x | ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016. |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . |
CALIFORNIA | 91-2112732 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2126 Inyo Street, Fresno, California | 93721 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Small reporting company x |
PART I: | ||
PART II: | ||
PART III: | ||
PART IV: | ||
Rank | Share | |
Fresno County | 8th | 3.74% |
Madera County | 10th | 4.75% |
Kern County | 14th | 0.85% |
Total of Fresno, Madera, Kern Counties | 11th | 2.74% |
Santa Clara County | 40th | 0.02% |
• | Holding Company Capital Requirements. The Dodd-Frank Act requires the FRB to apply consolidated capital requirements to depository institution holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by a bank holding company with less than $15 billion in assets. The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. |
• | Deposit Insurance. The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009. The Dodd-Frank Act |
• | Corporate Governance. The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. The legislation also authorized the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not. The Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters. |
• | Interstate Branching. The Dodd-Frank Act authorized national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted to branch. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to enter new markets more freely. |
• | Limits on Derivatives. The Dodd-Frank Act prohibits state-chartered banks from engaging in derivatives transactions unless the loans to one borrower limits of the state in which the bank is chartered takes into consideration credit exposure to derivatives transactions. For this purpose, derivative transaction includes any contract, agreement, swap, warrant, note or option that is based in whole or in part on the value of any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities securities, currencies, interest or other rates, indices or other assets. |
• | Transactions with Affiliates and Insiders. The Dodd-Frank Act expanded the definition of “affiliate” for purposes of quantitative and qualitative limitations of Section 23A of the Federal Reserve Act to include mutual funds advised by a depository institution or its affiliates. The Dodd-Frank Act will apply Section 23A and Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to derivative transactions, repurchase agreements and securities lending and borrowing transaction that create credit exposure to an affiliate or an insider. Any such transactions with affiliates must be fully secured. The current exemption from Section 23A for transactions with financial subsidiaries will be eliminated. The Dodd-Frank Act also prohibits an insured depository institution from purchasing an asset from or selling an asset to an insider unless the transaction is on market terms and, if representing more than 10% of capital, is approved in advance by the disinterested directors. |
• | Consumer Financial Protection Bureau. The Dodd-Frank Act created an independent federal agency called the Consumer Financial Protection Bureau (the “CFPB”), which has been granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB but are still examined and supervised by their federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorized the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. |
• | Final Volcker Rule. In December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to as the “Volcker Rule.” Under these rules and subject to certain exceptions, banking entities, including the Holding Company and the Bank, will be restricted from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge |
• | empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth; |
• | prevent taxpayer-funded bailouts; |
• | foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry; |
• | enable American companies to be competitive with foreign firms in domestic and foreign markets; |
• | advance American interests in international financial regulatory negotiations and meetings; |
• | make regulation efficient, effective, and appropriately tailored; and |
• | restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework. |
• | the customer must obtain or provide some additional credit, property or services from or to the Bank other than a loan, discount, deposit or trust services; |
• | the customer must obtain or provide some additional credit, property or service from or to the Holding Company or any subsidiaries; or |
• | the customer must not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended. |
• | assets (exclusive of goodwill and other intangible assets) would be 1.25 times its liabilities (exclusive of deferred taxes, deferred income and other deferred credits); and |
• | current assets would be at least equal to current liabilities. |
• | An increase in the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets; |
• | A new category and a required 4.50% of risk-weighted assets ratio is established for “common equity Tier 1” as a subset of Tier 1 capital limited to common equity; |
• | A minimum non-risk-based leverage ratio is set at 4.00% eliminating a 3.00% exception for higher rated banks; |
• | Changes in the permitted composition of Tier 1 capital to exclude trust preferred securities, mortgage servicing rights and certain deferred tax assets and include unrealized gains and losses on available for sale debt and equity securities; |
• | An additional capital conservation buffer of 2.5% of risk-weighted assets over each of the required capital ratios will be phased in beginning January 2016 at 0.625% of risk-weighted assets until fully implemented in January 2019. This conservation buffer level must be met to avoid limitations on the ability to pay dividends, repurchase shares or pay discretionary bonuses; |
• | The risk weights of certain assets for purposes of calculating the risk-based capital ratios are changed for high volatility commercial real estate acquisition, development and construction loans, certain past due non-residential mortgage loans and certain mortgage-backed and other securities exposures; and |
• | An additional “countercyclical capital buffer” is required for larger and more complex institutions. |
• | “well capitalized” if it has a total risk-based capital ratio of 10% or more, has a Tier 1 risk-based capital ratio of 6% or more, has a leverage capital ratio of 5% or more and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure; |
• | “adequately capitalized” if it has a total risk-based capital ratio of 8% or more, a Tier 1 risk-based capital ratio of 4% or more and a leverage capital ratio of 4% or more (3% under certain circumstances) and does not meet the definition of “well capitalized”; |
• | “undercapitalized” if it has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is less than 4%, or a leverage capital ratio that is less than 4% (3% under certain circumstances) |
• | “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a leverage capital ratio that is less than 3%; and |
• | “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2%. |
Closing Prices | Volume | |||||||
Quarter | High | Low | ||||||
4th Quarter 2016 | $ | 8.10 | $ | 6.10 | 752,732 | |||
3rd Quarter 2016 | $ | 6.54 | $ | 5.73 | 490,366 | |||
2nd Quarter 2016 | $ | 6.44 | $ | 4.92 | 1,031,090 | |||
1st Quarter 2016 | $ | 5.30 | $ | 4.65 | 756,080 | |||
4th Quarter 2015 | $ | 5.39 | $ | 5.18 | 454,200 | |||
3rd Quarter 2015 | $ | 5.32 | $ | 5.02 | 439,400 | |||
2nd Quarter 2015 | $ | 5.37 | $ | 4.90 | 375,700 | |||
1st Quarter 2015 | $ | 5.49 | $ | 4.97 | 439,500 |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (column a) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
Equity compensation plans approved by security holders | 36,772 | (1 | ) | $ | 3.87 | 706,921 | |||
Equity compensation plans not approved by security holders | N/A | N/A | N/A | ||||||
Total | 36,772 | $ | 3.87 | 706,921 |
(In thousands except per share data and ratios) | 2016 | 2015 | 2014 | 2013 | 2012 | |||||
Selected Financial Ratios: | ||||||||||
Return on average assets | 0.98 | % | 0.98 | % | 0.93 | % | 1.13 | % | 0.97 | % |
Return on average shareholders' equity | 7.86 | % | 7.88 | % | 7.80 | % | 10.09 | % | 9.23 | % |
Average shareholders' equity to average assets | 12.43 | % | 12.41 | % | 11.88 | % | 11.20 | % | 10.55 | % |
Dividend payout ratio | — | % | — | % | — | % | — | % | — | % |
2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||
Average Balance | Interest | Yield/Rate | Average Balance | Interest | Yield/Rate | Average Balance | Interest | Yield/Rate | ||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||
Loans and leases (1) | $ | 540,777 | $ | 28,182 | 5.21 | % | $ | 493,375 | $ | 26,469 | 5.36 | % | $422,760 | 23,777 | 5.62 | % | ||||||||||||||||
Investment Securities – taxable | 49,612 | 825 | 1.66 | % | 40,616 | 722 | 1.78 | % | 49,219 | 901 | 1.83 | % | ||||||||||||||||||||
Interest-bearing deposits in other banks | 1,517 | 8 | 0.53 | % | 1,525 | 6 | 0.39 | % | 1,518 | 7 | 0.46 | % | ||||||||||||||||||||
Interest-bearing deposits in FRB | 90,393 | 458 | 0.51 | % | 83,709 | 213 | 0.25 | % | 115,395 | 277 | 0.24 | % | ||||||||||||||||||||
Total interest-earning assets | 682,299 | $ | 29,473 | 4.32 | % | 619,225 | $ | 27,410 | 4.43 | % | 588,892 | 24,962 | 4.24 | % | ||||||||||||||||||
Allowance for credit losses | (9,311 | ) | (11,357 | ) | (11,118 | ) | ||||||||||||||||||||||||||
Noninterest-earning assets: | ||||||||||||||||||||||||||||||||
Cash and due from banks | 21,886 | 22,279 | 20,447 | |||||||||||||||||||||||||||||
Premises and equipment, net | 10,497 | 11,174 | 11,936 | |||||||||||||||||||||||||||||
Accrued interest receivable | 2,568 | 1,601 | 1,434 | |||||||||||||||||||||||||||||
Other real estate owned | 9,100 | 13,466 | 14,188 | |||||||||||||||||||||||||||||
Other assets | 36,658 | 40,086 | 45,254 | |||||||||||||||||||||||||||||
Total average assets | $ | 753,697 | $ | 696,474 | $ | 671,033 | ||||||||||||||||||||||||||
Liabilities and Shareholders' Equity: | ||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||
NOW accounts | $ | 85,357 | $ | 111 | 0.13 | % | $ | 79,977 | $ | 108 | 0.14 | % | $ | 63,251 | 77 | 0.12 | % | |||||||||||||||
Money market accounts | 148,911 | 567 | 0.38 | % | 139,220 | 461 | 0.33 | % | 143,627 | 504 | 0.35 | % | ||||||||||||||||||||
Savings accounts | 67,590 | 145 | 0.21 | % | 62,163 | 159 | 0.26 | % | 52,681 | 130 | 0.25 | % | ||||||||||||||||||||
Time deposits | 73,680 | 344 | 0.47 | % | 74,193 | 328 | 0.44 | % | 81,271 | 393 | 0.48 | % | ||||||||||||||||||||
Junior subordinated debentures | 8,058 | 242 | 3.00 | % | 9,410 | 225 | 2.39 | % | 10,681 | 241 | 2.26 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 383,596 | $ | 1,409 | 0.37 | % | 364,963 | $ | 1,281 | 0.35 | % | 351,511 | $ | 1,345 | 0.38 | % | |||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||
Noninterest-bearing checking | 268,712 | 237,034 | 230,876 | |||||||||||||||||||||||||||||
Accrued interest payable | 81 | 73 | 76 | |||||||||||||||||||||||||||||
Other liabilities | 7,592 | 8,005 | 8,878 | |||||||||||||||||||||||||||||
Total average liabilities | 659,981 | 610,075 | 591,341 | |||||||||||||||||||||||||||||
Total average shareholders' equity | 93,716 | 86,399 | 79,692 | |||||||||||||||||||||||||||||
Total average liabilities and shareholders' equity | $ | 753,697 | $ | 696,474 | $ | 671,033 | ||||||||||||||||||||||||||
Interest income as a percentage of average earning assets | 4.32 | % | 4.43 | % | 4.24 | % | ||||||||||||||||||||||||||
Interest expense as a percentage of average earning assets | 0.21 | % | 0.21 | % | 0.23 | % | ||||||||||||||||||||||||||
Net interest margin | 4.11 | % | 4.22 | % | 4.01 | % |
2016 compared to 2015 | 2015 compared to 2014 | ||||||||||||||||||||
(In thousands) | Total | Rate | Volume | Total | Rate | Volume | |||||||||||||||
Increase (decrease) in interest income: | |||||||||||||||||||||
Loans | $ | 1,713 | $ | (774 | ) | 2,487 | $ | 2,692 | $ | (1,136 | ) | 3,828 | |||||||||
Investment securities | 103 | (49 | ) | 152 | (179 | ) | (25 | ) | (154 | ) | |||||||||||
Interest-bearing deposits in other banks | (205 | ) | (205 | ) | — | (1 | ) | (1 | ) | — | |||||||||||
Interest-bearing deposits in FRB | 452 | 418 | 34 | (64 | ) | 20 | (84 | ) | |||||||||||||
Total interest income | 2,063 | (610 | ) | 2,673 | 2,448 | (1,142 | ) | 3,590 | |||||||||||||
Increase (decrease) in interest expense: | |||||||||||||||||||||
Interest-bearing demand accounts | 109 | 68 | 41 | (12 | ) | (45 | ) | 33 | |||||||||||||
Savings accounts | (14 | ) | (27 | ) | 13 | 29 | 5 | 24 | |||||||||||||
Time deposits | 16 | 18 | (2 | ) | (65 | ) | (32 | ) | (33 | ) | |||||||||||
Subordinated debentures | 17 | 52 | (35 | ) | (16 | ) | 14 | (30 | ) | ||||||||||||
Total interest expense | 128 | 111 | 17 | (64 | ) | (58 | ) | (6 | ) | ||||||||||||
Increase (decrease) in net interest income | $ | 1,935 | $ | (721 | ) | 2,656 | $ | 2,512 | $ | (1,084 | ) | 3,596 |
YTD Average 12/31/16 | YTD Average 12/31/15 | YTD Average 12/31/14 | ||||||
Loans | 79.26 | % | 79.68 | % | 71.78 | % | ||
Investment securities available for sale | 7.27 | % | 6.56 | % | 8.36 | % | ||
Interest-bearing deposits in other banks | 0.22 | % | 0.25 | % | 0.26 | % | ||
Interest-bearing deposits in FRB | 13.25 | % | 13.51 | % | 19.60 | % | ||
Total earning assets | 100.00 | % | 100.00 | % | 100.00 | % | ||
NOW accounts | 22.25 | % | 21.91 | % | 17.99 | % | ||
Money market accounts | 38.82 | % | 38.15 | % | 40.86 | % | ||
Savings accounts | 17.62 | % | 17.03 | % | 14.99 | % | ||
Time deposits | 19.21 | % | 20.33 | % | 23.12 | % | ||
Subordinated debentures | 2.10 | % | 2.58 | % | 3.04 | % | ||
Total interest-bearing liabilities | 100.00 | % | 100.00 | % | 100.00 | % |
(In thousands) | 2016 | % of Total | 2015 | % of Total | 2014 | % of Total | ||||||||||||||
Customer service fees | $ | 3,792 | 84.01 | % | $ | 3,620 | 76.45 | % | $ | 3,473 | 67.30 | % | ||||||||
Increase in cash surrender value of BOLI/COLI | 530 | 11.74 | % | 519 | 10.96 | % | $ | 514 | 9.96 | % | ||||||||||
Loss on fair value option of financial liabilities | (518 | ) | (11.48 | )% | (73 | ) | (1.54 | )% | $ | (102 | ) | (1.98 | )% | |||||||
Gain on sale of other assets | — | 0.00 | % | 10 | 0.21 | % | $ | 25 | 0.48 | % | ||||||||||
Gain on redemption of junior subordinated debenture | — | 0.00 | % | 78 | 1.65 | % | $ | — | — | % | ||||||||||
(Loss) gain on other investments | — | 0.00 | % | (23 | ) | (0.49 | )% | $ | 691 | 13.39 | % | |||||||||
Other | 710 | 15.73 | % | 604 | 12.76 | % | $ | 560 | 10.85 | % | ||||||||||
Total | $ | 4,514 | 100.00 | % | $ | 4,735 | 100.00 | % | $5,161 | 100.00 | % |
2016 | 2015 | 2014 | |||||||||||||||
(Dollars in thousands) | Amount | % of Average Earning Assets | Amount | % of Average Earning Assets | Amount | % of Average Earning Assets | |||||||||||
Salaries and employee benefits | $ | 10,628 | 1.56 | % | $ | 9,921 | 1.60 | % | $ | 9,653 | 1.64 | % | |||||
Occupancy expense | 4,222 | 0.62 | % | 4,042 | 0.65 | % | 3,760 | 0.64 | % | ||||||||
Data processing | 148 | 0.02 | % | 126 | 0.02 | % | 134 | 0.02 | % | ||||||||
Professional fees | 1,493 | 0.22 | % | 1,137 | 0.18 | % | 1,456 | 0.25 | % | ||||||||
FDIC/DFI assessments | 767 | 0.11 | % | 959 | 0.15 | % | 943 | 0.16 | % | ||||||||
Directors fees | 284 | 0.04 | % | 277 | 0.04 | % | 232 | 0.04 | % | ||||||||
Amortization of intangibles | — | — | % | — | — | % | 62 | 0.01 | % | ||||||||
Correspondent bank service charges | 77 | 0.01 | % | 75 | 0.01 | % | 117 | 0.02 | % | ||||||||
Loss on CA Tax Credit Partnership | 158 | 0.02 | % | 73 | 0.01 | % | 39 | 0.01 | % | ||||||||
Net cost on operation and sale of OREO | 263 | 0.04 | % | 619 | 0.10 | % | 571 | 0.10 | % | ||||||||
Other | 2,305 | 0.34 | % | 2,369 | 0.38 | % | 2,248 | 0.38 | % | ||||||||
Total | $ | 20,345 | 2.98 | % | $ | 19,598 | 3.14 | % | $ | 19,215 | 3.26 | % |
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||
(In thousands) | Dollar Amount | % of Loans | Dollar Amount | % of Loans | Dollar Amount | % of Loans | Dollar Amount | % of Loans | Dollar Amount | % of Loans | |||||||||||||||||||
Commercial and Industrial | $ | 49,005 | 8.6 | % | $ | 55,826 | 10.8 | % | $ | 62,369 | 13.6 | % | $ | 70,686 | 17.9 | % | $ | 72,117 | 18.0 | % | |||||||||
Real estate mortgage | 288,200 | 50.6 | % | 252,232 | 48.9 | % | 214,877 | 46.9 | % | 197,365 | 49.9 | % | 189,934 | 47.5 | % | ||||||||||||||
RE construction & development | 130,687 | 22.9 | % | 130,596 | 25.3 | % | 137,158 | 30.0 | % | 87,004 | 22.0 | % | 90,941 | 22.7 | % | ||||||||||||||
Agricultural | 56,918 | 10.0 | % | 52,137 | 10.1 | % | 31,713 | 6.9 | % | 30,932 | 7.8 | % | 36,169 | 9.0 | % | ||||||||||||||
Installment/other | 44,949 | 7.9 | % | 24,527 | 4.9 | % | 11,802 | 2.6 | % | 9,330 | 2.4 | % | 10,884 | 2.7 | % | ||||||||||||||
Lease financing | — | — | % | — | — | % | — | — | % | — | — | % | 12 | 0.1 | % | ||||||||||||||
Total Loans | $ | 569,759 | 100.0 | % | $ | 515,318 | 100.0 | % | $ | 457,919 | 100.0 | % | $ | 395,317 | 100.0 | % | $ | 400,057 | 100.0 | % |
(In thousands) | Due in one year or less | Due after one year through five years | Due after five years | Total | |||||||||||
Commercial and agricultural | $ | 39,504 | $ | 35,652 | $ | 31,744 | $ | 106,900 | |||||||
Real estate construction & development | 81,745 | 48,368 | — | 130,113 | |||||||||||
Real estate – mortgage | 19,663 | 130,912 | 137,222 | 287,797 | |||||||||||
All other loans | 2,520 | 42,024 | 405 | 44,949 | |||||||||||
Total Loans | $ | 143,432 | $ | 256,956 | $ | 169,371 | $ | 569,759 |
Due in one | Due after one Year through | Due after | |||||||||||||
(In thousands) | year or less | Five years | Five years | Total | |||||||||||
Accruing loans: | |||||||||||||||
Fixed rate loans | $ | 42,911 | $ | 225,064 | $ | 37,909 | $ | 305,884 | |||||||
Floating rate loans | 94,674 | 31,048 | 130,889 | 256,611 | |||||||||||
Total accruing loans | 137,585 | 256,112 | 168,798 | 562,495 | |||||||||||
Nonaccrual loans: | |||||||||||||||
Fixed rate loans | 4,608 | 1,126 | — | 5,734 | |||||||||||
Floating rate loans | 1,239 | — | 291 | 1,530 | |||||||||||
Total nonaccrual loans | 5,847 | 1,126 | 291 | 7,264 | |||||||||||
Total Loans | $ | 143,432 | $ | 257,238 | $ | 169,089 | $ | 569,759 |
December 31, 2016 | December 31, 2015 | December 31, 2014 | ||||||||||||||||||
(In thousands) | Amortized Cost | Fair Value (Carrying Amount) | Amortized Cost | Fair Value (Carrying Amount) | Amortized Cost | Fair Value (Carrying Amount) | ||||||||||||||
Available-for-sale: | ||||||||||||||||||||
U.S. Government agencies | $ | 22,992 | $ | 23,203 | $ | 9,778 | $ | 10,123 | $ | 12,097 | $ | 12,496 | ||||||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 30,867 | 30,572 | 16,835 | 16,958 | 31,659 | 31,982 | ||||||||||||||
Mutual Funds | 4,000 | 3,716 | 4,000 | 3,812 | 4,000 | 3,823 | ||||||||||||||
Total available-for-sale | $ | 57,859 | $ | 57,491 | $ | 30,613 | $ | 30,893 | $ | 47,756 | $ | 48,301 |
One year or less | After one year to five years | After five years to ten years | After ten years | Total | |||||||||||||||||||||
(Dollars in thousands) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | |||||||||||||||
Available-for-sale: | |||||||||||||||||||||||||
U.S. Government agencies | $ | — | — | % | $ | — | — | % | $ | 847 | 0.93 | % | $ | 22,145 | 2.83 | % | $ | 22,992 | 2.76 | % | |||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 3,027 | 1.06 | % | 916 | 2.80 | % | 13,589 | 2.04 | % | 13,335 | 2.01 | % | 30,867 | 1.95 | % | ||||||||||
Mutual Funds | 4,000 | 2.13 | % | — | — | % | — | — | % | 4,000 | 2.13 | % | |||||||||||||
Total amortized cost | $ | 7,027 | 1.67 | % | $ | 916 | 2.80 | % | $ | 14,436 | 1.97 | % | $ | 35,480 | 2.52 | % | $ | 57,859 | 2.28 | % | |||||
(1) Weighted average yields are not computed on a tax equivalent basis |
December 31, | |||||||||||||||
(In thousands) | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||
Noninterest-bearing deposits | $ | 262,697 | $ | 262,168 | $ | 215,439 | $ | 214,317 | $ | 217,014 | |||||
Interest-bearing deposits: | |||||||||||||||
NOW and money market accounts | 235,873 | 226,886 | 211,290 | 198,928 | 203,771 | ||||||||||
Savings accounts | 75,068 | 63,592 | 60,499 | 45,758 | 43,117 | ||||||||||
Time deposits: | |||||||||||||||
Under $250,000 | 87,419 | 58,122 | 65,844 | 28,825 | 32,532 | ||||||||||
$250,000 and over | 15,572 | 11,037 | 12,301 | 54,661 | 66,853 | ||||||||||
Total interest-bearing deposits | 413,932 | 359,637 | 349,934 | 328,172 | 346,273 | ||||||||||
Total deposits | $ | 676,629 | $ | 621,805 | $ | 565,373 | $ | 542,489 | $ | 563,287 |
December 31, | ||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||
Noninterest-bearing deposits | 38.82 | % | 42.16 | % | 38.11 | % | 39.51 | % | 38.53 | % |
Interest-bearing deposits: | ||||||||||
NOW and money market accounts | 34.86 | % | 36.49 | % | 37.37 | % | 36.67 | % | 36.18 | % |
Savings accounts | 11.09 | % | 10.23 | % | 10.70 | % | 8.43 | % | 7.65 | % |
Time deposits: | ||||||||||
Under $250,000 | 12.92 | % | 9.35 | % | 11.65 | % | 5.31 | % | 5.78 | % |
$250,000 and over | 2.30 | % | 1.77 | % | 2.18 | % | 10.08 | % | 11.87 | % |
Total interest-bearing deposits | 61.18 | % | 57.84 | % | 61.89 | % | 60.49 | % | 61.47 | % |
Total deposits | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
2016 | 2015 | 2014 | |||||||||||||
(Dollars in thousands) | Average Balance | Rate % | Average Balance | Rate % | Average Balance | Rate % | |||||||||
Interest-bearing deposits: | |||||||||||||||
Checking accounts | $ | 234,268 | 0.29 | % | $ | 219,197 | 0.26 | % | $ | 206,878 | 0.28 | % | |||
Savings | 67,590 | 0.21 | % | 62,163 | 0.26 | % | 52,681 | 0.25 | % | ||||||
Time deposits (1) | 73,680 | 0.47 | % | 74,193 | 0.44 | % | 81,271 | 0.48 | % | ||||||
Noninterest-bearing deposits | 268,712 | 237,034 | 230,876 |
Loan Segments for Loan Loss Reserve Analysis | Loan Balances at December 31, | ||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||
Commercial and Business Loans | $ | 47,464 | $ | 54,503 | $ | 60,422 | $ | 68,460 | $ | 69,780 | |||||
Government Program Loans | 1,541 | 1,323 | 1,947 | 2,226 | 2,337 | ||||||||||
Total Commercial and Industrial | 49,005 | 55,826 | 62,369 | 70,686 | 72,117 | ||||||||||
Commercial Real Estate Term Loans | 200,213 | 182,554 | 154,672 | 143,919 | 133,599 | ||||||||||
Single Family Residential Loans | 87,388 | 68,811 | 59,095 | 52,036 | 55,016 | ||||||||||
Home Improvement/Home Equity Loans | 599 | 867 | 1,110 | 1,410 | 1,319 | ||||||||||
Total Real Estate Mortgage | 288,200 | 252,232 | 214,877 | 197,365 | 189,934 | ||||||||||
RE Construction and Development Loans | 130,687 | 130,596 | 137,158 | 87,004 | 90,941 | ||||||||||
Agricultural Loans | 56,918 | 52,137 | 31,713 | 30,932 | 36,169 | ||||||||||
Consumer Loans | 44,949 | 24,527 | 11,802 | 9,330 | 10,639 | ||||||||||
Overdraft protection Lines | — | — | — | — | 90 | ||||||||||
Overdrafts | — | — | — | — | 155 | ||||||||||
Total Installment/other | 44,949 | 24,527 | 11,802 | 9,330 | 10,884 | ||||||||||
Commercial Lease Financing | — | — | — | — | 12 | ||||||||||
Total Loans | $ | 569,759 | $ | 515,318 | $ | 457,919 | $ | 395,317 | $ | 400,057 |
• | Levels of, and trends in delinquencies and nonaccrual loans; |
• | Trends in volumes and term of loans; |
• | Effects of any changes in lending policies and procedures including those for underwriting, collection, charge-off, and recovery; |
• | Experience, ability, and depth of lending management and staff; |
• | National and local economic trends and conditions; and |
• | Concentrations of credit that might affect loss experience across one or more components of the portfolio, including high-balance loan concentrations and participations. |
(In thousands) | December 31, 2016 | December 31, 2015 | December 31, 2014 | ||||||
Specific allowance – impaired loans | $ | 1,360 | $ | 3,097 | $ | 715 | |||
Formula allowance – classified loans not impaired | 1,226 | 1,385 | 2,450 | ||||||
Formula allowance – special mention loans | 248 | 75 | 39 | ||||||
Total allowance for special mention and classified loans | 2,834 | 4,557 | 3,204 | ||||||
Formula allowance for pass loans | 5,371 | 5,086 | 6,739 | ||||||
Unallocated allowance | 697 | 70 | 847 | ||||||
Total allowance | 8,902 | 9,713 | 10,790 | ||||||
Impaired loans | 16,179 | 23,612 | 16,037 | ||||||
Classified loans not considered impaired | 13,659 | 15,900 | 18,321 | ||||||
Total classified and impaired loans | 29,838 | 39,512 | 34,358 | ||||||
Special mention loans not considered impaired | 5,515 | 2,562 | 1,766 |
(Dollars in thousands) | December 31, 2016 | December 31, 2015 | December 31, 2014 | ||||||
Allowance for loan losses - period end | $ | 8,902 | $ | 9,713 | $ | 10,771 | |||
Net loans charged off (recovered) during period | 790 | 1,017 | (629 | ) | |||||
Recovery of provision for credit loss | (21 | ) | (41 | ) | (845 | ) | |||
Loans outstanding at period-end | 569,759 | 515,318 | 457,919 | ||||||
ALLL as % of loans at period-end | 1.56 | % | 1.88 | % | 2.35 | % | |||
Nonaccrual loans | 7,264 | 8,193 | 9,935 | ||||||
Restructured Loans | 5,146 | 11,028 | 5,641 | ||||||
Total nonperforming loans | 12,410 | 19,221 | 15,576 | ||||||
ALLL as % of nonperforming loans | 71.73 | % | 50.53 | % | 69.15 | % | |||
Impaired loans | 16,179 | 23,612 | 16,037 | ||||||
Classified loans not considered impaired | 13,659 | 15,900 | 18,321 | ||||||
Total classified loans | $ | 29,838 | $ | 39,512 | $ | 34,358 | |||
ALLL as % of classified loans | 29.83 | % | 24.58 | % | 31.35 | % |
Balance | Allowance | Balance | Allowance | Balance | Allowance | ||||||||||||||||||
(In thousands) | December 31, 2016 | December 31, 2016 | December 31, 2015 | December 31, 2015 | December 31, 2014 | December 31, 2014 | |||||||||||||||||
Commercial and industrial | $ | 5,009 | $ | 757 | $ | 5,201 | $ | 530 | $ | 1,421 | $ | 64 | |||||||||||
Real estate – mortgage | 3,931 | 603 | 5,293 | 635 | 7,513 | 648 | |||||||||||||||||
Real estate construction and development | 6,274 | — | 12,519 | 1,282 | 6,371 | — | |||||||||||||||||
Agricultural | — | — | 16 | — | 32 | — | |||||||||||||||||
Installment/other | 965 | — | 650 | 650 | 700 | 3 | |||||||||||||||||
Lease financing | — | — | — | — | — | — | |||||||||||||||||
Total impaired loans | $ | 16,179 | $ | 1,360 | $ | 23,679 | $ | 3,097 | $ | 16,037 | $ | 715 |
Total TDRs | Nonaccrual TDRs | Accruing TDRs | |||||||
(In thousands) | December 31, 2016 | December 31, 2016 | December 31, 2016 | ||||||
Commercial and industrial | $ | 1,356 | $ | 565 | $ | 791 | |||
Real estate - mortgage: | |||||||||
Commercial real estate | 1,454 | 1,126 | 328 | ||||||
Residential mortgages | 2,368 | — | 2,368 | ||||||
Home equity loans | — | — | — | ||||||
Total real estate mortgage | 3,822 | 1,126 | 2,696 | ||||||
Real estate construction and development | 6,267 | 4,608 | 1,659 | ||||||
Agricultural | — | — | — | ||||||
Installment/other | 965 | 965 | — | ||||||
Lease financing | — | — | — | ||||||
Total Troubled Debt Restructurings | $ | 12,410 | $ | 7,264 | $ | 5,146 |
Total TDRs | Nonaccrual TDRs | Accruing TDRs | |||||||
(In thousands) | December 31, 2015 | December 31, 2015 | December 31, 2015 | ||||||
Commercial and industrial | $ | 898 | $ | 327 | $ | 571 | |||
Real estate - mortgage: | |||||||||
Commercial real estate | 1,243 | 1,243 | — | ||||||
Residential mortgages | 3,533 | — | 3,533 | ||||||
Home equity loans | — | — | — | ||||||
Total real estate mortgage | 4,776 | 1,243 | 3,533 | ||||||
Real estate construction and development | 12,168 | 5,260 | 6,908 | ||||||
Agricultural | 16 | — | 16 | ||||||
Installment/other | 650 | 650 | — | ||||||
Lease financing | — | — | — | ||||||
Total Troubled Debt Restructurings | $ | 18,508 | $ | 7,480 | $ | 11,028 |
(In thousands) | December 31, 2016 | December 31, 2015 | |||||
Commercial and industrial | $ | 4,416 | $ | 946 | |||
Real estate - mortgage: | |||||||
Commercial real estate | 621 | 1,616 | |||||
Residential mortgages | — | — | |||||
Home equity loans | — | — | |||||
Total real estate mortgage | 621 | 1,616 | |||||
RE construction & development | 928 | — | |||||
Agricultural | — | — | |||||
Installment/other | — | — | |||||
Lease financing | — | — | |||||
Total Special Mention Loans | $ | 5,965 | $ | 2,562 |
December 31, | |||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||
Total loans outstanding at end of period before deducting allowances for credit losses | $ | 570,834 | $ | 515,376 | $ | 459,575 | $ | 395,013 | $ | 400,033 | |||||
Average net loans outstanding during period | 540,777 | 493,375 | 422,760 | 392,340 | 398,377 | ||||||||||
Balance of allowance at beginning of period | 9,713 | 10,771 | 10,988 | 11,784 | 13,648 | ||||||||||
Loans charged off: | |||||||||||||||
Real estate | (29 | ) | — | (200 | ) | (635 | ) | (630 | ) | ||||||
Commercial, Industrial & Agricultural | (870 | ) | (1,397 | ) | (318 | ) | (678 | ) | (3,397 | ) | |||||
Commercial lease financing | — | — | — | — | — | ||||||||||
Installment and other | (24 | ) | (489 | ) | (16 | ) | (273 | ) | (251 | ) | |||||
Total loans charged off | (923 | ) | (1,886 | ) | (534 | ) | (1,586 | ) | (4,278 | ) | |||||
Recoveries of loans previously charged off: | |||||||||||||||
Real estate | 55 | 225 | 728 | 1,538 | 698 | ||||||||||
Commercial and industrial & agricultural | 60 | 630 | 330 | 279 | 648 | ||||||||||
Installment and other | 18 | 14 | 104 | 71 | 49 | ||||||||||
Total loan recoveries | 133 | 869 | 1,162 | 1,888 | 1,395 | ||||||||||
Net loans (charged off) recovered | (790 | ) | (1,017 | ) | 628 | 302 | (2,883 | ) | |||||||
Recovery of provision charged to operating expense | (21 | ) | (41 | ) | (845 | ) | (1,098 | ) | 1,019 | ||||||
Balance of allowance for credit losses at end of period | $ | 8,902 | $ | 9,713 | $ | 10,771 | $ | 10,988 | $ | 11,784 | |||||
Net loan (recoveries) charge-offs to total average loans | 0.15 | % | 0.21 | % | (0.15 | )% | (0.08 | )% | 0.74 | % | |||||
Net loan (recoveries) charge-offs to loans at end of period | 0.14 | % | 0.20 | % | (0.14 | )% | (0.08 | )% | 0.72 | % | |||||
Allowance for credit losses to total loans at end of period | 1.56 | % | 1.88 | % | 2.35 | % | 2.78 | % | 2.95 | % | |||||
Net loan (recoveries) charge-offs to allowance for credit losses | 8.87 | % | 10.47 | % | (5.84 | )% | (2.75 | )% | 24.47 | % | |||||
Net loan charge-offs (recoveries) to provision for credit losses | 3.54 | % | 5.38 | % | (134.55 | )% | (27.50 | )% | 282.92 | % |
Description | Loss | Recoveries | Provision | Balance | ||||||||
Balance Forward | $ | 9,713 | ||||||||||
1st quarter - 2016 | $ | 31 | $ | 58 | $ | (22 | ) | 9,718 | ||||
2nd quarter- 2016 | 846 | 26 | 12 | 8,910 | ||||||||
3rd quarter - 2016 | 15 | 20 | 3 | 8,918 | ||||||||
4th quarter - 2016 | 27 | 25 | (14 | ) | 8,902 | |||||||
Total YTD - 2016 | $ | 919 | $ | 129 | $ | (21 | ) | $ | 8,902 |
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||
(Dollars in thousands) | Allowance for Credit Losses | % of Loans | Allowance for Credit Losses | % of Loans | Allowance for Credit Losses | % of Loans | Allowance for Credit Losses | % of Loans | Allowance for Credit Losses | % of Loans | |||||||||||||||||||
Commercial and industrial | $ | 1,843 | 8.6 | % | $ | 1,652 | 10.8 | % | $ | 1,218 | 13.6 | % | $ | 2,340 | 18.0 | % | $ | 1,614 | 18.0 | % | |||||||||
Real estate – mortgage | 1,430 | 50.6 | % | 1,449 | 48.9 | % | 1,653 | 46.9 | % | 1,862 | 47.6 | % | 1,292 | 47.6 | % | ||||||||||||||
RE construction and development | 3,378 | 22.9 | % | 4,629 | 25.3 | % | 6,278 | 30.0 | % | 5,533 | 22.7 | % | 2,814 | 22.7 | % | ||||||||||||||
Agricultural | 666 | 10.0 | % | 655 | 10.1 | % | 482 | 6.9 | % | 583 | 9.0 | % | 352 | 9.0 | % | ||||||||||||||
Installment/other | 888 | 7.9 | % | 1,258 | 4.9 | % | 293 | 2.6 | % | 275 | 2.7 | % | 288 | 2.7 | % | ||||||||||||||
Lease financing | — | — | % | — | — | % | — | — | % | — | — | % | 1 | — | % | ||||||||||||||
Not allocated | 697 | — | % | 70 | — | % | 847 | — | % | 395 | — | % | 5,423 | — | % | ||||||||||||||
$ | 8,902 | 100.0 | % | $ | 9,713 | 100.0 | % | $ | 10,771 | 100.0 | % | $ | 10,988 | 100.0 | % | $ | 11,784 | 100.0 | % |
December 31, | |||||||||||||||
(In thousands) | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||
Formula allowance | $ | 6,845 | $ | 6,546 | $ | 9,209 | $ | 9,831 | $ | 5,703 | |||||
Specific allowance | 1,360 | 3,097 | 715 | 762 | 658 | ||||||||||
Unallocated allowance | 697 | 70 | 847 | 395 | 5,423 | ||||||||||
Total allowance | $ | 8,902 | $ | 9,713 | $ | 10,771 | $ | 10,988 | $ | 11,784 |
December 31, | |||||||||||||||
(Dollars in thousands, except footnote) | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||
Nonaccrual loans (1) | $ | 7,264 | $ | 8,193 | $ | 9,935 | $ | 12,341 | $ | 13,425 | |||||
Accruing restructured loans | 5,146 | 11,028 | 5,641 | 5,761 | 9,716 | ||||||||||
Total non-performing loans | 12,410 | 19,221 | 15,576 | 18,102 | 23,141 | ||||||||||
Other real estate owned | 6,471 | 12,873 | 14,010 | 13,946 | 23,932 | ||||||||||
Total non-performing assets | $ | 18,881 | $ | 32,094 | $ | 29,586 | $ | 32,048 | $ | 47,073 | |||||
Loans, past due 90 days or more, still accruing | 1,250 | — | — | — | — | ||||||||||
Non-performing loans to total gross loans | 2.18 | % | 3.73 | % | 3.40 | % | 4.58 | % | 5.78 | % | |||||
Non-performing assets to total gross loans | 3.31 | % | 6.23 | % | 6.47 | % | 8.11 | % | 11.77 | % | |||||
Allowance for loan losses to nonperforming loans | 71.73 | % | 50.53 | % | 69.15 | % | 60.70 | % | 50.92 | % |
(In thousands) | December 31, 2016 | December 31, 2015 | December 31, 2014 | |||||||
Recovery of provision for credit losses during period | $ | (21 | ) | (41 | ) | $ | (845 | ) | ||
Allowance as % of nonperforming loans | 71.73 | % | 50.53 | % | 69.15 | % | ||||
Nonperforming loans as % total loans | 2.18 | % | 3.73 | % | 3.40 | % | ||||
Restructured loans as % total loans | 2.18 | % | 3.59 | % | 3.28 | % |
Balance | Change from | |||||||||||||||||||
(In thousands) | December 31, 2016 | December 31, 2015 | December 31, 2014 | December 31, 2015 | December 31, 2014 | |||||||||||||||
Commercial and industrial | $ | 565 | $ | 328 | $ | 433 | $ | 237 | $ | 132 | ||||||||||
Real estate - mortgage | 1,126 | 1,635 | 4,361 | (509 | ) | (3,235 | ) | |||||||||||||
Real estate - construction | 4,608 | 5,580 | 5,141 | (972 | ) | (533 | ) | |||||||||||||
Agricultural | — | — | — | — | — | |||||||||||||||
Installment/other | 965 | 650 | — | 315 | 965 | |||||||||||||||
Total Nonaccrual Loans | $ | 7,264 | $ | 8,193 | $ | 9,935 | $ | (929 | ) | $ | (2,671 | ) |
Balance | |||
December 31, 2016 | $ | 113,032 | |
December 31, 2015 | $ | 125,751 | |
December 31, 2014 | $ | 103,577 |
1) | Local core deposits are the Company’s primary funding source. The Company works to attract these deposits through service-related and competitive pricing tactics. Other liquidity funding sources are considered if local core deposits are not attractive because of maturity or pricing. |
2) | Unsecured Federal Funds lines with correspondent banks may be used to fund short-term peaks in loan demand or deposit run-off. Currently, unsecured borrowing lines with correspondents are limited and may not be reliable for long periods of time or in times of economic stress. |
3) | Other funding sources such as secured credit lines with the Federal Home Loan Bank or the Federal Reserve may be used for longer periods. The Company collateralized these available lines with a combination of investment securities and pledged loans. The Company has utilized specific loan pledging with both the FHLB and the Federal Reserve to better ensure the continued availability of those lines of credit. |
4) | The Company presently has a Discount Window facility available from the Federal Reserve Bank of San Francisco collateralized with loans as discussed above. At December 31, 2016, the Company had available credit of $323,162,000 from the Federal Reserve based upon the loans pledged at that date. The Federal Reserve will monitor use of the Discount Window closely given the current status of the Company and the economy as a whole. This credit facility may not be competitively priced under certain economic conditions. As such, the Company does not expect to use this facility except for short periods, but does consider this to be a key contingency funding source. |
5) | As long as the Bank remains “Well Capitalized,” the Company may rely on brokered deposits when core deposit rates are higher in the marketplace or maturity structures are not desirable. The Company’s current policy limit for brokered deposits is 25% of total deposits. The Company may also utilize other wholesale deposit sources such as memberships that advertise the Bank’s time deposit rates to other subscribers, typically banks and credit unions. The Company’s current policy limit on other wholesale deposits is 10% of total deposits. |
6) | The Bank may sell whole loans or participations in loans to provide additional liquidity. During economic downturns or other crises events, these funding sources may be difficult to achieve in a short period of time or at a reasonable price. As such, this strategy is better used as a long-term asset/liability management tool to effectively balance assets and liabilities to reduce liquidity risk. |
7) | The Company currently has Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI) policies issued by highly rated insurance companies which may be sold to increase liquidity. |
8) | The Company owns certain real estate including its administration building and several of its branches. These may be sold and vacated or leased back from the purchaser after sale to provide additional liquidity if needed. The sales process may require substantial time to complete, and may have an adverse impact on earnings depending on market rates and other factors at the time of sale. |
9) | Investments near maturity may be sold to meet temporary funding needs but may need to be replaced to maintain liquidity ratios within acceptable limits. At the current time approximately half of the investment portfolio is pledged to secure public deposits and borrowing lines. The Company seeks to maintain an investment-grade securities portfolio to ensure quality collateral for pledging against borrowing lines of credit as well as to provide liquidity in times of needs. |
Ratio at December 31, 2016 | Ratio at December 31, 2015 | Minimum for Capital Adequacy | Minimum requirement for "Well Capitalized" Institution | ||||
Total capital to risk weighted assets | |||||||
Company | 17.26% | 16.65% | 8.00% | N/A | |||
Bank | 17.19% | 16.69% | 8.00% | 10.00% | |||
Tier 1 capital to risk-weighted assets | |||||||
Company | 16.01% | 15.40% | 6.00% | N/A | |||
Bank | 15.94% | 15.43% | 6.00% | 8.00% | |||
Common equity tier 1 capital to risk-weighted assets | |||||||
Company | 14.68% | 14.10% | 4.50% | N/A | |||
Bank | 15.94% | 15.43% | 4.50% | 6.50% | |||
Tier 1 capital to adjusted average assets (leverage) | |||||||
Company | 12.97% | 12.95% | 4.00% | N/A | |||
Bank | 12.99% | 12.94% | 4.00% | 5.00% |
(In thousands except shares) | December 31, 2016 | December 31, 2015 | |||||
Assets | |||||||
Cash and non-interest bearing deposits in other banks | $ | 25,781 | $ | 29,733 | |||
Cash and due from Federal Reserve Bank | 87,251 | 96,018 | |||||
Cash and cash equivalents | 113,032 | 125,751 | |||||
Interest-bearing deposits in other banks | 650 | 1,528 | |||||
Investment securities available for sale (at fair value) | 57,491 | 30,893 | |||||
Loans | 569,759 | 515,318 | |||||
Unearned fees and unamortized loan origination costs, net | 1,075 | 58 | |||||
Allowance for credit losses | (8,902 | ) | (9,713 | ) | |||
Net loans | 561,932 | 505,663 | |||||
Accrued interest receivable | 3,895 | 2,220 | |||||
Premises and equipment – net | 10,445 | 10,800 | |||||
Other real estate owned | 6,471 | 12,873 | |||||
Goodwill | 4,488 | 4,488 | |||||
Cash surrender value of life insurance | 19,047 | 18,337 | |||||
Investment in limited partnerships | 757 | 917 | |||||
Deferred tax assets - net | 3,298 | 5,228 | |||||
Other assets | 6,466 | 6,946 | |||||
Total assets | $ | 787,972 | $ | 725,644 | |||
Liabilities & Shareholders' Equity | |||||||
Liabilities | |||||||
Deposits | |||||||
Noninterest bearing | $ | 262,697 | $ | 262,168 | |||
Interest bearing | 413,932 | 359,637 | |||||
Total deposits | 676,629 | 621,805 | |||||
Accrued interest payable | 76 | 29 | |||||
Accounts payable and other liabilities | 5,781 | 5,875 | |||||
Junior subordinated debentures (at fair value) | 8,832 | 8,300 | |||||
Total liabilities | 691,318 | 636,009 | |||||
Shareholders' Equity | |||||||
Common stock, no par value 20,000,000 shares authorized, 16,705,294 issued and outstanding at December 31, 2016, and 16,051,406 at December 31, 2015 | 56,557 | 52,572 | |||||
Retained earnings | 40,701 | 37,265 | |||||
Accumulated other comprehensive loss | (604 | ) | (202 | ) | |||
Total shareholders' equity | 96,654 | 89,635 | |||||
Total liabilities and shareholders' equity | $ | 787,972 | $ | 725,644 |
(In thousands except shares and EPS) | December 31, 2016 | December 31, 2015 | December 31, 2014 | ||||||||
Interest Income | |||||||||||
Loans, including fees | $ | 28,182 | $ | 26,469 | $ | 23,777 | |||||
Investment securities – AFS – taxable | 825 | 722 | 901 | ||||||||
Interest on deposits in FRB | 458 | 213 | 277 | ||||||||
Interest on deposits in other banks | 8 | 6 | 7 | ||||||||
Total interest income | 29,473 | 27,410 | 24,962 | ||||||||
Interest Expense | |||||||||||
Interest on deposits | 1,167 | 1,056 | 1,104 | ||||||||
Interest on other borrowings | 242 | 225 | 241 | ||||||||
Total interest expense | 1,409 | 1,281 | 1,345 | ||||||||
Net Interest Income Before Recovery of Provision for Credit Losses | 28,064 | 26,129 | 23,617 | ||||||||
Recovery of Provision for Credit Losses | (21 | ) | (41 | ) | (845 | ) | |||||
Net Interest Income after Recovery of Provision for Credit Losses | 28,085 | 26,170 | 24,462 | ||||||||
Noninterest Income | |||||||||||
Customer service fees | 3,792 | 3,620 | 3,473 | ||||||||
Increase in cash surrender value of bank owned life insurance | 530 | 519 | 514 | ||||||||
Loss on fair value of financial liability | (518 | ) | (73 | ) | (102 | ) | |||||
Gain on redemption of JR subordinated debentures | — | 78 | — | ||||||||
Gain on sale of premises and equipment | — | 10 | 25 | ||||||||
(Loss) gain on sale of other investment | — | (23 | ) | 691 | |||||||
Other | 710 | 604 | 560 | ||||||||
Total noninterest income | 4,514 | 4,735 | 5,161 | ||||||||
Noninterest Expense | |||||||||||
Salaries and employee benefits | 10,628 | 9,921 | 9,653 | ||||||||
Occupancy expense | 4,222 | 4,042 | 3,760 | ||||||||
Data processing | 148 | 126 | 134 | ||||||||
Professional fees | 1,493 | 1,137 | 1,456 | ||||||||
Regulatory assessments | 767 | 959 | 943 | ||||||||
Director fees | 284 | 277 | 232 | ||||||||
Amortization of intangibles | — | — | 62 | ||||||||
Correspondent bank service charges | 77 | 75 | 117 | ||||||||
Loss on California tax credit partnership | 158 | 73 | 39 | ||||||||
Net cost on operation and sale of OREO | 263 | 619 | 571 | ||||||||
Other | 2,305 | 2,369 | 2,248 | ||||||||
Total noninterest expense | 20,345 | 19,598 | 19,215 | ||||||||
Income Before Provision for Taxes | 12,254 | 11,307 | 10,408 | ||||||||
Provision for Taxes on Income | 4,869 | 4,497 | 4,192 | ||||||||
Net Income | $ | 7,385 | $ | 6,810 | $ | 6,216 | |||||
Net Income per common share | |||||||||||
Basic | $ | 0.44 | $ | 0.41 | $ | 0.37 | |||||
Diluted | $ | 0.44 | $ | 0.41 | $ | 0.37 | |||||
Shares on which net income per common share were based | |||||||||||
Basic | 16,703,672 | 16,702,781 | 16,686,896 | ||||||||
Diluted | 16,710,808 | 16,704,937 | 16,692,646 |
Year Ended December 31, | |||||||||||
(In thousands) | 2016 | 2015 | 2014 | ||||||||
Net Income | $ | 7,385 | $ | 6,810 | $ | 6,216 | |||||
Unrealized holdings (losses) gains on securities | (648 | ) | (265 | ) | 18 | ||||||
Unrealized (losses) gains on unrecognized post retirement costs | (22 | ) | 224 | (113 | ) | ||||||
Other comprehensive loss, before tax | (670 | ) | (41 | ) | (95 | ) | |||||
Tax benefit (expense) related to securities | 259 | 106 | (7 | ) | |||||||
Tax benefit (expense) related to unrecognized post-retirement costs | 9 | (92 | ) | 46 | |||||||
Total other comprehensive loss | (402 | ) | (27 | ) | (56 | ) | |||||
Comprehensive income | $ | 6,983 | $ | 6,783 | $ | 6,160 |
Common stock | ||||||||||||||||||
(In thousands except shares) | Number of Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Loss | Total | |||||||||||||
Balance January 1, 2014 | 14,799,888 | $ | 45,778 | $ | 30,884 | $ | (119 | ) | $ | 76,543 | ||||||||
Other comprehensive loss | (56 | ) | (56 | ) | ||||||||||||||
Common stock dividends | 601,276 | 3,370 | (3,370 | ) | — | |||||||||||||
Common stock issuance | 23,922 | 95 | 95 | |||||||||||||||
Stock-based compensation expense | 28 | 28 | ||||||||||||||||
Net Income | 6,216 | 6,216 | ||||||||||||||||
Balance December 31, 2014 | 15,425,086 | $ | 49,271 | $ | 33,730 | $ | (175 | ) | $ | 82,826 | ||||||||
Other comprehensive loss | (27 | ) | (27 | ) | ||||||||||||||
Common stock dividends | 626,320 | 3,275 | (3,275 | ) | — | |||||||||||||
Stock-based compensation expense | 26 | 26 | ||||||||||||||||
Net Income | 6,810 | 6,810 | ||||||||||||||||
Balance December 31, 2015 (1) | 16,051,406 | $ | 52,572 | $ | 37,265 | $ | (202 | ) | $ | 89,635 | ||||||||
(1) Excludes 14,870 unvested restricted shares | ||||||||||||||||||
Other comprehensive loss | (402 | ) | (402 | ) | ||||||||||||||
Common stock dividends | 651,425 | 3,949 | (3,949 | ) | — | |||||||||||||
Common stock issuance | 2,463 | 6 | 6 | |||||||||||||||
Stock-based compensation expense | 30 | 30 | ||||||||||||||||
Net Income | 7,385 | 7,385 | ||||||||||||||||
Balance December 31, 2016 (1) | 16,705,294 | $ | 56,557 | $ | 40,701 | $ | (604 | ) | $ | 96,654 | ||||||||
(1) Excludes 11,896 unvested restricted shares |
(In thousands) | December 31, 2016 | December 31, 2015 | December 31, 2014 | ||||||||
Cash Flows From Operating Activities: | |||||||||||
Net Income | $ | 7,385 | $ | 6,810 | $ | 6,216 | |||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
Recovery of provision for credit losses | (21 | ) | (41 | ) | (845 | ) | |||||
Depreciation and amortization | 1,428 | 1,462 | 1,390 | ||||||||
Amortization of investment securities | 481 | 266 | 263 | ||||||||
Accretion of investment securities | (28 | ) | (44 | ) | (33 | ) | |||||
Increase in accrued interest receivable | (1,676 | ) | (293 | ) | (283 | ) | |||||
Increase (decrease) in accrued interest payable | 47 | (11 | ) | (4 | ) | ||||||
(Increase) decrease in unearned fees | (1,017 | ) | (382 | ) | 20 | ||||||
Decrease (increase) in income taxes receivable | 957 | (229 | ) | (398 | ) | ||||||
Stock-based compensation expense | 30 | 26 | 28 | ||||||||
Provision for deferred income taxes | 2,199 | 1,640 | 4,816 | ||||||||
(Decrease) increase in accounts payable and accrued liabilities | (146 | ) | 29 | (1,113 | ) | ||||||
Loss (gain) on sale of investment in limited partnership | — | 23 | (691 | ) | |||||||
Gain on sale of other real estate owned | (37 | ) | (16 | ) | (114 | ) | |||||
Impairment loss on other real estate owned | — | 188 | — | ||||||||
Loss on fair value option of financial liabilities | 518 | 73 | 102 | ||||||||
Gain on redemption of junior subordinated debentures | — | (78 | ) | — | |||||||
Increase in surrender value of life insurance | (530 | ) | (519 | ) | (514 | ) | |||||
Loss on tax credit limited partnership interest | 158 | 73 | 39 | ||||||||
Gain on sale of premises and equipment | — | (10 | ) | (25 | ) | ||||||
Amortization of intangibles | — | — | 62 | ||||||||
Net (increase) decrease in other assets | (290 | ) | 297 | 86 | |||||||
Net cash provided by operating activities | 9,458 | 9,264 | 9,002 | ||||||||
Cash Flows From Investing Activities: | |||||||||||
Net increase (decrease) in interest-bearing deposits with banks | 878 | (6 | ) | (7 | ) | ||||||
Purchase of correspondent bank stock | (101 | ) | (147 | ) | (97 | ) | |||||
Maturities and calls on available-for-sale securities | 2,600 | 11,000 | — | ||||||||
Principal payments on available-for-sale securities | 4,687 | 5,922 | 5,295 | ||||||||
Purchases of available-for-sale securities | (34,987 | ) | — | (10,192 | ) | ||||||
Purchase of bank-owned life insurance/company-owned life insurance | (220 | ) | (220 | ) | — | ||||||
Net increase in loans | (51,465 | ) | (58,642 | ) | (60,282 | ) | |||||
Cash proceeds from sales of other real estate owned | 3,378 | 1,192 | 1,308 | ||||||||
Payoff of senior liens on other real estate owned | (705 | ) | — | — | |||||||
Cash proceeds from sale of other investment | — | — | 1,253 | ||||||||
Cash proceeds from sales of premises and equipment | — | 23 | — | ||||||||
Capital expenditures for premises and equipment | (1,073 | ) | (725 | ) | (768 | ) | |||||
Distributions from (investment in) limited partnership | 1 | (119 | ) | (126 | ) | ||||||
Net cash used in investing activities | (77,007 | ) | (41,722 | ) | (63,616 | ) | |||||
Cash Flows From Financing Activities: | |||||||||||
Net increase in demand deposit and savings accounts | 20,993 | 65,418 | 28,225 | ||||||||
Net increase (decrease) in certificates of deposit | 33,831 | (8,986 | ) | (5,341 | ) | ||||||
Proceeds from exercise of stock options | 6 | — | 95 | ||||||||
Redemption of junior subordinated debentures | — | (1,800 | ) | — | |||||||
Net cash provided by financing activities | 54,830 | 54,632 | 22,979 | ||||||||
Net (decrease) increase in cash and cash equivalents | (12,719 | ) | 22,174 | (31,635 | ) | ||||||
Cash and cash equivalents at beginning of year | 125,751 | 103,577 | 135,212 | ||||||||
Cash and cash equivalents at end of year | $ | 113,032 | $ | 125,751 | $ | 103,577 |
1. | Organization and Summary of Significant Accounting and Reporting Policies |
a. | Cash and cash equivalents – Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and repurchase agreements. At times throughout the year, balances can exceed FDIC insurance limits. Generally, federal funds sold and repurchase agreements are sold for one-day periods. The Bank did not have any repurchase agreements during 2016 or 2015, or at December 31, 2016 and 2015. All cash and cash equivalents have maturities when purchased of three months or less. |
b. | Securities - Debt and equity securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from net income and reported, net of tax, as a separate component of comprehensive income and shareholders’ equity. Debt securities classified as held to maturity are carried at amortized cost. Gains and losses on disposition are reported using the specific identification method for the adjusted basis of the securities sold. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. |
c. | Loans - Interest income on loans is credited to income as earned and is calculated by using the simple interest method on the daily balance of the principal amounts outstanding. Loans are placed on non-accrual status when principal or interest is past due for 90 days and/or when management believes the collection of amounts due is doubtful. For loans placed on nonaccrual status, the accrued and unpaid interest receivable may be reversed at management's discretion based upon management's assessment of collectability, and interest is thereafter credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan. |
d. | Allowance for Credit Losses and Reserve for Unfunded Loan Commitments - The allowance for credit losses is maintained to provide for losses that can reasonably be anticipated. The allowance is based on ongoing quarterly assessments of the probable losses inherent in the loan portfolio, and to a lesser extent, unfunded loan commitments. The reserve for unfunded loan commitments is a liability on the Company’s consolidated financial statements and is included in other liabilities. The liability is computed using a methodology similar to that used to determine the allowance for credit losses, modified to take into account the probability of a drawdown on the commitment. |
e. | Premises and Equipment - Premises and equipment are carried at cost less accumulated depreciation. Depreciation expense is computed principally on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: |
Buildings | 31 years | Furniture and equipment | 3-7 Years |
f. | Other Real Estate Owned - Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value of the property, less estimated costs to sell. The excess, if any, of the loan amount over the fair value is charged to the allowance for credit losses. Subsequent declines in the fair value of other real estate owned, along with related revenue and expenses from operations, are charged to noninterest expense. |
g. | Intangible Assets and Goodwill - Intangible assets are comprised of core deposit intangibles, other specific identifiable intangibles, and goodwill acquired in branch acquisitions where the consideration given exceeded the fair value of the net assets acquired. Intangible assets and goodwill are reviewed at least annually for impairment. All core deposit intangibles related to previous mergers have been fully amortized. During 2016 and 2015, the Company recognized no impairment losses on the core deposit intangible related to the deposits purchased in the Legacy merger consummated during February 2007. The Company estimates no aggregate amortization expense related to intangible assets for the next five years. |
h. | Income Taxes - Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using the liability method, and 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. |
i. | Net Income per Share - Basic income per common share is computed based on the weighted average number of common shares outstanding. Diluted income per share includes the effect of stock options and other potentially dilutive securities using the treasury stock method to the extent they have a dilutive impact. Net income per share has been retroactively adjusted for all stock dividends declared. |
j. | Cash Flow Reporting - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks, federal funds sold and securities purchased under agreements to resell. Federal funds and securities purchased under agreements to resell are generally sold for one-day periods. Net cash flows are reported for interest-bearing deposits with other banks, loans to customers, and deposits held for customers. |
k. | Transfers of Financial Assets - Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. |
l. | Advertising Costs - The Company expenses marketing costs as they are incurred. Advertising expense was $126,000, $127,000, and $123,000 for the years ended December 31, 2016, 2015, and 2014, respectively. |
m. | Stock Based Compensation - The Company has a stock-based employee compensation plan, which is described more fully in Note 10. The Company accounts for all share-based payments to employees, including grants of employee stock options and restricted stock units and awards, to be recognized in the financial statements based on the grant date fair value of the award. The fair value is amortized over the requisite service period (generally the vesting period). Included in salaries and employee benefits for the years ended December 31, 2016, 2015, and 2014 are $30,000, $26,000, an $28,000, respectively, of share-based compensation. The related tax benefit, recorded in the provision for income taxes, was not significant. All share data contained within the financial statements has been retroactively restated for stock based transactions (i.e. stock splits and stock dividends.) |
n. | Federal Home Loan Bank stock and Federal Reserve Stock - As a member of the Federal Home Loan Bank (FHLB), the Company is required to maintain an investment in capital stock of the FHLB. In addition, as a member of the Federal Reserve Bank (FRB), the Company is required to maintain an investment in capital stock of the FRB. The investments in both the FHLB and the FRB are carried at cost, which approximates their fair value, in the accompanying consolidated balance sheets under other assets and are subject to certain redemption requirements by the FHLB and FRB. Stock redemptions are at the discretion of the FHLB and FRB. |
o. | Comprehensive Income - Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes items recorded directly to equity, such as unrealized gains and losses on securities available-for-sale and unrecognized costs of salary continuation defined benefit plans. Comprehensive income is presented in the Consolidated Statements of Other Comprehensive Income. |
p. | Segment Reporting - The Company's operations are solely in the financial services industry and include providing to its customers traditional banking and other financial services. The Company operates primarily in the San Joaquin Valley region of California. Management makes operating decisions and assesses performance based on an ongoing review of the Company's consolidated financial results. Therefore, the Company has a single operating segment for financial reporting purposes. |
q. | New Accounting Standards: |
r. | Reclassifications - Certain reclassifications have been made to prior year financial statements to conform to the classifications used in 2016. None of the reclassifications had an impact on equity or net income. |
2. | Investment Securities |
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value (Carrying Amount) | |||||||||||
December 31, 2016 | |||||||||||||||
Securities available for sale: | |||||||||||||||
U.S. Government agencies | $ | 22,992 | $ | 280 | (69 | ) | $ | 23,203 | |||||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 30,867 | 107 | (402 | ) | 30,572 | ||||||||||
Mutual Funds | 4,000 | — | (284 | ) | 3,716 | ||||||||||
Total securities available for sale | $ | 57,859 | $ | 387 | $ | (755 | ) | $ | 57,491 | ||||||
December 31, 2015 | |||||||||||||||
Securities available for sale: | |||||||||||||||
U.S. Government agencies | $ | 9,778 | $ | 453 | $ | (108 | ) | $ | 10,123 | ||||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 16,835 | 175 | (52 | ) | 16,958 | ||||||||||
Mutual Funds | 4,000 | — | (188 | ) | 3,812 | ||||||||||
Total securities available for sale | $ | 30,613 | $ | 628 | $ | (348 | ) | $ | 30,893 |
December 31, 2016 | |||||||
Amortized Cost | Fair Value (Carrying Amount) | ||||||
(In thousands) | |||||||
Due in one year or less | $ | 4,000 | $ | 3,716 | |||
Due after one year through five years | — | — | |||||
Due after five years through ten years | 847 | 861 | |||||
Due after ten years | 22,145 | 22,342 | |||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 30,867 | 30,572 | |||||
$ | 57,859 | $ | 57,491 |
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
(In thousands) | Fair Value (Carrying Amount) | Unrealized Losses | Fair Value (Carrying Amount) | Unrealized Losses | Fair Value (Carrying Amount) | Unrealized Losses | |||||||||||||||||
December 31, 2016 | |||||||||||||||||||||||
Securities available for sale: | |||||||||||||||||||||||
U.S. Government agencies | $ | 12,281 | $ | (69 | ) | $ | — | $ | — | $ | 12,281 | $ | (69 | ) | |||||||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 25,904 | (402 | ) | — | — | 25,904 | (402 | ) | |||||||||||||||
Mutual Funds | — | — | 3,716 | (284 | ) | 3,716 | (284 | ) | |||||||||||||||
Total impaired securities | $ | 38,185 | $ | (471 | ) | $ | 3,716 | $ | (284 | ) | $ | 41,901 | $ | (755 | ) | ||||||||
December 31, 2015 | |||||||||||||||||||||||
Securities available for sale: | |||||||||||||||||||||||
U.S. Government agencies | $ | 79 | $ | (108 | ) | $ | — | $ | — | $ | 79 | $ | (108 | ) | |||||||||
U.S. Government sponsored entities & agencies collateralized by mortgage obligations | 9,913 | (52 | ) | — | — | 9,913 | (52 | ) | |||||||||||||||
Mutual Funds | — | — | 3,812 | (188 | ) | 3,812 | (188 | ) | |||||||||||||||
Total impaired securities | $ | 9,992 | $ | (160 | ) | $ | 3,812 | $ | (188 | ) | $ | 13,804 | $ | (348 | ) |
In thousands) | December 31, 2016 | December 31, 2015 | ||||||
Commercial and Business loans | $ | 47,464 | $ | 54,503 | ||||
Government Program Loans | 1,541 | 1,323 | ||||||
Total Commercial and Industrial | 49,005 | 55,826 | ||||||
Real estate – Mortgage: | ||||||||
Commercial Real Estate | 200,213 | 182,554 | ||||||
Residential Mortgages | 87,388 | 68,811 | ||||||
Home Improvement and Home Equity loans | 599 | 867 | ||||||
Total Real Estate Mortgage | 288,200 | 252,232 | ||||||
Real Estate Construction and Development | 130,687 | 130,596 | ||||||
Agricultural | 56,918 | 52,137 | ||||||
Installment | 44,949 | 24,527 | ||||||
Total Loans | $ | 569,759 | $ | 515,318 |
• | Commercial real estate mortgage loans comprise the largest segment of this loan category and are available on all types of income producing and commercial properties, including: office buildings, shopping centers; apartments and motels; owner occupied buildings; manufacturing facilities and more. Commercial real estate mortgage loans can also be used to refinance existing debt. Although real estate associated with the business is the primary collateral for commercial real estate mortgage loans, the underlying real estate is not the source of repayment. Commercial real estate loans are made under the premise that the loan will be repaid from the borrower's business operations, rental income associated with the real property, or personal assets. |
• | Residential mortgage loans are provided to individuals to finance or refinance single-family residences. Residential mortgages are not a primary business line offered by the Company, and a majority are conventional mortgages that were purchased as a pool. Most residential mortgages originated by the Company are of a shorter term than conventional mortgages, with maturities ranging from three to fifteen years on average. |
• | Home Improvement and Home Equity loans comprise a relatively small portion of total real estate mortgage loans, and are offered to borrowers for the purpose of home improvements, although the proceeds may be used for other purposes. Home equity loans are generally secured by junior trust deeds, but may be secured by 1st trust deeds. |
December 31, | |||||||||
(In thousands) | 2016 | 2015 | 2014 | ||||||
Aggregate amount outstanding, beginning of year | $ | 3,754 | $ | 2,120 | $ | 2,916 | |||
New loans or advances during year | 3,788 | 3,946 | 796 | ||||||
Repayments during year | (1,704 | ) | (2,312 | ) | (1,592 | ) | |||
Aggregate amount outstanding, end of year | $ | 5,838 | $ | 3,754 | $ | 2,120 | |||
Loan commitments, end of year | $ | 4,891 | $ | 7,431 | $ | 3,761 |
December 31, 2016 | Loans 30-60 Days Past Due | Loans 61-89 Days Past Due | Loans 90 or More Days Past Due | Total Past Due Loans | Current Loans | Total Loans | Accruing Loans 90 or More Days Past Due | ||||||||||||||||||||
Commercial and Business Loans | $ | — | $ | 432 | $ | — | $ | 432 | $ | 48,009 | $ | 48,441 | $ | — | |||||||||||||
Government Program Loans | — | — | 290 | 290 | 1,251 | 1,541 | — | ||||||||||||||||||||
Total Commercial and Industrial | — | 432 | 290 | 722 | 49,260 | 49,982 | — | ||||||||||||||||||||
Commercial Real Estate Loans | — | — | — | — | 199,810 | 199,810 | — | ||||||||||||||||||||
Residential Mortgages | — | — | — | — | 87,388 | 87,388 | — | ||||||||||||||||||||
Home Improvement and Home Equity Loans | — | — | — | — | 599 | 599 | — | ||||||||||||||||||||
Total Real Estate Mortgage | — | — | — | — | 287,797 | 287,797 | — | ||||||||||||||||||||
Real Estate Construction and Development Loans | 166 | — | 1,250 | 1,416 | 128,697 | 130,113 | 1,250 | ||||||||||||||||||||
Agricultural Loans | — | — | — | — | 56,918 | 56,918 | — | ||||||||||||||||||||
Consumer Loans | — | — | 965 | 965 | 43,785 | 44,750 | — | ||||||||||||||||||||
Overdraft protection Lines | — | — | — | — | 48 | 48 | — | ||||||||||||||||||||
Overdrafts | — | — | — | — | 151 | 151 | — | ||||||||||||||||||||
Total Installment | — | — | 965 | 965 | 43,984 | 44,949 | — | ||||||||||||||||||||
Total Loans | $ | 166 | $ | 432 | $ | 2,505 | $ | 3,103 | $ | 566,656 | $ | 569,759 | $ | 1,250 |
December 31, 2015 | Loans 30-60 Days Past Due | Loans 61-89 Days Past Due | Loans 90 or More Days Past Due | Total Past Due Loans | Current Loans | Total Loans | Accruing Loans 90 or More Days Past Due | ||||||||||||||||||||
Commercial and Business Loans | $ | — | $ | — | $ | — | $ | — | $ | 54,503 | $ | 54,503 | $ | — | |||||||||||||
Government Program Loans | 13 | — | — | 13 | 1,310 | 1,323 | — | ||||||||||||||||||||
Total Commercial and Industrial | 13 | — | — | 13 | 55,813 | 55,826 | — | ||||||||||||||||||||
Commercial Real Estate Loans | 721 | — | — | 721 | 181,833 | 182,554 | — | ||||||||||||||||||||
Residential Mortgages | 62 | 392 | — | 454 | 68,357 | 68,811 | — | ||||||||||||||||||||
Home Improvement and Home Equity Loans | — | 39 | — | 39 | 828 | 867 | — | ||||||||||||||||||||
Total Real Estate Mortgage | 783 | 431 | — | 1,214 | 251,018 | 252,232 | — | ||||||||||||||||||||
Real Estate Construction and Development Loans | — | 706 | — | 706 | 129,890 | 130,596 | — | ||||||||||||||||||||
Agricultural Loans | — | — | — | — | 52,137 | 52,137 | — | ||||||||||||||||||||
Consumer Loans | — | 650 | — | 650 | 23,657 | 24,307 | — | ||||||||||||||||||||
Overdraft protection Lines | — | — | — | — | 61 | 61 | — | ||||||||||||||||||||
Overdrafts | — | — | — | — | 159 | 159 | — | ||||||||||||||||||||
Total Installment | — | 650 | — | 650 | 23,877 | 24,527 | — | ||||||||||||||||||||
Total Loans | $ | 796 | $ | 1,787 | $ | — | $ | 2,583 | $ | 512,735 | $ | 515,318 | $ | — |
- | When there is doubt regarding the full repayment of interest and principal. |
- | When principal and/or interest on the loan has been in default for a period of 90-days or more, unless the asset is both well secured and in the process of collection that will result in repayment in the near future. |
- | When the loan is identified as having loss elements and/or is risk rated "8" Doubtful. |
December 31, 2016 | December 31, 2015 | ||||||
Commercial and Business Loans | $ | 275 | $ | — | |||
Government Program Loans | 290 | 328 | |||||
Total Commercial and Industrial | 565 | 328 | |||||
Commercial Real Estate Loans | 1,126 | 1,243 | |||||
Residential Mortgages | — | 392 | |||||
Home Improvement and Home Equity Loans | — | — | |||||
Total Real Estate Mortgage | 1,126 | 1,635 | |||||
Real Estate Construction and Development Loans | 4,608 | 5,580 | |||||
Agricultural Loans | — | — | |||||
Consumer Loans | 965 | 650 | |||||
Total Installment | 965 | 650 | |||||
Total Loans | $ | 7,264 | $ | 8,193 |
- | For loans secured by collateral including real estate and equipment, the fair value of the collateral less selling costs will determine the carrying value of the loan. The difference between the recorded investment in the loan and the fair value, less selling costs, determines the amount of impairment. The Company uses the measurement method based on fair value of collateral when the loan is collateral dependent and foreclosure is probable. For loans that are not considered collateral dependent, a discounted cash flow methodology is used. |
- | The discounted cash flow method of measuring the impairment of a loan is used for impaired loans that are not considered to be collateral dependent. Under this method, the Company assesses both the amount and timing of cash flows expected from impaired loans. The estimated cash flows are discounted using the loan's effective interest rate. The difference between the amount of the loan on the Bank's books and the discounted cash flow amounts determines the amount of impairment to be provided. This method is used for most of the Company’s troubled debt restructurings or other impaired loans where some payment stream is being collected. |
- | The observable market price method of measuring the impairment of a loan is only used by the Company when the sale of loans or a loan is in process. |
December 31, 2016 | Unpaid Contractual Principal Balance | Recorded Investment With No Allowance (1) | Recorded Investment With Allowance (1) | Total Recorded Investment | Related Allowance | Average Recorded Investment (2) | Interest Recognized (2) | ||||||||||||||||||||
Commercial and Business Loans | $ | 4,635 | $ | 495 | $ | 4,158 | $ | 4,653 | $ | 757 | $ | 5,050 | $ | 302 | |||||||||||||
Government Program Loans | 356 | 356 | — | 356 | — | 372 | 20 | ||||||||||||||||||||
Total Commercial and Industrial | 4,991 | 851 | 4,158 | 5,009 | 757 | 5,422 | 322 | ||||||||||||||||||||
Commercial Real Estate Loans | 1,454 | — | 1,456 | 1,456 | 450 | 1,503 | 89 | ||||||||||||||||||||
Residential Mortgages | 2,467 | 526 | 1,949 | 2,475 | 153 | 2,874 | 138 | ||||||||||||||||||||
Home Improvement and Home Equity Loans | — | — | — | — | — | — | — | ||||||||||||||||||||
Total Real Estate Mortgage | 3,921 | 526 | 3,405 | 3,931 | 603 | 4,377 | 227 | ||||||||||||||||||||
Real Estate Construction and Development Loans | 6,267 | 6,274 | — | 6,274 | — | 8,794 | 361 | ||||||||||||||||||||
Agricultural Loans | — | — | — | — | — | 5 | 8 | ||||||||||||||||||||
Consumer Loans | 965 | 965 | — | 965 | — | 968 | 35 | ||||||||||||||||||||
Total Installment | 965 | 965 | — | 965 | — | 968 | 35 | ||||||||||||||||||||
Total Impaired Loans | $ | 16,144 | $ | 8,616 | $ | 7,563 | $ | 16,179 | $ | 1,360 | $ | 19,566 | $ | 953 |
December 31, 2015 | Unpaid Contractual Principal Balance | Recorded Investment With No Allowance (1) | Recorded Investment With Allowance (1) | Total Recorded Investment | Related Allowance | Average Recorded Investment (2) | Interest Recognized (2) | ||||||||||||||||||||
Commercial and Business Loans | $ | 4,855 | $ | 541 | $ | 4,333 | $ | 4,874 | $ | 530 | $ | 2,537 | $ | 302 | |||||||||||||
Government Program Loans | 327 | 327 | — | 327 | — | 358 | 29 | ||||||||||||||||||||
Total Commercial and Industrial | 5,182 | 868 | 4,333 | 5,201 | 530 | 2,895 | 331 | ||||||||||||||||||||
Commercial Real Estate Loans | 1,243 | — | 1,243 | 1,243 | 477 | 1,618 | 74 | ||||||||||||||||||||
Residential Mortgages | 4,032 | 1,051 | 2,999 | 4,050 | 158 | 4,092 | 185 | ||||||||||||||||||||
Home Improvement and Home Equity Loans | — | — | — | — | — | 11 | — | ||||||||||||||||||||
Total Real Estate Mortgage | 5,275 | 1,051 | 4,242 | 5,293 | 635 | 5,721 | 259 | ||||||||||||||||||||
Real Estate Construction and Development Loans | 12,489 | 5,340 | 7,179 | 12,519 | 1,282 | 7,781 | 820 | ||||||||||||||||||||
Agricultural Loans | 16 | 16 | — | 16 | — | 22 | 9 | ||||||||||||||||||||
Consumer Loans | 650 | — | 650 | 650 | 650 | 1,043 | 21 | ||||||||||||||||||||
Total Installment | 650 | — | 650 | 650 | 650 | 1,043 | 21 | ||||||||||||||||||||
Total Impaired Loans | $ | 23,612 | $ | 7,275 | $ | 16,404 | $ | 23,679 | $ | 3,097 | $ | 17,462 | $ | 1,440 |
December 31, 2014 | Unpaid Contractual Principal Balance | Recorded Investment With No Allowance (1) | Recorded Investment With Allowance (1) | Total Recorded Investment | Related Allowance | Average Recorded Investment (2) | Interest Recognized (2) | ||||||||||||||||||||
Commercial and Business Loans | $ | 996 | $ | 770 | $ | 230 | $ | 1,000 | $ | 64 | $ | 847 | $ | 76 | |||||||||||||
Government Program Loans | 421 | 421 | — | 421 | — | 250 | 28 | ||||||||||||||||||||
Total Commercial and Industrial | 1,417 | 1,191 | 230 | 1,421 | 64 | 1,097 | 104 | ||||||||||||||||||||
Commercial Real Estate Loans | 3,145 | 1,794 | 1,351 | 3,145 | 478 | 5,765 | 244 | ||||||||||||||||||||
Residential Mortgages | 4,315 | 1,474 | 2,852 | 4,326 | 170 | 4,564 | 188 | ||||||||||||||||||||
Home Improvement and Home Equity Loans | 42 | 42 | — | 42 | — | 11 | 3 | ||||||||||||||||||||
Total Real Estate Mortgage | 7,502 | 3,310 | 4,203 | 7,513 | 648 | 10,340 | 435 | ||||||||||||||||||||
Real Estate Construction and Development Loans | 6,367 | 6,371 | — | 6,371 | — | 3,362 | 209 | ||||||||||||||||||||
Agricultural Loans | 32 | 32 | — | 32 | — | 37 | 9 | ||||||||||||||||||||
Consumer Loans | 695 | 655 | 45 | 700 | 3 | 209 | 37 | ||||||||||||||||||||
Overdraft protection Lines | — | — | — | — | — | — | — | ||||||||||||||||||||
Overdrafts | — | — | — | — | — | — | — | ||||||||||||||||||||
Total Installment | 695 | 655 | 45 | 700 | 3 | 209 | 37 | ||||||||||||||||||||
Total Impaired Loans | $ | 16,013 | $ | 11,559 | $ | 4,478 | $ | 16,037 | $ | 715 | $ | 15,045 | $ | 794 |
◦ | The reduction (absolute or contingent) of the stated interest rate. |
◦ | The extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk. |
◦ | The reduction (absolute or contingent) of the face amount or maturity amount of debt as stated in the instrument or agreement. |
◦ | The reduction (absolute or contingent) of accrued interest. |
Year ended December 31, 2016 | |||||||||||||||||
Number of Contracts | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | Number of Contracts in Default | Recorded Investment on Defaulted TDRs | |||||||||||||
Troubled Debt Restructurings | |||||||||||||||||
Commercial and Business Loans | 5 | $ | 1,295 | $ | 1,024 | 1 | $ | 290 | |||||||||
Government Program Loans | 1 | 100 | 100 | — | — | ||||||||||||
Commercial Real Estate Term Loans | — | — | — | — | — | ||||||||||||
Single Family Residential Loans | — | — | — | — | — | ||||||||||||
Home Improvement and Home Equity Loans | — | — | — | — | — | ||||||||||||
Real Estate Construction and Development Loans | 1 | 1,246 | 1,246 | — | — | ||||||||||||
Agricultural Loans | — | — | — | — | — | ||||||||||||
Consumer Loans | — | — | — | — | — | ||||||||||||
Overdraft protection Lines | — | — | — | — | — | ||||||||||||
Total Loans | 7 | $ | 2,641 | $ | 2,370 | 1 | $ | 290 |
Year ended December 31, 2015 | |||||||||||||||||
Number of Contracts | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | Number of Contracts in Default | Recorded Investment on Defaulted TDRs | |||||||||||||
Troubled Debt Restructurings | |||||||||||||||||
Commercial and Business Loans | 1 | $ | 81 | $ | 76 | — | $ | — | |||||||||
Government Program Loans | — | — | — | — | — | ||||||||||||
Commercial Real Estate Term Loans | — | — | — | — | — | ||||||||||||
Single Family Residential Loans | 1 | 258 | 248 | — | — | ||||||||||||
Home Improvement and Home Equity Loans | — | — | — | — | — | ||||||||||||
Real Estate Construction and Development Loans | 1 | 6,446 | 6,446 | — | — | ||||||||||||
Agricultural Loans | — | — | — | — | — | ||||||||||||
Consumer Loans | — | — | — | — | — | ||||||||||||
Overdraft protection Lines | — | — | — | — | — | ||||||||||||
Total Loans | 3 | $ | 6,785 | $ | 6,770 | — | $ | — |
December 31, 2014 | |||||||||||||||||
Number of Contracts | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | Number of Contracts in Default | Recorded Investment on Defaulted TDRs | |||||||||||||
Troubled Debt Restructurings | |||||||||||||||||
Commercial and Business Loans | 5 | $ | 456 | $ | 437 | 1 | $ | — | |||||||||
Government Program Loans | 1 | 544 | 539 | 2 | 421 | ||||||||||||
Commercial Real Estate Term Loans | 2 | 1,948 | 1,362 | — | — | ||||||||||||
Single Family Residential Loans | — | — | — | 3 | 656 | ||||||||||||
Home Improvement and Home Equity Loans | — | — | — | — | — | ||||||||||||
Real Estate Construction and Development Loans | 2 | 5,665 | 5,548 | 2 | 394 | ||||||||||||
Agricultural Loans | — | — | — | — | — | ||||||||||||
Consumer Loans | 1 | 630 | 650 | — | — | ||||||||||||
Overdraft protection Lines | — | — | — | — | — | ||||||||||||
Total Loans | 11 | $ | 9,243 | $ | 8,536 | 8 | $ | 1,471 |
Twelve Months Ended December 31, 2016 | Commercial and Industrial | Commercial Real Estate | Residential Mortgages | Home Equity | Real Estate Construction and Development | Agricultural | Installment & Other | Total | |||||||||||||||||||||||
Beginning balance | $ | 898 | $ | 1,243 | $ | 3,533 | $ | — | $ | 12,168 | $ | 16 | $ | 650 | $ | 18,508 | |||||||||||||||
Defaults | (290 | ) | — | — | — | — | — | — | (290 | ) | |||||||||||||||||||||
Additions | 1,124 | 1,246 | — | — | — | — | — | 2,370 | |||||||||||||||||||||||
Principal advances (reductions) | (376 | ) | (1,035 | ) | (1,165 | ) | — | (5,901 | ) | (16 | ) | 315 | (8,178 | ) | |||||||||||||||||
Ending balance | $ | 1,356 | $ | 1,454 | $ | 2,368 | $ | — | $ | 6,267 | $ | — | $ | 965 | $ | 12,410 | |||||||||||||||
Allowance for loan loss | $ | 104 | $ | 453 | $ | 157 | $ | — | $ | — | $ | — | $ | — | $ | 714 |
Twelve Months Ended December 31, 2015 | Commercial and Industrial | Commercial Real Estate | Residential Mortgages | Home Equity | Real Estate Construction and Development | Agricultural | Installment & Other | Total | |||||||||||||||||||||||
Beginning balance | $ | 1,306 | $ | 2,713 | $ | 4,225 | $ | — | $ | 6,029 | $ | 32 | $ | 695 | $ | 15,000 | |||||||||||||||
Defaults | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Additions | 76 | — | 248 | — | 6,446 | — | — | 6,770 | |||||||||||||||||||||||
Principal reductions | (484 | ) | (1,470 | ) | (940 | ) | — | (307 | ) | (16 | ) | (45 | ) | (3,262 | ) | ||||||||||||||||
Ending balance | $ | 898 | $ | 1,243 | $ | 3,533 | $ | — | $ | 12,168 | $ | 16 | $ | 650 | $ | 18,508 | |||||||||||||||
Allowance for loan loss | $ | 32 | $ | 477 | $ | 149 | $ | — | $ | 384 | $ | — | $ | 650 | $ | 1,692 |
December 31, 2014 | Commercial and Industrial | Commercial Real Estate | Residential Mortgages | Home Equity | Real Estate Construction and Development | Agricultural | Installment & Other | Total | |||||||||||||||||||||||
Beginning balance | $ | 675 | $ | 1,468 | $ | 5,273 | $ | — | 1,551 | $ | 44 | $ | 48 | $ | 9,059 | ||||||||||||||||
Defaults | (421 | ) | — | (656 | ) | — | (394 | ) | — | — | (1,471 | ) | |||||||||||||||||||
Additions | 1,000 | 1,948 | — | — | 5,665 | — | 630 | 9,243 | |||||||||||||||||||||||
Principal reductions | 52 | (703 | ) | (392 | ) | — | (793 | ) | (12 | ) | 17 | (1,831 | ) | ||||||||||||||||||
Ending balance | $ | 1,306 | $ | 2,713 | $ | 4,225 | $ | — | $ | 6,029 | $ | 32 | $ | 695 | $ | 15,000 | |||||||||||||||
Allowance for loan loss | $ | 64 | $ | 478 | $ | 170 | $ | — | $ | — | $ | — | $ | 3 | $ | 715 |
- | Grades 1 and 2 – These grades include loans which are given to high quality borrowers with high credit quality and sound financial strength. Key financial ratios are generally above industry averages and the borrower’s strong earnings history or net worth. These may be secured by deposit accounts or high-grade investment securities. |
- | Grade 3 – This grade includes loans to borrowers with solid credit quality with minimal risk. The borrower’s balance sheet and financial ratios are generally in line with industry averages, and the borrower has historically demonstrated the ability to manage economic adversity. Real estate and asset-based loans assigned this risk rating must have characteristics, which place them well above the minimum underwriting requirements for those departments. Asset-based borrowers assigned this rating must exhibit extremely favorable leverage and cash flow characteristics, and consistently demonstrate a high level of unused borrowing capacity. |
- | Grades 4 and 5 – These include “pass” grade loans to borrowers of acceptable credit quality and risk. The borrower’s balance sheet and financial ratios may be below industry averages, but above the lowest industry quartile. Leverage is above and liquidity is below industry averages. Inadequacies evident in financial performance and/or management sufficiency are offset by readily available features of support, such as adequate collateral, or good guarantors having the liquid assets and/or cash flow capacity to repay the debt. The borrower may have recognized a loss over three or four years, however recent earnings trends, while perhaps somewhat cyclical, are improving and cash flows are adequate to cover debt service and fixed obligations. Real estate and asset-borrowers fully comply with all underwriting standards and are performing according to projections would be assigned this rating. These also include grade 5 loans which are “leveraged” or on management’s “watch list.” While still considered pass loans (loans given a grade 5), the borrower’s financial condition, cash flow or operations evidence more than average risk and short term weaknesses, these loans warrant a higher than average level of monitoring, supervision and attention from the Company, but do not reflect credit weakness trends that weaken or inadequately protect the Company’s credit position. Loans with a grade rating of 5 are not normally acceptable as new credits unless they are adequately secured or carry substantial endorser/guarantors. |
- | Grade 6 – This grade includes “special mention” loans which are loans that are currently protected but are potentially weak. This generally is an interim grade classification and should usually be upgraded to an Acceptable rating or downgraded to Substandard within a reasonable time period. Weaknesses in special mention loans may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date. Special mention loans are often loans with weaknesses inherent from the loan origination, loan servicing, and perhaps some technical deficiencies. The main theme in special mention credits is the distinct probability that the classification will deteriorate to a more adverse class if the noted deficiencies are not addressed by the loan officer or loan management. |
- | Grade 7 – This grade includes “substandard” loans which are inadequately supported by the current sound net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that may impair the regular liquidation of the debt. Substandard loans exhibit a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans also include impaired loans. |
- | Grade 8 - This grade includes “doubtful” loans which exhibit the same characteristics as the Substandard loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include a proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. |
- | Grade 9 - This grade includes loans classified “loss” which are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off the asset even though partial recovery may be achieved in the future. |
Commercial and Industrial | Commercial RE | Real Estate Construction and Development | Agricultural | Total | |||||||||||||||
December 31, 2016 | |||||||||||||||||||
(In thousands) | |||||||||||||||||||
Grades 1 and 2 | $ | 340 | $ | — | $ | — | $ | 75 | $ | 415 | |||||||||
Grade 3 | 4,823 | 5,767 | — | — | 10,590 | ||||||||||||||
Grades 4 and 5 – pass | 34,921 | 192,699 | 110,992 | 56,843 | 395,455 | ||||||||||||||
Grade 6 – special mention | 4,416 | 621 | 928 | — | 5,965 | ||||||||||||||
Grade 7 – substandard | 4,505 | 1,126 | 18,767 | — | 24,398 | ||||||||||||||
Grade 8 – doubtful | — | — | — | — | — | ||||||||||||||
Total | $ | 49,005 | $ | 200,213 | $ | 130,687 | $ | 56,918 | $ | 436,823 |
Commercial and Industrial | Commercial RE | Real Estate Construction and Development | Agricultural | Total | |||||||||||||||
December 31, 2015 | |||||||||||||||||||
(In thousands) | |||||||||||||||||||
Grades 1and 2 | $ | 519 | $ | — | $ | — | $ | 50 | $ | 569 | |||||||||
Grade 3 | 5,008 | 5,964 | — | — | 10,972 | ||||||||||||||
Grades 4 and 5 – pass | 44,341 | 173,731 | 103,607 | 52,087 | 373,766 | ||||||||||||||
Grade 6 – special mention | 946 | 1,616 | — | — | 2,562 | ||||||||||||||
Grade 7 – substandard | 5,012 | 1,243 | 26,989 | — | 33,244 | ||||||||||||||
Grade 8 – doubtful | — | — | — | — | — | ||||||||||||||
Total | $ | 55,826 | $ | 182,554 | $ | 130,596 | $ | 52,137 | $ | 421,113 |
December 31, 2016 | December 31, 2015 | ||||||||||||||||||||||||||||||
Residential Mortgages | Home Improvement and Home Equity | Installment | Total | Residential Mortgages | Home Improvement and Home Equity | Installment | Total | ||||||||||||||||||||||||
Not graded | $ | 69,955 | $ | 573 | $ | 41,855 | $ | 112,383 | $ | 47,135 | $ | 839 | $ | 23,213 | $ | 71,187 | |||||||||||||||
Pass | 15,669 | 26 | 2,120 | 17,815 | 19,466 | 28 | 664 | 20,158 | |||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Substandard | 1,764 | — | 9 | 1,773 | 2,210 | — | 650 | 2,860 | |||||||||||||||||||||||
Doubtful | — | — | 965 | 965 | — | — | — | — | |||||||||||||||||||||||
Total | $ | 87,388 | $ | 599 | $ | 44,949 | $ | 132,936 | $ | 68,811 | $ | 867 | $ | 24,527 | $ | 94,205 |
December 31, 2016 | Commercial and Industrial | Real Estate Mortgage | Real Estate Construction and Development Loans | Agricultural | Installment & Other | Commercial Lease Financing | Unallocated | Total | |||||||||||||||||||||||
Beginning balance | $ | 1,652 | $ | 1,449 | $ | 4,629 | $ | 655 | $ | 1,258 | $ | — | $ | 70 | $ | 9,713 | |||||||||||||||
Provision (recovery of provision) for credit losses | 980 | (15 | ) | (1,281 | ) | 32 | (388 | ) | — | 651 | (21 | ) | |||||||||||||||||||
Charge-offs | (849 | ) | (29 | ) | — | (21 | ) | — | — | (24 | ) | (923 | ) | ||||||||||||||||||
Recoveries | 60 | 25 | 30 | — | 18 | — | — | 133 | |||||||||||||||||||||||
Net recoveries(charge-offs) | (789 | ) | (4 | ) | 30 | (21 | ) | 18 | — | (24 | ) | (790 | ) | ||||||||||||||||||
Ending balance | $ | 1,843 | $ | 1,430 | $ | 3,378 | $ | 666 | $ | 888 | $ | — | $ | 697 | $ | 8,902 | |||||||||||||||
Period-end amount allocated to: | |||||||||||||||||||||||||||||||
Loans individually evaluated for impairment | 757 | 603 | — | — | — | — | — | 1,360 | |||||||||||||||||||||||
Loans collectively evaluated for impairment | 1,086 | 827 | 3,378 | 666 | 888 | — | 697 | 7,542 | |||||||||||||||||||||||
Ending balance | $ | 1,843 | $ | 1,430 | $ | 3,378 | $ | 666 | $ | 888 | $ | — | $ | 697 | $ | 8,902 |
December 31, 2015 | Commercial and Industrial | Real Estate Mortgage | Real Estate Construction and Development Loans | Agricultural | Installment & Other | Commercial Lease Financing | Unallocated | Total | |||||||||||||||||||||||
Beginning balance | $ | 1,218 | $ | 1,653 | $ | 6,278 | $ | 482 | $ | 293 | $ | — | $ | 847 | $ | 10,771 | |||||||||||||||
Provision for credit losses | 1,201 | (369 | ) | (1,709 | ) | 173 | 1,422 | — | (759 | ) | (41 | ) | |||||||||||||||||||
Charge-offs | (1,397 | ) | — | — | — | (467 | ) | — | (22 | ) | (1,886 | ) | |||||||||||||||||||
Recoveries | 630 | 165 | 60 | 0 | 10 | — | 4 | 869 | |||||||||||||||||||||||
Net recoveries (charge-offs) | (767 | ) | 165 | 60 | 0 | (457 | ) | — | (18 | ) | (1,017 | ) | |||||||||||||||||||
Ending balance | $ | 1,652 | $ | 1,449 | $ | 4,629 | $ | 655 | $ | 1,258 | $ | — | $ | 70 | $ | 9,713 | |||||||||||||||
Period-end amount allocated to: | |||||||||||||||||||||||||||||||
Loans individually evaluated for impairment | 530 | 635 | 1,282 | — | 650 | — | — | 3,097 | |||||||||||||||||||||||
Loans collectively evaluated for impairment | 1,122 | 814 | 3,347 | 655 | 608 | — | 70 | 6,616 | |||||||||||||||||||||||
Ending balance | $ | 1,652 | $ | 1,449 | $ | 4,629 | $ | 655 | $ | 1,258 | $ | — | $ | 70 | $ | 9,713 |
December 31, 2014 | Commercial and Industrial | Real Estate Mortgage | Real Estate Construction and Development Loans | Agricultural | Installment & Other | Commercial Lease Financing | Unallocated | Total | |||||||||||||||||||||||
Beginning balance | $ | 2,340 | $ | 1,862 | $ | 5,533 | $ | 583 | $ | 275 | $ | — | $ | 395 | $ | 10,988 | |||||||||||||||
Provision for credit losses | (1,129 | ) | (89 | ) | 97 | (106 | ) | (40 | ) | (46 | ) | 468 | (845 | ) | |||||||||||||||||
Charge-offs | (318 | ) | (140 | ) | (60 | ) | — | — | — | (16 | ) | (534 | ) | ||||||||||||||||||
Recoveries | 325 | 20 | 708 | 5 | 58 | 46 | — | 1,162 | |||||||||||||||||||||||
Net recoveries (charge-offs) | 7 | (120 | ) | 648 | 5 | 58 | 46 | (16 | ) | 628 | |||||||||||||||||||||
Ending balance | $ | 1,218 | $ | 1,653 | $ | 6,278 | $ | 482 | $ | 293 | $ | — | $ | 847 | $ | 10,771 | |||||||||||||||
Period-end amount allocated to: | |||||||||||||||||||||||||||||||
Loans individually evaluated for impairment | 64 | 648 | — | — | 3 | — | — | 715 | |||||||||||||||||||||||
Loans collectively evaluated for impairment | 1,154 | 1,005 | 6,278 | 482 | 290 | — | 847 | 10,056 | |||||||||||||||||||||||
Ending balance | $ | 1,218 | $ | 1,653 | $ | 6,278 | $ | 482 | $ | 293 | $ | — | $ | 847 | $ | 10,771 |
December 31, 2016 | |||||||||||
Loans Individually Evaluated for Impairment | Loans Collectively Evaluated for Impairment | Total Loans | |||||||||
(In thousands) | |||||||||||
Commercial and Business Loans | $ | 4,653 | $ | 42,811 | $ | 47,464 | |||||
Government Program Loans | 356 | 1,185 | 1,541 | ||||||||
Total Commercial and Industrial | 5,009 | 43,996 | 49,005 | ||||||||
Commercial Real Estate Loans | 1,456 | 198,757 | 200,213 | ||||||||
Residential Mortgage Loans | 2,475 | 84,913 | 87,388 | ||||||||
Home Improvement and Home Equity Loans | — | 599 | 599 | ||||||||
Total Real Estate Mortgage | 3,931 | 284,269 | 288,200 | ||||||||
Real Estate Construction and Development Loans | 6,274 | 124,413 | 130,687 | ||||||||
Agricultural Loans | — | 56,918 | 56,918 | ||||||||
Installment Loans | 965 | 43,984 | 44,949 | ||||||||
Total Loans | $ | 16,179 | $ | 553,580 | $ | 569,759 |
December 31, 2015 | |||||||||||
Loans Individually Evaluated for Impairment | Loans Collectively Evaluated for Impairment | Total Loans | |||||||||
(In thousands) | |||||||||||
Commercial and Business Loans | $ | 4,874 | $ | 49,629 | $ | 54,503 | |||||
Government Program Loans | 327 | 996 | 1,323 | ||||||||
Total Commercial and Industrial | 5,201 | 50,625 | 55,826 | ||||||||
Commercial Real Estate Loans | 1,243 | 181,311 | 182,554 | ||||||||
Residential Mortgage Loans | 4,050 | 64,761 | 68,811 | ||||||||
Home Improvement and Home Equity Loans | — | 867 | 867 | ||||||||
Total Real Estate Mortgage | 5,293 | 246,939 | 252,232 | ||||||||
Real Estate Construction and Development Loans | 12,519 | 118,077 | 130,596 | ||||||||
Agricultural Loans | 16 | 52,121 | 52,137 | ||||||||
Installment Loans | 650 | 23,877 | 24,527 | ||||||||
Total Loans | $ | 23,679 | $ | 491,639 | $ | 515,318 |
December 31, 2014 | |||||||||||
Loans Individually Evaluated for Impairment | Loans Collectively Evaluated for Impairment | Total Loans | |||||||||
(In thousands) | |||||||||||
Commercial and Business Loans | $ | 1,000 | $ | 59,422 | $ | 60,422 | |||||
Government Program Loans | 421 | 1,526 | 1,947 | ||||||||
Total Commercial and Industrial | 1,421 | 60,948 | 62,369 | ||||||||
Commercial Real Estate Loans | 3,145 | 151,527 | 154,672 | ||||||||
Residential Mortgage Loans | 4,326 | 54,769 | 59,095 | ||||||||
Home Improvement and Home Equity Loans | 42 | 1,068 | 1,110 | ||||||||
Total Real Estate Mortgage | 7,513 | 207,364 | 214,877 | ||||||||
Real Estate Construction and Development Loans | 6,371 | 130,787 | 137,158 | ||||||||
Agricultural Loans | 32 | 31,681 | 31,713 | ||||||||
Installment Loans | 700 | 11,102 | 11,802 | ||||||||
Total Loans | $ | 16,037 | $ | 441,882 | $ | 457,919 |
4. | Premises and Equipment |
(In thousands) | December 31, 2016 | December 31, 2015 | |||||
Land | $ | 968 | $ | 968 | |||
Buildings and improvements | 14,841 | 14,791 | |||||
Furniture and equipment | 9,501 | 8,496 | |||||
25,310 | 24,255 | ||||||
Less accumulated depreciation and amortization | (14,865 | ) | (13,455 | ) | |||
Total premises and equipment | $ | 10,445 | $ | 10,800 |
5. | Investment in Limited Partnership |
6. | Deposits |
(In thousands) | December 31, 2016 | December 31, 2015 | |||||
Noninterest-bearing deposits | $ | 262,697 | $ | 262,168 | |||
Interest-bearing deposits: | |||||||
NOW and money market accounts | 235,873 | 226,886 | |||||
Savings accounts | 75,068 | 63,592 | |||||
Time deposits: | |||||||
Under $250,000 | 87,419 | 58,122 | |||||
$250,000 and over | 15,572 | 11,037 | |||||
Total interest-bearing deposits | 413,932 | 359,637 | |||||
Total deposits | $ | 676,629 | $ | 621,805 |
(In thousands) | December 31, 2016 | ||
One year or less | $ | 91,320 | |
More than one year, but less than or equal to two years | 9,214 | ||
More than two years, but less than or equal to three years | 1,681 | ||
More than three years, but less than or equal to four years | 348 | ||
More than four years, but less than or equal to five years | 428 | ||
More than five years | — | ||
$ | 102,991 |
7. | Short-term Borrowings/Other Borrowings |
8. | Junior Subordinated Debt/Trust Preferred Securities |
9. | Taxes on Income |
December 31, | |||||||
(In thousands) | 2016 | 2015 | |||||
Deferred tax assets: | |||||||
Credit losses not currently deductible | $ | 4,151 | $ | 4,489 | |||
Deferred compensation | 1,782 | 1,891 | |||||
Net operating losses | — | 459 | |||||
Depreciation | 51 | 338 | |||||
Accrued reserves | 200 | 73 | |||||
Write-down on other real estate owned | 534 | 534 | |||||
Unrealized gain on AFS & retirement obligation | 415 | 147 | |||||
Interest on nonaccrual loans | 36 | 36 | |||||
Capitalized OREO expenses | — | 826 | |||||
Other | 1,897 | 2,196 | |||||
Total deferred tax assets | 9,066 | 10,989 | |||||
Deferred tax liabilities: | |||||||
State Tax | (1,087 | ) | (1,281 | ) | |||
FHLB dividend | (65 | ) | (65 | ) | |||
Loss on limited partnership investment | (1,222 | ) | (1,286 | ) | |||
Deferred gain ASC 825 – fair value option | (1,657 | ) | (1,890 | ) | |||
Fair value adjustments for purchase accounting | (139 | ) | (139 | ) | |||
Deferred loan costs | (1,318 | ) | (868 | ) | |||
Prepaid expenses | (280 | ) | (232 | ) | |||
Total deferred tax liabilities | (5,768 | ) | (5,761 | ) | |||
Net deferred tax assets | $ | 3,298 | $ | 5,228 |
(In thousands) | |||||||||||
2016 | Federal | State | Total | ||||||||
Current | $ | 2,642 | $ | 28 | $ | 2,670 | |||||
Deferred | 941 | 1,258 | 2,199 | ||||||||
$ | 3,583 | $ | 1,286 | $ | 4,869 | ||||||
2015 | |||||||||||
Current | $ | 2,847 | $ | 10 | $ | 2,857 | |||||
Deferred | 465 | 1,175 | 1,640 | ||||||||
$ | 3,312 | $ | 1,185 | $ | 4,497 | ||||||
2014 | |||||||||||
Current | $ | 1,129 | $ | (1,753 | ) | $ | (624 | ) | |||
Deferred | 1,994 | 2,822 | 4,816 | ||||||||
$ | 3,123 | $ | 1,069 | $ | 4,192 |
Year Ended December 31, | ||||||||
2016 | 2015 | 2014 | ||||||
Statutory federal income tax rate | 34.0 | % | 34.0 | % | 34.0 | % | ||
State franchise tax, net of federal income tax benefit | 6.9 | 6.9 | 6.8 | |||||
Other | (1.2 | ) | (1.1 | ) | (0.5 | ) | ||
39.7 | % | 39.8 | % | 40.3 | % |
10. | Stock Based Compensation |
Shares (a) | Weighted Average Exercise Price | |||||
Options outstanding December 31, 2015 | 120,635 | $ | 9.02 | |||
Granted during the year | — | — | ||||
Exercised during the year | 2,513 | 2.57 | ||||
Forfeited during the year | 81,350 | 12.25 | ||||
Options outstanding December 31, 2016 | 36,772 | $ | 3.87 |
Shares (a) | Weighted Average Grant-Date Fair Value | |||||
Non-vested awards at December 31, 2015 | 14,870 | $ | 5.18 | |||
Granted during the year | — | |||||
Vested during the year | 2,974 | 5.18 | ||||
Canceled during the year | — | — | ||||
Non-vested awards at December 31, 2016 | 11,896 | $ | 5.18 |
December 31, 2016 | December 31, 2015 | December 31, 2014 | |||||||||
Weighted average grant-date fair value of stock options granted | $ | — | $ | — | $ | 3.33 | |||||
Total fair value of stock options vested | $ | 19,650 | $ | 19,640 | $ | 31,440 | |||||
Total intrinsic value of stock options exercised | $ | 4,500 | $ | — | $ | 39,711 |
Year Ended | Year Ended | Year Ended | |||
December 31, 2016 | December 31, 2015 | December 31, 2014 | |||
Risk Free Interest Rate | —% | —% | 1.70% | ||
Expected Dividend Yield | —% | —% | —% | ||
Expected Life in Years | 0 years | 0 years | 5.5 years | ||
Expected Price Volatility | —% | —% | 67.02% |
11. | Employee Benefit Plans |
12. | Commitments and Contingent Liabilities |
(In thousands): | |||
2017 | $ | 695 | |
2018 | 655 | ||
2019 | 479 | ||
2020 | 427 | ||
2021 | 230 | ||
Thereafter | 829 | ||
$ | 3,315 |
Contractual amount – December 31, | |||||||
(In thousands) | 2016 | 2015 | |||||
Commitments to extend credit | $ | 120,485 | $ | 107,084 | |||
Standby letters of credit | 1,201 | 3,295 |
13. | Fair Value Measurements and Disclosure |
December 31, 2016 | |||||||||||||||||||
(In thousands) | Carrying Amount | Estimated Fair Value | Quoted Prices In Active Markets for Identical Assets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | ||||||||||||||
Financial Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 113,032 | $ | 113,032 | $ | 113,032 | $ | — | $ | — | |||||||||
Interest-bearing deposits | 650 | 650 | — | 650 | — | ||||||||||||||
Investment securities | 57,491 | 57,491 | 3,716 | 53,775 | — | ||||||||||||||
Loans | 561,932 | 557,914 | — | — | 557,914 | ||||||||||||||
Accrued interest receivable | 3,895 | 3,895 | — | 3,895 | — | ||||||||||||||
Financial Liabilities: | |||||||||||||||||||
Deposits: | |||||||||||||||||||
Noninterest-bearing | 262,697 | 262,697 | 262,697 | — | — | ||||||||||||||
NOW and money market | 235,873 | 235,873 | 235,873 | — | — | ||||||||||||||
Savings | 75,068 | 75,068 | 75,068 | — | — | ||||||||||||||
Time deposits | 102,991 | 702,743 | — | — | 702,743 | ||||||||||||||
Total deposits | 676,629 | 1,276,381 | 573,638 | — | 702,743 | ||||||||||||||
Junior subordinated debt | 8,832 | 8,832 | — | — | 8,832 | ||||||||||||||
Accrued interest payable | 76 | 76 | — | 76 | — |
December 31, 2015 | |||||||||||||||||||
(In thousands) | Carrying Amount | Estimated Fair Value | Quoted Prices In Active Markets for Identical Assets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | ||||||||||||||
Financial Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 125,751 | $ | 125,751 | $ | 125,751 | $ | — | $ | — | |||||||||
Interest-bearing deposits | 1,528 | 1,528 | — | 1,528 | — | ||||||||||||||
Investment securities | 30,893 | 30,893 | 3,812 | 27,081 | — | ||||||||||||||
Loans | 505,663 | 503,047 | — | — | 503,047 | ||||||||||||||
Accrued interest receivable | 2,220 | 2,220 | — | 2,220 | — | ||||||||||||||
Financial Liabilities: | |||||||||||||||||||
Deposits: | |||||||||||||||||||
Noninterest-bearing | 262,168 | 262,168 | 262,168 | — | — | ||||||||||||||
NOW and money market | 226,886 | 226,886 | 226,886 | — | — | ||||||||||||||
Savings | 63,592 | 63,592 | 63,592 | — | — | ||||||||||||||
Time deposits | 69,159 | 69,031 | — | — | 69,031 | ||||||||||||||
Total deposits | 621,805 | 621,677 | 552,646 | — | 69,031 | ||||||||||||||
Junior subordinated debt | 8,300 | 8,300 | — | — | 8,300 | ||||||||||||||
Accrued interest payable | 29 | 29 | — | 29 | — |
Description of Assets | December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
AFS Securities (2): | |||||||||||||||
U.S. Government agencies | $ | 23,203 | $ | — | $ | 23,203 | $ | — | |||||||
U.S Govt collateralized mortgage obligations | 30,572 | — | 30,572 | — | |||||||||||
Mutual Funds | 3,716 | 3,716 | — | — | |||||||||||
Total AFS securities | 57,491 | 3,716 | 53,775 | — | |||||||||||
Impaired Loans (1): | |||||||||||||||
Commercial and industrial | 301 | — | — | 301 | |||||||||||
Real estate mortgage | — | — | — | — | |||||||||||
RE construction & development | — | — | — | — | |||||||||||
Agricultural | — | — | — | — | |||||||||||
Installment/Other | — | — | — | — | |||||||||||
Total impaired loans | 301 | — | — | 301 | |||||||||||
Other real estate owned (1) | — | — | — | — | |||||||||||
Total | $ | 57,792 | $ | 3,716 | $ | 53,775 | $ | 301 |
Description of Liabilities | December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
Junior subordinated debt (2) | $ | 8,832 | $ | — | $ | — | $ | 8,832 | |||||||
Total | $ | 8,832 | $ | — | $ | — | $ | 8,832 |
Description of Assets | December 31, 2015 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
AFS Securities (2): | |||||||||||||||
U.S. Government agencies | $ | 10,123 | $ | — | $ | 10,123 | $ | — | |||||||
U.S Govt collateralized mortgage obligations | 16,958 | — | 16,958 | — | |||||||||||
Mutual Funds | 3,812 | 3,812 | — | — | |||||||||||
Total AFS securities | 30,893 | 3,812 | 27,081 | — | |||||||||||
Impaired Loans (1): | |||||||||||||||
Commercial and industrial | — | — | — | — | |||||||||||
Real estate mortgage | — | — | — | — | |||||||||||
RE construction & development | — | — | — | — | |||||||||||
Agricultural | — | — | — | — | |||||||||||
Installment/Other | — | — | — | — | |||||||||||
Total impaired loans | — | — | — | — | |||||||||||
Other real estate owned (1) | 9,208 | — | — | 9,208 | |||||||||||
Total | $ | 40,101 | $ | 3,812 | $ | 27,081 | $ | 9,208 |
Description of Liabilities | December 31, 2015 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
Junior subordinated debt (2) | $ | 8,300 | $ | — | $ | — | $ | 8,300 | |||||||
Total | $ | 8,300 | $ | — | $ | — | $ | 8,300 |
December 31, 2016 | ||||||
Financial Instrument | Fair Value | Valuation Technique | Unobservable Input | Range, Weighted Average | ||
Impaired Loans: | ||||||
Commercial and industrial | $ | 301 | Sales Comparison Approach | Adjustment for difference between comparable sales | 7%-29%, 19.1% |
December 31, 2015 | ||||||
Financial Instrument | Fair Value | Valuation Technique | Unobservable Input | Range, Weighted Average | ||
Other Real Estate Owned | ||||||
Other Real Estate Owned | $ | 9,208 | Market Approach | Adjustment for negotiated sales contract | 2% |
December 31, 2016 | December 31, 2015 | December 31, 2014 | |||||||||
Reconciliation of Liabilities: | Junior Subordinated Debt | Junior Subordinated Debt | Junior Subordinated Debt | ||||||||
Beginning balance | $ | 8,300 | $ | 10,115 | $ | 11,125 | |||||
Total losses included in earnings | (518 | ) | (73 | ) | (102 | ) | |||||
Canceled debt | — | (1,122 | ) | — | |||||||
Gain on redemption of liability | — | 78 | — | ||||||||
Capitalized interest | 1,050 | (698 | ) | (908 | ) | ||||||
Ending balance | $ | 8,832 | $ | 8,300 | $ | 10,115 | |||||
The amount of total losses for the period included in earnings attributable to the change in unrealized gains or losses relating to liabilities still held at the reporting date | $ | (518 | ) | $ | (73 | ) | $ | (102 | ) |
December 31, 2016 | December 31, 2015 | |||||||
Financial Instrument | Valuation Technique | Unobservable Input | Weighted Average | Financial Instrument | Valuation Technique | Unobservable Input | Weighted Average | |
Subordinated Debt | Discounted cash flow | Discount Rate | 6.46% | Subordinated Debt | Discounted cash flow | Discount Rate | 6.82% |
14. | Regulatory Matters |
To Be Well Capitalized Under | |||||||||||||||
Actual | For Capital Adequacy Purposes | Prompt Corrective Action Provisions | |||||||||||||
(In thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||
As of December 31, 2016 (Company): | |||||||||||||||
Total Capital (to Risk Weighted Assets) | $ | 108,868 | 17.26 | % | $ | 50,454 | 8.00 | % | N/A | N/A | |||||
Tier 1 Capital (to Risk Weighted Assets) | 100,968 | 16.01 | % | 37,840 | 6.00 | % | N/A | N/A | |||||||
Common Equity Tier 1 (to Risk Weighted Assets) | 92,600 | 14.68 | % | 28,380 | 4.50 | % | N/A | N/A | |||||||
Tier 1 Leverage ( to Average Assets) | 100,968 | 12.97 | % | 31,149 | 4.00 | % | N/A | N/A | |||||||
As of December 31, 2016 (Bank): | |||||||||||||||
Total Capital (to Risk Weighted Assets) | $ | 108,400 | 17.19 | % | $ | 50,454 | 8.00 | % | $ | 63,068 | 10.00 | % | |||
Tier 1 Capital (to Risk Weighted Assets) | 100,500 | 15.94 | % | 37,840 | 6.00 | % | 50,454 | 8.00 | % | ||||||
Common Equity Tier 1 (to Risk Weighted Assets) | 100,500 | 15.94 | % | 30,630 | 4.50 | % | 40,994 | 6.50 | % | ||||||
Tier 1 Leverage ( to Average Assets) | 100,500 | 12.99 | % | 30,956 | 4.00 | % | 38,695 | 5.00 | % | ||||||
As of December 31, 2015 (Company): | |||||||||||||||
Total Capital (to Risk Weighted Assets) | $ | 100,659 | 16.65 | % | $ | 48,358 | 8.00 | % | N/A | N/A | |||||
Tier 1 Capital (to Risk Weighted Assets) | 93,073 | 15.40 | % | 36,269 | 6.00 | % | N/A | N/A | |||||||
Common Equity Tier 1 (to Risk Weighted Assets) | 85,237 | 14.10 | % | 27,201 | 4.50 | % | N/A | N/A | |||||||
Tier 1 Leverage ( to Average Assets) | 93,073 | 12.95 | % | 28,747 | 4.00 | % | N/A | N/A | |||||||
As of December 31, 2015 (Bank): | |||||||||||||||
Total Capital (to Risk Weighted Assets) | $ | 100,544 | 16.69 | % | $ | 48,204 | 8.00 | % | $ | 71,870 | 10.00 | % | |||
Tier 1 Capital (to Risk Weighted Assets) | 92,981 | 15.43 | % | 36,153 | 6.00 | % | 57,496 | 8.00 | % | ||||||
Common Equity Tier 1 (to Risk Weighted Assets) | 92,981 | 15.43 | % | 27,115 | 4.50 | % | 46,716 | 6.50 | % | ||||||
Tier 1 Leverage ( to Average Assets) | 92,981 | 12.94 | % | 28,748 | 4.00 | % | 35,935 | 5.00 | % | ||||||
As of December 31, 2014 (Company): | |||||||||||||||
Total Capital (to Risk Weighted Assets) | $ | 91,935 | 17.29 | % | $ | 42,536 | 8.00 | % | N/A | N/A | |||||
Tier 1 Capital (to Risk Weighted Assets) | 85,234 | 16.03 | % | 21,268 | 4.00 | % | N/A | N/A | |||||||
Tier 1 Capital (to Average Assets) | 85,234 | 12.49 | % | 27,295 | 4.00 | % | N/A | N/A | |||||||
As of December 31, 2014 (Bank): | |||||||||||||||
Total Capital (to Risk Weighted Assets) | $ | 89,889 | 16.91 | % | $ | 42,536 | 8.00 | % | $ | 53,170 | 10.00 | % | |||
Tier 1 Capital (to Risk Weighted Assets) | 83,188 | 15.65 | % | 21,268 | 4.00 | % | 31,902 | 6.00 | % | ||||||
Tier 1 Capital ( to Average Assets) | 83,188 | 12.25 | % | 27,164 | 4.00 | % | 33,955 | 5.00 | % | ||||||
15. | Supplemental Cash Flow Disclosures |
Year Ended December 31, | |||||||||||
(In thousands) | 2016 | 2015 | 2014 | ||||||||
Cash paid during the period for: | |||||||||||
Interest | $ | 1,362 | $ | 1,243 | $ | 2,462 | |||||
Income Taxes | 1,710 | 3,080 | — | ||||||||
Noncash activities: | |||||||||||
Loans transferred to foreclosed property | — | 226 | 1,308 | ||||||||
OREO financed | 3,766 | — | — | ||||||||
Sale of limited partnership interest financed | — | — | 3,000 | ||||||||
Unrealized (losses) gains on securities | (648 | ) | (265 | ) | 18 | ||||||
Unrealized gains (losses) on unrecognized post retirement costs | (22 | ) | 224 | (113 | ) |
16. | Common Stock Dividend |
17. | Net Income Per Share |
Year Ended December 31, | |||||||||||
(In thousands, except earnings per share data) | 2016 | 2015 | 2014 | ||||||||
Net income available to common shareholders | $ | 7,385 | $ | 6,810 | $ | 6,216 | |||||
Weighted average shares outstanding | 16,703,672 | 16,702,781 | 16,686,896 | ||||||||
Add: dilutive effect of stock options | 7,136 | 2,156 | 5,750 | ||||||||
Weighted average shares outstanding adjusted for potential dilution | 16,710,808 | 16,704,937 | 16,692,646 | ||||||||
Basic earnings per share | $ | 0.44 | $ | 0.41 | $ | 0.37 | |||||
Diluted earnings per share | $ | 0.44 | $ | 0.41 | $ | 0.37 | |||||
Anti-dilutive shares excluded from earnings per share calculation | 52,000 | 136,000 | 154,000 |
United Security Bancshares – (parent only) | |||||||
Balance Sheets - December 31, 2016 and 2015 | |||||||
(In thousands) | 2016 | 2015 | |||||
Assets | |||||||
Cash and equivalents | $ | 148 | $ | 140 | |||
Investment in bank subsidiary | 104,554 | 97,379 | |||||
Other assets | 2,525 | 2,326 | |||||
Total assets | 107,227 | 99,845 | |||||
Liabilities & Shareholders' Equity | |||||||
Liabilities: | |||||||
Junior subordinated debt securities (at fair value) | 8,832 | 8,300 | |||||
Deferred taxes | 1,741 | 1,910 | |||||
Total liabilities | 10,573 | 10,210 | |||||
Shareholders' Equity: | |||||||
Common stock, no par value 20,000,000 shares authorized, 16,705,294 and 16,051,406 issued and outstanding, at December 31, 2016 and December 31, 2015, respectively | 56,557 | 52,572 | |||||
Retained earnings | 40,701 | 37,265 | |||||
Accumulated other comprehensive loss | (604 | ) | (202 | ) | |||
Total shareholders' equity | 96,654 | 89,635 | |||||
Total liabilities and shareholders' equity | $ | 107,227 | $ | 99,845 |
United Security Bancshares – (parent only) | Year ended December 31, | ||||||||||
Income Statements | |||||||||||
(In thousands) | 2016 | 2015 | 2014 | ||||||||
Income | |||||||||||
Loss on fair value of financial liability | $ | (518 | ) | $ | (73 | ) | $ | (102 | ) | ||
Gain on redemption of JR subordinated debentures | — | 78 | — | ||||||||
Dividends from subsidiary | 424 | 2,416 | 1,519 | ||||||||
Total income | (94 | ) | 2,421 | 1,417 | |||||||
Expense | |||||||||||
Interest expense | 240 | 225 | 241 | ||||||||
Other expense | 241 | 256 | 101 | ||||||||
Total expense | 481 | 481 | 342 | ||||||||
(Loss) Income before taxes and equity in undistributed income of subsidiary | (575 | ) | 1,940 | 1,075 | |||||||
Income tax benefit | (411 | ) | (196 | ) | (182 | ) | |||||
Undistributed income of subsidiary | 7,549 | 4,674 | 4,959 | ||||||||
Net Income | $ | 7,385 | $ | 6,810 | $ | 6,216 |
United Security Bancshares – (parent only) | Year ended December 31, | ||||||||||
Statement of Cash Flows | |||||||||||
(In thousands) | 2016 | 2015 | 2014 | ||||||||
Cash Flows From Operating Activities | |||||||||||
Net income | $ | 7,385 | $ | 6,810 | $ | 6,216 | |||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
Equity in undistributed income of subsidiary | (7,549 | ) | (4,674 | ) | (4,959 | ) | |||||
Provision for deferred income taxes | (169 | ) | (518 | ) | (42 | ) | |||||
Loss on fair value option of financial liability | 518 | 73 | 102 | ||||||||
Gain on redemption of junior subordinated debentures | — | (78 | ) | — | |||||||
(Increase) decrease in income tax receivable | (198 | ) | 117 | (140 | ) | ||||||
Net change in other assets/liabilities | 15 | (14 | ) | (1,114 | ) | ||||||
Net cash provided by operating activities | 2 | 1,716 | 63 | ||||||||
Cash Flows From Financing Activities | |||||||||||
Proceeds from exercise of stock options | 6 | — | 95 | ||||||||
Redemption of junior subordinated debenture | — | (1,800 | ) | — | |||||||
Net cash provided by financing activities | 6 | (1,800 | ) | 95 | |||||||
Net increase (decrease) increase in cash and cash equivalents | 8 | (84 | ) | 158 | |||||||
Cash and cash equivalents at beginning of year | 140 | 224 | 66 | ||||||||
Cash and cash equivalents at end of year | $ | 148 | $ | 140 | $ | 224 |
3.1 | Articles of Incorporation of Registrant (1) |
3.2 | Bylaws of Registrant (1) |
4.1 | Specimen common stock certificate of United Security Bancshares (1) |
10.1 | Amended and Restated Executive Salary Continuation Agreement for Dennis Woods (3) |
10.2 | Amended and Restated Employment Agreement for Dennis R. Woods (3) |
10.3 | Amended and Restated Executive Salary Continuation Agreement for Kenneth Donahue (3) |
10.4 | Amended and Restated Change in Control Agreement for Kenneth Donahue (3) |
10.5 | Amended and Restated Executive Salary Continuation Agreement for David Eytcheson (3) |
10.6 | Amended and Restated Change in Control Agreement for David Eytcheson (3) |
10.7 | USB 2005 Stock Option Plan (4) |
10.8 | Stock Option Agreement for Dennis R. Woods dated February 6, 2006 (2) |
10.9 | Written Agreement between United Security Bancshares, United Security Bank, and the Federal Reserve Bank of San Francisco dated March 23, 2010 (5) |
10.10 | United Security Bancshares 2015 Equity Incentive Award Plan (6) |
10.11 | Amended and Restated Employment Agreement for Dennis R. Woods (filed herewith) |
10.12 | Amended and Restated Change in Control Agreement for Kenneth Donahue (filed herewith) |
10.13 | Amended and Restated Change in Control Agreement for David Eytcheson (filed herewith) |
10.14 | Executive Salary Continuation Agreement for Bhavneet Gill (filed herewith) |
10.15 | Change in Control Agreement for Bhavneet Gill (filed herewith) |
10.16 | Executive Salary Continuation Agreement for William Yarbenet (filed herewith) |
10.17 | Employment Agreement for William Yarbenet (filed herewith) |
11.1 | Computation of earnings per share. |
See Note 19 to Consolidated Financial Statements and related documents set forth in “Item 8. Financial Statements and Supplementary Data” of this report are filed as part of this report. | |
21 | Subsidiaries of the Company (filed herewith) |
23.1 | Consent of Moss Adams LLP, Independent Registered Public Accounting Firm (filed herewith) |
31.1 | Certification of the Chief Executive Officer of United Security Bancshares pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
31.2 | Certification of the Chief Financial Officer of United Security Bancshares pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
32.1 | Certification of the Chief Executive Officer of United Security Bancshares pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
32.2 | Certification of the Chief Financial Officer of United Security Bancshares pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
March 3, 2017 | /S/ Dennis R. Woods | |
Dennis R. Woods | ||
President and Chief Executive Officer |
March 3, 2017 | /S/ Bhavneet Gill | |
Bhavneet Gill | ||
Senior Vice President and Chief Financial Officer |
Date: | March 3, 2017 | /s/ Robert G. Bitter | |||
Director | |||||
Date: | March 3, 2017 | /s/ Stanley J. Cavalla | |||
Director | |||||
Date: | March 3, 2017 | /s/ Tom Ellithorpe | |||
Director | |||||
Date: | March 3, 2017 | /s/ Benjamin Mackovak | |||
Director | |||||
Date: | March 3, 2017 | /s/ Robert M. Mochizuki | |||
Director | |||||
Date: | March 3, 2017 | /s/ Kenneth D. Newby | |||
Director | |||||
Date: | March 3, 2017 | /s/ Sue Quigley | |||
Director | |||||
Date: | March 3, 2017 | /s/ John Terzian | |||
Director | |||||
Date: | March 3, 2017 | /s/ Mike Woolf | |||
Director |
1) | United Security Bank – incorporated in the State of California | |
2) | USB Capital Trust II – incorporated in the State of Delaware |
Date: March 3, 2017 |
/S/ Dennis R. Woods |
Dennis R. Woods |
President and Chief Executive Officer |
Date: March 3, 2017 |
/S/ Bhavneet Gill |
Bhavneet Gill |
Senior Vice President and Chief Financial Officer |
/s/ Dennis R. Woods |
Dennis R. Woods |
President and Chief Executive Officer |
/s/ Bhavneet Gill |
Bhavneet Gill |
Senior Vice President and Chief Financial Officer |
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Feb. 28, 2017 |
Jun. 30, 2016 |
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Document and Entity Information [Abstract] | |||
Entity Registrant Name | UNITED SECURITY BANCSHARES | ||
Entity Central Index Key | 0001137547 | ||
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 | Smaller Reporting Company | ||
Entity Public Float | $ 74,765,669 | ||
Entity Common Stock, Shares Outstanding | 16,708,108 | ||
Document Fiscal Year Focus | 2016 | ||
Document Fiscal Period Focus | FY | ||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2016 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2016 |
Dec. 31, 2015 |
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Shareholders' Equity | ||
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 20,000,000 | 20,000,000 |
Common stock, shares issued (in shares) | 16,705,294 | 16,051,406 |
Common stock, shares outstanding (in shares) | 16,705,294 | 16,051,406 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
12 Months Ended | ||
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Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Statement of Comprehensive Income [Abstract] | |||
Net Income | $ 7,385 | $ 6,810 | $ 6,216 |
Unrealized (losses) gains on securities | (648) | (265) | 18 |
Unrealized (losses) gains on unrecognized post retirement costs | (22) | 224 | (113) |
Other comprehensive loss, before tax | (670) | (41) | (95) |
Tax benefit (expense) related to securities | 259 | 106 | (7) |
Tax benefit (expense) related to unrecognized post-retirement costs | 9 | (92) | 46 |
Total other comprehensive loss | (402) | (27) | (56) |
Comprehensive income | $ 6,983 | $ 6,783 | $ 6,160 |
Organization and Summary of Significant Accounting and Reporting Policies |
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Organization and Summary of Significant Accounting and Reporting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Summary of Significant Accounting and Reporting Policies | Organization and Summary of Significant Accounting and Reporting Policies Basis of Presentation – The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with prevailing practices within the banking industry. The consolidated financial statements include the accounts of United Security Bancshares, and its wholly owned subsidiaries, United Security Bank and subsidiary (the “Bank”) and USB Capital Trust II (the "Trust"). The Trust is deconsolidated pursuant to ASC 810. As a result, the Trust Preferred Securities are not presented on the Company’s consolidated financial statements as equity, but instead they are presented as Junior Subordinated Debentures are presented as a separate liability category. (see Note 8 to the Company’s consolidated financial statements). Intercompany accounts and transactions have been eliminated in consolidation. In the following notes, references to the Bank are references to United Security Bank. References to the Company are references to United Security Bancshares, (including the Bank). United Security Bancshares operates as one business segment providing banking services to commercial establishments and individuals primarily in the San Joaquin Valley of California. Nature of Operations – United Security Bancshares is a bank holding company, incorporated in the state of California for the purpose of acquiring all the capital stock of the Bank through a holding company reorganization (the “Reorganization”) of the Bank. The Reorganization, which was accounted for in a manner similar to a pooling of interests, was completed on June 12, 2001. Management believes the Reorganization has provided the Company greater operating and financial flexibility and has permitted expansion into a broader range of financial services and other business activities. During July 2007 the Company formed USB Capital Trust II and issued $15.0 million in Trust Preferred Securities with terms similar to those originally issued under USB Capital Trust I. During 2015, the Bank purchased $3.0 million of the Company's junior subordinated debentures related to the Company's trust preferred securities at a fair value discount of 40%. Subsequently, the Company purchased those shares from the Bank and canceled $3.0 million in par value of the junior subordinated debentures, realizing a $78,000 gain on redemption. The contractual principal balance of the Company's debentures relating to its trust preferred securities is $12.0 million as of December 31, 2016. (See Note 8. “Junior Subordinated Debt/Trust Preferred Securities”). USB Investment Trust Inc was incorporated effective December 31, 2001, as a special purpose real estate investment trust (“REIT”) under Maryland law. The REIT is a subsidiary of the Bank and was funded with $133.0 million in real estate-secured loans contributed by the Bank. USB Investment Trust was originally formed to give the Bank flexibility in raising capital, and reduce the expenses associated with holding the assets contributed to USB Investment Trust. The Bank was founded in 1987 and currently operates eleven branches and one construction lending office in an area from eastern Madera County to western Fresno County, as well as Taft and Bakersfield in Kern County, and Campbell in Santa Clara County. The Bank also operates one financial services department located in Fresno, California. The Bank’s primary source of revenue is interest income through providing loans to customers, who are predominantly small and middle-market businesses and individuals. The Bank engages in a full compliment of lending activities, including real estate mortgage, commercial and industrial, real estate construction, agricultural and consumer loans, with particular emphasis on short and medium term obligations. The Bank offers a wide range of deposit instruments. These include personal and business checking accounts and savings accounts, interest-bearing negotiable order of withdrawal (NOW) accounts, money market accounts and time certificates of deposit. Most of the Bank's deposits are attracted from individuals and from small and medium-sized business-related sources. The Bank also offers a wide range of specialized services designed to attract and service the needs of commercial customers and account holders. These services include cashiers checks, travelers checks, money orders, and foreign drafts. In addition, the Bank offers Internet banking services to its commercial and retail customers, and offers certain financial and wealth management services through its financial services department. The Bank does not operate a trust department, however it makes arrangements with its correspondent bank to offer trust services to its customers upon request. Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change, relate to the determination of the allowance for loan losses, determination of goodwill, fair value of junior subordinated debt and certain collateralized mortgage obligations, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. Subsequent events—The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued. Significant Accounting Policies - The Company follows accounting standards set by the Financial Accounting Standards Board, commonly referred to as “FASB.” FASB sets generally accepted accounting principles (GAAP) that the Company follows to ensure the consistent reporting of its consolidated financial condition, consolidated results of operations, and consolidated cash flows. References to GAAP issued by FASB in these footnotes are to FASB Accounting Standards Codification, sometimes referred to as the Codification or ASC. The following is a summary of significant policies:
The Company classifies its securities as available for sale or held to maturity, and periodically reviews its investment portfolio on an individual security basis. Securities that are to be held for indefinite periods of time (including, but not limited to, those that management intends to use as part of its asset/liability management strategy, those which may be sold in response to changes in interest rates, changes in prepayments or any such other factors) are classified as securities available for sale. Securities which the Company has the ability and intent to hold to maturity are classified as held to maturity. Investments with fair values that are less than amortized cost are considered impaired. Impairment may result from either a decline in the financial condition of the issuing entity or, in the case of fixed interest rate investments, from rising interest rates. At each financial statement date, management assesses each investment to determine if impaired investments are temporarily impaired or if the impairment is other-than-temporary based upon the positive and negative evidence available. Evidence evaluated includes, but is not limited to, industry analyst reports, credit market conditions, and interest rate trends. 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 the 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.
Nonrefundable fees and related direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The net deferred fees and costs are generally amortized into interest income over the loan term using the interest method. Other credit-related fees, such as standby letter of credit fees, loan placement fees and annual credit card fees are recognized as noninterest income during the period the related service is performed.
The allowance for credit losses is increased by provisions charged to operations during the current period and reduced by negative provisions and loan charge-offs, net of recoveries. Loans are charged against the allowance when management believes that the collection of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans, based on evaluations of the probability of collection. In evaluating the probability of collection, management is required to make estimates and assumptions that affect the reported amounts of loans, allowance for credit losses and the provision for credit losses charged to operations. Actual results could differ significantly from those estimates. These evaluations take into consideration such factors as the composition of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. The Company’s methodology for assessing the adequacy of the allowance for credit losses consists of several key elements, which include: - the formula allowance - specific allowances for problem graded loans identified as impaired - and the unallocated allowance The formula allowance is calculated by applying loss factors to outstanding loans. Loss factors are based on the Company’s historical loss experience and on the internal risk grade of those loans and, may be adjusted for significant factors, including economic factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. Management determines the loss factors for problem graded loans (substandard, doubtful, and loss), special mention loans, and pass graded loans, based on a loss migration model. The migration analysis incorporates loan losses over the previous quarters as determined by management (time horizons adjusted as business cycles or environment changes) and loss factors are adjusted to recognize and quantify the loss exposure from changes in market conditions and trends in the Company’s loan portfolio. Those factors include 1) trends in delinquent and nonaccrual loans, 2) trends in loan volume and terms, 3) effects of changes in lending policies, 4) concentrations of credit, 5) competition, 6) national and local economic trends and conditions, 7) experience of lending staff, 8) loan review and Board of Directors oversight, 9) high balance loan concentrations, and 10) other business conditions. For purposes of this analysis, loans are grouped by internal risk classifications, which are “pass," “special mention,” “substandard,” “doubtful,” and “loss." Certain loans are homogeneous in nature and are therefore pooled by risk grade. These homogeneous loans include consumer installment and home equity loans. Specific allowances are established based on management’s periodic evaluation of loss exposure inherent in impaired loans. For impaired loans, specific allowances are determined based on the collateralized value of the underlying properties, the net present value of the anticipated cash flows, or the market value of the underlying assets. A loan is considered impaired when management determines that it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. Impairment is measured by the difference between the original recorded investment in the loan and the estimated present value of the total expected future cash flows, discounted at the loan’s effective rate, or the fair value of the collateral, less estimated selling costs, if the loan is collateral dependent. The unallocated portion of the allowance is based upon management’s evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions.
Goodwill amounts resulting from the acquisitions of Taft National Bank during April 2004, and Legacy Bank during February 2007 are considered to have an indefinite life and are not amortized. At December 31, 2016, goodwill related to Taft National Bank totaled $1.6 million, and goodwill related to Legacy Bank totaled $2.9 million. Impairment testing of goodwill is performed at the reporting level during December of each year for Taft, and during March of each year for Legacy. During 2016 and 2015, the Company did not recognize impairment adjustments on the goodwill related to the Legacy or Taft Bank mergers (see Note 19 to the Company’s consolidated financial statements contained herein for details of the goodwill impairment.)
While technically these are considered equity securities, there is no market for the FHLB or FRB stock. Therefore, the shares are considered as restricted investment securities. Management periodically evaluates the stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB or FRB as compared to the capital stock amount of the FHLB or FRB and the length of time this situation has persisted, (2) commitments by the FHLB or FRB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB or FRB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB or FRB, and (4) the liquidity position of the FHLB or FRB.
In January 2014, FASB issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this ASU using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. This ASU was effective for the Company on January 1, 2015 and did not have a material impact on the Company's consolidated financial statements. In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-01 Accounting for Investments in Qualified Affordable Housing Projects. This ASU provides "guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit." It allows the proportional amortization method to be used by a reporting entity if certain conditions are met. The ASU also defines when a qualified affordable housing project through a limited liability entity should be tested for impairment. If a qualified affordable housing project does not meet the conditions for using the proportional amortization method, the investment should be accounted for using an equity method investment or a cost method investment. This ASU was effective for the Company on January 1, 2015 and did not have a material impact on the Company's consolidated financial statements. The Company will continue to account for our low-income housing tax credit investments using the equity method subsequent to the adoption of ASU 2014-01 and does not expect any impact on the Company's consolidated financial statements. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates Topic 606 and supersedes Topic 605, Revenue Recognition. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which postponed the effective date of 2014-09. Multiple ASUs and interpretative guidance have been issued in connection with ASU 2014-09. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company has begun their process to implement this new standard by reviewing all revenue sources to determine the sources that are in scope for this guidance. As a bank, key revenue sources, such as interest income have been identified as out of scope of this new guidance. The Company has not yet determined the financial statement impact this guidance will have. In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01 Financial Instruments-Overall: Recognition and Measurements of Financial Assets and Financial Liabilities. This ASU requires equity investments to be measured at fair value, with changes in fair value recognized in net income. The amendment also simplifies the impairment assessment of equity investments for which fair value is not readily determinable by requiring an entity to perform a qualitative assessment to identify impairment. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The Company expects this ASU to impact its consolidated income and other comprehensive income disclosures for the fair value of its mutual fund investment and junior subordinated debenture. In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The FASB is issuing this Update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification® and creating Topic 842, Leases. This Update, along with IFRS 16, Leases, are the results of the FASB’s and the International Accounting Standards Board’s (IASB’s) efforts to meet that objective and improve financial reporting. This ASU will be effective for public business entities for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein. Although an estimate of the impact of the new leasing standard has not yet been determined, the Company expects a significant new lease asset and related lease liability on the balance sheet due to the number of leased branches and standalone ATM sites the Bank currently has that are accounted for under current operating lease guidance. In March 2016, FASB issued ASU 2016-9, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as part of its simplification initiative. The provisions of the new standard changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. The Company will be required to adopt the ASU provisions January 1, 2017. Management does not expect the adoption of the ASU to have a material effect on the Company’s financial statements. In June 2016, FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326). The FASB is issuing this Update to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The Update requires enhanced disclosures and judgments in estimating credit losses and also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has established a project team for the implementation of this new standard. The team has started by working with a vendor to put a new Allowance for Loan Loss software in place and is collecting additional historical data to estimate the impact of this standard. An estimate of the impact of this standard has not yet been determined, however, the impact is expected to be significant.
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Investment Securities |
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Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Securities | Investment Securities Following is a comparison of the amortized cost and approximate fair value of investment securities at December 31, 2016 and December 31, 2015:
There were no sales of securities and no gross realized losses on available-for-sale securities and no gross gains during the years ended December 31, 2016, 2015, and 2014. There were no other-than-temporary impairment losses during the years ended December 31, 2016, 2015, and 2014. The amortized cost and fair value of securities available for sale at December 31, 2016, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed paydowns. Mutual funds are included in the "due in one year or less" category below.
At December 31, 2016 and 2015, available-for-sale securities with an amortized cost of approximately $19,653,625 and $16,253,074 (fair value of $19,803,388 and $16,670,290) were pledged as collateral for FHLB borrowings and public funds balances, respectively. The Company had no held-to-maturity or trading securities at December 31, 2016 and 2015. Management periodically evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The following summarizes temporarily impaired investment securities at December 31, 2016 and 2015:
Temporarily impaired securities at December 31, 2016, were comprised of four U.S. Government agency security, eleven U.S. Government sponsored entities & agencies collateralized by mortgage obligations and one mutual fund with and undefined maturity date. Temporarily impaired securities at December 31, 2015, were comprised of one U.S. Government agency security, five U.S. Government sponsored entities & agencies collateralized by mortgage obligations and one mutual fund, with an undefined maturity date. The Company evaluates investment securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities of high credit quality are generally evaluated for OTTI under ASC Topic 320-10, “Investments – Debt and Equity Instruments.” Certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, are evaluated under ASC Topic 325-40, "Beneficial Interest in Securitized Financial Assets." In the first segment, the Company considers many factors in determining OTTI, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at the time of the evaluation. The second segment of the portfolio uses the OTTI guidance that is specific to purchased beneficial interests including private label mortgage-backed securities. Under this model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows. Other-than-temporary-impairment occurs when the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary-impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary-impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary-impairment related to the credit loss is recognized in earnings, and is determined based on the difference between the present value of cash flows expected to be collected and the current amortized cost of the security. The amount of the total other-than-temporary-impairment related to other factors shall be recognized in other comprehensive (loss) income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of the investment. At December 31, 2016, the decline in fair value of the impaired mutual fund and U.S. government agency security is attributable to changes in interest rates, and not credit quality. Because the Company does not have the intent to sell these impaired securities, and it is not more likely than not that it will be required to sell these securities before its anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2016. |
Loans |
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Loans | Loans Loans are comprised of the following:
The Company's loans are predominantly in the San Joaquin Valley, and the greater Oakhurst/East Madera County area, as well as the Campbell area of Santa Clara County, although the Company does participate in loans with other financial institutions, primarily in the state of California. Commercial and industrial loans represent 8.6% of total loans at December 31, 2016, and are generally made to support the ongoing operations of small-to-medium sized commercial businesses. Commercial and industrial loans have a high degree of industry diversification and provide, working capital, financing for the purchase of manufacturing plants and equipment, or funding for growth and general expansion of businesses. A substantial portion of commercial and industrial loans are secured by accounts receivable, inventory, leases or other collateral including real estate. The remainder are unsecured; however, extensions of credit are predicated upon the financial capacity of the borrower. Repayment of real estate mortgage loans generally comes from the cash flow of the borrower. Real estate mortgage loans, representing 50.6% of total loans at December 31, 2016, are secured by trust deeds on primarily commercial property, but are also secured by trust deeds on single family residences. Repayment of real estate mortgage loans is generally from the cash flow of the borrower.
Real estate construction and development loans, representing 22.9% of total loans at December 31, 2016, consist of loans for residential and commercial construction projects, as well as land acquisition and development, or land held for future development. Loans in this category are secured by real estate including improved and unimproved land, as well as single-family residential, multi-family residential, and commercial properties in various stages of completion. All real estate loans have established equity requirements. Repayment on construction loans is generally from long-term mortgages with other lending institutions obtained at completion of the project. Agricultural loans represent 10.0% of total loans at December 31, 2016, and are generally secured by land, equipment, inventory and receivables. Repayment is from the cash flow of the borrower. Installment loans represent 7.9% of total loans at December 31, 2016 and generally consist of loans to individuals for household, family, student loans, and other personal expenditures such as credit cards, automobiles or other consumer items. Included in installment loans are $38,514,000 in student loans made to medical and pharmacy school students. Repayment on student loans is deferred until 6 months after graduation. Accrued interest on loans that have not entered repayment status totaled $1,850,000 at December 31, 2016. In the normal course of business, the Company is party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. At December 31, 2016 and 2015, these financial instruments include commitments to extend credit of $120,485,000 and $107,084,000, respectively, and standby letters of credit of $1,201,000 and $3,295,000, respectively. These instruments involve elements of credit risk in excess of the amount recognized on the balance sheet. The contract amounts of these instruments reflect the extent of the involvement the Company has in off-balance sheet financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies as it does for on-balance sheet 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. Substantially all of these commitments are at floating interest rates based on the Prime rate. Commitments generally have fixed expiration dates. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation. Collateral held varies but includes accounts receivable, inventory, leases, property, plant and equipment, residential real estate and income-producing properties. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Loans to directors, officers, principal shareholders and their affiliates are summarized below:
Past Due Loans The Company monitors delinquency and potential problem loans on an ongoing basis through weekly reports to the Loan Committee and monthly reports to the Board of Directors. The following is a summary of delinquent loans at December 31, 2016 (in thousands):
The following is a summary of delinquent loans at December 31, 2015 (in thousands):
Nonaccrual Loans Commercial, construction and commercial real estate loans are placed on non-accrual status under the following circumstances:
Other circumstances which jeopardize the ultimate collectability of the loan including certain troubled debt restructurings, identified loan impairment, and certain loans to facilitate the sale of OREO. Loans meeting any of the preceding criteria are placed on non-accrual status and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income. All other loans where principal or interest is due and unpaid for 90 days or more are placed on non-accrual and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income. When a loan is placed on non-accrual status and subsequent payments of interest (and principal) are received, the interest received may be accounted for in two separate ways. Cost recovery method: If the loan is in doubt as to full collection, the interest received in subsequent payments is diverted from interest income to a valuation reserve and treated as a reduction of principal for financial reporting purposes. Cash basis: This method is only used if the recorded investment or total contractual amount is expected to be fully collectible, under which circumstances the subsequent payments of interest is credited to interest income as received. Loans on non-accrual status are usually not returned to accruing status unless and until all delinquent principal and/or interest has been brought current, there is no identified element of loss, and current and continued satisfactory performance is expected (loss of the contractual amount not the carrying amount of the loan). Repayment ability is generally demonstrated through the timely receipt of at least six monthly payments on a loan with monthly amortization. Nonaccrual loans totaled $7,264,000 and $8,193,000 at December 31, 2016 and 2015, respectively. There were no remaining undisbursed commitments to extend credit on nonaccrual loans at December 31, 2016 and 2015. The following is a summary of nonaccrual loan balances at December 31, 2016 and 2015 (in thousands).
Impaired Loans A loan 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 loan agreement. The Company applies its normal loan review procedures in making judgments regarding probable losses and loan impairment. The Company evaluates for impairment those loans on nonaccrual status, graded doubtful, graded substandard or those that are troubled debt restructures. The primary basis for inclusion in impaired status under generally accepted accounting pronouncements is that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is not considered impaired if there is merely an insignificant delay or shortfall in the amounts of payments and the Company expects to collect all amounts due, including interest accrued, at the contractual interest rate for the period of the delay. Review for impairment does not include large groups of smaller balance homogeneous loans that are collectively evaluated to estimate the allowance for loan losses. The Company’s present allowance for loan losses methodology, including migration analysis, captures required reserves for these loans in the formula allowance. For loans determined to be impaired, the Company evaluates impairment based upon either the fair value of underlying collateral, discounted cash flows of expected payments, or observable market price.
The method for recognizing interest income on impaired loans is dependent on whether the loan is on nonaccrual status or is a troubled debt restructure. For income recognition, the existing nonaccrual and troubled debt restructuring policies are applied to impaired loans. Generally, except for certain troubled debt restructurings which are performing under the restructure agreement, the Company does not recognize interest income received on impaired loans, but reduces the carrying amount of the loan for financial reporting purposes. Loans other than certain homogeneous loan portfolios are reviewed on a quarterly basis for impairment. Impaired loans are written down to estimated realizable values by the establishment of specific reserves for loan utilizing the discounted cash flow method, or charge-offs for collateral-based impaired loans, or those using observable market pricing. The following is a summary of impaired loans at December 31, 2016 (in thousands).
(1) The recorded investment in loans includes accrued interest receivable of $35,000. (2) Information is based on the twelve month period ended December 31, 2016. The following is a summary of impaired loans at December 31, 2015 (in thousands).
(1) The recorded investment in loans includes accrued interest receivable of $67,000. (2) Information is based on the twelve month period ended December 31, 2015. The following is a summary of impaired loans at December 31, 2014 (in thousands).
(1) The recorded investment in loans includes accrued interest receivable of $24,000. (2) Information is based on the twelve month period ended December 31, 2014. In most cases, the Company uses the cash basis method of income recognition for impaired loans. In the case of certain troubled debt restructuring for which the loan is performing under the current contractual terms for a reasonable period of time, income is recognized under the accrual method. Troubled Debt Restructurings Under the circumstances, when the Company grants a concession to a borrower as part of a loan restructuring, the restructuring is accounted for as a troubled debt restructuring (TDR). TDRs are reported as a component of impaired loans. A TDR is a type of restructuring in which the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower and the Bank) to the borrower that it would not otherwise consider. Although the restructuring may take different forms, the Company's objective is to maximize recovery of its investment by granting relief to the borrower. A TDR may include, but is not limited to, one or more of the following: - A transfer from the borrower to the Company of receivables from third parties, real estate, other assets, or an equity interest in the borrower is granted to fully or partially satisfy the loan. - A modification of terms of a debt such as one or a combination of:
For a restructured loan to return to accrual status there needs to be, among other factors, at least 6 months successful payment history. In addition, the Company performs a financial analysis of the credit to determine whether the borrower has the ability to continue to meet payments over the remaining life of the loan. This includes, but is not limited to, a review of financial statements and cash flow analysis of the borrower. Only after determination that the borrower has the ability to perform under the terms of the loans, will the restructured credit be considered for accrual status. Although the Company does not have a policy which specifically addresses when a loan may be removed from TDR classification, as a matter of practice, loans classified as TDRs generally remain classified as such until the loan either reaches maturity or its outstanding balance is paid off. The following tables illustrate TDR activity for the periods indicated (dollars in thousands):
The following tables summarize TDR activity by loan category for the years ended December 31, 2016, 2015, and 2014 (in thousands).
The Company makes various types of concessions when structuring TDRs including rate reductions, payment extensions, and forbearance. At December 31, 2016, the Company had 28 restructured loans totaling $12,410,000, as compared to 29 restructured loans totaling $18,508,000 at December 31, 2015, and 33 restructured loans totaling $15,000,000 at December 31, 2014. The Company had no unfunded commitments standing for TDRs at December 31, 2016, $454,000 at December 31, 2015, and none at December 31, 2014. Credit Quality Indicators As part of its credit monitoring program, the Company utilizes a risk rating system which quantifies the risk the Company estimates it has assumed during the life of a loan. The system rates the strength of the borrower and the facility or transaction, and is designed to provide a program for risk management and early detection of problems. For each new credit approval, credit extension, renewal, or modification of existing credit facilities, the Company assigns risk ratings utilizing the rating scale identified in this policy. In addition, on an on-going basis, loans and credit facilities are reviewed for internal and external influences impacting the credit facility that would warrant a change in the risk rating. Each loan credit facility is to be given a risk rating that takes into account factors that materially affect credit quality. When assigning risk ratings, the Company evaluates two risk rating approaches, a facility rating and a borrower rating as follows. Facility Rating: The facility rating is determined by the analysis of positive and negative factors that may indicate that the quality of a particular loan or credit arrangement requires that it be rated differently from the risk rating assigned to the borrower. The Company assesses the risk impact of these factors: Collateral - The rating may be affected by the type and quality of the collateral, the degree of coverage, the economic life of the collateral, liquidation value and the Company's ability to dispose of the collateral. Guarantees - The value of third party support arrangements varies widely. Unconditional guaranties from persons with demonstrable ability to perform are more substantial than that of closely related persons to the borrower who offer only modest support. Unusual Terms - Credit may be extended on terms that subject the Company to a higher level of risk than indicated in the rating of the borrower. Borrower Rating: The borrower rating is a measure of loss possibility based on the historical, current and anticipated financial characteristics of the borrower in the current risk environment. To determine the rating, the Company considers at least the following factors: - Quality of management - Liquidity - Leverage/capitalization - Profit margins/earnings trend - Adequacy of financial records - Alternative funding sources - Geographic risk - Industry risk - Cash flow risk - Accounting practices - Asset protection - Extraordinary risks The Company assigns risk ratings to loans other than consumer loans and other homogeneous loan pools based on the following scale. The risk ratings are used when determining borrower ratings as well as facility ratings. When the borrower rating and the facility ratings differ, the lowest rating applied is:
The following tables summarize the credit risk ratings for commercial, construction, and other non-consumer related loans for December 31, 2016 and 2015. The Company did not carry any loans graded as loss at December 31, 2016 or December 31, 2015.
The Company follows consistent underwriting standards outlined in its loan policy for consumer and other homogeneous loans but, does not specifically assign a risk rating when these loans are originated. Consumer loans are monitored for credit risk and are considered “pass” loans until some issue or event requires that the credit be downgraded to special mention or worse. The following tables summarize the credit risk ratings for consumer related loans and other homogeneous loans for December 31, 2016 and 2015 (in thousands).
Allowance for Loan Losses The Company analyzes risk characteristics inherent in each loan portfolio segment as part of the quarterly review of the adequacy of the allowance for loan losses. The following summarizes some of the key risk characteristics for the eleven segments of the loan portfolio (Consumer loans include three segments): Commercial and industrial loans – Commercial loans are subject to the effects of economic cycles and tend to exhibit increased risk as economic conditions deteriorate, or if the economic downturn is prolonged. The Company considers this segment to be one of higher risk given the size of individual loans and the balances in the overall portfolio. Government program loans – This is a relatively a small part of the Company’s loan portfolio, but has historically had a high percentage of loans that have migrated from pass to substandard given there vulnerability to economic cycles. Commercial real estate loans – This segment is considered to have more risk in part because of the vulnerability of commercial businesses to economic cycles as well as the exposure to fluctuations in real estate prices because most of these loans are secured by real estate. Losses in this segment have however been historically low because most of the loans are real estate secured, and the bank maintains appropriate loan-to-value ratios. Residential mortgages – This segment is considered to have low risk factors both from the Company and peer statistics. These loans are secured by first deeds of trust. The losses experienced over the past twelve quarters are isolated to approximately twelve loans and are generally the result of short sales. Home improvement and home equity loans – Because of their junior lien position, these loans have an inherently higher risk level. Because residential real estate has been severely distressed in the recent past, the anticipated risk for this loan segment has increased. Real estate construction and development loans –In a normal economy, this segment of loans is considered to have a higher risk profile due to construction and market value issues in conjunction with normal credit risks. Although residential real estate markets have improved, they are still distressed on a historical basis, and therefore carry higher risk. Agricultural loans – This segment is considered to have risks associated with weather, insects, and marketing issues. In addition, concentrations in certain crops or certain agricultural areas can increase risk. Installment loans (Includes consumer loans, overdrafts, and overdraft protection lines) – This segment is higher risk because many of the loans are unsecured. The following summarizes the activity in the allowance for credit losses by loan category for the years ended December 31, 2016, 2015, and 2014 (in thousands).
The following summarizes information with respect to the loan balances at December 31, 2016, 2015, and 2014.
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Premises and Equipment |
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Premises and Equipment | Premises and Equipment The components of premises and equipment are as follows:
Total depreciation expense on Company premises and equipment totaled $1,428,000, $1,462,000, and $1,390,000 for the years ended December 31, 2016, 2015, and 2014, respectively, and is included in occupancy expense in the accompanying consolidated statements of operations. |
Investment in Limited Partnership |
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Equity Method Investments and Joint Ventures [Abstract] | |
Investment in Limited Partnership | Investment in Limited Partnership The Bank owns limited interests in private limited partnerships that acquire affordable housing properties in California that generate Low Income Housing Tax Credits under Section 42 of the Internal Revenue Code of 1986, as amended. The Bank's limited partnership investment is accounted for under the equity method. The Bank's noninterest expense associated with the utilization and expiration of these tax credits for the years ended December 31, 2016, 2015, and 2014 was $158,000, $73,000, and $39,000 respectively. These limited partnership investments are expected to generate tax credits of approximately $1.8 million over the life of the investment. The tax credits expired during 2015. No tax credits were available for income tax purposes for the years ended December 31, 2016, 2015, and 2014. The Bank owns a 9.14% interest in a limited partnership which provides private capital for small to mid-sized businesses used to finance later stage growth, strategic acquisitions, ownership transitions, and recapitalizations, or mezzanine capital. At December 31, 2016, the total investment in limited partnerships was $757,000. |
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Deposits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | Deposits Deposits include the following:
At December 31, 2016, the scheduled maturities of all certificates of deposit and other time deposits are as follows:
The Company may utilize brokered deposits as an additional source of funding. At December 31, 2016 and 2015, the Company held brokered time deposits totaling $28,132,000 and $8,546,000, respectively. All brokered time deposits are include in time deposits of less than $250,000. Included in brokered time deposits at December 31, 2016 are balances totaling $7,627,000 maturing in three months or less and $20,505,000 maturing in 3 months to a year. Deposit balances representing overdrafts reclassified as loan balances totaled $283,000 and $158,000 as of December 31, 2016 and 2015, respectively. Deposits of directors, officers and other related parties to the Bank totaled $9,299,000 and $13,746,000 at December 31, 2016 and 2015, respectively. The rates paid on these deposits were similar to those customarily paid to the Bank’s customers in the normal course of business. |
Short-term Borrowings/Other Borrowings |
12 Months Ended |
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Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |
Short-term Borrowings/Other Borrowings | Short-term Borrowings/Other Borrowings At December 31, 2016, the Company had collateralized lines of credit with the Federal Reserve Bank of San Francisco totaling $323,162,000, as well as Federal Home Loan Bank (“FHLB”) lines of credit totaling $2,037,000. At December 31, 2016, the Company had an uncollateralized line of credit with Pacific Coast Bankers Bank ("PCBB") totaling $10,000,000 and a Fed Funds line of $20,000,000 with Zions First National Bank. At December 31, 2016, and for the year then ended, the Company had no outstanding borrowing balances. All lines of credit are on an “as available” basis and can be revoked by the grantor at any time. These lines of credit have interest rates that are generally tied to the Federal Funds rate or are indexed to short-term U.S. Treasury rates or LIBOR. FHLB advances are collateralized by the Company’s stock in the FHLB, investment securities, and certain qualifying mortgage loans. As of December 31, 2016, $2,152,000 in investment securities at FHLB were pledged as collateral for FHLB advances. Additionally, $471,737,000 in real estate-secured loans were pledged at December 31, 2016, as collateral for used and unused borrowing lines with the Federal Reserve Bank totaling $323,162,000. The Company had collateralized lines of credit with the Federal Reserve Bank of San Francisco totaling $302,456,000, as well as Federal Home Loan Bank (“FHLB”) lines of credit totaling $2,854,000 at December 31, 2015. At December 31, 2015, the Company had an uncollateralized line of credit with Pacific Coast Bankers Bank ("PCBB") totaling $10,000,000. These lines of credit generally have interest rates tied to the Federal Funds rate or are indexed to short-term U.S. Treasury rates or LIBOR. FHLB advances are collateralized by the Company’s stock in the FHLB, investment securities, and certain qualifying mortgage loans. As of December 31, 2015, $3,023,000 in investment securities at FHLB were pledged as collateral for FHLB advances. Additionally, $444,596,000 in secured and unsecured loans were pledged at December 31, 2015, as collateral for used and unused borrowing lines with the Federal Reserve Bank totaling $302,456,000. All lines of credit are on an “as available” basis and can be revoked by the grantor at any time. At December 31, 2015, and for the year then ended, the Company had no outstanding borrowing balances. |
Junior Subordinated Debt/Trust Preferred Securities |
12 Months Ended |
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Dec. 31, 2016 | |
Junior Subordinated Debt/Trust Preferred Securities [Abstract] | |
Junior Subordinated Debt/Trust Preferred Securities | Junior Subordinated Debt/Trust Preferred Securities During July 2007, the Company formed USB Capital Trust II, a wholly-owned special purpose entity, for the purpose of issuing Trust Preferred Securities. USB Capital Trust II is a Variable Interest Entity (VIE) and a deconsolidated entity pursuant to ASC 810. On July 23, 2007, USB Capital Trust II issued $15 million in Trust Preferred securities. The securities have a thirty-year maturity and bear a floating rate of interest (repricing quarterly) of 1.29% over the three-month LIBOR rate (initial coupon rate of 6.65%). Interest will be paid quarterly. Concurrent with the issuance of the Trust Preferred securities, USB Capital Trust II used the proceeds of the Trust Preferred securities offering to purchase a like amount of junior subordinated debentures of the Company. The Company will pay interest on the junior subordinated debentures to USB Capital Trust II, which represents the sole source of dividend distributions to the holders of the Trust Preferred securities. The Company may redeem the junior subordinated debentures at anytime at par. The Company elected the fair value measurement option for all the Company’s new junior subordinated debentures issued under USB Capital Trust II. Effective September 30, 2009 and beginning with the quarterly interest payment due October 1, 2009, the Company elected to defer interest payments on the Company’s $15.0 million of junior subordinated debentures relating to its trust preferred securities. The terms of the debentures and trust indentures allow for the Company to defer interest payments for up to 20 consecutive quarters without default or penalty. During the period that the interest deferrals were elected, the Company continued to record interest expense associated with the debentures. As of June 30, 2014, the Company ended the extension period, paid all accrued and unpaid interest, and is currently making quarterly interest payments. At December 31, 2016 and 2015, the Company had $64,000 and $50,000, respectively, in accrued and unpaid interest on the junior subordinated debt. During August 2015, the Bank purchased $3.0 million of the Company's junior subordinated debentures related to the Company's trust preferred securities at a fair value discount of 40%. Subsequently, in September 2015, the Company purchased those shares from the Bank and canceled $3.0 million in par value of the junior subordinated debentures, realizing a $78,000 gain on redemption. The contractual principal balance of the Company's debentures relating to its trust preferred securities is $12.0 million as of December 31, 2016. At December 31, 2016, as with previous periods, the Company performed a fair value measurement analysis on its junior subordinated debt using a discounted cash flow valuation model approach to determine the present value of those cash flows. The cash flow model utilizes the forward 3-month LIBOR curve to estimate future quarterly interest payments due over the life of the debt instrument. These cash flows were discounted at a rate which incorporates a current market rate for similar-term debt instruments, adjusted for additional credit and liquidity risks associated with the junior subordinated debt. We believe the 6.46% discount rate used represents what a market participant would consider under the circumstances based on current market assumptions. At December 31, 2016, the total cumulative gain recorded on the debt is $3,696,000. The fair value calculation performed resulted in realized losses of $518,000, $73,000, and $102,000 for the years ended December 31, 2016, 2015, and 2014, respectively. Fair value gains and losses are reflected as a component of noninterest income. |
Taxes on Income |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Taxes on Income | Taxes on Income The tax effects of significant items comprising the Company’s net deferred tax assets (liabilities) are as follows:
The Company periodically evaluates its deferred tax assets to determine whether a valuation allowance is required based upon a determination that some or all of the deferred assets may not be ultimately realized. The Company did not record a valuation allowance at December 31, 2016 or December 31, 2015. Income tax expense for the years ended December 31, consist of the following:
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
At December 31, 2016, the Company has no remaining federal and state net operating loss carry-forwards. The Company periodically reviews its tax positions under the accounting standards related to uncertainty in income taxes, which defines the criteria that an individual tax position would have to meet for some or all of the income tax benefit to be recognized in a taxable entity’s financial statements. Under the guidelines, an entity should recognize the financial statement benefit of a tax position if it determines that it is more likely than not that the position will be sustained on examination. The term, “more likely than not”, means a likelihood of more than 50 percent. In assessing whether the more-likely-than-not criterion is met, the entity should assume that the tax position will be reviewed by the applicable taxing authority and all available information is known to the taxing authority. The Company and its subsidiary file income tax returns in the U.S federal jurisdiction, and several states within the U.S. There are no filings in foreign jurisdictions. During 2014, the Company began the process to amend its state tax returns for the years 2009 through 2012 to file a combined report on a unitary basis with the Company and USB Investment Trust . The amended return for 2009 was filed during 2014, the 2010 return was filed during 2015, and the amended returns for 2011 and 2012 were filed in 2016. The Company is no longer subject to examination for years before 2009. During the third quarter of 2016, the IRS notified the Company it would be conducting an examination of the Company's 2014 federal return. As of December 31, 2016, the Company is unaware of any change in tax positions as a result of the IRS examination. The Company's policy is to recognize interest and penalties related to taxes in income tax expense. Interest and penalties recognized during the years ended December 31, 2016 and 2015 were insignificant. |
Stock Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | Stock Based Compensation Options and restricted stock units and awards have been granted to officers and key employees at an exercise price equal to estimated fair value at the date of grant as determined by the Board of Directors. All options, units, and awards granted are service awards, and as such are based solely upon fulfilling a requisite service period (the vesting period). On December 31, 2016, the Company had two stock based compensation plans. In May 2005, the Company adopted the United Security Bancshares 2005 Stock Option Plan (2005 Plan) for which 36,772 shares remain reserved for issuance for options already granted to employees and directors under incentive and nonstatutory agreements. The 2005 plan expired in May 2015. While outstanding arrangements to issue shares under this plan, including options, continue in force until their expiration, no new options will be granted under this plan. In May 2015, the Company adopted the United Security Bancshares 2015 Equity Incentive Award Plan (2015 Plan). The 2015 Plan provides for the granting of up to 750,495 shares of authorized and unissued shares of common stock in the form of stock options, restricted stock units, and restricted stock awards. The 2015 Plan requires that the exercise price may not be less than the fair value of the stock at the date the option is granted, and that the option price must be paid in full at the time it is exercised. The options granted (incentive stock options for employees and non-qualified stock options for Directors) have an exercise price at the prevailing market price on the date of grant. All options granted are exercisable 20% each year commencing one year after the date of grant and expire ten years after the date of grant. Restricted stock awards are granted at the prevailing market price of the Company's stock and typically vest over a five-year period. Restricted stock awards are subject to forfeiture if employment terminates prior to vesting. The cost of these awards is recognized over the vesting period of the awards based on the fair value of our common stock on the date of the grant. Under the 2005 Plan, 36,772 granted options are outstanding (36,772 incentive stock options and 0 nonqualified stock options) as of December 31, 2016, of which 21,964 are vested. No options were granted during the year ended December 31, 2016. Under the 2015 Plan, 11,896 granted shares are outstanding as of December 31, 2016, of which 2,974 are vested. All outstanding granted shares under the 2015 Plan are restricted stock awards. A summary of the status of the Company's stock option plan and changes during the year are presented below:
(a) Options have been adjusted for stock dividends A summary of the status of the Company's restricted stock and changes during the year are presented below:
(a) Shares have been adjusted for stock dividends Included in total outstanding options at December 31, 2016, are 21,964 exercisable shares at a weighted average price of $3.74, a weighted average remaining contract term of 6.33 years and intrinsic value of $74,000. Included in salaries and employee benefits for the years ended December 31, 2016, 2015, and 2014, is $30,000, $26,000, and $28,000 of share-based compensation, respectively. The related tax benefit on share-based compensation recorded in the provision for income taxes was not material to either year. As of December 31, 2016, 2015, and 2014, there was $30,000, $48,000, and $85,000, respectively, of total unrecognized compensation expense related to nonvested stock options. This cost is expected to be recognized over a weighted average period of approximately 3.0 years. No options were exercised during 2015, while 2,513 options were exercised during 2016.
For the year ended December 31, 2016, the Company granted zero shares of restricted stock. As of December 31, 2016, 2015, and 2014, there was $35,000, $44,000, and $0, respectively, of total unrecognized compensation expense related to restricted stock. This cost is expected to be recognized over a weighted-average period of approximately 3.4 years. The Bank determines fair value of stock options at grant date using the Black-Scholes-Merton pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividend yield and the risk-free interest rate over the expected life of the option. The Bank determines fair value of restricted stock based on the quoted stock price as of the grant date. The weighted average assumptions used in the pricing model are noted in the table below. The expected term of options granted is derived from management's experience, which is based upon historical data on employee exercise and post-vesting behavior. The risk free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based on the historical volatility of the Bank's stock over a period commensurate with the expected term of the options. The Company believes that historical volatility is indicative of expectations about its future volatility over the expected term of the options. The Bank expenses the fair value of the option on a straight-line basis over the vesting period for each separately vesting portion of the award. The Bank estimates forfeitures and only recognizes expense for those shares expected to vest. Based upon historical evidence, the Company has determined that because options are granted to a limited number of key employees rather than a broad segment of the employee base, expected forfeitures, if any, are not material. The Company did not grant any restricted stock units or options in 2016, while the Company granted 14,290 shares in restricted stock units during 2015. The Company granted 5,524 options in 2014. The assumptions used for the 2016, 2015, and 2014 awards are as follows:
The Black-Scholes-Merton option valuation model requires the input of highly subjective assumptions, including the expected life of the stock based award and stock price volatility. The assumptions listed above represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the Bank's recorded stock-based compensation expense could have been materially different from that previously reported in proforma disclosures. In addition, the Bank is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the Bank's actual forfeiture rate is materially different from the estimate, the share-based compensation expense could be materially different. |
Employee Benefit Plans |
12 Months Ended |
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Dec. 31, 2016 | |
Compensation and Retirement Disclosure [Abstract] | |
Employee Benefit Plans | Employee Benefit Plans 401K Plan The Company has a Cash or Deferred 401(k) Stock Ownership Plan (the “401(k) Plan”) organized under Section 401(k) of the Code. All employees of the Company are initially eligible to participate in the 401(k) Plan upon the first day of the month after date of hire. Under the terms of the plan, the participants may elect to make contributions to the 401(k) Plan as determined by the Board of Directors. Participants are automatically vested 100% in all employee contributions. Participants may direct the investment of their contributions to the 401(k) Plan in any of several authorized investment vehicles. The Company contributes funds to the Plan up to 4% of the employees’ eligible annual compensation. Company contributions are immediately 100% vested at the time of contribution. The Company made matching contributions of $280,000, $240,000, and $239,000 to the 401(k) Plan for the years ended December 31, 2016, 2015, and 2014, respectively. Salary Continuation Plan The Company has an unfunded, non-qualified Salary Continuation Plan for senior executive officers and certain other key officers of the Company, which provides additional compensation benefits upon retirement for a period of at least 15 years. Future compensation under the Plan is earned by the employees for services rendered through retirement and vests over a period of 12 to 32 years. In 2015, the Company entered into Salary Continuation agreements with three officers of the Bank. The Company purchased company owned life insurance (COLI) policies on the life of the officers in connection with the Salary Continuation agreements. Life insurance premium expense totaled $65,000 for the insurance policies purchased. The Company accrues for the salary continuation liability based on anticipated years of service and vesting schedules provided under the Plan. The Company’s current benefit liability is determined based upon vesting and the present value of the benefits at a corresponding discount rate. The discount rate used is an equivalent rate for high-quality investment-grade bonds with lives matching those of the service periods remaining for the salary continuation contracts, which averages approximately 20 years. At December 31, 2016 and 2015, $3,975,000 and $3,909,000, respectively, had been accrued to date, based on a discounted cash flow using an average discount rate of 3.21% and 3.28%, respectively, and is included in other liabilities. In connection with the implementation of the Salary Continuation Plans, the Company purchased single premium universal life insurance policies on the life of each of the key employees covered under the Plan. The Company is the owner and beneficiary of these insurance policies. The cash surrender value of the policies was $6,452,000 and $6,095,000 at December 31, 2016 and 2015, respectively, and is included on the consolidated balance sheet in cash surrender value of life insurance. Income on these policies, net of expense, totaled approximately $474,000, $268,000, and $1,405,000 for the years ended December 31, 2016, 2015, and 2014, respectively. Although the Plan is unfunded, the Company intends to utilize the proceeds of such policies to settle the Plan obligations. Under Internal Revenue Service regulations, the life insurance policies are the property of the Company and are available to satisfy the Company's general creditors. Pursuant to the guidance contained in ASC Topic 715 “Compensation,” the Company is required to recognize in accumulated other comprehensive (loss) income, the amounts that have not yet been recognized as components of net periodic benefit costs. These unrecognized costs arise from changes in estimated interest rates used in the calculation of net liabilities under the plan. As of December 31, 2016, 2015, and 2014, the Company had approximately $383,000, $371,000, and $502,000, respectively in unrecognized net periodic benefit costs arising from changes in interest rates used in calculating the current post-retirement liability required under the plan. This amount represents the difference between the plan liabilities calculated under net present value calculations, and the net plan liabilities actually recorded on the Company’s books at December 31, 2016 and 2015. Salary continuation expense is included in salaries and benefits expense, and totaled $137,000, $193,000, and $143,000 for the years ended December 31, 2016, 2015, and 2014, respectively. Officer Supplemental Life Insurance Plan The Company owns single premium Bank-owned life insurance policies (BOLI) and Company owned life insurance policies (COLI) on certain officers with a portion of the death benefits available to the officers’ beneficiaries. The BOLI and COLI initial net cash surrender value is equivalent to the premium paid, and it adds income through non-taxable increases in its cash surrender value, net of the cost of insurance, plus any death benefits ultimately received by the Company. The cash surrender value of these insurance policies totaled $12,595,000 and $12,242,000 at December 31, 2016 and 2015, and is included on the consolidated balance sheet in cash surrender value of life insurance. These policies resulted in a income, net of expense, of approximately $474,000, $399,000, and $514,000 for the years ended December 31, 2016, 2015, and 2014, respectively. |
Commitments and Contingent Liabilities |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingent Liabilities | Commitments and Contingent Liabilities Lease Commitments: The Company leases land and premises for its branch banking offices and administration facilities. The initial terms of these leases expire at various dates through 2025. Under the provisions of most of these leases, the Company has the option to extend the leases beyond their original terms at rental rates adjusted for changes reported in certain economic indices or as reflected by market conditions. The total expense on land and premises leased under operating leases was $862,000, $782,000, and $718,000 for the years ended December 31, 2016, 2015, and 2014, respectively. Total rent expense for the years ended December 31, 2016, 2015, and 2014 included approximately $8,000, $16,000, and $23,000 in reductions, respectively, related to adjustments made pursuant to ASC Topic 840, “Leases." The adjustments represent the difference between contractual rent amounts paid and rent amounts actually expensed under the straight-line method pursuant to ASC 840. Future minimum rental commitments under existing non-cancelable leases as of December 31, 2016 are as follows:
Financial Instruments with Off-Balance Sheet Risk: The Company is party to financial instruments with off-balance sheet risk which arise in the normal course of business. These instruments may contain elements of credit risk, interest rate risk and liquidity risk, and include commitments to extend credit and standby letters of credit. The credit risk associated with these instruments is essentially the same as that involved in extending credit to customers and is represented by the contractual amount indicated in the table below:
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. Substantially all of these commitments are at floating interest rates based on the Prime rate, and most have fixed expiration dates. The Company evaluates each customer's creditworthiness on a case-by-case basis, and the amount of collateral obtained, if deemed necessary, is based on management's credit evaluation. Collateral held varies but includes accounts receivable, inventory, leases, property, plant and equipment, residential real estate and income-producing properties. Many of the commitments are expected to expire without being drawn upon and, as a result, the total commitment amounts do not necessarily represent future cash requirements of the Company. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company’s letters of credit are short-term guarantees and generally have terms from less than one month to approximately 3 years. At December 31, 2016, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit totaled $1,201,000. In the ordinary course of business, the Company becomes involved in litigation arising out of its normal business activities. Management, after consultation with legal counsel, believes that the ultimate liability, if any, resulting from the disposition of such claims would not be material to the financial position of the Company. |
Fair Value Measurements and Disclosure |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements and Disclosure | Fair Value Measurements and Disclosure The following summary disclosures are made in accordance with the guidance provided by ASC Topic 825 “Fair Value Measurements and Disclosures” (formerly Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,”) which requires the disclosure of fair value information about both on- and off-balance sheet financial instruments where it is practicable to estimate that value. Generally accepted accounting guidance clarifies the definition of fair value, describes methods used to appropriately measure fair value in accordance with generally accepted accounting principles and expands fair value disclosure requirements. This guidance applies whenever other accounting pronouncements require or permit fair value measurements. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2, and Level 3). Level 1 inputs are unadjusted quoted prices in active markets (as defined) for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability, and reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized at the periods indicated:
The Company performs fair value measurements on certain assets and liabilities as the result of the application of current accounting guidelines. Some fair value measurements, such as available-for-sale securities (AFS) and junior subordinated debt are performed on a recurring basis, while others, such as collateral dependent impaired loans, other real estate owned, goodwill and other intangibles, are performed on a nonrecurring basis. The Company’s Level 1 financial assets consist of money market funds and highly liquid mutual funds for which fair values are based on quoted market prices. The Company’s Level 2 financial assets include highly liquid debt instruments of U.S. government agencies, collateralized mortgage obligations, and debt obligations of states and political subdivisions, whose fair values are obtained from readily-available pricing sources for the identical or similar underlying security that may, or may not, be actively traded. The Company’s Level 3 financial assets include certain impaired loans, other real estate owned, goodwill, and intangible assets where the assumptions may be made by us or third parties about assumptions that market participants would use in pricing the asset or liability. From time to time, the Company recognizes transfers between Level 1, 2, and 3 when a change in circumstances warrants a transfer. There were no transfers in or out of Level 1 and Level 2 fair value measurements during the year ended December 31, 2016. The following tables summarize the Company’s assets and liabilities that were measured at fair value on a recurring and non-recurring basis as of December 31, 2016 (in 000’s):
(1)Nonrecurring (2)Recurring The following tables summarize the Company’s assets and liabilities that were measured at fair value on a recurring and non-recurring basis as of December 31, 2015 (in 000’s):
(1)Nonrecurring (2)Recurring The Company did not record a write-down on other real estate owned during the years ended December 31, 2016 and 2014, compared to $188,000 for the same period ended 2015. The following table presents quantitative information about Level 3 fair value measurements for the Company's assets measured at fair value on a non-recurring basis at December 31, 2016 and December 31, 2015 (in 000's).
The following methods and assumptions were used in estimating the fair values of financial instruments: Cash and Cash Equivalents - The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their estimated fair values. Interest-bearing Deposits – Interest bearing deposits in other banks consist of fixed-rate certificates of deposits. Accordingly, fair value has been estimated based upon interest rates currently being offered on deposits with similar characteristics and maturities. Investments – Available for sale securities are valued based upon open-market price quotes obtained from reputable third-party brokers that actively make a market in those securities. Market pricing is based upon specific CUSIP identification for each individual security. To the extent there are observable prices in the market, the mid-point of the bid/ask price is used to determine fair value of individual securities. If that data is not available for the last 30 days, a Level 2-type matrix pricing approach based on comparable securities in the market is utilized. Level-2 pricing may include using a forward spread from the last observable trade or may use a proxy bond like a TBA mortgage to come up with a price for the security being valued. Changes in fair market value are recorded through other comprehensive loss as the securities are available for sale. Loans - Fair values of variable rate loans, which reprice frequently and with no significant change in credit risk, are based on carrying values adjusted for credit risk. Fair values for all other loans, except impaired loans, are estimated using discounted cash flows over their remaining maturities, using interest rates at which similar loans would currently be offered to borrowers with similar credit ratings and for the same remaining maturities. The allowance for loan loss is considered to be a reasonable estimate of loan discount for credit quality concerns. Impaired Loans - Fair value measurements for collateral dependent impaired loans are performed pursuant to authoritative accounting guidance and are based upon either collateral values supported by appraisals and observed market prices. Collateral dependent loans are measured for impairment using the fair value of the collateral. Changes are recorded directly as an adjustment to current earnings. Other Real Estate Owned - Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Deposits – In accordance with authoritative accounting guidance, fair values for transaction and savings accounts are equal to the respective amounts payable on demand at December 31, 2016 and 2015 (i.e. carrying amounts). The Company believes that the fair value of these deposits is clearly greater than that prescribed under authoritative accounting guidance. Fair values of fixed-maturity certificates of deposit were estimated using the rates currently offered for deposits with similar remaining maturities. Junior Subordinated Debt – The fair value of the junior subordinated debt was determined based upon a discounted cash flows model utilizing observable market rates and credit characteristics for similar debt instruments. In its analysis, the Company used characteristics that market participants generally use, and considered factors specific to (a) the liability, (b) the principal (or most advantageous) market for the liability, and (c) market participants with whom the reporting entity would transact in that market. For the year ended December 31, 2016, cash flows were discounted at a rate which incorporates a current market rate for similar-term debt instruments, adjusted for credit and liquidity risks associated with similar junior subordinated debt and circumstances unique to the Company. The Company believes that the subjective nature of theses inputs, due primarily to the current economic environment, require the junior subordinated debt to be classified as a Level 3 fair value. Accrued Interest Receivable and Payable - The carrying value of these instruments is a reasonable estimate of fair value. Off-balance sheet Instruments - Off-balance sheet instruments consist of commitments to extend credit, standby letters of credit and derivative contracts. The contract amounts of commitments to extend credit and standby letters of credit are disclosed in Note 12. Fair values of commitments to extend credit are estimated using the interest rate currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present counterparties’ credit standing. There was no material difference between the contractual amount and the estimated value of commitments to extend credit at December 31, 2016 and 2015. Fair values of standby letters of credit are based on fees currently charged for similar agreements. The fair value of commitments generally approximates the fees received from the customer for issuing such commitments. These fees are not material to the Company’s consolidated balance sheet and results of operations. The following tables provide a reconciliation of liabilities at fair value using significant unobservable inputs (Level 3) on a recurring basis during the period (in 000’s):
The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s liabilities classified as Level 3 and measured at fair value on a recurring basis at December 31, 2016 and 2015:
Management believes that the credit risk adjusted spread utilized in the fair value measurement of the junior subordinated debentures carried at fair value is indicative of the nonperformance risk premium a willing market participant would require under current market conditions, that is, the inactive market. Management attributes the change in fair value of the junior subordinated debentures during the period to market changes in the nonperformance expectations and pricing of this type of debt, and not as a result of changes to our entity-specific credit risk. The narrowing of the credit risk adjusted spread above the Company’s contractual spreads has primarily contributed to the negative fair value adjustments. Generally, an increase in the credit risk adjusted spread and/or a decrease in the three month LIBOR swap curve will result in positive fair value adjustments (and decrease the fair value measurement). Conversely, a decrease in the credit risk adjusted spread and/or an increase in the three month LIBOR swap curve will result in negative fair value adjustments (and increase the fair value measurement). |
Regulatory Matters |
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Regulatory Matters | Regulatory Matters Regulatory Agreement with the Federal Reserve Bank of San Francisco On March 23, 2010, United Security Bancshares (the "Company") and its wholly owned subsidiary, United Security Bank (the "Bank"), entered into a formal written agreement (the “Agreement”) with the Federal Reserve Bank of San Francisco (the “Federal Reserve”) as a result of a regulatory examination that was conducted by the Federal Reserve and the California Department of Financial Institutions (the “DFI”) in June 2009. That examination found significant increases in nonperforming assets, both classified loans and OREO, during 2008 and 2009, and heightened concerns about the Bank’s use of brokered and other wholesale funding sources to fund loan growth, which created increased risk to equity capital and potential volatility in earnings. Under the terms of the Agreement, the Company and the Bank agreed, among other things: to maintain a sound process for determining, documenting, and recording an adequate allowance for loan and lease losses; to improve the management of the Bank's liquidity position and funds management policies; to maintain sufficient capital at the Company and Bank level; and to improve the Bank’s earnings and overall condition. The Company and Bank also agreed not to increase or guarantee any debt, purchase or redeem any shares of stock, declare or pay any cash dividends, or pay interest on the Company's junior subordinated debt or trust preferred securities, without prior written approval from the Federal Reserve. The Company generates no revenue of its own and, as such, relies on dividends from the Bank to pay its operating expenses and interest payments on the Company’s junior subordinated debt. Effective November 19, 2014, the Federal Reserve terminated the Agreement with the Bank and the Company and replaced it with an informal supervisory agreement that requires, among other things, obtaining written approval from the Federal Reserve prior to the payment of dividends from the Bank to the Company or the payment of dividends by the Company or interest on the Company’s junior subordinated debt. The inability of the Bank to pay cash dividends to the Company may hinder the Company’s ability to meet its ongoing operating obligations. Regulatory Order from the California Department of Business Oversight On May 20, 2010, the DFI (now known as the Department of Business Oversight (the “DBO”)) issued a formal written order (the “Order”) pursuant to a consent agreement with the Bank as a result of the same June 2009 joint regulatory examination. The terms of the Order were essentially similar to the Federal Reserve’s Agreement, except for a few additional requirements. On September 24, 2013, the Bank entered into an informal Memorandum of Understanding (the “MOU”) with the DBO and on October 15, 2013, the Order was terminated. The Order and the MOU require the Bank to maintain a ratio of tangible shareholder’s equity to total tangible assets equal to or greater than 9.0% and also requires the DBO’s approval for the Bank to pay a dividend to the Company. Effective October 19, 2016, the DBO terminated the MOU as the Bank had fulfilled the provisions of the MOU. Capital Adequacy - The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements adopted by the Board of Governors of the Federal Reserve System (the “Board of Governors”). Failure to meet minimum capital requirements can initiate certain mandates and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the consolidated Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by the capital adequacy guidelines require insured institutions to maintain a minimum leverage ratio of Tier 1 capital (the sum of common stockholders' equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries, minus intangible assets, identified losses and investments in certain subsidiaries, plus unrealized losses or minus unrealized gains on available for sale securities) to total assets. Institutions which have received the highest composite regulatory rating and which are not experiencing or anticipating significant growth are required to maintain a minimum leverage capital ratio of 3% of Tier 1 capital to total assets. All other institutions are required to maintain a minimum leverage capital ratio of at least 100 to 200 basis points above the 3% minimum requirement. In addition to the general capital adequacy guidelines, pursuant to the DBO’s MOU the Bank is required to maintain a ratio of tangible shareholder’s equity to total tangible assets equal to or greater than 9.0%. For purposes of the MOU, “tangible shareholders’ equity” is defined as shareholders’ equity minus intangible assets. The Bank’s ratio of tangible shareholders’ equity to total tangible assets was 11.7% and 12.9% at December 31, 2016 and 2015, respectively. The Company has adopted a capital plan that includes guidelines and trigger points to ensure sufficient capital is maintained at the Bank and the Company, and that capital ratios are maintained at a level deemed appropriate under regulatory guidelines given the level of classified assets, concentrations of credit, ALLL, current and projected growth, and projected retained earnings. The capital plan also contains contingency strategies to obtain additional capital as required to fulfill future capital requirements for both the Bank, as a separate legal entity, and the Company on a consolidated basis. The following table shows the Company’s and the Bank’s regulatory capital and regulatory capital ratios at December 31, 2016 and 2015, as compared to the applicable capital adequacy guidelines:
The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013 that substantially amend the existing capital rules for banks. These new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (commonly referred to as “Basel III”) as well as requirements encompassed by the Dodd-Frank Act. The final rules set a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. They also place limits on capital distributions and certain discretionary bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. The rules revise the prompt corrective action framework to incorporate the new regulatory capital minimums. They also enhance risk sensitivity and address weaknesses identified over recent years with the measure of risk-weighted assets. Under regulatory guidelines, the $15 million in Trust Preferred Securities issued by USB Capital Trust II in July of 2007 qualifies as Tier 1 capital up to 25% of Tier 1 capital. Any additional portion of Trust Preferred Securities qualifies as Tier 2 capital. During 2015, a redemption of $3.0 million junior subordinated debt took place. The current balance of Trust Preferred Securities is $12 million. The final rules also require a Common Equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. The capital buffer requirement will be phased in over three years beginning in 2016, and will effectively raise the minimum required Common Equity Tier 1 RBC Ratio to 7.0%, the Tier 1 RBC Ratio to 8.5%, and the Total RBC Ratio to 10.5% on a fully phased-in basis. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases, and on the payment of discretionary bonuses to executive management. As of December 31, 2016, the Company and the Bank meets all capital adequacy requirements to which they are subject. Management believes that, under the current regulations, both will continue to meet their minimum capital requirements in the foreseeable future. Dividends – Cash dividends, if any, paid to shareholders are paid by the Company, subject to restrictions set forth in the California Corporations Code and the terms of the Federal Reserve informal supervisory agreement. All dividends paid by the Company during 2016 and 2015 were in the form of stock dividends rather than cash dividends. The primary source of funds with which cash dividends are paid to shareholders comes from cash dividends received by the Company from the Bank. The Bank’s ability to pay dividends is subject to the restrictions set forth in the California Financial Code and the informal agreements the Bank has entered into with the Federal Reserve and the DBO. Under the Financial Code, the Bank may not pay cash dividends in an amount which exceeds the lesser of the retained earnings of the Bank or the Bank’s net income for the last three fiscal years (less the amount of distributions to shareholders during that period of time). If the above test is not met, cash dividends may only be paid with the prior approval of the DBO, in an amount not exceeding the greater of: (i) the Bank’s retained earnings; (ii) its net income for the last fiscal year; or (iii) its net income for the current fiscal year. During the year ended December 31, 2016, the Bank’s cash dividends of $464,000 paid to the Company were approved by the Federal Reserve and the DBO and funded the Company’s operating costs and payments of interest on its junior subordinated debentures. During the year ended December 31, 2015, a redemption of $3.0 million junior subordinated debt was approved by both agencies. Cash Restrictions - The Bank is required to maintain average reserve balances with the Federal Reserve. During 2005, the Company implemented a deposit reclassification program, which allows the Company to reclassify a portion of transaction accounts to non-transaction accounts for reserve purposes. The deposit reclassification program is provided by a third-party vendor, and has been approved by the Federal Reserve Bank. |
Supplemental Cash Flow Disclosures |
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Supplemental Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Disclosures | Supplemental Cash Flow Disclosures
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Common Stock Dividend |
12 Months Ended |
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Dec. 31, 2016 | |
Common Stock Dividend [Abstract] | |
Common Stock Dividend | Common Stock Dividend The Company declared one-percent (1)% common stock dividends during each of the four quarters ended December 31, 2016, September 30, 2016, June 30, 2016, and March 31, 2016. All 1% stock dividends were considered “small stock dividends” resulting in a transfer between retained earnings and common stock an amount equal to the number of shares issued in the stock dividend multiplied by the stock’s closing price at the date of declaration. Other than for earnings-per-share calculations and share-based compensation disclosures, shares issued for the stock dividend have been treated prospectively for financial reporting purposes. For purposes of earnings per share calculations, the Company’s weighted average shares outstanding and potentially dilutive shares used in the computation of earnings per share have been restated after giving retroactive effect to a 1% stock dividend to shareholders for all periods presented. The Company declared one-percent (1)% common stock dividends during each of the four quarters ended December 31, 2015, September 30, 2015, June 30, 2015, and March 31, 2015. All 1% stock dividends were considered “small stock dividends” resulting in a transfer between retained earnings and common stock an amount equal to the number of shares issued in the stock dividend multiplied by the stock’s closing price at the date of declaration. Other than for earnings-per-share calculations, shares issued for the stock dividend have been treated prospectively for financial reporting purposes. For purposes of earnings per share calculations, the Company’s weighted average shares outstanding and potentially dilutive shares used in the computation of earnings per share have been restated after giving retroactive effect to a 1% stock dividend to shareholders for all periods presented. |
Net Income Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Share | Net Income Per Share The following table provides a reconciliation of the numerator and the denominator of the basic EPS computation with the numerator and the denominator of the diluted EPS computation. (Weighted average shares have been adjusted to give retroactive recognition for the 1% stock dividend for each of the quarters since the third quarter ended September 30, 2008):
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Common Stock Repurchase Plan |
12 Months Ended |
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Dec. 31, 2016 | |
Common Stock Repurchase Plan [Abstract] | |
Common Stock Repurchase Plan | Common Stock Repurchase Plan On May 16, 2007, the Company’s Board of Directors approved a plan to repurchase, as conditions warrant, up to 846,127 shares of the Company's common stock on the open market or in privately negotiated transactions. The repurchase plan represents approximately 5.00% of the Company's currently outstanding common stock. The duration of the program is open-ended and the timing of purchases will depend on market conditions. As of December 31, 2016, there were 732,556 shares available for repurchase. As a condition of the MOU entered into with the Federal Reserve Bank of San Francisco (FRB) on November 19, 2014, the Company may not repurchase any of its common stock without prior approval of the FRB. The Company did not repurchase any common shares during the years ended December 31, 2016, 2015, and 2014. |
Goodwill and Intangible Assets |
12 Months Ended |
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Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets | Goodwill and Intangible Assets At December 31, 2016, the Company had goodwill in the amount of $4,488,000 in connection with various business combinations and purchases. This amount was unchanged from the balance of $4,488,000 at December 31, 2015. While goodwill is not amortized, the Company does conduct periodic impairment analysis on goodwill at least annually or more often as conditions require. The Company performed its analysis of goodwill impairment and concluded goodwill was not impaired at December 31, 2016. |
Parent Company Only Financial Statements |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Parent Company Only Financial Statements | Parent Company Only Financial Statements The following are the condensed financial statements of United Security Bancshares and should be read in conjunction with the consolidated financial statements:
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Subsequent Events |
12 Months Ended |
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Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred requiring accrual or disclosure. |
Organization and Summary of Significant Accounting and Reporting Policies (Policies) |
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Organization and Summary of Significant Accounting and Reporting Policies [Abstract] | |||||||||||||
Basis of Presentation | Basis of Presentation – The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with prevailing practices within the banking industry. The consolidated financial statements include the accounts of United Security Bancshares, and its wholly owned subsidiaries, United Security Bank and subsidiary (the “Bank”) and USB Capital Trust II (the "Trust"). The Trust is deconsolidated pursuant to ASC 810. As a result, the Trust Preferred Securities are not presented on the Company’s consolidated financial statements as equity, but instead they are presented as Junior Subordinated Debentures are presented as a separate liability category. (see Note 8 to the Company’s consolidated financial statements). Intercompany accounts and transactions have been eliminated in consolidation. In the following notes, references to the Bank are references to United Security Bank. References to the Company are references to United Security Bancshares, (including the Bank). United Security Bancshares operates as one business segment providing banking services to commercial establishments and individuals primarily in the San Joaquin Valley of California. |
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Nature of Operations | Nature of Operations – United Security Bancshares is a bank holding company, incorporated in the state of California for the purpose of acquiring all the capital stock of the Bank through a holding company reorganization (the “Reorganization”) of the Bank. The Reorganization, which was accounted for in a manner similar to a pooling of interests, was completed on June 12, 2001. Management believes the Reorganization has provided the Company greater operating and financial flexibility and has permitted expansion into a broader range of financial services and other business activities. During July 2007 the Company formed USB Capital Trust II and issued $15.0 million in Trust Preferred Securities with terms similar to those originally issued under USB Capital Trust I. During 2015, the Bank purchased $3.0 million of the Company's junior subordinated debentures related to the Company's trust preferred securities at a fair value discount of 40%. Subsequently, the Company purchased those shares from the Bank and canceled $3.0 million in par value of the junior subordinated debentures, realizing a $78,000 gain on redemption. The contractual principal balance of the Company's debentures relating to its trust preferred securities is $12.0 million as of December 31, 2016. (See Note 8. “Junior Subordinated Debt/Trust Preferred Securities”). USB Investment Trust Inc was incorporated effective December 31, 2001, as a special purpose real estate investment trust (“REIT”) under Maryland law. The REIT is a subsidiary of the Bank and was funded with $133.0 million in real estate-secured loans contributed by the Bank. USB Investment Trust was originally formed to give the Bank flexibility in raising capital, and reduce the expenses associated with holding the assets contributed to USB Investment Trust. The Bank was founded in 1987 and currently operates eleven branches and one construction lending office in an area from eastern Madera County to western Fresno County, as well as Taft and Bakersfield in Kern County, and Campbell in Santa Clara County. The Bank also operates one financial services department located in Fresno, California. The Bank’s primary source of revenue is interest income through providing loans to customers, who are predominantly small and middle-market businesses and individuals. The Bank engages in a full compliment of lending activities, including real estate mortgage, commercial and industrial, real estate construction, agricultural and consumer loans, with particular emphasis on short and medium term obligations. The Bank offers a wide range of deposit instruments. These include personal and business checking accounts and savings accounts, interest-bearing negotiable order of withdrawal (NOW) accounts, money market accounts and time certificates of deposit. Most of the Bank's deposits are attracted from individuals and from small and medium-sized business-related sources. The Bank also offers a wide range of specialized services designed to attract and service the needs of commercial customers and account holders. These services include cashiers checks, travelers checks, money orders, and foreign drafts. In addition, the Bank offers Internet banking services to its commercial and retail customers, and offers certain financial and wealth management services through its financial services department. The Bank does not operate a trust department, however it makes arrangements with its correspondent bank to offer trust services to its customers upon request. |
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Use of Estimates in the Preparation of Financial Statements | Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change, relate to the determination of the allowance for loan losses, determination of goodwill, fair value of junior subordinated debt and certain collateralized mortgage obligations, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. |
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Subsequent events | Subsequent events—The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued. |
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Significant Accounting Policies | Significant Accounting Policies - The Company follows accounting standards set by the Financial Accounting Standards Board, commonly referred to as “FASB.” FASB sets generally accepted accounting principles (GAAP) that the Company follows to ensure the consistent reporting of its consolidated financial condition, consolidated results of operations, and consolidated cash flows. References to GAAP issued by FASB in these footnotes are to FASB Accounting Standards Codification, sometimes referred to as the Codification or ASC. |
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Cash and cash equivalents | Cash and cash equivalents – Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and repurchase agreements. At times throughout the year, balances can exceed FDIC insurance limits. Generally, federal funds sold and repurchase agreements are sold for one-day periods. The Bank did not have any repurchase agreements during 2016 or 2015, or at December 31, 2016 and 2015. All cash and cash equivalents have maturities when purchased of three months or less. |
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Securities | Securities - Debt and equity securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from net income and reported, net of tax, as a separate component of comprehensive income and shareholders’ equity. Debt securities classified as held to maturity are carried at amortized cost. Gains and losses on disposition are reported using the specific identification method for the adjusted basis of the securities sold. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. The Company classifies its securities as available for sale or held to maturity, and periodically reviews its investment portfolio on an individual security basis. Securities that are to be held for indefinite periods of time (including, but not limited to, those that management intends to use as part of its asset/liability management strategy, those which may be sold in response to changes in interest rates, changes in prepayments or any such other factors) are classified as securities available for sale. Securities which the Company has the ability and intent to hold to maturity are classified as held to maturity. Investments with fair values that are less than amortized cost are considered impaired. Impairment may result from either a decline in the financial condition of the issuing entity or, in the case of fixed interest rate investments, from rising interest rates. At each financial statement date, management assesses each investment to determine if impaired investments are temporarily impaired or if the impairment is other-than-temporary based upon the positive and negative evidence available. Evidence evaluated includes, but is not limited to, industry analyst reports, credit market conditions, and interest rate trends. 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 the 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. |
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Loans | Loans - Interest income on loans is credited to income as earned and is calculated by using the simple interest method on the daily balance of the principal amounts outstanding. Loans are placed on non-accrual status when principal or interest is past due for 90 days and/or when management believes the collection of amounts due is doubtful. For loans placed on nonaccrual status, the accrued and unpaid interest receivable may be reversed at management's discretion based upon management's assessment of collectability, and interest is thereafter credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan. Nonrefundable fees and related direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The net deferred fees and costs are generally amortized into interest income over the loan term using the interest method. Other credit-related fees, such as standby letter of credit fees, loan placement fees and annual credit card fees are recognized as noninterest income during the period the related service is performed. |
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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments | Allowance for Credit Losses and Reserve for Unfunded Loan Commitments - The allowance for credit losses is maintained to provide for losses that can reasonably be anticipated. The allowance is based on ongoing quarterly assessments of the probable losses inherent in the loan portfolio, and to a lesser extent, unfunded loan commitments. The reserve for unfunded loan commitments is a liability on the Company’s consolidated financial statements and is included in other liabilities. The liability is computed using a methodology similar to that used to determine the allowance for credit losses, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses is increased by provisions charged to operations during the current period and reduced by negative provisions and loan charge-offs, net of recoveries. Loans are charged against the allowance when management believes that the collection of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans, based on evaluations of the probability of collection. In evaluating the probability of collection, management is required to make estimates and assumptions that affect the reported amounts of loans, allowance for credit losses and the provision for credit losses charged to operations. Actual results could differ significantly from those estimates. These evaluations take into consideration such factors as the composition of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. The Company’s methodology for assessing the adequacy of the allowance for credit losses consists of several key elements, which include: - the formula allowance - specific allowances for problem graded loans identified as impaired - and the unallocated allowance The formula allowance is calculated by applying loss factors to outstanding loans. Loss factors are based on the Company’s historical loss experience and on the internal risk grade of those loans and, may be adjusted for significant factors, including economic factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. Management determines the loss factors for problem graded loans (substandard, doubtful, and loss), special mention loans, and pass graded loans, based on a loss migration model. The migration analysis incorporates loan losses over the previous quarters as determined by management (time horizons adjusted as business cycles or environment changes) and loss factors are adjusted to recognize and quantify the loss exposure from changes in market conditions and trends in the Company’s loan portfolio. Those factors include 1) trends in delinquent and nonaccrual loans, 2) trends in loan volume and terms, 3) effects of changes in lending policies, 4) concentrations of credit, 5) competition, 6) national and local economic trends and conditions, 7) experience of lending staff, 8) loan review and Board of Directors oversight, 9) high balance loan concentrations, and 10) other business conditions. For purposes of this analysis, loans are grouped by internal risk classifications, which are “pass," “special mention,” “substandard,” “doubtful,” and “loss." Certain loans are homogeneous in nature and are therefore pooled by risk grade. These homogeneous loans include consumer installment and home equity loans. Specific allowances are established based on management’s periodic evaluation of loss exposure inherent in impaired loans. For impaired loans, specific allowances are determined based on the collateralized value of the underlying properties, the net present value of the anticipated cash flows, or the market value of the underlying assets. A loan is considered impaired when management determines that it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. Impairment is measured by the difference between the original recorded investment in the loan and the estimated present value of the total expected future cash flows, discounted at the loan’s effective rate, or the fair value of the collateral, less estimated selling costs, if the loan is collateral dependent. The unallocated portion of the allowance is based upon management’s evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions. |
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Premises and Equipment | Premises and Equipment - Premises and equipment are carried at cost less accumulated depreciation. Depreciation expense is computed principally on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:
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Other Real Estate Owned | Other Real Estate Owned - Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value of the property, less estimated costs to sell. The excess, if any, of the loan amount over the fair value is charged to the allowance for credit losses. Subsequent declines in the fair value of other real estate owned, along with related revenue and expenses from operations, are charged to noninterest expense. |
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Intangible Assets and Goodwill | Intangible Assets and Goodwill - Intangible assets are comprised of core deposit intangibles, other specific identifiable intangibles, and goodwill acquired in branch acquisitions where the consideration given exceeded the fair value of the net assets acquired. Intangible assets and goodwill are reviewed at least annually for impairment. All core deposit intangibles related to previous mergers have been fully amortized. During 2016 and 2015, the Company recognized no impairment losses on the core deposit intangible related to the deposits purchased in the Legacy merger consummated during February 2007. The Company estimates no aggregate amortization expense related to intangible assets for the next five years. Goodwill amounts resulting from the acquisitions of Taft National Bank during April 2004, and Legacy Bank during February 2007 are considered to have an indefinite life and are not amortized. At December 31, 2016, goodwill related to Taft National Bank totaled $1.6 million, and goodwill related to Legacy Bank totaled $2.9 million. Impairment testing of goodwill is performed at the reporting level during December of each year for Taft, and during March of each year for Legacy. During 2016 and 2015, the Company did not recognize impairment adjustments on the goodwill related to the Legacy or Taft Bank mergers (see Note 19 to the Company’s consolidated financial statements contained herein for details of the goodwill impairment.) |
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Income Taxes | Income Taxes - Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using the liability method, and 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. |
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Net Income per Share | Net Income per Share - Basic income per common share is computed based on the weighted average number of common shares outstanding. Diluted income per share includes the effect of stock options and other potentially dilutive securities using the treasury stock method to the extent they have a dilutive impact. Net income per share has been retroactively adjusted for all stock dividends declared. |
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Cash Flow Reporting | Cash Flow Reporting - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks, federal funds sold and securities purchased under agreements to resell. Federal funds and securities purchased under agreements to resell are generally sold for one-day periods. Net cash flows are reported for interest-bearing deposits with other banks, loans to customers, and deposits held for customers. |
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Transfers of Financial Assets | Transfers of Financial Assets - Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. |
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Advertising Costs | Advertising Costs - The Company expenses marketing costs as they are incurred. |
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Stock Based Compensation | Stock Based Compensation - The Company has a stock-based employee compensation plan, which is described more fully in Note 10. The Company accounts for all share-based payments to employees, including grants of employee stock options and restricted stock units and awards, to be recognized in the financial statements based on the grant date fair value of the award. The fair value is amortized over the requisite service period (generally the vesting period). Included in salaries and employee benefits for the years ended December 31, 2016, 2015, and 2014 are $30,000, $26,000, an $28,000, respectively, of share-based compensation. The related tax benefit, recorded in the provision for income taxes, was not significant. All share data contained within the financial statements has been retroactively restated for stock based transactions (i.e. stock splits and stock dividends.) |
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Federal Home Loan Bank stock and Federal Reserve Stock | Federal Home Loan Bank stock and Federal Reserve Stock - As a member of the Federal Home Loan Bank (FHLB), the Company is required to maintain an investment in capital stock of the FHLB. In addition, as a member of the Federal Reserve Bank (FRB), the Company is required to maintain an investment in capital stock of the FRB. The investments in both the FHLB and the FRB are carried at cost, which approximates their fair value, in the accompanying consolidated balance sheets under other assets and are subject to certain redemption requirements by the FHLB and FRB. Stock redemptions are at the discretion of the FHLB and FRB. While technically these are considered equity securities, there is no market for the FHLB or FRB stock. Therefore, the shares are considered as restricted investment securities. Management periodically evaluates the stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB or FRB as compared to the capital stock amount of the FHLB or FRB and the length of time this situation has persisted, (2) commitments by the FHLB or FRB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB or FRB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB or FRB, and (4) the liquidity position of the FHLB or FRB. |
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Comprehensive Income | Comprehensive Income - Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes items recorded directly to equity, such as unrealized gains and losses on securities available-for-sale and unrecognized costs of salary continuation defined benefit plans. Comprehensive income is presented in the Consolidated Statements of Other Comprehensive Income. |
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Segment Reporting | Segment Reporting - The Company's operations are solely in the financial services industry and include providing to its customers traditional banking and other financial services. The Company operates primarily in the San Joaquin Valley region of California. Management makes operating decisions and assesses performance based on an ongoing review of the Company's consolidated financial results. Therefore, the Company has a single operating segment for financial reporting purposes. |
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New Accounting Standards | New Accounting Standards: In January 2014, FASB issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this ASU using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. This ASU was effective for the Company on January 1, 2015 and did not have a material impact on the Company's consolidated financial statements. In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-01 Accounting for Investments in Qualified Affordable Housing Projects. This ASU provides "guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit." It allows the proportional amortization method to be used by a reporting entity if certain conditions are met. The ASU also defines when a qualified affordable housing project through a limited liability entity should be tested for impairment. If a qualified affordable housing project does not meet the conditions for using the proportional amortization method, the investment should be accounted for using an equity method investment or a cost method investment. This ASU was effective for the Company on January 1, 2015 and did not have a material impact on the Company's consolidated financial statements. The Company will continue to account for our low-income housing tax credit investments using the equity method subsequent to the adoption of ASU 2014-01 and does not expect any impact on the Company's consolidated financial statements. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates Topic 606 and supersedes Topic 605, Revenue Recognition. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which postponed the effective date of 2014-09. Multiple ASUs and interpretative guidance have been issued in connection with ASU 2014-09. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company has begun their process to implement this new standard by reviewing all revenue sources to determine the sources that are in scope for this guidance. As a bank, key revenue sources, such as interest income have been identified as out of scope of this new guidance. The Company has not yet determined the financial statement impact this guidance will have. In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01 Financial Instruments-Overall: Recognition and Measurements of Financial Assets and Financial Liabilities. This ASU requires equity investments to be measured at fair value, with changes in fair value recognized in net income. The amendment also simplifies the impairment assessment of equity investments for which fair value is not readily determinable by requiring an entity to perform a qualitative assessment to identify impairment. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The Company expects this ASU to impact its consolidated income and other comprehensive income disclosures for the fair value of its mutual fund investment and junior subordinated debenture. |
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Reclassifications | Reclassifications - Certain reclassifications have been made to prior year financial statements to conform to the classifications used in 2016. None of the reclassifications had an impact on equity or net income. |
Organization and Summary of Significant Accounting and Reporting Policies (Tables) |
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Dec. 31, 2016 | |||||||||||||
Organization and Summary of Significant Accounting and Reporting Policies [Abstract] | |||||||||||||
Premises and Equipment Estimated Useful Life | Estimated useful lives are as follows:
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Investment Securities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comparison of Amortized Cost and Fair Value of Securities Available for Sale | Following is a comparison of the amortized cost and approximate fair value of investment securities at December 31, 2016 and December 31, 2015:
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Contractual Maturities on Collateralized Mortgage Obligations | The amortized cost and fair value of securities available for sale at December 31, 2016, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed paydowns. Mutual funds are included in the "due in one year or less" category below.
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Temporarily Impaired Investment Securities | The following summarizes temporarily impaired investment securities at December 31, 2016 and 2015:
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Loans (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | Loans are comprised of the following:
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Loans to Affiliates | Loans to directors, officers, principal shareholders and their affiliates are summarized below:
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Delinquent Loans | The following is a summary of delinquent loans at December 31, 2016 (in thousands):
The following is a summary of delinquent loans at December 31, 2015 (in thousands):
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Nonaccrual Loan Balances | The following is a summary of nonaccrual loan balances at December 31, 2016 and 2015 (in thousands).
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Impaired Loans | The following is a summary of impaired loans at December 31, 2016 (in thousands).
(1) The recorded investment in loans includes accrued interest receivable of $35,000. (2) Information is based on the twelve month period ended December 31, 2016. The following is a summary of impaired loans at December 31, 2015 (in thousands).
(1) The recorded investment in loans includes accrued interest receivable of $67,000. (2) Information is based on the twelve month period ended December 31, 2015. The following is a summary of impaired loans at December 31, 2014 (in thousands).
(1) The recorded investment in loans includes accrued interest receivable of $24,000. (2) Information is based on the twelve month period ended December 31, 2014. |
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Troubled Debt Restructuring Activity | The following tables illustrate TDR activity for the periods indicated (dollars in thousands):
The following tables summarize TDR activity by loan category for the years ended December 31, 2016, 2015, and 2014 (in thousands).
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Credit Risk Rating for Commercial, Construction and Non-consumer Related Loans | The following tables summarize the credit risk ratings for commercial, construction, and other non-consumer related loans for December 31, 2016 and 2015. The Company did not carry any loans graded as loss at December 31, 2016 or December 31, 2015.
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Credit Risk Ratings for Consumer Related Loans and Other Homogenous Loans | The following tables summarize the credit risk ratings for consumer related loans and other homogeneous loans for December 31, 2016 and 2015 (in thousands).
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Allowance for Credit Loses by Loan Category | The following summarizes the activity in the allowance for credit losses by loan category for the years ended December 31, 2016, 2015, and 2014 (in thousands).
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Summarized Loan Balances | The following summarizes information with respect to the loan balances at December 31, 2016, 2015, and 2014.
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Premises and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premises and Equipment | The components of premises and equipment are as follows:
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Deposits (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits Summary | Deposits include the following:
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Maturities of Certificates of Deposits and Other Time Deposits | At December 31, 2016, the scheduled maturities of all certificates of deposit and other time deposits are as follows:
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Taxes on Income (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Tax Assets and Liabilities | The tax effects of significant items comprising the Company’s net deferred tax assets (liabilities) are as follows:
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Income Taxes | Income tax expense for the years ended December 31, consist of the following:
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Effective Income Tax Rate Reconciliation | A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
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Stock Based Compensation (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options Activity | A summary of the status of the Company's stock option plan and changes during the year are presented below:
(a) Options have been adjusted for stock dividends A summary of the status of the Company's restricted stock and changes during the year are presented below:
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Intrinsic Value of Stock Options Exercised |
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Stock Options Valuation Assumptions | The assumptions used for the 2016, 2015, and 2014 awards are as follows:
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Commitments and Contingent Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Future Minimum Rental Payments for Operating Leases | Future minimum rental commitments under existing non-cancelable leases as of December 31, 2016 are as follows:
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Financial Instruments Off-balance Sheet Risks | The credit risk associated with these instruments is essentially the same as that involved in extending credit to customers and is represented by the contractual amount indicated in the table below:
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Fair Value Measurements and Disclosure (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized at the periods indicated:
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Assets and Liabilities Measured at Fair Value on Recurring and Non-recurring Basis | The following tables summarize the Company’s assets and liabilities that were measured at fair value on a recurring and non-recurring basis as of December 31, 2016 (in 000’s):
(1)Nonrecurring (2)Recurring The following tables summarize the Company’s assets and liabilities that were measured at fair value on a recurring and non-recurring basis as of December 31, 2015 (in 000’s):
(1)Nonrecurring (2)Recurring |
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Quantitative information about fair value measurements on Company's assets | The following table presents quantitative information about Level 3 fair value measurements for the Company's assets measured at fair value on a non-recurring basis at December 31, 2016 and December 31, 2015 (in 000's).
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Significant Unobservable Inputs (Level 3) on a Recurring Basis | The following tables provide a reconciliation of liabilities at fair value using significant unobservable inputs (Level 3) on a recurring basis during the period (in 000’s):
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Description of the Valuation Technique, Unobservable Input, and Qualitative Information about the Unobservable Inputs for the Company's Assets and Liabilities Classified as Level 3 and Measured at Fair Value on a Recurring Basis | The following table provides a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s liabilities classified as Level 3 and measured at fair value on a recurring basis at December 31, 2016 and 2015:
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Regulatory Matters (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital Requirements under Banking Regulations | The following table shows the Company’s and the Bank’s regulatory capital and regulatory capital ratios at December 31, 2016 and 2015, as compared to the applicable capital adequacy guidelines:
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Supplemental Cash Flow Disclosures (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Disclosures |
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Net Income Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of Income Per Share | The following table provides a reconciliation of the numerator and the denominator of the basic EPS computation with the numerator and the denominator of the diluted EPS computation. (Weighted average shares have been adjusted to give retroactive recognition for the 1% stock dividend for each of the quarters since the third quarter ended September 30, 2008):
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Parent Company Only Financial Statements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Statements of Parent | The following are the condensed financial statements of United Security Bancshares and should be read in conjunction with the consolidated financial statements:
|
Premises and Equipment (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Property, Plant and Equipment [Line Items] | |||
Premises and equipment, gross | $ 25,310 | $ 24,255 | |
Less accumulated depreciation and amortization | (14,865) | (13,455) | |
Total premises and equipment | 10,445 | 10,800 | |
Depreciation expenses on premises equipment | 1,428 | 1,462 | $ 1,390 |
Land | |||
Property, Plant and Equipment [Line Items] | |||
Premises and equipment, gross | 968 | 968 | |
Buildings and improvements | |||
Property, Plant and Equipment [Line Items] | |||
Premises and equipment, gross | 14,841 | 14,791 | |
Furniture and equipment | |||
Property, Plant and Equipment [Line Items] | |||
Premises and equipment, gross | $ 9,501 | $ 8,496 |
Investment in Limited Partnership (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Schedule of Equity Method Investments [Line Items] | |||
Loss on California tax credit partnership | $ 158,000 | $ 73,000 | $ 39,000 |
Investment tax credit | $ 1,800,000 | ||
Tax credit carryforward expiration period | tax credits expired during 2015 | ||
Tax credits utilized for income tax | $ 0 | $ 0 | |
Limited Partnership | |||
Schedule of Equity Method Investments [Line Items] | |||
Ownership (percent) | 9.14% | ||
Total investment | $ 757,000 |
Short-term Borrowings/Other Borrowings (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Short-term Debt [Line Items] | ||
Short-term debt outstanding | $ 0 | $ 0 |
Federal Reserve Bank of San Francisco | ||
Short-term Debt [Line Items] | ||
Unused borrowing lines | 323,162,000 | 302,456,000 |
Qualifying loans pledged as collateral for borrowing lines | 471,737,000 | 444,596,000 |
Federal Home Loan Bank (FHLB) | ||
Short-term Debt [Line Items] | ||
Unused borrowing lines | 2,037,000 | 2,854,000 |
Investment securities pledged as collateral | 2,152,000 | 3,023,000 |
Pacific Coast Bankers Bank (PCBB) | ||
Short-term Debt [Line Items] | ||
Unused borrowing lines | 10,000,000 | $ 10,000,000 |
Zions First National Bank | ||
Short-term Debt [Line Items] | ||
Unused borrowing lines | $ 20,000,000 |
Commitments and Contingent Liabilities (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Commitments and Contingencies Disclosure [Abstract] | |||
Rent expenses, total | $ 862 | $ 782 | $ 718 |
Rental adjustments | 8 | 16 | $ 23 |
Future minimum rental commitments under existing non-cancelable leases [Abstract] | |||
2017 | 695 | ||
2018 | 655 | ||
2019 | 479 | ||
2020 | 427 | ||
2021 | 230 | ||
Thereafter | 829 | ||
Future minimum rental commitments under existing non-cancelable leases | $ 3,315 | ||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | |||
Minimum term of guarantees (less than one month) | 1 month | ||
Maximum term of guarantees | 3 years | ||
Commitments to extend credit | |||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | |||
Contractual amount | $ 120,485 | 107,084 | |
Standby letters of credit | |||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | |||
Contractual amount | $ 1,201 | $ 3,295 |
Fair Value Measurements and Disclosure, Part IV (Details) - Junior Subordinated Debt - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Reconciliation of Liabilities: | |||
Beginning balance | $ 8,300 | $ 10,115 | $ 11,125 |
Total losses included in earnings | (518) | (73) | (102) |
Canceled debt | 0 | (1,122) | 0 |
Gain on redemption of liability | 0 | 78 | 0 |
Capitalized interest | 1,050 | (698) | (908) |
Ending balance | 8,832 | 8,300 | 10,115 |
The amount of total losses for the period included in earnings attributable to the change in unrealized gains or losses relating to liabilities still held at the reporting date | $ (518) | $ (73) | $ (102) |
Supplemental Cash Flow Disclosures (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Cash paid during the period for: | |||
Interest | $ 1,362,000 | $ 1,243,000 | $ 2,462,000 |
Income Taxes | 1,710,000 | 3,080,000 | 0 |
Noncash activities: | |||
Loans transferred to foreclosed property | 0 | 226,000 | 1,308,000 |
OREO financed | 3,766,000 | 0 | 0 |
Sale of limited partnership interest financed | 0 | 0 | 3,000,000 |
Unrealized (losses) gains on securities | (648,000) | (265,000) | 18,000 |
Unrealized (losses) gains on unrecognized post retirement costs | $ (22,000) | $ 224,000 | $ (113,000) |
Common Stock Dividend (Details) |
3 Months Ended | 12 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2016 |
|
Common Stock Dividend [Abstract] | |||||||||
Percentage of stock dividend declared on common stocks outstanding (percent) | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% |
Common Stock Repurchase Plan (Details) - shares |
Dec. 31, 2016 |
May 16, 2007 |
---|---|---|
Common Stock Repurchase Plan [Abstract] | ||
Shares authorized to be repurchased (shares) | 846,127 | |
Repurchase plan percentage of common stock outstanding (percent) | 5.00% | |
Number of shares available for repurchase (shares) | 732,556 |
Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Goodwill | $ 4,488 | $ 4,488 |
Parent Company Only Financial Statements II (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income | |||
Gain on redemption of JR subordinated debentures | $ 0 | $ 78 | $ 0 |
Expense | |||
Interest expense | 1,409 | 1,281 | 1,345 |
Other expense | 2,305 | 2,369 | 2,248 |
Income Before Provision for Taxes on Income | 12,254 | 11,307 | 10,408 |
Income tax benefit | 4,869 | 4,497 | 4,192 |
Net Income | 7,385 | 6,810 | 6,216 |
Parent Company | |||
Income | |||
Loss on fair value of financial liability | (518) | (73) | (102) |
Gain on redemption of JR subordinated debentures | 0 | 78 | 0 |
Dividends from subsidiary | 424 | 2,416 | 1,519 |
Total income | (94) | 2,421 | 1,417 |
Expense | |||
Interest expense | 240 | 225 | 241 |
Other expense | 241 | 256 | 101 |
Total expense | 481 | 481 | 342 |
Income Before Provision for Taxes on Income | (575) | 1,940 | 1,075 |
Income tax benefit | (411) | (196) | (182) |
Undistributed income of subsidiary | 7,549 | 4,674 | 4,959 |
Net Income | $ 7,385 | $ 6,810 | $ 6,216 |
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