Company Quick10K Filing
Central Valley Community Bancorp
Price21.55 EPS1
Shares14 P/E17
MCap293 P/FCF18
Net Debt-43 EBIT28
TEV250 TEV/EBIT9
TTM 2019-09-30, in MM, except price, ratios
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CVCY 10Q Quarterly Report

Part 1: Financial Information
Item 1: Financial Statements
Note 1. Basis of Presentation
Note 2. Fair Value Measurements
Note 3. Investments
Note 4. Loans and Allowance for Credit Losses
Note 5. Borrowing Arrangements
Note 6. Commitments and Contingencies
Note 7. Earnings per Share
Note 8. Share - Based Compensation
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6 Exhibits
EX-10.86 exhibit1086amendedsalaryco.htm
EX-10.87 exhibit1087amendedsplitdol.htm
EX-10.88 exhibit1088salarycontinuat.htm
EX-10.89 exhibit1089splitdollaragre.htm
EX-10.90 exhibit10903rdamendedsalar.htm
EX-10.91 exhibit10913rdamendedsplit.htm
EX-31.1 exhibit3112020q1.htm
EX-31.2 exhibit3122020q1.htm
EX-32.1 exhibit3212020q1.htm
EX-32.2 exhibit3222020q1.htm

Central Valley Community Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 cvcy-2020033110xqq1.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
(Mark One)
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED March 31, 2020
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM                        TO
 
COMMISSION FILE NUMBER: 000—31977
 
CENTRAL VALLEY COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
 
California
 
77-0539125
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
7100 N. Financial Dr., Suite 101, Fresno, California
 
93720
(Address of principal executive offices)
 
(Zip code)
 
Registrant’s telephone number (559) 298-1775

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
 
CVCY
 
NASDAQ Capital Market
(Title of Each Class)
 
(Trading Symbol)
 
(Name of Each Exchange on which Registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer ý
 
 
 
Non-accelerated filer o
 
Small reporting company ý
 
 
Emerging growth company o

1


 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  ý
As of May 1, 2020 there were 12,475,439 shares of the registrant’s common stock outstanding.

2




CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY
 
2020 QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
 


3


PART 1: FINANCIAL INFORMATION
 

ITEM 1: FINANCIAL STATEMENTS

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
(In thousands, except share amounts)
 
March 31, 2020
 
December 31, 2019
 
 
 
 
 
ASSETS
 
 

 
 

Cash and due from banks
 
$
22,713

 
$
24,195

Interest-earning deposits in other banks
 
13,449

 
28,379

Total cash and cash equivalents
 
36,162

 
52,574

Available-for-sale debt securities
 
522,943

 
470,746

Equity securities
 
7,592

 
7,472

Loans, less allowance for credit losses of $10,546 at March 31, 2020 and $9,130 at December 31, 2019
 
919,223

 
934,250

Bank premises and equipment, net
 
7,410

 
7,618

Bank-owned life insurance
 
29,945

 
30,230

Federal Home Loan Bank stock
 
6,062

 
6,062

Goodwill
 
53,777

 
53,777

Core deposit intangibles
 
1,704

 
1,878

Accrued interest receivable and other assets
 
33,828

 
32,148

Total assets
 
$
1,618,646

 
$
1,596,755

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Deposits:
 
 

 
 

Non-interest bearing
 
$
603,998

 
$
594,627

Interest bearing
 
746,593

 
738,658

Total deposits
 
1,350,591

 
1,333,285

 
 
 
 
 
Junior subordinated deferrable interest debentures
 
5,155

 
5,155

Accrued interest payable and other liabilities
 
44,227

 
30,187

Total liabilities
 
1,399,973

 
1,368,627

Commitments and contingencies (Note 6)
 


 


Shareholders’ equity:
 
 

 
 

Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding
 

 

Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 12,472,939 at March 31, 2020 and 13,052,407 at December 31, 2019
 
78,854

 
89,379

Retained earnings
 
141,147

 
135,932

Accumulated other comprehensive income (loss), net of tax
 
(1,328
)
 
2,817

Total shareholders’ equity
 
218,673

 
228,128

Total liabilities and shareholders’ equity
 
$
1,618,646

 
$
1,596,755

 
See notes to unaudited consolidated financial statements.

4



CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
For the Quarter Ended March 31,
(In thousands, except share and per-share amounts) 
 
2020
 
2019
INTEREST INCOME:
 
 
 
 
Interest and fees on loans
 
$
12,898

 
$
12,554

Interest on deposits in other banks
 
183

 
150

Interest and dividends on investment securities:
 
 
 
 
Taxable
 
3,266

 
3,023

Exempt from Federal income taxes
 
159

 
562

Total interest income
 
16,506

 
16,289

INTEREST EXPENSE:
 
 
 
 
Interest on deposits
 
432

 
393

Interest on junior subordinated deferrable interest debentures
 
45

 
57

Other
 

 
4

Total interest expense
 
477

 
454

Net interest income before provision for credit losses
 
16,029

 
15,835

PROVISION FOR (REVERSAL OF) CREDIT LOSSES
 
1,375

 
(25
)
Net interest income after provision for credit losses
 
14,654

 
15,860

NON-INTEREST INCOME:
 
 
 
 
Service charges
 
646

 
690

Appreciation in cash surrender value of bank-owned life insurance
 
182

 
171

Interchange fees
 
333

 
343

Net realized gains on sales of investment securities
 
4,198

 
1,052

Federal Home Loan Bank dividends
 
107

 
121

Loan placement fees
 
299

 
139

Other income
 
776

 
460

Total non-interest income
 
6,541

 
2,976

NON-INTEREST EXPENSES:
 
 
 
 
Salaries and employee benefits
 
7,512

 
6,490

Occupancy and equipment
 
1,144

 
1,479

Professional services
 
458

 
327

Data processing
 
336

 
395

Regulatory assessments
 
47

 
152

ATM/Debit card expenses
 
294

 
191

Information technology
 
608

 
777

Directors’ expenses
 
192

 
176

Advertising
 
173

 
202

Internet banking expense
 
196

 
194

Amortization of core deposit intangibles
 
174

 
174

Other
 
944

 
1,110

Total non-interest expenses
 
12,078

 
11,667

Income before provision for income taxes
 
9,117

 
7,169

Provision for income taxes
 
2,494

 
1,953

Net income
 
$
6,623

 
$
5,216

Earnings per common share:
 
 
 
 
Basic earnings per share
 
$
0.52

 
$
0.38

Weighted average common shares used in basic computation
 
12,734,971

 
13,646,489

Diluted earnings per share
 
$
0.52

 
$
0.38

Weighted average common shares used in diluted computation
 
12,779,096

 
13,755,615

Cash dividend per common share
 
$
0.11

 
$
0.10

 
See notes to unaudited consolidated financial statements.

5



CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
For the Quarter Ended March 31,
(In thousands)
 
2020
 
2019
Net income
 
$
6,623

 
$
5,216

Other Comprehensive Income:
 
 
 
 
Unrealized gains (losses) on securities:
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
(1,687
)
 
8,618

Reclassification of net gains included in net income
 
(4,198
)
 
(1,052
)
Other comprehensive income (loss), before tax
 
(5,885
)
 
7,566

Tax effect
 
1,740

 
(2,237
)
Total other comprehensive income (loss)
 
(4,145
)
 
5,329

Comprehensive income
 
$
2,478

 
$
10,545


See notes to unaudited consolidated financial statements.



6


CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2020 AND 2019
 (Unaudited)

 
 
Common Stock
 
 
 
Accumulated
Other
Comprehensive Income (Loss)
(Net of Taxes)
 
Total Shareholders’ Equity
 
 
 
 
 
 
Retained Earnings
 
(In thousands, except share amounts)
 
Shares
 
Amount
 
 
Balance, January 1, 2019
 
13,754,965

 
$
103,851

 
$
120,294

 
$
(4,407
)
 
$
219,738

Net income
 

 

 
5,216

 

 
5,216

Other comprehensive income
 

 

 

 
5,329

 
5,329

Restricted stock granted, net of forfeitures
 
(90
)
 

 

 

 

Stock issued under employee stock purchase plan
 
4,603

 
80

 
 
 
 
 
80

Stock awarded to employees
 
5,295

 
100

 
 
 
 
 
100

Stock-based compensation expense
 

 
143

 

 

 
143

Cash dividend
 

 

 
(1,372
)
 

 
(1,372
)
Stock options exercised
 
13,636

 
95

 

 

 
95

Repurchase and retirement of common stock
 
(97,479
)
 
(1,874
)
 
 
 
 
 
(1,874
)
Balance, March 31, 2019
 
13,680,930

 
$
102,395

 
$
124,138

 
$
922

 
$
227,455

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2020
 
13,052,407

 
$
89,379

 
$
135,932

 
$
2,817

 
$
228,128

Net income
 

 

 
6,623

 

 
6,623

Other comprehensive loss
 

 

 

 
(4,145
)
 
(4,145
)
Stock issued under employee stock purchase plan
 
3,633

 
58

 

 

 
58

Stock awarded to employees
 
6,548

 
141

 

 

 
141

Stock-based compensation expense
 

 
121

 

 

 
121

Cash dividend
 

 

 
(1,408
)
 

 
(1,408
)
Stock options exercised
 
31,730

 
207

 

 

 
207

Repurchase and retirement of common stock
 
(621,379
)
 
(11,052
)
 

 

 
(11,052
)
Balance, March 31, 2020
 
12,472,939

 
$
78,854

 
$
141,147

 
$
(1,328
)
 
$
218,673

See notes to unaudited consolidated financial statements.


7


CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 
 
For the Quarter
Ended March 31,
(In thousands)
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 

 
 

Net income
 
$
6,623

 
$
5,216

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 

Net decrease in deferred loan costs
 
36

 
163

Depreciation
 
240

 
521

Accretion
 
(338
)
 
(200
)
Amortization
 
942

 
1,335

Stock-based compensation
 
121

 
143

Provision for (reversal of) credit losses
 
1,375

 
(25
)
Net realized gains on sales of available-for-sale investment securities
 
(4,198
)
 
(1,052
)
Net change in equity securities
 
(120
)
 
(92
)
Increase in bank-owned life insurance, net of expenses
 
(182
)
 
(171
)
Net gain on bank-owned life insurance
 
(64
)
 

Net decrease (increase) in accrued interest receivable and other assets
 
644

 
(8,420
)
Net increase in accrued interest payable and other liabilities
 
1,464

 
9,702

Provision for deferred income taxes
 
(612
)
 
(218
)
Net cash provided by operating activities
 
5,931

 
6,902

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 

 
 

Purchases of available-for-sale investment securities
 
(155,742
)
 
(65,253
)
Proceeds from sales or calls of available-for-sale investment securities
 
106,037

 
52,985

Proceeds from maturity and principal repayments of available-for-sale investment securities
 
8,136

 
6,051

Net decrease (increase) in loans
 
13,616

 
(3,239
)
Purchases of premises and equipment
 
(32
)
 
(133
)
Purchases of bank-owned life insurance
 

 
(1,000
)
Proceeds from bank-owned life insurance
 
531

 

Net cash used in investing activities
 
(27,454
)
 
(10,589
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 

 
 

Net increase in demand, interest bearing and savings deposits
 
21,196

 
9,167

Net (decrease) increase in time deposits
 
(3,890
)
 
1,099

Proceeds from short-term borrowings from Federal Home Loan Bank
 

 
14,000

Repayments of short-term borrowings to Federal Home Loan Bank
 

 
(17,000
)
Proceeds of borrowings from other financial institutions
 

 
1,370

Repayments of borrowings from other financial institutions
 

 
(1,370
)
Purchase and retirement of common stock
 
(11,052
)
 
(1,874
)
Proceeds from stock issued under employee stock purchase plan
 
58

 
80

Proceeds from exercise of stock options
 
207

 
95

Cash dividend payments on common stock
 
(1,408
)
 
(1,372
)
Net cash provided by financing activities
 
5,111

 
4,195

(Decrease) increase in cash and cash equivalents
 
(16,412
)
 
508

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
52,574

 
31,727

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
36,162

 
$
32,235

 
 
 
For the Quarter
Ended March 31,
(In thousands)
 
2020
 
2019
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 
 

 
 

Cash paid during the period for:
 
 

 
 

Interest
 
$
502

 
$
425

Operating cash flows from operating leases
 
$
559

 
$
545

Non-cash investing and financing activities:
 
 

 
 

Initial recognition of operating lease right-of-use assets
 
$

 
$
10,129

Purchases of available-for-sale investment securities, not yet settled
 
$
12,718

 
$
1,816

See notes to unaudited consolidated financial statements.


8


Note 1.  Basis of Presentation
 
The interim unaudited condensed consolidated financial statements of Central Valley Community Bancorp and subsidiary have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These interim condensed consolidated financial statements include the accounts of Central Valley Community Bancorp and its wholly owned subsidiary Central Valley Community Bank (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2019 Annual Report to Shareholders on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position at March 31, 2020, and the results of its operations and its cash flows for the three-month interim periods ended March 31, 2020 and 2019 have been included. The results of operations for interim periods are not necessarily indicative of results for the full year.
     The preparation of these interim unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
     Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment, and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank.

Risks and Uncertainties

In December 2019, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China. COVID-19 continues to aggressively spread globally and has spread to over 185 countries, including all 50 states in the United States. A prolonged COVID-19 outbreak, or any other epidemic that harms the global economy, U.S. economy, or the economies in which we operate, could adversely affect our operations. While the spread of COVID-19 has minimally affected our operations as of March 31, 2020, it has caused significant economic disruption throughout the United States as state and local governments issued “shelter at home” orders along with the closing of non-essential businesses. The potential financial impact is unknown at this time. However, if these actions are sustained, it may adversely affect several industries within our geographic footprint and impair the ability of our customers to fulfill their contractual obligations to the Company. This could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on our intangible assets, investments, loans, or deferred tax assets.

Impact of New Financial Accounting Standards:

FASB Accounting Standards Update (ASU) 2016-13 - Measurement of Credit Losses on Financial Instruments (Subtopic 326): Financial Instruments - Credit Losses, commonly referred to as “CECL,” was issued June 2016. The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the contractual term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (“HTM”) debt securities. Under the provisions of the update, credit losses recognized on available for sale (“AFS”) debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL, reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. On August 15, 2019, the FASB issued a proposed Accounting Standards Update (ASU), “Financial

9


Instruments -Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” that would provide private entities and certain small public companies additional time to implement the standards on CECL, leases, and hedging. The final ASU extends the effective date for SEC filers, such as the Company, that are classified as smaller reporting companies to January 1, 2023.

The Company has formed an internal task force that is responsible for oversight of the Company’s implementation strategy for compliance with provisions of the new standard. The Company has also established a project management governance process to manage the implementation across affected disciplines. An external provider specializing in community bank loss driver and CECL reserving model design as well as other related consulting services has been retained, and we have begun to evaluate potential CECL modeling alternatives. As part of this process, the Company has determined potential loan pool segmentation and sub-segmentation under CECL, as well as begun to evaluate the key economic loss drivers for each segment. Further, the Company has begun developing internal controls around the CECL process, data, calculations and implementation. The Company presently plans to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for interim and annual reporting periods during 2020 due to the fact the Company elected to delay implementation of the CECL process as allowed by FASB. While the Company is currently unable to reasonably estimate the impact of adopting this new guidance, management expects the impact of adoption will be significantly influenced by the composition and quality of the Company’s loans as well as the economic conditions as of the date of adoption. The Company also anticipates significant changes to the processes and procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on our consolidated financial statements.

FASB Accounting Standards Update (ASU) 2018-13 - Fair Value Measurement (Subtopic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, was issued August 2018. The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this ASU effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements and disclosures.

FASB Accounting Standards Update (ASU) 2020-04 - Reference Rate Reform (Subtopic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued March 2020. This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the provisions of this ASU and its effects on our consolidated financial statements.

In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued a revised interagency statement encouraging financial institutions to work with customers affected by the novel coronavirus pandemic (“COVID-19”) and providing additional information regarding loan modifications. The revised interagency statement clarifies the interaction between the interagency statement issued on March 22, 2020 and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (“TDRs”). The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital. This interagency guidance is expected to reduce the number of TDRs that will be reported in future periods; however, the amount is indeterminable and will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.



Note 2.  Fair Value Measurements
 
Fair Value Hierarchy
 
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In accordance with applicable guidance, the Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  Valuations within these levels are based upon:

10


 
Level 1 — Quoted market prices (unadjusted) for identical instruments traded in active exchange markets that the Company has the ability to access as of the measurement date.
 
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.
 
Level 3 — Model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability.  Valuation techniques include management judgment and estimation which may be significant.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, we report the transfer at the beginning of the reporting period. The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands):
 
 
March 31, 2020
 
 
Carrying
Amount
 
Fair Value
(In thousands)
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 

 
 

 
 

 
 
 
 

Cash and due from banks
 
$
22,713

 
$
22,713

 
$

 
$

 
$
22,713

Interest-earning deposits in other banks
 
13,449

 
13,449

 

 

 
13,449

Available-for-sale debt securities
 
522,943

 

 
522,943

 

 
522,943

Equity securities
 
7,592

 
7,592

 

 

 
7,592

Loans, net
 
919,223

 

 

 
915,066

 
915,066

Federal Home Loan Bank stock
 
6,062

 
N/A

 
N/A

 
N/A

 
N/A

Accrued interest receivable
 
5,710

 
15

 
2,647

 
3,048

 
5,710

Financial liabilities:
 
 

 
 

 
 

 
 
 
 

Deposits
 
1,350,591

 
1,211,581

 
90,133

 

 
1,301,714

Junior subordinated deferrable interest debentures
 
5,155

 

 

 
2,661

 
2,661

Accrued interest payable
 
151

 

 
106

 
45

 
151


 
 
December 31, 2019
 
 
Carrying
Amount
 
Fair Value
(In thousands)
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
24,195

 
$
24,195

 
$

 
$

 
$
24,195

Interest-earning deposits in other banks
 
28,379

 
28,379

 

 

 
28,379

Federal funds sold
 

 

 

 

 

Available-for-sale debt securities
 
470,746

 

 
470,746

 

 
470,746

Equity securities
 
7,472

 
7,472

 

 

 
7,472

Loans, net
 
934,250

 

 

 
928,807

 
928,807

Federal Home Loan Bank stock
 
6,062

 
N/A

 
N/A

 
N/A

 
N/A

Accrued interest receivable
 
5,591

 
33

 
1,798

 
3,760

 
5,591

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
1,333,285

 
1,160,224

 
93,395

 

 
1,253,619

Junior subordinated deferrable interest debentures
 
5,155

 

 

 
3,976

 
3,976

Accrued interest payable
 
176

 

 
129

 
47

 
176



11


These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments.  In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.
These estimates are made at a specific point in time based on relevant market data and information about the financial instruments.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the fair values presented.
The methods and assumptions used to estimate fair values are described as follows:

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

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

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

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

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

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

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

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

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


12


(i) Off-Balance Sheet Instruments — Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not considered significant for financial reporting purposes.
 
Assets Recorded at Fair Value
 
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2020:
 
Recurring Basis
 
The Company is required or permitted to record the following assets at fair value on a recurring basis as of March 31, 2020 (in thousands). 
Description
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Available-for-sale debt securities:
 
 

 
 

 
 

 
 

U.S. Government agencies
 
$
43,212

 
$

 
$
43,212

 
$

Obligations of states and political subdivisions
 
205,254

 

 
205,254

 

U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
202,305

 

 
202,305

 

Private label mortgage and asset backed securities
 
63,923

 

 
63,923

 

Corporate debt securities
 
8,249

 

 
8,249

 

Equity securities
 
7,592

 
7,592

 

 

Total assets measured at fair value on a recurring basis
 
$
530,535

 
$
7,592

 
$
522,943

 
$

 
Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets.  Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.
Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the three months ended March 31, 2020, no transfers between levels occurred.
There were no Level 3 assets measured at fair value on a recurring basis at or during the three months ended March 31, 2020. Also there were no liabilities measured at fair value on a recurring basis at March 31, 2020.

Non-recurring Basis
 
The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. As of March 31, 2020 there were no impaired loans or assets that were measured at the lower of cost or fair value.
 
At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. The fair value of impaired loans is based on the fair value of the collateral. Impaired loans were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. Impaired loans evaluated under the discounted cash flow method are excluded from the table above. The discounted cash flow methods as prescribed by ASC Topic 310 is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate which is not a market rate. There were no changes in valuation techniques used during the three months ended ended March 31, 2020.

13


Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value is compared with independent data sources such as recent market data or industry-wide statistics.
As of March 31, 2020, there were no loans measured using the fair value of the collateral for the collateral dependent loans. There were no liabilities measured at fair value on a non-recurring basis at March 31, 2020.
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2019:

Recurring Basis
 
The Company is required or permitted to record the following assets at fair value on a recurring basis as of December 31, 2019 (in thousands).
Description
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Available-for-sale debt securities:
 
 

 
 

 
 

 
 

U.S. Government agencies
 
$
14,494

 
$

 
$
14,494

 
$

Obligations of states and political subdivisions
 
91,111

 

 
91,111

 

U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
196,719

 

 
196,719

 

Private label mortgage and asset backed securities
 
159,378

 

 
159,378

 

Corporate debt securities
 
9,044

 

 
9,044

 

Equity securities
 
7,472

 
7,472

 

 

Total assets measured at fair value on a recurring basis
 
$
478,218

 
$
7,472

 
$
470,746

 
$

 
Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets.  Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.
     Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the year ended December 31, 2019, no transfers between levels occurred.
There were no Level 3 assets measured at fair value on a recurring basis at or during the year ended December 31, 2019. Also there were no liabilities measured at fair value on a recurring basis at December 31, 2019.

Non-recurring Basis
 
The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis.  As of December 31, 2019 there were no loans or assets that were measured at the lower of cost or fair value.
 
There were no liabilities measured at fair value on a non-recurring basis at December 31, 2019.

Note 3.  Investments
 
The investment portfolio consists primarily of U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations, private label mortgage and asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivisions securities.  As of March 31, 2020, $89,967,000 of these securities were held as collateral for borrowing arrangements, public funds, and for other purposes.
     The fair value of the available-for-sale investment portfolio reflected a net unrealized loss of $(1,886,000) at March 31, 2020 compared to an unrealized gain of $3,999,000 at December 31, 2019. The unrealized gain/(loss) recorded is net of $(558,000) and $1,182,000 in tax liabilities (benefits) as accumulated other comprehensive income (loss) within shareholders’ equity at March 31, 2020 and December 31, 2019, respectively.
     The following table sets forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated (in thousands): 

14


 
 
March 31, 2020
Available-for-Sale Securities
 
Amortized Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
 Fair Value
Debt securities:
 
 

 
 

 
 

 
 

U.S. Government agencies
 
$
43,550

 
$
28

 
$
(366
)
 
$
43,212

Obligations of states and political subdivisions
 
200,677

 
6,393

 
(1,816
)
 
205,254

U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
205,987

 
2,804

 
(6,486
)
 
202,305

Private label mortgage and asset backed securities
 
65,615

 
679

 
(2,371
)
 
63,923

Corporate debt securities
 
9,000

 

 
(751
)
 
8,249

Total available-for-sale
 
$
524,829

 
$
9,904

 
$
(11,790
)
 
$
522,943


 

December 31, 2019
Available-for-Sale Securities
 
Amortized Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Debt securities:
 
 

 
 

 
 

 
 

U.S. Government agencies
 
$
14,740

 
$
12

 
$
(258
)
 
$
14,494

Obligations of states and political subdivisions
 
89,574

 
2,965

 
(1,428
)
 
91,111

U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
198,125

 
1,409

 
(2,815
)
 
196,719

Private label mortgage and asset backed securities
 
155,308

 
4,223

 
(153
)
 
159,378

Corporate debt securities
 
9,000

 
79

 
(35
)
 
9,044

Total available-for-sale
 
$
466,747

 
$
8,688

 
$
(4,689
)
 
$
470,746


Proceeds and gross realized gains (losses) from the sales or calls of investment securities for the periods ended March 31, 2020 and 2019 are shown below (in thousands):
 
 
For the Quarter
Ended March 31,
Available-for-Sale Securities

2020

2019
Proceeds from sales or calls
 
$
106,037

 
$
52,985

Gross realized gains from sales or calls
 
4,198

 
1,099

Gross realized losses from sales or calls
 

 
(47
)

Losses recognized in 2019 were incurred in order to reposition the investment securities portfolio based on the current rate environment.  As market interest rates or risks associated with a security’s issuer continue to change and impact the actual or perceived values of investment securities, the Company may determine that selling these securities and using proceeds to purchase securities that fit with the Company’s current risk profile is appropriate and beneficial to the Company.
The provision for income taxes includes $1,241,000 and $311,000 income tax impact from the reclassification of unrealized net gains on securities to realized net gains on securities for the three months ended March 31, 2020 and 2019, respectively.
Investment securities, aggregated by investment category, with unrealized losses as of the dates indicated are summarized and classified according to the duration of the loss period as follows (in thousands): 

15


 
 
March 31, 2020
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
Available-for-Sale Securities
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
Debt securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government agencies
 
$
28,966

 
$
(151
)
 
$
13,457

 
$
(215
)
 
$
42,423

 
$
(366
)
Obligations of states and political subdivisions
 
50,756

 
(1,816
)
 

 

 
50,756

 
(1,816
)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
54,165

 
(1,327
)
 
75,561

 
(5,159
)
 
129,726

 
(6,486
)
Private label mortgage and asset backed securities
 
47,232

 
(2,359
)
 
5,674

 
(12
)
 
52,906

 
(2,371
)
Corporate debt securities
 
8,249

 
(751
)
 

 

 
8,249

 
(751
)
Total available-for-sale
 
$
189,368

 
$
(6,404
)

$
94,692

 
$
(5,386
)
 
$
284,060

 
$
(11,790
)

 
 
December 31, 2019
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
Available-for-Sale Securities
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
Debt securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government agencies
 
$

 
$

 
$
13,713

 
$
(258
)
 
$
13,713

 
$
(258
)
Obligations of states and political subdivisions
 
65,606

 
(1,428
)
 

 

 
65,606

 
(1,428
)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
71,650

 
(932
)
 
69,518

 
(1,883
)
 
141,168

 
(2,815
)
Private label mortgage and asset backed securities
 
17,811

 
(81
)
 
5,624

 
(72
)
 
23,435

 
(153
)
Corporate debt securities
 
3,965

 
(35
)
 

 

 
3,965

 
(35
)
Total available-for-sale
 
$
159,032

 
$
(2,476
)
 
$
88,855

 
$
(2,213
)
 
$
247,887

 
$
(4,689
)

     The Company periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions, and interest rate fluctuations.  The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings.  The discount rate in this analysis is the original yield expected at time of purchase.
     As of March 31, 2020, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). The Company evaluated all individual available-for-sale investment securities with an unrealized loss at March 31, 2020 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at March 31, 2020 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $10,000.  The Company also analyzed any securities that may have been downgraded by credit rating agencies. 
For those investment securities that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those investment securities.  For those bonds that were obligations of states and political subdivisions with an investment grade rating by the rating agencies, the Company also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded there were no OTTI losses recorded during the three months ended March 31, 2020.

U.S. Government Agencies

At March 31, 2020, the Company held 11 U.S. Government agency securities of which five were in a loss position for less than 12 months and five had been in a loss position for 12 months or more. The unrealized losses on the Company’s investments in direct obligations of U.S. Government agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a

16


recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

Obligations of States and Political Subdivisions
 
At March 31, 2020, the Company held 66 obligations of states and political subdivision securities of which 15 were in a loss position for less than 12 months. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities were caused by interest rate changes. 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, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

 
U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations
 
At March 31, 2020, the Company held 116 U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations of which 14 were in a loss position for less than 12 months and 17 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.
 
Private Label Mortgage and Asset Backed Securities
 
At March 31, 2020, the Company had a total of 25 Private Label Mortgage and Asset Backed Securities (PLMABS). 13 of the PLMABS securities were in a loss position for less than 12 months and one has been in loss for more than 12 months at March 31, 2020. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020. The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary.

Corporate Debt Securities
 
At March 31, 2020, the Company held two corporate debt securities of which both were in a loss position. The unrealized losses on the Company’s investments in corporate debt securities were caused by interest rate changes. 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, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

The amortized cost and estimated fair value of available-for-sale investment securities at March 31, 2020 by contractual maturity is shown below (in thousands).  Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

17


 
 
March 31, 2020
Available-for-Sale Securities
 
Amortized Cost

Estimated Fair
Value
Within one year
 
$

 
$

After one year through five years
 
1,577

 
1,705

After five years through ten years
 
23,097

 
24,616

After ten years
 
176,003

 
178,933

 
 
200,677

 
205,254

Investment securities not due at a single maturity date:
 
 

 
 

U.S. Government agencies
 
43,550

 
43,212

U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations
 
205,987

 
202,305

Private label mortgage and asset backed securities
 
65,615

 
63,923

Corporate debt securities
 
9,000

 
8,249

Total available-for-sale
 
$
524,829

 
$
522,943

 

Note 4.  Loans and Allowance for Credit Losses
 
Outstanding loans are summarized as follows:
Loan Type (Dollars in thousands)
 
March 31, 2020
 
% of Total
Loans
 
December 31, 2019
 
% of Total
Loans
Commercial:
 
 

 
 

 
 

 
 

   Commercial and industrial
 
$
102,606

 
11.0
%
 
$
102,541

 
10.9
%
   Agricultural production
 
17,162

 
1.9
%
 
23,159

 
2.6
%
Total commercial
 
119,768

 
12.9
%
 
125,700

 
13.5
%
Real estate:
 
 

 
 

 
 

 
 

   Owner occupied
 
198,551

 
21.4
%
 
197,946

 
21.0
%
   Real estate construction and other land loans
 
79,794

 
8.6
%
 
73,718

 
7.8
%
   Commercial real estate
 
326,044

 
35.2
%
 
329,333

 
34.9
%
   Agricultural real estate
 
67,935

 
7.3
%
 
76,304

 
8.1
%
   Other real estate
 
33,184

 
3.6
%
 
31,241

 
3.3
%
Total real estate
 
705,508

 
76.1
%
 
708,542

 
75.1
%
Consumer:
 
 

 
 

 
 

 
 

   Equity loans and lines of credit
 
61,601

 
6.6
%
 
64,841

 
6.9
%
   Consumer and installment
 
41,341

 
4.4
%
 
42,782

 
4.5
%
Total consumer
 
102,942

 
11.0
%
 
107,623

 
11.4
%
Net deferred origination costs
 
1,551

 
 

 
1,515

 
 

Total gross loans
 
929,769

 
100.0
%
 
943,380

 
100.0
%
Allowance for credit losses
 
(10,546
)
 
 

 
(9,130
)
 
 

Total loans
 
$
919,223

 
 

 
$
934,250

 
 

 
At March 31, 2020 and December 31, 2019, loans originated under Small Business Administration (SBA) programs totaling $21,044,000 and $21,910,000, respectively, were included in the real estate and commercial categories, of which, $15,747,000 or 75% and $16,372,000 or 75%, respectively, are secured by government guarantees.

Allowance for Credit Losses

The allowance for credit losses (the “Allowance”) is a valuation allowance for probable incurred credit losses in the Company’s loan portfolio. The Allowance is established through a provision for credit losses which is charged to expense. Additions to the Allowance are expected to maintain the adequacy of the total Allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the Allowance. Cash received on previously charged-off

18


credits is recorded as a recovery to the Allowance. The overall Allowance consists of two primary components, specific reserves related to impaired loans and general reserves for probable incurred losses related to loans that are not impaired.
For all portfolio segments, the determination of the general reserve for loans that are not impaired is based on estimates made by management, including but not limited to, consideration of historical losses by portfolio segment (and in certain cases peer data) over the most recent 20 quarters, and qualitative factors including economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan portfolio, and probable losses inherent in the portfolio taken as a whole.

The following table shows the summary of activities for the Allowance as of and for the three months ended March 31, 2020 and 2019 by portfolio segment (in thousands):
 
 
Commercial
 
Real Estate
 
Consumer
 
Unallocated
 
Total
Allowance for credit losses:
 
 

 
 

 
 

 
 

 
 

Beginning balance, January 1, 2020
 
$
1,428

 
$
6,769

 
$
897

 
$
36

 
$
9,130

Provision charged to operations
 
225

 
786

 
302

 
62

 
1,375

Losses charged to allowance
 
(28
)
 

 
(15
)
 

 
(43
)
Recoveries
 
32

 

 
52

 

 
84

Ending balance, March 31, 2020
 
$
1,657

 
$
7,555

 
$
1,236

 
$
98

 
$
10,546

 
 
 
 
 
 
 
 
 
 
 
Allowance for credit losses:
 
 

 
 

 
 

 
 

 
 

Beginning balance, January 1, 2019
 
$
1,671

 
$
6,539

 
$
826

 
$
68

 
$
9,104

(Reversal) provision charged to operations
 
(252
)
 
170

 
61

 
(4
)
 
(25
)
Losses charged to allowance
 

 

 
(9
)
 

 
(9
)
Recoveries
 
31

 

 
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