10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

or

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

For the transition period from ________to ________

Commission File Number:  000-26099

FARMERS & MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

Delaware	94-3327828
(State or other jurisdiction of incorporation or organization)	(I.R.S.  Employer Identification No.)

111 W. Pine Street, Lodi, California	95240
(Address of principal Executive offices)	(Zip Code)

Registrant’s telephone number, including area code (209) 367-2300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☒
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)	Smaller Reporting Company ☐
	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐    No ☒

Number of shares of common stock of the registrant 776,570 outstanding as of July 31, 2018.

FARMERS & MERCHANTS BANCORP

10-Q

TABLE OF CONTENTS

PART I. - FINANCIAL INFORMATION			Page
	Item 1 -	Financial Statements
		Consolidated Balance Sheets (Unaudited) as of June 30, 2018, December 31, 2017 and June 30, 2017	3
		Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2018 and 2017	4
		Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2018 and 2017	5
		Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Six Months Ended June 30, 2018 and 2017	6
		Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2018 and 2017	7
		Notes to the Consolidated Financial Statements (Unaudited)	8
	Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4 -	Controls and Procedures	56
PART II. - OTHER INFORMATION
	Item 1 -	Legal Proceedings	56
	Item 1A –	Risk Factors	56
	Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	56
	Item 3 -	Defaults Upon Senior Securities	57
	Item 4 –	Mine Safety Disclosures	57
	Item 5 -	Other Information	57
	Item 6 -	Exhibits	57
Signatures			58

2

FARMERS & MERCHANTS BANCORP

Consolidated Balance Sheets

(in thousands except share data)

Assets	June 30, 2018 (Unaudited)			December 31, 2017			June 30, 2017 (Unaudited)
Cash and Cash Equivalents:
Cash and Due from Banks	$	51,491		$	65,956		$	50,004
Interest Bearing Deposits with Banks		55,408			121,193			97,187
Total Cash and Cash Equivalents		106,899			187,149			147,191
Investment Securities:
Available-for-Sale		450,174			481,596			461,867
Held-to-Maturity		52,210			54,460			56,381
Total Investment Securities		502,384			536,056			518,248
Loans & Leases:		2,344,448			2,215,295			2,204,082
Less: Allowance for Credit Losses		51,137			50,342			49,064
Loans & Leases, Net		2,293,311			2,164,953			2,155,018
Premises and Equipment, Net		29,254			28,679			29,312
Bank Owned Life Insurance		60,495			59,583			58,671
Interest Receivable and Other Assets		105,480			99,032			104,159
Total Assets	$	3,097,823		$	3,075,452		$	3,012,599
Liabilities
Deposits:
Demand	$	815,575		$	832,652		$	736,077
Interest Bearing Transaction		603,494			601,476			527,568
Savings and Money Market		812,083			813,703			801,506
Time		466,121			475,397			596,727
Total Deposits		2,697,273			2,723,228			2,661,878
Subordinated Debentures		10,310			10,310			10,310
Interest Payable and Other Liabilities		74,748			42,254			48,691
Total Liabilities		2,782,331			2,775,792			2,720,879
Shareholders’ Equity
Preferred Stock:  No Par Value,  1,000,000 Shares Authorized, None Issued or Outstanding		-			-			-
Common Stock:  Par Value $0.01, 7,500,000 Shares Authorized, 821,073, 812,304 and 808,704 Shares Issued and Outstanding at June 30, 2018, December 31, 2017 and June 30, 2017, Respectively		8			8			8
Additional Paid-In Capital		99,192			93,624			91,482
Retained Earnings		221,671			206,845			199,862
Accumulated Other Comprehensive (Loss) Income		(5,379	)		(817	)		368
Total Shareholders’ Equity		315,492			299,660			291,720
Total Liabilities and Shareholders’ Equity	$	3,097,823		$	3,075,452		$	3,012,599

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

3

FARMERS & MERCHANTS BANCORP

Consolidated Statements of Income  (Unaudited)

(in thousands except per share data)	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Interest Income
Interest and Fees on Loans & Leases	$	28,927		$	25,248		$	55,971		$	49,779
Interest on Deposits with Banks		514			258			1,099			507
Interest on Investment Securities:
Taxable		2,315			2,124			4,696			4,136
Exempt from Federal Tax		405			439			823			889
Total Interest Income		32,161			28,069			62,589			55,311
Interest Expense
Deposits		1,529			1,433			2,934			2,709
Subordinated Debentures		131			105			248			205
Total Interest Expense		1,660			1,538			3,182			2,914
Net Interest Income		30,501			26,531			59,407			52,397
Provision for Credit Losses		500			650			833			1,250
Net Interest Income After Provision for Credit Losses		30,001			25,881			58,574			51,147
Non-Interest Income
Service Charges on Deposit Accounts		842			848			1,659			1,694
Net (Loss) Gain  on Sale of Investment Securities		(1,330	)		131			(1,330	)		131
Increase in Cash Surrender Value of Life Insurance		460			454			912			909
Debit Card and ATM Fees		1,096			977			2,112			1,887
Net Gain on Deferred Compensation Investments		407			399			1,189			1,193
Other		808			730			2,406			3,131
Total Non-Interest Income		2,283			3,539			6,948			8,945
Non-Interest Expense
Salaries and Employee Benefits		11,653			11,450			25,180			23,942
Net Gain on Deferred Compensation Investments		407			399			1,189			1,193
Occupancy		907			868			1,849			1,716
Equipment		1,018			1,026			2,041			2,013
Marketing		390			363			719			538
Legal		852			75			1,292			258
FDIC Insurance		227			233			466			461
Gain on Sale of ORE		-			(300	)		-			(414	)
Other		2,691			2,411			5,345			5,240
Total Non-Interest Expense		18,145			16,525			38,081			34,947
Income Before Income Taxes		14,139			12,895			27,441			25,145
Provision for Income Taxes		3,589			4,708			6,950			9,137
Net Income	$	10,550		$	8,187		$	20,491		$	16,008
Basic Earnings Per Common Share	$	12.90		$	10.12		$	25.14		$	19.80

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

4

FARMERS & MERCHANTS BANCORP

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net Income	$	10,550		$	8,187		$	20,491		$	16,008
Other Comprehensive Income
Increase in Net Unrealized (Loss) Gain on Available-for-Sale Securities		(2,519	)		898			(7,807	)		784
Deferred Tax Benefit (Expense) Related to Unrealized Gains		757			(378	)		2,320			(330	)
Reclassification Adjustment for Realized Losses (Gains) on Available-for-Sale Securities Included in Net Income		1,330			(131	)		1,330			(131	)
Deferred Tax Benefit (Expense) Related to Reclassification Adjustment		(405	)		56			(405	)		56
Change in Net Unrealized (Losses) Gains on Available-for-Sale Securities, Net of Tax		(837	)		445			(4,562	)		379
Total Other Comprehensive (Loss) Income		(837	)		445			(4,562	)		379
Comprehensive Income	$	9,713		$	8,632		$	15,929		$	16,387

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

5

FARMERS & MERCHANTS BANCORP Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands except share data)	Common Shares Outstanding		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income, net			Total Shareholders’ Equity
Balance, January 1, 2017		807,329	$	8	$	90,671	$	189,313		$	(11	)	$	279,981
Net Income						-		16,008			-			16,008
Cash Dividends Declared on Common Stock ($6.75 per share)				-		-		(5,459	)		-			(5,459	)
Issuance of Common Stock		1,375		-		811		-			-			811
Change in Net Unrealized Gains on Securities Available-for-Sale, net of tax				-		-		-			379			379
Balance, June 30, 2017		808,704	$	8	$	91,482	$	199,862		$	368		$	291,720
Balance, January 1, 2018		812,304	$	8	$	93,624	$	206,845		$	(817	)	$	299,660
Net Income						-		20,491			-			20,491
Cash Dividends Declared on Common Stock ($6.90 per share)				-		-		(5,665	)		-			(5,665	)
Issuance of Common Stock		8,769		-		5,568		-			-			5,568
Change in Net Unrealized Loss on Securities Available-for-Sale, net of tax				-		-		-			(4,562	)		(4,562	)
Balance, June 30, 2018		821,073	$	8	$	99,192	$	221,671		$	(5,379	)	$	315,492

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

6

FARMERS & MERCHANTS BANCORP

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)	Six Months Ended
	June 30, 2018			June 30, 2017
Operating Activities:
Net Income	$	20,491		$	16,008
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Credit Losses		833			1,250
Depreciation and Amortization		1,155			1,030
Net Amortization of Investment Security Premiums & Discounts		568			771
Amortization of Core Deposit Intangible		54			55
Accretion of Discount on Acquired Loans		(87	)		(126	)
Net Loss (Gain) on Sale of Investment Securities		1,330			(131	)
Net Gain on Sale of Property & Equipment		(292	)		(1,162	)
Net Gain on Sale of ORE		-			(414	)
Earnings from Equity Investment		(164	)		-
Dividends from Equity Investment		63			-
Net Change in Operating Assets & Liabilities:
Net Decrease in Interest Receivable and Other Assets		218			(6,943	)
Net Increase in Interest Payable and Other Liabilities		1,788			(1,114	)
Net Cash Provided by Operating Activities		25,957			9,224
Investing Activities:
Purchase of Investment Securities Available-for-Sale		(169,467	)		(140,417	)
Proceeds from Sold, Matured or Called Securities Available-for-Sale		227,072			126,657
Purchase of Investment Securities Held-to-Maturity		(2,770	)		(475	)
Proceeds from Matured or Called Securities Held-to-Maturity		4,990			2,173
Net Loans & Leases Paid, Originated or Acquired		(129,154	)		(26,531	)
Principal Collected on Loans & Leases Previously Charged Off		50			71
Additions to Premises and Equipment		(2,497	)		(2,235	)
Purchase of Other Investments		(3,794	)		(314	)
Proceeds from Sale of Property & Equipment		983			2,284
Proceeds from Sale of Other Real Estate		-			3,186
Net Cash Used in Investing Activities		(74,587	)		(35,601	)
Financing Activities:
Net (Decrease) Increase  in Deposits		(25,955	)		80,167
Cash Dividends		(5,665	)		(5,459	)
Net Cash (Used in) Provided by Financing Activities		(31,620	)		74,708
(Decrease) Increase in Cash and Cash Equivalents		(80,250	)		48,331
Cash and Cash Equivalents at Beginning of Period		187,149			98,860
Cash and Cash Equivalents at End of Period	$	106,899		$	147,191
Supplementary Data
Cash Payments Made for Income Taxes	$	3,051		$	9,611
Issuance of Common Stock to the Bank’s Non-Qualified Retirement Plans	$	5,568		$	811
Interest Paid	$	3,492		$	2,752

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

7

FARMERS & MERCHANTS BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Significant Accounting Policies

Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. 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. In December 2003, the Company formed a wholly owned subsidiary, FMCB Statutory Trust I, for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). FMCB Statutory Trust I is a non-consolidated subsidiary.

On November 18, 2016, Farmers & Merchants Bancorp completed the acquisition of Delta National Bancorp, headquartered in Manteca, California, and the parent holding company for Delta Bank N.A., a locally owned and operated community bank established in 1973. As of the acquisition date, Delta National Bancorp had approximately $112 million in assets and four branch locations in the communities of Manteca, Riverbank, Modesto and Turlock. At the effective time of the acquisition, Delta National Bancorp was merged into Farmers & Merchants Bancorp and Delta Bank, N.A. was merged into Farmers & Merchants Bank of Central California.

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

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.

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. These statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three-month and six-month period ended June 30, 2018 may not necessarily be indicative of future operating results. Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years’ financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.

8

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is limited judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Equity Method Investment

Investment over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for consolidation is accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or loss of the entity. Equity in losses of the equity method investment is not recognized after the carrying value of the investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. 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. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

9

Loans & leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease’s effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & 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 & leases that are on nonaccrual status at the time they become TDR, 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 impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company’s loan & lease portfolio 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 impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

10

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company’s overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project’s failure to fulfill economic expectations.They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful –Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management’s assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

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Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. 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. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

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Acquired Loans

Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

13

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.

Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 6 for additional information.

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change.

Low Income Housing Tax Credit Investments (LIHTC)

The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Business Combinations And Related Matters

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition. Acquisition-related costs, including conversion charges, are expensed as incurred.

Intangible Assets

Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.

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2. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows

(in thousands):

June 30, 2018	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,056	$	15	$	-	$	3,071
US Treasury Notes		139,689		2		416		139,275
US Govt SBA		18,583		8		188		18,403
Mortgage Backed Securities (1)		293,473		337		7,396		286,414
Other		3,011		-		-		3,011
Total	$	457,812	$	362	$	8,000	$	450,174

December 31, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,080	$	48	$	-	$	3,128
US Treasury Notes		144,606		-		442		144,164
US Govt SBA		29,559		29		208		29,380
Mortgage Backed Securities (1)		302,502		939		1,527		301,914
Other		3,010		-		-		3,010
Total	$	482,757	$	1,016	$	2,177	$	481,596

June 30, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,103	$	92	$	-	$	3,195
US Treasury Notes		134,689		3		272		134,420
US Govt SBA		32,889		30		119		32,800
Mortgage Backed Securities (1)		288,121		1,821		919		289,023
Other		2,429		-		-		2,429
Total	$	461,231	$	1,946	$	1,310	$	461,867

⁽¹⁾ All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

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The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

	Book		Gross Unrealized				Fair
June 30, 2018	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	52,210	$	227	$	79	$	52,358
Total	$	52,210	$	227	$	79	$	52,358

	Book		Gross Unrealized				Fair
December 31, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	54,460	$	776	$	-	$	55,236
Total	$	54,460	$	776	$	-	$	55,236

	Book		Gross Unrealized				Fair
June 30, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	56,381	$	746	$	-	$	57,127
Total	$	56,381	$	746	$	-	$	57,127

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at June 30, 2018 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
June 30, 2018	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	128,110	$	127,874	$	3,613	$	3,618
After one year through five years		18,748		18,582		5,750		5,753
After five years through ten years		1,583		1,580		19,192		19,258
After ten years		15,898		15,724		23,655		23,729
		164,339		163,760		52,210		52,358
Investment securities not due at a single maturity date:
Mortgage-backed securities		293,473		286,414		-		-
Total	$	457,812	$	450,174	$	52,210	$	52,358

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousands):

	Less Than 12 Months				12 Months or More				Total
June 30, 2018	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	14,412	$	178	$	29,876	$	238	$	44,288	$	416
US Govt SBA		5,589		68		9,023		120		14,612		188
Mortgage Backed Securities		214,949		5,464		58,148		1,932		273,097		7,396
Total	$	234,950	$	5,710	$	97,047	$	2,290	$	331,997	$	8,000
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	8,543	$	79	$	-	$	-	$	8,543	$	79
Total	$	8,543	$	79	$	-	$	-	$	8,543	$	79

	Less Than 12 Months				12 Months or More				Total
December 31, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	94,281	$	144	$	49,883	$	298	$	144,164	$	442
US Govt SBA		8,379		51		12,900		157		21,279		208
Mortgage Backed Securities		126,863		932		43,208		595		170,071		1,527
Total	$	229,523	$	1,127	$	105,991	$	1,050	$	335,514	$	2,177

There were no HTM investments with gross unrealized losses at December 31, 2017

	Less Than 12 Months				12 Months or More				Total
June 30, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	74,423	$	272	$	-	$	-	$	74,423	$	272
US Govt SBA	$	22,775	$	119	$	-	$	-		22,775	$	119
Mortgage Backed Securities		141,268		919		-		-		141,268		919
Total	$	238,466	$	1,310	$	-	$	-	$	238,466	$	1,310

There were no HTM investments with gross unrealized losses at June 30, 2017

As of June 30, 2018, the Company held 404 investment securities of which 112 were in an unrealized loss position for less than twelve months. 85 securities were in an unrealized loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – At June 30, 2018, December 31, 2017 and June 30, 2017, 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.

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U.S. Treasury Notes – At June 30, 2018, three U.S. Treasury Note security investments were in an unrealized loss position for less than 12 months and two were in an unrealized loss position for 12 months or more. The unrealized losses on the Company’s investment in U.S. Treasury Notes were $416,000, $442,000, and $272,000 at June 30, 2018, December 31, 2017, and June 30, 2017, 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, 2018, December 31, 2017, and June 30, 2017.

U.S. Government SBA – At June 30, 2018, 29 U.S. Government SBA security investments were in an unrealized loss position for less than 12 months and 43 were in an unrealized loss position for 12 months or more. The unrealized losses on the Company’s investment in U.S. Government SBA securities were $188,000, $208,000, and $119,000 at June 30, 2018, December 31, 2017, and June 30, 2017, 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, 2018, December 31, 2017, and June 30, 2017.

Mortgage Backed Securities – At June 30, 2018, 58 mortgage backed security investments were in an unrealized loss position for less than 12 months and 40 were in an unrealized loss position for 12 months or more. The unrealized losses on the Company’s investment in mortgage backed securities were $7.4 million, $1.5 million, and $919,000 at June 30, 2018, December 31, 2017, and June 30, 2017, respectively. The unrealized losses on the Company’s investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2018, December 31, 2017, and June 30, 2017.

Obligations of States and Political Subdivisions - At June 30, 2018, 22 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, 2018, 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 $79,000, $0 and $0 at June 30, 2018, December 31, 2017 and June 30, 2017, respectively. Management believes that any unrealized losses on the Company’s investments in obligations of states and political subdivisions were primarily 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 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 June 30, 2018, December 31, 2017 and June 30, 2017.

Proceeds from sales and calls of securities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2018		2017		2018		2017
Proceeds	$	31,370	$	7,831	$	31,370	$	7,831
Gains		8		143		8		143
Losses		1,338		12		1,338		12

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Pledged Securities

As of June 30, 2018, securities carried at $210.0 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $214.5 million at December 31, 2017, and $211.6 million at June 30, 2017.

3. Loans & Leases and Allowance for Credit Losses

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, 2018	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2018	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197		$	209		$	3,363	$	1,422		$	50,342
Charge-Offs		-			-		-			(12	)		(4	)		-			(14	)		(58	)		-		-			(88	)
Recoveries		-			-		-			6			2			13			3			26			-		-			50
Provision		(139	)		1,229		(230	)		55			226			(514	)		250			93			37		(174	)		833
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2018	$	11,078		$	12,242	$	1,873		$	827		$	2,343		$	7,868		$	9,374		$	239		$	3,390	$	1,443		$	50,677
Charge-Offs		-			-		-			(12	)		-			-			(14	)		(41	)		-		-			(67	)
Recoveries		-			-		-			3			1			7			1			15			-		-			27
Provision		(295	)		1,072		(257	)		46			204			(217	)		75			57			10		(195	)		500
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Ending Balance Individually Evaluated for Impairment		333			-		-			131			16			-			487			7			-		-			974
Ending Balance Collectively Evaluated for Impairment		10,450			13,314		1,616			733			2,532			7,658			8,949			263			3,400		1,248			50,163
Loans & Leases:
Ending Balance	$	752,043		$	540,852	$	94,223		$	261,804		$	37,669		$	273,170		$	286,651		$	7,390		$	90,646	$	-		$	2,344,448
Ending Balance Individually Evaluated for Impairment		4,749			-		-			2,628			324			-			2,290			7			-		-			9,998
Ending Balance Collectively Evaluated for Impairment	$	747,294		$	540,852	$	94,223		$	259,176		$	37,345		$	273,170		$	284,361		$	7,383		$	90,646	$	-		$	2,334,450

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December 31, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment	$	680,139		$	499,231	$	100,206		$	258,378		$	34,185		$	273,582		$	263,969	$	6,646		$	89,680		$	-		$	2,206,016

June 30, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans		Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140	$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			-			-		(7	)		-		(60	)		-			-			(176	)
Recoveries		10			-		-			19			5		-			4		33			-			-			71
Provision		231			815		(536	)		(12	)		25		(138	)		1,025		32			(634	)		442			1,250
Ending Balance- June 30, 2017	$	11,242		$	10,265	$	2,687		$	872		$	2,170	$	7,236		$	9,544	$	205		$	2,952		$	1,891		$	49,064
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2017	$	11,665		$	9,393	$	2,946		$	880		$	2,125	$	6,511		$	8,479	$	198		$	3,866		$	2,337		$	48,400
Charge-Offs		-			-		-			-			-		-			-		(25	)		-			-			(25	)
Recoveries		3			-		-			16			3		-			-		17			-			-			39
Provision		(426	)		872		(259	)		(24	)		42		725			1,065		15			(914	)		(446	)		650
Ending Balance- June 30, 2017	$	11,242		$	10,265	$	2,687		$	872		$	2,170	$	7,236		$	9,544	$	205		$	2,952		$	1,891		$	49,064
Ending Balance Individually Evaluated for Impairment		468			-		-			61			15		322			266		6			-			-			1,138
Ending Balance Collectively Evaluated for Impairment		10,774			10,265		2,687			811			2,155		6,914			9,278		199			2,952			1,891			47,926
Loans & Leases:
Ending Balance	$	670,591		$	473,153	$	168,487		$	252,653		$	32,174	$	265,899		$	254,887	$	7,533		$	78,705		$	-		$	2,204,082
Ending Balance Individually Evaluated for Impairment		4,890			976		-			1,894			344		688			1,624		28			-			-			10,444
Ending Balance Collectively Evaluated for Impairment	$	665,701		$	472,177	$	168,487		$	250,759		$	31,830	$	265,211		$	253,263	$	7,505		$	78,705		$	-		$	2,193,638

20

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $2.9 million at June 30, 2018, $3.0 million at December 31, 2017 and $3.2 million at June 30, 2017, which are no longer classified as TDRs.

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

June 30, 2018	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	749,467	$	2,576	$	-	$	752,043
Agricultural Real Estate		524,259		10,521		6,072		540,852
Real Estate Construction		85,638		8,585		-		94,223
Residential 1st Mortgages		261,112		-		692		261,804
Home Equity Lines & Loans		37,622		-		47		37,669
Agricultural		266,837		5,050		1,283		273,170
Commercial		285,113		283		1,255		286,651
Consumer & Other		7,245		-		145		7,390
Leases		88,677		1,969		-		90,646
Total	$	2,305,970	$	28,984	$	9,494	$	2,344,448

December 31, 2017	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

June 30, 2017	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	664,606	$	4,491	$	1,494	$	670,591
Agricultural Real Estate		466,831		1,316		5,006		473,153
Real Estate Construction		160,112		8,375		-		168,487
Residential 1st Mortgages		252,252		44		357		252,653
Home Equity Lines & Loans		32,174		-		-		32,174
Agricultural		256,026		6,302		3,571		265,899
Commercial		249,173		5,128		586		254,887
Consumer & Other		7,341		-		192		7,533
Leases		76,313		2,392		-		78,705
Total	$	2,164,828	$	28,048	$	11,206	$	2,204,082

See “Note 1. Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company. There were no loans or leases outstanding at June 30, 2018, December 31, 2017, and June 30, 2017, rated doubtful or loss.

21

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, 2018	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	752,043	$	752,043
Agricultural Real Estate		-		-		-		-		-		540,852		540,852
Real Estate Construction		277		-		-		-		277		93,946		94,223
Residential 1st Mortgages		107		-		-		130		237		261,567		261,804
Home Equity Lines & Loans		19		-		-		-		19		37,650		37,669
Agricultural		-		-		-		-		-		273,170		273,170
Commercial		-		-		-		599		599		286,052		286,651
Consumer & Other		6		-		-				6		7,384		7,390
Leases		-		-		-				-		90,646		90,646
Total	$	409	$	-	$	-	$	729	$	1,138	$	2,343,310	$	2,344,448

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	143	$	-	$	143	$	670,448	$	670,591
Agricultural Real Estate		-		-		-		976		976		472,177		473,153
Real Estate Construction		-		-		-		-		-		168,487		168,487
Residential 1st Mortgages		-		-		-		56		56		252,597		252,653
Home Equity Lines & Loans		36		-		-		-		36		32,138		32,174
Agricultural		-		-		-		306		306		265,593		265,899
Commercial		-		-		-		-		-		254,887		254,887
Consumer & Other		23		-		-		24		47		7,486		7,533
Leases		-		-		-		-		-		78,705		78,705
Total	$	59	$	-	$	143	$	1,362	$	1,564	$	2,202,518	$	2,204,082

22

The following tables show information related to impaired loans & leases for the periods indicated (in thousands):

							Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
June 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	100	$	100	$	-	$	101	$	2	$	102	$	4
Residential 1st Mortgages		-		-		-		452		-		680		8
	$	100	$	100	$	-	$	553	$	2	$	782	$	12
With an allowance recorded:
Commercial Real Estate	$	2,938	$	2,927	$	333	$	2,947	$	24		2,956	$	48
Residential 1st Mortgages		1,698		1,877		85		1,141		13		844		20
Home Equity Lines & Loans		76		86		3		77		1		77		2
Commercial		2,297		2,290		487		2,009		15		1,870		30
Consumer & Other		7		8		7		8		-		8		-
	$	7,016	$	7,188	$	915	$	6,182	$	53		5,755	$	100
Total	$	7,116	$	7,288	$	915	$	6,735	$	55	$	6,537	$	112

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

							Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
June 30, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	108	$	109	$	-	$	109	$	3	$	128	$	7
Agricultural Real Estate		976		983		-		976		-		1,059		-
Residential 1st Mortgages		406		462		-		410		3		421		3
Home Equity Lines & Loans		-		-		-		32		-		32		-
Agricultural		59		65		-		60		-		45		-
Commercial		-		-		-		-		-		756		-
	$	1,549	$	1,619	$	-	$	1,587	$	6	$	2,441	$	10
With an allowance recorded:
Commercial Real Estate	$	3,008	$	2,994	$	467	$	3,016	$	25	$	2,264	$	55
Residential 1st Mortgages		424		463		20		425		4		427		9
Home Equity Lines & Loans		51		58		3		70		1		80		2
Agricultural		630		631		322		634		6		633		14
Commercial		1,631		1,623		266		1,636		14		1,589		30
Consumer & Other		24		31		6		15		-		11		-
	$	5,768	$	5,800	$	1,084	$	5,796	$	50	$	5,004	$	110
Total	$	7,317	$	7,419	$	1,084	$	7,383	$	56	$	7,445	$	120

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.

23

At June 30, 2018, the Company allocated $624,000 of specific reserves to $6.4 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at June 30, 2018 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and six-month periods ending June 30, 2018, 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.

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	175	$	163		1	$	175	$	163
Total		1	$	175	$	163		1	$	175	$	163

During the three and six-months ended June 30, 2018, the twelve months ended December 31, 2017, and the three and six-month periods ending June 30, 2017 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.

At December 31, 2017, the Company allocated $623,000 of specific reserves to $6.3 million of troubled debt restructured loans, all of which were performing. The Company had no commitments at December 31, 2017 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan ranged from 3 to 5 years. Modifications involving an extension of the maturity date ranged from 3 to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2		673		630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

At June 30, 2017, the Company allocated $831,000 of specific reserves to $6.0 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at June 30, 2017 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and six-month periods ending June 30, 2017, there were no loans & leases modified as a troubled debt restructuring.

24

4. Fair Value Measurements

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, which establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit, assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The Company does not record all loans & leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans & leases. Impaired loans & leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.

Other Real Estate (“ORE”) is reported at fair value on a non-recurring basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.

25

At June 30, 2018, there were formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties in the amount of $49,000.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

			Fair Value Measurements At June 30, 2018, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,071	$	-	$	3,071	$	-
US Treasury Notes		139,275		139,275		-		-
US Govt SBA		18,403		-		18,403		-
Mortgage Backed Securities		286,414		-		286,414		-
Other		3,011		201		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	450,174	$	139,476	$	308,198	$	2,500

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,128	$	-	$	3,128	$	-
US Treasury Notes		144,164		144,164		-		-
US Govt SBA		29,380		-		29,380		-
Mortgage Backed Securities		301,914		-		301,914		-
Other		3,010		200		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	481,596	$	144,364	$	334,732	$	2,500

			Fair Value Measurements At June 30, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,195	$	-	$	3,195	$	-
US Treasury Notes		134,420		134,420		-		-
US Govt SBA		32,800		-		32,800		-
Mortgage Backed Securities		289,023		-		289,023		-
Other		2,429		200		310		1,919
Total Assets Measured at Fair Value On a Recurring Basis	$	461,867	$	134,620	$	325,328	$	1,919

26

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, 2018 and 2017, there were no transfers in or out of Level 1, 2, or 3.

The available for sale investment security categorized as a Level 3 asset for period ended June 30, 2018 consisted of one $2.5 million investment in a limited liability company that purchases SBA loans. This security is not actively traded and is owned by a few investors for CRA purposes. The significant unobservable data reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average lives and credit information, among other things. There were no gains or losses or transfers in or out of level 3 during the period ended June 30, 2018.

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. Not all impaired loans or leases are carried at fair value. Impaired loans or leases are only included in the following tables when their fair value is based upon a current appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At June 30, 2018, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	2,594	$	-	$	-	$	2,594
Residential 1st Mortgage		1,485		-		-		1,485
Home Equity Lines and Loans		72		-		-		72
Commercial		1,490		-		-		1,490
Total Impaired Loans		5,641		-		-		5,641
Other Real Estate
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,514	$	-	$	-	$	6,514

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial Real Estate	$	2,595	$	-	$	-	$	2,595
Residential 1st Mortgage		997		-		-		997
Home Equity Lines and Loans		75		-		-		75
Commercial		1,514		-		-		1,514
Total Impaired Loans		5,181		-		-		5,181
Other Real Estate:
Home Equity Lines and Loans		-		-		-		-
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,054	$	-	$	-	$	6,054

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			Fair Value Measurements At June 30, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	2,526	$	-	$	-	$	2,526
Residential 1st Mortgage		386		-		-		386
Home Equity Lines and Loans		48		-		-		48
Agricultural		366		-		-		366
Commercial		1,358		-		-		1,358
Consumer		19		-		-		19
Total Impaired Loans		4,703		-		-		4,703
Other Real Estate
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,576	$	-	$	-	$	5,576

The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2018:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Commercial Real Estate	$	2,594	Income Approach	Capitalization Rate		3.25%, 3.25%
Residential 1st Mortgage	$	1,485	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% -4%, 3%
Home Equity Lines and Loans	$	72	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 1%
Commercial	$	1,490	Income Approach	Capitalization Rate		2.95% - 8.70%, 3.40%
Other Real Estate
Real Estate Construction	$	873	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10%, 10%

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5. Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization. The valuation of loans held for investment was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level 3 classification.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

			Fair Value of Financial Instruments Using
June 30, 2018 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	106,899	$	106,899	$	-	$	-	$	106,899
Investment Securities Available-for-Sale		450,174		139,476		308,198		2,500		450,174
Investment Securities Held-to-Maturity		52,210		-		36,693		15,665		52,358
FHLB Stock		10,877		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,293,311		-		-		2,253,733		2,253,733
Accrued Interest Receivable		11,548		-		11,548		-		11,548
Liabilities:
Deposits		2,697,273		2,231,153		462,040		-		2,693,193
Subordinated Debentures		10,310		-		7,639		-		7,639
Accrued Interest Payable		827		-		827		-		827

			Fair Value of Financial Instruments Using
December 31, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	187,149	$	187,149	$	-	$	-	$	187,149
Investment Securities Available-for-Sale		481,596		144,364		334,732		2,500		481,596
Investment Securities Held-to-Maturity		54,460		-		38,492		16,744		55,236
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,164,953		-		-		2,137,987		2,137,987
Accrued Interest Receivable		10,999		-		10,999		-		10,999
Liabilities:
Deposits		2,723,228		2,247,831		472,671		-		2,720,502
Subordinated Debentures		10,310		-		7,428		-		7,428
Accrued Interest Payable		1,137		-		1,137		-		1,137

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			Fair Value of Financial Instruments Using
June 30, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	147,191	$	147,191	$	-	$	-	$	147,191
Investment Securities Available-for-Sale		461,867		134,620		325,328		1,919		461,867
Investment Securities Held-to-Maturity		56,381		-		40,071		17,056		57,127
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,155,018		-		-		2,138,109		2,138,109
Accrued Interest Receivable		9,739		-		9,739		-		9,739
Liabilities:
Deposits		2,661,878		2,065,151		594,798		-		2,659,949
Subordinated Debentures		10,310		-		6,567		-		6,567
Accrued Interest Payable		1,014		-		1,014		-		1,014

6. Dividends and Basic Earnings Per Common Share

Farmers & Merchants Bancorp common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. On May 8, 2018, the Board of Directors declared a mid-year cash dividend of $6.90 per share, a 2.2% increase over the $6.75 per share paid on July 1, 2017. The cash dividend was paid on July 2, 2018, to shareholders of record on June 8, 2018.

Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. The Company has no securities or other contracts, such as stock options, that could require the issuance of common stock. Accordingly, diluted earnings per share are not presented. The following table calculates the basic earnings per common share for the three and six months ended June 30, 2018 and 2017.

	Three Months Ended June 30,				Six Months Ended June 30,
(net income in thousands)	2018		2017		2018		2017
Net Income	$	10,550	$	8,187	$	20,491	$	16,008
Weighted Average Number of Common Shares Outstanding		817,893		808,704		815,114		808,347
Basic Earnings Per Common Share Amount	$	12.90	$	10.12	$	25.14	$	19.80

7. Shareholders’ Equity

In May 2018, the Company issued 8,769 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $635.00 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds were contributed to the Bank as equity capital.

8. Pending Acquisition of Bank of Rio Vista

On March 26, 2018, Farmers & Merchants Bancorp and Bank of Rio Vista announced that a definitive agreement had been signed by both parties for the acquisition of Bank of Rio Vista by Farmers & Merchants Bancorp. The transaction is subject to customary closing conditions, and is expected to close in the third quarter of 2018.

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In this transaction, the shareholders of Bank of Rio Vista owning 2,414 shares, or 60.35% of the outstanding common shares, will receive $28.7 million in cash subject to certain adjustments defined in the definitive agreement. Over the past year, Farmers & Merchants Bancorp acquired 1,586, or 39.65%, of the outstanding common shares of Bank of Rio Vista for $12.0 million. As a result, the total price paid for all common shares of Bank of Rio Vista is $40.7 million or 1.42 times the minimum book value that must be delivered at close.

As a result of signing a definitive agreement with Bank of Rio Vista, Farmers & Merchants Bancorp is accounting for the 39.65% of the outstanding common shares of Bank of Rio Vista that it currently owns under the equity method of accounting, in accordance with ASC 323-10 effective first quarter 2018. During the six months ended June 30, 2018, the Company’s recorded investment in Bank of Rio Vista increased by $164,000, based upon the earnings of Bank of Rio Vista that are attributed to the Company’s ownership.

9. Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

The following paragraphs provide descriptions of recently adopted accounting standards that may have had a material effect on the Company’s financial position or results of operations.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and debit card and ATM fees, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. The adoption of the ASU resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.  See Note 5 – Fair Value of Financial Instruments for further information regarding the valuation of these loans.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act (“Tax Act”). The amount of the reclassification consists of the difference between the historical corporate income tax rates and the newly enacted 21 percent corporate income tax rate. The amendments are effective for all entities for the interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted, including interim periods in those years. The Company adopted the amendments as of December 31, 2017, which resulted in a net reclassification of $144,000 between AOCI and retained earnings.

Accounting Guidance Pending Adoption at June 30, 2018

The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Company has selected a vendor to analyze our loan data and has chosen an implementation team. The Company is currently working with the vendor and our IT department to establish the data transmission interface. While the Company has not quantified the impact of this ASU, it is evaluating historical loan level data requirements necessary for the implementation of the model, as well as various methodologies for determining expected credit losses.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. This ASU applies to leasing arrangements exceeding a twelve-month term. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective method upon adoption. Early application of the amendments is permitted. The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for these leases.

10. Subsequent Events

On July 2, 2018, Farmers & Merchants Bancorp entered into a material definitive agreement to purchase 44,503 shares of the Company’s Common Stock from the estate of a former Director. The agreed upon purchase price is $700.00 per share for a total consideration of Thirty One Million One Hundred Fifty-Two Thousand One Hundred Dollars ($31,152,100). The transaction closed on July 31, 2018. After the transaction, the Company will remain “well capitalized” under the regulatory framework for prompt corrective action.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following is management’s discussion and analysis of the major factors that influenced our financial performance for the three and six months ended June 30, 2018. This analysis should be read in conjunction with our 2017 Annual Report to Shareholders on Form 10-K, and with the unaudited financial statements and notes as set forth in this report.

Forward–Looking Statements

This Form 10-Q contains various forward-looking statements, usually containing the words “estimate,” “project,” “expect,” “objective,” “goal,” or similar expressions and includes assumptions concerning Farmers & Merchants Bancorp’s (together with its subsidiaries, the “Company” or “we”) operations, future results, and prospects. These forward-looking statements are based upon current expectations and are subject to risks and uncertainties. In connection with the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors which could cause the actual results of events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such factors include the following: (1) economic conditions in the Central Valley of California; (2) significant changes in interest rates and loan prepayment speeds; (3) credit risks of lending and investment activities; (4) changes in federal and state banking laws or regulations; (5) competitive pressure in the banking industry; (6) changes in governmental fiscal or monetary policies; (7) uncertainty regarding the economic outlook resulting from the continuing war on terrorism, as well as actions taken or to be taken by the U.S. or other governments as a result of further acts or threats of terrorism; (8) water management issues in California and the resulting impact on the Company’s agricultural customers; (9) expansion into new geographic markets and new lines of business; and (10) other factors discussed in Item 1A. Risk Factors located in the Company’s 2017 Annual Report on Form 10-K.

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Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

Introduction

Farmers & Merchants Bancorp, or the Company, is a bank holding company formed March 10, 1999. Its subsidiary, Farmers & Merchants Bank of Central California, or the Bank, is a California state-chartered bank formed in 1916. Banking services are provided in twenty-eight locations in the Company’s service area. The service area includes Sacramento, San Joaquin, Stanislaus, Merced and Contra Costa Counties with branches in Sacramento, Elk Grove, Galt, Lodi, Stockton, Linden, Modesto, Turlock, Hilmar, Merced, Manteca, Riverbank, Walnut Creek and Concord. In January 2018, the Company opened a loan production office (“LPO”) in Napa, California and is currently building out a full service branch location that should be ready for occupancy in the third quarter of 2018. In March 2018 the Company announced that it had entered into a definitive agreement to purchase Bank of Rio Vista (“BORV”) (see Note 8 for additional information).

For additional information about the proposed acquisition of BORV, see the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2018.

As a bank holding company, the Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“FRB”). As a California, state-chartered, non-fed member bank, the Bank is subject to regulation and examination by the California Department of Business Oversight (“DBO”) and the Federal Deposit Insurance Corporation (“FDIC”).

Overview

Although the Company has initiated efforts to expand its geographic footprint into the East Bay area of San Francisco and Napa, California, the Company’s primary service area remains the mid Central Valley of California, a region that can be significantly impacted by the seasonal needs of the agricultural industry. Accordingly, discussion of the Company’s Financial Condition and Results of Operations is influenced by the seasonal banking needs of its agricultural customers (e.g., during the spring and summer customers draw down their deposit balances and increase loan borrowing to fund the purchase of equipment and planting of crops. Correspondingly, deposit balances are replenished and loans repaid in late fall and winter as crops are harvested and sold).

The State of California experienced drought conditions from 2013 through most of 2016. Then, in late 2016 and early 2017 significant levels of rain and snow alleviated drought conditions in many areas of California, including those in the Company’s primary service area. In late 2017 and early 2018 rain levels exceeded 80% of seasonal averages, but snow levels were modest. Fortunately, reservoir levels are high and the availability of water this summer and fall in our primary service area should not be an issue. However, the weather patterns over the past 5 years further reinforce the fact that the long-term risks associated with the availability of water are significant.

For the three and six months ended June 30, 2018, Farmers & Merchants Bancorp reported net income of $10,550,000 and $20,491,000, earnings per share of $12.90 and $25.14 and return on average assets of 1.38% and 1.35%, respectively. Return on average shareholders’ equity was 13.62% and 13.38% for the three and six months ended June 30, 2018.

For the three and six months ended June 30, 2017, Farmers & Merchants Bancorp reported net income of $8,187,000 and $16,008,000, earnings per share of $10.12 and $19.80 and return on average assets of 1.11% and 1.09%, respectively. Return on average shareholders’ equity was 11.28% and 11.14% for the three and six months ended June 30, 2017.

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The following is a summary of the financial results for the six-month period ended June 30, 2018 compared to June 30, 2017.

· Net income increased 28.0% to $20,491,000 from $16,008,000.

· Earnings per share increased 27.0% to $25.14 from $19.80.

· Total assets increased 2.8% to $3.1 billion from $3.0 billion.

· Total loans & leases increased 6.4% to $2.3 billion from $2.2 billion.

· Total deposits increased 1.3% to $2.70 billion from $2.66 billion.

The primary reasons for the Company’s $2.3 million or 9.1% increase in pre-tax income in the first half of 2018 as compared to the same period of 2017 were:

· A $7.01 million increase in net interest income related to the growth in earning assets and increased interest rates on earning assets.

· A $417,000 decrease in the provision for credit losses.

These positive impacts were partially offset by:

· A $1.5 million increase in the net loss on the sale of investment securities.

· An $875,000 decrease in the gain on sale of fixed assets due to the sale of one of our properties in the first half of the prior year (2017).

· A $414,000 increase in non-interest expense related to a non-recurring gain on sale of ORE in the first half of the prior year (2017) and was recorded as a reduction to non-interest expense.

· A $1.2 million increase in salaries and employee benefits.

· A $1.0 million increase in legal expenses primarily related to the BORV acquisition.

Results of Operations

Net Interest Income / Net Interest Margin

The tables on the following pages reflect the Company’s average balance sheets and volume and rate analysis for the three and six month periods ended June 30, 2018 and 2017.

The average yields on earning assets and average rates paid on interest-bearing liabilities have been computed on an annualized basis for purposes of comparability with full year data. Average balance amounts for assets and liabilities are the computed average of daily balances.

Net interest income is the amount by which the interest and fees on loans & leases and other interest-earning assets exceed the interest paid on interest-bearing sources of funds. For the purpose of analysis, the interest earned on tax-exempt investments and municipal loans is adjusted to an amount comparable to interest subject to normal income taxes. This adjustment is referred to as “tax equivalent” adjustment and is noted wherever applicable. The presentation of net interest income and net interest margin on a tax equivalent basis is a common practice within the banking industry.

The Volume and Rate Analysis of Net Interest Income summarizes the changes in interest income and interest expense based on changes in average asset and liability balances (volume) and changes in average rates (rate). For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in volume (change in volume multiplied by initial rate); (2) changes in rate (change in rate multiplied by initial volume); and (3) changes in rate/volume, also called “changes in mix” (allocated in proportion to the respective volume and rate components).

The Company’s earning assets and rate sensitive liabilities are subject to repricing at different times, which exposes the Company to income fluctuations when interest rates change. In order to minimize income fluctuations, the Company attempts to match asset and liability maturities. However, some maturity mismatch is inherent in the asset and liability mix. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk.”

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Farmers & Merchants Bancorp

Quarterly Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Three Months Ended June 30, 2018									Three Months Ended June 30, 2017
Assets	Balance			Interest			Rate			Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	114,300		$	515			1.81	%	$	112,458		$	258			0.92	%
Investment Securities:
U.S. Treasuries		66,953			250			1.49	%		82,953			224			1.08	%
U.S. Govt SBA		26,906			119			1.77	%		34,083			125			1.47	%
Government Agency & Government-Sponsored Entities		3,064			22			2.87	%		3,110			22			2.83	%
Obligations of States and Political Subdivisions - Non-Taxable		53,037			510			3.85	%		56,984			673			4.73	%
Mortgage Backed Securities		316,991			1,904			2.40	%		302,579			1,747			2.31	%
Other		3,010			20			2.66	%		2,352			6			1.02	%
Total Investment Securities		469,961			2,825			2.40	%		482,061			2,797			2.32	%
Loans & Leases:
Real Estate		1,604,920			20,152			5.05	%		1,557,716			18,201			4.70	%
Home Equity Lines & Loans		35,697			483			5.44	%		31,916			405			5.10	%
Agricultural		262,230			3,339			5.12	%		270,594			3,041			4.52	%
Commercial		286,123			3,755			5.28	%		227,983			2,563			4.52	%
Consumer		5,783			66			4.59	%		5,578			80			5.77	%
Other		1,382			7			2.04	%		1,678			10			2.40	%
Leases		90,836			1,125			4.98	%		79,891			948			4.77	%
Total Loans & Leases		2,286,971			28,927			5.09	%		2,175,356			25,248			4.67	%
Total Earning Assets		2,871,232		$	32,267			4.52	%		2,769,875		$	28,303			4.11	%
Unrealized Gain on Securities Available-for-Sale		(8,660	)								1,245
Allowance for Credit Losses		(50,882	)								(48,690	)
Cash and Due From Banks		45,430									43,129
All Other Assets		193,197									188,434
Total Assets	$	3,050,317								$	2,953,993
Liabilities & Shareholders’ Equity
Interest Bearing Deposits:
Interest Bearing DDA	$	585,363			305			0.21	%	$	501,008			221			0.18	%
Savings and Money Market		814,536			333			0.16	%		792,839			306			0.16	%
Time Deposits		471,320			891			0.76	%		594,866			906			0.61	%
Total Interest Bearing Deposits		1,871,219			1,529			0.33	%		1,888,713			1,433			0.31	%
Subordinated Debentures		10,310			131			5.11	%		10,310			105			4.10	%
Total Interest Bearing Liabilities		1,881,529		$	1,660			0.35	%		1,899,023		$	1,538			0.33	%
Interest Rate Spread								4.17	%								3.78	%
Demand Deposits (Non-Interest Bearing)		810,962									710,533
All Other Liabilities		47,971									54,135
Total Liabilities		2,740,462									2,663,691
Shareholders’ Equity		309,855									290,302
Total Liabilities & Shareholders’ Equity	$	3,050,317								$	2,953,993
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.12	%								0.10	%
Net Interest Income and Margin on Total Earning Assets					30,607			4.29	%					26,765			3.89	%
Tax Equivalent Adjustment					(106	)								(234	)
Net Interest Income				$	30,501			4.27	%				$	26,531			3.85	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan & lease interest income includes fee income and unearned discount in the amount of $1.4 million and $1.0 million for the quarters ended June 30, 2018 and 2017, respectively. Yields on securities available-for-sale are based on historical cost.

35

Farmers & Merchants Bancorp

Year-to-Date Average Balances and Interest Rates

(Interest and Rates on a Taxable Equivalent Basis)

(in thousands)

	Six Months Ended June 30, 2018									Six Months Ended June 30, 2017
Assets	Balance			Interest			Rate			Balance			Interest			Rate
Interest Bearing Deposits with Banks	$	133,512		$	1,100			1.66	%	$	118,863		$	507			0.86	%
Investment Securities:
U.S. Treasuries		79,461			547			1.38	%		83,182			441			1.06	%
U.S. Govt SBA		27,823			242			1.74	%		34,971			250			1.43	%
Government Agency & Government-Sponsored Entities		3,069			44			2.87	%		3,115			44			2.83	%
Obligations of States and Political Subdivisions - Non-Taxable		53,858			1,039			3.86	%		57,407			1,363			4.75	%
Mortgage Backed Securities		319,628			3,824			2.39	%		295,602			3,390			2.29	%
Other		3,010			38			2.52	%		1,685			11			1.31	%
Total Investment Securities		486,849			5,734			2.36	%		475,962			5,499			2.31	%
Loans & Leases:
Real Estate		1,576,795			39,196			5.01	%		1,559,873			36,132			4.67	%
Home Equity Lines & Loans		35,219			931			5.33	%		31,805			787			4.99	%
Agricultural		257,036			6,367			5.00	%		269,158			5,932			4.44	%
Commercial		277,128			7,066			5.14	%		221,287			5,023			4.58	%
Consumer		5,539			142			5.17	%		5,452			148			5.47	%
Other		1,382			15			2.19	%		1,678			19			2.28	%
Leases		91,028			2,254			4.99	%		75,922			1,738			4.62	%
Total Loans & Leases		2,244,127			55,971			5.03	%		2,165,175			49,779			4.64	%
Total Earning Assets		2,864,488		$	62,805			4.42	%		2,760,000		$	55,785			4.08	%
Unrealized Gain on Securities Available-for-Sale		(6,756	)								447
Allowance for Credit Losses		(50,748	)								(48,378	)
Cash and Due From Banks		45,975									44,801
All Other Assets		190,269									186,324
Total Assets	$	3,043,228								$	2,943,194
Liabilities & Shareholders’ Equity
Interest Bearing Deposits:
Interest Bearing DDA	$	585,270		$	577			0.20	%	$	498,301		$	402			0.16	%
Savings and Money Market		819,995			663			0.16	%		797,709			614			0.16	%
Time Deposits		475,010			1,694			0.72	%		587,440			1,693			0.58	%
Total Interest Bearing Deposits		1,880,275			2,934			0.31	%		1,883,450			2,709			0.29	%
Federal Home Loan Bank Advances		2			-			0.00	%		2			-			0.00	%
Subordinated Debentures		10,310			248			4.85	%		10,310			205			4.01	%
Total Interest Bearing Liabilities		1,890,587		$	3,182			0.34	%		1,893,762		$	2,914			0.31	%
Interest Rate Spread								4.08	%								3.77	%
Demand Deposits (Non-Interest Bearing)		803,155									711,627
All Other Liabilities		43,279									50,408
Total Liabilities		2,737,021									2,655,797
Shareholders’ Equity		306,207									287,397
Total Liabilities & Shareholders’ Equity	$	3,043,228								$	2,943,194
Impact of Non-Interest Bearing Deposits and Other Liabilities								0.12	%								0.10	%
Net Interest Income and Margin on Total Earning Assets					59,623			4.20	%					52,871			3.86	%
Tax Equivalent Adjustment					(216	)								(474	)
Net Interest Income				$	59,407			4.18	%				$	52,397			3.83	%

Notes:  Yields on municipal securities have been calculated on a fully taxable equivalent basis.  Loan & lease interest income includes fee income and unearned discount in the amount of $2.9 million and $2.3 million for the six months ended June 30, 2018 and 2017, respectively. Yields on securities available-for-sale are based on historical cost.

36

Farmers & Merchants Bancorp

Volume and Rate Analysis of Net Interest Revenue

(in thousands)

	Three Months Ended June 30, 2018 compared to June 30, 2017									Six Months Ended June 30, 2018 compared to June 30, 2017
Interest Earning Assets	Volume			Rate			Net Chg.			Volume			Rate			Net Chg.
Interest Bearing Deposits with Banks	$	5		$	252		$	257		$	70		$	523		$	593
Investment Securities:
U.S. Treasuries		(49	)		75			26			(21	)		127			106
U.S. Govt SBA		(29	)		23			(6	)		(56	)		48			(8	)
Government Agency & Government-Sponsored Entities		-			-			-			(1	)		1			-
Obligations of States and Political Subdivisions - Non-Taxable		(44	)		(119	)		(163	)		(80	)		(244	)		(324	)
Mortgage Backed Securities		85			72			157			283			151			434
Other		2			12			14			13			14			27
Total Investment Securities		(35	)		63			28			138			97			235
Loans & Leases:
Real Estate		563			1,388			1,951			396			2,668			3,064
Home Equity Lines & Loans		50			28			78			88			56			144
Agricultural		(97	)		395			298			(279	)		714			435
Commercial		720			472			1,192			1,373			670			2,043
Consumer		2			(16	)		(14	)		2			(8	)		(6	)
Other		(1	)		(2	)		(3	)		(3	)		(1	)		(4	)
Leases		134			43			177			366			150			516
Total Loans & Leases		1,371			2,308			3,679			1,943			4,249			6,192
Total Earning Assets		1,341			2,623			3,964			2,151			4,869			7,020
Interest Bearing Liabilities
Interest Bearing Deposits:
Interest Bearing DDA		41			43			84			77			98			175
Savings and Money Market		9			18			27			18			31			49
Time		(211	)		196			(15	)		(361	)		362			1
Total Interest Bearing Deposits		(161	)		257			96			(266	)		491			225
Subordinated Debentures		-			26			26			-			43			43
Total Interest Bearing Liabilities		(161	)		283			122			(266	)		534			268
Total Change on a Tax Equivalent Basis	$	1,502		$	2,340		$	3,842		$	2,417		$	4,335		$	6,752

Notes:  Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”  The above figures have been rounded to the nearest whole number.

37

Second Quarter 2018 vs. Second Quarter 2017

Net interest income for the second quarter of 2018 increased 15.0% or $4.0 million to $30.5 million. On a fully taxable equivalent basis, net interest income increased 14.4% and totaled $30.6 million for the second quarter of 2018. As more fully discussed below, the increase in net interest income was due to a $101.4 million increase in average earning assets and a 0.40% increase in the net interest margin.

Net interest income on a taxable equivalent basis, expressed as a percentage of average total earning assets, is referred to as the net interest margin. For the quarter ended June 30, 2018, the Company’s net interest margin was 4.29% compared to 3.89% for the quarter ended June 30, 2017. This increase in net interest margin was due primarily to an increase in the yield received on earning assets, offset only slightly by an increase in the rates paid on interest bearing liabilities.

Average loans & leases totaled $2.3 billion for the quarter ended June 30, 2018; an increase of $111.6 million compared to the average balance for the quarter ended June 30, 2017. Loans & leases increased from 78.5% of average earning assets at June 30, 2017 to 79.7% at June 30, 2018. The annualized yield on the Company’s loan & lease portfolio increased to 5.09% for the quarter ended June 30, 2018, compared to 4.67% for the quarter ended June 30, 2017. Overall, the positive impact on interest revenue from the increase in loan & lease balances and rising yields resulted in interest revenue from loans & leases increasing 14.6% to $28.9 million for quarter ended June 30, 2018. The Company has been experiencing aggressive competitor pricing for loans & leases to which it may need to continue to respond in order to retain key customers. This could place negative pressure on future loan & lease yields and net interest margin.

The investment portfolio is the other 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 5 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity without subjecting the Company to the interest rate risk associated with mortgage-backed securities. Since the risk factor for these types of investments is generally lower than that of loans & leases, the yield earned on investments is generally less than that of loans & leases.

Average investment securities totaled $470.0 million for the quarter ended June 30, 2018; a decrease of $12.1 million compared to the average balance for the quarter ended June 30, 2017. Tax equivalent interest income on securities increased $28,000 to $2.83 million for the quarter ended June 30, 2018, compared to $2.80 million for the quarter ended June 30, 2017. The average investment portfolio yield, on a tax equivalent (TE) basis, was 2.40% for the quarter ended June 30, 2018, compared to 2.32% for the quarter ended June 30, 2017. This overall increase in yield was caused primarily by an increase in market interest rates offset by a decline in the TE yield on municipal securities due to a decrease in the federal corporate tax rate. See “Financial Condition – Investment Securities” for a discussion of the Company’s investment strategy in 2018. Net interest income on the Schedule of Year-to-Date Average Balances and Interest Rates is shown on a tax equivalent basis, which is higher than net interest income as reflected on the Consolidated Statement of Income because of adjustments that relate to income on securities that are exempt from federal income taxes.

Interest bearing deposits with banks and overnight investments in Federal Funds Sold are additional earning assets available to the Company. Interest bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB currently earn interest at 1.95%. Average interest bearing deposits with banks for the quarter ended June 30, 2018, were $114.3 million, an increase of $1.8 million compared to the average balance for the quarter ended June 30, 2017. Interest income on interest bearing deposits with banks for the quarter ended June 30, 2018, increased $257,000 to $515,000 compared to the quarter ended June 30, 2017.

Average interest-bearing liabilities decreased $17.5 million or 0.92% during the second quarter of 2018. Of that decrease: (1) interest-bearing transaction deposits increased $84.4 million; (2) savings and money market deposits increased $21.7 million; (3) time deposits decreased $123.5 million (see “Financial Condition – Deposits”); and (4) subordinated debt remained unchanged (see “Financial Condition – Subordinated Debentures”).

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Total interest expense on interest bearing deposits was $1.5 million for the second quarter of 2018 as compared to $1.4 million for the second quarter of 2017. The average rate paid on interest-bearing deposits was 0.33% for the second quarter of 2018 compared to 0.31% for the second quarter of 2017. As a result of the increase in market interest rates over the past 24 months, the Company is beginning to experience more aggressive competitor rates on interest bearing deposits which it may need to meet in order to retain key customers.  This could place negative pressure on future deposit rates and net interest margin.

Six Months Ending June 30, 2018 vs. Six Months Ending June 30, 2017

During the first six months of 2018, net interest income increased 13.4% to $59.4 million, compared to $52.4 million at June 30, 2017. On a fully taxable equivalent basis, net interest income increased 12.8% and totaled $59.6 million at June 30, 2018, compared to $52.9 million at June 30, 2017. The increase in net interest income was due to a $104.5 million increase in average earning assets, and a .34% increase in the net interest margin.

For the six months ended June 30, 2018, the Company’s net interest margin was 4.20% compared to 3.86% for the same period in 2017. This increase in net interest margin was due primarily to an increase in the yield received on earning assets, offset only slightly by the increase in the rates paid on interest bearing liabilities.

The average balance of loans & leases increased by $79.0 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The yield on the loan & lease portfolio increased 39 basis points to 5.03% for the six months ended June 30, 2018 compared to 4.64% for the six months ended June 30, 2017. This increase in yield was enhanced by the increase in the average balance of loans resulting in interest income from loans & leases increasing 12.4% or $6.2 million for the first six months of 2018.

Average investment securities were $486.9 million for the six months ended June 30, 2018 compared to $476.0 million for the same period in 2017. The average tax equivalent yield for the six months ended June 30, 2018 was 2.36% compared to 2.31% for the six months ended June 30, 2017. This overall increase in yield was caused primarily by an increase in market interest rates offset by a decline in the TE yield on municipal securities due to a decrease in the federal corporate tax rate. See “Financial Condition – Investment Securities” for a discussion of the Company’s investment strategy in 2018. Net interest income on the Schedule of Year-to-Date Average Balances and Interest Rates is shown on a tax equivalent basis, which is higher than net interest income as reflected on the Consolidated Statement of Income because of adjustments that relate to income on securities that are exempt from federal income taxes.

Average interest bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB currently earn interest at 1.95%. Average interest bearing deposits with banks for the six-months ended June 30, 2018, was $133.5 million, an increase of $14.6 million compared to the average balance for the six-months ended June 30, 2017. Interest income on interest bearing deposits with banks for the six-months ended June 30, 2018, increased $593,000 to $1.1 million compared to the six-months ended June 30, 2017.

Average interest-bearing liabilities decreased $3.2 million or 0.17% during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. Of that decrease: (1) interest-bearing transaction deposits increased $87.0 million; (2) savings and money market deposits increased $22.3 million; (3) time deposits decreased $112.4 million (see “Financial Condition – Deposits”); and (4) subordinated debt remained unchanged (see “Financial Condition – Subordinated Debentures”). Total interest expense on interest bearing deposits was $2.9 million for the first six months of 2018 as compared to $2.7 million for the first six months of 2017. The average rate paid on interest-bearing deposits was 0.31% in the first six months of 2018 and 0.29% in the first six months of 2017.

Provision and Allowance for Credit Losses

As a financial institution that assumes lending and credit risks as a principal element of its business, credit losses will be experienced in the normal course of business. The Company has established credit management policies and procedures that govern both the approval of new loans & leases and the monitoring of the existing portfolio. The Company manages and controls credit risk through comprehensive underwriting and approval standards, dollar limits on loans & leases to one borrower (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction), and by restricting loans & leases made primarily to its principal market area where management believes it is best able to assess the applicable risk. Additionally, management has established guidelines to ensure the diversification of the Company’s credit portfolio such that even within key portfolio sectors such as real estate or agriculture, the portfolio is diversified across factors such as location, building type, crop type, etc. Management reports regularly to the Board of Directors regarding trends and conditions in the loan & lease portfolio and regularly conducts credit reviews of individual loans & leases. Loans & leases that are performing but have shown some signs of weakness are subject to more stringent reporting and oversight.

39

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company’s loan & lease portfolio 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 impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Loans & leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s or lease’s effective interest rate, except that as a practical expedient, it may measure impairment based on a loan’s or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (“TDR”) under ASC 310-40, if the Company for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. 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 & leases that are on nonaccrual status at the time they become TDR, 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 impaired and are individually evaluated for impairment.

The determination of the general reserve for loans or leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, and qualitative factors that include economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer & other; and (9) equipment leases. See “Financial Condition – Loans & Leases” for examples of loans & leases made by the Company. The allowance for credit losses attributable to each portfolio segment, which includes both impaired loans & leases and loans & leases that are not impaired, is combined to determine the Company’s overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

40

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project’s failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management’s assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate.  These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

41

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As Lessor, the company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the weakness in residential real estate values over the past five years. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion.  Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

In addition, the Company’s and Bank’s regulators, including the FRB, DBO and 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.

Provision for Credit Losses

Changes in the provision for credit losses between years are the result of management’s evaluation, based upon information currently available, of the adequacy of the allowance for credit losses relative to factors such as the credit quality of the loan & lease portfolio, loan & lease growth, current credit losses, and the prevailing economic climate and its effect on borrowers’ ability to repay loans & leases in accordance with the terms of the notes.

The Central Valley of California was one of the hardest hit areas in the country during the recession. In many areas, housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has improved throughout most of the Central Valley, in many of the Company’s market segments housing prices remain below peak levels and unemployment rates remain above those in other areas of the state and country. While, in management’s opinion, the Company’s levels of net charge-offs and non-performing assets as of June 30, 2018, compare very favorably to our peers at the present time, carefully managing credit risk remains a key focus of the Company.

The State of California experienced drought conditions from 2013 through most of 2016. Then, in late 2016 and early 2017 significant levels of rain and snow alleviated drought conditions in many areas of California, including those in the Company’s primary service area. In late 2017 and early 2018 rain levels exceeded 80% of seasonal averages, but snow levels were modest. Fortunately, reservoir levels are high and the availability of water this summer and fall in our primary service area should not be an issue.  However, the weather patterns over the past 5 years further reinforce the fact that the long-term risks associated with the availability of water are significant.

The Company made a $833,000 provision for credit losses during the first half of 2018 compared to $1.3 million during the first half of 2017. Net charge-offs during the first half of 2018 were $39,000 compared to net charge-off of $105,000 in the first half of 2017. See “Overview – Looking Forward: 2018 and Beyond”, “Critical Accounting Policies and Estimates – Allowance for Credit Losses” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk-Credit Risk” located in the Company’s 2017 Annual Report on Form 10-K.

42

After reviewing all factors above, based upon information currently available, management concluded that the allowance for credit losses as of June 30, 2018, was adequate.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
Balance at Beginning of Period	$	50,677		$	48,400		$	50,342		$	47,919
Charge-Offs		(67	)		(25	)		(88	)		(176	)
Recoveries		27			39			50			71
		-			-
Provision		500			650			833			1,250
Balance at End of Period	$	51,137		$	49,064		$	51,137		$	49,064

The table below breaks out current quarter activity by portfolio segment (in thousands):

June 30, 2018	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2018	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197		$	209		$	3,363	$	1,422		$	50,342
Charge-Offs		-			-		-			(12	)		(4	)		-			(14	)		(58	)		-		-			(88	)
Recoveries		-			-		-			6			2			13			3			26			-		-			50
Provision		(139	)		1,229		(230	)		55			226			(514	)		250			93			37		(174	)		833
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2018	$	11,078		$	12,242	$	1,873		$	827		$	2,343		$	7,868		$	9,374		$	239		$	3,390	$	1,443		$	50,677
Charge-Offs		-			-		-			(12	)		-			-			(14	)		(41	)		-		-			(67	)
Recoveries		-			-		-			3			1			7			1			15			-		-			27
Provision		(295	)		1,072		(257	)		46			204			(217	)		75			57			10		(195	)		500
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137

The Allowance for Credit Losses at June 30, 2018 increased $795,000 from December 31, 2017. Charge-offs and recoveries were minimal while the provision for loan losses totaled $833,000 during the first half of 2018.

· The allowance for agricultural real estate loans increased $1.2 million due to general increases in loan balances along with a $2.0 million increase in substandard loans for this portfolio segment.

· The allowance for agricultural loans decreased $514,000 due to a slight balance decrease in this portfolio segment along with a $1.4 million decrease in substandard loans for this portfolio segment.

See “Management’s Discussion and Analysis - Financial Condition – Classified Loans & Leases and Non-Performing Assets” for further discussion regarding these loan categories.

See “Note 3. Allowance for Credit Losses” for additional details regarding the provision and allowance for credit losses.

Non-Interest Income

Non-interest income includes: (1) service charges and fees from deposit accounts; (2) net gains and losses from investment securities; (3) increases in the cash surrender value of bank owned life insurance; (4) debit card and ATM fees; (5) net gains and losses on non-qualified deferred compensation plans; and (6) fees from other miscellaneous business services.

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Second Quarter 2018 vs. Second Quarter 2017

Non-interest income decreased $1.3 million or 35.5% for the three months ended June 30, 2018, compared to the same period of 2017. This decrease was primarily due to a $1.5 million decrease resulting from loss on sale of investment securities (see “Financial Condition – Investment Securities and Federal Funds Sold”), partially offset by a $119,000 increase in Debit Card and ATM Fees and $40,000 related to the Company’s portion of the income of BORV, which is accounted for on the equity method. See Note 8 for additional information.

Six Months Ending June 30, 2018 vs. Six Months Ending June 30, 2017

Non‑interest income decreased $2.0 million or 22.3% for the six months ended June 30, 2018 compared to the same period of 2017. This decrease was primarily due to: (1) a $1.5 million decrease resulting from a loss on the sale of investment securities; (2) an $875,000 decrease in the gain on sale of fixed assets due to the sale of one of our properties in the first half of the prior year (2017). This decrease was partially offset by: (1) a $225,000 increase in debit card and ATM fees; and (2) $164,000 related to the Company’s portion of the income of BORV, which is accounted for on the equity method. See Note 8 for additional information.

Non-Interest Expense

Non-interest expense for the Company includes expenses for: (1) salaries and employee benefits; (2) net gains and losses on non-qualified deferred compensation plan investments; (3) occupancy; (4) equipment; (5) supplies; (6) legal fees; (7) professional services; (8) data processing; (9) marketing; (10) deposit insurance; (11) ORE carrying costs and gains/losses on sale; and (12) other miscellaneous expenses.

Second Quarter 2018 vs. Second Quarter 2017

Overall, non-interest expense increased $1.6 million or 9.8% for the three months ended June 30, 2018, compared to the same period in 2017. This increase was primarily comprised of: (1) a $203,000 increase in salaries and employee benefits; (2) increased legal fees of $777,000 primarily related to the acquisition of BORV and (3) a $300,000 gain on sale of ORE which occurred in the second quarter of the prior year (2017).

Six Months Ending June 30, 2018 vs. Six Months Ending June 30, 2017

Non-interest expense increased $3.1 million or 9.0% for the six months ended June 30, 2018, compared to the same period of 2017. This increase was primarily comprised of: (1) a $1.2 million increase in salaries and employee benefits primarily related to increased contributions to retirement and profit sharing plans; (2) increased legal fees of $1.0 million primarily related to the acquisition of BORV (3) increased consulting fees of $306,000 primarily related to the acquisition of BORV and (4) a $414,000 gain on sale of ORE in the second quarter of the prior year (2017).

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs act was signed into law changing the Bank’s Federal corporate tax rate from 35% to 21%. The Bank’s provision for income taxes decreased 23.8% to $3.6 million for the second quarter of 2018 compared to the second quarter of 2017 primarily as a result of the Federal corporate tax rate change. The effective tax rate for the second quarter of 2018 was 25.4% compared to 36.5% for the second quarter of 2017.

The provision for income taxes decreased 23.9% to $7.0 million for the first six months of 2018. The Company’s effective tax rate for the first six months of 2018 was 25.3% compared to 36.3% for the same period in 2017.

The Company’s effective tax rate fluctuates from quarter to quarter due primarily to changes in the mix of taxable and tax-exempt earning sources. The effective rates were lower than the combined Federal and State statutory rate of 30% due primarily to benefits regarding the cash surrender value of life insurance; credits associated with low income housing tax credit investments (LIHTC); and tax-exempt interest income on municipal securities and loans.

Current tax law causes the Company’s current taxes payable to approximate or exceed the current provision for taxes on the income statement. Three provisions have had a significant effect on the Company’s current income tax liability: (1) the restrictions on the deductibility of credit losses; (2) deductibility of retirement and other long-term employee benefits only when paid; and (3) the statutory deferral of deductibility of California franchise taxes on the Company’s federal return.

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Financial Condition

This section discusses material changes in the Company’s balance sheet at June 30, 2018, as compared to December 31, 2017 and to June 30, 2017. As previously discussed (see “Overview”) the Company’s financial condition can be influenced by the seasonal banking needs of its agricultural customers.

Investment Securities and Federal Funds Sold

The investment portfolio provides the Company with an income alternative to loans & leases. The debt securities in the Company’s investment portfolio have historically been comprised primarily of: (1) mortgage-backed securities issued by federal government-sponsored entities; (2) debt securities issued by US Treasury, government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times, the Company has selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 5 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity without subjecting the Company to the interest rate risk associated with mortgage-backed securities.

The Company’s investment portfolio at June 30, 2018 was $502.4 million compared to $536.1million at the end of 2017, a decrease of $33.7 million or 6.3%. At June 30, 2017, the investment portfolio totaled $518.2 million. To protect against future increases in market interest rates, while at the same time generating some reasonable level of current yields, the Company currently invests most of its available funds in either shorter term U.S. Treasury, government agency & government-sponsored entity securities or shorter term (10, 15, and 20 year) mortgage-backed securities.  As part of the acquisition of Delta National Bancorp, the Company now owns $18.4 million of floating rate U.S. Government SBA securities.

During the second quarter of 2018, the Company sold $24.3 million of mortgage-backed securities and US Treasuries in order to reduce its interest rate risk and $7.1 million of SBA securities in order to reduce its prepayment risk.  Losses on the sale of these securities totaled $1.3 million.

The Company’s total investment portfolio currently represents 16.2% of the Company’s total assets as compared to 17.4% at December 31, 2017, and 17.2% at June 30, 2017.

As of June 30, 2018, the Company held $52.2 million of municipal investments, of which $36.5 million were bank-qualified municipal bonds, all classified as HTM. In order to comply with Section 939A of the Dodd-Frank Act, the Company performs its own credit analysis on new purchases of municipal bonds. As of June 30, 2018, 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 all municipal investments with particular attention paid to the approximately one percent ($295,000) 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.

Not included in the investment portfolio are interest bearing deposits with banks and overnight investments in Federal Funds Sold. Interest bearing deposits with banks consisted primarily of FRB deposits. The FRB pays interest on the deposits that banks maintain in their FRB accounts (currently 1.95%), 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 $55.4 million at June 30, 2018, $121.2 million at December 31, 2017 and $97.2 million at June 30, 2017.

The Company classifies its investments as HTM, trading, or AFS. Securities are classified as HTM and are carried at amortized cost when the Company has the intent and ability to hold the securities to maturity. Trading securities are securities acquired for short-term appreciation and are carried at fair value, with unrealized gains and losses recorded in non-interest income. As of June 30, 2018, December 31, 2017 and June 30, 2017, there were no securities in the trading portfolio. 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.

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Loans & Leases

Loans & leases can be categorized by borrowing purpose and use of funds. Common examples of loans & leases made by the Company include:

Commercial and Agricultural Real Estate - These are loans secured by farmland, commercial real estate, multifamily residential properties, and other non-farm, non-residential properties generally within our market area. 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, and 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 10 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 development and construction (the Company generally requires the borrower to fund the land acquisition) 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 or LIBOR with an appropriate spread based on the amount of perceived risk in the loan.

Residential 1^st Mortgages - 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 off of 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.”

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 1^st lien position.

Agricultural - These are 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 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 very minimal consumer loan portfolio, and loans are primarily made as an accommodation to deposit customers.

Leases –These are leases to businesses or individuals, for the purpose of 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 through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

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The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

See “Item 3. Quantitative and Qualitative Disclosures About Market Risk-Credit Risk” for a discussion about the credit risks the Company assumes and its overall credit risk management practices.

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 & leases are 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 & 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 & 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-Interest Rate Risk).

Overall, the Company’s loan & lease portfolio at June 30, 2018 totaled $2.3 billion, an increase of $140.4 million or 6.4% over June 30, 2017. This increase has occurred as a result of: (1) the Company’s business development efforts directed toward credit-qualified borrowers; (2) entry into the equipment leasing business; and (3) expansion of our service area into Walnut Creek, Concord and Napa. No assurances can be made that this growth in the loan & lease portfolio will continue.

Loans & leases at June 30, 2018 increased $129.2 million from $2.2 billion at December 31, 2017.

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The following table sets forth the distribution of the loan & lease portfolio by type and percent as of the periods indicated.

Loan & Lease Portfolio	June 30, 2018				December 31, 2017				June 30, 2017
(in thousands)	$		%		$		%		$		%
Commercial Real Estate	$	759,389	32.3	%	$	691,639	31.1	%	$	677,282	30.6	%
Agricultural Real Estate		540,852	23.0	%		499,231	22.5	%		473,153	21.4	%
Real Estate Construction		94,223	4.0	%		100,206	4.5	%		168,487	7.6	%
Residential 1st Mortgages		261,804	11.1	%		260,751	11.7	%		252,653	11.4	%
Home Equity Lines and Loans		37,669	1.6	%		34,525	1.6	%		32,174	1.5	%
Agricultural		273,170	11.6	%		273,582	12.3	%		265,899	12.0	%
Commercial		286,651	12.2	%		265,703	12.0	%		254,887	11.5	%
Consumer & Other		7,390	0.3	%		6,656	0.3	%		7,533	0.3	%
Leases		89,928	3.9	%		88,957	4.0	%		78,010	3.7	%
Total Gross Loans & Leases		2,351,076	100.0	%		2,221,250	100.0	%		2,210,078	100.0	%
Less: Unearned Income		6,628				5,955				5,996
Subtotal		2,344,448				2,215,295				2,204,082
Less: Allowance for Credit Losses		51,337				50,342				49,064
Net Loans & Leases	$	2,293,111			$	2,164,953			$	2,155,018

Classified Loans & Leases and Non-Performing Assets

All loans & leases are assigned a credit risk grade using grading standards developed by bank regulatory agencies. See “Results of Operations - Provision and Allowance for Credit Losses” for more detail on risk grades. The Company utilizes the services of a third-party independent loan review firm to perform evaluations of individual loans & leases and review the credit risk grades the Company places on loans & leases. Loans & leases that are judged to exhibit a higher risk profile are referred to as “classified loans & leases,” and these loans & leases receive increased management attention. As of June 30, 2018, classified loans totaled $9.5 million compared to $8.9 million at December 31, 2017 and $11.2 million at June 30, 2017.

Classified loans & leases with higher levels of credit risk can be further designated as “impaired” loans & leases. A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. See “Results of Operations - Provision and Allowance for Credit Losses” for further details. Impaired loans & leases consist of: (1) non-accrual loans & leases; and/or (2) restructured loans & leases that are still performing (i.e., accruing interest).

Non-Accrual Loans & leases - Accrual of interest on loans & 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 & 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 & leases is then recognized only to the extent that cash is received and where the future collection of principal is probable. As of June 30, 2018, non-accrual loans & leases totaled $729,000. At December 31, 2017 and June 30, 2017, non-accrual loans & leases totaled $0 and $1.4 million, respectively.

Restructured Loans & 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 debtor that it would not otherwise consider. 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 & leases that are on nonaccrual status at the time they become TDR loans, 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 impaired and are individually evaluated for impairment.

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As of June 30, 2018, restructured loans & leases on accrual totaled $6.4 million as compared to $6.3 million at December 31, 2017. Restructured loans on accrual at June 30, 2017 were $6.0 million.

Other Real Estate - Loans where the collateral has been repossessed are classified as other real estate (“ORE”) or, if the collateral is personal property, the loan is classified as other assets on the Company’s financial statements.

The following table sets forth the amount of the Company’s non-performing loans & leases (defined as non-accrual loans & leases plus accruing loans & leases past due 90 days or more) and ORE as of the dates indicated.

Non-Performing Assets

(in thousands)	June 30, 2018			Dec. 31, 2017			June 30, 2017
Non-Performing Loans & Leases	$	729		$	0		$	1,363
Other Real Estate		873			873			873
Total Non-Performing Assets	$	1,602		$	873		$	2,236
Non-Performing Loans & Leases as a % of Total Loans & Leases		0.03	%		0.00	%		0.06	%
Restructured Loans & Leases (Performing)	$	6,365		$	6,301		$	5,915

Although management believes that non-performing loans & 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. Specific reserves of $291,000, $0, and $253,000 have been established for non-performing loans & leases at June 30, 2018, December 31, 2017 and June 30, 2017, respectively.

Foregone interest income on non-accrual loans & leases, which would have been recognized during the period, if all such loans & leases had been current in accordance with their original terms, totaled $3,000 for the six months ended June 30, 2018, $0 for the year ended December 31, 2017, and $49,500 for the six months ended June 30, 2017.

The Company reported $873,000 of ORE at June 30, 2018, December 31, 2017, and June 30, 2017.

Except for those classified and non-performing loans & leases discussed above, the Company’s management is not aware of any loans & leases as of June 30, 2018, 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 Central Valley was one of the hardest hit areas in the country during the recession. In many areas housing prices declined as much as 60% and unemployment reached 15% or more. Although the economy has improved throughout most of the Central Valley, in many of the Company’s market segments housing prices remain below peak levels and unemployment levels remain above those in other areas of the state and country.

· The State of California experienced drought conditions from 2013 through most of 2016. Then, in late 2016 and early 2017 significant levels of rain and snow alleviated drought conditions in many areas of California, including those in the Company’s primary service area.   In late 2017 and early 2018 rain levels exceeded 80% of seasonal averages, but snow levels were modest.  Fortunately, reservoir levels are high and the availability of water this summer and fall in our primary service area should not be an issue.  However, the weather patterns over the past 5 years further reinforce the fact that the long-term risks associated with the availability of water are significant.

· The agricultural industry is facing challenges associated with: (1) weakness in export markets due to proposed changes in trade policies; (2) tight labor markets and higher wages due to legislative changes at the state and federal levels; and (3) proposed changes in immigration policy and the resulting impact on the labor pool.

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See “Part I, Item 1A. Risk Factors” in the Company’s 2017 Annual Report on Form 10-K.

Deposits

One of the key sources of funds to support earning assets is the generation of deposits from the Company’s customer base. The ability to grow the customer base, and subsequently deposits, is a significant element in the performance of the Company.

The Company’s deposit balances at June 30, 2018 have increased $35.4 million or 1.3% compared to June 30, 2017. In addition to the Company’s ongoing business development activities for deposits, 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; and (2) the Company’s expansion of its service area into Walnut Creek and Concord. Market interest rates have been increasing over the past 24 months, resulting in significant competitive pressures on deposit rates.  The Company remains selective in how they respond to competitor rates, which may impact future deposit growth.

Although total deposits have increased 1.3% since June 30, 2017, importantly, low cost transaction accounts have grown at a stronger pace:

· Demand and interest-bearing transaction accounts increased $155.4 million or 12.3% since June 30, 2017.

· Savings and money market accounts have increased $10.6 million or 1.3% since June 30, 2017.

· Time deposit accounts have decreased $130.6 million or 21.9% since June 30, 2017, primarily due to the Company’s decision not to renew $90.0 million in high rate public funds time deposit accounts from the State of California.

The Company’s deposit balances at June 30, 2018 have decreased $26.0 million or 0.95% compared to December 31, 2017. Savings and money market deposits decreased 0.2% or $1.6 million while demand and interest-bearing transaction accounts decreased by $15.1 million or 1.1% and time deposit accounts decreased by $9.3 million or 2.0%. Deposit trends in the first half of the year can be impacted by the seasonal needs of our agricultural customers.

Federal Home Loan Bank Advances and Federal Reserve Bank Borrowings

Lines of credit with the Federal Reserve Bank and the 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 June 30, 2018, December 31, 2017, or June 30, 2017. There were no Federal Funds purchased or advances from the FRB at June 30, 2018, December 31, 2017 or June 30, 2017.

As of June 30, 2018 the Company has additional borrowing capacity of $510.3 million with the Federal Home Loan Bank and $401.0 million with the Federal Reserve Bank. Any borrowings under these lines would be collateralized with loans that have been accepted for pledging at the FHLB and FRB.

Long-Term Subordinated Debentures

On December 17, 2003, the Company raised $10 million through an offering of trust-preferred securities (“TPS”). See Note 14 located in “Item 8. Financial Statements and Supplementary Data” of the Company’s 2017 Annual Report on Form 10-K. Although this amount is reflected as subordinated debt on the Company’s balance sheet, under current regulatory guidelines, our TPS will continue to qualify as regulatory capital (See “Capital”). These securities accrue interest at a variable rate based upon 3-month LIBOR plus 2.85%. Interest rates reset quarterly and were 5.18% as of June 30, 2018, 4.45% at December 31, 2017 and 4.12% at June 30, 2017. The average rate paid for these securities for the first half of 2018 was 4.85% and 4.01% for the first half of 2017. 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

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 $315.5 million at June 30, 2018, $299.7 million at December 31, 2017, and $291.7 million at June 30, 2017.

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The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a material effect on the Company and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The implementation of Basel III requirements will increase the required capital levels that the Company and the Bank must maintain. The final rules include new minimum risk-based capital and leverage ratios, which would be phased in over time. The new minimum capital level requirements applicable to the Company and the Bank under the final rules will be: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets (“RWA”); (ii) a Tier 1 capital ratio of 6% of RWA; (iii) a total capital ratio of 8% of RWA; and (iv) a Tier 1 leverage ratio of 4% of total assets. The final rules also establish a “capital conservation buffer” of 2.5% above each of the new regulatory minimum capital ratios, which would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0% of RWA; (ii) a Tier 1 capital ratio of 8.5% of RWA; and (iii) a total capital ratio of 10.5% of RWA. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The final rules also permit the Company’s subordinated debentures issued in 2003 to continue to be counted as Tier 1 capital.

The final rules became effective as applied to the Company and the Bank on January 1, 2015, with a phase in period through January 1, 2019. The Company believes that it is currently in compliance with all of these new capital requirements (as fully phased-in) and that they will not result in any restrictions on the Company’s business activity.

In addition, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
The Company:	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2018
Total Capital Ratio	$	364,332		13.19	%	$	221,049		8.0	%		N/A		N/A
Common Equity Tier 1 Capital Ratio	$	319,584		11.57	%	$	124,340		4.5	%		N/A		N/A
Tier 1 Capital Ratio	$	329,584		11.93	%	$	165,787		6.0	%		N/A		N/A
Tier 1 Leverage Ratio	$	329,584		10.77	%	$	122,401		3.0	%		N/A		N/A

(in thousands)	Actual					Current Regulatory Capital Requirements					Well Capitalized Under Prompt Corrective Action
The Bank:	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2018
Total Capital Ratio	$	352,095		12.80	%	$	220,041		8.0	%	$	275,051		10.0	%
Common Equity Tier 1 Capital Ratio	$	317,503		11.54	%	$	123,773		4.5	%	$	178,783		6.5	%
Tier 1 Capital Ratio	$	317,503		11.54	%	$	165,031		6.0	%	$	220,041		8.0	%
Tier 1 Leverage Ratio	$	317,503		10.43	%	$	121,751		3.0	%	$	152,189		5.0	%

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As previously discussed (see “Long-Term Subordinated Debentures”), in order to supplement its regulatory capital base, during December 2003 the Company issued $10 million of trust preferred securities. On March 1, 2005, the Federal Reserve Board issued its final rule effective April 11, 2005, concerning the regulatory capital treatment of trust preferred securities (“TPS”) by bank holding companies (“BHCs”). Under the final rule BHCs may include TPS in Tier 1 capital in an amount equal to 25% of the sum of core capital net of goodwill. Any portion of trust-preferred securities not qualifying as Tier 1 capital would qualify as Tier 2 capital subject to certain limitations. The Company has received notification from the Federal Reserve Bank of San Francisco that all of the Company’s trust preferred securities currently qualify as Tier 1 capital.

The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.

In 1998, the Board approved the Company’s first common stock repurchase program. This program has been extended and expanded several times since then, and most recently, on August 11, 2015, the Board of Directors approved an extension of the $20 million stock repurchase program over the three-year period ending September 30, 2018. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of the Company’s 2017 Annual Report on Form 10-K for additional information.

There were no stock repurchases during the first half of 2018 or 2017. The remaining dollar value of shares that may yet be purchased under the Company’s Common Stock Repurchase Plan is approximately $20 million.

On August 5, 2008, the Board of Directors approved a Share Purchase Rights Plan (the “Rights Plan”), pursuant to which the Company entered into a Rights Agreement dated August 5, 2008, with Computershare as Rights Agent. The Rights Plan was set to expire on August 5, 2018. On November 19, 2015, the Board of Directors approved a seven-year extension of the term of the Rights Plan. Pursuant to an Amendment to the Rights Agreement dated February 18, 2016, the term of the Rights Plan was extended from August 5, 2018 to August 5, 2025. The extension of the term of the Rights Plan was intended as a means to continue to guard against abusive takeover tactics and was not in response to any particular proposal. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of the Company’s 2017 Annual Report on Form 10-K for further explanation.

In May 2018, the Company issued 8,769 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $635.00 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds were contributed to the Bank as equity capital.

Critical Accounting Policies and Estimates

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the Company’s financial statements management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These judgments govern areas such as the allowance for credit losses, the fair value of financial instruments and accounting for income taxes.

For a full discussion of the Company’s critical accounting policies and estimates see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2017 Annual Report on Form 10-K.

Off Balance Sheet Commitments

In the normal course of business the Company enters into financial instruments with off balance sheet risks in order to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit, letters of credit and other types of financial guarantees. The Company had the following off balance sheet commitments as of the dates indicated.

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(in thousands)	June 30, 2018		December 31, 2017		June 30, 2017
Commitments to Extend Credit	$	797,006	$	735,678	$	607,561
Letters of Credit		18,873		20,061		19,204
Performance Guarantees Under Interest Rate Swap Contracts Entered Into Between Our Borrowing Customers and Third Parties		747		759		1,526

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 are issued for 12 months or less. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Additionally, the Company maintains a reserve for off balance sheet commitments which totaled $267,000 at June 30, 2018, December 31, 2017, and June 30, 2017. We do not anticipate any material losses as a result of these transactions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management

The Company has adopted risk management policies and procedures, which aim to ensure the proper control and management of all risk factors inherent in the operation of the Company, most importantly credit risk, interest rate risk and liquidity risk. These risk factors are not mutually exclusive. It is recognized that any product or service offered by the Company may expose the Company to one or more of these risk factors.

Credit Risk

Credit risk is the risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance.

Credit risk in the investment portfolio and correspondent bank accounts is addressed through defined limits in the Company’s policy statements. In addition, certain securities carry insurance to enhance credit quality of the bond.

In order to control credit risk in the loan & lease portfolio the Company has established credit management policies and procedures that govern both the approval of new loans & leases and the monitoring of the existing portfolio. The Company manages and controls credit risk through comprehensive underwriting and approval standards, dollar limits on loans & leases to one borrower, and by restricting loans & leases made primarily to its principal market area where management believes it is best able to assess the applicable risk. Additionally, management has established guidelines to ensure the diversification of the Company’s credit portfolio such that even within key portfolio sectors such as real estate or agriculture, the portfolio is diversified across factors such as location, building type, crop type, etc. However, as a financial institution that assumes credit risks as a principal element of its business, credit losses will be experienced in the normal course of business. The allowance for credit losses is maintained at a level considered by management to be adequate to provide for risks inherent in the loan & lease portfolio. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs.

The Company’s methodology for assessing the appropriateness of the allowance is applied on a regular basis and considers all loans & leases. The systematic methodology consists of three parts.

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Part 1 - includes a detailed analysis of the loan & lease portfolio in two phases. The first phase is conducted in accordance with the “Receivables” topic of the FASB ASC. Individual loans & leases are reviewed to identify them for impairment. A loan or lease is impaired when principal and interest are deemed uncollectible in accordance with the original contractual terms of the loan or lease. Impairment is measured as either the expected future cash flows discounted at each loan’s or lease’s effective interest rate, the fair value of the loan’s or lease’s collateral if the loan or lease is collateral dependent, or an observable market price of the loan or lease, if one exists. Upon measuring the impairment, the Company will ensure an appropriate level of allowance is present or established.

Central to the first phase of the analysis of the loan & lease portfolio is the risk rating system. The originating credit officer assigns each borrower an initial risk rating, which is based primarily on a thorough analysis of that borrower’s financial position in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior credit administration personnel. Credits are monitored by credit administration personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary. Risk ratings are reviewed by both the Company’s independent third-party credit examiners and bank examiners from the DBO and FDIC.

Based on the risk rating system, specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates that the loan or lease is impaired and there is a probability of loss. Management performs a detailed analysis of these loans & leases, including, but not limited to, cash flows, appraisals of the collateral, conditions of the marketplace for liquidating the collateral, and assessment of the guarantors. Management then determines the inherent loss potential and allocates a portion of the allowance for losses as a specific allowance for each of these credits.

The second phase is conducted by segmenting the loan & lease portfolio by risk rating and into groups of loans & leases with similar characteristics in accordance with the “Contingency” topic of the FASB ASC. In this second phase, groups of loans & leases with similar characteristics are reviewed and the appropriate allowance factor is applied based on the historical average charge-off rate for each particular group of loans or leases.

Part 2 - considers qualitative internal and external factors that may affect a loan or lease’s collectability, is based upon management’s evaluation of various conditions, the effects of which are not directly measured in the determination of the historical and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the second element of the analysis of the allowance include, but are not limited to the following conditions that existed as of the balance sheet date:

§ general economic and business conditions affecting the key service areas of the Company;

§ credit quality trends (including trends in collateral values, delinquencies and non-performing loans & leases);

§ loan & lease volumes, growth rates and concentrations;

§ loan & lease portfolio seasoning;

§ specific industry and crop conditions;

§ recent loss experience; and

§ duration of the current business cycle.

Part 3 - An unallocated allowance often occurs due to the imprecision in estimating and allocating allowance balances associated with macro factors such as: (1) the continuing sluggish economic conditions in the Central Valley; and (2) the long term impact of drought conditions currently being experienced in California.

Management reviews all of these conditions in discussion with the Company’s senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable impaired credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable impaired credit or portfolio segment as of the evaluation date, management’s evaluation of the inherent loss related to such condition is reflected in the second element of the allowance or in the unallocated allowance.

Management believes, that based upon the preceding methodology, and using information currently available, the allowance for credit losses at June 30, 2018 was adequate. No assurances can be given that future events may not result in increases in delinquencies, non-performing loans & leases, or net loan & lease charge-offs that would require increases in the provision for credit losses and thereby adversely affect the results of operations.

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Interest Rate Risk

The mismatch between maturities of interest sensitive assets and liabilities results in uncertainty in the Company’s earnings and economic value and is referred to as interest rate risk. The Company does not attempt to predict interest rates and positions the balance sheet in a manner, which seeks to minimize, to the extent possible, the effects of changing interest rates.

The Company measures interest rate risk in terms of potential impact on both its economic value and earnings. The methods for governing the amount of interest rate risk include: (1) analysis of asset and liability mismatches (Gap analysis); (2) the utilization of a simulation model; and (3) limits on maturities of investment, loan & lease, and deposit products, which reduces the market volatility of those instruments.

The Gap analysis measures, at specific time intervals, the divergence between earning assets and interest bearing liabilities for which repricing opportunities will occur. A positive difference, or Gap, indicates that earning assets will reprice faster than interest-bearing liabilities. This will generally produce a greater net interest margin during periods of rising interest rates and a lower net interest margin during periods of declining interest rates. Conversely, a negative Gap will generally produce a lower net interest margin during periods of rising interest rates and a greater net interest margin during periods of decreasing interest rates.

The interest rates paid on deposit accounts do not always move in unison with the rates charged on loans & leases. In addition, the magnitude of changes in the rates charged on loans & leases is not always proportionate to the magnitude of changes in the rate paid for deposits. Consequently, changes in interest rates do not necessarily result in an increase or decrease in the net interest margin solely as a result of the differences between repricing opportunities of earning assets or interest bearing liabilities.

The Company also utilizes the results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. The sensitivity of the Company’s net interest income is measured over a rolling one-year horizon.

The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and the interest expense paid on all interest-bearing liabilities reflected on the Company’s balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon assuming no balance sheet growth, given a 200 basis point upward and a 100 basis point downward shift in interest rates. A shift in rates over a 12-month period is assumed. Results that exceed policy limits, if any, are analyzed for risk tolerance and reported to the Board with appropriate recommendations. At June 30, 2018, the Company’s estimated net interest income sensitivity to changes in interest rates, as a percent of net interest income was an increase in net interest income of 2.38% if rates increase by 200 basis points and a decrease in net interest income of 3.93% if rates decline 100 basis points. Comparatively, at December 31, 2017, the Company’s estimated net interest income sensitivity to changes in interest rates, as a percent of net interest income was an increase in net interest income of 2.83% if rates increase by 200 basis points and a decrease in net interest income of 4.42% if rates decline 100 basis points.

The estimated sensitivity does not necessarily represent a Company forecast and the results may not be indicative of actual changes to the Company’s net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape; prepayments on loans & leases and securities; pricing strategies on loans & leases and deposits; replacement of asset and liability cash flows; and other assumptions. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.

Liquidity Risk

Liquidity risk is the risk to earnings or capital resulting from the Company’s inability to meet its obligations when they come due without incurring unacceptable losses. It includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect the Company’s ability to liquidate assets or acquire funds quickly and with minimum loss of value. The Company endeavors to maintain a cash flow adequate to fund operations, handle fluctuations in deposit levels, respond to the credit needs of borrowers, and to take advantage of investment opportunities as they arise.

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The Company’s principal operating sources of liquidity include (see “Item 8. Financial Statements and Supplementary Data – Consolidated Statements of Cash Flows” of the Company’s 2017 Annual Report on Form 10-K) cash and cash equivalents, cash provided by operating activities, principal payments on loans & leases, proceeds from the maturity or sale of investments, and growth in deposits. To supplement these operating sources of funds the Company maintains Federal Funds credit lines of $78 million and repurchase lines of $130 million with major banks. As of June 30, 2018, the Company has additional borrowing capacity of $510.3 million with the FHLB and $401.0 million with the FRB. Borrowings under these lines are collateralized with loans or securities that have been accepted for pledging at the FHLB and FRB.

At June 30, 2018, the Company had available sources of liquidity, which included cash and cash equivalents and unpledged investment securities AFS of approximately $294 million, which represents 9.5% of total assets.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to ensure that information is recorded and reported in all filings of financial reports. Such information is reported to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e). In designing these controls and procedures, management recognizes that they can only provide reasonable assurance of achieving the desired control objectives. Management also evaluated the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of Company’s disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer, the Chief Financial Officer and other senior management of the Company. The evaluation was based, in part, upon reports and affidavits provided by a number of executives. Based on the foregoing, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls over financial reporting subsequent to the date the Company completed its evaluation.

PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against the Company or its subsidiaries. Based upon information available to the Company, its review of such lawsuits and claims and consultation with its counsel, the Company believes the liability relating to these actions, if any, would not have a material adverse effect on its consolidated financial statements.

There are no material proceedings adverse to the Company to which any director, officer or affiliate of the Company is a party.

ITEM 1A. Risk Factors

See “Item 1A. Risk Factors” in the Company’s 2017 Annual Report to Shareholders on Form 10-K. In management’s opinion, there have been no material changes in risk factors since the filing of the 2017 Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no shares repurchased by Farmers & Merchants Bancorp during the first six months of 2018. The remaining dollar value of shares that may yet be purchased under the Company’s Stock Repurchase Plan is approximately $20.0 million.

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The common stock of Farmers & Merchants Bancorp is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol “FMCB.” Additionally, management is aware that there are private transactions in the Company’s common stock.

In May 2018, the Company issued 8,769 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $635.00 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds were contributed to the Bank as equity capital.

In February 2017, the Company issued 1,375 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $590.00 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds were contributed to the Bank as equity capital.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

None

ITEM 6. Exhibits

Exhibit No.	Description
10.21	Stock Purchase Agreement dated July 2, 2018, filed on the Registrant’s Form 10-Q for the quarter ended June 30, 2018.
31(a)	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE XBRL	Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

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SIGNATURES

Pursuant to the requirement 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:  August 8, 2018	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Chairman, President
	& Chief Executive Officer
	(Principal Executive Officer)
Date:  August 8, 2018	/s/ Stephen W. Haley
	Stephen W. Haley
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial & Accounting Officer)

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EX-10.21

Exhibit 10.21

STOCK PURCHASE AGREEMENT

dated as of July 2, 2018

by and  among

Farmers & Merchants Bancorp (“Company”),

Joan Rider, successor trustee (“Trustee”), of the

Bruce A Mettler Intervivos Revocable Trust U/T/D October 3, 2007

(“Trust”) FEIN 82-6826235

and

Blair and Eric Mettler, the sole beneficiaries of the Trust

(“Beneficiaries”)

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (“Agreement”), dated for reference purposes only as of July 2, 2018, is between Farmers & Merchants Bancorp, a corporation and registered bank holding company organized under the laws of Delaware (“Company”) located in Lodi, California, Joan Rider, as successor trustee (“Trustee”) of the Bruce A. Mettler Intervivos Revocable Trust u/t/d October 3, 2007 (“Trust”) and Blair and Eric Mettler, the sole beneficiaries of the Trust (“Beneficiaries”).

R E C I T A L S:

A.            The Trust is an intervivos revocable trust and Trustee is the legal owner of 44,503 shares of common stock of the Company, $0.01 par value (the “Stock”), an asset of the Trust corpus.

B.            The Trustee desires to sell all the shares of Stock on the terms set forth in this Agreement, the Trustee has the power and authority under the Trust to dispose of the Stock without the consent of any third party and the Stock is not pledged or encumbered.

C.            The Company desires to purchase the Stock on the terms set forth in this Agreement (the “Acquisition”) but only if the Beneficiaries are parties to this Agreement.

D.            The Beneficiaries desire the Trustee to sell the Stock to the Company on the terms set forth herein and agree to be bound by the provisions of this Agreement.

A G R E E M E N T

IN CONSIDERATION of the premises and mutual covenants hereinafter contained, Company, Trustee and Beneficiaries agree as follows:

ARTICLE 1

DEFINITIONS AND DETERMINATIONS

1.1           Definitions.  Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings set forth below:

“Affiliate” means a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

2

“Business Day” means any day other than a Saturday, Sunday or day on which commercial banks in California are author-ized or required to be closed.

“Confidential Information” means all information exchanged heretofore or hereafter between the Trustee or Beneficiaries and their affili-ates and agents, on the one hand, and Company and its affiliates and agents, on the other hand, which is information related to the business, financial position, operations or prospects of the Person responsible for furnishing the information or an Affiliate of such Person, including the information provided by Company to Trustee and/or Beneficiaries pursuant to Section 3.2(f).   Notwithstanding the foregoing, “Confi-dential Information” shall not include any information that (i) at the time of disclosure or thereafter is generally avail-able to and known by the public (other than as a result of a disclosure directly or indirectly by the recipients or any of their officers, directors, employees or other representatives or agents), (ii) was available to the recipients on a nonconfidential basis from a source other than Persons responsible for furnishing the information, provided that such source is not and was not bound by a confidentiality agreement with respect to the information, or (iii) has been independently acquired or developed by the recipients without violating any obligations under this Agreement.

“Consents” means every required consent, approval, absence of disapproval, waiver or authorization from, or notice to, or registration or filing with, any Person.

“Encumbrances” means any option, pledge, security interest, lien, charge, encumbrance, mortgage, assessment, claim or restriction (whether on voting, disposition or otherwise), whether imposed by agreement, understanding, Rule or otherwise.

“Governmental Entity” means any court or tribunal in any jurisdiction or any United States federal, state, district, domestic, or other administrative agency, department, commission, board, bureau or other governmental authority or instrumentality.

“Party” means the Company, the Trustee and the Beneficiaries.

“Permit” means any United States federal, foreign, state, local or other license, permit, franchise, and certificate of authority, order of approval necessary or appropriate under applicable Rules.

“Person” means any natural person, corporation, trust, association, unincorporated body, partnership, joint venture, Governmental Entity, statutorily or regulatory sanctioned unit or any other person or organization.

“Rule” means any statute or law or any judgment, decree, injunction, order, regulation or rule of any Governmental Entity.

“Third Party Claim” means any legal proceeding by a Person not a party to this Agreement and not an Affiliate of one of the parties to this Agreement.

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ARTICLE 2

THE TRANSACTION

2.1           Closing.  The Acquisition will be completed with a closing (the “Closing”). The Closing shall take place at the offices of the Company, 111 West Pine Street, Lodi, CA 95240 at 10:00 a.m. on July 31, 2018 or at such other place, at such other time, or on such other date as the Parties may mutually agree upon.  At the Closing, there shall be delivered to the Company and Trust the certificates and other documents required to be delivered under Article IV hereof.

2.2           The  Closing.  The Closing shall take place as soon as practicable, and in any event within five (5) Business Days, following the satisfaction or waiver of the conditions set forth in Sections 4.1, 4.2 and 4.3.  At the Closing and subject to the terms and conditions of this Agreement, Company shall purchase from the Trustee, and Trustee agrees to sell, convey, transfer, assign and deliver to Company, 44,503  shares of Stock (the “Closing Shares”), free and clear of any Encumbrances and, subject to Section 2.4, the Trustee shall have the right to receive in exchange for the Closing Shares an amount of cash or certified funds equal to $700.00  multiplied by the number of Closing Shares which equates to Thirty One Million One Hundred Fifty-Two Thousand One Hundred Dollars ($31,152,100.00) (the “Purchase Price”).

2.3           Wire Transfer.   At the Closing, the Company will cause to be wired to an account in the name of the Trustee in immediately available funds cash in the amount equal to the Purchase Price to be paid at such Closing minus the Special Deposit provided for in Section 2.4.  Not less than two Business Days prior to the anticipated Closing date, Trustee will provide in writing wire transfer instructions to Company.

2.4.          Special Deposit.  At and after the Closing, the Company shall set aside, hold back and maintain $12.4 million of the gross proceeds of the Acquisition in order to discharge a Federal tax lien on the estate of Bruce Mettler relating to the sale of the Stock (the “Special Deposit”).  On or before October 7, 2018, the Company will pay over to the Internal Revenue Service the Special Deposit or honor a check drawn against the Special Deposit in favor of the Internal Revenue Service in either case upon the written instructions of the Trustee (the “Payment Date”).  Between the Closing and the Payment Date, the Special Deposit will bear interest at the rate of 1.25% per annum on a simple interest basis.  Interest on the Special Deposit will be paid to the Trustee on the Payment Date.

2.5           Company Dividend.  In order to be free from doubt, the Company’s dividend for the first half of 2018 which has a record date prior to the execution hereof shall be delivered to the Trust on the payment date of such dividend.

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1           Representations and Warranties of Company.  Company represents and warrants to Trustee and the Beneficiaries as follows:

(a)           Existence and Good Standing; Power and Authority.  Company has been duly incorporated and validly exists as a corporation in good standing under the laws of the State of Delaware and is registered as a bank holding company under the BHC Act.  Company has all requisite corporate power and authority to make, execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.  The execution, delivery and performance of this Agreement by Company and the consummation by it of the transactions contemplated hereby have been duly authorized and approved by the all required corporate action of Company and no other action on the part of Company is necessary to authorize the execution, delivery and performance of this Agreement by Company and the consummation of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by the Company and is a valid and binding obligation of Company enforceable against Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, liquidation, receivership, conserva-torship, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable princi-ples.

(b)           Brokers and Finders.  Company is not a party to or obligated under any agreement with any broker or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein or therein will result in any liability by Company to any broker or finder.

(c)           No Conflicts, Defaults or Violations; Consents.

(i)          The execution, delivery and performance of the Agreement by Company does not, and the consummation of the transactions contemplated thereby will not (A) violate any provision of the charter documents or by-laws of Company or any provision of any applicable Rule or (B) require any Consent of any person or entity under, conflict with, terminate or result in a breach of or accelerate the performance required by any of the terms of, any material contract or other material agreement to which the Company is a party or by which it is bound, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) thereunder, which, in any such event, could have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement.

(ii)         No filing or registration with, Consent, approval, order or authorization of, any Governmental Entity is required by or with respect to the Company or any Affiliate of the Company in connection with the execution, delivery and performance of this Agreement by the Company or the consummation of the Acquisition.

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(d)           Litigation.  There are no actions, suits, proceedings, arbitrations, written claims or investigations pending or, to the Company’s knowledge, threatened against it or any of its Affiliates that (a) seek to question, delay or prevent the consummation of the Acquisition, or (b) would reasonably be expected to affect adversely the ability of the Company to fulfill its obligations hereunder.

(e)           Regulatory Matters.  Neither the Company nor any Affiliate of the Company has any orders, memoranda of understanding, formal or informal agreements, arrangements or understandings with any Governmental Entity that would materially impede or delay its ability to obtain any required Consent from a Governmental Entity for the consummation of the Acquisition.

3.2           Representations and Warranties of Trustee.  Trustee represents and warrants to Company as follows:

(a)           Authorization and Validity of Agreement.  (i) Trustee has full power and authority to execute and deliver this Agreement, to perform her obligations hereunder, and to consummate the transactions contemplated hereby, and (ii) the Agreement has been duly executed and delivered by Trustee and is a valid and binding obligation of Trustee in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditor’s rights generally, and general equitable principles.  The Trustee is the sole trustee of Trust.

(b)           Ownership of Shares.Other than the general estate tax lien pursuant to Internal Revenue Code Section 6324, Trustee owns all of the outstanding shares of Stock free and clear of all liens, claims, charges, restrictions, equities, and Encumbrances of any kind, subject only to the terms of the Trust, and has full power and legal right to sell, assign, transfer and deliver the same to Company pursuant to this Agreement.  The Special Deposit shall be used to satisfy the aforementioned general estate tax lien.

(c)           Consents and Approvals; No Violations.  The execution, delivery and performance of this Agreement by Trustee and the consummation by Trustee of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time or both: (a) violate any Rule applicable to Trust or the Trustee, (b) violate any order, judgment or decree of any court or of any Governmental Entity applicable to Trust or the Trustee, (c) require any filing by Trust or the Trustee with, or require Trust or the Trustee to obtain any Consent or require Trust or Trustee to give any notice to any Governmental Entity, or (d) result in a violation or breach by Trust or Trustee, conflict with, constitute (with or without due notice or lapse of time or both) a default by Trust or Trustee (or give right to any right of termination, cancellation, payment or acceleration) under any obligation of Trust or Trustee or result in the creation of any Encumbrance upon any of the assets of Trust or Trustee.

(d)           Brokers and Finders.   Neither Trustee nor any predecessor trustee of the Trust is a party to or obligated under any agreement with any broker or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein or therein will result in any liability to any broker or finder.

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(e)           Estate Taxes.   As of the Closing, all estate taxes due to any Governmental Entity as a result of the death of Bruce Mettler have been paid by the Trustee, or will be paid by the Trustee through use of the Special Deposit, or the Trust and such Governmental Entities have entered into agreements to pay such taxes.  Upon execution of this Agreement, Trustee will request a certification of Lien Release from the Internal Revenue Service pursuant to Internal Revenue Code Section 6325 to discharge the general federal estate tax lien with respect to the Stock.

(f)            Information concerning the Company and its Affiliates. Trustee acknowledges that she has been afforded  (i) access to information about the Company, its Affiliates and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable Trustee to evaluate the Acquisition and (ii) the opportunity to ask such questions as the Trustee has deemed necessary of, and to receive answers from, representatives of the Company concerning its prospects, including the likely results for the quarter ended June 30, 2018, and the merits and risks of investing in or holding the common stock of the Company.  The Trustee further acknowledges that she has had the opportunity to have answered any questions concerning financial, business or other information with respect to the business of the Company or with respect to the merits and risks of investment in the Company and the Company has given complete and satisfactory answers to all inquiries that the Trustee has asked them concerning the matters listed above.  The Trustee has sought such accounting, legal and tax advice as she has considered necessary to make an informed decision with respect to the Acquisition.

(g)           No Conflicts, Defaults or Violations; Consents.

(i)          The execution, delivery and performance of the Agreement by Trustee does not, and the consummation of the transactions contemplated thereby will not (A) violate any provision of the Trust or any provision of any applicable Rule or (B) require any Consent of any person or entity under, conflict with, terminate or result in a breach of or accelerate the performance required by any of the terms of, any material contract or other material agreement to which the Trust, Trustee or any predecessor trustee of the Trust is a party or by which they are bound, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) thereunder, which, in any such event, could have a material adverse effect upon the ability of the Trustee to perform her obligations under this Agreement.

(ii)         No filing or registration with, Consent, approval, order or authorization of, any Governmental Entity is required by or with respect to the Trust or Trustee in connection with the execution, delivery and performance of this Agreement by the Trustee or the consummation of the Acquisition.

3.3           Representations and Warranties of the Beneficiaries.   Beneficiaries represent and warrant to Company as follows:

(a)           Authorization and Validity of the Agreement.  Beneficiarieshave full power and authority to execute and deliver this Agreement, to perform their obligations hereunder, and to consummate the transactions contemplated hereby, and (ii) the Agreement has been duly executed and delivered by them and is a valid and binding obligation of  theirs  in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditor’s rights generally, and general equitable principles.

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(b)           Sole Beneficiaries.   The Beneficiaries are the sole beneficiaries of the Trust.

(c)           No Assignment.  The Beneficiaries have not assigned or disclaimed their beneficial interest in the Trust.

(d)           Consent.  The Beneficiaries hereby consent to the sale of the Stock on the terms set forth herein.

ARTICLE 4

CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE

4.1           Conditions to Company’s and Trustee’s Obligations to Close.  The respective obligations of Company, on the one hand, and the Trustee, on the other, to consummate the transactions contemplated hereby are subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions:

(a)           No judgment, decree, injunction, order or proceeding shall be outstanding or threatened by any Governmental Entity which prohibits or materially restricts the effectuation of, or threatens to invalidate or set aside, the Agreement.

(b)           No Rule shall be outstanding or threatened by any Governmental Entity which prohibits or materially restricts the consummation of, or threatens to invalidate or set aside, the Agreement or which would not permit the businesses presently carried on by Company to continue materially unimpaired following the Closing.

4.2           Additional Conditions to Obligations of Company to Close.  The obligations of Company to consummate the Acquisition are subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions:

(a)           All actions necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the Acquisition shall have been duly and validly taken by   Trustee and the Beneficiaries.

(b)           The representations and warranties of Trustee and the Beneficiaries in this Agreement shall have been true and correct in all material respects on the date of this Agreement and at and as of the Closing as though all such representations and warranties had been made on and as of the Closing, except with respect to representations and warranties that, by their terms, speak as of a different time, and the Company shall have received a certificate to that effect dated the Closing and executed (i)   by the Trustee and (ii) the Beneficiaries, as to their respective representations and warranties.

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(c)           Each of the covenants and agreements of Trust and the Beneficiaries contained in this Agreement to be performed at or before the Closing shall have been so performed in all material respects; and the Company shall have received  certificates to that effect dated the Closing and executed by the  Trustee and the Beneficiaries as to their respective covenants and agreements.

(d)           Trustee shall have delivered at the Closing certificates for the Closing Shares  endorsed to the Company or appropriate stock powers authorizing the transfer of such shares to the Company.

(e)           Trustee shall have delivered at Closing an opinion of its counsel acceptable in form to Company  opining on the matters set forth in Section 3.2(a) hereof.

(f)            Prior to Closing, Company shall have obtained not less than $32 million through the sale of equity or debt securities on terms acceptable to Company in its sole discretion to be used to purchase the Closing Shares at $700.00 per share.

4.3           Additional Conditions to Obligations of Trustee to Close.  The obligations of Trustee to consummate the transactions contemplated herein are subject to the satisfaction or waiver, at or prior to the Closing, of each of the following conditions:

(a)           All actions necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken by the board of directors of Company.

(b)           The representations and warranties of Company contained in this Agreement shall be true and correct in all material respects on the date of this Agreement and at and as of the Closing as though all such representations and warranties had been made at and as of such time, except with respect to representations and warranties that, by their terms, speak as of a different time, and Trust shall have received a certificate to that effect dated the Closing and executed on behalf of Company by its chief executive officer and chief financial officer.

(c)           The covenants and agreements of Company to be performed at or before the Closing shall have been duly performed in all material respects; and Trust shall have received one or more certificates to that effect dated the Closing and executed by the chief executive officer and chief financial officer of Company.

(d)           The Company shall have delivered at Closing an opinion of counsel acceptable in form to Trustee and Beneficiaries opining on the matters set forth in Section 3.1(a) herein.

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ARTICLE 5

INDEMNIFICATION

5.1 Indemnification by Trustee of the Trust,  Beneficiaries and the Company

(a)           After the  Closing, Trustee and  the Beneficiaries (as to the Beneficiaries only to the extent provided in Section 5.1(g))  (the “Indemnifying Parties”) shall, subject to the other provisions of this Section 5.1, jointly and severally indemnify, hold harmless and defend the Company, its Affiliates, and their respective successors, permitted assigns, directors, shareholders, officers, agents and employees (the “Indemnified Parties”) from and against all claims, losses, liabilities, demands, and obligations of any nature whatsoever (including reasonable legal fees and expenses) (collectively, “Damages”) which the Indemnified Parties shall receive, suffer or incur, arising out of or resulting from the breach of any representation or warranty made by the Indemnifying Parties in this Agreement under Sections 3.2 or 3.3, or the material breach of any covenant made by the Indemnifying Parties in this Agreement.  The Trustee, in her individual capacity, shall have no personal liability to Company for the indemnification provided for in this Section 5.1.

(b)           A claim for indemnification pursuant to this Section 5.1 may be asserted by written notice to the Indemnifying Parties, which notice shall include a reasonable description of the basis for the claim and shall be paid or disputed in writing by the Indemnifying Parties within ten (10) Business Days of the receipt of such notice.

(c)           In the event that any legal proceedings shall be instituted, the Company shall as soon as reasonably practicable cause written notice of the assertion of any Third Party Claim of which it has knowledge, which is covered by this Section 5.1, to be forwarded to the Indemnifying Parties.  If the Indemnifying Parties acknowledge in writing their obligation to indemnify the Indemnified Parties pursuant to this Section 5.1 against any Damages that may result from such Third Party Claim, the Indemnifying Parties shall have the right, at their sole expense, to be represented by counsel and to defend against, negotiate, settle, or otherwise deal with any Third Party Claim that relates to any Damages for which indemnification is sought pursuant to this Section 5.1.  If the Indemnifying Parties  elect to defend against, negotiate, settle, or otherwise deal with any Third Party Claim that relates to any Damages for which indemnification is sought pursuant to this Section 5.1, it shall within ten (10) Business Days (or sooner, if the nature of the Third Party Claim so requires) of receipt of notice of the Third Party Claim notify the Company of its intent to do so.  If the Indemnifying Parties elect not to defend against, negotiate, settle, or otherwise deal with any Third Party Claim that relates to any Damages for which indemnification is sought pursuant to this Section 5.1, or fail to notify the Company of their election within the timeframe provided for above, the Indemnified Parties may then defend against, negotiate, settle, or otherwise deal with such Third Party Claim and the Indemnifying Parties shall reimburse the Indemnified Parties for the reasonable actual expenses of defending such Third Party Claim upon submission of periodic bills.  If the Indemnifying Parties assume the defense of the Third Party Claim, the Company may participate, at its own expense, in the defense of such Third Party Claim; provided that the Company shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Parties if: (i) so requested by the Indemnifying Parties to participate; (ii) upon the reasonable advice of counsel to the Company that a conflict or potential conflict exists between the interests of the Company and the Indemnifying Parties that would make such separate representation advisable; or (iii) such claim is based upon an investigation, inquiry, or other proceeding by a Governmental Entity; and provided, further, that the Indemnifying Parties shall not be required to pay for more than one such counsel (and any appropriate local counsel) for the Indemnified Parties in connection with such Third Party Claim.  The Indemnifying Parties and the Company agree to cooperate fully with each other in connection with the defense, negotiation, or settlement of any such Third Party Claim.

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(d)           After any final judgment or award shall have been rendered by a Governmental Entity of competent jurisdiction and the expiration of the time in which to appeal such judgment or award, or a settlement shall have been consummated, or the Indemnified Parties and the Indemnifying Parties shall have arrived at a mutually binding agreement with respect to a Third Party Claim pursuant to this Section 5.1, the Company shall forward to the Indemnifying Parties notice of any sums due and owing (including any bills, records, or other documentation supporting such sums) by the Indemnifying Parties pursuant to this Agreement with respect to such matter and the Indemnifying Parties shall be required to dispute in writing or pay all of the sums so due and owing to the Indemnified Parties by wire transfer of immediately available funds within five (5) Business Days after the date of such notice.

(e)           The failure of the Indemnified Parties to give reasonably prompt notice of any Third Party Claim shall not release, waive, or otherwise affect the Indemnifying Parties’ obligations with respect to such Third Party Claim except to the extent that the Indemnifying Parties can demonstrate actual Damages and prejudice as a result of such failure or delay.

(f)           All representations, warranties and covenants which are the subject of the indemnification obligations of the Indemnifying Parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and shall continue in full force and effect for  a period of one (1) year after the  Closing  and thereafter shall terminate; provided, however, that any claim for indemnification pursuant to this Section made prior to the expiration of such one (1) year period shall remain effective until finally resolved notwithstanding the expiration of the indemnification period.

(g)           The indemnification obligation provided in this Section 5.1 shall survive any termination of the Trust. The indemnification obligation will become the joint and several obligations of the Beneficiaries upon the termination of the Trust or the inability of the Trust to pay the entire amount of any Damages.  Beneficiaries will also be jointly and severally liable for Damages for any breach of a representation or warranty in Section 3.3 or any of their covenants or agreements herein.  The Beneficiaries indemnification obligation hereunder shall not be limited by the provisions of Section 19400 et seq. of the Probate Code.

(h)           The collective aggregate liability of the Indemnifying Parties shall under Section 5.1 in no event exceed an amount equal to the number of Closing Shares multiplied by $700.00.

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(i)            After the  Closing, the Company shall, subject to the other provisions of this Section 5.1, indemnify, hold harmless and defend the Trustee and the Beneficiaries and their respective successors and permitted assigns from and against all Damages which the Trustee or the Beneficiaries shall receive, suffer or incur, arising out of or resulting from the breach of any representation or warranty made by the Company in this Agreement or the material breach of any covenant made by the Company in this Agreement.  The provisions of Subsection (b)-(f) and (h) of this Section 5.1 shall apply to the indemnification under this Subsection 5,1(i) with the term “Indemnifying Party” therein meaning the Company and the term “Indemnified Party” meaning the Trustee or the Beneficiaries.  The Company’s indemnification obligation in this Section 5.1(i) shall survive any dissolution, merger, or other transfer of the Company.  This indemnification obligation of Company will become the joint and several obligation of the Company and its successors and assigns upon the dissolution, merger, or other transfer of the Company.  The Company and its successors and assigns upon any dissolution, merger, or other transfer will also be jointly and severally liable for Damages for any breach of a representation or warranty under this Agreement.

ARTICLE 6

TERMINATION OF AGREEMENT; WAIVER OF CONDITIONS

6.1           Termination of Agreement.  Anything herein to the contrary notwithstanding, this Agreement and the Acquisition may be terminated (to the extent that it remains executory) at any time before either of the Closings as follows, and in no other manner:

(a)           By mutual consent of Company and the Trustee;

(b)           By Company or the Trustee, if the Closing shall not have occurred by July  31, 2018;

(c)           By Company, if any conditions set forth in Sections 4.1 or 4.2 shall not have been met, or by Trustee, if any conditions set forth in Sections 4.1 or 4.3 shall not have been met, by July 31, 2018, or such earlier time as it becomes apparent that such condition cannot be met;

(d)           By Company, if Trustee or Beneficiaries should (i) subject to the standards set forth in Sections 4.2(b), materially breach any of their respective representations or warranties contained herein or (ii) materially default in the observance or in the due and timely performance of any of their respective covenants and agreements herein contained, and in either case, such breach and/or default shall not have been fully cured within 20 Business Days from the date of delivery of written notice specifying the alleged breach and/or default;

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(e)           By Trustee, if Company should (i) subject to the standards set forth in Sections 4.3(b), materially breach any of its representations or warranties contained herein or (ii) materially default in the observance or in the due and timely performance of any of its covenants and agreements herein contained, and in either case, such breach and/or default shall not have been fully cured within 20 Business Days from the date of delivery of written notice specifying the alleged breach and/or default.

6.2           Effect of Termination.  In the event that this Agreement shall be terminated pursuant to Section 6.1 hereof, all further obligations of the Parties hereto under this Agreement shall terminate without further liability of any Party to another; provided, however, that no termination of this Agreement under Section 6.1 for any reason or in any manner shall release, or be construed as so releasing, any Party from its obligations under Sections 7.1, 7.9 or 7.10, hereof and notwithstanding the foregoing if such termination shall result from the willful failure of a Party to fulfill a condition to the performance of the obligations of any other Party or to perform a covenant of such Party in this Agreement, such Party shall be fully liable for any and all damages, costs and expenses (including, but not limited to, reasonable attorneys' fees sustained or incurred by the other Party or Parties in connection with negotiating and implementing the transactions contemplated in this Agreement); provided, however, the failure of Company to obtain financing pursuant to Section 4.2(f) on terms acceptable to it in its sole discretion shall not constitute a willful failure of it to fulfill such conditions nor a failure to perform any covenant by it hereunder.

6.3           Waiver of Conditions.  If any of the conditions specified in Section 4.2 have not been satisfied, Company may nevertheless, at its election, proceed with the transactions contemplated in this Agreement.  If any of the conditions specified in Section 4.3 have not been satisfied, Trustee may nevertheless, at her election, proceed with the transactions contemplated in this Agreement.  If any Party elects to proceed pursuant to the provisions hereof, the conditions that are unsatisfied immediately prior to the Closing shall be deemed to be satisfied, as evidence by a certificate delivered by the electing Party.

ARTICLE 7

GENERAL

7.1           Expenses.   All expenses incurred by Company, Trustee or the Beneficiaries in connection with or related to the authorization, preparation and execution of this Agreement and all other matters related to the Closing of the transactions contemplated hereby, including, without limitation of the generality of the foregoing, all fees and expenses of agents, representatives, counsel, brokers and accountants employed by any of the Parties or its affiliates, shall be borne solely and entirely by the Party which has incurred the same.

7.2           Amendments.  To the fullest extent permitted by law, this Agreement may be amended by agreement in writing of the Company, the Trustee and the Beneficiaries at any time prior to the Closing.

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7.3           Integration.  This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements and understanding of the Parties in connection therewith.

7.4           Best Efforts.  Each Party will use its best efforts to cause all conditions to the obligations of the Parties to be satisfied.

7.5           Governing Law.  This Agreement and the legal relations between the Parties shall be governed by and construed in accordance with the laws of California except to the extent that the provisions of federal law are mandatorily applicable.  The Parties hereby irrevocably submit to the jurisdiction of the courts of the State of California and the federal courts of the United States of America located in the Eastern District Court for California solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby and thereby, and hereby waive, and agree to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such documents, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the Parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such California state or federal court.  The Parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 7.12 or in such other manner as may be permitted by law, shall be valid and sufficient service thereof. This Agreement was jointly negotiated and prepared by the parties hereto.  This Agreement shall be construed and interpreted according to its plain meaning and not for or against any party based upon any attribution of such party as the sole source of the language in question.

7.6           No Assignment.  Neither this Agreement nor any rights, duties or obligations hereunder shall be assignable by Company, Trustee or the Beneficiaries, in whole or in part, without the prior written consent of the other Parties.  Any attempted assignment in violation of this prohibition shall be null and void.  Subject to the foregoing, all of the terms and provisions hereof shall be binding upon, and inure to the benefit of, the successors and assigns of the Parties hereto.

7.7           Headings.  The descriptive headings contained in this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

7.8           Counterparts.  This Agreement and any exhibit hereto may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each Party hereto and delivered to each Party hereto.

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7.9           Publicity and Reports.  Company and Trustee shall coordinate all publicity relating to the transactions contemplated by this Agreement and no Party shall issue any press release, publicity statement or other public notice relating to this Agreement or any of the transactions contemplated hereby without obtaining the prior consent of the other Parties, except to the extent that legal counsel to any Party shall deliver a written opinion to the other Parties to the effect that a particular action is required by applicable Rules.

7.10         Confidentiality.  All Confidential Information disclosed heretofore or hereafter by any Party to this Agreement to any other Party to this Agreement shall be kept confidential by such other Party and shall not be used by such other Parties otherwise than as herein contemplated, except to the extent that (a) it is necessary or appropriate to disclose to  any  Governmental Entity having jurisdiction over any of the Parties or as may otherwise be required by Rule; or (b) to the extent such duty as to confidentiality is waived by the other Party.  Such obligation as to confidentiality and non-use shall survive the termination of this Agreement pursuant to Article 6.  In the event of such termination and on request of another Party, each Party shall use all reasonable efforts to (1) return to the other Parties all documents (and reproductions thereof) received from such other Parties that contain Confidential Information (and, in the case of reproductions, all such reproductions made by the receiving Party); and (2) destroy the originals and all copies of any analyses, computations, studies or other documents prepared for the internal use of such Party that included Confidential Information.

7.11         Specific Performance.  All the Parties acknowledge that, in view of the uniqueness of the transactions contemplated in this Agreement, each Party would not have an adequate remedy at law for money damages in the event that this Agreement has not been performed in accordance with its terms, and therefore each Party agrees that the other shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity.

7.12         Notices.  All notices, requests and other communications hereunder to a Party shall be in writing and shall be deemed given if personally delivered, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) or delivered by an overnight courier (with confirmation) to such party at its address set forth below or such other address as such party may specify by notice to the parties hereto.

If to Trustee to:

Joan  Rider, successor trustee

Of the Bruce A. Mettler Intervivos Revocable Trust u/t/d  October 3, 2007

26 Corrala Vista Dr.

Watsonville, CA 95076

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With a copy to:

Richard S. Calone, Esq.

Calone & Harrel Law Group, LLP

1810 Grand Canal Blvd. Suite 6

Stockton, CA 95207

Fax: (209) 952-8751

If to Beneficiaries to:

Eric Mettler

17000 Cherry Road

Lodi, CA 95240

Blair Mettler

17901 North Cherry Road

Lodi, CA 95420

If to the Company to:

Farmers & Merchants Bancorp

111 West Pine Street

Lodi, California 65241

Attention: Stephen Haley

Chief Financial Officer

Fax: (206) 367-2345

With a copy to:

Stuart Moore Staub, Attorneys at Law

641 Higuera Street,

Suite 302

San Luis Obispo, CA 63401

Attention: John F. Stuart, Esq.

Fax: (505) 545-5566

7.13         Severability.  If any portion of this Agreement shall be deemed by a court of competent jurisdiction to be unenforceable, the remaining portions shall be valid and enforceable only if, after excluding the portion deemed to be unenforceable, the remaining terms hereof shall provide for the consummation of the transactions contemplated herein in substantially the same manner as originally set forth at the date this Agreement was executed.

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7.14         Attorneys’ Fees.  In the event any of the Parties to this Agreement brings an action or suit against any other Party by reason of any willful breach of any covenant, agreement, representation, warranty or other provision hereof, or any breach of any duty or obligation created hereunder by such other Party, the prevailing Party, as determined by the court or the body having jurisdiction, shall be entitled to have and recover of and from the losing party, as determined by the court or other party having jurisdiction, all reasonable costs and expenses incurred or sustained by such prevailing party in connection with such prevailing action, including, without limitation, legal fees and court costs (whether or not taxable as such).

[Signatures on next page]

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WITNESS, the signature of Farmers & Merchants Bancorp, as of the 2nd day of July, 2018, set by its President and Chief Executive Officer and its Secretary, pursuant to a resolution of its Board of Directors, acting by at least a majority:

FARMERS & MERCHANTS BANCORP
By:	/s/ Kent A. Steinwert
Name:	Kent A. Steinwert
Title:	Chairman, President and Chief Executive Officer

By:	/s/ Stephen W. Haley
Name:	Stephen W. Haley
Title:	Executive Vice President, Chief Financial
	Officer and Corporate Secretary

WITNESS, the signature of the Joan Rider, in her capacity as the successor trustee of the Bruce A Mettler Intervivos Revocable Trust u/t/d October 3, 2007, as of the 2nd day of July, 2018.

BRUCE A METTLER INTERVIVOS REVOCABLE TRUST U/T/D

OCTOBER 3, 2007

/s/ Jean E. Rider

Joan E. Rider,  Successor Trustee

WITNESS, the signature of Blair Mettler as of the 2nd day of July, 2018.

/s/ Blair Mettler

Blair Mettler, Beneficiary

WITNESS, the signature of Eric Mettler as of the 2nd day of July, 2018.

/s/ Eric Mettler

Eric Mettler, Beneficiary

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EX-31.(A)

Exhibit 31(a)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Executive Officer

I, Kent A. Steinwert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Farmers & Merchants Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 8, 2018	/s/ Kent A. Steinwert
	Kent A. Steinwert
	Chairman, President
	& Chief Executive Officer

EX-31.(B)

Exhibit 31(b)

Certification Pursuant to Section 302

Of the Sarbanes-Oxley Act of 2002

For the Chief Financial Officer

I, Stephen W. Haley, certify that:

1. I have reviewed this quarterly  report on Form 10-Q of Farmers & Merchants Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2018	/s/ Stephen W. Haley
	Stephen W. Haley
	Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Farmers & Merchants Bancorp (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Kent A. Steinwert, Chairman, President and Chief Executive Officer, and Stephen W. Haley, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. $ 1350), that:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. $ 78m or 78o(d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 8, 2018

/s/ Kent A. Steinwert

Kent A. Steinwert

Chairman, President

& Chief Executive Officer

/s/ Stephen W. Haley

Stephen W. Haley

Executive Vice President & Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Jul. 31, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	FARMERS & MERCHANTS BANCORP
Entity Central Index Key	0001085913
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		776,570
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Cash and Cash Equivalents:
Cash and Due from Banks	$ 51,491	$ 65,956	$ 50,004
Interest Bearing Deposits with Banks	55,408	121,193	97,187
Total Cash and Cash Equivalents	106,899	187,149	147,191
Investment Securities:
Available-for-Sale	450,174	481,596	461,867
Held-to-Maturity	52,210	54,460	56,381
Total Investment Securities	502,384	536,056	518,248
Loans & Leases:	2,344,448	2,215,295	2,204,082
Less: Allowance for Credit Losses	51,137	50,342	49,064
Loans & Leases, Net	2,293,311	2,164,953	2,155,018
Premises and Equipment, Net	29,254	28,679	29,312
Bank Owned Life Insurance	60,495	59,583	58,671
Interest Receivable and Other Assets	105,480	99,032	104,159
Total Assets	3,097,823	3,075,452	3,012,599
Deposits:
Demand	815,575	832,652	736,077
Interest Bearing Transaction	603,494	601,476	527,568
Savings and Money Market	812,083	813,703	801,506
Time	466,121	475,397	596,727
Total Deposits	2,697,273	2,723,228	2,661,878
Subordinated Debentures	10,310	10,310	10,310
Interest Payable and Other Liabilities	74,748	42,254	48,691
Total Liabilities	2,782,331	2,775,792	2,720,879
Shareholders' Equity
Preferred Stock: No Par Value, 1,000,000 Shares Authorized, None Issued or Outstanding	0	0	0
Common Stock: Par Value $0.01, 7,500,000 Shares Authorized, 821,073, 812,304 and 808,704 Shares Issued and Outstanding at June 30, 2018, December 31, 2017 and June 30, 2017, Respectively	8	8	8
Additional Paid-In Capital	99,192	93,624	91,482
Retained Earnings	221,671	206,845	199,862
Accumulated Other Comprehensive (Loss) Income	(5,379)	(817)	368
Total Shareholders' Equity	315,492	299,660	291,720
Total Liabilities and Shareholders' Equity	$ 3,097,823	$ 3,075,452	$ 3,012,599

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Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Shareholders' Equity
Preferred Stock, par value (in dollars per share)	$ 0	$ 0	$ 0
Preferred Stock, shares authorized (in shares)	1,000,000	1,000,000	1,000,000
Preferred Stock, shares issued (in shares)	0	0	0
Preferred Stock, shares outstanding (in shares)	0	0	0
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01
Common Stock, shares authorized (in shares)	7,500,000	7,500,000	7,500,000
Common Stock, shares issued (in shares)	821,073	812,304	808,704
Common Stock, shares outstanding (in shares)	821,073	812,304	808,704

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Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest Income
Interest and Fees on Loans & Leases	$ 28,927	$ 25,248	$ 55,971	$ 49,779
Interest on Deposits with Banks	514	258	1,099	507
Interest on Investment Securities:
Taxable	2,315	2,124	4,696	4,136
Exempt from Federal Tax	405	439	823	889
Total Interest Income	32,161	28,069	62,589	55,311
Interest Expense
Deposits	1,529	1,433	2,934	2,709
Subordinated Debentures	131	105	248	205
Total Interest Expense	1,660	1,538	3,182	2,914
Net Interest Income	30,501	26,531	59,407	52,397
Provision for Credit Losses	500	650	833	1,250
Net Interest Income After Provision for Credit Losses	30,001	25,881	58,574	51,147
Non-Interest Income
Service Charges on Deposit Accounts	842	848	1,659	1,694
Net (Loss) Gain on Sale of Investment Securities	(1,330)	131	(1,330)	131
Increase in Cash Surrender Value of Life Insurance	460	454	912	909
Debit Card and ATM Fees	1,096	977	2,112	1,887
Net Gain on Deferred Compensation Investments	407	399	1,189	1,193
Other	808	730	2,406	3,131
Total Non-Interest Income	2,283	3,539	6,948	8,945
Non-Interest Expense
Salaries and Employee Benefits	11,653	11,450	25,180	23,942
Net Gain on Deferred Compensation Investments	407	399	1,189	1,193
Occupancy	907	868	1,849	1,716
Equipment	1,018	1,026	2,041	2,013
Marketing	390	363	719	538
Legal	852	75	1,292	258
FDIC Insurance	227	233	466	461
Gain on Sale of ORE	0	(300)	0	(414)
Other	2,691	2,411	5,345	5,240
Total Non-Interest Expense	18,145	16,525	38,081	34,947
Income Before Income Taxes	14,139	12,895	27,441	25,145
Provision for Income Taxes	3,589	4,708	6,950	9,137
Net Income	$ 10,550	$ 8,187	$ 20,491	$ 16,008
Basic Earnings Per Common Share (in dollars per share)	$ 12.90	$ 10.12	$ 25.14	$ 19.80

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Consolidated Statements of Comprehensive Income (Unaudited) [Abstract]
Net Income	$ 10,550	$ 8,187	$ 20,491	$ 16,008
Other Comprehensive Income
Increase in Net Unrealized (Loss) Gain on Available-for-Sale Securities	(2,519)	898	(7,807)	784
Deferred Tax Benefit (Expense) Related to Unrealized Gains	757	(378)	2,320	(330)
Reclassification Adjustment for Realized Losses (Gains) on Available-for-Sale Securities Included in Net Income	1,330	(131)	1,330	(131)
Deferred Tax Benefit (Expense) Related to Reclassification Adjustment	(405)	56	(405)	56
Change in Net Unrealized (Losses) Gains on Available-for-Sale Securities, Net of Tax	(837)	445	(4,562)	379
Total Other Comprehensive (Loss) Income	(837)	445	(4,562)	379
Comprehensive Income	$ 9,713	$ 8,632	$ 15,929	$ 16,387

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss) Income, Net [Member]	Total
Balance at Dec. 31, 2016	$ 8	$ 90,671	$ 189,313	$ (11)	$ 279,981
Balance (in shares) at Dec. 31, 2016	807,329
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income		0	16,008	0	16,008
Cash Dividends Declared on Common Stock	$ 0	0	(5,459)	0	(5,459)
Issuance of Common Stock	$ 0	811	0	0	811
Issuance of Common Stock (in shares)	1,375
Change in Net Unrealized Gains (Loss) on Securities Available-for-Sale, net of tax	$ 0	0	0	379	379
Balance at Jun. 30, 2017	$ 8	91,482	199,862	368	$ 291,720
Balance (in shares) at Jun. 30, 2017	808,704				808,704
Balance at Dec. 31, 2017	$ 8	93,624	206,845	(817)	$ 299,660
Balance (in shares) at Dec. 31, 2017	812,304				812,304
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income		0	20,491	0	$ 20,491
Cash Dividends Declared on Common Stock	$ 0	0	(5,665)	0	(5,665)
Issuance of Common Stock	$ 0	5,568	0	0	5,568
Issuance of Common Stock (in shares)	8,769
Change in Net Unrealized Gains (Loss) on Securities Available-for-Sale, net of tax	$ 0	0	0	(4,562)	(4,562)
Balance at Jun. 30, 2018	$ 8	$ 99,192	$ 221,671	$ (5,379)	$ 315,492
Balance (in shares) at Jun. 30, 2018	821,073				821,073

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash Dividends Declared per Share of Common Stock (in dollars per share)	$ 6.90	$ 6.75

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Operating Activities:
Net Income	$ 20,491	$ 16,008
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	833	1,250
Depreciation and Amortization	1,155	1,030
Net Amortization of Investment Security Premiums & Discounts	568	771
Amortization of Core Deposit Intangible	54	55
Accretion of Discount on Acquired Loans	(87)	(126)
Net Loss (Gain) on Sale of Investment Securities	1,330	(131)
Net Gain on Sale of Property & Equipment	(292)	(1,162)
Net Gain on Sale of ORE	0	(414)
Earnings from Equity Investment	(164)	0
Dividends from Equity Investment	63	0
Net Change in Operating Assets & Liabilities:
Net Decrease in Interest Receivable and Other Assets	218	(6,943)
Net Increase in Interest Payable and Other Liabilities	1,788	(1,114)
Net Cash Provided by Operating Activities	25,957	9,224
Investing Activities:
Purchase of Investment Securities Available-for-Sale	(169,467)	(140,417)
Proceeds from Sold, Matured or Called Securities Available-for-Sale	227,072	126,657
Purchase of Investment Securities Held-to-Maturity	(2,770)	(475)
Proceeds from Matured or Called Securities Held-to-Maturity	4,990	2,173
Net Loans & Leases Paid, Originated or Acquired	(129,154)	(26,531)
Principal Collected on Loans & Leases Previously Charged Off	50	71
Additions to Premises and Equipment	(2,497)	(2,235)
Purchase of Other Investments	(3,794)	(314)
Proceeds from Sale of Property & Equipment	983	2,284
Proceeds from Sale of Other Real Estate	0	3,186
Net Cash Used in Investing Activities	(74,587)	(35,601)
Financing Activities:
Net (Decrease) Increase in Deposits	(25,955)	80,167
Cash Dividends	(5,665)	(5,459)
Net Cash (Used in) Provided by Financing Activities	(31,620)	74,708
(Decrease) Increase in Cash and Cash Equivalents	(80,250)	48,331
Cash and Cash Equivalents at Beginning of Period	187,149	98,860
Cash and Cash Equivalents at End of Period	106,899	147,191
Supplementary Data
Cash Payments Made for Income Taxes	3,051	9,611
Issuance of Common Stock to the Bank's Non-Qualified Retirement Plans	5,568	811
Interest Paid	$ 3,492	$ 2,752

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Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Significant Accounting Policies [Abstract]

Significant Accounting Policies

1. Significant Accounting Policies

Farmers & Merchants Bancorp (the “Company”) was organized March 10, 1999. Primary operations are related to traditional banking activities through its subsidiary Farmers & Merchants Bank of Central California (the “Bank”) which was established in 1916. The Bank’s wholly owned subsidiaries include Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Farmers & Merchants Investment Corporation has been dormant since 1991. Farmers/Merchants Corp. acts as trustee on deeds of trust originated by the Bank.

The Company’s other subsidiaries include F & M Bancorp, Inc. and FMCB Statutory Trust I. 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. In December 2003, the Company formed a wholly owned subsidiary, FMCB Statutory Trust I, for the sole purpose of issuing Trust Preferred Securities and related subordinated debentures, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). FMCB Statutory Trust I is a non-consolidated subsidiary.

On November 18, 2016, Farmers & Merchants Bancorp completed the acquisition of Delta National Bancorp, headquartered in Manteca, California, and the parent holding company for Delta Bank N.A., a locally owned and operated community bank established in 1973. As of the acquisition date, Delta National Bancorp had approximately $112 million in assets and four branch locations in the communities of Manteca, Riverbank, Modesto and Turlock. At the effective time of the acquisition, Delta National Bancorp was merged into Farmers & Merchants Bancorp and Delta Bank, N.A. was merged into Farmers & Merchants Bank of Central California.

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practice within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

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.

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. These statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three-month and six-month period ended June 30, 2018 may not necessarily be indicative of future operating results. Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years’ financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is limited judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Equity Method Investment

Investment over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for consolidation is accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or loss of the entity. Equity in losses of the equity method investment is not recognized after the carrying value of the investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. 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. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans & leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease’s effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & 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 & leases that are on nonaccrual status at the time they become TDR, 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 impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company’s loan & lease portfolio 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 impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company’s overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project’s failure to fulfill economic expectations.They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful –Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management’s assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. 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. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Acquired Loans

Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.

Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 6 for additional information.

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change.

Low Income Housing Tax Credit Investments (LIHTC)

The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Business Combinations And Related Matters

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the fair value over the purchase price of net assets and other identifiable intangible assets acquired is recorded as bargain purchase gain. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of operations from the date of acquisition. Acquisition-related costs, including conversion charges, are expensed as incurred.

Intangible Assets

Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.

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Investment Securities

6 Months Ended

Jun. 30, 2018

Investment Securities [Abstract]

Investment Securities

2. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows

(in thousands):

June 30, 2018	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,056	$	15	$	-	$	3,071
US Treasury Notes		139,689		2		416		139,275
US Govt SBA		18,583		8		188		18,403
Mortgage Backed Securities (1)		293,473		337		7,396		286,414
Other		3,011		-		-		3,011
Total	$	457,812	$	362	$	8,000	$	450,174

December 31, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,080	$	48	$	-	$	3,128
US Treasury Notes		144,606		-		442		144,164
US Govt SBA		29,559		29		208		29,380
Mortgage Backed Securities (1)		302,502		939		1,527		301,914
Other		3,010		-		-		3,010
Total	$	482,757	$	1,016	$	2,177	$	481,596

June 30, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,103	$	92	$	-	$	3,195
US Treasury Notes		134,689		3		272		134,420
US Govt SBA		32,889		30		119		32,800
Mortgage Backed Securities (1)		288,121		1,821		919		289,023
Other		2,429		-		-		2,429
Total	$	461,231	$	1,946	$	1,310	$	461,867

⁽¹⁾ All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

	Book		Gross Unrealized				Fair
June 30, 2018	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	52,210	$	227	$	79	$	52,358
Total	$	52,210	$	227	$	79	$	52,358

	Book		Gross Unrealized				Fair
December 31, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	54,460	$	776	$	-	$	55,236
Total	$	54,460	$	776	$	-	$	55,236

	Book		Gross Unrealized				Fair
June 30, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	56,381	$	746	$	-	$	57,127
Total	$	56,381	$	746	$	-	$	57,127

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at June 30, 2018 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
June 30, 2018	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	128,110	$	127,874	$	3,613	$	3,618
After one year through five years		18,748		18,582		5,750		5,753
After five years through ten years		1,583		1,580		19,192		19,258
After ten years		15,898		15,724		23,655		23,729
		164,339		163,760		52,210		52,358
Investment securities not due at a single maturity date:
Mortgage-backed securities		293,473		286,414		-		-
Total	$	457,812	$	450,174	$	52,210	$	52,358

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousands):

	Less Than 12 Months				12 Months or More				Total
June 30, 2018	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	14,412	$	178	$	29,876	$	238	$	44,288	$	416
US Govt SBA		5,589		68		9,023		120		14,612		188
Mortgage Backed Securities		214,949		5,464		58,148		1,932		273,097		7,396
Total	$	234,950	$	5,710	$	97,047	$	2,290	$	331,997	$	8,000
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	8,543	$	79	$	-	$	-	$	8,543	$	79
Total	$	8,543	$	79	$	-	$	-	$	8,543	$	79

	Less Than 12 Months				12 Months or More				Total
December 31, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	94,281	$	144	$	49,883	$	298	$	144,164	$	442
US Govt SBA		8,379		51		12,900		157		21,279		208
Mortgage Backed Securities		126,863		932		43,208		595		170,071		1,527
Total	$	229,523	$	1,127	$	105,991	$	1,050	$	335,514	$	2,177

There were no HTM investments with gross unrealized losses at December 31, 2017

	Less Than 12 Months				12 Months or More				Total
June 30, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	74,423	$	272	$	-	$	-	$	74,423	$	272
US Govt SBA	$	22,775	$	119	$	-	$	-		22,775	$	119
Mortgage Backed Securities		141,268		919		-		-		141,268		919
Total	$	238,466	$	1,310	$	-	$	-	$	238,466	$	1,310

There were no HTM investments with gross unrealized losses at June 30, 2017

As of June 30, 2018, the Company held 404 investment securities of which 112 were in an unrealized loss position for less than twelve months. 85 securities were in an unrealized loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – At June 30, 2018, December 31, 2017 and June 30, 2017, 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.

U.S. Treasury Notes – At June 30, 2018, three U.S. Treasury Note security investments were in an unrealized loss position for less than 12 months and two were in an unrealized loss position for 12 months or more. The unrealized losses on the Company’s investment in U.S. Treasury Notes were $416,000, $442,000, and $272,000 at June 30, 2018, December 31, 2017, and June 30, 2017, 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, 2018, December 31, 2017, and June 30, 2017.

U.S. Government SBA – At June 30, 2018, 29 U.S. Government SBA security investments were in an unrealized loss position for less than 12 months and 43 were in an unrealized loss position for 12 months or more. The unrealized losses on the Company’s investment in U.S. Government SBA securities were $188,000, $208,000, and $119,000 at June 30, 2018, December 31, 2017, and June 30, 2017, 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, 2018, December 31, 2017, and June 30, 2017.

Mortgage Backed Securities – At June 30, 2018, 58 mortgage backed security investments were in an unrealized loss position for less than 12 months and 40 were in an unrealized loss position for 12 months or more. The unrealized losses on the Company’s investment in mortgage backed securities were $7.4 million, $1.5 million, and $919,000 at June 30, 2018, December 31, 2017, and June 30, 2017, respectively. The unrealized losses on the Company’s investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2018, December 31, 2017, and June 30, 2017.

Obligations of States and Political Subdivisions - At June 30, 2018, 22 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, 2018, 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 $79,000, $0 and $0 at June 30, 2018, December 31, 2017 and June 30, 2017, respectively. Management believes that any unrealized losses on the Company’s investments in obligations of states and political subdivisions were primarily 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 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 June 30, 2018, December 31, 2017 and June 30, 2017.

Proceeds from sales and calls of securities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2018		2017		2018		2017
Proceeds	$	31,370	$	7,831	$	31,370	$	7,831
Gains		8		143		8		143
Losses		1,338		12		1,338		12

Pledged Securities

As of June 30, 2018, securities carried at $210.0 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $214.5 million at December 31, 2017, and $211.6 million at June 30, 2017.

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Loans & Leases and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2018

Loans & Leases and Allowance for Credit Losses [Abstract]

Loans & Leases and Allowance for Credit Losses

3. Loans & Leases and Allowance for Credit Losses

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, 2018	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2018	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197		$	209		$	3,363	$	1,422		$	50,342
Charge-Offs		-			-		-			(12	)		(4	)		-			(14	)		(58	)		-		-			(88	)
Recoveries		-			-		-			6			2			13			3			26			-		-			50
Provision		(139	)		1,229		(230	)		55			226			(514	)		250			93			37		(174	)		833
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2018	$	11,078		$	12,242	$	1,873		$	827		$	2,343		$	7,868		$	9,374		$	239		$	3,390	$	1,443		$	50,677
Charge-Offs		-			-		-			(12	)		-			-			(14	)		(41	)		-		-			(67	)
Recoveries		-			-		-			3			1			7			1			15			-		-			27
Provision		(295	)		1,072		(257	)		46			204			(217	)		75			57			10		(195	)		500
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Ending Balance Individually Evaluated for Impairment		333			-		-			131			16			-			487			7			-		-			974
Ending Balance Collectively Evaluated for Impairment		10,450			13,314		1,616			733			2,532			7,658			8,949			263			3,400		1,248			50,163
Loans & Leases:
Ending Balance	$	752,043		$	540,852	$	94,223		$	261,804		$	37,669		$	273,170		$	286,651		$	7,390		$	90,646	$	-		$	2,344,448
Ending Balance Individually Evaluated for Impairment		4,749			-		-			2,628			324			-			2,290			7			-		-			9,998
Ending Balance Collectively Evaluated for Impairment	$	747,294		$	540,852	$	94,223		$	259,176		$	37,345		$	273,170		$	284,361		$	7,383		$	90,646	$	-		$	2,334,450

December 31, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment	$	680,139		$	499,231	$	100,206		$	258,378		$	34,185		$	273,582		$	263,969	$	6,646		$	89,680		$	-		$	2,206,016

June 30, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans		Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140	$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			-			-		(7	)		-		(60	)		-			-			(176	)
Recoveries		10			-		-			19			5		-			4		33			-			-			71
Provision		231			815		(536	)		(12	)		25		(138	)		1,025		32			(634	)		442			1,250
Ending Balance- June 30, 2017	$	11,242		$	10,265	$	2,687		$	872		$	2,170	$	7,236		$	9,544	$	205		$	2,952		$	1,891		$	49,064
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2017	$	11,665		$	9,393	$	2,946		$	880		$	2,125	$	6,511		$	8,479	$	198		$	3,866		$	2,337		$	48,400
Charge-Offs		-			-		-			-			-		-			-		(25	)		-			-			(25	)
Recoveries		3			-		-			16			3		-			-		17			-			-			39
Provision		(426	)		872		(259	)		(24	)		42		725			1,065		15			(914	)		(446	)		650
Ending Balance- June 30, 2017	$	11,242		$	10,265	$	2,687		$	872		$	2,170	$	7,236		$	9,544	$	205		$	2,952		$	1,891		$	49,064
Ending Balance Individually Evaluated for Impairment		468			-		-			61			15		322			266		6			-			-			1,138
Ending Balance Collectively Evaluated for Impairment		10,774			10,265		2,687			811			2,155		6,914			9,278		199			2,952			1,891			47,926
Loans & Leases:
Ending Balance	$	670,591		$	473,153	$	168,487		$	252,653		$	32,174	$	265,899		$	254,887	$	7,533		$	78,705		$	-		$	2,204,082
Ending Balance Individually Evaluated for Impairment		4,890			976		-			1,894			344		688			1,624		28			-			-			10,444
Ending Balance Collectively Evaluated for Impairment	$	665,701		$	472,177	$	168,487		$	250,759		$	31,830	$	265,211		$	253,263	$	7,505		$	78,705		$	-		$	2,193,638

The ending balance of loans individually evaluated for impairment includes restructured loans in the amount of $2.9 million at June 30, 2018, $3.0 million at December 31, 2017 and $3.2 million at June 30, 2017, which are no longer classified as TDRs.

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

June 30, 2018	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	749,467	$	2,576	$	-	$	752,043
Agricultural Real Estate		524,259		10,521		6,072		540,852
Real Estate Construction		85,638		8,585		-		94,223
Residential 1st Mortgages		261,112		-		692		261,804
Home Equity Lines & Loans		37,622		-		47		37,669
Agricultural		266,837		5,050		1,283		273,170
Commercial		285,113		283		1,255		286,651
Consumer & Other		7,245		-		145		7,390
Leases		88,677		1,969		-		90,646
Total	$	2,305,970	$	28,984	$	9,494	$	2,344,448

December 31, 2017	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

June 30, 2017	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	664,606	$	4,491	$	1,494	$	670,591
Agricultural Real Estate		466,831		1,316		5,006		473,153
Real Estate Construction		160,112		8,375		-		168,487
Residential 1st Mortgages		252,252		44		357		252,653
Home Equity Lines & Loans		32,174		-		-		32,174
Agricultural		256,026		6,302		3,571		265,899
Commercial		249,173		5,128		586		254,887
Consumer & Other		7,341		-		192		7,533
Leases		76,313		2,392		-		78,705
Total	$	2,164,828	$	28,048	$	11,206	$	2,204,082

See “Note 1. Significant Accounting Policies - Allowance for Credit Losses” for a description of the internal risk ratings used by the Company. There were no loans or leases outstanding at June 30, 2018, December 31, 2017, and June 30, 2017, 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, 2018	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	752,043	$	752,043
Agricultural Real Estate		-		-		-		-		-		540,852		540,852
Real Estate Construction		277		-		-		-		277		93,946		94,223
Residential 1st Mortgages		107		-		-		130		237		261,567		261,804
Home Equity Lines & Loans		19		-		-		-		19		37,650		37,669
Agricultural		-		-		-		-		-		273,170		273,170
Commercial		-		-		-		599		599		286,052		286,651
Consumer & Other		6		-		-				6		7,384		7,390
Leases		-		-		-				-		90,646		90,646
Total	$	409	$	-	$	-	$	729	$	1,138	$	2,343,310	$	2,344,448

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	143	$	-	$	143	$	670,448	$	670,591
Agricultural Real Estate		-		-		-		976		976		472,177		473,153
Real Estate Construction		-		-		-		-		-		168,487		168,487
Residential 1st Mortgages		-		-		-		56		56		252,597		252,653
Home Equity Lines & Loans		36		-		-		-		36		32,138		32,174
Agricultural		-		-		-		306		306		265,593		265,899
Commercial		-		-		-		-		-		254,887		254,887
Consumer & Other		23		-		-		24		47		7,486		7,533
Leases		-		-		-		-		-		78,705		78,705
Total	$	59	$	-	$	143	$	1,362	$	1,564	$	2,202,518	$	2,204,082

The following tables show information related to impaired loans & leases for the periods indicated (in thousands):

							Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
June 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	100	$	100	$	-	$	101	$	2	$	102	$	4
Residential 1st Mortgages		-		-		-		452		-		680		8
	$	100	$	100	$	-	$	553	$	2	$	782	$	12
With an allowance recorded:
Commercial Real Estate	$	2,938	$	2,927	$	333	$	2,947	$	24		2,956	$	48
Residential 1st Mortgages		1,698		1,877		85		1,141		13		844		20
Home Equity Lines & Loans		76		86		3		77		1		77		2
Commercial		2,297		2,290		487		2,009		15		1,870		30
Consumer & Other		7		8		7		8		-		8		-
	$	7,016	$	7,188	$	915	$	6,182	$	53		5,755	$	100
Total	$	7,116	$	7,288	$	915	$	6,735	$	55	$	6,537	$	112

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

							Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
June 30, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	108	$	109	$	-	$	109	$	3	$	128	$	7
Agricultural Real Estate		976		983		-		976		-		1,059		-
Residential 1st Mortgages		406		462		-		410		3		421		3
Home Equity Lines & Loans		-		-		-		32		-		32		-
Agricultural		59		65		-		60		-		45		-
Commercial		-		-		-		-		-		756		-
	$	1,549	$	1,619	$	-	$	1,587	$	6	$	2,441	$	10
With an allowance recorded:
Commercial Real Estate	$	3,008	$	2,994	$	467	$	3,016	$	25	$	2,264	$	55
Residential 1st Mortgages		424		463		20		425		4		427		9
Home Equity Lines & Loans		51		58		3		70		1		80		2
Agricultural		630		631		322		634		6		633		14
Commercial		1,631		1,623		266		1,636		14		1,589		30
Consumer & Other		24		31		6		15		-		11		-
	$	5,768	$	5,800	$	1,084	$	5,796	$	50	$	5,004	$	110
Total	$	7,317	$	7,419	$	1,084	$	7,383	$	56	$	7,445	$	120

Total recorded investment shown in the prior table will not equal the total ending balance of loans & leases individually evaluated for impairment on the allocation of allowance table. This is because this table does not include impaired loans that were previously modified in a troubled debt restructuring, are currently performing and are no longer disclosed or classified as TDR’s.

At June 30, 2018, the Company allocated $624,000 of specific reserves to $6.4 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at June 30, 2018 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and six-month periods ending June 30, 2018, 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.

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	175	$	163		1	$	175	$	163
Total		1	$	175	$	163		1	$	175	$	163

During the three and six-months ended June 30, 2018, the twelve months ended December 31, 2017, and the three and six-month periods ending June 30, 2017 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.

At December 31, 2017, the Company allocated $623,000 of specific reserves to $6.3 million of troubled debt restructured loans, all of which were performing. The Company had no commitments at December 31, 2017 to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the period ending December 31, 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan ranged from 3 to 5 years. Modifications involving an extension of the maturity date ranged from 3 to 10 years.

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2		673		630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

At June 30, 2017, the Company allocated $831,000 of specific reserves to $6.0 million of troubled debt restructured loans & leases, all of which were performing. The Company had no commitments at June 30, 2017 to lend additional amounts to customers with outstanding loans or leases that are classified as TDRs.

During the three and six-month periods ending June 30, 2017, there were no loans & leases modified as a troubled debt restructuring.

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Measurements [Abstract]

Fair Value Measurements

4. Fair Value Measurements

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC, which establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit, assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The Company does not record all loans & leases at fair value on a recurring basis. However, from time to time, a loan or lease is considered impaired and an allowance for credit losses is established. Once a loan or lease is identified as individually impaired, management measures impairment in accordance with the “Receivable” topic of the FASB ASC. The fair value of impaired loans or leases is estimated using one of several methods, including collateral value when the loan is collateral dependent, market value of similar debt, enterprise value, and discounted cash flows. Impaired loans & leases not requiring an allowance represent loans & leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans & leases. Impaired loans & leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring impaired loans is primarily the sales comparison approach less selling costs of 10%.

Other Real Estate (“ORE”) is reported at fair value on a non-recurring basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 nonrecurring ORE is primarily the sales comparison approach less selling costs of 10%.

At June 30, 2018, there were formal foreclosure proceedings in process for consumer mortgage loans secured by residential real estate properties in the amount of $49,000.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

			Fair Value Measurements At June 30, 2018, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,071	$	-	$	3,071	$	-
US Treasury Notes		139,275		139,275		-		-
US Govt SBA		18,403		-		18,403		-
Mortgage Backed Securities		286,414		-		286,414		-
Other		3,011		201		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	450,174	$	139,476	$	308,198	$	2,500

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,128	$	-	$	3,128	$	-
US Treasury Notes		144,164		144,164		-		-
US Govt SBA		29,380		-		29,380		-
Mortgage Backed Securities		301,914		-		301,914		-
Other		3,010		200		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	481,596	$	144,364	$	334,732	$	2,500

			Fair Value Measurements At June 30, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,195	$	-	$	3,195	$	-
US Treasury Notes		134,420		134,420		-		-
US Govt SBA		32,800		-		32,800		-
Mortgage Backed Securities		289,023		-		289,023		-
Other		2,429		200		310		1,919
Total Assets Measured at Fair Value On a Recurring Basis	$	461,867	$	134,620	$	325,328	$	1,919

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, 2018 and 2017, there were no transfers in or out of Level 1, 2, or 3.

The available for sale investment security categorized as a Level 3 asset for period ended June 30, 2018 consisted of one $2.5 million investment in a limited liability company that purchases SBA loans. This security is not actively traded and is owned by a few investors for CRA purposes. The significant unobservable data reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average lives and credit information, among other things. There were no gains or losses or transfers in or out of level 3 during the period ended June 30, 2018.

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. Not all impaired loans or leases are carried at fair value. Impaired loans or leases are only included in the following tables when their fair value is based upon a current appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At June 30, 2018, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	2,594	$	-	$	-	$	2,594
Residential 1st Mortgage		1,485		-		-		1,485
Home Equity Lines and Loans		72		-		-		72
Commercial		1,490		-		-		1,490
Total Impaired Loans		5,641		-		-		5,641
Other Real Estate
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,514	$	-	$	-	$	6,514

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial Real Estate	$	2,595	$	-	$	-	$	2,595
Residential 1st Mortgage		997		-		-		997
Home Equity Lines and Loans		75		-		-		75
Commercial		1,514		-		-		1,514
Total Impaired Loans		5,181		-		-		5,181
Other Real Estate:
Home Equity Lines and Loans		-		-		-		-
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,054	$	-	$	-	$	6,054

			Fair Value Measurements At June 30, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	2,526	$	-	$	-	$	2,526
Residential 1st Mortgage		386		-		-		386
Home Equity Lines and Loans		48		-		-		48
Agricultural		366		-		-		366
Commercial		1,358		-		-		1,358
Consumer		19		-		-		19
Total Impaired Loans		4,703		-		-		4,703
Other Real Estate
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,576	$	-	$	-	$	5,576

The Company’s property appraisals are primarily based on the sales comparison approach and the income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2018:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Commercial Real Estate	$	2,594	Income Approach	Capitalization Rate		3.25%, 3.25%
Residential 1st Mortgage	$	1,485	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% -4%, 3%
Home Equity Lines and Loans	$	72	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 1%
Commercial	$	1,490	Income Approach	Capitalization Rate		2.95% - 8.70%, 3.40%
Other Real Estate
Real Estate Construction	$	873	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10%, 10%

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2018

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization. The valuation of loans held for investment was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level 3 classification.

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

			Fair Value of Financial Instruments Using
June 30, 2018 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	106,899	$	106,899	$	-	$	-	$	106,899
Investment Securities Available-for-Sale		450,174		139,476		308,198		2,500		450,174
Investment Securities Held-to-Maturity		52,210		-		36,693		15,665		52,358
FHLB Stock		10,877		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,293,311		-		-		2,253,733		2,253,733
Accrued Interest Receivable		11,548		-		11,548		-		11,548
Liabilities:
Deposits		2,697,273		2,231,153		462,040		-		2,693,193
Subordinated Debentures		10,310		-		7,639		-		7,639
Accrued Interest Payable		827		-		827		-		827

			Fair Value of Financial Instruments Using
December 31, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	187,149	$	187,149	$	-	$	-	$	187,149
Investment Securities Available-for-Sale		481,596		144,364		334,732		2,500		481,596
Investment Securities Held-to-Maturity		54,460		-		38,492		16,744		55,236
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,164,953		-		-		2,137,987		2,137,987
Accrued Interest Receivable		10,999		-		10,999		-		10,999
Liabilities:
Deposits		2,723,228		2,247,831		472,671		-		2,720,502
Subordinated Debentures		10,310		-		7,428		-		7,428
Accrued Interest Payable		1,137		-		1,137		-		1,137

			Fair Value of Financial Instruments Using
June 30, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	147,191	$	147,191	$	-	$	-	$	147,191
Investment Securities Available-for-Sale		461,867		134,620		325,328		1,919		461,867
Investment Securities Held-to-Maturity		56,381		-		40,071		17,056		57,127
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,155,018		-		-		2,138,109		2,138,109
Accrued Interest Receivable		9,739		-		9,739		-		9,739
Liabilities:
Deposits		2,661,878		2,065,151		594,798		-		2,659,949
Subordinated Debentures		10,310		-		6,567		-		6,567
Accrued Interest Payable		1,014		-		1,014		-		1,014

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Dividends and Basic Earnings Per Common Share

6 Months Ended

Jun. 30, 2018

Dividends and Basic Earnings Per Common Share [Abstract]

Dividends and Basic Earnings Per Common Share

6. Dividends and Basic Earnings Per Common Share

Farmers & Merchants Bancorp common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. On May 8, 2018, the Board of Directors declared a mid-year cash dividend of $6.90 per share, a 2.2% increase over the $6.75 per share paid on July 1, 2017. The cash dividend was paid on July 2, 2018, to shareholders of record on June 8, 2018.

Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. The Company has no securities or other contracts, such as stock options, that could require the issuance of common stock. Accordingly, diluted earnings per share are not presented. The following table calculates the basic earnings per common share for the three and six months ended June 30, 2018 and 2017.

	Three Months Ended June 30,				Six Months Ended June 30,
(net income in thousands)	2018		2017		2018		2017
Net Income	$	10,550	$	8,187	$	20,491	$	16,008
Weighted Average Number of Common Shares Outstanding		817,893		808,704		815,114		808,347
Basic Earnings Per Common Share Amount	$	12.90	$	10.12	$	25.14	$	19.80

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Shareholders' Equity

6 Months Ended

Jun. 30, 2018

Shareholders' Equity [Abstract]

Shareholders' Equity

7. Shareholders’ Equity

In May 2018, the Company issued 8,769 shares of common stock to the Bank’s non-qualified defined contribution retirement plans. These shares were issued at a price of $635.00 per share based upon a valuation completed by a nationally recognized bank consulting and advisory firm and in reliance upon the exemption in Section 4(a)(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The proceeds were contributed to the Bank as equity capital.

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Pending Acquisition of Bank of Rio Vista

6 Months Ended

Jun. 30, 2018

Pending Acquisition of Bank of Rio Vista [Abstract]

Pending Acquisition of Bank of Rio Vista

8. Pending Acquisition of Bank of Rio Vista

On March 26, 2018, Farmers & Merchants Bancorp and Bank of Rio Vista announced that a definitive agreement had been signed by both parties for the acquisition of Bank of Rio Vista by Farmers & Merchants Bancorp. The transaction is subject to customary closing conditions, and is expected to close in the third quarter of 2018.

In this transaction, the shareholders of Bank of Rio Vista owning 2,414 shares, or 60.35% of the outstanding common shares, will receive $28.7 million in cash subject to certain adjustments defined in the definitive agreement. Over the past year, Farmers & Merchants Bancorp acquired 1,586, or 39.65%, of the outstanding common shares of Bank of Rio Vista for $12.0 million. As a result, the total price paid for all common shares of Bank of Rio Vista is $40.7 million or 1.42 times the minimum book value that must be delivered at close.

As a result of signing a definitive agreement with Bank of Rio Vista, Farmers & Merchants Bancorp is accounting for the 39.65% of the outstanding common shares of Bank of Rio Vista that it currently owns under the equity method of accounting, in accordance with ASC 323-10 effective first quarter 2018. During the six months ended June 30, 2018, the Company’s recorded investment in Bank of Rio Vista increased by $164,000, based upon the earnings of Bank of Rio Vista that are attributed to the Company’s ownership.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

9. Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

The following paragraphs provide descriptions of recently adopted accounting standards that may have had a material effect on the Company’s financial position or results of operations.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and debit card and ATM fees, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. The adoption of the ASU resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.  See Note 5 – Fair Value of Financial Instruments for further information regarding the valuation of these loans.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act (“Tax Act”). The amount of the reclassification consists of the difference between the historical corporate income tax rates and the newly enacted 21 percent corporate income tax rate. The amendments are effective for all entities for the interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted, including interim periods in those years. The Company adopted the amendments as of December 31, 2017, which resulted in a net reclassification of $144,000 between AOCI and retained earnings.

Accounting Guidance Pending Adoption at June 30, 2018

The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Company has selected a vendor to analyze our loan data and has chosen an implementation team. The Company is currently working with the vendor and our IT department to establish the data transmission interface. While the Company has not quantified the impact of this ASU, it is evaluating historical loan level data requirements necessary for the implementation of the model, as well as various methodologies for determining expected credit losses.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. This ASU applies to leasing arrangements exceeding a twelve-month term. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective method upon adoption. Early application of the amendments is permitted. The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for these leases.

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Subsequent Events

6 Months Ended

Jun. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

10. Subsequent Events

On July 2, 2018, Farmers & Merchants Bancorp entered into a material definitive agreement to purchase 44,503 shares of the Company’s Common Stock from the estate of a former Director. The agreed upon purchase price is $700.00 per share for a total consideration of Thirty One Million One Hundred Fifty-Two Thousand One Hundred Dollars ($31,152,100). The transaction closed on July 31, 2018. After the transaction, the Company will remain “well capitalized” under the regulatory framework for prompt corrective action.

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Significant Accounting Policies [Abstract]

Basis of Presentation

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.

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. These statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three-month and six-month period ended June 30, 2018 may not necessarily be indicative of future operating results. Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying consolidated financial statements include the accounts of the Company and the Company’s wholly owned subsidiaries, F & M Bancorp, Inc. and the Bank, along with the Bank’s wholly owned subsidiaries, Farmers & Merchants Investment Corporation and Farmers/Merchants Corp. Significant inter-company transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Certain amounts in the prior years’ financial statements and related footnote disclosures have been reclassified to conform to the current-year presentation. These reclassifications had no effect on previously reported net income or total shareholders’ equity.

Revenue from Contracts with Customers

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is limited judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and Due from Banks, Interest Bearing Deposits with Banks, Federal Funds Sold and Securities Purchased Under Agreements to Resell. For these instruments, the carrying amount is a reasonable estimate of fair value.

Equity Method Investment

Equity Method Investment

Investment over which the Company exercises significant influence over the activities of the entity but which do not meet the requirements for consolidation is accounted for using the equity method of accounting pursuant to ASC 323, whereby the Company records its share of the underlying income or loss of the entity. Equity in losses of the equity method investment is not recognized after the carrying value of the investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

Investment Securities

Investment Securities

Investment securities are classified at the time of purchase as held-to-maturity (“HTM”) if it is management’s intent and the Company has the ability to hold the securities until maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount using a level yield of interest over the estimated remaining period until maturity. Losses, reflecting a decline in value judged by the Company to be other than temporary, are recognized in the period in which they occur.

Securities are classified as available-for-sale (“AFS”) if it is management’s intent, at the time of purchase, to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. 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. Fair values are based on quoted market prices or broker/dealer price quotations on a specific identification basis. Gains or losses on the sale of these securities are computed using the specific identification method.

Trading securities, if any, are acquired for short-term appreciation and are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in non-interest income.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement; and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans & Leases

Loans & leases

Loans & leases are reported at the principal amount outstanding net of unearned discounts and deferred loan & lease fees and costs. Interest income on loans & leases is accrued daily on the outstanding balances using the simple interest method. Loan & lease origination fees are deferred and recognized over the contractual life of the loan or lease as an adjustment to the yield. Loans & leases are placed on non-accrual status when the collection of principal or interest is in doubt or when they become past due for 90 days or more unless they are both well-secured and in the process of collection. For this purpose, a loan or lease is considered well-secured if it is collateralized by property having a net realizable value in excess of the amount of the loan or lease or is guaranteed by a financially capable party. When a loan or lease is placed on non-accrual status, the accrued and unpaid interest receivable is reversed and charged against current income; thereafter, interest income is recognized only as it is collected in cash. Additionally, cash would be applied to principal if all principal was not expected to be collected. Loans & leases placed on non-accrual status are returned to accrual status when the loans or leases are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan or lease.

A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Impaired loans & leases are either: (1) non-accrual loans & leases; or (2) restructured loans & leases that are still accruing interest. Loans or leases determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan or lease’s effective interest rate, except that as a practical expedient, it may measure impairment based on a loan or lease’s observable market price, or the fair value of the collateral if the loan or lease is collateral dependent. A loan or lease is collateral dependent if the repayment of the loan or lease is expected to be provided solely by the underlying collateral.

A restructuring of a loan or lease constitutes a troubled debt restructuring (TDR) if the Company for economic or legal reasons related to the borrower’s (the term “borrower” is used herein to describe a customer who has entered into either a loan or lease transaction) financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans & 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 & leases that are on nonaccrual status at the time they become TDR, 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 impaired and are individually evaluated for impairment as described above.

Generally, the Company will not restructure loans or leases for borrowers unless: (1) the existing loan or lease is brought current as to principal and interest payments; and (2) the restructured loan or lease can be underwritten to reasonable underwriting standards. If these standards are not met other actions will be pursued (e.g., foreclosure) to collect outstanding loan or lease amounts. After restructure, a determination is made whether the loan or lease will be kept on accrual status based upon the underwriting and historical performance of the restructured credit.

Allowance for Credit Losses

Allowance for Credit Losses

The allowance for credit losses is an estimate of probable incurred credit losses inherent in the Company’s loan & lease portfolio 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 impaired loans & leases; general reserves for inherent losses related to loans & leases that are not impaired; and an unallocated component that takes into account the imprecision in estimating and allocating allowance balances associated with macro factors.

The determination of the general reserve for loans & leases that are collectively evaluated for impairment is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, qualitative factors that include economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan & lease portfolio, and probable losses inherent in the portfolio taken as a whole.

The Company maintains a separate allowance for each portfolio segment (loan & lease type). These portfolio segments include: (1) commercial real estate; (2) agricultural real estate; (3) real estate construction (including land and development loans); (4) residential 1^st mortgages; (5) home equity lines and loans; (6) agricultural; (7) commercial; (8) consumer and other; and (9) equipment leases. The allowance for credit losses attributable to each portfolio segment, which includes both individually evaluated impaired loans & leases and loans & leases that are collectively evaluated for impairment, is combined to determine the Company’s overall allowance, which is included on the consolidated balance sheet.

The Company assigns a risk rating to all loans & leases and periodically performs detailed reviews of all such loans & leases over a certain threshold to identify credit risks and assess overall collectability. For smaller balance loans & leases, such as consumer and residential real estate, a credit grade is established at inception, and then updated only when the loan or lease becomes contractually delinquent or when the borrower requests a modification. For larger balance loans, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans & leases. These credit quality indicators are used to assign a risk rating to each individual loan or lease. These risk ratings are also subject to examination by independent specialists engaged by the Company. The risk ratings can be grouped into five major categories, defined as follows:

Pass – A pass loan or lease is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – A special mention loan or lease has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special mention loans & leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard – A substandard loan or lease is not adequately protected by the current financial condition and paying capacity of the borrower or the value of the collateral pledged, if any. Loans or leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project’s failure to fulfill economic expectations.They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful –Loans or leases classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable or improbable.

Loss – Loans or leases classified as loss are considered uncollectible. Once a loan or lease becomes delinquent and repayment becomes questionable, the Company will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Company will estimate its probable loss and immediately charge-off some or all of the balance.

The general reserve component of the allowance for credit losses also consists of reserve factors that are based on management’s assessment of the following for each portfolio segment: (1) inherent credit risk; (2) historical losses; and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below:

Commercial Real Estate – Commercial real estate mortgage loans are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.

Real Estate Construction – Real estate construction loans, including land loans, are generally considered to possess a higher inherent risk of loss than the Company’s commercial, agricultural and consumer loan types. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

Commercial – These loans are generally considered to possess a moderate inherent risk of loss because they are shorter-term; typically made to relationship customers; generally underwritten to existing cash flows of operating businesses; and may be collateralized by fixed assets, inventory and/or accounts receivable. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Agricultural Real Estate and Agricultural – These loans are generally considered to possess a moderate inherent risk of loss since they are typically made to relationship customers and are secured by crop production, livestock and related real estate. These loans are vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

Leases – Equipment leases are generally considered to possess a moderate inherent risk of loss. As lessor, the Company is subject to both the credit risk of the borrower and the residual value risk of the equipment. Credit risks are underwritten using the same credit criteria the Company would use when making an equipment term loan. Residual value risk is managed through the use of qualified, independent appraisers that establish the residual values the Company uses in structuring a lease.

Residential 1st Mortgages and Home Equity Lines and Loans – These loans are generally considered to possess a low inherent risk of loss, although this is not always true as evidenced by the correction in residential real estate values that occurred between 2007 and 2012. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

Consumer & Other – A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. 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. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.

Acquired Loans

Acquired Loans

Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date. Credit discounts, which reflect estimates of credit losses, expected to be incurred over the life of the loan, are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in Interest Payable and Other Liabilities on the Company’s Consolidated Balance Sheet.

Premises and Equipment

Premises and Equipment

Premises, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Estimated useful lives of buildings range from 30 to 40 years, and for furniture and equipment from 3 to 7 years. Leasehold improvements are amortized over the lesser of the terms of the respective leases, or their useful lives, which are generally 5 to 10 years. Remodeling and capital improvements are capitalized while maintenance and repairs are charged directly to occupancy expense.

Other Real Estate

Other Real Estate

Other real estate, which is included in other assets, is expected to be sold and is comprised of properties no longer utilized for business operations and property acquired through foreclosure in satisfaction of indebtedness. These properties are recorded at fair value less estimated selling costs upon acquisition. Revised estimates to the fair value less cost to sell are reported as adjustments to the carrying amount of the asset, provided that such adjusted value is not in excess of the carrying amount at acquisition. Initial losses on properties acquired through full or partial satisfaction of debt are treated as credit losses and charged to the allowance for credit losses at the time of acquisition. Subsequent declines in value from the recorded amounts, routine holding costs, and gains or losses upon disposition, if any, are included in non-interest expense as incurred.

Income Taxes

Income Taxes

The Company uses the liability method of accounting for income taxes. This method results in the recognition of deferred tax assets and liabilities that are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount combined with the current taxes payable or refundable results in the income tax expense for the current year.

The Company follows the standards set forth in the “Income Taxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company accounts for leases with Investment Tax Credits (ITC) under the deferred method as established in ASC 740-10. ITC are viewed and accounted for as a reduction of the cost of the related assets and presented as deferred income on the Company’s financial statement.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest expense and penalties associated with unrecognized tax benefits, if any, are included in the provision for income taxes in the Consolidated Statements of Income.

Basic Earnings Per Common Share

Basic Earnings Per Common Share

The Company’s common stock is not traded on any exchange. The shares are primarily held by local residents and are not actively traded. Basic earnings per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding for the period. There are no common stock equivalent shares. Therefore, there is no presentation of diluted basic earnings per common share. See Note 6 for additional information.

Segment Reporting

Segment Reporting

The “Segment Reporting” topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is a holding company for a community bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, the Company is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change.

Low Income Housing Tax Credit Investments (LIHTC)

Low Income Housing Tax Credit Investments (LIHTC)

The Company accounts for its interest in LIHTC using the cost method as established in ASC 323-740. As an investor, the Company obtains income tax credits and deductions from the operating losses of these tax credit entities. The income tax credits and deductions are allocated to the investors based on their ownership percentages and are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable.

Comprehensive Income

Comprehensive Income

The “Comprehensive Income” topic of the FASB ASC establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that U.S. GAAP recognize as changes in value to an enterprise but are excluded from net income. For the Company, comprehensive income includes net income and changes in fair value of its available-for-sale investment securities.

Loss Contingencies

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Business Combinations And Related Matters

Business Combinations 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.

Intangible Assets

Intangible Assets

Intangible assets are comprised of core deposit intangibles acquired in the Delta National Bancorp acquisition. Intangible assets with definite useful lives are amortized over their respective estimated useful lives. If an event occurs that indicates the carrying amount of an intangible asset may not be recoverable, management reviews the asset for impairment.

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Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

The following paragraphs provide descriptions of recently adopted accounting standards that may have had a material effect on the Company’s financial position or results of operations.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and debit card and ATM fees, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the ASU provisions on January 1, 2018. The adoption of the ASU resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.  See Note 5 – Fair Value of Financial Instruments for further information regarding the valuation of these loans.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act (“Tax Act”). The amount of the reclassification consists of the difference between the historical corporate income tax rates and the newly enacted 21 percent corporate income tax rate. The amendments are effective for all entities for the interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted, including interim periods in those years. The Company adopted the amendments as of December 31, 2017, which resulted in a net reclassification of $144,000 between AOCI and retained earnings.

Accounting Guidance Pending Adoption at June 30, 2018

The following paragraphs provide descriptions of newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Company has selected a vendor to analyze our loan data and has chosen an implementation team. The Company is currently working with the vendor and our IT department to establish the data transmission interface. While the Company has not quantified the impact of this ASU, it is evaluating historical loan level data requirements necessary for the implementation of the model, as well as various methodologies for determining expected credit losses.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard is being issued to increase the transparency and comparability around lease obligations. Previously unrecorded off-balance sheet obligations will now be brought more prominently to light by presenting lease liabilities on the face of the balance sheet, accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. This ASU applies to leasing arrangements exceeding a twelve-month term. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective method upon adoption. Early application of the amendments is permitted. The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for these leases.

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2018

Investment Securities [Abstract]

Amortized Cost, Fair Values, and Unrealized Gains and Losses of Securities Available-for-Sale

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows

(in thousands):

June 30, 2018	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,056	$	15	$	-	$	3,071
US Treasury Notes		139,689		2		416		139,275
US Govt SBA		18,583		8		188		18,403
Mortgage Backed Securities (1)		293,473		337		7,396		286,414
Other		3,011		-		-		3,011
Total	$	457,812	$	362	$	8,000	$	450,174

December 31, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,080	$	48	$	-	$	3,128
US Treasury Notes		144,606		-		442		144,164
US Govt SBA		29,559		29		208		29,380
Mortgage Backed Securities (1)		302,502		939		1,527		301,914
Other		3,010		-		-		3,010
Total	$	482,757	$	1,016	$	2,177	$	481,596

June 30, 2017	Amortized Cost		Gross Unrealized				Fair/Book Value
			Gains		Losses
Government Agency & Government-Sponsored Entities	$	3,103	$	92	$	-	$	3,195
US Treasury Notes		134,689		3		272		134,420
US Govt SBA		32,889		30		119		32,800
Mortgage Backed Securities (1)		288,121		1,821		919		289,023
Other		2,429		-		-		2,429
Total	$	461,231	$	1,946	$	1,310	$	461,867

⁽¹⁾ All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

Book Values, Estimated Fair Values and Unrealized Gains and Losses of Investments Classified as Held-to-Maturity

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

	Book		Gross Unrealized				Fair
June 30, 2018	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	52,210	$	227	$	79	$	52,358
Total	$	52,210	$	227	$	79	$	52,358

	Book		Gross Unrealized				Fair
December 31, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	54,460	$	776	$	-	$	55,236
Total	$	54,460	$	776	$	-	$	55,236

	Book		Gross Unrealized				Fair
June 30, 2017	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	56,381	$	746	$	-	$	57,127
Total	$	56,381	$	746	$	-	$	57,127

Amortized Cost and Estimated Fair Values of Investment Securities by Contractual Maturity

The amortized cost and estimated fair values of investment securities at June 30, 2018 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
June 30, 2018	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	128,110	$	127,874	$	3,613	$	3,618
After one year through five years		18,748		18,582		5,750		5,753
After five years through ten years		1,583		1,580		19,192		19,258
After ten years		15,898		15,724		23,655		23,729
		164,339		163,760		52,210		52,358
Investment securities not due at a single maturity date:
Mortgage-backed securities		293,473		286,414		-		-
Total	$	457,812	$	450,174	$	52,210	$	52,358

Investments with Gross Unrealized Losses and Their Market Value Aggregated by Investment Category and Length of Time that Individual Securities Have Been in a Continuous Unrealized Loss Position

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousands):

	Less Than 12 Months				12 Months or More				Total
June 30, 2018	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	14,412	$	178	$	29,876	$	238	$	44,288	$	416
US Govt SBA		5,589		68		9,023		120		14,612		188
Mortgage Backed Securities		214,949		5,464		58,148		1,932		273,097		7,396
Total	$	234,950	$	5,710	$	97,047	$	2,290	$	331,997	$	8,000
Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	8,543	$	79	$	-	$	-	$	8,543	$	79
Total	$	8,543	$	79	$	-	$	-	$	8,543	$	79

	Less Than 12 Months				12 Months or More				Total
December 31, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	94,281	$	144	$	49,883	$	298	$	144,164	$	442
US Govt SBA		8,379		51		12,900		157		21,279		208
Mortgage Backed Securities		126,863		932		43,208		595		170,071		1,527
Total	$	229,523	$	1,127	$	105,991	$	1,050	$	335,514	$	2,177

There were no HTM investments with gross unrealized losses at December 31, 2017

	Less Than 12 Months				12 Months or More				Total
June 30, 2017	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities Available-for-Sale
US Treasury Notes	$	74,423	$	272	$	-	$	-	$	74,423	$	272
US Govt SBA	$	22,775	$	119	$	-	$	-		22,775	$	119
Mortgage Backed Securities		141,268		919		-		-		141,268		919
Total	$	238,466	$	1,310	$	-	$	-	$	238,466	$	1,310

Proceeds from Sales and Calls of Securities

Proceeds from sales and calls of securities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2018		2017		2018		2017
Proceeds	$	31,370	$	7,831	$	31,370	$	7,831
Gains		8		143		8		143
Losses		1,338		12		1,338		12

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Loans & Leases and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2018

Loans & Leases and Allowance for Credit Losses [Abstract]

Allocation of Allowance for Credit Losses by Portfolio Segment and by Impairment Methodology

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, 2018	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial			Consumer & Other			Leases		Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2018	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197		$	209		$	3,363	$	1,422		$	50,342
Charge-Offs		-			-		-			(12	)		(4	)		-			(14	)		(58	)		-		-			(88	)
Recoveries		-			-		-			6			2			13			3			26			-		-			50
Provision		(139	)		1,229		(230	)		55			226			(514	)		250			93			37		(174	)		833
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2018	$	11,078		$	12,242	$	1,873		$	827		$	2,343		$	7,868		$	9,374		$	239		$	3,390	$	1,443		$	50,677
Charge-Offs		-			-		-			(12	)		-			-			(14	)		(41	)		-		-			(67	)
Recoveries		-			-		-			3			1			7			1			15			-		-			27
Provision		(295	)		1,072		(257	)		46			204			(217	)		75			57			10		(195	)		500
Ending Balance- June 30, 2018	$	10,783		$	13,314	$	1,616		$	864		$	2,548		$	7,658		$	9,436		$	270		$	3,400	$	1,248		$	51,137
Ending Balance Individually Evaluated for Impairment		333			-		-			131			16			-			487			7			-		-			974
Ending Balance Collectively Evaluated for Impairment		10,450			13,314		1,616			733			2,532			7,658			8,949			263			3,400		1,248			50,163
Loans & Leases:
Ending Balance	$	752,043		$	540,852	$	94,223		$	261,804		$	37,669		$	273,170		$	286,651		$	7,390		$	90,646	$	-		$	2,344,448
Ending Balance Individually Evaluated for Impairment		4,749			-		-			2,628			324			-			2,290			7			-		-			9,998
Ending Balance Collectively Evaluated for Impairment	$	747,294		$	540,852	$	94,223		$	259,176		$	37,345		$	273,170		$	284,361		$	7,383		$	90,646	$	-		$	2,334,450

December 31, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans			Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140		$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			(53	)		(3	)		(374	)		-		(146	)		-			-			(685	)
Recoveries		109			-		-			40			8			17			8		76			-			-			258
Provision		(188	)		2,635		(1,377	)		(37	)		179			1,135			674		79			(223	)		(27	)		2,850
Ending Balance- December 31, 2017	$	10,922		$	12,085	$	1,846		$	815		$	2,324		$	8,159		$	9,197	$	209		$	3,363		$	1,422		$	50,342
Ending Balance Individually Evaluated for Impairment		366			-		-			73			17			-			220		8			-			-			684
Ending Balance Collectively Evaluated for Impairment		10,556			12,085		1,846			742			2,307			8,159			8,977		201			3,363			1,422			49,658
Loans & Leases:
Ending Balance	$	684,961		$	499,231	$	100,206		$	260,751		$	34,525		$	273,582		$	265,703	$	6,656		$	89,680		$	-		$	2,215,295
Ending Balance Individually Evaluated for Impairment		4,822			-		-			2,373			340			-			1,734		10			-			-			9,279
Ending Balance Collectively Evaluated for Impairment	$	680,139		$	499,231	$	100,206		$	258,378		$	34,185		$	273,582		$	263,969	$	6,646		$	89,680		$	-		$	2,206,016

June 30, 2017	Commercial Real Estate			Agricultural Real Estate		Real Estate Construction			Residential 1st Mortgages			Home Equity Lines & Loans		Agricultural			Commercial		Consumer & Other			Leases			Unallocated			Total
Year-To-Date Allowance for Credit Losses:
Beginning Balance- January 1, 2017	$	11,110		$	9,450	$	3,223		$	865		$	2,140	$	7,381		$	8,515	$	200		$	3,586		$	1,449		$	47,919
Charge-Offs		(109	)		-		-			-			-		(7	)		-		(60	)		-			-			(176	)
Recoveries		10			-		-			19			5		-			4		33			-			-			71
Provision		231			815		(536	)		(12	)		25		(138	)		1,025		32			(634	)		442			1,250
Ending Balance- June 30, 2017	$	11,242		$	10,265	$	2,687		$	872		$	2,170	$	7,236		$	9,544	$	205		$	2,952		$	1,891		$	49,064
Second Quarter Allowance for Credit Losses:
Beginning Balance- April 1, 2017	$	11,665		$	9,393	$	2,946		$	880		$	2,125	$	6,511		$	8,479	$	198		$	3,866		$	2,337		$	48,400
Charge-Offs		-			-		-			-			-		-			-		(25	)		-			-			(25	)
Recoveries		3			-		-			16			3		-			-		17			-			-			39
Provision		(426	)		872		(259	)		(24	)		42		725			1,065		15			(914	)		(446	)		650
Ending Balance- June 30, 2017	$	11,242		$	10,265	$	2,687		$	872		$	2,170	$	7,236		$	9,544	$	205		$	2,952		$	1,891		$	49,064
Ending Balance Individually Evaluated for Impairment		468			-		-			61			15		322			266		6			-			-			1,138
Ending Balance Collectively Evaluated for Impairment		10,774			10,265		2,687			811			2,155		6,914			9,278		199			2,952			1,891			47,926
Loans & Leases:
Ending Balance	$	670,591		$	473,153	$	168,487		$	252,653		$	32,174	$	265,899		$	254,887	$	7,533		$	78,705		$	-		$	2,204,082
Ending Balance Individually Evaluated for Impairment		4,890			976		-			1,894			344		688			1,624		28			-			-			10,444
Ending Balance Collectively Evaluated for Impairment	$	665,701		$	472,177	$	168,487		$	250,759		$	31,830	$	265,211		$	253,263	$	7,505		$	78,705		$	-		$	2,193,638

Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings

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

June 30, 2018	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	749,467	$	2,576	$	-	$	752,043
Agricultural Real Estate		524,259		10,521		6,072		540,852
Real Estate Construction		85,638		8,585		-		94,223
Residential 1st Mortgages		261,112		-		692		261,804
Home Equity Lines & Loans		37,622		-		47		37,669
Agricultural		266,837		5,050		1,283		273,170
Commercial		285,113		283		1,255		286,651
Consumer & Other		7,245		-		145		7,390
Leases		88,677		1,969		-		90,646
Total	$	2,305,970	$	28,984	$	9,494	$	2,344,448

December 31, 2017	Pass		Special Mention		Substandard		Total Loans
Loans & Leases:
Commercial Real Estate	$	677,636	$	6,843	$	482	$	684,961
Agricultural Real Estate		488,672		6,529		4,030		499,231
Real Estate Construction		90,728		9,478		-		100,206
Residential 1st Mortgages		259,795		41		915		260,751
Home Equity Lines and Loans		34,476		-		49		34,525
Agricultural		264,425		6,439		2,718		273,582
Commercial		260,565		4,610		528		265,703
Consumer & Other		6,498		-		158		6,656
Leases		87,497		2,183		-		89,680
Total	$	2,170,292	$	36,123	$	8,880	$	2,215,295

June 30, 2017	Pass		Special Mention		Substandard		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	664,606	$	4,491	$	1,494	$	670,591
Agricultural Real Estate		466,831		1,316		5,006		473,153
Real Estate Construction		160,112		8,375		-		168,487
Residential 1st Mortgages		252,252		44		357		252,653
Home Equity Lines & Loans		32,174		-		-		32,174
Agricultural		256,026		6,302		3,571		265,899
Commercial		249,173		5,128		586		254,887
Consumer & Other		7,341		-		192		7,533
Leases		76,313		2,392		-		78,705
Total	$	2,164,828	$	28,048	$	11,206	$	2,204,082

Aging Analysis of Loan & Lease Portfolio by Time Past Due

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, 2018	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	752,043	$	752,043
Agricultural Real Estate		-		-		-		-		-		540,852		540,852
Real Estate Construction		277		-		-		-		277		93,946		94,223
Residential 1st Mortgages		107		-		-		130		237		261,567		261,804
Home Equity Lines & Loans		19		-		-		-		19		37,650		37,669
Agricultural		-		-		-		-		-		273,170		273,170
Commercial		-		-		-		599		599		286,052		286,651
Consumer & Other		6		-		-				6		7,384		7,390
Leases		-		-		-				-		90,646		90,646
Total	$	409	$	-	$	-	$	729	$	1,138	$	2,343,310	$	2,344,448

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	-	$	-	$	-	$	684,961	$	684,961
Agricultural Real Estate		-		-		-		-		-		499,231		499,231
Real Estate Construction		-		-		-		-		-		100,206		100,206
Residential 1st Mortgages		448		-		-		-		448		260,303		260,751
Home Equity Lines and Loans		10		-		-		-		10		34,515		34,525
Agricultural		-		-		-		-		-		273,582		273,582
Commercial		180		-		-		-		180		265,523		265,703
Consumer & Other		7		-		-		-		7		6,649		6,656
Leases		-		-		-		-		-		89,680		89,680
Total	$	645	$	-	$	-	$	-	$	645	$	2,214,650	$	2,215,295

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans & Leases
Loans & Leases:
Commercial Real Estate	$	-	$	-	$	143	$	-	$	143	$	670,448	$	670,591
Agricultural Real Estate		-		-		-		976		976		472,177		473,153
Real Estate Construction		-		-		-		-		-		168,487		168,487
Residential 1st Mortgages		-		-		-		56		56		252,597		252,653
Home Equity Lines & Loans		36		-		-		-		36		32,138		32,174
Agricultural		-		-		-		306		306		265,593		265,899
Commercial		-		-		-		-		-		254,887		254,887
Consumer & Other		23		-		-		24		47		7,486		7,533
Leases		-		-		-		-		-		78,705		78,705
Total	$	59	$	-	$	143	$	1,362	$	1,564	$	2,202,518	$	2,204,082

Impaired Loans & Leases

The following tables show information related to impaired loans & leases for the periods indicated (in thousands):

							Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
June 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	100	$	100	$	-	$	101	$	2	$	102	$	4
Residential 1st Mortgages		-		-		-		452		-		680		8
	$	100	$	100	$	-	$	553	$	2	$	782	$	12
With an allowance recorded:
Commercial Real Estate	$	2,938	$	2,927	$	333	$	2,947	$	24		2,956	$	48
Residential 1st Mortgages		1,698		1,877		85		1,141		13		844		20
Home Equity Lines & Loans		76		86		3		77		1		77		2
Commercial		2,297		2,290		487		2,009		15		1,870		30
Consumer & Other		7		8		7		8		-		8		-
	$	7,016	$	7,188	$	915	$	6,182	$	53		5,755	$	100
Total	$	7,116	$	7,288	$	915	$	6,735	$	55	$	6,537	$	112

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	104	$	104	$	-	$	107	$	11
Agricultural Real Estate		-		-		-		488		-
Residential 1st Mortgages		911		1,012		-		532		11
Home Equity Lines and Loans		-		-		-		16		-
Agricultural		-		-		-		30		-
	$	1,015	$	1,116	$	-	$	1,173	$	22
With an allowance recorded:
Commercial Real Estate	$	2,973	$	2,961	$	366	$	2,999	$	104
Residential 1st Mortgages		508		571		25		469		16
Home Equity Lines and Loans		73		89		4		74		3
Agricultural		-		-		-		409		21
Commercial		1,741		1,734		220		1,693		59
Consumer & Other		8		9		8		11		-
	$	5,303	$	5,364	$	623	$	5,655	$	203
Total	$	6,318	$	6,480	$	623	$	6,828	$	225

							Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
June 30, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial Real Estate	$	108	$	109	$	-	$	109	$	3	$	128	$	7
Agricultural Real Estate		976		983		-		976		-		1,059		-
Residential 1st Mortgages		406		462		-		410		3		421		3
Home Equity Lines & Loans		-		-		-		32		-		32		-
Agricultural		59		65		-		60		-		45		-
Commercial		-		-		-		-		-		756		-
	$	1,549	$	1,619	$	-	$	1,587	$	6	$	2,441	$	10
With an allowance recorded:
Commercial Real Estate	$	3,008	$	2,994	$	467	$	3,016	$	25	$	2,264	$	55
Residential 1st Mortgages		424		463		20		425		4		427		9
Home Equity Lines & Loans		51		58		3		70		1		80		2
Agricultural		630		631		322		634		6		633		14
Commercial		1,631		1,623		266		1,636		14		1,589		30
Consumer & Other		24		31		6		15		-		11		-
	$	5,768	$	5,800	$	1,084	$	5,796	$	50	$	5,004	$	110
Total	$	7,317	$	7,419	$	1,084	$	7,383	$	56	$	7,445	$	120

Loans & Leases by Class Modified as Troubled Debt Restructured Loans

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

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		1	$	175	$	163		1	$	175	$	163
Total		1	$	175	$	163		1	$	175	$	163

The following table presents loans by class modified as troubled debt restructured loans for the period ended December 31, 2017 (in thousands):

	December 31, 2017
Troubled Debt Restructurings	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential 1st Mortgages		2		673		630
Home Equity Lines and Loans		1		32		32
Commercial		2		138		138
Consumer & Other		1		9		8
Total		6	$	852	$	808

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Measurements [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

			Fair Value Measurements At June 30, 2018, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,071	$	-	$	3,071	$	-
US Treasury Notes		139,275		139,275		-		-
US Govt SBA		18,403		-		18,403		-
Mortgage Backed Securities		286,414		-		286,414		-
Other		3,011		201		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	450,174	$	139,476	$	308,198	$	2,500

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,128	$	-	$	3,128	$	-
US Treasury Notes		144,164		144,164		-		-
US Govt SBA		29,380		-		29,380		-
Mortgage Backed Securities		301,914		-		301,914		-
Other		3,010		200		310		2,500
Total Assets Measured at Fair Value On a Recurring Basis	$	481,596	$	144,364	$	334,732	$	2,500

			Fair Value Measurements At June 30, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities:
Government Agency & Government-Sponsored Entities	$	3,195	$	-	$	3,195	$	-
US Treasury Notes		134,420		134,420		-		-
US Govt SBA		32,800		-		32,800		-
Mortgage Backed Securities		289,023		-		289,023		-
Other		2,429		200		310		1,919
Total Assets Measured at Fair Value On a Recurring Basis	$	461,867	$	134,620	$	325,328	$	1,919

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

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. Not all impaired loans or leases are carried at fair value. Impaired loans or leases are only included in the following tables when their fair value is based upon a current appraisal of the collateral, and if that appraisal results in a partial charge-off or the establishment of a specific reserve.

			Fair Value Measurements At June 30, 2018, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	2,594	$	-	$	-	$	2,594
Residential 1st Mortgage		1,485		-		-		1,485
Home Equity Lines and Loans		72		-		-		72
Commercial		1,490		-		-		1,490
Total Impaired Loans		5,641		-		-		5,641
Other Real Estate
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,514	$	-	$	-	$	6,514

			Fair Value Measurements At December 31, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial Real Estate	$	2,595	$	-	$	-	$	2,595
Residential 1st Mortgage		997		-		-		997
Home Equity Lines and Loans		75		-		-		75
Commercial		1,514		-		-		1,514
Total Impaired Loans		5,181		-		-		5,181
Other Real Estate:
Home Equity Lines and Loans		-		-		-		-
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	6,054	$	-	$	-	$	6,054

			Fair Value Measurements At June 30, 2017, Using
(in thousands)	Fair Value Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans
Commercial Real Estate	$	2,526	$	-	$	-	$	2,526
Residential 1st Mortgage		386		-		-		386
Home Equity Lines and Loans		48		-		-		48
Agricultural		366		-		-		366
Commercial		1,358		-		-		1,358
Consumer		19		-		-		19
Total Impaired Loans		4,703		-		-		4,703
Other Real Estate
Real Estate Construction		873		-		-		873
Total Other Real Estate		873		-		-		873
Total Assets Measured at Fair Value On a Non-Recurring Basis	$	5,576	$	-	$	-	$	5,576

Quantitative Information about Level 3 Fair Value Measurements for Financial Instruments Measured at Fair Value on a Nonrecurring Basis

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2018:

(in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range, Weighted Avg.
Impaired Loans
Commercial Real Estate	$	2,594	Income Approach	Capitalization Rate		3.25%, 3.25%
Residential 1st Mortgage	$	1,485	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% -4%, 3%
Home Equity Lines and Loans	$	72	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		1% - 2%, 1%
Commercial	$	1,490	Income Approach	Capitalization Rate		2.95% - 8.70%, 3.40%
Other Real Estate
Real Estate Construction	$	873	Sales Comparison Approach	Adjustment for Difference Between Comparable Sales		10%, 10%

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value of Financial Instruments [Abstract]

Book Value and Estimated Fair Value of Financial Instruments

The following tables summarize the book value and estimated fair value of financial instruments for the periods indicated:

			Fair Value of Financial Instruments Using
June 30, 2018 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	106,899	$	106,899	$	-	$	-	$	106,899
Investment Securities Available-for-Sale		450,174		139,476		308,198		2,500		450,174
Investment Securities Held-to-Maturity		52,210		-		36,693		15,665		52,358
FHLB Stock		10,877		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,293,311		-		-		2,253,733		2,253,733
Accrued Interest Receivable		11,548		-		11,548		-		11,548
Liabilities:
Deposits		2,697,273		2,231,153		462,040		-		2,693,193
Subordinated Debentures		10,310		-		7,639		-		7,639
Accrued Interest Payable		827		-		827		-		827

			Fair Value of Financial Instruments Using
December 31, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	187,149	$	187,149	$	-	$	-	$	187,149
Investment Securities Available-for-Sale		481,596		144,364		334,732		2,500		481,596
Investment Securities Held-to-Maturity		54,460		-		38,492		16,744		55,236
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,164,953		-		-		2,137,987		2,137,987
Accrued Interest Receivable		10,999		-		10,999		-		10,999
Liabilities:
Deposits		2,723,228		2,247,831		472,671		-		2,720,502
Subordinated Debentures		10,310		-		7,428		-		7,428
Accrued Interest Payable		1,137		-		1,137		-		1,137

			Fair Value of Financial Instruments Using
June 30, 2017 (in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Estimated Fair Value
Assets:
Cash and Cash Equivalents	$	147,191	$	147,191	$	-	$	-	$	147,191
Investment Securities Available-for-Sale		461,867		134,620		325,328		1,919		461,867
Investment Securities Held-to-Maturity		56,381		-		40,071		17,056		57,127
FHLB Stock		10,342		N/A		N/A		N/A		N/A
Loans & Leases, Net of Deferred Fees & Allowance		2,155,018		-		-		2,138,109		2,138,109
Accrued Interest Receivable		9,739		-		9,739		-		9,739
Liabilities:
Deposits		2,661,878		2,065,151		594,798		-		2,659,949
Subordinated Debentures		10,310		-		6,567		-		6,567
Accrued Interest Payable		1,014		-		1,014		-		1,014

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Dividends and Basic Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2018

Dividends and Basic Earnings Per Common Share [Abstract]

Calculation of Basic Earnings per Share

The following table calculates the basic earnings per common share for the three and six months ended June 30, 2018 and 2017.

	Three Months Ended June 30,				Six Months Ended June 30,
(net income in thousands)	2018		2017		2018		2017
Net Income	$	10,550	$	8,187	$	20,491	$	16,008
Weighted Average Number of Common Shares Outstanding		817,893		808,704		815,114		808,347
Basic Earnings Per Common Share Amount	$	12.90	$	10.12	$	25.14	$	19.80

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Significant Accounting Policies (Details) $ in Thousands		6 Months Ended
	Nov. 18, 2016 USD ($) Branch	Jun. 30, 2018 USD ($) Component Category Factor	Dec. 31, 2017 USD ($)	Jun. 30, 2017 USD ($)
Acquisition [Abstract]
Total assets | $		$ 3,097,823	$ 3,075,452	$ 3,012,599
Investment Securities [Abstract]
Number of components into which amount of impairment is split | Component		2
Loans & Leases [Abstract]
Consecutive months of payments to demonstrate sustained period of performance		6 months
Allowance for Credit Losses [Abstract]
Number of primary components of overall allowance for credit losses | Component		3
Number of categories into which risk ratings are grouped | Category		5
Minimum [Member]
Loans & Leases [Abstract]
Period after which loans are placed on non accrual status		90 days
Buildings [Member] | Minimum [Member]
Premises and Equipment [Abstract]
Estimated useful lives		30 years
Buildings [Member] | Maximum [Member]
Premises and Equipment [Abstract]
Estimated useful lives		40 years
Furniture and Equipment [Member] | Minimum [Member]
Premises and Equipment [Abstract]
Estimated useful lives		3 years
Furniture and Equipment [Member] | Maximum [Member]
Premises and Equipment [Abstract]
Estimated useful lives		7 years
Leasehold Improvements [Member] | Minimum [Member]
Premises and Equipment [Abstract]
Estimated useful lives		5 years
Leasehold Improvements [Member] | Maximum [Member]
Premises and Equipment [Abstract]
Estimated useful lives		10 years
Agricultural Real Estate [Member]
Allowance for Credit Losses [Abstract]
Number of risk factors on loans | Factor		2
Agricultural [Member]
Allowance for Credit Losses [Abstract]
Number of risk factors on loans | Factor		2
Delta National Bancorp [Member]
Acquisition [Abstract]
Total assets | $	$ 112,000
Number of branches | Branch	4

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Investment Securities, Securities Available-for-Sale (Details) - USD ($) $ in Thousands		Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		$ 457,812	$ 482,757	$ 461,231
Gross unrealized gains		362	1,016	1,946
Gross unrealized losses		8,000	2,177	1,310
Fair/Book value		450,174	481,596	461,867
Government Agency & Government-Sponsored Entities [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		3,056	3,080	3,103
Gross unrealized gains		15	48	92
Gross unrealized losses		0	0	0
Fair/Book value		3,071	3,128	3,195
US Treasury Notes [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		139,689	144,606	134,689
Gross unrealized gains		2	0	3
Gross unrealized losses		416	442	272
Fair/Book value		139,275	144,164	134,420
US Govt SBA [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		18,583	29,559	32,889
Gross unrealized gains		8	29	30
Gross unrealized losses		188	208	119
Fair/Book value		18,403	29,380	32,800
Mortgage Backed Securities [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost	[1]	293,473	302,502	288,121
Gross unrealized gains	[1]	337	939	1,821
Gross unrealized losses	[1]	7,396	1,527	919
Fair/Book value	[1]	286,414	301,914	289,023
Other [Member]
Amortized cost, fair values, and unrealized gains and losses of securities available-for-sale [Abstract]
Amortized cost		3,011	3,010	2,429
Gross unrealized gains		0	0	0
Gross unrealized losses		0	0	0
Fair/Book value		$ 3,011	$ 3,010	$ 2,429

[1] All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

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Investment Securities, Securities Held-to-Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity [Abstract]
Book value	$ 52,210	$ 54,460	$ 56,381
Gross unrealized gains	227	776	746
Gross unrealized losses	79	0	0
Fair value	52,358	55,236	57,127
Obligations of States and Political Subdivisions [Member]
Book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity [Abstract]
Book value	52,210	54,460	56,381
Gross unrealized gains	227	776	746
Gross unrealized losses	79	0	0
Fair value	$ 52,358	$ 55,236	$ 57,127

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Investment Securities, Contractual Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Amortized Cost [Abstract]
Within one year	$ 128,110
After one year through five years	18,748
After five years through ten years	1,583
After ten years	15,898
Amortized cost, excluding investment securities not due at a single maturity date	164,339
Investment securities not due at a single maturity date, mortgage-backed securities	293,473
Amortized cost	457,812	$ 482,757	$ 461,231
Fair/Book Value [Abstract]
Within one year	127,874
After one year through five years	18,582
After five years through ten years	1,580
After ten years	15,724
Fair/Book value, excluding investment securities not due at a single maturity date	163,760
Investment securities not due at a single maturity date, mortgage-backed securities	286,414
Fair/Book value	450,174	481,596	461,867
Book Value [Abstract]
Within one year	3,613
After one year through five years	5,750
After five years through ten years	19,192
After ten years	23,655
Book value, excluding investment securities not due at a single maturity date	52,210
Investment securities not due at a single maturity date, mortgage-backed securities	0
Book value	52,210	54,460	56,381
Fair Value [Abstract]
Within one year	3,618
After one year through five years	5,753
After five years through ten years	19,258
After ten years	23,729
Fair value, excluding investment securities not due at a single maturity date	52,358
Investment securities not due at a single maturity date, mortgage-backed securities	0
Fair value	$ 52,358	$ 55,236	$ 57,127

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Investment Securities, Securities in Continuous Unrealized Loss Position (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($) Security	Dec. 31, 2017 USD ($) Security	Jun. 30, 2017 USD ($) Security
Investment Securities [Abstract]
Number of investment securities held | Security	404
Less than 12 months, number of positions | Security	112
12 months or more, number of positions | Security	85
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 234,950	$ 229,523	$ 238,466
Less than 12 months, unrealized loss	5,710	1,127	1,310
12 months or more, fair value	97,047	105,991	0
12 months or more, unrealized loss	2,290	1,050	0
Total, fair value	331,997	335,514	238,466
Total, unrealized loss	8,000	2,177	1,310
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	8,543
Less than 12 months, unrealized loss	79
12 months or more, fair value	0
12 months or more, unrealized loss	0
Total, fair value	8,543
Total, unrealized loss	79	0	0
Obligations of States and Political Subdivisions [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	8,543
Less than 12 months, unrealized loss	79
12 months or more, fair value	0
12 months or more, unrealized loss	0
Total, fair value	8,543
Total, unrealized loss	$ 79	$ 0	$ 0
Less than 12 months, number of positions | Security	22
12 months or more, number of positions | Security	0
Municipal Bonds [Member]
Held-to-maturity Securities, Continuous Unrealized Loss Position [Abstract]
Percentage of bank qualified municipal bond portfolio rated	99.00%
Percentage of portfolio not rated	1.00%
Government Agency & Government-Sponsored Entities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, number of positions | Security	0	0	0
12 months or more, number of positions | Security	0	0	0
US Treasury Notes [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 14,412	$ 94,281	$ 74,423
Less than 12 months, unrealized loss	178	144	272
12 months or more, fair value	29,876	49,883	0
12 months or more, unrealized loss	238	298	0
Total, fair value	44,288	144,164	74,423
Total, unrealized loss	$ 416	442	272
Less than 12 months, number of positions | Security	3
12 months or more, number of positions | Security	2
US Govt SBA [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 5,589	8,379	22,775
Less than 12 months, unrealized loss	68	51	119
12 months or more, fair value	9,023	12,900	0
12 months or more, unrealized loss	120	157	0
Total, fair value	14,612	21,279	22,775
Total, unrealized loss	$ 188	208	119
Less than 12 months, number of positions | Security	29
12 months or more, number of positions | Security	43
Mortgage Backed Securities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position [Abstract]
Less than 12 months, fair value	$ 214,949	126,863	141,268
Less than 12 months, unrealized loss	5,464	932	919
12 months or more, fair value	58,148	43,208	0
12 months or more, unrealized loss	1,932	595	0
Total, fair value	273,097	170,071	141,268
Total, unrealized loss	$ 7,396	$ 1,527	$ 919
Less than 12 months, number of positions | Security	58
12 months or more, number of positions | Security	40

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Investment Securities, Proceeds from Sales (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Proceeds from sales and calls of securities [Abstract]
Proceeds	$ 31,370	$ 7,831	$ 31,370	$ 7,831
Gains	8	143	8	143
Losses	$ 1,338	$ 12	$ 1,338	$ 12

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Investment Securities, Pledged Securities (Details) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Investment Securities [Abstract]
Securities pledged to secure public deposits, FHLB borrowings, and other government agency deposits as required by law	$ 210.0	$ 214.5	$ 211.6

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Loans & Leases and Allowance for Credit Losses, Allocation of Allowance For Credit Losses by Portfolio Segment and By Impairment Methodology (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Allowance for Credit Losses [Roll Forward]
Beginning Balance	$ 50,677	$ 48,400	$ 50,342	$ 47,919	$ 47,919
Charge-Offs	(67)	(25)	(88)	(176)	(685)
Recoveries	27	39	50	71	258
Provision	500	650	833	1,250	2,850
Ending Balance	51,137	49,064	51,137	49,064	50,342
Ending Balance Individually Evaluated for Impairment	974	1,138	974	1,138	684
Ending Balance Collectively Evaluated for Impairment	50,163	47,926	50,163	47,926	49,658
Loans & Leases [Abstract]
Ending Balance	2,344,448	2,204,082	2,344,448	2,204,082	2,215,295
Ending Balance Individually Evaluated for Impairment	9,998	10,444	9,998	10,444	9,279
Ending Balance Collectively Evaluated for Impairment	2,334,450	2,193,638	2,334,450	2,193,638	2,206,016
Commercial Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	11,078	11,665	10,922	11,110	11,110
Charge-Offs	0	0	0	(109)	(109)
Recoveries	0	3	0	10	109
Provision	(295)	(426)	(139)	231	(188)
Ending Balance	10,783	11,242	10,783	11,242	10,922
Ending Balance Individually Evaluated for Impairment	333	468	333	468	366
Ending Balance Collectively Evaluated for Impairment	10,450	10,774	10,450	10,774	10,556
Loans & Leases [Abstract]
Ending Balance	752,043	670,591	752,043	670,591	684,961
Ending Balance Individually Evaluated for Impairment	4,749	4,890	4,749	4,890	4,822
Ending Balance Collectively Evaluated for Impairment	747,294	665,701	747,294	665,701	680,139
Agricultural Real Estate [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	12,242	9,393	12,085	9,450	9,450
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	1,072	872	1,229	815	2,635
Ending Balance	13,314	10,265	13,314	10,265	12,085
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	13,314	10,265	13,314	10,265	12,085
Loans & Leases [Abstract]
Ending Balance	540,852	473,153	540,852	473,153	499,231
Ending Balance Individually Evaluated for Impairment	0	976	0	976	0
Ending Balance Collectively Evaluated for Impairment	540,852	472,177	540,852	472,177	499,231
Real Estate Construction [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,873	2,946	1,846	3,223	3,223
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	(257)	(259)	(230)	(536)	(1,377)
Ending Balance	1,616	2,687	1,616	2,687	1,846
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	1,616	2,687	1,616	2,687	1,846
Loans & Leases [Abstract]
Ending Balance	94,223	168,487	94,223	168,487	100,206
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	94,223	168,487	94,223	168,487	100,206
Residential 1st Mortgages [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	827	880	815	865	865
Charge-Offs	(12)	0	(12)	0	(53)
Recoveries	3	16	6	19	40
Provision	46	(24)	55	(12)	(37)
Ending Balance	864	872	864	872	815
Ending Balance Individually Evaluated for Impairment	131	61	131	61	73
Ending Balance Collectively Evaluated for Impairment	733	811	733	811	742
Loans & Leases [Abstract]
Ending Balance	261,804	252,653	261,804	252,653	260,751
Ending Balance Individually Evaluated for Impairment	2,628	1,894	2,628	1,894	2,373
Ending Balance Collectively Evaluated for Impairment	259,176	250,759	259,176	250,759	258,378
Home Equity Lines & Loans [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	2,343	2,125	2,324	2,140	2,140
Charge-Offs	0	0	(4)	0	(3)
Recoveries	1	3	2	5	8
Provision	204	42	226	25	179
Ending Balance	2,548	2,170	2,548	2,170	2,324
Ending Balance Individually Evaluated for Impairment	16	15	16	15	17
Ending Balance Collectively Evaluated for Impairment	2,532	2,155	2,532	2,155	2,307
Loans & Leases [Abstract]
Ending Balance	37,669	32,174	37,669	32,174	34,525
Ending Balance Individually Evaluated for Impairment	324	344	324	344	340
Ending Balance Collectively Evaluated for Impairment	37,345	31,830	37,345	31,830	34,185
Agricultural [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	7,868	6,511	8,159	7,381	7,381
Charge-Offs	0	0	0	(7)	(374)
Recoveries	7	0	13	0	17
Provision	(217)	725	(514)	(138)	1,135
Ending Balance	7,658	7,236	7,658	7,236	8,159
Ending Balance Individually Evaluated for Impairment	0	322	0	322	0
Ending Balance Collectively Evaluated for Impairment	7,658	6,914	7,658	6,914	8,159
Loans & Leases [Abstract]
Ending Balance	273,170	265,899	273,170	265,899	273,582
Ending Balance Individually Evaluated for Impairment	0	688	0	688	0
Ending Balance Collectively Evaluated for Impairment	273,170	265,211	273,170	265,211	273,582
Commercial [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	9,374	8,479	9,197	8,515	8,515
Charge-Offs	(14)	0	(14)	0	0
Recoveries	1	0	3	4	8
Provision	75	1,065	250	1,025	674
Ending Balance	9,436	9,544	9,436	9,544	9,197
Ending Balance Individually Evaluated for Impairment	487	266	487	266	220
Ending Balance Collectively Evaluated for Impairment	8,949	9,278	8,949	9,278	8,977
Loans & Leases [Abstract]
Ending Balance	286,651	254,887	286,651	254,887	265,703
Ending Balance Individually Evaluated for Impairment	2,290	1,624	2,290	1,624	1,734
Ending Balance Collectively Evaluated for Impairment	284,361	253,263	284,361	253,263	263,969
Consumer & Other [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	239	198	209	200	200
Charge-Offs	(41)	(25)	(58)	(60)	(146)
Recoveries	15	17	26	33	76
Provision	57	15	93	32	79
Ending Balance	270	205	270	205	209
Ending Balance Individually Evaluated for Impairment	7	6	7	6	8
Ending Balance Collectively Evaluated for Impairment	263	199	263	199	201
Loans & Leases [Abstract]
Ending Balance	7,390	7,533	7,390	7,533	6,656
Ending Balance Individually Evaluated for Impairment	7	28	7	28	10
Ending Balance Collectively Evaluated for Impairment	7,383	7,505	7,383	7,505	6,646
Leases [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	3,390	3,866	3,363	3,586	3,586
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	10	(914)	37	(634)	(223)
Ending Balance	3,400	2,952	3,400	2,952	3,363
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	3,400	2,952	3,400	2,952	3,363
Loans & Leases [Abstract]
Ending Balance	90,646	78,705	90,646	78,705	89,680
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	90,646	78,705	90,646	78,705	89,680
Unallocated [Member]
Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,443	2,337	1,422	1,449	1,449
Charge-Offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provision	(195)	(446)	(174)	442	(27)
Ending Balance	1,248	1,891	1,248	1,891	1,422
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	1,248	1,891	1,248	1,891	1,422
Loans & Leases [Abstract]
Ending Balance	0	0	0	0	0
Ending Balance Individually Evaluated for Impairment	0	0	0	0	0
Ending Balance Collectively Evaluated for Impairment	0	0	0	0	0
Restructured Loans [Member]
Loans & Leases [Abstract]
Ending Balance Individually Evaluated for Impairment	$ 2,900	$ 3,200	$ 2,900	$ 3,200	$ 3,000

XML

Loans & Leases and Allowance for Credit Losses, Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	$ 2,344,448	$ 2,215,295	$ 2,204,082
Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	2,305,970	2,170,292	2,164,828
Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	28,984	36,123	28,048
Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	9,494	8,880	11,206
Doubtful [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	0	0
Loss [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	0	0
Commercial Real Estate [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	752,043	684,961	670,591
Commercial Real Estate [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	749,467	677,636	664,606
Commercial Real Estate [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	2,576	6,843	4,491
Commercial Real Estate [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	482	1,494
Agricultural Real Estate [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	540,852	499,231	473,153
Agricultural Real Estate [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	524,259	488,672	466,831
Agricultural Real Estate [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	10,521	6,529	1,316
Agricultural Real Estate [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	6,072	4,030	5,006
Real Estate Construction [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	94,223	100,206	168,487
Real Estate Construction [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	85,638	90,728	160,112
Real Estate Construction [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	8,585	9,478	8,375
Real Estate Construction [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	0	0
Residential 1st Mortgages [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	261,804	260,751	252,653
Residential 1st Mortgages [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	261,112	259,795	252,252
Residential 1st Mortgages [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	41	44
Residential 1st Mortgages [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	692	915	357
Home Equity Lines & Loans [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	37,669	34,525	32,174
Home Equity Lines & Loans [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	37,622	34,476	32,174
Home Equity Lines & Loans [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	0	0
Home Equity Lines & Loans [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	47	49	0
Agricultural [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	273,170	273,582	265,899
Agricultural [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	266,837	264,425	256,026
Agricultural [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	5,050	6,439	6,302
Agricultural [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	1,283	2,718	3,571
Commercial [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	286,651	265,703	254,887
Commercial [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	285,113	260,565	249,173
Commercial [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	283	4,610	5,128
Commercial [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	1,255	528	586
Consumer & Other [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	7,390	6,656	7,533
Consumer & Other [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	7,245	6,498	7,341
Consumer & Other [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	0	0	0
Consumer & Other [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	145	158	192
Leases [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	90,646	89,680	78,705
Leases [Member] | Pass [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	88,677	87,497	76,313
Leases [Member] | Special Mention [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	1,969	2,183	2,392
Leases [Member] | Substandard [Member]
Loan & Lease Portfolio Allocated by Management's Internal Risk Ratings [Abstract]
Loans & leases	$ 0	$ 0	$ 0

XML

Loans & Leases and Allowance for Credit Losses, Aging Analysis of Loan & Lease Portfolio by the Time Past Due (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	$ 0	$ 0	$ 143
Nonaccrual	729	0	1,362
Total Past Due	1,138	645	1,564
Current	2,343,310	2,214,650	2,202,518
Total Loans & Leases	2,344,448	2,215,295	2,204,082
30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	409	645	59
60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Commercial Real Estate [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	143
Nonaccrual	0	0	0
Total Past Due	0	0	143
Current	752,043	684,961	670,448
Total Loans & Leases	752,043	684,961	670,591
Commercial Real Estate [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Commercial Real Estate [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Agricultural Real Estate [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	976
Total Past Due	0	0	976
Current	540,852	499,231	472,177
Total Loans & Leases	540,852	499,231	473,153
Agricultural Real Estate [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Agricultural Real Estate [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Real Estate Construction [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	0
Total Past Due	277	0	0
Current	93,946	100,206	168,487
Total Loans & Leases	94,223	100,206	168,487
Real Estate Construction [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	277	0	0
Real Estate Construction [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Residential 1st Mortgages [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual	130	0	56
Total Past Due	237	448	56
Current	261,567	260,303	252,597
Total Loans & Leases	261,804	260,751	252,653
Residential 1st Mortgages [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	107	448	0
Residential 1st Mortgages [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Home Equity Lines & Loans [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	0
Total Past Due	19	10	36
Current	37,650	34,515	32,138
Total Loans & Leases	37,669	34,525	32,174
Home Equity Lines & Loans [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	19	10	36
Home Equity Lines & Loans [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Agricultural [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual	0	0	306
Total Past Due	0	0	306
Current	273,170	273,582	265,593
Total Loans & Leases	273,170	273,582	265,899
Agricultural [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Agricultural [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Commercial [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual	599	0	0
Total Past Due	599	180	0
Current	286,052	265,523	254,887
Total Loans & Leases	286,651	265,703	254,887
Commercial [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	180	0
Commercial [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Consumer & Other [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual		0	24
Total Past Due	6	7	47
Current	7,384	6,649	7,486
Total Loans & Leases	7,390	6,656	7,533
Consumer & Other [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	6	7	23
Consumer & Other [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Leases [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
90 Days and Still Accruing	0	0	0
Nonaccrual		0	0
Total Past Due	0	0	0
Current	90,646	89,680	78,705
Total Loans & Leases	90,646	89,680	78,705
Leases [Member] | 30-59 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	0	0	0
Leases [Member] | 60-89 Days Past Due [Member]
Aging Analysis of Loan & Lease Portfolio by Time Past Due [Abstract]
Total Past Due	$ 0	$ 0	$ 0

XML

Loans & Leases and Allowance for Credit Losses, Impaired Loans & Lease (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
With no related allowance recorded [Abstract]
Recorded Investment	$ 100	$ 1,549	$ 100	$ 1,549	$ 1,015
Unpaid Principal Balance	100	1,619	100	1,619	1,116
Average Recorded Investment	553	1,587	782	2,441	1,173
Interest Income Recognized	2	6	12	10	22
With an allowance recorded [Abstract]
Recorded Investment	7,016	5,768	7,016	5,768	5,303
Unpaid Principal Balance	7,188	5,800	7,188	5,800	5,364
Related Allowance	915	1,084	915	1,084	623
Average Recorded Investment	6,182	5,796	5,755	5,004	5,655
Interest Income Recognized	53	50	100	110	203
Total [Abstract]
Recorded Investment	7,116	7,317	7,116	7,317	6,318
Unpaid Principal Balance	7,288	7,419	7,288	7,419	6,480
Related Allowance	915	1,084	915	1,084	623
Average Recorded Investment	6,735	7,383	6,537	7,445	6,828
Interest Income Recognized	55	56	112	120	225
Commercial Real Estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment	100	108	100	108	104
Unpaid Principal Balance	100	109	100	109	104
Average Recorded Investment	101	109	102	128	107
Interest Income Recognized	2	3	4	7	11
With an allowance recorded [Abstract]
Recorded Investment	2,938	3,008	2,938	3,008	2,973
Unpaid Principal Balance	2,927	2,994	2,927	2,994	2,961
Related Allowance	333	467	333	467	366
Average Recorded Investment	2,947	3,016	2,956	2,264	2,999
Interest Income Recognized	24	25	48	55	104
Total [Abstract]
Related Allowance	333	467	333	467	366
Agricultural Real Estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment		976		976	0
Unpaid Principal Balance		983		983	0
Average Recorded Investment		976		1,059	488
Interest Income Recognized		0		0	0
Residential 1st Mortgages [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0	406	0	406	911
Unpaid Principal Balance	0	462	0	462	1,012
Average Recorded Investment	452	410	680	421	532
Interest Income Recognized	0	3	8	3	11
With an allowance recorded [Abstract]
Recorded Investment	1,698	424	1,698	424	508
Unpaid Principal Balance	1,877	463	1,877	463	571
Related Allowance	85	20	85	20	25
Average Recorded Investment	1,141	425	844	427	469
Interest Income Recognized	13	4	20	9	16
Total [Abstract]
Related Allowance	85	20	85	20	25
Home Equity Lines & Loans [Member]
With no related allowance recorded [Abstract]
Recorded Investment		0		0	0
Unpaid Principal Balance		0		0	0
Average Recorded Investment		32		32	16
Interest Income Recognized		0		0	0
With an allowance recorded [Abstract]
Recorded Investment	76	51	76	51	73
Unpaid Principal Balance	86	58	86	58	89
Related Allowance	3	3	3	3	4
Average Recorded Investment	77	70	77	80	74
Interest Income Recognized	1	1	2	2	3
Total [Abstract]
Related Allowance	3	3	3	3	4
Agricultural [Member]
With no related allowance recorded [Abstract]
Recorded Investment		59		59	0
Unpaid Principal Balance		65		65	0
Average Recorded Investment		60		45	30
Interest Income Recognized		0		0	0
With an allowance recorded [Abstract]
Recorded Investment		630		630	0
Unpaid Principal Balance		631		631	0
Related Allowance		322		322	0
Average Recorded Investment		634		633	409
Interest Income Recognized		6		14	21
Total [Abstract]
Related Allowance		322		322	0
Commercial [Member]
With no related allowance recorded [Abstract]
Recorded Investment		0		0
Unpaid Principal Balance		0		0
Average Recorded Investment		0		756
Interest Income Recognized		0		0
With an allowance recorded [Abstract]
Recorded Investment	2,297	1,631	2,297	1,631	1,741
Unpaid Principal Balance	2,290	1,623	2,290	1,623	1,734
Related Allowance	487	266	487	266	220
Average Recorded Investment	2,009	1,636	1,870	1,589	1,693
Interest Income Recognized	15	14	30	30	59
Total [Abstract]
Related Allowance	487	266	487	266	220
Consumer & Other [Member]
With an allowance recorded [Abstract]
Recorded Investment	7	24	7	24	8
Unpaid Principal Balance	8	31	8	31	9
Related Allowance	7	6	7	6	8
Average Recorded Investment	8	15	8	11	11
Interest Income Recognized	0	0	0	0	0
Total [Abstract]
Related Allowance	$ 7	$ 6	$ 7	$ 6	$ 8

XML

Loans & Leases and Allowance for Credit Losses, Loans & Lease by Class Modified as Troubled Debt Restructured Loans (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018 USD ($) Loan	Jun. 30, 2017 USD ($) Loan	Jun. 30, 2018 USD ($) Loan	Jun. 30, 2017 USD ($) Loan	Dec. 31, 2017 USD ($) Loan
Troubled Debt Restructured Loans [Abstract]
Specific reserves	$ 624	$ 831	$ 624	$ 831	$ 623
Commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings	$ 0	$ 0	$ 0	$ 0	$ 0
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	1	0	1	0	6
Pre-Modification Outstanding Recorded Investment	$ 175		$ 175		$ 852
Post-Modification Outstanding Recorded Investment	$ 163		$ 163		$ 808
Number of loans modified as troubled debt restructurings with subsequent payment defaults | Loan	0	0	0	0	0
Threshold period after which loan is considered to be in payment default			90 days
Stated Interest Rate Reduction [Member]
Troubled Debt Restructured Loans [Abstract]
Period of modifications			5 years
Stated Interest Rate Reduction [Member] | Minimum [Member]
Troubled Debt Restructured Loans [Abstract]
Period of modifications					3 years
Stated Interest Rate Reduction [Member] | Maximum [Member]
Troubled Debt Restructured Loans [Abstract]
Period of modifications					5 years
Extended Maturity [Member]
Troubled Debt Restructured Loans [Abstract]
Period of modifications			10 years
Extended Maturity [Member] | Minimum [Member]
Troubled Debt Restructured Loans [Abstract]
Period of modifications					3 years
Extended Maturity [Member] | Maximum [Member]
Troubled Debt Restructured Loans [Abstract]
Period of modifications					10 years
Performing [Member]
Troubled Debt Restructured Loans [Abstract]
Troubled debt restructured loans	$ 6,400	$ 6,000	$ 6,400	$ 6,000	$ 6,300
Residential 1st Mortgages [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan	1		1		2
Pre-Modification Outstanding Recorded Investment	$ 175		$ 175		$ 673
Post-Modification Outstanding Recorded Investment	$ 163		$ 163		$ 630
Home Equity Lines & Loans [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan					1
Pre-Modification Outstanding Recorded Investment					$ 32
Post-Modification Outstanding Recorded Investment					$ 32
Commercial [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan					2
Pre-Modification Outstanding Recorded Investment					$ 138
Post-Modification Outstanding Recorded Investment					$ 138
Consumer & Other [Member]
Loans by class modified as troubled debt restructured loans [Abstract]
Number of Loans | Loan					1
Pre-Modification Outstanding Recorded Investment					$ 9
Post-Modification Outstanding Recorded Investment					$ 8

XML

Fair Value Measurements, Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Percentage of selling costs				10.00%
Consumer mortgage loans in process of foreclosure		$ 49		$ 49
Investment Securities Available-for-Sale		450,174	$ 461,867	450,174	$ 461,867	$ 481,596
Gains (losses) for assets categorized as Level 3 assets				0
Level 1 to Level 2 transfers		0	0	0	0
Level 2 to Level 1 transfers		0	0	0	0
Transfer into Level 3		0	0	0	0
Transfer out of Level 3		0	0	0	0
Government Agency & Government-Sponsored Entities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		3,071	3,195	3,071	3,195	3,128
US Treasury Notes [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		139,275	134,420	139,275	134,420	144,164
US Govt SBA [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		18,403	32,800	18,403	32,800	29,380
Mortgage Backed Securities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale	[1]	286,414	289,023	286,414	289,023	301,914
Other [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		3,011	2,429	3,011	2,429	3,010
Significant Unobservable Inputs (Level 3) [Member] | SBA Loans [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		2,500		2,500
Recurring [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		450,174	461,867	450,174	461,867	481,596
Recurring [Member] | Government Agency & Government-Sponsored Entities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		3,071	3,195	3,071	3,195	3,128
Recurring [Member] | US Treasury Notes [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		139,275	134,420	139,275	134,420	144,164
Recurring [Member] | US Govt SBA [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		18,403	32,800	18,403	32,800	29,380
Recurring [Member] | Mortgage Backed Securities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		286,414	289,023	286,414	289,023	301,914
Recurring [Member] | Other [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		3,011	2,429	3,011	2,429	3,010
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		139,476	134,620	139,476	134,620	144,364
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Government Agency & Government-Sponsored Entities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | US Treasury Notes [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		139,275	134,420	139,275	134,420	144,164
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | US Govt SBA [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Mortgage Backed Securities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		201	200	201	200	200
Recurring [Member] | Other Observable Inputs (Level 2) [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		308,198	325,328	308,198	325,328	334,732
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | Government Agency & Government-Sponsored Entities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		3,071	3,195	3,071	3,195	3,128
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | US Treasury Notes [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | US Govt SBA [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		18,403	32,800	18,403	32,800	29,380
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | Mortgage Backed Securities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		286,414	289,023	286,414	289,023	301,914
Recurring [Member] | Other Observable Inputs (Level 2) [Member] | Other [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		310	310	310	310	310
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		2,500	1,919	2,500	1,919	2,500
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Government Agency & Government-Sponsored Entities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | US Treasury Notes [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | US Govt SBA [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Mortgage Backed Securities [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		0	0	0	0	0
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other [Member]
Assets Measured at Fair Value on Recurring Basis by Fair Value Hierarchy [Abstract]
Investment Securities Available-for-Sale		$ 2,500	$ 1,919	$ 2,500	$ 1,919	$ 2,500

[1] All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

XML

Fair Value Measurements, Assets or Liabilities Measured at Fair Value on a Non-recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Significant Unobservable Inputs (Level 3) [Member] | Commercial Real Estate [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	$ 2,594
Significant Unobservable Inputs (Level 3) [Member] | Residential 1st Mortgage [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	1,485
Significant Unobservable Inputs (Level 3) [Member] | Home Equity Lines and Loans [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	72
Significant Unobservable Inputs (Level 3) [Member] | Commercial [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	1,490
Nonrecurring [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	5,641	$ 5,181	$ 4,703
Other Real Estate	873	873	873
Total Assets Measured at Fair Value On a Non-Recurring Basis	6,514	6,054	5,576
Nonrecurring [Member] | Commercial Real Estate [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	2,594	2,595	2,526
Nonrecurring [Member] | Residential 1st Mortgage [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	1,485	997	386
Nonrecurring [Member] | Home Equity Lines and Loans [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	72	75	48
Other Real Estate		0
Nonrecurring [Member] | Agricultural [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			366
Nonrecurring [Member] | Commercial [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	1,490	1,514	1,358
Nonrecurring [Member] | Consumer [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			19
Nonrecurring [Member] | Real Estate Construction [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Other Real Estate	873	873	873
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Other Real Estate	0	0	0
Total Assets Measured at Fair Value On a Non-Recurring Basis	0	0	0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial Real Estate [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Residential 1st Mortgage [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Home Equity Lines and Loans [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Other Real Estate		0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Agricultural [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Consumer [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Real Estate Construction [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Other Real Estate	0	0	0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Other Real Estate	0	0	0
Total Assets Measured at Fair Value On a Non-Recurring Basis	0	0	0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Commercial Real Estate [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Residential 1st Mortgage [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Home Equity Lines and Loans [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Other Real Estate		0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Agricultural [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Commercial [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	0	0	0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Consumer [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			0
Nonrecurring [Member] | Other Observable Inputs (Level 2) [Member] | Real Estate Construction [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Other Real Estate	0	0	0
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	5,641	5,181	4,703
Other Real Estate	873	873	873
Total Assets Measured at Fair Value On a Non-Recurring Basis	6,514	6,054	5,576
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Commercial Real Estate [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	2,594	2,595	2,526
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Residential 1st Mortgage [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	1,485	997	386
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Home Equity Lines and Loans [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	72	75	48
Other Real Estate		0
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Agricultural [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			366
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Commercial [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans	1,490	1,514	1,358
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Consumer [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Impaired Loans			19
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Real Estate Construction [Member]
Fair Value on Non-recurring Basis by Fair Value Hierarchy [Abstract]
Other Real Estate	$ 873	$ 873	$ 873

XML

Fair Value Measurements, Quantitative Information (Details) - Level 3 [Member] $ in Thousands	Jun. 30, 2018 USD ($)
Commercial Real Estate [Member]
Quantitative Information [Abstract]
Impaired loans	$ 2,594
Commercial Real Estate [Member] | Income Approach [Member] | Capitalization Rate [Member] | Minimum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.0325
Commercial Real Estate [Member] | Income Approach [Member] | Capitalization Rate [Member] | Maximum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.0325
Commercial Real Estate [Member] | Income Approach [Member] | Capitalization Rate [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.0325
Residential 1st Mortgage [Member]
Quantitative Information [Abstract]
Impaired loans	$ 1,485
Residential 1st Mortgage [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Minimum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.01
Residential 1st Mortgage [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Maximum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.04
Residential 1st Mortgage [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.03
Home Equity Lines and Loans [Member]
Quantitative Information [Abstract]
Impaired loans	$ 72
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Minimum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.01
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Maximum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.02
Home Equity Lines and Loans [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.01
Commercial [Member]
Quantitative Information [Abstract]
Impaired loans	$ 1,490
Commercial [Member] | Income Approach [Member] | Capitalization Rate [Member] | Minimum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.0295
Commercial [Member] | Income Approach [Member] | Capitalization Rate [Member] | Maximum [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.0870
Commercial [Member] | Income Approach [Member] | Capitalization Rate [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Impaired loans, measurement input	0.0340
Real Estate Construction [Member]
Quantitative Information [Abstract]
Other real estate	$ 873
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Minimum [Member]
Quantitative Information [Abstract]
Other real estate, measurement input	0.1
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Maximum [Member]
Quantitative Information [Abstract]
Other real estate, measurement input	0.1
Real Estate Construction [Member] | Sales Comparison Approach [Member] | Adjustment for Difference Between Comparable Sales [Member] | Weighted Average [Member]
Quantitative Information [Abstract]
Other real estate, measurement input	0.1

XML

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Assets [Abstract]
Investment Securities Available-for-Sale	$ 450,174	$ 481,596	$ 461,867
Investment Securities Held-to-Maturity	52,358	55,236	57,127
Carrying Amount [Member]
Assets [Abstract]
Cash and Cash Equivalents	106,899	187,149	147,191
Investment Securities Available-for-Sale	450,174	481,596	461,867
Investment Securities Held-to-Maturity	52,210	54,460	56,381
FHLB Stock	10,877	10,342	10,342
Loans & Leases, Net of Deferred Fees & Allowance	2,293,311	2,164,953	2,155,018
Accrued Interest Receivable	11,548	10,999	9,739
Liabilities [Abstract]
Deposits	2,697,273	2,723,228	2,661,878
Subordinated Debentures	10,310	10,310	10,310
Accrued Interest Payable	827	1,137	1,014
Estimated Fair Value [Member]
Assets [Abstract]
Cash and Cash Equivalents	106,899	187,149	147,191
Investment Securities Available-for-Sale	450,174	481,596	461,867
Investment Securities Held-to-Maturity	52,358	55,236	57,127
Loans & Leases, Net of Deferred Fees & Allowance	2,253,733	2,137,987	2,138,109
Accrued Interest Receivable	11,548	10,999	9,739
Liabilities [Abstract]
Deposits	2,693,193	2,720,502	2,659,949
Subordinated Debentures	7,639	7,428	6,567
Accrued Interest Payable	827	1,137	1,014
Estimated Fair Value [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Cash and Cash Equivalents	106,899	187,149	147,191
Investment Securities Available-for-Sale	139,476	144,364	134,620
Investment Securities Held-to-Maturity	0	0	0
Loans & Leases, Net of Deferred Fees & Allowance	0	0	0
Accrued Interest Receivable	0	0	0
Liabilities [Abstract]
Deposits	2,231,153	2,247,831	2,065,151
Subordinated Debentures	0	0	0
Accrued Interest Payable	0	0	0
Estimated Fair Value [Member] | Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Cash and Cash Equivalents	0	0	0
Investment Securities Available-for-Sale	308,198	334,732	325,328
Investment Securities Held-to-Maturity	36,693	38,492	40,071
Loans & Leases, Net of Deferred Fees & Allowance	0	0	0
Accrued Interest Receivable	11,548	10,999	9,739
Liabilities [Abstract]
Deposits	462,040	472,671	594,798
Subordinated Debentures	7,639	7,428	6,567
Accrued Interest Payable	827	1,137	1,014
Estimated Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Cash and Cash Equivalents	0	0	0
Investment Securities Available-for-Sale	2,500	2,500	1,919
Investment Securities Held-to-Maturity	15,665	16,744	17,056
Loans & Leases, Net of Deferred Fees & Allowance	2,253,733	2,137,987	2,138,109
Accrued Interest Receivable	0	0	0
Liabilities [Abstract]
Deposits	0	0	0
Subordinated Debentures	0	0	0
Accrued Interest Payable	$ 0	$ 0	$ 0

XML

Dividends and Basic Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		6 Months Ended
	Jul. 02, 2018	May 08, 2018	Jul. 01, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Dividends [Abstract]
Cash dividends declared per share of common stock (in dollars per share)						$ 6.90	$ 6.75
Earnings per share for the period [Abstract]
Net Income				$ 10,550	$ 8,187	$ 20,491	$ 16,008
Weighted Average Number of Common Shares Outstanding (in shares)				817,893	808,704	815,114	808,347
Basic Earnings Per Common Share Amount (in dollars per share)				$ 12.90	$ 10.12	$ 25.14	$ 19.80
Mid-Year Cash Dividend Declared in 2018 [Member]
Dividends [Abstract]
Dividends payable, date declared						May 08, 2018
Cash dividends declared per share of common stock (in dollars per share)		$ 6.90
Percentage increase in cash dividend per share		2.20%
Dividends payable, date of record						Jun. 08, 2018
Mid-Year Cash Dividend Declared in 2018 [Member] | Subsequent Event [Member]
Dividends [Abstract]
Cash dividends paid per share of common stock (in dollars per share)	$ 6.90
Dividends payable, date paid	Jul. 02, 2018
Mid-Year Cash Dividend Declared in 2017 [Member]
Dividends [Abstract]
Cash dividends paid per share of common stock (in dollars per share)			$ 6.75
Dividends payable, date paid						Jul. 01, 2017

XML

Shareholders' Equity (Details)	1 Months Ended
	May 31, 2018 $ / shares shares
Shareholders' Equity [Abstract]
Shares issued to non-qualified defined contribution retirement plans (in shares) | shares	8,769
Share price of shares issued (in dollars per share) | $ / shares	$ 635

XML

Pending Acquisition of Bank of Rio Vista (Details) $ in Thousands	3 Months Ended	6 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($) shares	Jun. 30, 2018 USD ($) shares	Jun. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) shares
Acquisition [Abstract]
Increase in recorded investment		$ 164	$ 0
Bank of Rio Vista [Member]
Acquisition [Abstract]
Total ownership of shares (in shares) | shares		1,586
Percentage of ownership of common shares outstanding		39.65%
Total price paid for common shares		$ 12,000
Increase in recorded investment		$ 164
Bank of Rio Vista [Member] | Forecast [Member]
Acquisition [Abstract]
Total ownership of shares (in shares) | shares	2,414			2,414
Percentage of ownership of common shares outstanding	60.35%			60.35%
Total price paid for common shares	$ 28,700			$ 40,700
Multiple of minimum book value to be delivered at close				1.42

XML

Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
The Tax Act [Abstract]
Corporate income tax rate	21.00%
ASU 2018-02 [Member]
The Tax Act [Abstract]
Net reclassification between AOCI and retained earnings		$ 144

XML

Subsequent Events (Details) - Subsequent Event [Member]	Jul. 02, 2018 USD ($) $ / shares shares
Stock Repurchased [Abstract]
Number of shares of stock to be purchased (in shares) | shares	44,503
Agreed upon purchase price (in dollars per share) | $ / shares	$ 700
Total consideration for shares to be purchased | $	$ 31,152,100