| 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
| Dec. 31, 2018 |
| Notes to Financial Statements | |
| Principles of Consolidation | The consolidated financial statements include
the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., F&M
Mortgage, LLC, (net of noncontrolling interest) and VSTitle, LLC. Significant inter-company accounts and transactions have been
eliminated. |
| Use of Estimates in the Preparation of Financial Statements | The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses, goodwill and intangibles, fair value, the valuation
of deferred tax assets and liabilities, pension accounting and the valuation of foreclosed real estate. |
| Cash and Cash Equivalents | Cash and cash equivalents include cash on hand,
money market funds whose initial maturity is ninety days or less and Federal funds sold. |
| Securities | Debt securities are classified as held to maturity
and carried at amortized cost when management has the positive intent and ability to held them to maturity. Debt securities are
classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value,
the unrealized holding gains and losses are reported in other comprehensive income, net of tax. Equity securities are carried at
fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried
at cost, minus impairment, in any, plus or minus changes resulting from observable price changes in orderly transaction for the
identical or a similar investment. The Company follows the accounting guidance
related to recognition and presentation of other-than-temporary impairment. The guidance specifies that if (a) an entity does not
have the intent to sell a debt security prior to recovery and (b) it is more likely than not that the entity will not have to sell
the debt security prior to recovery, the security would not be considered other-than-temporarily impaired, unless there is a credit
loss. When criteria (a) and (b) are met, the entity will recognize the credit component of other-than-temporary impairment of a
debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount
of other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary
impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash
flows of the security. For equity securities, when the Company has
decided to sell an impaired available-for-sale security and the Company does not expect the fair value of the security to fully
recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision
to sell is made. The Company recognizes an impairment loss when the impairment is deemed other than temporary even if a decision
to sell has not been made. The Company had no other than temporary impairment in 2018, 2017 or 2016. |
| Other Investments | The Company periodically invests in low income
housing partnerships whose primary benefit is the distribution of federal income tax credits to partners. The Company recognizes
these benefits and the cost of the investments over the life of the partnership (usually 15 years). In addition, state and federal
historic rehabilitation credits are generated from some of the partnerships. Amortization of these investments is prorated based
on the amount of benefits received in each year to the total estimated benefits over the life of the projects. The effective yield
method is used to record the income statement effects of these investments. Due to the nature and restrictions placed on
the Company's investment in common stock of the Federal Home Loan Bank of Atlanta ("FHLB") and the Federal Reserve Bank
of Richmond, these securities are considered restricted and carried at cost. On January 1, 2018, the Company adopted the
new accounting standard for Financial Instruments, which requires equity investments (except those accounted for under the equity
method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value
recognized in net income. At December 31, 2018, equity securities of $135 are included in other investments on the Company’s
consolidated balance sheet. These securities were included in the available for sale portfolio at December 31, 2017. |
| Income Taxes | Income tax accounting guidance results in two
components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the
current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The
Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and
enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes
in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based
on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means
a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or
litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with
a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has
met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting
date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight
of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The results for the year ended December 31,
2017 included the effect of the Tax Cuts and Jobs Act (the Tax Act), which was signed into law on December 22, 2017. Among other
things, the Tax Act permanently lowered the federal corporate income tax rate to 21% from the maximum rate prior to the passage
of the Tax Act of 35%, effective January 1, 2018. As a result of the reduction of the federal corporate tax rate, U.S. GAAP required
companies to re-measure their deferred tax assets and deferred tax liabilities, including those accounted for in accumulated other
comprehensive income (loss), as of the date of the Tax Act’s enactment and record the corresponding effects in income tax
expense in the fourth quarter of 2018. The Company recognized a $811 reduction in the value of its net deferred tax asset and recorded
a corresponding incremental income tax expense in the Company’s consolidated statement of income for 2017. The Company recognizes interest and penalties
on income taxes as a component of income tax expense. |
| Loans Held for Investment | The Company, through its banking subsidiary,
provides mortgage, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage
loans, particularly commercial and residential mortgages. The ability of the Company’s debtors to honor their contracts is
largely dependent upon the real estate and general economic conditions in the Company’s market area. Loans that management has the intent and ability
to hold for the foreseeable future or until maturity or pay-off, generally are reported at their outstanding unpaid principal balance
adjusted for the allowance for loan losses, and any unearned income. Interest income is accrued on the unpaid principal balance.
The accrual of interest on loans is generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured
and in process of collection. Loans are typically charged off when the loan is 120 days past due, unless secured and in process
of collection. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest
is considered doubtful. The Company’s loans are grouped into eleven
segments: construction/land development, farmland, real estate, multi-family, commercial real estate, home equity – closed
end, home equity – open end, commercial & industrial – non-real estate, consumer, credit cards and dealer finance.
Each segment is subject to certain risks that influence the establishment of pricing, loan structures, approval requirements, reserves,
and ongoing credit management. The Company does not segregate the portfolio further. Construction and land development loans are
subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand
for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally
expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment
rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are
also evaluated, including previous repayment history, debt service ability, and current and projected loan-to value ratios for
the collateral. Farmland loans are loans secured by agricultural
property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s
farming operations. Multifamily loans are loans secured by multi-unit
residential property. These loans are subject to risks associated with the value of the underlying property as well as the successful
operation and management of the property. Real estate loans are for consumer residential
real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral
value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates.
Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios. The commercial real estate segment includes
loans secured by commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans
in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets
for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses
housed by the commercial real estate. The Company’s home-equity loan portfolios
(closed end and open end) carry risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios.
The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting,
and requiring standards for appraisers. Commercial and industrial non-real estate loans
are secured by collateral other than real estate or are unsecured. Credit risk for commercial non-real estate loans is subject
to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability
and collateral value (if secured). Consumer non-real estate includes non-dealer
financed automobile loans and other consumer loans. Certain consumer loans are unsecured, while collateral is obtained for automobile
loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured,
the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous
credit history, as well as for general risks for the portfolio, including local unemployment rates, personal bankruptcy rates and
interest rates. Credit card loan portfolios carry risks associated
with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies
and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Dealer finance lending generally carries certain
risks associated with the values of the collateral and borrower’s ability to repay the loan. The Company focuses its dealer
finance lending on used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant
loss of collateral values in the future. Interest accrued but not collected for loans
that are placed on nonaccrual status or charged-off is reversed against interest income. The interest on these loans is accounted
for on the cash basis or cost recovery method, until qualifying for return to accrual status. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. A loan is considered past due when a payment
of principal or interest or both is due but not paid. Management closely monitors past due loans in timeframes of 30-59 days,
60-89 days, and 90 or more days past due. These policies apply to all loan portfolio segments. A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured
on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral
dependent. Troubled debt restructurings are considered impaired loans. |
| Loans Held for Sale | These loans consist of fixed rate loans made
through the Company’s subsidiary, F&M Mortgage, and loans purchased from Northpointe Bank, Grand Rapids, MI. F&M Mortgage originates conforming mortgage
loans for sale in the secondary market. These loans consist primarily of fixed-rate, single-family residential mortgage loans which
meet the underwriting characteristics of the investors. F&M Mortgage enters into mortgage loan commitments whereby the interest
rate on the loan is determined prior to funding (rate lock commitments). The period of time between issuance of a loan
commitment and sale of the loan generally ranges from two to three weeks. F&M Mortgage protects itself from changes in interest
rates through the use of best efforts forward delivery contracts, by committing to sell a loan at the time the borrower commits
to an interest rate with the intent that the buyer has assumed the interest rate risk on the loan. As a result, the Company
is not generally exposed to significant losses nor will it realize significant gains related to its rate lock commitments due to
changes in interest rates. The correlation between the rate lock commitments and the best efforts contracts is very high
due to their similarity. The market value of rate lock commitments and best efforts contracts is not readily ascertainable with
precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. F&M
Mortgage determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the estimated
value of the underlying assets while taking into consideration the probability that the loan will be funded. The fair value of
rate lock commitments and best efforts contracts was considered immaterial at December 31, 2018 and 2017. The average time on the
line is two or three weeks. These loans are pre-sold with servicing released and no interest is retained after the loans are sold. Because
of the short holding period, these loans are carried at the lower of cost or market and no market adjustments were deemed necessary
in 2018, 2017, or 2016. Gains on sales of loans and commission expense are recognized at the loan closing date and are included
in mortgage banking income, net on the Company’s consolidated income statement. At December 31, 2018 and 2017, there was
$3,544 and $3,645, respectively, of these loans included in loans held for sale on the Company’s consolidated balance sheet. The Bank participates in a Mortgage Purchase
Program with Northpointe Bank (Northpointe), a Michigan banking corporation. Pursuant to the terms of a participation agreement,
the Bank purchases participation interests in loans made by Northpointe related to fully underwritten and pre-sold mortgage loans
originated by various prescreened mortgage loan originators located throughout the United States. A takeout commitment is in place
at the time the loans are purchased. The Bank has participated in similar arrangements since 2003 as a higher yielding alternative
to federal funds sold or investment securities. These loans are short-term, residential real estate loans that have an average
life in our portfolio of approximately two weeks. The Bank holds these loans during the period of time between loan closing and
when the loan is paid off by the ultimate secondary market purchaser. As of December 31, 2018, and 2017, there were $52,366 and
$36,130 million of these loans included in loans held for sale on the Company’s consolidated balance sheet. |
| Troubled Debt Restructuring | In situations where, for economic or legal reasons
related to a borrower's financial condition, management may grant a concession to the borrower that it would not otherwise consider,
the related loan is classified as a troubled debt restructuring ("TDR"). Management strives to identify borrowers
in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual
status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended
to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted
new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring
as noted above for impaired loans. The Company has $8.03 million in loans classified as TDRs that are current and performing
as of December 31, 2018, and $7.8 million as of December 31, 2017. |
| Allowance for Loan and Losses | The allowance for loan losses represents management’s
estimate of probable losses inherent in the Company’s loan portfolio. A provision for estimated losses is charged to earnings
to establish and maintain the allowance for loan losses at a level reflective of the estimated credit risk. When management determines
that a loan balance or portion of a loan balance is not collectible, the loss is charged against the allowance. Subsequent recoveries,
if any, are credited to the allowance. Management’s determination of the adequacy
of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current
economic conditions, historical loan loss experience, and other risk factors. Management evaluates the allowance each quarter through
a methodology that estimates losses on individual impaired loans and evaluates the effect of numerous factors on the credit risk
of each segment of loans. The Company’s allowance for loan losses
has two basic components: the general allowance and the specific allowance. Each of these components is determined based upon estimates
and judgments. The general allowance uses historical loss experience as an indicator of future losses, along with various qualitative
factors, including levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, trends in volume and terms
of loans, effects of changes in underwriting standards, experience of lending staff, economic conditions, and portfolio concentrations. Except for credit card and dealer finance loans,
all loans are assigned an internal risk rating based on certain credit quality indicators. Credit card, consumer and dealer finance
loans are monitored based on payment activity. Loss rates are amplified for loans with adverse risk ratings that are not considered
impaired. In the general allowance, the historical loss rate is combined with the qualitative factors, resulting in an adjusted
loss factor for each segment of loans. The period-end balances for each loan segment are multiplied by the adjusted loss
factor. Historical loss rates are combined with qualitative factors resulting in an adjusted loss factor for each segment. Specific
allowances are established for individually-evaluated impaired loans based on the excess of the loan balance relative to the fair
value of the collateral, if the loan is deemed collateral dependent. Management believes that the allowance for loan
losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions, particularly those affecting real estate values. In addition, regulatory
agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.
Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available
to them at the time of their examination. |
| Other Real Estate Owned (OREO) | OREO is held for sale and represents real estate
acquired through or in lieu of foreclosure. OREO is initially recorded at fair value less costs to sell when acquired, establishing
a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when
legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the
loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The Company’s policy is to
carry OREO on its balance sheet at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent
to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. |
| Bank Premises and Equipment | Land is carried at cost and bank premises and
equipment are stated at cost less accumulated depreciation. Depreciation is charged to income over the estimated useful lives of
the assets on a combination of the straight-line and accelerated methods. The ranges of the useful lives of the premises and equipment
are as follows:
Premises and Improvements 10 - 40 years
Furniture and Equipment 5 - 20 years Maintenance, repairs, and minor improvements
are charged to operations as incurred. Gains and losses on dispositions are reflected in other income or expense. |
| Goodwill and Intangible Assets | The Company accounts for goodwill and intangible
assets under ASC 805, “Business Combinations” and ASC 350, “Intangibles”, respectively. Goodwill is subject
to at least an annual assessment for impairment by applying a fair value-based test. Additionally, acquired intangible assets
are separately recognized if the benefit of the assets can be sold, transferred, licensed, rented, or exchanged, and amortized
over their useful lives. The Company recorded goodwill and intangible assets in 2018 related to the purchase of VS Title which
was valued by an independent third party. The Company records as goodwill the excess of purchase price over the fair value of the
identifiable net assets acquired. Impairment testing is performed annually, as well as when an event triggering impairment may
have occurred. The Company performs its annual analysis as of December 31 each fiscal year. Accounting guidance permits preliminary
assessment of qualitative factors to determine whether a more substantial impairment testing is required. The Company chose to
bypass the preliminary assessment and utilized a two-step process for impairment testing of goodwill. The first step tests for
impairment, while the second step, if necessary, measures the impairment. No indicators of impairment were identified during
the years ended December 31, 2018, 2017, and 2016. |
| Pension Plans | The Bank has a qualified noncontributory defined
benefit pension plan which covers all full-time employees hired prior to April 1, 2012. The benefits are primarily based on years
of service and earnings. The Company complies with ASC 325-960 “Defined Benefit Pension Plans” which requires recognition
of the over-funded or under-funded status of pension and other postretirement benefit plans on the balance sheet. Under ASC 325-960,
gains and losses, prior service costs and credits, and any remaining transition amounts that have not yet been recognized through
net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized
as a component of net periodic cost. |
| Advertising Costs | The Company follows the policy of charging the
cost of advertising to expense as incurred. Total advertising costs included in other operating expenses for 2018, 2017, and 2016
were $622, $509, and $604, respectively. |
| Bank Owned Life Insurance | The Company has purchased life insurance policies
on certain employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at
the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at
settlement. |
| 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 – put presumptively beyond reach of the transferor and its creditors,
even in bankruptcy or other receivership, (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 or the ability to unilaterally cause
the holder to return specific assets. |
| Comprehensive Income | Comprehensive income is shown in a two-statement
approach, the first statement presents total net income and its components followed by a second statement that presents all the
components of other comprehensive income such as unrealized gains and losses on available for sale securities and changes in the
funded status of a defined benefit pension plan. |
| Derivative Financial Instruments | Under ASC 815, the gain or loss on a derivative
designated and qualifying as a fair value hedging instrument, as well as the offsetting gain or loss on the hedging item attributable
to the risk being hedged, is recognized currently in earnings in the same accounting period. The effective portion of the gain
or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially reported as a component of other
comprehensive income and subsequently reclassified into earnings in the same period or periods during which the hedged transaction
affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently in
earnings. Interest rate derivative financial instruments
receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially
reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those derivative
financial instruments that do not meet the hedging criteria discussed below would be classified as trading activities and would
be recorded at fair value with changes in fair value recorded in income. Derivative hedge contracts must meet specific effectiveness
tests. Changes in fair value of the derivative financial instruments must be effective at offsetting changes in the fair value
of the hedging items due to the designated hedge risk during the term of the hedge. Further, if the underlying financial instrument
differs from the hedged asset or liability, there must be a clear economic relationship between the prices of the two financial
instruments. If periodic assessment indicates derivatives no longer provide an effective hedge, the derivatives contracts would
be closed out and settled or classified as a trading activity. |
| Loss Contingencies | Loss contingencies, including claims and legal
actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an
amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material
effect on the consolidated financial statements. |
| Fair Value Measurements | Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involved
uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially
in the absence of broad markets of particular items. Changes in assumptions or in market conditions could significantly affect
these estimates. |
| Reclassifications | Certain reclassifications have been made in
prior years’ financial statements to conform to classifications used in the current year. These reclassifications had no
impact on net income or earnings per share. |
| Earnings per Share | Accounting guidance specifies the computation,
presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock
or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities
trade in a public market. Basic EPS is computed by dividing net income available to common stockholders by the weighted average
number of common shares outstanding. Diluted EPS is similar to the computation of basic EPS except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had
been issued. The dilutive effect of conversion of preferred stock is reflected in the diluted earnings per common share
calculation. Net income available to common stockholders
represents consolidated net income adjusted for preferred dividends declared. The following table provides a reconciliation of net income to net
income available to common stockholders for the periods presented:
For the year ended
Dollars in thousands December 31, 2018 December 31, 2017 December 31, 2016
Earnings Available to Common Stockholders:
Net Income $ 9,095 $ 9,041 $ 9,762
Minority interest attributable to noncontrolling interest (10 ) (31 ) (194 )
Dividends paid/accumulated on preferred stock (413 ) (415 ) (487 )
Net Income Available to Common Stockholders $ 8,672 $ 8,595 $ 9,081 The following table shows the effect of dilutive
preferred stock conversion on the Company's earnings per share for the periods indicated:
Year ended
December 31, 2018 December 31, 2017 December 31, 2016
Dollars in thousands Net Income Available to Common Stockholders Weighted Average Shares Per Share Amounts Net Income Available to Common Stockholders Weighted Average Shares Per Share Amounts Net Income Available to Common Stockholders Weighted Average Shares Per Share Amounts
Basic EPS $ 8,672 3,238,177 $ 2.68 $ 8,595 3,269,713 $ 2.63 $ 9,081 3,282,335 $ 2.77
Effect of Dilutive Securities:
Convertible Preferred Stock 413 357,841 (.15 ) 415 362,271 (0.15 ) 487 434,256 (0.20 )
Diluted EPS $ 9,085 3,596,017 $ 2.53 $ 9,010 3,631,984 $ 2.48 $ 9,568 3,716,591 $ 2.57 |
| Recent Accounting Pronouncements | In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the
following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a
lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset,
which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary,
lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this
ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early
application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing,
and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not
require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors
may not apply a full retrospective transition approach. The FASB made subsequent amendments to Topic 842 in July 2018 through ASU
2018-10 (“Codification Improvements to Topic 842, Leases.”) and ASU 2018-11 (“Leases (Topic 842): Targeted Improvements.”)
Among these amendments is the provision in ASU 2018-11 that provides entities with an additional (and optional) transition method
to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the
adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts
the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). The adoption of this standard
on January 1, 2019 did not have a material effect on the Bank’s/Company’s consolidated financial statements or The
effect of adopting this standard on January 1, 2019 was an approximate $1.03 million increase in assets and liabilities on our
consolidated balance sheet. During June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The
amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at
the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions
and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss
estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the
full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt
securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For public companies that are not
SEC filers, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2020. The Company has chosen a vendor and is in the process of supplying data to the model and will run “shadow”
in 2019 along with current allowance for loan loss model. During January 2017, the FASB issued ASU No.
2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments
in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment
test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with
the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim,
goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option
to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public
business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual
or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim
or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption
of ASU 2017-04 to have a material impact on its consolidated financial statements. During March 2017, the FASB issued ASU 2017-08,
“Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt
Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at
a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest
call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect
adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change
in accounting principle. Given the composition of our securities portfolio, the Company does not expect that adoption of ASU 2017-08
will have a material impact on its consolidated financial statements. During August 2017, the FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in
this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding
the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness
assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including
interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption
in any interim period . During February 2018, the FASB issued ASU 2018-02,
“Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income.” The amendments provide financial statement preparers with an option to reclassify stranded tax
effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in
the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective
for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early
adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to
each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs
Act is recognized. The Company elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act in the consolidated
financial statements for the period ending December 31, 2017. The amount of this reclassification in 2017 was $811. In June 2018, the FASB issued ASU 2018-07, “Compensation-
Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The amendments expand the scope
of Topic 718 to include share-based payments issued to non-employees for goods or services, which were previously excluded. The
amendments will align the accounting for share-based payments to nonemployees and employees more similarly. The amendments are
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is
permitted. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”
The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses,
the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative
description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments
are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain of the
amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Company
does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-14,
“Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes
to the Disclosure Requirements for Defined Benefit Plans.” These amendments modify the disclosure requirements for employers
that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the
following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other
plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes
in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which
state that the following information for defined benefit pension plans should be disclosed: The projected benefit obligation (PBO)
and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair
value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December
15, 2020. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-14 to have a material impact on its
consolidated financial statements. |
