Recognition and Measurement of Financial Assets and Financial Liabilities ” (“ASU 2016-01”). ASU 2016-01 requires the Company to use the exit price notion when measuring the fair value of financial instruments. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

21
 

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):

 

    Carrying     Fair Value Measurements Using:        
March 31, 2019   Amount     Level 1     Level 2     Level 3     Total  
                               
Financial assets:                                        
Cash and due from banks   $ 16,610     $ 16,610     $     $     $ 16,610  
Federal funds sold                              
Interest-bearing deposits in banks     2,835       1,089       1,746             2,835  
Available-for-sale securities     286,602       1,989       284,613             286,602  
Held-to-maturity securities     277             293             293  
FHLB stock     3,932       N/A       N/A       N/A       N/A  
Net loans and leases:     336,007                   338,298       338,298  
Accrued interest receivable     2,050             1,030       898       1,928  
                                         
Financial liabilities:                                        
Deposits:                                        
Noninterest-bearing   $ 213,012     $ 213,012     $     $     $ 213,012  
Savings     72,576       72,576                   72,576  
Money market     132,966       132,966                   132,966  
NOW accounts     66,148       66,148                   66,148  
Time Deposits     87,677             87,649             87,649  
Short-term borrowings     19,000       19,000                   19,000  
Long-term borrowings     10,500             10,737             10,737  
Accrued interest payable     95       7       88             95  

 

    Carrying     Fair Value Measurements Using:        
December 31, 2018   Amount     Level 1     Level 2     Level 3     Total  
                               
Financial assets:                              
Cash and due from banks   $ 20,987     $ 20,987     $     $     $ 20,987  
Federal funds sold     7,000       7,000                       7,000  
Interest-bearing deposits in banks     1,746             1,746             1,746  
Available-for-sale securities     294,933       4,976       289,957             294,933  
Held-to-maturity securities     292             306             306  
FHLB stock     3,932       N/A       N/A       N/A       N/A  
Net loans and leases:     318,516                   315,235       315,235  
Accrued interest receivable     1,959             1,044       915       1,959  
                                         
Financial liabilities:                                        
Deposits:                                        
Noninterest-bearing   $ 214,745     $ 214,745     $     $     $ 214,745  
Savings     72,522       72,522                   72,522  
Money market     145,831       145,831                   145,831  
NOW accounts     69,489       69,489                   69,489  
Time Deposits     88,087             88,078             88,078  
Short-term borrowings     5,000       5,000                   5,000  
Long-term borrowings     10.500             10,733             10,733  
Accrued interest payable     63             63             63  
22
 

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

 

Assets and liabilities measured at fair value on a recurring and non-recurring basis are presented in the following table:

 

Description           Fair Value Measurements Using     Total Gains  
(dollars in thousands)   Fair Value     Level 1     Level 2     Level 3     (Losses)  
                               
March 31, 2019                                        
                                         
Assets and liabilities measured on a recurring basis:                                        
Available-for-sale securities:                                        
US Government Agencies and Sponsored Agencies   $ 265,427     $