Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit
discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using
historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.
Premises and Equipment
Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is
computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are
amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy
expense.
Other Real Estate
Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for
business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to
sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of
debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are
included in non-interest expense as incurred.
Income Taxes
The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and
liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This
amount combined with the current taxes payable or refundable results in the income tax expense for the current year.
The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting
Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial
statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.
The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and
accounted for as a reduction of the cost of the related assets and presented as deferred income tax on the Company’s financial statement.
The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income
tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax
expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated
balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
At December 31, 2018 and 2017, the Company has no material uncertain tax positions and recognized no interest or penalties. The Company’s policy
is to recognize interest and penalties related to income taxes in the provision for income taxes in the Consolidated Statement of Income.
Basic and Diluted Earnings Per Common Share
The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic
earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted
basic earnings per common share. See Note 15 for additional information.
Segment Reporting
The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating
segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank,
which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the
Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands
change.
Comprehensive Income
The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components
in the financial statements. Other comprehensive income refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income
includes net income and changes in fair value of its available-for-sale investment securities.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.
Business Combinations And Related Matters
Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business
Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the
date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies
must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition.
Acquisition-related costs, including conversion charges, are expensed as incurred.
Goodwill and Other Intangible Assets
: Goodwill is
determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition
date. Goodwill that arises from a business combination is periodically evaluated for impairment at the reporting unit level, at least annually. Intangible assets with definite useful lives are amortized over their estimated useful lives
to their estimated residual values. Core deposit intangible (“CDI”) represents the estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and evaluated periodically for
impairment. The CDI asset is amortized on a straight-line method over its estimated useful life of ten years. At December 31, 2018, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:
(in thousands)
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Thereafter
|
|
|
Total
|
|
Core Deposit Intangible Amortization
|
|
$
|
639
|
|
|
$
|
626
|
|
|
$
|
611
|
|
|
$
|
593
|
|
|
$
|
573
|
|
|
$
|
2,236
|
|
|
$
|
5,278
|
|
We make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit where goodwill is assigned is less
than its carrying amount. If we conclude that it is more likely than not that the fair value is more than its carrying amount, no impairment is recorded. Goodwill is tested for impairment on an interim basis if circumstances change or an
event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The qualitative assessment includes adverse events or circumstances identified that could negatively
affect the reporting units’ fair value as well as positive and mitigating events. Such indicators may include, among others, a significant change in legal factors or in the general business climate, significant change in our stock price
and market capitalization, unanticipated competition, and an action or assessment by a regulator. If the fair value of a reporting unit is less than its carrying amount, an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value is recognized. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
2. Business Combinations
Bank of Rio Vista
On April 5, 2017, the Company purchased 4.9% of the voting shares of Bank of Rio Vista (BRV). On July 3, 2017, the Federal Reserve Bank of San
Francisco approved the Company’s application to acquire additional voting shares and between July 2017 and March 2018 the Company acquired shares bringing its total to 39.65% of the outstanding shares. Initially, the Company, as per
requirements outlined in ASC 323-10-15-6, did not have the ability to exercise significant influence over BRV’s operating and financial policies. Accordingly, the investment in BRV was accounted for under the cost method of accounting
until March 26, 2018 when the Company entered into a definitive agreement for the acquisition of the remaining 60.35% of the voting shares of Bank of Rio Vista, at which time it changed to the equity method of accounting retroactive to
January 1, 2018. On October 10, 2018, the Company completed the acquisition of the remaining shares.
Bank of Rio Vista was incorporated under the laws of the State of California on April 12, 1904, and operated as a commercial bank with branches
in the cities of Rio Vista, Walnut Grove, and Lodi, California. The acquisition enhances our market presence and added $80.5 million in loans, $191.6 million in deposits and $104.1 million in investment securities to the Company.
Effective November 30, 2018, the Lodi branch was closed after Management determined that our customers and the business community could be easily supported from our current Lodi locations. The assets acquired and liabilities assumed, both
tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805,
Business Combinations
. The
acquisition was treated as a “reorganization” within the meaning of section 368(a)(1)(A) of the Internal Revenue Code and is considered tax-free for U.S. federal income tax purposes.
The following table reflects the book value and estimated fair value of the assets acquired and liabilities assumed related to the Bank of Rio
Vista acquisition:
|
|
Bank of Rio Vista
|
|
(in thousands)
|
|
Book Value
|
|
|
Fair Value
|
|
Assets Acquired:
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
22,655
|
|
|
$
|
22,655
|
|
Investments
|
|
|
104,118
|
|
|
|
104,118
|
|
Loans
|
|
|
78,437
|
|
|
|
80,494
|
|
Core Deposit Intangible
|
|
|
-
|
|
|
|
4,670
|
|
Goodwill
|
|
|
-
|
|
|
|
11,183
|
|
Deferred Tax
|
|
|
2,813
|
|
|
|
298
|
|
Other Assets
|
|
|
9,470
|
|
|
|
11,038
|
|
Total Assets Acquired
|
|
$
|
217,493
|
|
|
$
|
234,456
|
|
|
|
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
|
|
|
54,450
|
|
|
|
54,450
|
|
Interest-Bearing Transaction
|
|
|
48,469
|
|
|
|
48,469
|
|
Savings and Money Market
|
|
|
62,839
|
|
|
|
62,839
|
|
Time
|
|
|
25,813
|
|
|
|
25,813
|
|
Total Deposits
|
|
$
|
191,571
|
|
|
$
|
191,571
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
1,238
|
|
|
|
1,238
|
|
Total liabilities assumed
|
|
$
|
192,809
|
|
|
$
|
192,809
|
|
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
|
|
|
|
|
28,642
|
|
Value of Previously Held Equity Interest
|
|
|
|
|
|
|
13,005
|
|
Total Merger Consideration
|
|
|
|
|
|
$
|
41,647
|
|
The following table presents the net assets acquired from Bank of Rio Vista and the estimated fair value adjustment:
(in thousands)
|
|
Acquisition Date
October 10, 2018
|
|
Book Value of Net Assets Acquired
|
|
$
|
24,684
|
|
Fair Value Adjustments:
|
|
|
|
|
Loans
|
|
|
440
|
|
Reversal of Allowance for Loan Loss
|
|
|
1,616
|
|
Core Deposit Intangible Asset
|
|
|
4,670
|
|
Other Assets & Liabilities, net
|
|
|
1,568
|
|
Total Purchase Accounting Adjustments
|
|
$
|
8,294
|
|
|
|
|
|
|
Deferred Tax Asset (tax effect of purchase
|
|
|
|
|
accounting adjustments at 29.56%)
|
|
|
(2,452
|
)
|
DTA Adjustment
|
|
|
(62
|
)
|
Fair Value of Net Assets Acquired
|
|
$
|
30,464
|
|
|
|
|
|
|
Merger Consideration
|
|
|
41,647
|
|
Fair Value of Net Assets Acquired
|
|
|
(30,464
|
)
|
Goodwill
|
|
$
|
11,183
|
|
The following is a description of the methods used to determine the fair value of significant assets and liabilities presented above.
Cash and Cash Equivalents:
The carrying amount for
cash and due from banks, interest-bearing deposits with banks and federal funds sold are a reasonable estimate of fair value based on the short-term nature of these assets.
Investments:
Fair value for investments was obtained
from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment spreads, credit information and the bond’s terms and conditions.
Loans:
Fair value for loans were based on a discounted
cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, and amortization status. Loans were individually assessed, with some
assumptions being applied from the aggregate pool level to the individual loan itself. The discount rates used for loans are based on a build-up method that considers credit ratings, funding, liquidity, and other adjustments. No credit
impaired loans were acquired as part of this business combination.
Core Deposit Intangible (CDI):
This intangible asset
represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost the deposit base,
reserve requirements and the net maintenance cost attributable to customer deposits. The CDI is being amortized over 10 years based on the estimated economic benefits received.
The Company recorded a core deposit intangible asset acquisition of $4.7 million which $120 thousand was amortized in 2018. At December 31,
2018, the future estimated amortization expense on the CDI from the Bank of Rio Vista acquisition is as follows:
(in thousands)
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Thereafter
|
|
|
Total
|
|
Core Deposit Intangible Amortization
|
|
$
|
533
|
|
|
$
|
524
|
|
|
$
|
512
|
|
|
$
|
499
|
|
|
$
|
481
|
|
|
$
|
2,001
|
|
|
$
|
4,550
|
|
Other Assets:
Other assets are composed of real
property assets which include two bank premises. These assets were valued in November 13, 2018 via USPAP-compliant appraisals for the 100% interest in the fee simple estate by a state licensed appraiser.
Deposits:
The fair values used for the demand and
savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the
contractual interest rates on such time deposits.
The merger consideration is $41.65 million, which includes $28.6 million in cash, to purchase the remaining 2,414 (60.35%) shares outstanding as
of October 10, 2018 plus the value of existing 39.65% investment of $13.0 million. The existing holdings were revalued at $8,200 per share based upon valuations completed during the quarter of issuance by a nationally recognized bank
consulting and advisory firm.
The Company incurred acquisition-related expenses in 2018 for the Bank of Rio Vista acquisition as follows:
(in thousands)
|
|
Year Ended
December 31,
2018
|
|
|
|
|
|
Data Processing
|
|
$
|
1,978
|
|
Professional Services
|
|
|
950
|
|
Other
|
|
|
5
|
|
Total
|
|
$
|
2,933
|
|
3. Investment Securities
The amortized cost, fair values, and unrealized gains and losses of the securities
available-for-sale
are as follows:
(in thousands)
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair/Book
|
|
December 31, 2018
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
3,033
|
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
3,039
|
|
US Treasury Notes
|
|
|
164,672
|
|
|
|
-
|
|
|
|
158
|
|
|
|
164,514
|
|
US Govt SBA
|
|
|
15,601
|
|
|
|
6
|
|
|
|
160
|
|
|
|
15,447
|
|
Mortgage Backed Securities
(1)
|
|
|
310,982
|
|
|
|
1,196
|
|
|
|
5,133
|
|
|
|
307,045
|
|
Other
|
|
|
5,351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,351
|
|
Total
|
|
$
|
499,639
|
|
|
$
|
1,208
|
|
|
$
|
5,451
|
|
|
$
|
495,396
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair/Book
|
|
December 31, 2017
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
3,080
|
|
|
$
|
48
|
|
|
$
|
-
|
|
|
$
|
3,128
|
|
US Treasury Notes
|
|
|
144,606
|
|
|
|
-
|
|
|
|
442
|
|
|
|
144,164
|
|
US Govt SBA
|
|
|
29,559
|
|
|
|
29
|
|
|
|
208
|
|
|
|
29,380
|
|
Mortgage Backed Securities
(1)
|
|
|
302,502
|
|
|
|
939
|
|
|
|
1,527
|
|
|
|
301,914
|
|
Other
|
|
|
3,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,010
|
|
Total
|
|
$
|
482,757
|
|
|
$
|
1,016
|
|
|
$
|
2,177
|
|
|
$
|
481,596
|
|
(1)
All Mortgage Backed Securities were issued by an agency or
government sponsored entity of the U.S. government.
The book values, estimated fair values and unrealized gains and losses of investments classified as
held-to-maturity
are as follows:
(in thousands)
|
|
Book
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
December 31, 2018
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations of States and Political Subdivisions
|
|
$
|
53,566
|
|
|
$
|
211
|
|
|
$
|
39
|
|
|
$
|
53,738
|
|
Total
|
|
$
|
53,566
|
|
|
$
|
211
|
|
|
$
|
39
|
|
|
$
|
53,738
|
|
|
|
Book
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
December 31, 2017
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations of States and Political Subdivisions
|
|
$
|
54,460
|
|
|
$
|
776
|
|
|
$
|
-
|
|
|
$
|
55,236
|
|
Total
|
|
$
|
54,460
|
|
|
$
|
776
|
|
|
$
|
-
|
|
|
$
|
55,236
|
|
Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is
estimated using quoted market prices for similar securities.
The amortized cost and estimated fair values of investment securities at December 31, 2018 by contractual maturity are shown in the following
tables.
(in thousands)
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
December 31, 2018
|
|
Amortized
Cost
|
|
|
|
|
|
Book
Value
|
|
|
|
|
Within One Year
|
|
$
|
156,840
|
|
|
$
|
156,751
|
|
|
$
|
2,340
|
|
|
$
|
2,342
|
|
After One Year Through Five Years
|
|
|
17,097
|
|
|
|
17,032
|
|
|
|
2,161
|
|
|
|
2,162
|
|
After Five Years Through Ten Years
|
|
|
1,474
|
|
|
|
1,472
|
|
|
|
21,167
|
|
|
|
21,292
|
|
After Ten Years
|
|
|
13,247
|
|
|
|
13,096
|
|
|
|
27,898
|
|
|
|
27,942
|
|
|
|
|
188,658
|
|
|
|
188,351
|
|
|
|
53,566
|
|
|
|
53,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Not Due at a Single Maturity Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Backed Securities
|
|
|
310,981
|
|
|
|
307,045
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
499,639
|
|
|
$
|
495,396
|
|
|
$
|
53,566
|
|
|
$
|
53,738
|
|
Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss position at the dates indicated.
(in thousands)
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Notes
|
|
$
|
124,985
|
|
|
$
|
7
|
|
|
$
|
39,529
|
|
|
$
|
151
|
|
|
$
|
164,514
|
|
|
$
|
158
|
|
US Govt SBA
|
|
|
3,250
|
|
|
|
28
|
|
|
|
8,618
|
|
|
|
132
|
|
|
|
11,868
|
|
|
|
160
|
|
Mortgage Backed Securities
|
|
|
52,289
|
|
|
|
528
|
|
|
|
207,271
|
|
|
|
4,605
|
|
|
|
259,560
|
|
|
|
5,133
|
|
Total
|
|
$
|
180,524
|
|
|
$
|
563
|
|
|
$
|
255,418
|
|
|
$
|
4,888
|
|
|
$
|
435,942
|
|
|
$
|
5,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and Political Subdivisions
|
|
$
|
6,052
|
|
|
$
|
23
|
|
|
$
|
849
|
|
|
$
|
16
|
|
|
$
|
6,901
|
|
|
$
|
39
|
|
Total
|
|
$
|
6,052
|
|
|
$
|
23
|
|
|
$
|
849
|
|
|
$
|
16
|
|
|
$
|
6,901
|
|
|
$
|
39
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Notes
|
|
$
|
94,281
|
|
|
$
|
144
|
|
|
$
|
49,883
|
|
|
$
|
298
|
|
|
$
|
144,164
|
|
|
$
|
442
|
|
US Govt SBA
|
|
|
8,379
|
|
|
|
51
|
|
|
|
12,900
|
|
|
|
157
|
|
|
|
21,279
|
|
|
|
208
|
|
Mortgage Backed Securities
|
|
|
126,863
|
|
|
|
932
|
|
|
|
43,208
|
|
|
|
595
|
|
|
|
170,071
|
|
|
|
1,527
|
|
Total
|
|
$
|
229,523
|
|
|
$
|
1,127
|
|
|
$
|
105,991
|
|
|
$
|
1,050
|
|
|
$
|
335,514
|
|
|
$
|
2,177
|
|
There were no HTM investments with gross unrealized losses at December 31, 2017.
As of December 31, 2018, the Company held 636 investment securities of which 83 were in an unrealized loss position for less than twelve months
and 120 securities were in an unrealized loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and
observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.
Securities of Government Agency and Government Sponsored
Entities
– At December 31, 2018, no securities of government agency and government sponsored entities were in a loss position for less than 12 months and none were in a loss position for 12 months or more. There were no
unrealized losses on the Company’s investments in securities of government agency and government sponsored entities at December 31, 2018 or December 31, 2017. Repayment of these investments is guaranteed by an agency or government
sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to
changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the
Company did not consider these investments to be other-than-temporarily impaired at December 31, 2018.
U.S. Treasury Notes
– At December 31, 2018, 13 U.S.
Treasury Note security investments were in a loss position for less than 12 months and 4 were in a loss position for 12 months or more. The unrealized losses on the Company’s investment in US treasury notes were $158,000 at December 31,
2018 and $442,000 at December 31, 2017. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does
not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily
impaired at December 31, 2018 and December 31, 2017.
U.S. Government SBA
– At December 31, 2018, 17 U.S.
Government SBA security investments were in a loss position for less than 12 months and 53 were in a loss position for 12 months or more. The unrealized losses on the Company’s investment in U.S. Government SBA were $160,000 at December
31, 2018 and $208,000 at December 31, 2017. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company
does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily
impaired at December 31, 2018 and December 31, 2017.
Mortgage Backed Securities
- At December 31, 2018, 37
mortgage backed security investments were in a loss position for less than 12 months and 61 was in a loss position for 12 months or more. The unrealized losses on the Company’s investment in mortgage-backed securities were $5.1 million at
December 31, 2018 and $1.5 million at December 31, 2017. The unrealized losses were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the
U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates
and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider
these investments to be other-than-temporarily impaired at December 31, 2018 or 2017.
Obligations of States and Political Subdivisions
- At
December 31, 2018, 16 obligations of states and political subdivisions were in a loss position for less than 12 months. Two were in a loss position for 12 months or more. As of December 31, 2018, over ninety-nine percent of the Company’s
bank-qualified municipal bond portfolio is rated at either the issue or the issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the one percent of the portfolio that is not rated and at the
current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.
The unrealized losses on the Company’s investment in obligation of states and political subdivisions were $39,000 at December 31, 2018 and $0 at
December 31, 2017. Management believes that any unrealized losses on the Company’s investments in obligations of states and political subdivisions were caused by interest rate fluctuations. The contractual terms of these investments do
not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company would not have to sell
the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2018 and December 31, 2017.
Proceeds from sales and calls of these securities were as follows:
(in thousands)
|
|
Gross
Proceeds
|
|
|
Gross
Gains
|
|
|
Gross
Losses
|
|
2018
|
|
$
|
99,323
|
|
|
$
|
78
|
|
|
$
|
1,338
|
|
2017
|
|
$
|
7,831
|
|
|
$
|
143
|
|
|
$
|
12
|
|
2016
|
|
$
|
105,941
|
|
|
$
|
250
|
|
|
$
|
534
|
|
Pledged Securities
As of December 31, 2018, securities carried at $268.8 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”)
borrowings, and other government agency deposits as required by law. This amount was $214.5 million at December 31, 2017.
4. Federal Home Loan Bank Stock and Other Equity Securities, at Cost
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and
other factors, and may invest in additional amounts. FHLB stock and other equity securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both
cash and stock dividends are reported as income. FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $12.6 million at December 31, 2018 and
$22.6 million, which included the $12 million (39.65%) investment in Bank of Rio Vista stock at December 31, 2017.
5. Loans & Leases
Loans & leases as of December 31 consisted of the following:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Commercial Real Estate
|
|
$
|
834,476
|
|
|
$
|
691,639
|
|
Agricultural Real Estate
|
|
|
584,625
|
|
|
|
499,231
|
|
Real Estate Construction
|
|
|
98,568
|
|
|
|
100,206
|
|
Residential 1st Mortgages
|
|
|
259,736
|
|
|
|
260,751
|
|
Home Equity Lines and Loans
|
|
|
40,789
|
|
|
|
34,525
|
|
Agricultural
|
|
|
290,463
|
|
|
|
273,582
|
|
Commercial
|
|
|
343,834
|
|
|
|
265,703
|
|
Consumer & Other
|
|
|
19,412
|
|
|
|
6,656
|
|
Leases
|
|
|
106,217
|
|
|
|
88,957
|
|
Total Gross Loans & Leases
|
|
|
2,578,120
|
|
|
|
2,221,250
|
|
Less: Unearned Income
|
|
|
6,879
|
|
|
|
5,955
|
|
Subtotal
|
|
|
2,571,241
|
|
|
|
2,215,295
|
|
Less: Allowance for Credit Losses
|
|
|
55,266
|
|
|
|
50,342
|
|
Loans & Leases, Net
|
|
$
|
2,515,975
|
|
|
$
|
2,164,953
|
|
Loan growth for the year ending December 31, 2018 was $356.9 million, which included $80.5 million from the BRV acquisition.
At December 31, 2018, the portion of loans that were approved for pledging as collateral on borrowing lines with the Federal Home Loan Bank
(“FHLB”) and the Federal Reserve Bank (“FRB”) were $753.6 million and $717.8 million, respectively. The borrowing capacity on these loans was $617.8 million from FHLB and $453.0 million from the FRB.
6. Allowance for Credit Losses
The following tables show the allocation of the allowance for credit losses at December 31, 2018 and December 31, 2017 by portfolio segment and
by impairment methodology
(in thousands)
:
December 31, 2018
|
|
Commercial
Real Estate
|
|
|
Agricultural
Real Estate
|
|
|
Real Estate
Construction
|
|
|
Residential 1st
Mortgages
|
|
|
Home Equity
Lines &
Loans
|
|
|
Agricultural
|
|
|
Commercial
|
|
|
Consumer &
Other
|
|
|
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-To-Date Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- January 1, 2018
|
|
$
|
10,922
|
|
|
$
|
12,085
|
|
|
$
|
1,846
|
|
|
$
|
815
|
|
|
$
|
2,324
|
|
|
$
|
8,159
|
|
|
$
|
9,197
|
|
|
$
|
209
|
|
|
$
|
3,363
|
|
|
$
|
1,422
|
|
|
$
|
50,342
|
|
Charge-Offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(31
|
)
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(613
|
)
|
|
|
(115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(767
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
6
|
|
|
|
61
|
|
|
|
20
|
|
|
|
54
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158
|
|
Provision
|
|
|
685
|
|
|
|
2,007
|
|
|
|
(597
|
)
|
|
|
81
|
|
|
|
439
|
|
|
|
22
|
|
|
|
3,052
|
|
|
|
346
|
|
|
|
659
|
|
|
|
(1,161
|
)
|
|
|
5,533
|
|
Ending Balance- December 31, 2018
|
|
$
|
11,609
|
|
|
$
|
14,092
|
|
|
$
|
1,249
|
|
|
$
|
880
|
|
|
$
|
2,761
|
|
|
$
|
8,242
|
|
|
$
|
11,656
|
|
|
$
|
494
|
|
|
$
|
4,022
|
|
|
$
|
261
|
|
|
$
|
55,266
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
234
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125
|
|
|
|
15
|
|
|
|
-
|
|
|
|
185
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
565
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
11,375
|
|
|
|
14,092
|
|
|
|
1,249
|
|
|
|
755
|
|
|
|
2,746
|
|
|
|
8,242
|
|
|
|
11,471
|
|
|
|
488
|
|
|
|
4,022
|
|
|
|
261
|
|
|
|
54,701
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
826,549
|
|
|
$
|
584,625
|
|
|
$
|
98,568
|
|
|
$
|
259,736
|
|
|
$
|
40,789
|
|
|
$
|
290,463
|
|
|
$
|
343,834
|
|
|
$
|
19,412
|
|
|
$
|
107,265
|
|
|
$
|
-
|
|
|
$
|
2,571,241
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
4,676
|
|
|
|
7,238
|
|
|
|
-
|
|
|
|
2,491
|
|
|
|
297
|
|
|
|
-
|
|
|
|
1,639
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,347
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
821,873
|
|
|
|
577,387
|
|
|
|
98,568
|
|
|
|
257,245
|
|
|
|
40,492
|
|
|
|
290,463
|
|
|
|
342,195
|
|
|
|
19,406
|
|
|
|
107,265
|
|
|
|
-
|
|
|
|
2,554,894
|
|
December 31, 2017
|
|
Commercial
Real Estate
|
|
|
Agricultural
Real Estate
|
|
|
Real Estate
Construction
|
|
|
Residential 1st
Mortgages
|
|
|
Home Equity
Lines &
Loans
|
|
|
Agricultural
|
|
|
Commercial
|
|
|
Consumer &
Other
|
|
|
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-To-Date Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance- January 1, 2017
|
|
$
|
11,110
|
|
|
$
|
9,450
|
|
|
$
|
3,223
|
|
|
$
|
865
|
|
|
$
|
2,140
|
|
|
$
|
7,381
|
|
|
$
|
8,515
|
|
|
$
|
200
|
|
|
$
|
3,586
|
|
|
$
|
1,449
|
|
|
$
|
47,919
|
|
Charge-Offs
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
(3
|
)
|
|
|
(374
|
)
|
|
|
-
|
|
|
|
(146
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(685
|
)
|
Recoveries
|
|
|
109
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
|
8
|
|
|
|
17
|
|
|
|
8
|
|
|
|
76
|
|
|
|
-
|
|
|
|
-
|
|
|
|
258
|
|
Provision
|
|
|
(188
|
)
|
|
|
2,635
|
|
|
|
(1,377
|
)
|
|
|
(37
|
)
|
|
|
179
|
|
|
|
1,135
|
|
|
|
674
|
|
|
|
79
|
|
|
|
(223
|
)
|
|
|
(27
|
)
|
|
|
2,850
|
|
Ending Balance- December 31, 2017
|
|
$
|
10,922
|
|
|
$
|
12,085
|
|
|
$
|
1,846
|
|
|
$
|
815
|
|
|
$
|
2,324
|
|
|
$
|
8,159
|
|
|
$
|
9,197
|
|
|
$
|
209
|
|
|
$
|
3,363
|
|
|
$
|
1,422
|
|
|
$
|
50,342
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
366
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
|
|
17
|
|
|
|
-
|
|
|
|
220
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
684
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
10,556
|
|
|
|
12,085
|
|
|
|
1,846
|
|
|
|
742
|
|
|
|
2,307
|
|
|
|
8,159
|
|
|
|
8,977
|
|
|
|
201
|
|
|
|
3,363
|
|
|
|
1,422
|
|
|
|
49,658
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
684,961
|
|
|
$
|
499,231
|
|
|
$
|
100,206
|
|
|
$
|
260,751
|
|
|
$
|
34,525
|
|
|
$
|
273,582
|
|
|
$
|
265,703
|
|
|
$
|
6,656
|
|
|
$
|
89,680
|
|
|
$
|
-
|
|
|
$
|
2,215,295
|
|
Ending Balance Individually Evaluated for Impairment
|
|
|
4,822
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,373
|
|
|
|
340
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,279
|
|
Ending Balance Collectively Evaluated for Impairment
|
|
|
680,139
|
|
|
|
499,231
|
|
|
|
100,206
|
|
|
|
258,378
|
|
|
|
34,185
|
|
|
|
273,582
|
|
|
|
263,969
|
|
|
|
6,646
|
|
|
|
89,680
|
|
|
|
-
|
|
|
|
2,206,016
|
|
The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $2.8 million and $3.0 million at
December 31, 2018 and 2017, respectively, which are no longer disclosed or classified as TDR’s.
The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at December 31, 2018 and December 31,
2017
(in thousands)
:
December 31, 2018
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Total Loans
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
823,983
|
|
|
$
|
2,566
|
|
|
$
|
-
|
|
|
$
|
826,549
|
|
Agricultural Real Estate
|
|
|
566,612
|
|
|
|
4,703
|
|
|
|
13,310
|
|
|
|
584,625
|
|
Real Estate Construction
|
|
|
98,568
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,568
|
|
Residential 1st Mortgages
|
|
|
259,208
|
|
|
|
-
|
|
|
|
528
|
|
|
|
259,736
|
|
Home Equity Lines and Loans
|
|
|
40,744
|
|
|
|
-
|
|
|
|
45
|
|
|
|
40,789
|
|
Agricultural
|
|
|
284,561
|
|
|
|
5,433
|
|
|
|
469
|
|
|
|
290,463
|
|
Commercial
|
|
|
343,085
|
|
|
|
163
|
|
|
|
586
|
|
|
|
343,834
|
|
Consumer & Other
|
|
|
19,229
|
|
|
|
-
|
|
|
|
183
|
|
|
|
19,412
|
|
Leases
|
|
|
107,265
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107,265
|
|
Total
|
|
$
|
2,543,255
|
|
|
$
|
12,865
|
|
|
$
|
15,121
|
|
|
$
|
2,571,241
|
|
December 31, 2017
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Total Loans
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
677,636
|
|
|
$
|
6,843
|
|
|
$
|
482
|
|
|
$
|
684,961
|
|
Agricultural Real Estate
|
|
|
488,672
|
|
|
|
6,529
|
|
|
|
4,030
|
|
|
|
499,231
|
|
Real Estate Construction
|
|
|
90,728
|
|
|
|
9,478
|
|
|
|
-
|
|
|
|
100,206
|
|
Residential 1st Mortgages
|
|
|
259,795
|
|
|
|
41
|
|
|
|
915
|
|
|
|
260,751
|
|
Home Equity Lines and Loans
|
|
|
34,476
|
|
|
|
-
|
|
|
|
49
|
|
|
|
34,525
|
|
Agricultural
|
|
|
264,425
|
|
|
|
6,439
|
|
|
|
2,718
|
|
|
|
273,582
|
|
Commercial
|
|
|
260,565
|
|
|
|
4,610
|
|
|
|
528
|
|
|
|
265,703
|
|
Consumer & Other
|
|
|
6,498
|
|
|
|
-
|
|
|
|
158
|
|
|
|
6,656
|
|
Leases
|
|
|
87,497
|
|
|
|
2,183
|
|
|
|
-
|
|
|
|
89,680
|
|
Total
|
|
$
|
2,170,292
|
|
|
$
|
36,123
|
|
|
$
|
8,880
|
|
|
$
|
2,215,295
|
|
See Note 1. Significant Accounting Policies – Allowance for Credit Losses for a description of the internal risk ratings used by the Company.
There were no loans & leases outstanding at December 31, 2018 and 2017 rated doubtful or loss.
The following tables show an aging analysis of the loan & lease portfolio by the time past due at December 31, 2018 and December 31, 2017
(in thousands)
:
December 31, 2018
|
|
|
|
|
|
|
|
90 Days and
Still Accruing
|
|
|
Nonaccrual
|
|
|
|
|
|
Current
|
|
|
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
-
|
|
|
$
|
731
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
731
|
|
|
$
|
825,818
|
|
|
$
|
826,549
|
|
Agricultural Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
584,625
|
|
|
|
584,625
|
|
Real Estate Construction
|
|
|
327
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
327
|
|
|
|
98,241
|
|
|
|
98,568
|
|
Residential 1st Mortgages
|
|
|
367
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
367
|
|
|
|
259,369
|
|
|
|
259,736
|
|
Home Equity Lines and Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,789
|
|
|
|
40,789
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
290,463
|
|
|
|
290,463
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
343,834
|
|
|
|
343,834
|
|
Consumer & Other
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
19,399
|
|
|
|
19,412
|
|
Leases
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107,265
|
|
|
|
107,265
|
|
Total
|
|
$
|
707
|
|
|
$
|
731
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,438
|
|
|
$
|
2,569,803
|
|
|
$
|
2,571,241
|
|
December 31, 2017
|
|
|
|
|
|
|
|
90 Days and
Still Accruing
|
|
|
Nonaccrual
|
|
|
|
|
|
Current
|
|
|
|
|
Loans & Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
684,961
|
|
|
$
|
684,961
|
|
Agricultural Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
499,231
|
|
|
|
499,231
|
|
Real Estate Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,206
|
|
|
|
100,206
|
|
Residential 1st Mortgages
|
|
|
448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
448
|
|
|
|
260,303
|
|
|
|
260,751
|
|
Home Equity Lines and Loans
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
34,515
|
|
|
|
34,525
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
273,582
|
|
|
|
273,582
|
|
Commercial
|
|
|
180
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180
|
|
|
|
265,523
|
|
|
|
265,703
|
|
Consumer & Other
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
6,649
|
|
|
|
6,656
|
|
Leases
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,680
|
|
|
|
89,680
|
|
Total
|
|
$
|
645
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
645
|
|
|
$
|
2,214,650
|
|
|
$
|
2,215,295
|
|
There were no non-accrual loans & leases at December 31, 2018 or at December
31, 2017.
Interest income forgone on loans & leases placed on non-accrual status was
$0,
$0, and $127,000 for the years ended December 31, 2018, 2017,
and 2016, respectively.
The following tables show information related to impaired loans & leases at and for the year ended December 31, 2018 and December 31, 2017
(in thousands)
:
December 31, 2018
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
95
|
|
|
$
|
96
|
|
|
$
|
-
|
|
|
$
|
99
|
|
|
$
|
8
|
|
Agricultural Real Estate
|
|
|
7,239
|
|
|
|
7,238
|
|
|
|
-
|
|
|
|
3,620
|
|
|
|
119
|
|
Residential 1st Mortgages
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
226
|
|
|
|
8
|
|
|
|
$
|
7,334
|
|
|
$
|
7,334
|
|
|
$
|
-
|
|
|
$
|
3,945
|
|
|
$
|
135
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
2,902
|
|
|
$
|
2,892
|
|
|
$
|
234
|
|
|
$
|
2,929
|
|
|
$
|
96
|
|
Residential 1st Mortgages
|
|
|
1,640
|
|
|
|
1,838
|
|
|
|
82
|
|
|
|
1,371
|
|
|
|
48
|
|
Home Equity Lines and Loans
|
|
|
74
|
|
|
|
84
|
|
|
|
4
|
|
|
|
76
|
|
|
|
4
|
|
Commercial
|
|
|
1,644
|
|
|
|
1,639
|
|
|
|
185
|
|
|
|
1,834
|
|
|
|
58
|
|
Consumer & Other
|
|
|
6
|
|
|
|
7
|
|
|
|
6
|
|
|
|
7
|
|
|
|
-
|
|
|
|
$
|
6,266
|
|
|
$
|
6,460
|
|
|
$
|
511
|
|
|
$
|
6,217
|
|
|
$
|
206
|
|
Total
|
|
$
|
13,600
|
|
|
$
|
13,794
|
|
|
$
|
511
|
|
|
$
|
10,162
|
|
|
$
|
341
|
|
December 31, 2017
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
104
|
|
|
$
|
104
|
|
|
$
|
-
|
|
|
$
|
107
|
|
|
$
|
11
|
|
Agricultural Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
488
|
|
|
|
-
|
|
Residential 1st Mortgages
|
|
|
911
|
|
|
|
1,012
|
|
|
|
-
|
|
|
|
532
|
|
|
|
11
|
|
Home Equity Lines and Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
$
|
1,015
|
|
|
$
|
1,116
|
|
|
$
|
-
|
|
|
$
|
1,173
|
|
|
$
|
22
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
2,973
|
|
|
$
|
2,961
|
|
|
$
|
366
|
|
|
$
|
2,999
|
|
|
$
|
104
|
|
Residential 1st Mortgages
|
|
|
508
|
|
|
|
571
|
|
|
|
25
|
|
|
|
469
|
|
|
|
16
|
|
Home Equity Lines and Loans
|
|
|
73
|
|
|
|
89
|
|
|
|
4
|
|
|
|
74
|
|
|
|
3
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
409
|
|
|
|
21
|
|
Commercial
|
|
|
1,741
|
|
|
|
1,734
|
|
|
|
220
|
|
|
|
1,693
|
|
|
|
59
|
|
Consumer & Other
|
|
|
8
|
|
|
|
9
|
|
|
|
8
|
|
|
|
11
|
|
|
|
-
|
|
|
|
$
|
5,303
|
|
|
$
|
5,364
|
|
|
$
|
623
|
|
|
$
|
5,655
|
|
|
$
|
203
|
|
Total
|
|
$
|
6,318
|
|
|
$
|
6,480
|
|
|
$
|
623
|
|
|
$
|
6,828
|
|
|
$
|
225
|
|
Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for
impairment on the allocation of allowance table. This is because this table does not include impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified
as TDR’s.
At December 31, 2018, there were no formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate
properties.
At December 31, 2018, the Company allocated $511,000 of specific reserves to $13.6 million of troubled debt restructured loans, all of which were
performing. At December 31, 2017, the Company allocated $623,000 of specific reserves to $6.3 million of troubled debt restructured loans, all of which were performing. The Company had no commitments at December 31, 2018 and December 31,
2017 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.
During the period ending December 31, 2018, the terms of certain loans were modified as troubled debt restructurings. The modification of the
terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with
similar risk; or a permanent reduction of the recorded investment in the loan.
Modifications involving a reduction of the stated interest rate of the loan were for 5 years. Modifications involving an extension of the
maturity date were for 10 years.
The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2018
(in thousands)
:
|
|
December 31, 2018
|
|
Troubled Debt Restructurings
|
|
Number of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Agricultural Real Estate
|
|
|
1
|
|
|
$
|
7,239
|
|
|
$
|
7,239
|
|
Residential 1st Mortgages
|
|
|
2
|
|
|
|
286
|
|
|
|
255
|
|
Total
|
|
|
3
|
|
|
$
|
7,525
|
|
|
$
|
7,494
|
|
The troubled debt restructurings described above had minimal impact on the allowance for credit losses and resulted in charge-offs of $31,000 for
the twelve months ended December 31, 2018.
During the period ended December 31, 2018, there were no payment defaults on loans modified as troubled debt restructurings within
twelve months following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.
During the period ending December 31, 2017, the terms of certain loans were modified as troubled debt restructurings. The modification
of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt
with similar risk; or a permanent reduction of the recorded investment in the loan.
Modifications involving a reduction of the stated interest rate of the loan ranged from 3 to 5 years. Modifications involving an
extension of the maturity date ranged from 3 to 10 years.
The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017
(in thousands)
:
|
|
December 31, 2017
|
|
Troubled Debt Restructurings
|
|
Number of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Residential 1st Mortgages
|
|
|
2
|
|
|
$
|
673
|
|
|
$
|
630
|
|
Home Equity Lines and Loans
|
|
|
1
|
|
|
|
32
|
|
|
|
32
|
|
Commercial
|
|
|
2
|
|
|
|
138
|
|
|
|
138
|
|
Consumer & Other
|
|
|
1
|
|
|
|
9
|
|
|
|
8
|
|
Total
|
|
|
6
|
|
|
$
|
852
|
|
|
$
|
808
|
|
The troubled debt restructurings described above had no impact on the allowance for credit losses and resulted in charge-offs of $44,000 for the
twelve months ended December 31, 2017.
During the period ended December 31, 2017, there were no payment defaults on loans modified as troubled debt restructurings within twelve months
following the modification. The Company considers a loan to be in payment default once it is greater than 90 days contractually past due under the modified terms.
7. Premises and Equipment
Premises and equipment as of December 31
st
, consisted of the
following:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Land and Buildings
|
|
$
|
39,329
|
|
|
$
|
36,018
|
|
Furniture, Fixtures and Equipment
|
|
|
21,136
|
|
|
|
20,399
|
|
Leasehold Improvement
|
|
|
3,606
|
|
|
|
3,117
|
|
Subtotal
|
|
|
64,071
|
|
|
|
59,534
|
|
Less: Accumulated Depreciation and Amortization
|
|
|
31,448
|
|
|
|
30,855
|
|
Total
|
|
$
|
32,623
|
|
|
$
|
28,679
|
|
Depreciation and amortization on premises and equipment included in occupancy and equipment expense amounted to $2,421,000, $2,186,000, and
$1,896,000 for the years ended December 31, 2018, 2017 and 2016, respectively. Total rental expense for premises was $834,000, $688,000, and $644,000 for the years ended December 31, 2018, 2017, and 2016, respectively. Rental income was
$173,000, $169,000, and $102,000 for the years ended December 31, 2018, 2017, and 2016, respectively.
8. Other Real Estate
The Bank reported $873,000 in other real estate at December 31, 2018, and $873,000 at December 31, 2017. Other real estate includes property no
longer utilized for business operations and property acquired through foreclosure proceedings. These properties are carried at fair value less selling costs determined at the date acquired. Losses, if any, arising from properties acquired
through foreclosure are charged against the allowance for loan losses at the time of foreclosure. Subsequent declines in value, periodic holding costs, and net gains or losses on disposition are included in other operating expense as
incurred. Other real estate is reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets.
9. Time Deposits
Time Deposits of $250,000 or more as of December 31 were as follows:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Balance
|
|
$
|
219,022
|
|
|
$
|
212,574
|
|
At December 31, 2018, the scheduled maturities of time deposits were as follows:
(in thousands)
|
|
Scheduled
Maturities
|
|
2019
|
|
$
|
400,868
|
|
2020
|
|
|
74,908
|
|
2021
|
|
|
7,779
|
|
2022
|
|
|
4,768
|
|
2023
|
|
|
1,704
|
|
Total
|
|
$
|
490,027
|
|
10. Income Taxes
Current and deferred income tax expense (benefit) provided for the years ended December 31 consisted of the following:
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,517
|
|
|
$
|
9,460
|
|
|
$
|
13,101
|
|
State
|
|
|
6,224
|
|
|
|
4,046
|
|
|
|
4,832
|
|
Total Current
|
|
|
8,741
|
|
|
|
13,506
|
|
|
|
17,933
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,622
|
|
|
|
11,154
|
|
|
|
(1,607
|
)
|
State
|
|
|
(160
|
)
|
|
|
1,451
|
|
|
|
(229
|
)
|
Total Deferred
|
|
|
5,462
|
|
|
|
12,605
|
|
|
|
(1,836
|
)
|
Total Provision for Taxes
|
|
$
|
14,203
|
|
|
$
|
26,111
|
|
|
$
|
16,097
|
|
The total provision for income taxes differs from the federal statutory rate as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
(in thousands)
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Tax Provision at Federal Statutory Rate
|
|
$
|
12,543
|
|
|
|
21.0
|
%
|
|
$
|
19,068
|
|
|
|
35.0
|
%
|
|
$
|
16,037
|
|
|
|
35.0
|
%
|
Interest on Obligations of States and Political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subdivisions exempt from Federal Taxation
|
|
|
(338
|
)
|
|
|
(0.6
|
%)
|
|
|
(617
|
)
|
|
|
(1.1
|
%)
|
|
|
(675
|
)
|
|
|
(1.5
|
%)
|
State and Local Income Taxes, Net of Federal Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Benefit
|
|
|
4,791
|
|
|
|
7.9
|
%
|
|
|
3,573
|
|
|
|
6.5
|
%
|
|
|
2,992
|
|
|
|
6.5
|
%
|
Bank Owned Life Insurance
|
|
|
(434
|
)
|
|
|
(0.7
|
%)
|
|
|
(696
|
)
|
|
|
(1.3
|
%)
|
|
|
(731
|
)
|
|
|
(1.6
|
%)
|
Low-Income Housing Tax Credit
|
|
|
(1,624
|
)
|
|
|
(2.7
|
%)
|
|
|
(1,546
|
)
|
|
|
(2.8
|
%)
|
|
|
(1,201
|
)
|
|
|
(2.6
|
%)
|
Out of Period Adjustment
|
|
|
(802
|
)
|
|
|
(1.3
|
%)
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Bargain Purchase Gain
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(641
|
)
|
|
|
(1.4
|
%)
|
Deferred Tax Asset Remeasurement
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
6,256
|
|
|
|
11.5
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Other, Net
|
|
|
67
|
|
|
|
0.1
|
%
|
|
|
73
|
|
|
|
0.1
|
%
|
|
|
316
|
|
|
|
0.7
|
%
|
Total Provision for Taxes
|
|
$
|
14,203
|
|
|
|
23.8
|
%
|
|
$
|
26,111
|
|
|
|
47.9
|
%
|
|
$
|
16,097
|
|
|
|
35.1
|
%
|
The components of net deferred tax assets as of December 31 are as follows: The net deferred tax assets are reported in Interest Receivable and
Other Assets on the Company’s Consolidated Balance Sheet.
(in thousands)
|
|
2018
|
|
|
2017
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
Allowance for Credit Losses
|
|
$
|
15,877
|
|
|
$
|
14,962
|
|
Accrued Liabilities
|
|
|
7,444
|
|
|
|
7,421
|
|
Deferred Compensation
|
|
|
11,207
|
|
|
|
8,996
|
|
State Franchise Tax
|
|
|
1,307
|
|
|
|
850
|
|
Acquired Net Operating Loss
|
|
|
715
|
|
|
|
756
|
|
Fair Value Adjustment on Loans Acquired
|
|
|
300
|
|
|
|
242
|
|
Fair Value Adjustment on ORE Acquired
|
|
|
108
|
|
|
|
108
|
|
Unrealized Loss on Securities Available-for-Sale
|
|
|
1,800
|
|
|
|
373
|
|
Low-Income Housing Investment
|
|
|
412
|
|
|
|
470
|
|
Other
|
|
|
7
|
|
|
|
17
|
|
Total Deferred Tax Assets
|
|
$
|
39,177
|
|
|
$
|
34,195
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Premises and Equipment
|
|
|
(2,226
|
)
|
|
|
(1,361
|
)
|
Securities Accretion
|
|
|
(229
|
)
|
|
|
(164
|
)
|
Leasing Activities
|
|
|
(17,215
|
)
|
|
|
(12,389
|
)
|
Core Deposit Intangible Asset
|
|
|
(1,560
|
)
|
|
|
(247
|
)
|
Prepaid
|
|
|
(116
|
)
|
|
|
(964
|
)
|
Other
|
|
|
(1,000
|
)
|
|
|
(944
|
)
|
Total Deferred Tax Liabilities
|
|
|
(22,346
|
)
|
|
|
(16,069
|
)
|
Net Deferred Tax Assets
|
|
$
|
16,831
|
|
|
$
|
18,126
|
|
The Tax Cuts and Jobs Act of 2017, which lowers the Company’s previous 35% federal corporate tax rate to 21%, was signed into law by President
Trump on December 22, 2017. In accordance with the ASC Topic 740, Income Taxes, companies must recognize the effect of tax law changes in the period of enactment. As a result, the Company was required to re-measure its deferred tax assets
(DTA) and deferred tax liabilities (DTL) at the new tax rate of 21%. This onetime re-measurement resulted in a $6.3 million increase in the Company’s income tax provision in 2017. Based upon the level of historical taxable income and
projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, Management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets.
The net deferred tax assets are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheet.
The Company and its subsidiaries file income tax returns in the U.S. federal and California jurisdictions. With few exceptions, the Company is no
longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by the tax authorities for the years before 2014.
11. Short Term Borrowings
As of December 31, 2018 and 2017, the Company had unused lines of credit available for short-term liquidity purposes of $1.2 billion and $1.0
billion, respectively. Federal Funds purchased and advances are generally issued on an overnight basis. There were no advances from the FHLB at December 31, 2018 or 2017. There were no Federal Funds purchased or advances from the FRB at
December 31, 2018 or 2017.
12. Federal Home Loan Bank Advances
The Company had no short-term or long-term advances from the Federal Home Loan Bank of San Francisco at December 31, 2018 or 2017.
In accordance with the Collateral Pledge and Security Agreement, advances are secured by all FHLB stock held by the Company. At December 31,
2018, $753.6 million in loans were approved for pledging as collateral on borrowing lines with the FHLB. The borrowing capacity on these loans was $617.8 million.
13. Long-term Subordinated Debentures
In December 2003, the Company formed a wholly owned Connecticut statutory business trust, FMCB Statutory Trust I (“Statutory Trust I”), which
issued $10.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures (the “Trust Preferred Securities”). The Company is not considered the primary beneficiary of the trust
(variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. These debentures qualify as Tier 1 capital under current
regulatory guidelines. All of the common securities of Statutory Trust I are owned by the Company. The proceeds from the issuance of the common securities and the Trust Preferred Securities were used by FMCB Statutory Trust to purchase
$10.3 million of junior subordinated debentures of the Company, which carry a floating rate based on three-month LIBOR plus 2.85%. The debentures represent the sole asset of Statutory Trust I. The Trust Preferred Securities accrue and pay
distributions at a floating rate of three-month LIBOR plus 2.85% per annum of the stated liquidation value of $1,000 per capital security. The Company has entered into contractual arrangements which, taken collectively, fully and
unconditionally guarantee payment to the extent that Statutory Trust I has funds available therefore of: (i) accrued and unpaid distributions required to be paid on the Trust Preferred Securities; (ii) the redemption price with respect to
any Trust Preferred Securities called for redemption by Statutory Trust I; and (iii) payments due upon a voluntary or involuntary dissolution, winding up, or liquidation of Statutory Trust I. The Trust Preferred Securities are mandatorily
redeemable upon maturity of the subordinated debentures on December 17, 2033, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the subordinated debentures purchased by Statutory Trust I, in
whole or in part, on or after December 17, 2008. As specified in the indenture, if the subordinated debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.
Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited from paying cash dividends on the Company’s common stock.
14. Shareholders’ Equity
In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since
then, and most recently, on November 6, 2018, the Board of Directors approved an extension of the $20 million stock repurchase program to December 31, 2019.
Repurchases under the program may be made from time to time on the open market or through private transactions. The repurchase program also
requires that no repurchases may be made if the Bank would not remain “well-capitalized” after the repurchase. There were no stock repurchases made in 2018 or 2017 under the Common Stock Repurchase Plan. However, in the third quarter of
2018 the Company did repurchase $31.2 million of shares, at $700 per share, in a single transaction from the estate of a large shareholder.
Dividends from the Bank constitute the principal source of cash to the Company. The Company is a legal entity separate and distinct from the
Bank. Under regulations controlling California state chartered banks, the Bank is, to some extent, limited in the amount of dividends that can be paid to the Company without prior approval of the California DBO. These regulations require
approval if total dividends declared by a state chartered bank in any calendar year exceed the bank’s net profits for that year combined with its retained net profits for the preceding two calendar years.
During 2018, the Company issued a combined total 13,520 shares of common stock to the Bank’s non-qualified defined contribution retirement plans.
There were also 2,400 shares issued to individuals during 2018. All of the shares were issued at prices ranging from $635.00 to $690.00 per share based upon valuations completed during the quarter of issuance by a nationally recognized
bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds were contributed to the Bank as equity capital.
During 2017, the Company issued 4,975 shares of common stock. All of these shares were contributed to the Bank’s non-qualified defined
contribution retirement plans. The shares issued had prices ranging from $590 per share to $595 per share. These share prices were based upon valuations completed by a nationally recognized bank consulting and advisory firm and in
reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds from these issuances were contributed to the Bank as equity capital.
The Company and the Bank are subject to various federal regulatory capital requirements under the Basel III Capital Rules. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank’s assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
The implementation of Basel III requirements will increase the required capital levels that the Company and the Bank must maintain. The final
rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity
Tier 1 capital ratio of 4.5% of risk-weighted assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a
“capital conservation buffer” of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of
8.5% of RWA; and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer
amount. The final rules also permit the Company’s subordinated debentures issued in 2003 to continue to be counted as Tier 1 capital.
The final rules became effective as applied to the Company and the Bank on January 1, 2015, with a phase in period through January 1, 2019. The
Company believes that it is currently in compliance with all of these capital requirements and that they did not result in any restrictions on the Company’s business activity.
In addition, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since that
notification that management believes have changed the Bank’s category.
(in thousands)
|
|
Actual
|
|
|
Current
Regulatory Capital
Requirements
|
|
|
Well Capitalized
Under Prompt
Corrective Action
|
|
December 31, 2018
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Bank Capital to Risk Weighted Assets
|
|
$
|
346,763
|
|
|
|
11.39
|
%
|
|
$
|
243,455
|
|
|
|
8.0
|
%
|
|
$
|
304,319
|
|
|
|
10.0
|
%
|
Total Consolidated Capital to Risk Weighted Assets
|
|
$
|
346,845
|
|
|
|
11.40
|
%
|
|
$
|
243,459
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Total Bank Common Equity Tier 1 Capital Ratio
|
|
$
|
308,507
|
|
|
|
10.14
|
%
|
|
$
|
136,944
|
|
|
|
4.5
|
%
|
|
$
|
197,807
|
|
|
|
6.5
|
%
|
Total Consolidated Common Equity Tier 1 Capital Ratio
|
|
$
|
298,588
|
|
|
|
9.81
|
%
|
|
$
|
136,945
|
|
|
|
4.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier 1 Bank Capital to Risk Weighted Assets
|
|
$
|
308,507
|
|
|
|
10.14
|
%
|
|
$
|
182,591
|
|
|
|
6.0
|
%
|
|
$
|
243,455
|
|
|
|
8.0
|
%
|
Tier 1 Consolidated Capital to Risk Weighted Assets
|
|
$
|
308,588
|
|
|
|
10.14
|
%
|
|
$
|
182,594
|
|
|
|
6.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier 1 Bank Capital to Average Assets
|
|
$
|
308,507
|
|
|
|
9.15
|
%
|
|
$
|
134,822
|
|
|
|
3.0
|
%
|
|
$
|
168,527
|
|
|
|
5.0
|
%
|
Tier 1 Consolidated Capital to Average Assets
|
|
$
|
308,588
|
|
|
|
9.08
|
%
|
|
$
|
135,949
|
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
(in thousands)
|
|
Actual
|
|
|
Current
Regulatory Capital
Requirements
|
|
|
Well Capitalized
Under Prompt
Corrective Action
|
|
December 31, 2017
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Bank Capital to Risk Weighted Assets
|
|
$
|
330,041
|
|
|
|
12.66
|
%
|
|
$
|
208,552
|
|
|
|
8.0
|
%
|
|
$
|
260,691
|
|
|
|
10.0
|
%
|
Total Consolidated Capital to Risk Weighted Assets
|
|
$
|
342,210
|
|
|
|
13.07
|
%
|
|
$
|
209,532
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Total Bank Common Equity Tier 1 Capital Ratio
|
|
$
|
297,232
|
|
|
|
11.40
|
%
|
|
$
|
117,311
|
|
|
|
4.5
|
%
|
|
$
|
169,449
|
|
|
|
6.5
|
%
|
Total Consolidated Common Equity Tier 1 Capital Ratio
|
|
$
|
299,401
|
|
|
|
11.43
|
%
|
|
$
|
117,862
|
|
|
|
4.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier 1 Bank Capital to Risk Weighted Assets
|
|
$
|
297,232
|
|
|
|
11.40
|
%
|
|
$
|
156,414
|
|
|
|
6.0
|
%
|
|
$
|
208,552
|
|
|
|
8.0
|
%
|
Tier 1 Consolidated Capital to Risk Weighted Assets
|
|
$
|
309,250
|
|
|
|
11.81
|
%
|
|
$
|
157,150
|
|
|
|
6.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier 1 Bank Capital to Average Assets
|
|
$
|
297,232
|
|
|
|
9.65
|
%
|
|
$
|
123,178
|
|
|
|
4.0
|
%
|
|
$
|
153,972
|
|
|
|
5.0
|
%
|
Tier 1 Consolidated Capital to Average Assets
|
|
$
|
309,250
|
|
|
|
9.99
|
%
|
|
$
|
123,790
|
|
|
|
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
As directed by the Economic Growth, Regulatory Relief and Consumer Protection Act, federal bank agencies have issued a joint proposed rule
whereby most qualifying community banking organizations with less than $10 billion in total consolidated assets, that meet risk-based qualifying criteria, and have a community bank leverage ratio (“CBLR”) of greater than 9 percent would
be able to opt into a new community banking leverage ratio framework. Such a community banking organization would not be subject to other risk-based and leverage capital requirements (including the Basel III and Basel IV requirements)
and would be considered to have met the well capitalized ratio requirements. The CBLR is determined by dividing a financial institution’s tangible equity capital by its average.
15. Dividends and Basic Earnings Per Common Share
Total cash dividends during 2018 were $11,151,000 or $13.90 per share of common stock, an increase of 2.6% per share from $10,982,000 or $13.55
per share in 2017. In 2016, cash dividends totaled $10,478,000 or $13.10 per share.
Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the
period. The Company has no securities or other contracts, such as stock options, the could require the issuance of common stock. Accordingly, diluted earnings per share are not presented. The following table calculates the basic earnings
per common share for the periods indicated.
(
net income in thousands
)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net Income
|
|
$
|
45,527
|
|
|
$
|
28,370
|
|
|
$
|
29,723
|
|
Weighted Average Number of Common Shares Outstanding
|
|
|
801,229
|
|
|
|
809,834
|
|
|
|
793,970
|
|
Basic Earnings Per Common Share
|
|
$
|
56.82
|
|
|
$
|
35.03
|
|
|
$
|
37.44
|
|
16. Employee Benefit Plans
Profit Sharing Plan
The Company, through the Bank, sponsors a Profit Sharing Plan for substantially all full-time employees of the Company with one or more years of
service. Participants receive up to two annual employer contributions, one is discretionary and the other is mandatory. The discretionary contributions to the Profit Sharing Plan are determined annually by the Board of Directors. The
discretionary contributions totaled $1.2 million, $1.0 million, and $975,000 for the years ended December 31, 2018, 2017, and 2016, respectively. The mandatory contributions to the Profit Sharing Plan are made according to a predetermined
set of criteria. Mandatory contributions totaled $1.4 million, $1.2 million, and $1.2 million for the years ended December 31, 2018, 2017, and 2016, respectively. Company employees are permitted, within limitations imposed by tax law, to
make pretax contributions and after tax (Roth) contributions to the 401(k) feature of the Profit Sharing Plan. The Company does not match employee contributions within the 401(k) feature of the Profit Sharing Plan and the Company can
terminate the Profit Sharing Plan at any time. Benefits pursuant to the Profit Sharing Plan vest 0% during the first year of participation, 25% per full year thereafter and after five years such benefits are fully vested.
Executive Retirement Plan and Life Insurance Arrangements
The Company, through the Bank, sponsors an Executive Retirement Plan for certain executive level employees. The Executive Retirement Plan is a
non-qualified defined contribution plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. The Plan is comprised of:
(1) a Performance Component which makes contributions based upon long-term cumulative profitability and increase in market value of the Company; (2) a Salary Component which makes contributions based upon participant salary levels; and
(3) an Equity Component for which contributions are discretionary and subject to Board of Directors approval. Executive Retirement Plan contributions are invested in a mix of financial instruments; however, the Equity Component
contributions are invested primarily in stock of the Company.
The Company expensed $6.2 million to the Executive Retirement Plan during the year ended December 31, 2018, $4.3 million during the year ended
December 31, 2017 and $3.8 million during the year ended December 31, 2016. The Company’s total accrued liability under the Executive Retirement Plan was $48.5 million as of December 31, 2018 and $43.3 million as of December 31, 2017. All
amounts have been fully funded into a Rabbi Trust as of December 31, 2018.
The Company has purchased single premium life insurance policies on the lives of certain key employees of the Company. These policies provide:
(1) financial protection to the Company in the event of the death of a key employee; and (2) significant income to the Company to offset the expense associated with the Executive Retirement Plan and other employee benefit plans, since the
interest earned on the cash surrender value of the policies is tax exempt as long as the policies are used to finance employee benefits. As compensation to each employee for agreeing to allow the Company to purchase an insurance policy on
his or her life, split dollar agreements have been entered into with those employees. These agreements provide for a division of the life insurance death proceeds between the Company and each employee’s designated beneficiary or
beneficiaries.
The Company earned tax-exempt interest on the life insurance policies of $1.9 million for the year ended December 31, 2018, $1.8 million for the
year ended December 31, 2017, and $1.9 million for the year ended December 31, 2016. As of December 31, 2018 and 2017, the total cash surrender value of the insurance policies was $65.1 million and $59.6 million, respectively.
Senior Management Retention Plan
The Company, through the Bank, sponsors a Senior Management Retention Plan (“SMRP”) for certain senior level employees. The SMRP is a
non-qualified defined contribution plan and was developed to supplement the Company’s Profit Sharing Plan, which, as a qualified retirement plan, has a ceiling on benefits as set by the Internal Revenue Service. All contributions are
discretionary and subject to the Board of Directors approval. Contributions are invested primarily in stock of the Company. The Company expensed $1.5 million to the SMRP during the year ended December 31, 2018, $765,000 during the year
ended December 31, 2017 and $627,000 during the year ended December 31, 2016. The Company’s total accrued liability under the SMRP was $5.7 million as of December 31, 2018 and $4.4 million as of December 31, 2017. All amounts have been
fully funded into a Rabbi Trust as of December 31, 2018.
17. Fair Value Measurements
The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, which establishes a framework for measuring fair value in
U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit, assets or liabilities to be measured at fair value but does not expand the use of fair value in any new
circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard
establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the
measurement date.
Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. These might 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 - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the
assumptions that market participants would use in pricing the assets or liabilities.
Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair
value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of
the reporting period.
Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer
relative to total assets, total liabilities or total earnings.
Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these
securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve,
live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
The Company does not record all loans & leases at fair value on a recurring
basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with
the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise
value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans &
leases. Impaired loans & leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.
The fair value of collateral dependent impaired loans is generally
based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process
by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair
value. The valuation technique used for Level 3 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.
Other Real Estate (“ORE”) is reported at fair value on a non-recurring basis.
Fair
values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal
process by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for
determining fair value. The valuation technique used for Level 3 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the
fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.
|
|
|
|
|
Fair Value Measurements
At December 31, 2018, Using
|
|
(in thousands)
|
|
Fair Value
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
3,039
|
|
|
$
|
-
|
|
|
$
|
3,039
|
|
|
$
|
-
|
|
US Treasury Notes
|
|
|
164,514
|
|
|
|
164,514
|
|
|
|
-
|
|
|
|
-
|
|
US Govt SBA
|
|
|
15,447
|
|
|
|
-
|
|
|
|
15,447
|
|
|
|
-
|
|
Mortgage Backed Securities
|
|
|
307,045
|
|
|
|
-
|
|
|
|
307,045
|
|
|
|
-
|
|
Other
|
|
|
5,351
|
|
|
|
202
|
|
|
|
310
|
|
|
|
4,839
|
|
Total Assets Measured at Fair Value On a Recurring Basis
|
|
$
|
495,396
|
|
|
$
|
164,716
|
|
|
$
|
325,841
|
|
|
$
|
4,839
|
|
|
|
|
|
|
Fair Value Measurements
At December 31, 2017, Using
|
|
(in thousands)
|
|
Fair Value
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Agency & Government-Sponsored Entities
|
|
$
|
3,128
|
|
|
$
|
-
|
|
|
$
|
3,128
|
|
|
$
|
-
|
|
US Treasury Notes
|
|
|
144,164
|
|
|
|
144,164
|
|
|
|
-
|
|
|
|
-
|
|
US Govt SBA
|
|
|
29,380
|
|
|
|
-
|
|
|
|
29,380
|
|
|
|
-
|
|
Mortgage Backed Securities
|
|
|
301,914
|
|
|
|
-
|
|
|
|
301,914
|
|
|
|
-
|
|
Other
|
|
|
3,010
|
|
|
|
200
|
|
|
|
310
|
|
|
|
2,500
|
|
Total Assets Measured at Fair Value On a Recurring Basis
|
|
$
|
481,596
|
|
|
$
|
144,364
|
|
|
$
|
334,732
|
|
|
$
|
2,500
|
|
Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities. During the year ended
December 31, 2018, there were no transfers in or out of level 1, 2, or 3.
The available for sale investment securities categorized as Level 3 assets for year ended December 31, 2018 consisted of: (1) $2.5 million in a
limited liability company (LLC) that invests in CRA qualified SBA loans; (2) $1.6 million in registered warrants issued by California reclamation districts; and (3) $745,000 in Pacific Coast Bankers’ Bank and The Independent Bankers’ Bank
stock. These securities are not actively traded. The significant unobservable data reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average lives and credit information. There were no gains,
losses or transfers in or out of level 3 during the year ended December 31, 2018.
The following tables present information about the Company’s impaired loans & leases and other real estate, classes of assets or liabilities
that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated. Not all impaired loans
& leases are carried at fair value. Impaired loans & leases are only included in the following tables when their fair value is based upon an appraisal of the collateral, and if that appraisal results in a partial charge-off or the
establishment of a specific reserve.
|
|
|
|
|
Fair Value Measurements
At December 31, 2018, Using
|
|
(in thousands)
|
|
Fair
Value
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
2,658
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,658
|
|
Residential 1st Mortgage
|
|
|
1,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,550
|
|
Home Equity Lines and Loans
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
Commercial
|
|
|
1,454
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,454
|
|
Total Impaired Loans
|
|
|
5,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,732
|
|
Other Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Construction
|
|
|
873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
873
|
|
Total Other Real Estate
|
|
|
873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
873
|
|
Total Assets Measured at Fair Value On a Non-Recurring Basis
|
|
$
|
6,605
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,605
|
|
|
|
|
|
|
Fair Value Measurements
At December 31, 2017, Using
|
|
(in thousands)
|
|
Fair Value
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
2,595
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,595
|
|
Residential 1st Mortgage
|
|
|
997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
997
|
|
Home Equity Lines and Loans
|
|
|
75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75
|
|
Commercial
|
|
|
1,514
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,514
|
|
Total Impaired Loans
|
|
|
5,181
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,181
|
|
Other Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Construction
|
|
|
873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
873
|
|
Total Other Real Estate
|
|
|
873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
873
|
|
Total Assets Measured at Fair Value On a Non-Recurring Basis
|
|
$
|
6,054
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,054
|
|
The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider
recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These
adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market
information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally
not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a
nonrecurring basis at December 31, 2018:
(in thousands)
|
|
Fair Value
|
|
Valuation Technique
|
Unobservable Inputs
|
|
Range, Weighted Avg.
|
|
Impaired Loans:
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
2,658
|
|
Income Approach
|
Capitalization Rate
|
|
|
3.25%, 3.25
|
%
|
Residential 1st Mortgages
|
|
$
|
1,550
|
|
Sales Comparison Approach
|
Adjustment for Difference Between Comparable Sales
|
|
|
1% -4%, 3
|
%
|
Home Equity Lines and Loans
|
|
$
|
70
|
|
Sales Comparison Approach
|
Adjustment for Difference Between Comparable Sales
|
|
|
1% - 2%, 2
|
%
|
Commercial
|
|
$
|
1,454
|
|
Income Approach
|
Capitalization Rate
|
|
|
2.95% - 8.70%, 3.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate:
|
|
|
|
|
|
|
|
|
|
|
Real Estate Construction
|
|
$
|
873
|
|
Sales Comparison Approach
|
Adjustment for Difference Between Comparable Sales
|
|
|
10%, 10
|
%
|
18. Fair Value of Financial Instruments
U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it
is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques,
as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value
due to the relatively short period of time between origination of the instrument and its expected realization. The valuation of loans held for investment was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the
fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use
interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level 3 classification.
The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:
|
|
|
|
|
Fair Value of Financial Instruments Using
|
|
|
|
|
December 31, 2018
(in thousands)
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Estimated
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
145,564
|
|
|
$
|
145,564
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
145,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Available-for-Sale
|
|
|
495,396
|
|
|
|
164,716
|
|
|
|
325,841
|
|
|
|
4,839
|
|
|
|
495,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Held-to-Maturity
|
|
|
53,566
|
|
|
|
-
|
|
|
|
35,083
|
|
|
|
18,655
|
|
|
|
53,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Stock
|
|
|
12,636
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans & Leases, Net of Deferred Fees & Allowance
|
|
|
2,515,975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,485,182
|
|
|
|
2,485,182
|
|
Accrued Interest Receivable
|
|
|
14,098
|
|
|
|
-
|
|
|
|
14,098
|
|
|
|
-
|
|
|
|
14,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,062,832
|
|
|
|
2,572,805
|
|
|
|
485,766
|
|
|
|
-
|
|
|
|
3,058,571
|
|
Subordinated Debentures
|
|
|
10,310
|
|
|
|
-
|
|
|
|
7,745
|
|
|
|
-
|
|
|
|
7,745
|
|
Accrued Interest Payable
|
|
|
1,365
|
|
|
|
-
|
|
|
|
1,365
|
|
|
|
-
|
|
|
|
1,365
|
|
|
|
|
|
|
Fair Value of Financial Instruments Using
|
|
|
|
|
December 31, 2017
(in thousands)
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Estimated
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
187,149
|
|
|
$
|
187,149
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
187,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Available-for-Sale
|
|
|
481,596
|
|
|
|
144,364
|
|
|
|
334,732
|
|
|
|
2,500
|
|
|
|
481,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Held-to-Maturity
|
|
|
54,460
|
|
|
|
-
|
|
|
|
38,492
|
|
|
|
16,744
|
|
|
|
55,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Stock
|
|
|
10,342
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans & Leases, Net of Deferred Fees & Allowance
|
|
|
2,164,953
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,137,987
|
|
|
|
2,137,987
|
|
Accrued Interest Receivable
|
|
|
10,999
|
|
|
|
-
|
|
|
|
10,999
|
|
|
|
-
|
|
|
|
10,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,723,228
|
|
|
|
2,247,831
|
|
|
|
472,671
|
|
|
|
-
|
|
|
|
2,720,502
|
|
Subordinated Debentures
|
|
|
10,310
|
|
|
|
-
|
|
|
|
7,428
|
|
|
|
-
|
|
|
|
7,428
|
|
Accrued Interest Payable
|
|
|
1,137
|
|
|
|
-
|
|
|
|
1,137
|
|
|
|
-
|
|
|
|
1,137
|
|
19. Commitments and Contingencies
In the normal course of business, the Company enters in to financial instruments with off balance sheet risk in order to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in interest rates. These instruments include commitments to extend credit, letters of credit, and other types of financial guarantees. The Company had the following off
balance sheet commitments as of the dates indicated.
(in thousands)
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Commitments to Extend Credit
|
|
$
|
828,539
|
|
|
$
|
735,678
|
|
Letters of Credit
|
|
|
19,108
|
|
|
|
20,061
|
|
Performance Guarantees Under Interest Rate Swap Contracts Entered
Into Between Our Borrowing Customers and Third Parties
|
|
|
-
|
|
|
|
759
|
|
The Company’s exposure to credit loss in the event of nonperformance by the other party with regard to standby letters of credit, undisbursed
loan commitments, and financial guarantees is represented by the contractual notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. The Company uses the same credit policies in making commitments and conditional obligations as it does for recorded balance sheet items. The Company may or may not require collateral or other security to
support financial instruments with credit risk. Evaluations of each customer’s creditworthiness are performed on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Company to guarantee performance of or payment for a customer to a third
party. Outstanding standby letters of credit have maturity dates ranging from 1 to 37 months with final expiration in January 2022. Commitments generally have fixed expiration dates or other termination clauses and may require payment of
a fee.
The Company is obligated under a number of noncancellable operating leases for premises and equipment used for banking purposes. Minimum future
rental commitments under noncancellable operating leases as of December 31, 2018, were $782,000,
$743,000,
$555,000, $231,000, and $173,000 for the years 2019 through
2023, and $493,000 for the remaining term of the leases.
In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after
consultation with legal counsel, believes that the ultimate liability, if any, resulting from the disposition of such claims would not be material in relation to the financial position of the Company.
The Company may be required to maintain average reserves on deposit with the Federal Reserve Bank primarily based on deposits outstanding. There
were no reserve requirements during 2018 or 2017.
20. Recent Accounting Developments
Recently Adopted Accounting Guidance
The following paragraphs provide descriptions of recently adopted accounting standards that may have had a material effect on the Company’s
financial position or results of operations.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with
Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition
guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s
primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for
revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and debit card and ATM fees, did not change significantly from current practice. The standard permits the use of either the
full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however,
periods prior to the date of adoption were not retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.
In January 2016, the FASB issued ASU 2016-01,
Financial
Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial
instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. The adoption of the ASU resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on
a non-recurring basis in the consolidated balance sheets. See Note 18 – Fair Value of Financial Instruments for further information regarding the valuation of these loans.
In February 2018, the FASB issued ASU 2018-02,
Income
Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The amendments in ASU 2018-02 allow a reclassification from accumulated other
comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act (“Tax Act”). The amount of the reclassification consists of the difference between the historical corporate
income tax rates and the newly enacted 21 percent corporate income tax rate. The amendments are effective for all entities for the interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted,
including interim periods in those years. The Company adopted the amendments as of December 31, 2017, which resulted in a net reclassification of $144,000 between AOCI and retained earnings.
Accounting Guidance Pending Adoption at December 31, 2018
The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect on the
Company’s financial position or results of operations.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The ASU
will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure
all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases,
unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a
valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January
1, 2019. The Company has selected a vendor to analyze our loan data and has chosen an implementation team. The Company is currently
gathering and analyzing the loan and lease data on a monthly basis. The Company has completed its
preliminary implementation of the model, and believes final implementation will not have a significant impact on the Bank’s ALLL.
In February 2016, the Financial Accounting Standards Board (FASB) issued a new lease accounting standard that is effective 2019 for public
companies. This new standard requires lessees to record assets and liabilities on the balance sheet for all leases with a lease term of 12 months or longer. The new standard increases transparency and comparability by requiring the
recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The new standard requires organizations to recognize the ROU asset and lease liabilities by lessees for those classified as an operating lease under
ASC 840. Organization will also need to consider the effect deferred rent will have on the calculation. Under ASC 840, we identified deferred rent to be immaterial and was expensed at the inception of the lease. As such, we have accounted
for deferred rent being immaterial under ASC 842. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from
leases. F&M Bank expects to apply the guidance using the cumulative-effect approach, with certain practical expedients available.
The standard will be effective for us beginning January 1, 2019, with early adoption permitted. We elected to adopt the standard effective
January 1, 2019. We elected the available practical expedients on adoption. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial
information.
The standard will not have a material impact on our consolidated balance sheets nor on our consolidated income statements. The most significant
impact will be the recognition of the ROU assets and lease liabilities for operating leases, while our accounting for capital leases remain substantially unchanged.
The Company has retained the services of a third party to assist in the implementation of the new lease accounting standard.
21. Parent Company Financial Information
The following financial information is presented as of December 31 for the periods indicated.
Farmers & Merchants Bancorp
Condensed Balance Sheets
(in thousands)
|
|
2018
|
|
|
2017
|
|
Cash
|
|
$
|
335
|
|
|
$
|
332
|
|
Investment in Farmers & Merchants Bank of Central California
|
|
|
321,134
|
|
|
|
297,643
|
|
Investment Securities
|
|
|
409
|
|
|
|
409
|
|
Other Assets
|
|
|
(57
|
)
|
|
|
12,006
|
|
Total Assets
|
|
$
|
321,821
|
|
|
$
|
310,390
|
|
|
|
|
|
|
|
|
|
|
Subordinated Debentures
|
|
$
|
10,310
|
|
|
$
|
10,310
|
|
Liabilities
|
|
|
296
|
|
|
|
420
|
|
Shareholders’ Equity
|
|
|
311,215
|
|
|
|
299,660
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
321,821
|
|
|
$
|
310,390
|
|
Farmers & Merchants Bancorp
Condensed Statements of Income
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Equity in Undistributed Earnings in Farmers & Merchants Bank of Central California
|
|
$
|
(26,488
|
)
|
|
$
|
5,575
|
|
|
$
|
17,043
|
|
Dividends from Subsidiary
|
|
|
73,010
|
|
|
|
23,575
|
|
|
|
14,275
|
|
Interest Income
|
|
|
16
|
|
|
|
13
|
|
|
|
11
|
|
Other Expenses, Net
|
|
|
(1,527
|
)
|
|
|
(1,552
|
)
|
|
|
(2,485
|
)
|
Tax Benefit
|
|
|
516
|
|
|
|
759
|
|
|
|
879
|
|
Net Income
|
|
$
|
45,527
|
|
|
$
|
28,370
|
|
|
$
|
29,723
|
|
Farmers & Merchants Bancorp
Condensed Statements of Cash Flows
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
45,527
|
|
|
$
|
28,370
|
|
|
$
|
29,723
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Undistributed Net Earnings from Subsidiary
|
|
|
26,488
|
|
|
|
(5,575
|
)
|
|
|
(17,043
|
)
|
Net (Increase) Decrease in Other Assets
|
|
|
(125
|
)
|
|
|
(11,822
|
)
|
|
|
(124
|
)
|
Net Increase (Decrease) in Liabilities
|
|
|
(942
|
)
|
|
|
112
|
|
|
|
49
|
|
Net Cash Provided by Operating Activities
|
|
|
70,948
|
|
|
|
11,085
|
|
|
|
12,605
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Sold or Matured
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Payments for Business Acquisition
|
|
|
(28,642
|
)
|
|
|
-
|
|
|
|
(2,207
|
)
|
Payments for Investments in Subsidiaries
|
|
|
(10,503
|
)
|
|
|
(2,953
|
)
|
|
|
(2,586
|
)
|
Net Cash Used by Investing Activities
|
|
|
(39,145
|
)
|
|
|
(2,952
|
)
|
|
|
(4,793
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Repurchased
|
|
|
(31,152
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance of Common Stock
|
|
|
10,503
|
|
|
|
2,953
|
|
|
|
2,586
|
|
Cash Dividends
|
|
|
(11,151
|
)
|
|
|
(10,982
|
)
|
|
|
(10,478
|
)
|
Net Cash Used by Financing Activities
|
|
|
(31,800
|
)
|
|
|
(8,029
|
)
|
|
|
(7,892
|
)
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
3
|
|
|
|
104
|
|
|
|
(80
|
)
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
332
|
|
|
|
228
|
|
|
|
308
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
335
|
|
|
$
|
332
|
|
|
$
|
228
|
|
22. Quarterly Unaudited Financial Data
The following tables set forth certain unaudited historical quarterly financial data for each of the eight consecutive quarters in 2018 and 2017.
This information is derived from unaudited consolidated financial statements that include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction
with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.
2018
(in thousands except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
|
|
Total Interest Income
|
|
$
|
30,428
|
|
|
$
|
32,161
|
|
|
$
|
34,065
|
|
|
$
|
36,799
|
|
|
$
|
133,453
|
|
Total Interest Expense
|
|
|
1,522
|
|
|
|
1,660
|
|
|
|
2,157
|
|
|
|
2,611
|
|
|
|
7,950
|
|
Net Interest Income
|
|
|
28,906
|
|
|
|
30,501
|
|
|
|
31,908
|
|
|
|
34,188
|
|
|
|
125,503
|
|
Provision for Credit Losses
|
|
|
333
|
|
|
|
500
|
|
|
|
2,500
|
|
|
|
2,200
|
|
|
|
5,533
|
|
Net Interest Income After
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit Losses
|
|
|
28,573
|
|
|
|
30,001
|
|
|
|
29,408
|
|
|
|
31,988
|
|
|
|
119,970
|
|
Total Non-Interest Income
|
|
|
4,665
|
|
|
|
2,283
|
|
|
|
4,208
|
|
|
|
4,063
|
|
|
|
15,219
|
|
Total Non-Interest Expense
|
|
|
19,936
|
|
|
|
18,145
|
|
|
|
18,621
|
|
|
|
18,757
|
|
|
|
75,459
|
|
Income Before Income Taxes
|
|
|
13,302
|
|
|
|
14,139
|
|
|
|
14,995
|
|
|
|
17,294
|
|
|
|
59,730
|
|
Provision for Income Taxes
|
|
|
3,361
|
|
|
|
3,589
|
|
|
|
2,995
|
|
|
|
4,258
|
|
|
|
14,203
|
|
Net Income
|
|
$
|
9,941
|
|
|
$
|
10,550
|
|
|
$
|
12,000
|
|
|
$
|
13,036
|
|
|
$
|
45,527
|
|
Basic Earnings Per Common Share
|
|
$
|
12.24
|
|
|
$
|
12.90
|
|
|
$
|
15.12
|
|
|
$
|
16.56
|
|
|
$
|
56.82
|
|
2017
(in thousands except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
|
|
Total Interest Income
|
|
$
|
27,242
|
|
|
$
|
28,069
|
|
|
$
|
29,609
|
|
|
$
|
29,692
|
|
|
$
|
114,612
|
|
Total Interest Expense
|
|
|
1,376
|
|
|
|
1,538
|
|
|
|
1,759
|
|
|
|
1,616
|
|
|
|
6,289
|
|
Net Interest Income
|
|
|
25,866
|
|
|
|
26,531
|
|
|
|
27,850
|
|
|
|
28,076
|
|
|
|
108,323
|
|
Provision for Credit Losses
|
|
|
600
|
|
|
|
650
|
|
|
|
1,600
|
|
|
|
-
|
|
|
|
2,850
|
|
Net Interest Income After
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit Losses
|
|
|
25,266
|
|
|
|
25,881
|
|
|
|
26,250
|
|
|
|
28,076
|
|
|
|
105,473
|
|
Total Non-Interest Income
|
|
|
5,406
|
|
|
|
3,539
|
|
|
|
3,638
|
|
|
|
4,179
|
|
|
|
16,762
|
|
Total Non-Interest Expense
|
|
|
18,422
|
|
|
|
16,525
|
|
|
|
16,307
|
|
|
|
16,500
|
|
|
|
67,754
|
|
Income Before Income Taxes
|
|
|
12,250
|
|
|
|
12,895
|
|
|
|
13,581
|
|
|
|
15,755
|
|
|
|
54,481
|
|
Provision for Income Taxes
|
|
|
4,429
|
|
|
|
4,708
|
|
|
|
5,000
|
|
|
|
11,974
|
|
|
|
26,111
|
|
Net Income
|
|
$
|
7,821
|
|
|
$
|
8,187
|
|
|
$
|
8,581
|
|
|
$
|
3,781
|
|
|
$
|
28,370
|
|
Basic Earnings Per Common Share
|
|
$
|
9.68
|
|
|
$
|
10.12
|
|
|
$
|
10.59
|
|
|
$
|
4.64
|
|
|
$
|
35.03
|
|
23. Subsequent Events
On or about March 15, 2019, the Company will issue 3,586 shares of common stock to the Bank’s non-qualified defined contribution retirement plans
at a price of $715 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. The proceeds will be contributed to the Bank as equity capital.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None
Item 9A.
|
Controls and Procedures
|
The Company maintains controls and procedures designed to ensure that all relevant information is recorded and reported in all filings of
financial reports. Such information is reported to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and
procedures” in Rule 13a-15(e). In accordance with Rule 13a-15(b) of the Exchange Act, we carried out an evaluation as of December 31, 2018, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of December 31, 2018.
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal
controls subsequent to the date the Company completed its evaluation.
Management’s report on internal control over financial reporting is set forth in “Item 8. Financial Statements and Supplementary Data,” and is
incorporated herein by reference. Moss Adams
LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual
Report, was engaged to audit the effectiveness of the Company’s internal control over financial reporting. The report of Moss Adams LLP
, which is set forth in “Item 8. Financial Statements and Supplementary Data,” is incorporated
herein by reference.
Item 9B.
|
Other Information
|
None
PART III
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Set forth below is certain information regarding the Executive Officers of the Company and/or Bank:
Name and Position(s)
|
Age
|
Principal Occupation during the Past Five Years
|
|
|
|
Kent A. Steinwert
Chairman, President
& Chief Executive Officer
of the Company and Bank
|
66
|
Chairman, President & Chief Executive Officer of the Company and Bank.
|
|
|
|
Deborah E. Skinner
Executive Vice President & Chief Administrative Officer of the Bank
|
56
|
Executive Vice President & Chief Administrative Officer of the Bank.
|
|
|
|
Stephen W. Haley
Executive Vice President
& Chief Financial Officer & Secretary of the Company and
Bank
|
65
|
Executive Vice President & Chief Financial Officer of the Company and Bank.
|
|
|
|
Kenneth W. Smith
Executive Vice President
& Senior Credit Officer
of the Company and Bank
|
59
|
Executive Vice President & Senior Credit Officer of the Company and Bank.
|
|
|
|
David M. Zitterow
Executive Vice President,
Wholesale Banking Division
of the Bank
|
46
|
Executive Vice President, Wholesale Banking Division Manager – Farmers & Merchants Bank since May 2017.
Senior Vice President – Northern California Regional Executive – Umpqua Bank, April 2014 – May 2017.
Senior Vice President – Head of Business Banking - Umpqua Bank, July 2013 to April 2014.
|
|
|
|
Jay J. Colombini
Executive Vice President,
Wholesale Banking Division
of the Bank
|
56
|
Executive Vice President, Wholesale Banking Division Manager of the Bank.
|
|
|
|
Ryan J. Misasi
Executive Vice President,
Retail Banking Division of the Bank
|
42
|
Executive Vice President, Retail Banking Division of the Bank since May 29, 2014.
Executive Vice President and Chief Retail Officer – Patelco Credit Union from December 2011 to April 2014.
|
Also, see “Election of Directors” and “Compliance with Section 16(a) of the Exchange Act” in the Company’s definitive proxy statement for the
2019 Annual Meeting of Stockholders which will be filed with the SEC and which is incorporated herein by reference. During 2018, there were no changes in procedures for the election of directors.
The Company has adopted a Code of Conduct, which complies with the Code of Ethics requirements of the SEC. A copy of the Code of Conduct is
posted on the Company’s website. The Company intends to disclose promptly any amendment to, or waiver from any provision of, the Code of Conduct applicable to senior financial officers, and any waiver from any provision of the Code of
Conduct applicable to directors, on its website on the
About Us
page. The Company’s website address is www.fmbonline.com. This website address is
for information only and is not intended to be an active link, or to incorporate any website information into this document.
Item 11.
|
Executive Compensation
|
The information required by Item 11 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy
statement for the 2019 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A.
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy
statement for the 2019 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A. The Company does not have any equity compensation plans, which require disclosure under Item 201(d) of Regulation S-K.
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy
statement for the 2019 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A.
Item 14.
|
Principal Accounting Fees and Services
|
The information required by Item 14 of Form 10-K is incorporated by reference from the information contained in the Company’s definitive proxy
statement for the 2019 Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A.
PART IV
Item 15.
|
Exhibits and Financial Statement Schedules
|
(a) (1) Financial Statements. Incorporated herein by reference, are listed in Item 8 hereof.
(2) Financial Statement Schedules. Not applicable.
(3) Exhibits.
Exhibit
Number
|
Description
|
|
|
3.1
|
|
3.2
|
|
3.3
|
|
4.1
|
|
4.2
|
|
10.1
|
|
10.3
|
|
10.4
|
|
10.6
|
|
10.8
|
|
10.10
|
|
10.11
|
|
10.15
|
|
10.16
|
|
10.17
|
|
10.19
|
|
10.20
|
Senior Management Retention Plan
, amended and restated on November 29, 2014, filed on Registrant’s Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.
|
14
|
|
21
|
|
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Schema Document
|
101.CAL
|
XBRL Calculation Linkbase Document
|
101.LAB
|
XBRL Label Linkbase Document
|
101.PRE
|
XBRL Presentation Linkbase Document
|
101.DEF
|
XBRL Definition Linkbase Document
|
*Filed herewith
Item 16.
|
Form 10-K Summary
|
None
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Farmers & Merchants Bancorp
(Registrant)
|
|
|
|
|
By
|
/s/ Stephen W. Haley
|
|
|
|
|
Dated: March 15, 2019
|
|
Stephen W. Haley
|
|
|
Executive Vice President &
|
|
|
Chief Financial Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 15, 2019.
/s/ Kent A. Steinwert
|
|
|
|
|
Chairman, President & Chief Executive Officer
|
Kent A. Steinwert
|
|
(Principal Executive Officer)
|
|
|
|
/s/ Stephen W. Haley
|
|
|
|
|
Executive Vice President & Chief Financial Officer
|
Stephen W. Haley
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ Gary Long
|
|
/s/ Calvin Suess
|
|
|
|
|
Gary Long, Director
|
|
Calvin Suess, Director
|
|
|
|
/s/ Kevin Sanguinetti
|
|
/s/ Edward Corum, Jr.
|
|
|
|
|
Kevin Sanguinetti, Director
|
|
Edward Corum, Jr., Director
|
|
|
|
|
/s/ Stephenson K. Green
|
|
/s/ Terrence A. Young, Director
|
|
|
|
|
Stephenson K. Green, Director
|
|
Terrence A. Young, Director
|
115