The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Unaudited Consolidated Financial Statements
alone. The discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10–Q may contain certain forward-looking statements within the meaning of Section 27A the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect the Company’s current views and are not historical facts. These statements can generally be identified by use of phrases such as “believe,” “expect,”
“will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “commit” or other words of similar import. Similarly, statements that describe the Company’s future financial condition, results of operations, objectives,
strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future financial conditions, results of operations, and shareholder value are not guarantees of performance and many of the
factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” sections in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”), and other parts of this report that could cause actual results to differ
materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors which could cause actual results to differ materially from forward-looking statements in this Quarterly Report on Form 10-Q:
|
■
|
the pendency, duration, and impact of the COVID-19 pandemic;
|
|
■
|
changes in general economic conditions, either nationally, in California, or in our local markets;
|
|
■
|
inflation, changes in interest rates, securities market volatility and monetary fluctuations;
|
|
■
|
increases in competitive pressures among financial institutions and businesses offering similar products and services;
|
|
■
|
higher defaults in our loan portfolio than we expect;
|
|
■
|
changes in management’s estimate of the adequacy of the allowance for credit losses;
|
|
■
|
risks associated with our growth and expansion strategy and related costs;
|
|
■
|
increased lending risks associated with our high concentration of real estate loans;
|
|
■
|
legislative or regulatory changes or changes in accounting principles, policies or guidelines;
|
|
■
|
technological changes; and
|
|
■
|
regulatory or judicial proceedings.
|
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended,
committed or believed.
Please take into account that forward-looking statements speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to release publicly revisions to such forward-looking statements to
reflect events or circumstances after the date of this Form 10-Q, except as required by law.
Farmers & Merchants Bancorp is a Delaware registered bank holding company organized in 1999. As a registered bank holding company, FMCB is subject to regulation, supervision, and examination by the Board of
Governors of the Federal Reserve System (“FRB”) and by the California Department of Financial Protection and Innovation (“DFPI”). The Company’s principal business is to serve as a holding company for the Bank and for other banking or banking related
subsidiaries, which the Company may establish or acquire. As a legal entity separate and distinct from its subsidiary, the Company’s principal source of funds is, and will continue to be, dividends paid by and other funds received from the Bank.
Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company. The Company’s outstanding common stock as of March 31, 2022, consisted of 785,146 shares of common stock, $0.01 par value
and no shares of preferred stock were issued or outstanding.
F & M Bancorp, Inc. was created in March 2002 to protect the name “F & M Bank.” During 2002, the Company completed a fictitious name filing in California to begin using the streamlined name, “F & M Bank,”
as part of a larger effort to enhance the Company’s image and build brand name recognition. Since 2002, the Company has converted all of its daily operating and image advertising to the “F & M Bank” name and the Company’s logo, slogan and signage
were redesigned to incorporate the trade name, “F & M Bank”.
The primary source of funding for our asset growth has been the generation of core deposits, which we raise through our existing branch locations, newly opened branch locations, or through acquisitions. Our recent
loan growth is primarily the result of organic growth generated by our seasoned relationship managers and supporting associates who provide outstanding service and responsiveness to our clients or through acquisitions.
Our results of operations are largely dependent on net interest income. Net interest income is the difference between interest income we earn on interest earning assets, which are comprised of loans, investment
securities and short-term investments, and the interest we pay on our interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings. Management strives to match the re-pricing characteristics of the interest
earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve.
We measure our performance by calculating our net interest margin, return on average assets, and return on average equity. Net interest margin is calculated by dividing net interest income, which is the difference
between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is our largest source of revenue. Interest rate fluctuations, as well as changes in the
amount and type of earning assets and liabilities, combine to affect net interest income. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest
income.
Summary of Critical Accounting Policies and Estimates
In the opinion of management, the accompanying Consolidated Statements of Financial Condition and related Consolidated Statements of Income, Comprehensive Income, Changes in Shareholders’ Equity and Cash Flows reflect
all adjustments (which include reclassification and normal recurring adjustments) that are necessary for a fair presentation in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect amounts reported in the financial statements.
Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified certain
accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements.
Management believes the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the factual circumstances at the time. However, given the sensitivity of the
financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Further, subsequent changes in economic or
market conditions could have a material impact on these estimates and our financial condition and operating results in future periods. For additional information concerning critical accounting policies, see the Selected Notes to the Consolidated
Financial Statements and the following:
Use of Estimates — The preparation of our financial statements requires management to make estimates and judgments that affect the reported amount of assets,
liabilities, revenues and expenses. On an ongoing basis, management evaluates the estimates used. Estimates are based upon historical experience, current economic conditions and other factors that management considers reasonable under the
circumstances and the actual results may differ from these estimates under different assumptions. The allowance for credit losses, deferred income taxes, and fair values of financial instruments are estimates, which are particularly subject to
change.
Allowance for Credit Losses — Loans — The
methodology for determining the allowance for credit losses (“ACL”) on loans is considered a critical accounting policy by Management because of the high degree of judgment involved. The subjectivity of the assumptions used and the potential for
changes in the economic environment could result in changes to the amount of the recorded ACL. Among the material estimates required to establish the ACL are: (i) a reasonable and supportable forecast; (ii) a reasonable and supportable forecast
period and the reversion period; (iii) value of collateral; strength of guarantors; (iv) the amount and timing of future cash flows for loans individually evaluated; and (v) the determination of the qualitative loss factors. All of these estimates
are susceptible to significant change.
The Company has established systematic methodologies for the determination of the adequacy of the ACL. The methodologies are set forth in a formal policy and take into consideration the need for a valuation allowance
for loans evaluated on a collective (pool) basis, which have similar risk characteristics as well as allowances to individual loans that do not share risk characteristics.
The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The provision for credit losses reflects the amount required to
maintain the ACL at an appropriate level based upon management’s evaluation of the adequacy of loss reserves. The Company increases its ACL by charging provisions for credit losses on its consolidated statement of income. Losses related to specific
assets are applied as a reduction of the carrying value of the assets and charged against the ACL when management believes a loan balance is uncollectable. Recoveries on previously charged off loans are credited to the ACL.
Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss
experience, either internal or peer information, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made, using qualitative factors, when management expects current conditions and
reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The ACL is maintained at a level sufficient to provide for expected credit losses over the life of the
loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. These factors include, among others, changes in the
size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions.
On January 1, 2022, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments, as amended, which replaces the incurred loss methodology that delays recognition until it is probable a loss has been incurred with an expected loss methodology that is referred to as CECL. Both the Financial Accounting
Standards Board (“FASB Staff Q&A Topic 326, No. 1”) and the federal financial institution regulatory agencies (“Financial Institution Letter FIL-17-2019”), along with the Securities and Exchange Commission, have confirmed that smaller, less
complex organizations are not required to implement complex models, developed by outside vendors to calculate current expected credit losses. Accordingly, in adopting ASU 2016-13 (Topic 326) Management determined that the Weighted Average Remaining
Maturity (“WARM”) method was most appropriate given the Company’s current size and complexity.
Management will incorporate reasonable and supportable information in order to calculate CECL reserves. This includes the ability to reliably forecast and document exogenous events that may affect the credit
performance of the Company’s loan portfolio. Management is confident with its ability to effectively identify historical loss information by the appropriate portfolio segmentation. In addition, Management believes that it can reasonably obtain
historical loss information by its respective peers to further improve historical loss information. Additionally, the Company believes that it can effectively evaluate the potential impact that both macro and micro-economic conditions can have on
its loan portfolio. Management is also comfortable that it can rely on weighted average maturity calculations, including estimated prepayments with its existing Asset/Liability Management (“ALM”) applications developed and run by the Darling
Consulting Group.
Management determined that the most effective approach to segment its portfolio and to extract the relevant information it needed to calculate its CECL reserves was to utilize the seventeen loan segments used in
preparing regulatory Call Reports. This allows Management the ability to obtain historical loss information for itself as well as its peer group. Additionally, Management’s ALM application also utilizes a similar loan segmentation in calculating
weighted average remaining terms.
The foundation of CECL modeling is the ability to estimate expected credit losses over the lifetime of a loan. Management must use relevant available information about past events (e.g. historical losses) current
conditions, and reasonable and supportable forecasts about future conditions. Historical losses serve as the starting point to estimate expected credit losses. When available, historical losses should include cumulative actual losses incurred over
the lifetime of the various loan segments of the loans being evaluated. In cases where such information is not available, companies may need to rely on external data, such as peer data of historical losses for similar loan segments.
Management has determined to use a “through-the-cycle” historical credit loss experience as its baseline for historical credit losses. Management has determined a representative period for a full credit cycle would be
from 2008 to 2022 (fifteen-year credit cycle). Management has collected historical loss information on its own loan portfolio as well as peer group information by the seventeen loan segments over this time horizon using information available from
Federal Regulators on the Uniform Bank Performance Report (“UBPR”) at www.ffiec.gov.
Federal Regulators have placed the Company into a peer group of banks based on bank with assets between $3 billion to $10 billion. This peer group segmentation includes 181 banks across the nation. The model
calculates the mean historical loss rate over the fifteen year economic cycle for both the Bank and its peer group. The model calculates the stressed historical loss rate over the fifteen year economic cycle for both the Bank and its peer group.
Management evaluated macro and micro economic information as well as internal trends in credit performance on our loan portfolio to determine at where we believe we are in an economic credit cycle. Depending upon our
estimation of what point in the credit cycle the current economy may exist, we adjust, on a quantitative basis, historical loss rates either upwards or downwards from the mean. If Management believes we are nearing the end on a credit cycle, we may
adjust historical losses in increments higher from the mean (e.g. one standard deviation from the mean). If the Company believes that we are in the recovery stage of a credit cycle, we may adjust historical losses downwards from the mean.
Management understands that historical credit losses may not exactly follow a normal bell-shaped curve, but that the approach provides consistency across all loan segments as well as a measured probability of credit loss coverage.
Management evaluated current economic metrics as its basis to determine that we believe that we are at the beginning of an economic recession. Based on this determination, management has used a one-standard deviation
from the mean to capture 68.2% of all credit losses over the 15-year economic cycle.
Management used the duration of each loan segment to estimate the remaining life of loans to ensure that the model covers credit losses over the expect life of such loans.
Management will continue to employ the use of qualitative factors as defined by the Interagency Policy Statement on the Allowance for Loan and Lease Losses (“SR 2006-17”). Management will consider qualitative or
environmental factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience, as defined in the Interagency Guidance, including but not limited to:
| |
■
|
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
|
| |
■
|
Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.
|
| |
■
|
Changes in the nature and volume of the portfolio and in the terms of loans.
|
| |
■
|
Changes in the experience, ability, and depth of lending management and other relevant staff.
|
| |
■
|
Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.
|
| |
■
|
Changes in the quality of the institution’s loan review system.
|
| |
■
|
Changes in the value of underlying collateral for collateral-dependent loans.
|
| |
■
|
The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
|
| |
■
|
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.
|
These qualitative factors are applied primarily to our agriculture and agricultural real estate loan exposure.
Investment Securities — Investment securities are classified as held-to-maturity (“HTM”) when the Company has the positive intent and ability to hold the
securities to maturity. Investment securities are classified as available-for-sale (“AFS”) when the Company has the intent of holding the security for an indefinite period of time, but not necessarily to maturity. The Company determines the
appropriate classification at the time of purchase, and periodically thereafter. Investment securities classified at HTM are carried at amortized cost. Investment securities classified at AFS are reported at fair value. Purchase premiums and
discounts are recognized in interest income using the interest method over the terms of the securities. Debt securities classified as held-to-maturity are carried at cost, net of the allowance for credit losses - securities, adjusted for
amortization of premiums and discounts to the earliest callable date. Debt securities classified as available-for-sale are measured at fair value. Unrealized holding gains and losses on debt securities classified as available-for-sale are excluded
from earnings and are reported net of tax as accumulated other comprehensive income (AOCI), a component of shareholders’ equity, until realized. When AFS securities, specifically identified, are sold, the unrealized gain or loss is reclassified from
AOCI to non-interest income.
Allowance for Credit Losses – Securities — Management measures expected credit losses on held-to maturity debt securities on a collective basis by major
security type. The Company’s held-to-maturity portfolio contains securities issued by U.S. government entities and agencies, municipalities, and corporations. The Company uses industry historical credit loss information adjusted for current
conditions to establish the allowance for credit losses on its municipal bond portfolio.
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If the
Company intends to sell the security or it is more likely than not that, the Company will be required to sell the security before recovering its cost basis; the entire impairment loss would be recognized in earnings. If the Company does not intend to
sell the security and it is not more likely than not that, the Company will be required to sell the security the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment,
management considers the extent to which fair value is less than amortized costs, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment
indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Projected cash flows are discounted by the current effective interest rate. If
the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the
amortized cost basis. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to AOCI.
Changes in the allowance for credit losses-securities are recorded as provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the non-collectability of an
available-for-sale security is confirmed or when either criteria regarding intent of requirement to sell is met.
Goodwill — Goodwill represents the excess of the purchase considerations paid over the fair value of the assets acquired, net of the fair values of
liabilities assumed in a business combination it is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. An assessment of qualitative factors is completed to determine if it is
more likely than not that, the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill
impairment compares the reporting unit’s estimated fair values, including goodwill, to its carrying amount. If the carrying amount exceeds its reporting unit’s fair value, then an impairment loss would be recognized as a charge to earnings, but is
limited by the amount of goodwill allocated to that reporting unit.
Other Intangible Assets — Other intangible assets consists primarily of core deposit intangibles (“CDI”), which are amounts recorded in business combinations
or deposit purchase transactions related to the value of transaction-related deposits and the value of the client relationships associated with the deposits. Core deposit intangibles are amortized over the estimated useful lives of such deposits.
These assets are reviewed at least annually for events or circumstances that could affect their recoverability. These events could include loss of the underlying core deposits, increased competition or adverse changes in the economy. The amortization
of our CDI is recorded in other non-interest expense. To the extent other identifiable intangible assets are deemed unrecoverable; impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.
Fair Value Measurements — The Company discloses the fair value of financial instruments and the methods and significant assumptions used to estimate those
fair values. The Company using available market information and appropriate valuation methodologies has determined the estimated fair value amounts. 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 between origination
of the instrument and its expected realization.
Income Taxes — Income taxes are filed on a consolidated basis with our subsidiaries and allocate income tax expense (benefit) based on each entity’s
proportionate share of the consolidated provision for income taxes. Deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their
respective tax bases.
Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The determination of the amount of deferred income tax assets, that are more likely
than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed
and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred income tax asset will not be realized. “More likely than not” is defined as greater than a 50% probability. All available evidence, both
positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed.
Only tax positions that meet the more likely than not recognition threshold are recognized. 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 sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. Interest expense and penalties associated with unrecognized tax benefits are classified as income tax expense in the consolidated statements of income.
Impact of Recently Issued Accounting Standards
See Note 1. “Basis of Presentation and Significant Accounting Policies” to the Consolidated Financial Statements in “Item 1. Financial Information” in this Quarterly Report on Form 10-Q.
The following discussion and analysis is intended to provide a better understanding of Farmers & Merchants Bancorp and its subsidiaries’ financial condition at March 31, 2022 and December 31, 2021 and results of
operations during the three months ended March 31, 2022 and 2021, respectively. Information related to the comparison of the results of operations for the three years ended December 31, 2021, 2020, and 2019 can be found in the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in the 2021 Annual Report on Form 10-K filed with the SEC on March 15, 2022.
Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans
and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes card processing fees, service charges on deposit accounts, bank-owned life insurance income, gains/losses on the
sale of investment securities, and gains/losses on deferred compensation investments. Non-interest expense consists primarily of salaries and employee benefits, cost of deferred compensation benefits, occupancy, data processing, FDIC insurance,
marketing, legal and other expenses.
Average Balance and Yields. The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost
and net interest margin information for the periods presented. Average balances are derived from daily balances.
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
(Dollars in thousands)
|
|
Average Balance
|
|
|
Interest Income / Expense
|
|
|
Average
Yield / Rate
|
|
|
Average Balance
|
|
|
Interest Income / Expense
|
|
|
Average
Yield / Rate
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earnings deposits in other banks and federal funds sold
|
|
$
|
760,080
|
|
|
$
|
366
|
|
|
|
0.20
|
%
|
|
$
|
410,276
|
|
|
$
|
103
|
|
|
|
0.10
|
%
|
|
Securities:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
|
1,022,457
|
|
|
|
4,588
|
|
|
|
1.82
|
%
|
|
|
834,831
|
|
|
|
3,804
|
|
|
|
1.85
|
%
|
|
Non-taxable securities(2)
|
|
|
49,997
|
|
|
|
402
|
|
|
|
3.22
|
%
|
|
|
55,078
|
|
|
|
423
|
|
|
|
3.07
|
%
|
|
Total securities
|
|
|
1,072,454
|
|
|
|
4,990
|
|
|
|
1.89
|
%
|
|
|
889,909
|
|
|
|
4,227
|
|
|
|
1.93
|
%
|
|
Loans:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,151,611
|
|
|
|
13,276
|
|
|
|
4.68
|
%
|
|
|
965,249
|
|
|
|
10,977
|
|
|
|
4.61
|
%
|
|
Agricultural
|
|
|
680,230
|
|
|
|
7,793
|
|
|
|
4.65
|
%
|
|
|
638,292
|
|
|
|
7,136
|
|
|
|
4.53
|
%
|
|
Residential and home equity
|
|
|
353,371
|
|
|
|
3,301
|
|
|
|
3.79
|
%
|
|
|
335,573
|
|
|
|
4,571
|
|
|
|
5.52
|
%
|
|
Construction
|
|
|
191,684
|
|
|
|
2,072
|
|
|
|
4.38
|
%
|
|
|
193,366
|
|
|
|
2,097
|
|
|
|
4.40
|
%
|
|
Total real estate
|
|
|
2,376,896
|
|
|
|
26,442
|
|
|
|
4.51
|
%
|
|
|
2,132,480
|
|
|
|
24,781
|
|
|
|
4.71
|
%
|
|
Commercial & industrial
|
|
|
424,598
|
|
|
|
4,799
|
|
|
|
4.58
|
%
|
|
|
365,881
|
|
|
|
4,111
|
|
|
|
4.56
|
%
|
|
Agricultural
|
|
|
248,414
|
|
|
|
2,755
|
|
|
|
4.50
|
%
|
|
|
226,200
|
|
|
|
2,564
|
|
|
|
4.60
|
%
|
|
Commercial leases
|
|
|
94,855
|
|
|
|
1,416
|
|
|
|
6.05
|
%
|
|
|
102,566
|
|
|
|
1,344
|
|
|
|
5.31
|
%
|
|
Consumer and other
|
|
|
52,078
|
|
|
|
2,021
|
|
|
|
15.74
|
%
|
|
|
232,845
|
|
|
|
4,287
|
|
|
|
7.47
|
%
|
|
Total loans and leases
|
|
|
3,196,841
|
|
|
|
37,433
|
|
|
|
4.75
|
%
|
|
|
3,059,972
|
|
|
|
37,087
|
|
|
|
4.92
|
%
|
|
Non-marketable securities
|
|
|
15,549
|
|
|
|
305
|
|
|
|
7.96
|
%
|
|
|
12,693
|
|
|
|
190
|
|
|
|
6.07
|
%
|
|
Total interest earning assets
|
|
|
5,044,924
|
|
|
|
43,094
|
|
|
|
3.46
|
%
|
|
|
4,372,850
|
|
|
|
41,607
|
|
|
|
3.86
|
%
|
|
Allowance for credit losses
|
|
|
(61,022
|
)
|
|
|
|
|
|
|
|
|
|
|
(59,431
|
)
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets
|
|
|
314,932
|
|
|
|
|
|
|
|
|
|
|
|
306,261
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
|
$
|
5,298,834
|
|
|
|
|
|
|
|
|
|
|
$
|
4,619,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
1,115,578
|
|
|
|
259
|
|
|
|
0.09
|
%
|
|
$
|
943,635
|
|
|
|
294
|
|
|
|
0.13
|
%
|
|
Savings and money market accounts
|
|
|
1,517,234
|
|
|
|
342
|
|
|
|
0.09
|
%
|
|
|
1,291,214
|
|
|
|
418
|
|
|
|
0.13
|
%
|
|
Certificates of deposit greater than $250,000
|
|
|
167,515
|
|
|
|
97
|
|
|
|
0.23
|
%
|
|
|
171,501
|
|
|
|
256
|
|
|
|
0.61
|
%
|
|
Certificates of deposit less than $250,000
|
|
|
223,842
|
|
|
|
105
|
|
|
|
0.19
|
%
|
|
|
247,416
|
|
|
|
269
|
|
|
|
0.44
|
%
|
|
Total interest bearing deposits
|
|
|
3,024,169
|
|
|
|
803
|
|
|
|
0.11
|
%
|
|
|
2,653,766
|
|
|
|
1,237
|
|
|
|
0.19
|
%
|
|
Short-term borrowings
|
|
|
3
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
4
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
Subordinated debentures
|
|
|
10,310
|
|
|
|
82
|
|
|
|
3.23
|
%
|
|
|
10,310
|
|
|
|
79
|
|
|
|
3.11
|
%
|
|
Total interest bearing liabilities
|
|
|
3,034,482
|
|
|
|
885
|
|
|
|
0.12
|
%
|
|
|
2,664,080
|
|
|
|
1,316
|
|
|
|
0.20
|
%
|
|
Non-interest bearing deposits
|
|
|
1,722,597
|
|
|
|
|
|
|
|
|
|
|
|
1,469,741
|
|
|
|
|
|
|
|
|
|
|
Total funding
|
|
|
4,757,079
|
|
|
|
885
|
|
|
|
0.08
|
%
|
|
|
4,133,821
|
|
|
|
1,316
|
|
|
|
0.13
|
%
|
|
Other non-interest bearing liabilities
|
|
|
76,061
|
|
|
|
|
|
|
|
|
|
|
|
56,268
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
465,694
|
|
|
|
|
|
|
|
|
|
|
|
429,591
|
|
|
|
|
|
|
|
|
|
|
Total average liabilities and shareholders’ equity
|
|
$
|
5,298,834
|
|
|
|
|
|
|
|
|
|
|
$
|
4,619,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
42,209
|
|
|
|
|
|
|
|
|
|
|
$
|
40,291
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
3.66
|
%
|
|
Net interest margin(4)
|
|
|
|
|
|
|
|
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
3.74
|
%
|
| (1) |
Excludes average unrealized (losses) gains of ($7.0) million and $12.9 million for the three months ended March 31, 2022, and 2021, respectively, which are included in non-interest earning assets.
|
| (2) |
The average yield does not include the federal tax benefits at an assumed effective yield of 25% related to income earned on tax-exempt municipal securities totaling $106,000 and $111,000 for the three months ended March 31, 2022, and
2021, respectively.
|
| (3) |
Loan interest income includes loan fees of $3.9 million and $5.2 million for the three months ended March 31, 2022 and 2021, respectively.
|
| (4) |
Net interest margin is computed by dividing net interest income by average interest earning assets.
|
Interest-bearing deposits with banks and Federal Reserve balances are additional earning assets available to the Company. Average interest-bearing deposits with banks consisted
primarily of FRB deposits. Balances with the FRB earned an average interest rate of 0.20% and 0.10% for the three months ended March 31, 2022 and 2021, respectively. Average interest-bearing deposits was $760
million and $410 million for the three months ended March 31, 2022 and 2021, respectively. Interest income on interest-bearing deposits with banks was $0.4 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
The investment portfolio is another main component of the Company’s earning assets. Historically, the Company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt
securities issued by the U.S. Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company selectively added investment grade corporate securities
(floating rate and fixed rate with maturities less than 7 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity. Since the risk factor for these types of investments is generally lower than
that of loans and leases, the yield earned on investments is generally less than that of loans and leases.
Average total investment securities were $1.1 billion and $890 million for the three months ended March 31, 2022 and 2021, respectively. The average yield on total investment securities were 1.89% and 1.93% for the
three months ended March 31, 2022 and 2021, respectively. See “Investment Securities and Federal Reserve balances” for a discussion of the Company’s investment strategy in 2022.
Average loans and leases held for investment were $3.2 billion and $3.1 billion for the three months ended March 31, 2022 and 2021, respectively. The yield on the loan & lease portfolio was 4.75% and 4.92% for the
three months ended March 31, 2022 and 2021, respectively. The Company continues to experience aggressive competitor pricing for loans and leases to which it may need to respond in order to retain key customers. This could continue to place negative
pressure on future loan & lease yields and net interest margin.
Average interest-bearing liabilities were $3.0 billion and $2.7 billion for the three months ended March 31, 2022 and 2021, respectively. Total interest expense on interest-bearing deposits was $0.8 million, $1.2
million for the three months ended March 31, 2022 and 2021, respectively. The average rate paid on interest-bearing liabilities was 0.12% and 0.20% for the three months ended March 31, 2022 and 2021, respectively. The decline was primarily the
result of the FRB lowering rates to near zero due to the pandemic.
Rate/Volume Analysis. The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the
combination of volume and rates based on the relative changes of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of
absolute dollar amounts of change in each.
|
|
|
Three Months Ended March 31, 2022
compared with 2021
|
|
|
|
|
Increase (Decrease) Due to:
|
|
|
(Dollars in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
Interest earnings deposits in other banks and federal funds sold
|
|
$
|
127
|
|
|
$
|
136
|
|
|
$
|
263
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
|
1,174
|
|
|
|
(390
|
)
|
|
|
784
|
|
|
Non-taxable securities
|
|
|
(119
|
)
|
|
|
98
|
|
|
|
(21
|
)
|
|
Total securities
|
|
|
1,055
|
|
|
|
(292
|
)
|
|
|
763
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2,146
|
|
|
|
153
|
|
|
|
2,299
|
|
|
Agricultural
|
|
|
477
|
|
|
|
180
|
|
|
|
657
|
|
|
Residential and home equity
|
|
|
1,499
|
|
|
|
(2,769
|
)
|
|
|
(1,270
|
)
|
|
Construction
|
|
|
(18
|
)
|
|
|
(7
|
)
|
|
|
(25
|
)
|
|
Total real estate
|
|
|
4,105
|
|
|
|
(2,444
|
)
|
|
|
1,661
|
|
|
Commercial & industrial
|
|
|
664
|
|
|
|
24
|
|
|
|
688
|
|
|
Agricultural
|
|
|
525
|
|
|
|
(334
|
)
|
|
|
191
|
|
|
Commercial leases
|
|
|
(507
|
)
|
|
|
579
|
|
|
|
72
|
|
|
Consumer and other
|
|
|
(16,806
|
)
|
|
|
14,540
|
|
|
|
(2,266
|
)
|
|
Total loans
|
|
|
(12,020
|
)
|
|
|
12,366
|
|
|
|
346
|
|
|
Non-marketable securities
|
|
|
48
|
|
|
|
67
|
|
|
|
115
|
|
|
Total interest income
|
|
|
(10,790
|
)
|
|
|
12,277
|
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
|
239
|
|
|
|
(274
|
)
|
|
|
(35
|
)
|
|
Savings and money market accounts
|
|
|
349
|
|
|
|
(425
|
)
|
|
|
(76
|
)
|
|
Certificates of deposit greater than $250,000
|
|
|
(6
|
)
|
|
|
(153
|
)
|
|
|
(159
|
)
|
|
Certificates of deposit less than $250,000
|
|
|
(24
|
)
|
|
|
(140
|
)
|
|
|
(164
|
)
|
|
Total interest bearing deposits
|
|
|
558
|
|
|
|
(992
|
)
|
|
|
(434
|
)
|
|
Subordinated debentures
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
Total interest expense
|
|
|
558
|
|
|
|
(989
|
)
|
|
|
(431
|
)
|
|
Net interest income
|
|
$
|
(11,348
|
)
|
|
$
|
13,266
|
|
|
$
|
1,918
|
|
Net interest income was $42.2 million and $40.3 million for the three months ended March 31, 2022 and 2021, respectively. The increase in net interest income was driven by primarily by strong deposit growth, which we
were able to partially deploy into growing our loan portfolio. The remaining increase in deposits was held in interest earning deposits and investment securities.
Comparison of Results of Operations for the Three Months Ended March 31, 2022 and 2021
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2022
|
|
|
2021
|
|
|
$ Better /
(Worse)
|
|
|
% Better /
(Worse)
|
|
|
Selected Income Statement Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
43,094
|
|
|
$
|
41,607
|
|
|
$
|
1,487
|
|
|
|
3.57
|
%
|
|
Interest expense
|
|
|
885
|
|
|
|
1,316
|
|
|
|
431
|
|
|
|
32.75
|
%
|
|
Net interest income
|
|
|
42,209
|
|
|
|
40,291
|
|
|
|
1,918
|
|
|
|
4.76
|
%
|
|
Provision for credit losses
|
|
|
-
|
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
100.00
|
%
|
|
Net interest income after provision for credit losses
|
|
|
42,209
|
|
|
|
39,041
|
|
|
|
3,168
|
|
|
|
8.11
|
%
|
|
Non-interest income
|
|
|
4,312
|
|
|
|
9,535
|
|
|
|
(5,223
|
)
|
|
|
-54.78
|
%
|
|
Non-interest expense
|
|
|
23,788
|
|
|
|
26,363
|
|
|
|
2,575
|
|
|
|
9.77
|
%
|
|
Income before income tax expense
|
|
|
22,733
|
|
|
|
22,213
|
|
|
|
520
|
|
|
|
2.34
|
%
|
|
Income tax expense
|
|
|
5,675
|
|
|
|
5,500
|
|
|
|
(175
|
)
|
|
|
-3.18
|
%
|
|
Net income
|
|
$
|
17,058
|
|
|
$
|
16,713
|
|
|
$
|
345
|
|
|
|
2.06
|
%
|
Net Income. For the three months ended March 31, 2022 and 2021, net income was $17.1 million compared with $16.7 million, respectively. The increase in net income was primarily
the result of higher net interest income of $1.9 million, lower non-interest expense of $2.6 million, and lower provision for credit losses of $1.3 million. These increases were offset by lower non-interest income of $5.2 million and higher income
tax expense of $0.2 million.
Net Interest Income and Net Interest Margin. For the three months ended March 31, 2022, net interest income increased $1.9 million, or 4.8%, to $42.2 million compared with $40.3
million for the same period a year earlier. The increase is primarily the result of average interest earning assets increasing $679 million, or 14.7% to $5.3 billion compared with $4.6 billion for the same period a year earlier. Higher interest
earning assets was driven by strong growth in the Company’s total deposits. Total deposits grew $623 million, or 15.11%, to $4.7 billion compared with $4.2 billion for the same a year ago. The strong growth in the Company’s balance sheet was offset
by narrowing net interest margins. Net interest margins narrowed 35 basis points to 3.39% for all of 2022 compared with 3.74% for the same period a year earlier. Narrow net interest margins was primarily the result of the FRB lowering interest
rates to near zero over the past two years.
Provision for Credit Losses. The provision for credit losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the
allowance for credit losses at a level that, in management’s judgment, is adequate to absorb expected losses over the life of the portfolio.
The Company did not record any provision for credit losses for the three months ended March 31, 2022 compared with $1.3 million for the same period a year ago. For the three months ended March 31, 2022, the Company
incurred net recoveries of $25,000 compared with net recoveries of $63,000 for the same period a year earlier.
Non-interest Income. Non-interest income decreased $5.2 million, or 54.8%, to $4.3 million for the three months ended March 31, 2022 compared with $9.5 million for the same
period a year earlier. The year-over-year decrease in non-interest income was primarily due to a $3.1 million decline in gains/(losses) on deferred compensation investments and $1.8 million reduction in gain on sale of investment securities recorded
in the first quarter of 2021.
The Company recorded net gains on deferred compensation plan investments of $0.4 million for the three months ended March 31, 2022 compared with net gains of $3.5 million for the same respective period. See Note 12,
located in “Item 8. Financial Statements and Supplementary Data” in the Company’s December 31, 2021 Form 10-K filed on March 15, 2022 for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial
instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP require these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest
expense resulting in no net-effect on the Company’s net income.
Non-interest Expense. Non-interest expense decreased $2.6 million, or 9.8%, to $23.8 million for 2022 compared with $26.4 million for the same period a year ago. The
year-over-year decrease was primarily due to the $3.1 million change in gains/(losses) on deferred compensation obligations.
The Company recorded net gains on deferred compensation plan obligations of $0.4 million for the three months ended March 31, 2022 compared with net gains of $3.5 million for the same respective period. See Note 12,
located in “Item 8. Financial Statements and Supplementary Data” in the Company’s December 31, 2021 Form 10-K filed on March 15, 2022 for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial
instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires gains/(losses) on deferred compensation obligations in non-interest expense, an offsetting entry is also required to be made to
non-interest income resulting in no net-effect on the Company’s net income.
Income Tax Expense. For the three months ended March 31, 2022, income tax expense was $5.7 million, compared with $5.5 million for the same period a year earlier. For the three
months ended March 31, 2022, the effective tax rate was 24.96% compared with 24.76% for the same period a year ago.
Total assets grew $246 million, or 4.76%, to $5.4 billion at March 31, 2022 compared with $5.2 billion at December 31, 2021. Loans held for investment remained flat at $3.2 billion at both March 31, 2022, and December
31, 2021. Total deposits grew $197 million, or 4.25%, to $4.8 billion at March 31, 2022 compared with $4.6 billion at December 31, 2021. The increase in total assets and deposits was primarily the result of continued strong organic deposit growth.
Investment Securities and Federal Reserve Balances
The Company’s investment portfolio increased $120 million, or 11.92%, to $1.1 billion at March 31, 2022 compared to $1.0 billion at December 31, 2021. The Company uses its investment portfolio to manage interest rate
and liquidity risks. Accordingly, when market rates are increasing it invests most of its funds in shorter-term Treasury and Agency securities or shorter-term (10, 15 and 20 year) mortgage-backed securities. Conversely, when rates are falling,
30-year mortgage-backed securities or longer term Treasury and Agency securities may be increased. The Company’s total investment portfolio currently represents 20.79% of the Company’s total assets at March 31, 2022 as compared with 19.46% at
December 31, 2021.
Not included in the investment portfolio are interest bearing deposits with banks and overnight investments in Federal Reserve balances. Interest bearing deposits with banks consisted primarily of FRB deposits.
The FRB currently pays interest on the deposits that banks maintain in their FRB accounts, whereas historically banks had to sell these Federal Funds to other banks in order to earn interest. Since balances at the FRB are effectively risk free, the
Company elected to maintain its excess cash at the FRB. Interest bearing deposits with banks totaled $772 million at March 31, 2022 and $663 million at December 31, 2021.
The Company classifies its investment securities as either held-to-maturity (“HTM”) or available-for-sale (“AFS”). Securities are classified as held-to-maturity and are carried at amortized cost when the Company has
the intent and ability to hold the securities to maturity. Securities classified as AFS include securities, which may be sold to effectively manage interest rate risk exposure, prepayment risk, satisfy liquidity demands and other factors. These
securities are reported at fair value with aggregate, unrealized gains or losses excluded from income and included as a separate component of shareholders’ equity, net of related income taxes. As of March 31, 2022, we held no investment securities
from any issuer that totaled over 10% of our shareholders’ equity.
The carrying value of our portfolio of investment securities was as follows:
|
(Dollars in thousands)
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
9,996
|
|
|
$
|
10,089
|
|
|
U.S. Government-sponsored securities
|
|
|
5,789
|
|
|
|
6,374
|
|
|
Mortgage-backed securities(1)
|
|
|
223,901
|
|
|
|
251,120
|
|
|
Collateralized mortgage obligations(1)
|
|
|
1,544
|
|
|
|
2,436
|
|
|
Corporate securities
|
|
|
9,835
|
|
|
|
-
|
|
|
Other
|
|
|
310
|
|
|
|
435
|
|
|
Total available-for-sale securities
|
|
$
|
251,375
|
|
|
$
|
270,454
|
|
(1) All
mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
(Dollars in thousands)
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
Held-to-Maturity Securities
|
|
|
|
|
|
|
|
Mortgage-backed securities(1)
|
|
$
|
695,249
|
|
|
$
|
596,775
|
|
|
Collateralized mortgage obligations(1)
|
|
|
117,427
|
|
|
|
73,781
|
|
|
Municipal securities
|
|
|
63,581
|
|
|
|
66,496
|
|
|
Total held-to-maturity securities
|
|
$
|
876,257
|
|
|
$
|
737,052
|
|
(1) All
mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
The following table shows the carrying value for maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:
|
Investment Securities
|
|
As of March 31, 2022
|
|
|
|
|
Within One Year
|
|
|
After One but
Within Five Years
|
|
|
After Five but
Within Ten Years
|
|
|
After Ten Years
|
|
|
Total
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
9,996
|
|
|
|
2.36
|
%
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
9,996
|
|
|
|
2.36
|
%
|
|
U.S. Government-sponsored securities
|
|
|
3
|
|
|
|
2.57
|
%
|
|
|
142
|
|
|
|
2.36
|
%
|
|
|
423
|
|
|
|
1.42
|
%
|
|
|
5,221
|
|
|
|
1.27
|
%
|
|
|
5,789
|
|
|
|
1.30
|
%
|
|
Mortgage-backed securities(1)
|
|
|
1
|
|
|
|
1.39
|
%
|
|
|
26,319
|
|
|
|
2.31
|
%
|
|
|
37,271
|
|
|
|
2.40
|
%
|
|
|
160,310
|
|
|
|
1.67
|
%
|
|
|
223,901
|
|
|
|
1.83
|
%
|
|
Collateralized Mortgage Obligations(1)
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
1,544
|
|
|
|
2.26
|
%
|
|
|
1,544
|
|
|
|
2.30
|
%
|
|
Corporate securities
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
4,932
|
|
|
|
0.68
|
%
|
|
|
4,903
|
|
|
|
0.81
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
9,835
|
|
|
|
0.00
|
%
|
|
Other
|
|
|
310
|
|
|
|
0.01
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
310
|
|
|
|
3.31
|
%
|
|
Total securities available-for-sale
|
|
$
|
10,310
|
|
|
|
2.29
|
%
|
|
$
|
31,393
|
|
|
|
2.05
|
%
|
|
$
|
42,597
|
|
|
|
2.21
|
%
|
|
$
|
167,075
|
|
|
|
1.66
|
%
|
|
$
|
251,375
|
|
|
|
1.77
|
%
|
(1) All
mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
|
|
Within One Year
|
|
|
After One but
Within Five Years
|
|
|
After Five but
Within Ten Years
|
|
|
After Ten Years
|
|
|
Total
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities(1)
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
15,820
|
|
|
|
0.72
|
%
|
|
$
|
679,429
|
|
|
|
1.80
|
%
|
|
$
|
695,249
|
|
|
|
1.70
|
%
|
|
Collateralized Mortgage Obligations(1)
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
117,427
|
|
|
|
1.17
|
%
|
|
|
117,427
|
|
|
|
1.71
|
%
|
|
Municipal securities
|
|
|
908
|
|
|
|
1.41
|
%
|
|
|
7,118
|
|
|
|
2.20
|
%
|
|
|
16,690
|
|
|
|
3.34
|
%
|
|
|
38,865
|
|
|
|
1.22
|
%
|
|
|
63,581
|
|
|
|
3.90
|
%
|
|
Total securities held-to-maturity
|
|
$
|
908
|
|
|
|
1.41
|
%
|
|
$
|
7,118
|
|
|
|
2.20
|
%
|
|
$
|
32,510
|
|
|
|
2.06
|
%
|
|
$
|
835,721
|
|
|
|
1.68
|
%
|
|
$
|
876,257
|
|
|
|
1.86
|
%
|
(1) All
mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
|
Investment Securities
|
|
As of December 31, 2021
|
|
| |
|
Within One Year
|
|
|
After One but
Within Five Years
|
|
|
After Five but
Within Ten Years
|
|
|
After Ten Years
|
|
|
Total
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
5,028
|
|
|
|
2.33
|
%
|
|
$
|
5,061
|
|
|
|
2.38
|
%
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
$
|
10,089
|
|
|
|
2.36
|
%
|
|
U.S. Government-sponsored securities
|
|
|
2
|
|
|
|
1.80
|
%
|
|
|
148
|
|
|
|
2.29
|
%
|
|
|
512
|
|
|
|
1.55
|
%
|
|
|
5,712
|
|
|
|
1.26
|
%
|
|
|
6,374
|
|
|
|
1.30
|
%
|
|
Mortgage-backed securities(1)
|
|
|
13
|
|
|
|
1.50
|
%
|
|
|
21,155
|
|
|
|
2.36
|
%
|
|
|
50,554
|
|
|
|
2.36
|
%
|
|
|
179,398
|
|
|
|
1.61
|
%
|
|
|
251,120
|
|
|
|
1.83
|
%
|
|
Collateralized Mortgage Obligations(1)
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
2,436
|
|
|
|
2.30
|
%
|
|
|
2,436
|
|
|
|
2.30
|
%
|
|
Corporate securities
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
Other
|
|
|
435
|
|
|
|
3.31
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
435
|
|
|
|
3.31
|
%
|
|
Total securities available for sale
|
|
$
|
5,478
|
|
|
|
2.41
|
%
|
|
$
|
26,364
|
|
|
|
2.36
|
%
|
|
$
|
51,066
|
|
|
|
2.35
|
%
|
|
$
|
187,546
|
|
|
|
1.61
|
%
|
|
$
|
270,454
|
|
|
|
1.84
|
%
|
(1) All
mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
| |
|
Within One Year
|
|
|
After One but
Within Five Years
|
|
|
After Five but
Within Ten Years
|
|
|
After Ten Years
|
|
|
Total
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities(1)
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
10,641
|
|
|
|
0.41
|
%
|
|
|
586,134
|
|
|
|
1.72
|
%
|
|
|
596,775
|
|
|
|
1.70
|
%
|
|
Collateralized Mortgage Obligations(1)
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
73,781
|
|
|
|
1.71
|
%
|
|
|
73,781
|
|
|
|
1.71
|
%
|
|
Municipal securities
|
|
|
308
|
|
|
|
1.10
|
%
|
|
|
8,487
|
|
|
|
2.19
|
%
|
|
|
18,433
|
|
|
|
3.42
|
%
|
|
|
39,268
|
|
|
|
4.52
|
%
|
|
|
66,496
|
|
|
|
3.90
|
%
|
|
Total securities held to maturity
|
|
$
|
308
|
|
|
|
1.10
|
%
|
|
$
|
8,487
|
|
|
|
2.19
|
%
|
|
$
|
29,074
|
|
|
|
2.32
|
%
|
|
$
|
699,183
|
|
|
|
1.88
|
%
|
|
$
|
737,052
|
|
|
|
1.90
|
%
|
(1) All
mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.
Expected maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties. We evaluate securities for expected credit losses at least on a quarterly
basis, and more frequently when economic or market concerns warrant such evaluation.
Loans and Leases
Loans and leases can be categorized by borrowing purpose and use of funds. Common examples of loans and leases made by the Company include:
Commercial and Agricultural Real Estate – These are loans secured owner-occupied real estate, non-owner-occupied real estate, farmland, and multifamily
residential properties. Commercial mortgage term loans can be made if the property is either income producing or scheduled to become income producing based upon acceptable pre-leasing, or the income will be the Bank’s primary source of repayment for
the loan. Loans are made both on owner occupied and investor properties; generally do not exceed 15 years (and may have pricing adjustments on a shorter timeframe); have debt service coverage ratios of 1.00 or better with a target of greater than
1.25; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.
Real Estate Construction – These are loans for acquisition, development and construction and are secured by commercial or residential real estate. These loans
are generally made only to experienced local developers with whom the Bank has a successful track record; for projects in our service area; with Loan to Value (LTV) below 75%; and where the property can be developed and sold within 2 years.
Commercial construction loans are made only when there is a written take-out commitment from the Bank or an acceptable financial institution or government agency. Most acquisition, development and construction loans are tied to the prime rate with an
appropriate spread based on the amount of perceived risk in the loan.
Single Family Residential Real Estate – These are loans primarily made on owner occupied residences; generally underwritten to income and LTV guidelines
similar to those used by FNMA and FHLMC. However, we will make loans on rural residential properties up to 40 acres. Most residential loans have terms from ten to twenty years and carry fixed rates priced to treasury rates. The Company has always
underwritten mortgage loans based upon traditional underwriting criteria and does not make loans that are known in the industry as “subprime,” “no or low doc,” or “stated income” loans.
Home Equity Lines and Loans – These are loans made to individuals for home improvements and other personal needs. Generally, amounts do not exceed $250,000;
Combined Loan To Value (CLTV) does not exceed 80%; FICO scores are at or above 670; Total Debt Ratios do not exceed 43%; and in some situations the Company is in a 1st
lien position.
Agricultural – These are non-real estate loans and lines of credit made to farmers to finance agricultural production. Lines of credit are extended to finance
the seasonal needs of farmers during peak growing periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on livestock, crops, crop proceeds and equipment; and are most often tied to the
prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a processing plant, or orchard/vineyard development; have maturities
from five to seven years; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.
Commercial – These are non-real estate loans and lines of credit to businesses that are sole proprietorships, partnerships, LLC’s and corporations. Lines of
credit are extended to finance the seasonal working capital needs of customers during peak business periods; are usually established for periods no longer than 12 to 24 months; are often secured by general filing liens on accounts receivable,
inventory and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a plant or
purchase of a business; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.
Consumer – These are loans to individuals for personal use, and primarily include loans to purchase automobiles or recreational vehicles, and unsecured lines
of credit. The Company has a minimal consumer loan portfolio, and loans are primarily made as an accommodation to deposit customers.
Commercial Leases – These are leases primarily to businesses for financing the acquisition of equipment. They can be either “finance leases” where the lessee
retains the tax benefits of ownership but obtains 100% financing on their equipment purchases; or “true tax leases” where the Company, as lessor, places reliance on equipment residual value and in doing so obtains the tax benefits of ownership.
Leases typically have a maturity of three to ten years, and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk. Credit risks are underwritten using the same credit criteria the
Company would use when making an equipment term loan. Residual value risk is managed with qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.
The Company accounts for leases with Investment Tax Credits (“ITC”) under the deferred method as established in ASC 740-10. ITCs are viewed and accounted for as a reduction of the cost of the related assets and
presented as deferred income on the Company’s financial statement.
Each loan or lease type involves risks specific to the: (1) borrower; (2) collateral; and (3) loan & lease structure. See “Results of Operations - Provision and Allowance for Credit Losses” for a more detailed
discussion of risks by loan & lease type. The Company’s current underwriting policies and standards are designed to mitigate the risks involved in each loan & lease type. The Company’s policies require that loans and leases be approved only
to those borrowers exhibiting a clear source of repayment and the ability to service existing and proposed debt. The Company’s underwriting procedures for all loan & lease types require careful consideration of the borrower, the borrower’s
financial condition, the borrower’s management capability, the borrower’s industry, and the economic environment affecting the loan or lease.
Most loans and leases made by the Company are secured, but collateral is the secondary or tertiary source of repayment; cash flow is our primary source of repayment. The quality and liquidity of collateral are
important and must be confirmed before the loan is made.
In order to be responsive to borrower needs, the Company prices loans and leases: (1) on both a fixed rate and adjustable rate basis; (2) over different terms; and (3) based upon different rate indices as long as these
structures are consistent with the Company’s interest rate risk management policies and procedures. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in this Report on Form 10-Q for further details.
Overall, the Company’s loan & lease portfolio at March 31, 2022 totaled $3.2 billion, an increase of $0.4 million over December 31, 2021. Exclusive of SBA PPP loans, the loan portfolio grew $43.0 million, or 1.37%,
over December 31, 2021. This increase in the non-PPP loans occurred as a result of: (1) the Company’s business development efforts directed toward credit-qualified borrowers; and (2) expansion of our service area into the East Bay of San Francisco
and Napa. This data constitutes non-GAAP financial data. The Company believes that excluding the temporary effect of the PPP loans furnishes useful information regarding the Company’s growth.
The following table sets forth the distribution of the loan & lease portfolio by type and percent at the end of each period presented:
|
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Dollars
|
|
|
Percent
of Total
|
|
|
Dollars
|
|
|
Percent
of Total
|
|
|
Gross Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,172,804
|
|
|
|
36.12
|
%
|
|
$
|
1,167,516
|
|
|
|
35.95
|
%
|
|
Agricultural
|
|
|
695,565
|
|
|
|
21.42
|
%
|
|
|
672,830
|
|
|
|
20.72
|
%
|
|
Residential and home equity
|
|
|
359,214
|
|
|
|
11.06
|
%
|
|
|
350,581
|
|
|
|
10.79
|
%
|
|
Construction
|
|
|
204,794
|
|
|
|
6.31
|
%
|
|
|
177,163
|
|
|
|
5.45
|
%
|
|
Total real estate
|
|
|
2,432,377
|
|
|
|
74.91
|
%
|
|
|
2,368,090
|
|
|
|
72.91
|
%
|
|
Commercial
|
|
|
437,199
|
|
|
|
13.47
|
%
|
|
|
427,799
|
|
|
|
13.17
|
%
|
|
Agricultural
|
|
|
251,469
|
|
|
|
7.75
|
%
|
|
|
276,684
|
|
|
|
8.52
|
%
|
|
Commercial leases
|
|
|
92,445
|
|
|
|
2.85
|
%
|
|
|
96,971
|
|
|
|
2.99
|
%
|
|
Consumer and other(1)
|
|
|
33,255
|
|
|
|
1.02
|
%
|
|
|
78,367
|
|
|
|
2.41
|
%
|
|
Total gross loans and leases
|
|
|
3,246,745
|
|
|
|
100.00
|
%
|
|
|
3,247,911
|
|
|
|
100.00
|
%
|
(1) Includes SBA PPP loans.
The following table shows the maturity distribution and interest rate sensitivity of the loan portfolio of the Company as of March 31, 2022.
|
|
|
Loan Contractual Maturity
|
|
|
(Dollars in thousands)
|
|
One Year or Less
|
|
|
After One But Within Five Years
|
|
|
After Five Years But Within Fifteen Years
|
|
|
After Fifteen Years
|
|
|
Total
|
|
|
Gross loan and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
89,814
|
|
|
$
|
249,435
|
|
|
$
|
798,092
|
|
|
$
|
35,463
|
|
|
$
|
1,172,804
|
|
|
Agricultural
|
|
|
41,641
|
|
|
|
153,198
|
|
|
|
429,832
|
|
|
|
70,894
|
|
|
|
695,565
|
|
|
Residential and home equity
|
|
|
197
|
|
|
|
3,371
|
|
|
|
117,347
|
|
|
|
238,299
|
|
|
|
359,214
|
|
|
Construction
|
|
|
140,600
|
|
|
|
63,397
|
|
|
|
797
|
|
|
|
-
|
|
|
|
204,794
|
|
|
Total real estate
|
|
|
272,252
|
|
|
|
469,401
|
|
|
|
1,346,068
|
|
|
|
344,656
|
|
|
|
2,432,377
|
|
|
Commercial & Industrial
|
|
|
153,153
|
|
|
|
238,138
|
|
|
|
39,932
|
|
|
|
5,976
|
|
|
|
437,199
|
|
|
Agricultural
|
|
|
153,586
|
|
|
|
85,412
|
|
|
|
12,471
|
|
|
|
-
|
|
|
|
251,469
|
|
|
Commercial leases
|
|
|
6,743
|
|
|
|
33,387
|
|
|
|
52,315
|
|
|
|
-
|
|
|
|
92,445
|
|
|
Consumer and other(1)
|
|
|
1,233
|
|
|
|
29,970
|
|
|
|
2,052
|
|
|
|
-
|
|
|
|
33,255
|
|
|
Total gross loans and leases
|
|
$
|
586,967
|
|
|
$
|
856,308
|
|
|
$
|
1,452,838
|
|
|
$
|
350,632
|
|
|
$
|
3,246,745
|
|
|
Rate Structure for Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
112,960
|
|
|
$
|
370,873
|
|
|
$
|
1,130,743
|
|
|
$
|
234,582
|
|
|
$
|
1,849,158
|
|
|
Adjustable Rate
|
|
|
474,007
|
|
|
|
485,435
|
|
|
|
322,095
|
|
|
|
116,050
|
|
|
|
1,397,587
|
|
|
Total gross loans and leases
|
|
$
|
586,967
|
|
|
$
|
856,308
|
|
|
$
|
1,452,838
|
|
|
$
|
350,632
|
|
|
$
|
3,246,745
|
|
(1) Includes SBA PPP loans.
Non-Accrual Loans and Leases - Accrual of interest on loans and leases is generally discontinued when a loan or lease becomes contractually past due by 90 days or more with
respect to interest or principal. When loans and leases are 90 days past due, but in management’s judgment are well secured and in the process of collection, they may not be classified as non-accrual. When a loan or lease is placed on non-accrual
status, all interest previously accrued but not collected is reversed. Income on such loans and leases is then recognized only to the extent that cash is received and where the future collection of principal is probable. Non-accrual loans and leases
totaled $437,000 and $516,000 at March 31, 2022 and December 31, 2021, respectively.
Restructured Loans and Leases - A restructuring of a loan or lease constitutes a TDR under ASC 310-40, if the Company for economic or legal reasons related to the debtor’s
financial difficulties grants a concession to the borrower that it would not otherwise consider, except when subject to the CARES Act and H.R. 133. Restructured loans or leases typically present an elevated level of credit risk, as the borrowers are
not able to perform according to the original contractual terms. If the restructured loan or lease was current on all payments at the time of restructure and management reasonably expects the borrower will continue to perform after the restructure,
management may keep the loan or lease on accrual. Loans and leases that are on nonaccrual status at the time they become TDR loans or leases, remain on nonaccrual status until the borrower demonstrates a sustained period of performance, which the
Company generally believes to be six consecutive months of payments, or equivalent. A loan or lease can be removed from TDR status if it was restructured at a market rate in a prior calendar year and is currently in compliance with its modified
terms. However, these loans or leases continue to be classified as collateral dependent and are individually evaluated for impairment.
At March 31, 2022, restructured loans totaled $1.6 million compared with $2.3 million at December 31, 2021, all of which were performing. See Note 4 “Loans and Leases” to the Unaudited Consolidated Financial
Statements in “Item 1. Financial Statements” in this quarterly Report on Form 10-Q.
Other Real Estate Owned –OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. We record all OREO properties at amounts
equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The Company reported $873,000 of foreclosed OREO at March 31, 2022, and at December 31, 2021.
Not included in the table below, but relevant to a discussion of asset quality are loans that were granted some form of relief because of COVID-19 and are not considered TDRs because
of the CARES Act and H.R. 133. Since April 2020, we have restructured $278 million of loans under the CARES Act and H.R. 133 guidelines. At March 31, 2022, all loans that were restructured as part of the CARES Act have returned to the
contractual terms and conditions of the loans, without exception.
The following table summarizes the loans for which the accrual of interest has been discontinued and loans more than 90 days past due and still accruing interest, including those non-accrual loans
that are troubled debt restructured loans, and OREO (as hereinafter defined):
|
(Dollars in thousands)
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
Non-performing assets:
|
|
|
|
|
|
|
|
Non-accrual loans and leases, not TDRs
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
437
|
|
|
$
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
18
|
|
|
Residential and home equity
|
|
|
-
|
|
|
|
-
|
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
Total real estate
|
|
|
437
|
|
|
|
18
|
|
|
Commercial & Industrial
|
|
|
-
|
|
|
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
Commercial leases
|
|
|
-
|
|
|
|
-
|
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
Subtotal
|
|
|
437
|
|
|
|
18
|
|
|
Non-accrual loans and leases, are TDRs
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
498
|
|
|
Residential and home equity
|
|
|
-
|
|
|
|
-
|
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
Total real estate
|
|
|
-
|
|
|
|
498
|
|
|
Commercial & Industrial
|
|
|
-
|
|
|
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
Commercial leases
|
|
|
-
|
|
|
|
-
|
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
Subtotal
|
|
|
-
|
|
|
|
498
|
|
|
Total non-performing loans and leases
|
|
$
|
437
|
|
|
$
|
516
|
|
|
Other real estate owned (“OREO”)
|
|
$
|
873
|
|
|
$
|
873
|
|
|
Total non-performing assets
|
|
$
|
1,310
|
|
|
$
|
1,389
|
|
|
Performing TDRs
|
|
$
|
1,603
|
|
|
$
|
1,824
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios:
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
|
0.01
|
%
|
|
|
0.02
|
%
|
|
Non-performing assets to total assets
|
|
|
0.02
|
%
|
|
|
0.03
|
%
|
Although management believes that non-performing loans and leases are generally well-secured and that potential losses are provided for in the Company’s allowance for credit losses, there can be no assurance that
future deterioration in economic conditions and/or collateral values will not result in future credit losses. See Note 4. “Loans and Leases”, located in “Item 1. Financial Statements” in this Quarterly Report on Form 10-Q for an allocation of the
allowance classified to collateral dependent loans and leases.
Except for non-performing loans and leases discussed above, the Company’s management is not aware of any loans and leases as of March 31, 2022, for which known financial problems of the borrower would cause serious
doubts as to the ability of these borrowers to materially comply with their present loan or lease repayment terms, or any known events that would result in the loan or lease being designated as non-performing at some future date. However:
|
•
|
The State of California experienced drought conditions from 2013 through most of 2016. After 2016, reasonable levels of rain and snow alleviated drought conditions in our primary service area, but the winters
of 2020-2021 and 2021-2022 were once again dry. Despite this, the availability of water in our primary service area was not an issue for the 2021 growing season. However, the weather patterns over the past eight years further reinforce the
fact that the long-term risks associated with the availability of water are significant.
|
|
•
|
While tremendous strides have been made in fighting the COVID-19 virus, particularly with the development of a vaccine, the lingering effects of COVID-19 are still with us, and it is impossible to predict the
ultimate impact on classified and non-performing loans and leases (see Part I. “Introduction - COVID-19 (Coronavirus) Disclosure”).
|
Allowance for Credit Losses—Loans and Leases
The Company maintains an allowance for credit losses (“ACL”) on loans based on current expected credit losses as of the balance sheet date. 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 & lease growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash
received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of three primary components: specific reserves related to collateral dependent loans and leases; general reserves for current
expected credit losses related to loans and leases that are not collateral dependent; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors. See “Summary of
Critical Accounting Policies and Estimates - Allowance for Credit Losses—Loans.”
The following table sets forth the activity in our ACL for the periods indicated:
|
|
|
Three Months Ended March 31,
|
|
|
(Dollars in thousands)
|
|
2022
|
|
|
2021
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
61,007
|
|
|
$
|
58,862
|
|
|
Provision / (recapture) for credit losses
|
|
|
-
|
|
|
|
1,250
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
Residential and home equity
|
|
|
-
|
|
|
|
-
|
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
Total real estate
|
|
|
-
|
|
|
|
-
|
|
|
Commercial & Industrial
|
|
|
-
|
|
|
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
Commercial leases
|
|
|
-
|
|
|
|
-
|
|
|
Consumer and other
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
Total charge-offs
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
Residential and home equity
|
|
|
14
|
|
|
|
32
|
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
Total real estate
|
|
|
14
|
|
|
|
32
|
|
|
Commercial & Industrial
|
|
|
16
|
|
|
|
29
|
|
|
Agricultural
|
|
|
2
|
|
|
|
3
|
|
|
Commercial leases
|
|
|
-
|
|
|
|
-
|
|
|
Consumer and other
|
|
|
2
|
|
|
|
7
|
|
|
Total recoveries
|
|
|
34
|
|
|
|
71
|
|
|
Net recoveries / charge-offs
|
|
|
25
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
61,032
|
|
|
$
|
60,175
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected financial information:
|
|
|
|
|
|
|
|
|
|
Net loans held for investment
|
|
$
|
3,237,619
|
|
|
$
|
3,111,011
|
|
|
Average loans
|
|
|
3,196,841
|
|
|
|
3,059,972
|
|
|
Non-performing loans
|
|
|
437
|
|
|
|
493
|
|
|
Allowance for credit losses to non-performing loans
|
|
|
13966.13
|
%
|
|
|
12205.88
|
%
|
|
Net (recoveries)/charge-offs to average loans
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Provision for credit losses to average loans
|
|
|
0.00
|
%
|
|
|
0.04
|
%
|
|
Allowance for credit losses to loans held for investment
|
|
|
1.89
|
%
|
|
|
1.93
|
%
|
The following table indicates management’s allocation of the ACL by loan type as of each of the following dates:
|
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
(Dollars in thousands)
|
|
Dollars
|
|
|
Percent
of Total
|
|
|
Dollars
|
|
|
Percent
of Total
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
17,920
|
|
|
|
36.12
|
%
|
|
$
|
28,536
|
|
|
|
35.95
|
%
|
|
Agricultural
|
|
|
14,591
|
|
|
|
21.42
|
%
|
|
|
9,613
|
|
|
|
20.72
|
%
|
|
Residential and home equity
|
|
|
6,759
|
|
|
|
11.06
|
%
|
|
|
2,847
|
|
|
|
10.79
|
%
|
|
Construction
|
|
|
3,777
|
|
|
|
6.31
|
%
|
|
|
1,456
|
|
|
|
5.45
|
%
|
|
Total real estate
|
|
|
43,047
|
|
|
|
74.91
|
%
|
|
|
42,452
|
|
|
|
72.91
|
%
|
|
Commercial & Industrial
|
|
|
10,361
|
|
|
|
13.47
|
%
|
|
|
11,489
|
|
|
|
13.17
|
%
|
|
Agricultural
|
|
|
5,737
|
|
|
|
7.75
|
%
|
|
|
5,465
|
|
|
|
8.52
|
%
|
|
Commercial leases
|
|
|
1,466
|
|
|
|
2.85
|
%
|
|
|
938
|
|
|
|
2.99
|
%
|
|
Consumer and other
|
|
|
421
|
|
|
|
1.02
|
%
|
|
|
663
|
|
|
|
2.41
|
%
|
|
Total allowance for credit losses
|
|
$
|
61,032
|
|
|
|
100.00
|
%
|
|
$
|
61,007
|
|
|
|
100.00
|
%
|
Deposits
Total deposits were $4.84 billion and $4.64 billion as of March 31, 2022 and December 31, 2021, respectively. In addition to the Company’s ongoing business development activities for deposits, in management’s opinion
the following factors positively impacted year-over-year deposit growth: (1) the Company’s strong financial results and position and F&M Bank’s reputation as one of the most safe and sound banks in its market area; (2) the Company’s expansion of
its service area into Walnut Creek, Concord and Napa; and (3) borrowers under the SBA PPP depositing loan proceeds into their deposit accounts with the Bank until those funds are used for operating expenses.
Non-interest bearing demand deposits increased to $1.76 billion, or 36.48% of total deposits, as of March 31, 2022 from $1.75 billion, or 37.72% of total deposits, as of December 31, 2021. Interest bearing deposits are
comprised of interest-bearing transaction accounts, money market accounts, regular savings accounts, and certificates of deposit.
Although total deposits have increased 4.25% since December 31, 2021, more importantly, low cost transaction accounts have grown at a strong pace as well as:
|
•
|
Demand and interest-bearing transaction accounts totaled $2.89 billion at March 31, 2022, an increase of $41.7 million, or 1.46% from $2.85 billion held at December 31, 2021.
|
|
•
|
Savings and money market accounts increased $157 million, or 11.24%, to $1.56 billion at March 31, 2022 compared with $1.40 billion at December 31, 2021.
|
|
•
|
Time deposit accounts decreased $1.7 million, or 0.43%, to $391 million at March 31, 2022 compared with $392 million at December 31, 2021.
|
The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
(Dollars in thousands)
|
|
Average Balance
|
|
|
Interest Expense
|
|
|
Average Rate
|
|
|
Average Balance
|
|
|
Interest Expense
|
|
|
Average Rate
|
|
|
Total deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
1,115,578
|
|
|
|
259
|
|
|
|
0.09
|
%
|
|
$
|
943,635
|
|
|
|
294
|
|
|
|
0.13
|
%
|
|
Savings and Money Market
|
|
|
1,517,234
|
|
|
|
342
|
|
|
|
0.09
|
%
|
|
|
1,291,214
|
|
|
|
418
|
|
|
|
0.13
|
%
|
|
Certificates of deposit greater than $250,000
|
|
|
167,515
|
|
|
|
97
|
|
|
|
0.23
|
%
|
|
|
171,501
|
|
|
|
256
|
|
|
|
0.61
|
%
|
|
Certificates of deposit less than $250,000
|
|
|
223,842
|
|
|
|
105
|
|
|
|
0.19
|
%
|
|
|
247,416
|
|
|
|
269
|
|
|
|
0.44
|
%
|
|
Total interest bearing deposits
|
|
|
3,024,169
|
|
|
|
803
|
|
|
|
0.11
|
%
|
|
|
2,653,766
|
|
|
|
1,237
|
|
|
|
0.19
|
%
|
|
Non-interest bearing deposits
|
|
|
1,722,597
|
|
|
|
|
|
|
|
|
|
|
|
1,469,741
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
4,746,766
|
|
|
$
|
803
|
|
|
|
0.07
|
%
|
|
$
|
4,123,507
|
|
|
$
|
1,237
|
|
|
|
0.12
|
%
|
Deposits are gathered from individuals and businesses in our market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will
continue to manage interest expense through deposit pricing. The average cost of deposits, including non-interest bearing deposits, declined to 0.07% for the three months ended March 2022 compared with 0.12% for the same period a year ago, as
overall interest rates were lowered to near zero by the Federal Reserve.
The following table shows deposits with a balance greater than $250,000 at March 31, 2022 and December 31, 2021:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
(Dollars in thousands)
|
|
2022
|
|
|
2021
|
|
|
Deposits greater than $250,000
|
|
$
|
2,860,003
|
|
|
$
|
2,708,576
|
|
|
Certificates of deposit greater $250,000, by maturity:
|
|
|
|
|
|
|
|
|
|
Less than 3 months
|
|
|
48,962
|
|
|
|
59,591
|
|
|
3 months to 6 months
|
|
|
48,130
|
|
|
|
37,182
|
|
|
6 months to 12 months
|
|
|
61,890
|
|
|
|
59,945
|
|
|
More than 12 months
|
|
|
9,881
|
|
|
|
12,147
|
|
|
Total Time Deposits greater than $250,000
|
|
$
|
168,863
|
|
|
$
|
168,865
|
|
|
Total deposits greater than $250,000
|
|
$
|
3,028,866
|
|
|
$
|
2,877,441
|
|
Refer to the Year-To-Date Average Balances and Rate Schedules located in this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on separate deposit
categories.
The Bank participates in a program wherein the State of California places time deposits with the Bank at the Bank’s option. At March 31, 2022 and December 31, 2021, the Bank had $3.0 million, of these deposits.
Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings
Lines of Credit with the Federal Reserve Bank and Federal Home Loan Bank are other key sources of funds to support earning assets. These sources of funds are also used to manage the Company’s interest rate risk
exposure; and, as opportunities arise, to borrow and invest the proceeds at a positive spread through the investment portfolio. There were no FHLB advances at March 31, 2022 or December 31, 2021. There were no Federal Funds purchased or advances from
the FRB at March 31, 2022 or December 31, 2021.
Long-Term Subordinated Debentures
On December 17, 2003, the Company raised $10.0 million through the sale of subordinated debentures to an off-balance sheet trust and its sale of trust-preferred securities. See Note 10. “Long-Term Subordinated
Debentures” located in “Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K filed with the SEC on March 15, 2022. Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current
regulatory guidelines, our Trust Preferred Securities will continue to qualify as regulatory capital.
These securities accrue interest at a variable rate based upon 3-month LIBOR plus 2.85%. Interest rates reset quarterly (the next reset is June 17, 2022) and the rate was 3.77% as of March 31, 2022. The average rate
paid for these securities was 3.23% in 2022 and 3.11% in 2021. 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.
Capital Resources
The Company relies primarily on capital generated through the retention of earnings to satisfy its capital requirements. The Company engages in an ongoing assessment of its capital needs in order to support business
growth and to insure depositor protection. Shareholders’ Equity totaled $465 million at March 31, 2022, and $463 million at December 31, 2021.
We are subject to risk-based capital adequacy guidelines related to the adoption of U.S. Basel III Capital Rules, which impose higher risk-based capital and leverage requirements than those previously in place.
Specifically, the rules impose, among other requirements, minimum capital requirements including a Tier 1 leverage capital ratio of 4.0%, common equity Tier 1 risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0% and a total
risk-based capital ratio of 8.0%. As of March 31, 2022 and December 31, 2021, the Company and Bank meet all regulatory capital adequacy guidelines to which they are subject.
The following table sets forth our capital ratios:
|
(Dollars in thousands)
|
|
Basel III
Regulatory Well
Capitalized
Requirement
|
|
|
March 31, 2022
|
|
|
December 31, 2021
|
|
|
Farmers & Merchants Bancorp
|
|
|
|
|
|
|
|
|
|
|
CET1 capital to risk-weighted assets
|
|
|
N/A
|
|
|
|
11.63
|
%
|
|
|
11.68
|
%
|
|
Tier 1 capital to risk-weighted assets
|
|
|
N/A
|
|
|
|
11.88
|
%
|
|
|
11.94
|
%
|
|
Risk-based capital to risk-weighted assets
|
|
|
N/A
|
|
|
|
13.14
|
%
|
|
|
13.19
|
%
|
|
Tier 1 leverage capital ratio
|
|
|
N/A
|
|
|
|
8.45
|
%
|
|
|
8.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmers & Merchants Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital to risk-weighted assets
|
|
|
6.50
|
%
|
|
|
11.87
|
%
|
|
|
11.91
|
%
|
|
Tier 1 capital to risk-weighted assets
|
|
|
8.00
|
%
|
|
|
11.87
|
%
|
|
|
11.91
|
%
|
|
Risk-based capital to risk-weighted assets
|
|
|
10.00
|
%
|
|
|
13.12
|
%
|
|
|
13.17
|
%
|
|
Tier 1 leverage capital ratio
|
|
|
5.00
|
%
|
|
|
8.94
|
%
|
|
|
8.91
|
%
|
FMB met the definition of a “well-capitalized” institution as of March 31, 2022 and December 31, 2021 for federal regulatory purposes.
Off-Balance-Sheet Arrangements
Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which the Company has: (1) any obligation under a guarantee
contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation under certain
derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or
research and development services with the Company. The Company had the following off balance sheet commitments as of the dates indicated.
The following table sets forth our off-balance sheet lending commitments as of March 31, 2022:
|
|
|
|
|
|
Amount of Commitment Expiration per Period
|
|
|
(Dollars in thousands)
|
|
Total Committed Amount
|
|
|
Less than
One Year
|
|
|
One to
Three
Years
|
|
|
Three to
Five Years
|
|
|
After Five
Years
|
|
|
Off-balance sheet commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
987,423
|
|
|
$
|
387,129
|
|
|
$
|
436,860
|
|
|
$
|
19,049
|
|
|
$
|
144,385
|
|
|
Standby letters of credit
|
|
|
16,250
|
|
|
|
6,964
|
|
|
|
6,040
|
|
|
|
2,970
|
|
|
|
276
|
|
|
Performance guarantees
|
|
|
191
|
|
|
|
71
|
|
|
|
25
|
|
|
|
2
|
|
|
|
93
|
|
|
Total off-balance sheet commitments
|
|
$
|
1,003,864
|
|
|
$
|
394,164
|
|
|
$
|
442,925
|
|
|
$
|
22,021
|
|
|
$
|
144,754
|
|
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. Most standby letters of credit have maturity dates ranging from 1 to
60 months with final expiration in January 2027. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Liquidity
The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors and regulators. Our liquidity, represented by cash borrowing lines, federal
funds and available for sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting on a monthly basis the amount of
funds that will be required and we maintain relationships with a diversified client base so funds are accessible. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. We had the following
borrowing lines available at March 31, 2022:
| |
|
March 31, 2022
|
|
|
(Dollars in thousands)
|
|
Total Credit Line Limit
|
|
|
Current
Credit Line Available
|
|
|
Outstanding Amount
|
|
|
Remaining Credit Line Available
|
|
|
Value of Collateral Pledged
|
|
|
Additional liquidity sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank
|
|
$
|
815,060
|
|
|
$
|
815,060
|
|
|
$
|
-
|
|
|
$
|
815,060
|
|
|
$
|
1,154,080
|
|
|
Federal Reserve BIC
|
|
$
|
664,437
|
|
|
$
|
664,437
|
|
|
$
|
-
|
|
|
$
|
664,437
|
|
|
$
|
860,206
|
|
|
FHLB Fed Funds
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
-
|
|
|
US Bank Fed Funds
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
|
$
|
-
|
|
|
$
|
35,000
|
|
|
$
|
-
|
|
|
MUFG Union Bank Fed Funds
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
$
|
-
|
|
|
$
|
15,000
|
|
|
$
|
-
|
|
|
PCBB Fed Funds
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
Total additional liquidity sources
|
|
$
|
1,597,497
|
|
|
$
|
1,597,497
|
|
|
$
|
-
|
|
|
$
|
1,597,497
|
|
|
$
|
2,014,286
|
|
We believe our liquid assets and short-term borrowing credit lines are adequate to meet our cash flow needs for loan funding and deposit cash withdrawal for the next 60 to 90 days. As of March 31, 2022, we had $1.4
billion in cash and unencumbered investment securities; $2.7 million in investment securities and $2.0 billion in loans pledged as collateral on short-term borrowing credit lines. We have the option of either borrowing on our credit lines or selling
these investment securities for cash flow needs.
On a long-term basis, our liquidity will be met by changing the relative distribution of our asset portfolios by reducing our investment or loan volumes, or selling or encumbering assets. Further, we will increase
liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks as well as the FHLB. At the current time, our long-term liquidity needs primarily relate to funds required to
support loan originations and commitments and deposit withdrawals.
We believe we can meet all of these needs by cash flows from investment payments and maturities, and investment sales, if the need arises.
Our liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used in investing activities; and cash flows from or used in financing activities. Net
cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the credit loss provision, investment and other amortization and depreciation.
Our primary investing activities are the origination of real estate, commercial & industrial, consumer loans, and purchases and sales of investment securities. As of March 31, 2022, we had outstanding loan
commitments of $987 million and outstanding letters of credit of $16.3 million. We anticipate that we will have sufficient funds available to meet current loan commitments.
Net cash provided by financing activities has been impacted significantly by higher deposit levels. At March 31, 2022 and 2021, deposits increased $197 million and $181 million compared to December 31, 2021 and 2020,
respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company’s assessment of market risk at March 31, 2022 indicates there have been no material changes in the quantitative and qualitative disclosures from those made in the Company’s Annual Report on Form 10-K filed
with the SEC on March 15, 2022.
Item 4
. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and
15d-14(a)) at March 31, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material
information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.
Changes in Internal Controls
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022,
to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
The Company is involved in various claims, legal actions, and complaints that arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit
or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.
There have been no material changes in the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
Item 3.
Defaults upon Senior Securities
Not Applicable
Item 4.
Mine Safety Disclosures
Not Applicable
Item 5.
Other Information
Not Applicable
List of Financial Statements and Financial Statement Schedules
| |
(a)
|
The following documents are filed as a part of this Quarterly Report on Form 10-Q:
|
| |
(1)
|
Financial Statements and
|
| |
(2)
|
Financial Statement schedules required to be filed by Item 1 of this Quarterly Report on Form 10-Q.
|
| |
(3)
|
The following exhibits are required by Item 601 of Regulation S-K and are included as part of this Quarterly Report on Form 10-Q:
|
|
|
Description
|
| |
|
|
|
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
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
*Filed herewith
Pursuant to the requirements 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
|
| |
|
|
Date: May 10, 2022
|
/s/ Kent A. Steinwert
|
|
Kent A. Steinwert
|
|
Director, Chairman, President and Chief Executive Officer
(Principal Executive Officer)
|
|
Date: May 10, 2022
|
/s/ Stephen W. Haley
|
|
Stephen W. Haley
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
61