What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 218 added, 188 removed, 891 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands except share data)

September 30,

Cash and Cash Equivalents:

22 unchanged sentences

Common Stock:

Par Value $ 0.01 , 7,500,000 Shares Authorized, 793,556 , 793,033 and 787,307 , Shares Issued and Outstanding at June 30, 2020, December 31, 2019 and June 30, 2019, Respectively

Par Value $ 0.01 , 7,500,000 Shares Authorized, 793,556 , 793,033 and 787,307 , Shares Issued and Outstanding at September 30, 2020, December 31, 2019 and September 30, 2019, Respectively

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income, Net of Taxes

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

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

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

FARMERS & MERCHANTS BANCORP

1 unchanged sentence

(in thousands except per share data)

Ended June 30,

Ended September 30,

Interest Income

9 unchanged sentences

Provision for Credit Losses

Net Interest Income After Provision for Credit Losses

Net Interest Income After Provision for Loan Losses

Non-Interest Income

3 unchanged sentences

Debit Card and ATM Fees

Net Gain (Loss) on Deferred Compensation Investments

Net Gain on Deferred Compensation Investments

Total Non-Interest Income

1 unchanged sentence

Salaries and Employee Benefits

Net Gain (Loss) on Deferred Compensation Investments

Net Gain on Deferred Compensation Investments

FDIC Insurance

3 unchanged sentences

Basic and Diluted Earnings Per Common Share

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

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

FARMERS & MERCHANTS BANCORP

1 unchanged sentence

(in thousands)

Ended June 30,

Ended June 30

Ended September 30,

Ended September 30

Other Comprehensive Income

Increase in Net Unrealized Gain on Available-for-Sale Securities

Deferred Tax Benefit Related to Unrealized Gains

Increase in Net Unrealized (Loss) Gain on Available-for-Sale Securities

Deferred Tax Provision (Benefit) Related to Unrealized Gains (Loss)

Reclassification Adjustment for Realized Gains on Available-for-Sale Securities Included in Net Income

Deferred Tax Related to Reclassification Adjustment

Total Other Comprehensive Income

Total Other Comprehensive (Loss) Income

Comprehensive Income

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

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

FARMERS & MERCHANTS BANCORP

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

For the three and six months ended June 30, 2020 and 2019

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

For the three and nine months ended September 30, 2020 and 2019

(in thousands except share data)

2 unchanged sentences

Shareholders'

Three Months Ended June 30, 2020

Balance, April 1, 2020

Cash Dividends Declared on Common Stock ($ 7.25 per share)

Change in Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, June 30, 2020

Three Months Ended June 30 , 2019

Balance, April 1, 2019

Cash Dividends Declared on Common Stock ($ 7.05 per share)

Change in Net Unrealized Loss on Securities Available-for-Sale, net of tax

Balance, June 30, 2019

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Balance, July 1, 2020

Net Unrealized Loss on Securities Available-for-Sale, net of tax

Balance, September 30, 2020

Three Months Ended September 30 , 2019

Balance, July 1, 2019

Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, September 30, 2019

Nine Months Ended September 30, 2020

Balance, January 1, 2020

1 unchanged sentence

Issuance of Common Stock

Change in Net Unrealized Loss on Securities Available-for-Sale, net of tax

Balance, June 30, 2020

Six Months Ended June 30, 2019

Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, September 30, 2020

Nine Months Ended September 30, 2019

Balance, January 1, 2019

1 unchanged sentence

Issuance of Common Stock

Change in Net Unrealized Loss on Securities Available-for-Sale, net of tax

Balance, June 30, 2019

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

Net Unrealized Gain on Securities Available-for-Sale, net of tax

Balance, September 30, 2019

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

FARMERS & MERCHANTS BANCORP

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended

Ended September 30,

(in thousands)

6 unchanged sentences

Accretion of Discount on Acquired Loans

Net Gain on Sale of Investment Securities

Net Gain on Sale of Property & Equipment

Net (Gain) Loss on Sale of Investment Securities

Net Loss (Gain) on Sale of Property & Equipment

Net Change in Operating Assets & Liabilities:

Net Decrease in Interest Receivable and Other Assets

Net (Increase) Decrease in Interest Receivable and Other Assets

Net (Decrease) Increase in Interest Payable and Other Liabilities

12 unchanged sentences

Financing Activities:

Net Increase (Decrease) in Deposits

Net Increase in Deposits

Cash Dividends

Net Cash Provided by (Used in) Financing Activities

Net Cash Provided by Financing Activities

Net Change in Cash and Cash Equivalents

5 unchanged sentences

Interest Paid

Supplementary Noncash Disclosure

Lease Liabilities Arising from Obtaining Right-of-Use Assets

Security (purchases) sales settled in subsequent period

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

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

FARMERS & MERCHANTS BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Significant Accounting Policies

16 unchanged sentences

Basis of Presentation

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying unaudited consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America for financial information.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc.

1 unchanged sentence

Significant inter-company transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q.

These unaudited consolidated financial statements do not include all disclosures associated with the Company's consolidated annual financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019 and, accordingly, should be read in conjunction with such audited consolidated financial statements.

In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The preparation of consolidated financial statements in conformity with U.S.

53 unchanged sentences

The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to modifications for a limited period of time to account for the effects of COVID-19.

In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief.

Under this guidance, six months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.

The guidance also provides that these modified loans generally are not classified as nonaccrual during the term of the modification.

In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief.

Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.

The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification.

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act and the impact of COVID-19 on the Company.

75 unchanged sentences

If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted.

In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance.

In addition, the Company's and Bank's regulators, including the Federal Reserve Board (“FRB”), the Department of Financial Protection and Innovation (“DFPI”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their examination process, review the adequacy of the allowance.

These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

21 unchanged sentences

The CARES Act restricts the ability of financial institutions to exercise their foreclosure rights on residential and multi-family properties backed by federally guaranteed mortgage loans.

The State of California has gone further and temporarily suspended all residential and commercial foreclosures.

The State of California has gone further and temporarily suspended all residential and commercial foreclosures through January 31, 2021.

The Company is working with its borrowers when they make requests to defer payments on their mortgage loans.

18 unchanged sentences

The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

For the three and six months ended June 30, 2020 and 2019, the Company has no material uncertain tax positions and recognized no interest or penalties.

At September 30, 2020 and 2019, the Company had no material uncertain tax positions and recognized no interest or penalties.

The Company's policy is to recognize interest and penalties related to income taxes in the provision for income taxes in the Consolidated Statement of Income.

21 unchanged sentences

Management does not believe there now are such matters that will have a material effect on the consolidated financial statements.

Business Combinations And Related Matters

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations.

Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition.

Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain.

Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period.

Results of operations of an acquired business are included in the statement of operations from the date of acquisition.

Acquisition-related costs, including conversion charges, are expensed as incurred.

Goodwill and Other Intangible Assets

4 unchanged sentences

The CDI asset is amortized on a straight-line method over its estimated useful life of ten years .

At June 30, 2020, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

At September 30, 2020, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

(in thousands)

14 unchanged sentences

Through this legislation, as well as related federal and state regulatory actions, the federal government has taken extraordinary efforts to provide financial assistance to individuals and companies to help them move through these difficult times.

However, there are no guaranties how long the COVID-19 virus may continue to impact our economy, and therefore, the Company.

While we expect the effects of COVID-19 to have an adverse future impact on our business, financial condition and results of operations, we are unable to predict the full extent or nature of these impacts at the current time.

However, there are no guarantees how long the COVID-19 virus may continue to impact our economy, and therefore, the Company.

While we expect the effects of COVID-19 could have an adverse future impact on our business, financial condition and results of operations, we are unable to predict the full extent or nature of these impacts at the current time.

Investment Securities

2 unchanged sentences

Gross Unrealized

June 30, 2020

September 30, 2020

US Treasury Notes

8 unchanged sentences

Gross Unrealized

June 30, 2019

Government Agency & Government-Sponsored Entities

September 30, 2019

US Treasury Notes

4 unchanged sentences

Gross Unrealized

June 30, 2020

September 30, 2020

Obligations of States and Political Subdivisions

3 unchanged sentences

Gross Unrealized

June 30, 2019

September 30, 2019

Obligations of States and Political Subdivisions

1 unchanged sentence

If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at June 30, 2020 by contractual maturity are shown in the following table (in thousand s):

The amortized cost and estimated fair values of investment securities at September 30, 2020 by contractual maturity are shown in the following table (in thousand s):

Available-for-Sale

Held-to-Maturity

June 30, 2020

September 30, 2020

Within one year

8 unchanged sentences

12 Months or More

June 30, 2020

September 30, 2020

Securities Available-for-Sale

US Treasury Notes

US Government Agency SBA

1 unchanged sentence

Corporate Securities

There were no HTM investments with gross unrealized losses at June 30, 2020.

There were no HTM investments with gross unrealized losses at September 30, 2020.

Less Than 12 Months

8 unchanged sentences

12 Months or More

June 30, 2019

September 30, 2019

Securities Available-for-Sale

2 unchanged sentences

Mortgage Backed Securities

There were no HTM investments with gross unrealized losses at June 30, 2019 .

As of June 30, 2020, the Company held 534 investment securities of which 25 were in an unrealized loss position for less than twelve months.

72 securities were in an unrealized loss position for twelve months or more.

Securities Held-to-Maturity

Obligations of States and Political Subdivisions

As of September 30, 2020, the Company held 568 investment securities of which 20 were in an unrealized loss position for less than twelve months and 82 securities were in a loss position for twelve months or more.

Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.

Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – At June 30, 2020 , no securities of government agency and government sponsored entities were in an unrealized loss position for less than 12 months, and none were in an unrealized loss position for 12 months or more.

The unrealized losses on the Company's investments in securities of government agency and government sponsored entities were $ 0 at June 30, 2020, December 31, 2019 and June 30, 2019 , respectively.

Treasury Notes – At June 30, 2020 , 1 U.S.

Treasury Note security investment was in an unrealized loss position for less than 12 months and none were in an unrealized loss position for 12 months or more.

The unrealized loss on the Company's investment in a U.S.

Treasury Note was $ 1,000 , $ 0 , and $ 25,000 at June 30, 2020, December 31, 2019 , and June 30, 2019 , respectively.

Securities of Government Agency and Government Sponsored Entities – At September 30, 2020, December 31, 2019, and September 30, 2019, no securities of government agency and government sponsored entities were in an unrealized loss position for less than 12 months or for 12 months or more.

Treasury Notes – At September 30, 2020 , no U.S.

Treasury Note security investments were in an unrealized loss position for less than 12 months or for 12 months or more.

The unrealized losses on the Company's investment in U.S.

Treasury Notes were $ 0 , $ 0 , and $ 5,000 at September 30, 2020, December 31, 2019 , and September 30, 2019 , respectively.

The unrealized losses were caused by interest rate fluctuations.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2020, December 31, 2019 , and June 30, 2019 .

Government SBA – At June 30, 2020 , 22 U.S.

Government SBA security investments were in an unrealized loss position for less than 12 months and 53 were in an unrealized loss position for 12 months or more.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019 , and September 30, 2019 .

Government SBA – At September 30, 2020 , 11 U.S.

Government SBA security investments were in an unrealized loss position for less than 12 months and 63 were in a loss position for 12 months or more.

The unrealized losses on the Company's investment in U.S.

Government SBA securities were $ 110,000 , $ 113,000 , and $ 114,000 at June 30, 2020, December 31, 2019 , and June 30, 2019 , respectively.

Government SBA securities were $ 102,000 , $ 113,000 , and $ 115,000 at September 30, 2020, December 31, 2019 , and September 30, 2019 , respectively.

The unrealized losses were caused by interest rate fluctuations.

Mortgage Backed Securities – At June 30, 2020 , 1 mortgage backed security investment was in an unrealized loss position for less than 12 months and 19 were in an unrealized loss position for 12 months or more.

The unrealized losses on the Company's investment in mortgage backed securities were $ 5,000 , $ 99,000 , and $ 116,000 at June 30, 2020, December 31, 2019 , and June 30, 2019 , respectively.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019 , and September 30, 2019 .

Mortgage Backed Securities – At September 30, 2020 , 3 mortgage backed security investments were in an unrealized loss position for less than 12 months and 19 were in a loss position for 12 months or more.

The unrealized losses on the Company's investment in mortgage backed securities were $ 39,000 , $ 99,000 , and $ 163,000 at September 30, 2020, December 31, 2019 , and September 30, 2019 , respectively.

The unrealized losses were caused by interest rate fluctuations.

1 unchanged sentence

Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment.

Obligations of States and Political Subdivisions – At June 30, 2020 , no obligations of states and political subdivisions were in an unrealized loss position for less than 12 months.

None were in an unrealized loss position for 12 months or more.

As of June 30, 2020 , the Company’s bank-qualified municipal bond portfolio was rated at either the issue or issuer level, and all of these ratings were “investment grade.” The Company monitors the status of all municipal investments in the portfolio and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $ 0 , $ 12,000 and $ 0 at June 30, 2020, December 31, 2019 and June 30, 2019 , respectively.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019 , and September 30, 2019 .

Obligations of States and Political Subdivisions – At September 30, 2020 , there were no obligation of states and political subdivisions in an unrealized loss position for less than 12 months or for 12 months or more.

As of September 30, 2020 , over ninety-nine percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the one percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $ 0 , $ 12,000 and $ 7,000 at September 30, 2020, December 31, 2019, and September 30, 2019 , respectively.

Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were caused by interest rate fluctuations.

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.

Because the Company does not intend to sell the securities and it is more likely than not that the Company would not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2020, December 31, 2019 and June 30, 2019 .

Corporate Securities - At June 30, 2020 , 1 corporate security was in an unrealized loss position for less than 12 months.

Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020, December 31, 2019, and September 30, 2019 .

Corporate Securities - At September 30, 2020 , 6 corporate securities were in an unrealized loss position for less than 12 months and none were in a loss position for 12 months or more.

The unrealized loss on the Company’s investment in the corporate security was $ 98,000 .

4 unchanged sentences

and (4) day to day trading supply, demand and liquidity.

The Company monitors the status of each of our corporate securities and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

Proceeds from sales and calls of securities were as follows:

Ended June 30,

Ended September 30,

(in thousand s)

Pledged Securities

As of June 30, 2020, securities carried at $ 370.4 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law.

This amount was $ 352.5 million at December 31, 2019, and $ 250.9 million at June 30, 2019.

As of September 30, 2020, securities carried at $ 333.2 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law.

Carrying amount of pledged securities was $ 352.5 million at December 31, 2019, and $ 267.2 million at September 30, 2019.

Federal Home Loan Bank Stock and Other Equity Securities

1 unchanged sentence

Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.

FHLB stock and other equity securities are carried at cost, plus or minus observable price changes in orderly transactions, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.

FHLB stock are carried at cost and other equity securities are carried at cost, plus or minus observable price changes in orderly transactions, and both are classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.

Both cash and stock dividends are reported as income.

FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $ 12.7 million at June 30, 2020, December 31, 2019 and June 30, 2019.

FHLB stock and other equity securities are reported in Interest Receivable and Other Assets on the Company’s Consolidated Balance Sheets and totaled $ 12.7 million at September 30, 2020, December 31, 2019 and September 2019.

Loans & Leases and Allowance for Credit Losses

1 unchanged sentence

(in thousands)

June 30, 2020

September 30, 2020

December 31, 2019

June 30, 2019

September 30, 2019

Commercial Real Estate

9 unchanged sentences

(1) Includes CARES Act Small Business Admistration Paycheck Protection Program loans.

Paycheck Protection Program (“PPP”) … Under the CARES Act (see “Note 2 – Risks and Uncertainties”) the Small Business Administration (“SBA”) was directed by Congress to provide up to $349 billion (subsequently expanded by an additional $310 billion) in loans to small businesses with less than 500 employees to assist these businesses in meeting their payroll and other financial obligations over the next several months.

These government guaranteed loans are made with an interest rate of 1%, a risk weight of 0% under risk-based capital rules, have a term of 2 years, and under certain conditions the SBA can forgive them after eight weeks.

Paycheck Protection Program (“PPP”) … Under the CARES Act (see “Note 2 – Risks and Uncertainties”) the Small Business Administration (“SBA”) was directed by Congress to provide loans to small businesses with less than 500 employees to assist these businesses in meeting their payroll and other financial obligations during the COVID- 19 pandemic.

These government guaranteed loans are made with an interest rate of 1% , a risk weight of 0% under risk-based capital rules, have a term of 2 years, and under certain conditions the SBA will forgive them.

Farmers & Merchants Bank of Central California actively participated in the PPP, and since April, 2020 the Bank has funded $ 347.4 million of loans for 1,540 small business customers.

The following tables show the allocation of the allowance for credit losses by portfolio segment and by impairment methodology at the dates indicated (in thousands) :

June 30, 2020

September 30, 2020

Residential 1st

2 unchanged sentences

Beginning Balance- January 1, 2020

Ending Balance- June 30, 2020

Second Quarter Allowance for Credit Losses:

Beginning Balance- April 1, 2020

Ending Balance- June 30, 2020

Ending Balance- September 30, 2020

Third Quarter Allowance for Credit Losses:

Beginning Balance- July 1, 2020

Ending Balance- September 30, 2020

Ending Balance Individually Evaluated for Impairment

16 unchanged sentences

Ending Balance Collectively Evaluated for Impairment

September 30, 2019

Residential 1st

2 unchanged sentences

Beginning Balance- January 1, 2019

Ending Balance- June 30, 2019

Second Quarter Allowance for Credit Losses:

Beginning Balance- April 1, 2019

Ending Balance- June 30, 2019

Ending Balance- September 30, 2019

Third Quarter Allowance for Credit Losses:

Beginning Balance- July 1, 2019

Ending Balance- September 30, 2019

Ending Balance Individually Evaluated for Impairment

4 unchanged sentences

Ending Balance Collectively Evaluated for Impairment

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $ 3.1 million at June 30, 2020, $ 2.6 million at December 31, 2019 and $ 2.6 million at June 30, 2019, which are no longer classified as TDRs.

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $ 828,500 at September 30, 2020, $ 2.6 million at December 31, 2019, and $ 2.6 million at September 30, 2019, which are no longer classified as TDRs because they were restructured under market rates and terms.

The following tables show the loan & lease portfolio allocated by management’s internal risk ratings at the dates indicated (in thousands) :

June 30, 2020

September 30, 2020

Loans & Leases:

13 unchanged sentences

Consumer & Other

June 30, 2019

September 30, 2019

Loans & Leases:

6 unchanged sentences

Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company.

There were no loans or leases outstanding at June 30, 2020, December 31, 2019, and June 30, 2019, rated doubtful or loss.

The following tables show an aging analysis of the loan & lease portfolio by the time past due at the dates indicated

(in thousands) :

June 30, 2020

There were no loans or leases outstanding at September 30, 2020, December 31, 2019, and September 30, 2019, rated doubtful or loss.

The following tables show an aging analysis of the loan & lease portfolio by the time past due at the dates indicated (in thousands) :

September 30, 2020

Still Accruing

17 unchanged sentences

Consumer & Other

June 30, 2019

September 30, 2019

Still Accruing

9 unchanged sentences

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2020

September 30, 2020

Nine Months Ended

September 30, 2020

With no related allowance recorded:

17 unchanged sentences

Three Months Ended

June 30, 2019

Six Months Ended

June 30, 2019

September 30, 2019

Nine Months Ended

September 30, 2019

With no related allowance recorded:

7 unchanged sentences

Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance table.

This is because this table does not include impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

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.

5 unchanged sentences

The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification.

For the quarter ended June 30, 2020 we restructured $ 270.7 million of loans under the CARES Act guidelines (primarily payment or interest deferrals up to six months).

Since April 2020, we have restructured $ 276.9 million of loans under the CARES Act guidelines (primarily payment or interest deferrals up to six months).

As of September 30, 2020, $ 103.8 million of these loans remain in a deferral status, the other loans having returned to making principal and/or interest payments.

By October 31, 2020, the loans still in a deferral status had dropped to $ 24.1 million.

We believe that these actions will assist these borrowers in getting through these difficult times, but no guaranties can be made that at some time in the future these loans will not be required to be accounted for as a TDR.

1 unchanged sentence

See “Note 2 – Risks and Uncertainties” for additional information on the CARES Act and the impact of COVID-19 on the Company.

At June 30, 2020, the Company allocated $ 373,000 of specific reserves to $ 8.1 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at June 30, 2020 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the six-month period ended June 30, 2020, there were five loans modified as a troubled debt restructuring.

The modification involved a reduction of the stated interest rate of the loan for 5 years and extended the maturity date for 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six -month periods ended June 30, 2020 (in thousand s) :

At September 30, 2020, the Company allocated $ 156,000 of specific reserves to $ 7.9 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at September 30, 2020, to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the nine month period ended September 30, 2020, there were six loans modified as a troubled debt restructuring.

The modifications involved a reduction of the stated interest rate of the loans for 5 years and extended the maturity dates for 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine -month periods ended September 30, 2020 (in thousand s) :

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2020

September 30, 2020

Nine Months Ended

September 30, 2020

Troubled Debt Restructurings

Pre-Modification

Post-Modification

Pre-Modification

Post-Modification

Commercial Real Estate

Residential 1st Mortgages

During the three and six months ended June 30, 2020, the twelve months ended December 31, 2019, and the three and six-month periods ended June 30, 2019 there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

TDRs described above had minimal impact on the allowance for credit losses and resulted in charge-offs of $ 7,000 for the nine -month period ended September 30, 2020.

During the three and nine-months ended September 30, 2020, the year ended December 31, 2019, and the three and nine-month periods ended September 30, 2019, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

8 unchanged sentences

Modifications involving an extension of the maturity date ranged from 3 months to 6 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2019 (in thousands) :

The following table presents loans by class modified as troubled debt restructured loans for the year ended December 31, 2019 (in thousands) :

Year ended December 31, 2019

Troubled Debt Restructurings

Pre-Modification

Post-Modification

Consumer & Other

The troubled debt restructurings described above increased the allowance for credit losses by $ 101,000 .

TDRs described above increased the allowance for credit losses by $ 101,000 .

There were no charge-offs for the twelve months ended December 31, 2019.

At June 30, 2019, the Company allocated $ 547,000 of specific reserves to $ 12.1 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at June 30, 2019 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the six-month period ended June 30, 2019, there was one loan modified as a troubled debt restructuring.

The modification involved a reduction of the stated interest rate of the loan for 5 years and extended the maturity date for 10 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and six -month periods ended June 30, 2019 (in thousand s) :

At September 30, 2019, the Company allocated $ 584,000 of specific reserves to $ 12.0 million of troubled debt restructured loans & leases, all of which were performing.

The Company had no commitments at September 30, 2019, to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the nine-month period ended September 30, 2019, there was one loan modified as a troubled debt restructuring.

When a loan is restructured, the modification of the terms can include one or a combination of the following:

a reduction of the stated interest rate;

an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk;

or a permanent reduction of the recorded investment in the loan.

This loan had no rate reduction but the maturity date was extended for 6 years.

The following table presents loans or leases by class modified as troubled debt restructured loans or leases during the three and nine -month periods ended September 30, 2019 (in thousand s) :

Three Months Ended

June 30, 2019

Six Months Ended

June 30, 2019

September 30, 2019

Nine Months Ended

September 30, 2019

Troubled Debt Restructurings

1 unchanged sentence

Post-Modification

During the three and six -months ended June 30, 2019 there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

Pre-Modification

Post-Modification

The TDRs described above had minimal impact on the allowance for credit losses for the three and nine -month periods ended September 30, 2019.

During the three and nine -months ended September 30, 2019, there were no payment defaults on loans or leases modified as troubled debt restructurings within twelve months following the modification.

The Company considers a loan or lease to be in payment default once it is greater than 90 days contractually past due under the modified terms.

37 unchanged sentences

Fair Value Measurements

At June 30, 2020, Using

At September 30, 2020, Using

Quoted Prices in

20 unchanged sentences

Fair Value Measurements

At June 30, 2019, Using

At September 30, 2019, Using

Quoted Prices in

3 unchanged sentences

Available-for-Sale Securities:

Government Agency & Government-Sponsored Entities

US Treasury Notes

3 unchanged sentences

Fair values for Level 2 available-for-sale investment securities are based on quoted market prices for similar securities.

During the three and six -months ended June 30, 2020 and 2019, there were no transfers in or out of Level 1, 2, or 3.

During the three and nine -months ended September 30, 2020 and 2019, there were no transfers between levels .

The following tables present information about the Company’s other real estate and impaired loans or leases, classes of assets or liabilities that the Company carries at fair value on a non-recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

2 unchanged sentences

Fair Value Measurements

At June 30, 2020, Using

At September 30, 2020, Using

(in thousands)

26 unchanged sentences

Fair Value Measurements

At June 30, 2019, Using

At September 30, 2019, Using

(in thousands)

16 unchanged sentences

Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at the dates indicated.

June 30, 2020

The following tables present quantitative information about Level 3 fair value measurements for financial assets measured at fair value on a nonrecurring basis at the dates indicated.

September 30, 2020

(in thousands)

5 unchanged sentences

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

0.73 % - 4.16 %, 2.58

1 unchanged sentence

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

1.1 % - 1.4 %, 1.28

3 unchanged sentences

Capitalization Rate

Income Approach

Adjustment for Difference

Between Comparable Sales

Other Real Estate:

1 unchanged sentence

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

December 31, 2019

9 unchanged sentences

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

0.8 % - 6.4 %, 3

1 unchanged sentence

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

1 % - 2 %, 1.3

4 unchanged sentences

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

Adjustment for Difference

Between Comparable Sales

Other Real Estate:

1 unchanged sentence

Sales Comparison Approach

Adjustment for Difference Between Comparable Sales

June 30, 2019

Adjustment for Difference

Between Comparable Sales

September 30, 2019

(in thousands)

33 unchanged sentences

Fair Value of Financial Instruments Using

June 30, 2020

September 30, 2020

(in thousands)

23 unchanged sentences

Fair Value of Financial Instruments Using

June 30, 2019

September 30, 2019

(in thousands)

5 unchanged sentences

Investment Securities Held-to-Maturity

Loans & Leases, Net of Deferred Fees & Allowance

Loans & Leases, Net

Accrued Interest Receivable

10 unchanged sentences

Therefore, diluted and basic earnings per common share are the same.

The following table calculates the basic earnings per common share for the three and six months ended June 30, 2020 and 2019.

Three Months Ended

Six Months Ended

The following table calculates the basic earnings per common share for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30,

Nine Months Ended September 30,

( net income in thousands )

Weighted Average Number of Common Shares Outstanding

Basic and Diluted Earnings Per Common Share

Basic and Diluted Earnings Per Common Share Amount

Lessee – Operating Leases

9 unchanged sentences

The Company used the first option period, unless it is a relatively new lease that has a long initial lease term or other extenuating circumstances.

As of June 30, 2020, operating lease ROU assets and liabilities were $ 4.64 million and $ 4.71 million, respectively.

As of June 30, 2019, operating lease ROU assets and liabilities were $ 5.31 million and $ 5.34 million, respectively.

As of September 30, 2020, operating lease ROU assets and liabilities were $ 4.47 million and $ 4.55 million, respectively.

As of December 31, 2019, operating lease ROU assets and liabilities were $ 4.98 million and $ 5.03 million, respectively.

As of September 30, 2019, operating lease ROU assets and liabilities were $ 5.14 million and $ 5.19 million, respectively.

The table below summarizes the information related to our operating leases:

(in thousands except for percent and period data)

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

December 31, 2019

Six Months Ended

June 30, 2019

Nine Months Ended

September 30, 2019

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

5 unchanged sentences

(in thousands)

June 30, 2020

September 30, 2020

2025 and thereafter

1 unchanged sentence

Present Value of Lease Liabilities

As of June 30, 2020, we have no additional operating leases for office space that have not yet commenced or that are anticipated to commence during the third quarter of 2020.

As of September 30, 2020, we have no additional operating leases for office space that have not yet commenced or that are anticipated to commence during the fourth quarter of 2020.

Lessor - Direct Financing Leases

5 unchanged sentences

Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

The impact of adopting Topic 842 for lessor accounting was not significant.

Lease payments due to the Company are typically fixed and paid in equal installments over the lease term.

2 unchanged sentences

As a lessor, the Company leases certain types of agriculture equipment, solar equipment, construction equipment and other equipment to its customers.

The Company's net investment in direct financing leases was $ 104.1 million at June 30, 2020, $ 107.3 million at December 31, 2019 and $ 103.3 million at June 30, 2019.

The Company's net investment in direct financing leases was $ 106.4 million at September 30, 2020, $ 105.4 million at December 31, 2019, and $ 101.8 million at September 30, 2019.

Recent Accounting Pronouncements

9 unchanged sentences

The Company, in conjunction with this vendor, researched and analyzed modeling standards, loan segmentation, as well as potential external inputs to supplement our historical loss history.

Model validation began in the third quarter of 2019, enabling us to complete parallel runs using data beginning with the second quarter of 2019 .

Model validation began in the third quarter of 2019, enabling the Company to complete parallel runs using data beginning with the second quarter of 2019.

The new guidance had been effective on January 1, 2020.

1 unchanged sentence

The Company has elected to delay CECL implementation, but continues to run its CECL model quarterly to accumulate data for the ultimate implementation.

Management is currently evaluating the impact that the standard will have on its consolidated financial statements.

Accounting Guidance Pending Adoption

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU is intended to reduce the cost and complexity related to accounting for income taxes by removing certain exceptions to the guidance in Topic 740 related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

As this ASU is narrow in scope and applicability to us will likely be minimal, we do not expect that the ASU will have a material impact on our financial condition or results of operations.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848).

The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform.

The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in this ASU may be elected as of March 12, 2020 through December 31, 2022.

An entity may choose to elect the amendments in this update at an interim period subsequent to March 12, 2020 with adoption methods varying based on transaction type.

We have not elected to apply these amendments.

However, we will assess the applicability of the ASU to us and continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements