FARMERS & MERCHANTS BANCORP The following discussion is intended to provide a more comprehensive review of the Company's operating results and financial condition. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the accompanying Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q included in "Part I. Item 1. Financial Statements."
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act. These forward-looking statements reflect our current views and are not historical facts. These statements may include statements regarding projected performance for periods following the date of this report. These statements can generally be identified by use of phrases such as "believe," "expect," "will," "seek," "should," "anticipate," "estimate," "intend," "plan," "target," "project," "commit" or other words of similar import. Similarly, statements that describe our future financial condition, results of operations, objectives, strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future financial conditions, results of operations, and shareholder value are not guarantees of performance and many of the factors that will determine these results and values are beyond our ability to control or predict. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and other parts of this report and the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 ("Form 10-K"), could cause actual results to differ materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors which could cause actual results to differ materially from forward-looking statements in this Quarterly Report on Form 10-Q:
? changes in general economic conditions, either nationally, in
our local markets;
? inflation, changes in interest rates, securities market volatility and monetary
fluctuations;
? increases in competitive pressures among financial institutions and businesses
offering similar products and services;
? risks associated with recent negative events in the banking industry, and any
legislative and/or bank regulatory actions, that could potentially impact
earnings, liquidity and/or the availability of capital;
? higher defaults in our loan and lease portfolio than we expect;
? changes in management's estimate of the adequacy of the allowance for credit
losses;
? risks associated with our growth and expansion strategy and related costs;
? increased lending risks associated with our high concentration of real estate
loans;
? legislative or regulatory changes or changes in accounting principles, policies
or guidelines; ? technological changes;
? failure to raise the debt limit on
? regulatory or judicial proceedings;
? the future impact of the COVID-19 virus or variants thereof; and
? other factors and risks including those described under "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report and the Company's Annual Report on Form 10-K for the
year ended
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, expected, projected, intended, committed or
believed. Please take into account that forward-looking statements speak only as
of the date of this Form 10-Q (or documents incorporated by reference, if
applicable).
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The Company does not undertake any obligation to publicly correct or update any forward-looking statements if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statements, except as required by law.
Overview
Farmers & Merchants Bancorp is aDelaware registered bank holding company organized in 1999. As a registered bank holding company, FMCB is subject to regulation, supervision, and examination by theBoard of Governors of theFederal Reserve System ("FRB") and by theCalifornia Department of Financial Protection and Innovation ("DFPI"). The Company's principal business is to serve as a holding company for the Bank and for other banking or banking related subsidiaries, which the Company may establish or acquire. As a legal entity separate and distinct from its subsidiary, the Company's principal source of funds is, and will continue to be, dividends paid by and other funds received from the Bank. Legal limitations are imposed on the amount of dividends that may be paid and loans that may be made by the Bank to the Company. The Company's outstanding common stock as ofMarch 31, 2023 , consisted of 762,931 shares of common stock,$0.01 par value and no shares of preferred stock were issued or outstanding. The common stock ofFarmers & Merchants Bancorp is not widely held or listed on any exchange. However, trades are reported on the OTCQX under the symbol "FMCB."F & M Bancorp, Inc. was created inMarch 2002 to protect the name "F & M Bank." During 2002, the Company completed a fictitious name filing inCalifornia to begin using the streamlined name, "F & M Bank," as part of a larger effort to enhance the Company's image and build brand name recognition. Since 2002, the Company has converted all of its daily operating and image advertising to the "F & M Bank " name and the Company's logo, slogan and signage were redesigned to incorporate the trade name, "F & M Bank ". The primary source of funding for the Company's growth has been the generation of core deposits, which the Company raises through its existing branch locations, newly opened branch locations, or through acquisitions. Loan growth over the years is the result of organic growth generated by the Company's seasoned relationship managers and supporting associates who provide outstanding service and responsiveness to the Company's clients. The Company's results of operations are largely dependent on net interest income. Net interest income is the difference between interest income earned on interest earning assets, which are comprised of loans and leases, investment securities and short-term investments, and the interest the Company pays on interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings. Management strives to match the re-pricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve. The Company measures its performance by calculating the net interest margin, return on average assets, and return on average equity. Net interest margin is calculated by dividing net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is the Company's largest source of revenue. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. The Company also measures its performance by the efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income. 29
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Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates relate to the allowance for credit losses on loans and leases held for investment, investment securities, the carrying value of goodwill and other intangible assets, fair value measurements and the realization of deferred income tax assets and liabilities.
Our critical accounting policies and estimates are described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K.
Impact of Recently Issued Accounting Standards
See Note 1. "Basis of Presentation and Significant Accounting Policies" to the Unaudited Consolidated Financial Statements in "Item 1. Financial Information" in this Quarterly Report on Form 10-Q.
Results of Operations
The following discussion and analysis is intended to provide a better understanding ofFarmers & Merchants Bancorp and its subsidiaries' financial condition atMarch 31, 2023 andDecember 31, 2022 and results of operations during the three months endedMarch 31, 2023 and 2022. Information related to the comparison of the results of operations for the three years endedDecember 31, 2022 , 2021, and 2020 can be found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2022 Annual Report on Form 10-K filed with theSEC onMarch 15, 2023 . Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes card processing fees, service charges on deposit accounts, bank-owned life insurance income, gains/losses on the sale of investment securities, and gains/losses on deferred compensation plan investments. Non-interest expense consists primarily of salaries and employee benefits, cost of deferred compensation benefits, occupancy, data processing,FDIC insurance, marketing, legal and other expenses. 30
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Average Balance and Yields. The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances.
Three Months Ended March 31,
2023 2022
Interest
Income / Interest Income Average
(Dollars in thousands) Average Balance Expense Average Yield / Rate Average Balance / Expense Yield / Rate
ASSETS
Interest earnings deposits in other banks and federal funds sold $ 521,147 $ 5,961 4.64 % $ 760,080 $ 366 0.20 %
Investment Securities :(1)
Taxable securities 967,699 4,805 2.01 % 1,022,457 4,588 1.82 %
Non-taxable securities(2) 57,513 557 3.87 % 49,997 402 3.22 %
Total investment securities 1,025,212 5,362 2.12 % 1,072,454 4,990 1.89 %
Loans:(3)
Real estate:
Commercial 1,280,959 16,649 5.27 % 1,151,611 13,276 4.68 %
Agricultural 715,756 9,614 5.45 % 680,230 7,793 4.65 %
Residential and home equity 387,369 4,095 4.29 % 353,371 3,301 3.79 %
Construction 169,913 2,937 7.01 % 191,684 2,072 4.38 %
Total real estate 2,553,997 33,295 5.29 % 2,376,896 26,442 4.51 %
Commercial & industrial 465,383 7,624 6.64 % 424,598 4,799 4.58 %
Agricultural 280,467 5,204 7.52 % 248,414 2,755 4.50 %
Commercial leases 116,948 1,805 6.26 % 94,855 1,416 6.05 %
Consumer and other 5,580 80 5.81 % 52,078 2,021 15.74 %
Total loans and leases 3,422,375 48,008 5.69 % 3,196,841 37,433 4.75 %
Non-marketable securities 15,549 301 7.85 % 15,549 305 7.96 %
Total interest earning assets 4,984,283 59,632 4.85 % 5,044,924 43,094 3.46 %
Allowance for credit losses (67,691 ) (61,022 )
Non-interest earning assets 311,140 314,932
Total average assets $ 5,227,732 $ 5,298,834
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 1,068,504 444 0.17 % $ 1,115,578 259 0.09 %
Savings and money market accounts 1,561,684 2,503 0.65 % 1,517,234 342 0.09 %
Certificates of deposit greater than $250,000 147,704 487 1.34 % 167,515 97 0.23 %
Certificates of deposit less than $250,000 206,214 280 0.55 % 223,842 105 0.19 %
Total interest bearing deposits 2,984,106 3,714 0.50 % 3,024,169 803 0.11 %
Short-term borrowings 3 - 0.00 % 3 - 0.00 %
Subordinated debentures 10,310 196 7.71 % 10,310 82 3.23 %
Total interest bearing liabilities 2,994,419 3,910 0.53 % 3,034,482 885 0.12 %
Non-interest bearing deposits 1,663,152 1,722,597
Total funding 4,657,571 3,910 0.34 % 4,757,079 885 0.08 %
Other non-interest bearing liabilities 72,710 76,061
Shareholders' equity 497,451 465,694
Total average liabilities and shareholders' equity $ 5,227,732 $ 5,298,834
Net interest income $ 55,722 $ 42,209
Interest rate spread 4.32 % 3.35 %
Net interest margin(4) 4.53 % 3.39 %
(1)Excludes average unrealized (losses) of ($28.2) million and ($7.0) million
for the three months ended March 31, 2023 , and 2022, respectively, which are
included in non-interest earning assets.
(2)The average yield does not include the federal tax benefits at an assumed
effective yield of 26% related to income earned on tax-exempt municipal
securities totaling $147,000 and $106,000 for the three months ended March 31,
2023 , and 2022, respectively.
(3)Loan interest income includes loan fees of $2.0 million and $3.9 million for
the three months ended March 31, 2023 and 2022, respectively.
(4)Net interest margin is computed by dividing net interest income by average
interest earning assets.
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Interest-bearing deposits with banks andFederal Reserve balances are earning assets available to the Company. Average interest-bearing deposits with banks consisted primarily of FRB deposits. Balances with the FRB earned an average interest rate of 4.64% and 0.20% for the three months endedMarch 31, 2023 and 2022, respectively. The increase was primarily the result of the FRB increasing rates by 475 basis points during 2022 and the first quarter of 2023. Average interest-bearing deposits were$521 million and$760 million for the three months endedMarch 31, 2023 and 2022, respectively. Interest income on interest-bearing deposits with banks was$6.0 million and$0.4 million for the three months endedMarch 31, 2023 and 2022, respectively. The investment portfolio is also a component of the Company's earning assets. Historically, the company invested primarily in: (1) mortgage-backed securities issued by government-sponsored entities; (2) debt securities issued by theU.S. Treasury , government agencies and government-sponsored entities; and (3) investment grade bank-qualified municipal bonds. However, at certain times the Company has selectively added investment grade corporate securities (floating rate and fixed rate with maturities less than 7 years) to the portfolio in order to obtain yields that exceed government agency securities of equivalent maturity. Since the risk factor for these types of investments is generally lower than that of loans and leases, the yield earned on investments is generally less than that of loans and leases. Average total investment securities were$1.0 billion and$1.1 billion for the three months endedMarch 31, 2023 and 2022, respectively. The average yield on total investment securities was 2.12% and 1.89% for the three months endedMarch 31, 2023 and 2022, respectively. Average loans and leases held for investment were$3.4 billion and$3.2 billion for the three months endedMarch 31, 2023 and 2022, respectively. The average yield on the loan and lease portfolio was 5.69% and 4.75% for the three months endedMarch 31, 2023 and 2022, respectively. The increase in the loan yield reflects the increase in market interest rates over the last year. Average interest-bearing liabilities were$3.0 billion for the three months endedMarch 31, 2023 and 2022. The average rate paid on interest-bearing liabilities was 0.53% and 0.12% for the three months endedMarch 31, 2023 and 2022, respectively. Total interest expense on interest-bearing deposits was$3.7 million and$0.8 million for the three months endedMarch 31, 2023 and 2022, respectively, as a result of increases in short-term market interest rates during 2022 and the first quarter of 2023. The Company is experiencing deposit pricing pressures as competition for deposits increases which may increase future deposit costs in order to retain key customers, which could place negative pressure on the net interest margin looking forward. 32
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Rate/Volume Analysis. The following table shows the change in interest income
and interest expense and the amount of change attributable to variances in
volume, rates and the combination of volume and rates based on the relative
changes of volume and rates. For purposes of this table, the change in interest
due to both volume and rate has been allocated to change due to volume and rate
in proportion to the relationship of absolute dollar amounts of change in each.
Three Months Ended March 31,
2023 compared with 2022
Increase (Decrease) Due to:
(Dollars in thousands) Volume Rate Net
Interest income:
Interest earnings deposits in other banks and
federal funds sold $ (844 ) $ 6,439 $ 5,595
Investment securities:
Taxable securities (1,254 ) 1,471 217
Non-taxable securities 66 89 155
Total investment securities (1,188 ) 1,560 372
Loans:
Real estate:
Commercial 1,580 1,793 3,373
Agricultural 423 1,398 1,821
Residential and home equity 335 459 794
Construction (1,467 ) 2,332 865
Total real estate 872 5,981 6,853
Commercial & industrial 497 2,328 2,825
Agricultural 394 2,055 2,449
Commercial leases 340 49 389
Consumer and other(1) (1,138 ) (803 ) (1,941 )
Total loans and leases 965 9,610 10,575
Non-marketable securities - (4 ) (4 )
Total interest income (1,067 ) 17,605 16,538
Interest expense:
Interest bearing deposits:
Demand (75 ) 260 185
Savings and money market accounts 10 2,151 2,161
Certificates of deposit greater than $250,000 (81 ) 471 390
Certificates of deposit less than $250,000 (57 ) 232 175
Total interest bearing deposits (203 ) 3,114 2,911
Subordinated debentures - 114 114
Total interest expense (203 ) 3,228 3,025
Net interest income $ (864 ) $ 14,377 $ 13,513 (1) Consumer and other - These decreases respresent the end of the PPP loans
which were
Net interest income was$55.7 million and$42.2 million for the three months endedMarch 31, 2023 and 2022, respectively. The increase in net interest income was driven primarily by increased interest rates as the increase in the loan yield outpaced the increase in deposit costs. 33
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Comparison of Results of Operations for the Three Months EndedMarch 31, 2023 and 2022 Three Months Ended March 31, $ Better / % Better / (Dollars in thousands) 2023 2022 (Worse) (Worse) Selected Income Statement Information: Interest income$ 59,632 $ 43,094 $ 16,538 38.38 % Interest expense 3,910 885 (3,025 ) (341.81 %) Net interest income 55,722 42,209 13,513 32.01 % Provision for credit losses 1,500 - (1,500 ) N/A Net interest income after provision for credit losses 54,222 42,209 12,013 28.46 % Non-interest income 3,460 4,312 (852 ) (19.76 %) Non-interest expense 28,183 23,788 (4,395 ) (18.48 %) Income before income tax expense 29,499 22,733 6,766 29.76 % Income tax expense 5,952 5,675 (277 ) (4.88 %) Net income$ 23,547 $ 17,058 $ 6,489 38.04 % Net Income. For the three months endedMarch 31, 2023 and 2022, net income was$23.5 million compared with$17.1 million , respectively. The increase in net income was primarily the result of higher net interest income of$13.5 million . The Company also recognized in non-interest income, a$4.3 million death benefit on bank-owned life insurance ("BOLI") during the three months endedMarch 31, 2023 that was not present during the three months endedMarch 31, 2022 . This increase was offset by an increase in non-interest expense of$4.4 million , higher provision for credit losses of$1.5 million , a decrease in non-interest income of$0.8 million and higher income tax expense of$.3 million . Net Interest Income and Net Interest Margin. For the three months endedMarch 31, 2023 , net interest income increased$13.5 million , or 32.01%, to$55.7 million compared with$42.2 million for the same period a year earlier. The increase is primarily the result of the net interest margin increasing 114 basis points to 4.53% compared with 3.39% for the same period a year earlier. The increase in the net interest margin was primarily the result of the FRB increasing the federal funds rate by 475 basis points during 2022 and the first quarter of 2023. The loan yield increased 94 basis points compared to the first quarter of 2022 and outpaced the increase in deposit yield of 41 basis points compared to the same period a year earlier. Provision for Credit Losses. The Company made a$1.5 million provision for credit losses during the first three months of 2023 compared to no provision for credit losses the same period a year earlier. For the three month endedMarch 31, 2023 net recoveries were$188,000 compared to net recoveries of$25,000 for the same period a year earlier. Non-interest Income. Non-interest income decreased$0.9 million , or 19.76%, to$3.5 million for the three months endedMarch 31, 2023 compared with$4.3 million for the same period a year earlier. The year-over-year decrease in non-interest income was primarily due to a$5.7 million loss on sale of investment securities. This decrease was off-set by a$4.3 million BOLI death benefit and a$0.5 million increase in net gains on deferred compensation plan investments. The Company recorded net gains on deferred compensation plan investments of$0.9 million for the three months endedMarch 31, 2023 compared with net gains of$0.4 million for the same period a year earlier. See Note 11, located in "Item 8. Financial Statements and Supplementary Data" in the Company'sDecember 31, 2022 Form 10-K filed onMarch 15, 2023 for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these investment gains/losses to be recorded in non-interest income, an offsetting entry is also required to be made to non-interest expense resulting in no net-effect on the Company's net income. 34
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Non-interest Expense. Non-interest expense increased$4.4 million , or 18.48%, to$28.2 million for the three months endedMarch 31, 2023 compared with$23.8 million for the same period a year ago. This year-over-year increase was primarily comprised of: (1) a$1.6 million increase in employee benefits; (2) a$1.2 million increase in salaries; (3) a$0.6 million increase in other miscellaneous expenses; (4) a$0.5 million increase in net gains on deferred compensation plan investments; (5) a$0.3 million increase inFDIC insurance; and (6) a$0.2 million increase in marketing expenses. Net gains on deferred compensation plan obligations were$0.9 million for the three months endedMarch 31, 2023 compared with net gains of$0.4 million for the same respective period. See Note 11, located in "Item 8. Financial Statements and Supplementary Data" in the Company'sDecember 31, 2022 Form 10-K filed onMarch 15, 2023 for a description of these plans. Balances in non-qualified deferred compensation plans may be invested in financial instruments whose market value fluctuates based upon trends in interest rates and stock prices. Although GAAP requires these gains on obligations to be recorded in non-interest expense, an offsetting entry is also required to be made to non-interest income resulting in no net-effect on the Company's net income. Income Tax Expense. For the three months endedMarch 31, 2023 , income tax expense was$6.0 million compared to$5.7 million for the same period a year earlier. For the three months endedMarch 31, 2023 , the effective tax rate was 20.18% compared to 24.96% for the same period a year earlier. The Company's effective tax rate for the three months endedMarch 31, 2023 was lower than its historical effective tax rate primarily due to a non-taxable BOLI death benefit of$4.3 million recognized during the three months endedMarch 31, 2023 . The Company's effective tax rate can fluctuate from quarter to quarter due primarily to changes in the mix of taxable and tax-exempt earning sources. The effective rates were lower than the combined Federal and State statutory rate of 30% due primarily to BOLI death benefits, the cash surrender value of life insurance; credits associated with low income housing tax credit investments (LIHTC); and tax-exempt interest income on municipal securities and loans.
Financial Condition
Total assets were$5.1 billion atMarch 31, 2023 compared with$5.3 billion atDecember 31, 2022 , a decrease of$193.6 million or 3.63%. Loans held for investment were$3.4 billion atMarch 31, 2023 , a decrease of$85.2 million , or 2.43% compared with$3.5 billion atDecember 31, 2022 . Total deposits were$4.5 billion atMarch 31, 2023 compared with$4.8 billion atDecember 31, 2022 , a decrease of$220.1 million or 4.62%.
The Company's net investment portfolio decreased by$29.4 million or 2.95% to$968.4 million atMarch 31, 2023 compared toDecember 31, 2022 . This decrease is net of the impact of$36.2 million in available for sale securities sold for interest rate risk management purposes. The Company uses its investment portfolio to manage interest rate and liquidity risks. The Company's total investment portfolio as ofMarch 31, 2023 represents 18.86% of the Company's total assets as compared to 18.72% atDecember 31, 2022 . Not included in the investment portfolio are interest bearing deposits with banks and overnight investments inFederal Reserve balances. Interest bearing deposits with banks consisted primarily of FRB deposits. Since balances at the FRB are effectively risk free, the Company elected to maintain its excess cash at the FRB. Interest bearing deposits with banks totaled$461.3 million atMarch 31, 2023 and$514.9 million atDecember 31, 2022 . The Company classifies its investment securities as either held-to-maturity ("HTM") or available-for-sale ("AFS"). Securities are classified as HTM and are carried at amortized cost, net of an allowance for credit losses, when the Company has the intent and ability to hold the securities to maturity. See Note 2 "Investment Securities " to the Unaudited Consolidated Financial Statements in "Item 1. Financial Statements" in this Quarterly Report on Form 10-Q. Securities classified as AFS include securities, which may be sold to effectively manage interest rate risk exposure, prepayment risk, satisfy liquidity demands and other factors. These securities are reported at fair value with aggregate, unrealized gains or losses excluded from income and included as a separate component of shareholders' equity, as accumulated other comprehensive income(loss), net of related income taxes. As ofMarch 31, 2023 , the Company held no investment securities from any issuer (other than theU.S. Treasury or an agency of theU.S. government or a government sponsored entity) that totaled over 10% of our shareholders' equity. 35
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The carrying value of our portfolio of investment securities was as follows:
March 31,
(Dollars in thousands) 2023 December 31, 2022
Available-for-Sale Securities
U.S. Treasury notes $ - $ 4,964
U.S. Government-sponsored securities 4,112 4,427
Mortgage-backed securities(1) 103,697 132,528
Collateralized mortgage obligations(1) 607 1,054
Corporate securities 9,711 9,581
Other 310 310
Total available-for-sale securities $ 118,437 $ 152,864
(1) All mortgage-backed securities and collateralized mortgage obligations were
issued by an agency or government sponsored entity of the
March 31,
(Dollars in thousands) 2023 December 31, 2022
Held-to-Maturity Securities
Mortgage-backed securities(1) $ 695,083 $ 702,858
Collateralized mortgage obligations(1) 79,044 80,186
Municipal securities(2) 75,867 61,909
Total held-to-maturity securities $ 849,994 $ 844,953
(1) All mortgage-backed securities and collateralized mortgage obligations were
issued by an agency or government sponsored entity of the
The following tables show the carrying value for contractual final maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:
As of March 31, 2023
After One but Within
Within One Year Five Years After Five but Within Ten Years After TenYears Total (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities available-for-sale U.S. Government-sponsored securities$ 1 2.23 % $ 86 5.89 %$ 305 5.78 %$ 3,720 5.44 %$ 4,112 5.47 % Mortgage-backed securities(1) 24 2.83 % 8,959 2.49 % 5,608 3.29 % 89,106 1.98 % 103,697 2.09 % Collateralized mortgage obligations(1) - 0.00 % - 0.00 % - 0.00 % 607 2.29 % 607 2.29 % Corporate securities - 0.00 % 9,711 4.58 % - 0.00 % - 0.00 % 9,711 4.58 % Other 310 1.85 % - 0.00 % - 0.00 % -
0.00 % 310 1.85 %
Total securities available-for-sale
3.59 % $ 5,913 3.42 % $ 93,433 2.12 % $ 118,437 2.42 %
(1) All mortgage-backed securities and collateralized mortgage obligations were
issued by an agency or government sponsored entity of the
As of March 31, 2023
After One but Within
Within One Year Five Years After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities held-to-maturity
Mortgage-backed securities(1) $ - 0.00 % $ - 0.00 % $ 17,265 1.28 % $ 677,818 1.90 % $ 695,083 1.88 %
Collateralized mortgage obligations(1) - 0.00 % - 0.00 % - 0.00 % 79,044 1.73 % 79,044 1.73 %
Municipal securities 283 0.69 % 11,174 2.77 % 13,083 3.56 % 51,720
1.28 % 76,260 1.89 %
Total securities held-to-maturity
2.77 % $ 30,348 2.06 % $ 808,582 1.84 % $ 850,387 1.87 %
(1) All mortgage-backed securities and collateralized mortgage obligations were
issued by an agency or government sponsored entity of the
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As of December 31, 2022
After One but Within
Within One Year Five Years After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities available-for-sale
U.S. Treasury notes $ 4,964 2.37 % $ - 0.00 % $ - 0.00 % $ - 0.00 % $ 4,964 2.37 %
U.S. Government-sponsored securities 3 2.17 % 53 2.29 % 380 4.52 % 3,991 4.52 % 4,427 4.29 %
Mortgage-backed securities(1) 13 2.82 % 16,460 2.31 % 15,156 2.41 % 100,899 1.82 % 132,528 1.95 %
Collateralized mortgage obligations(1) - 0.00 % - 0.00 % - 0.00 % 1,054 2.35 % 1,054 2.35 %
Corporate securities - 0.00 % 9,581 3.13 % - 0.00 % - 0.00 % 9,581 3.13 %
Other 310 4.60 % - 0.00 % - 0.00 % - 0.00 % 310 4.60 %
Total securities available-for-sale $ 5,290 2.50 % $ 26,094 2.61 % $ 15,536 2.46 % $ 105,944 1.93 % $ 152,864 2.11 %
(1) All mortgage-backed securities and collateralized mortgage obligations were
issued by an agency or government sponsored entity of the
As of December 31, 2022
After One but Within
Within One Year Five Years After Five but Within Ten Years After Ten Years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities held-to-maturity
Mortgage-backed securities(1) $ - 0.00 % $ - 0.00 % $ 18,197 1.22 % $ 684,661 1.90 % $ 702,858 1.88 %
Collateralized mortgage obligations(1) - 0.00 % - 0.00 % - 0.00 % 80,186 1.80 % 80,186 1.80 %
Municipal securities 883 5.92 % 8,058 3.98 % 15,670 3.70 % 37,691
4.83 % 62,302 4.45 %
Total securities held-to-maturity
3.98 % $ 33,867 2.37 % $ 802,538 2.03 % $ 845,346 2.07 %
(1) All mortgage-backed securities and collateralized mortgage obligations were
issued by an agency or government sponsored entity of the
Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without penalties. The Company evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
Loans and Leases
Loans and leases can be categorized by borrowing purpose and use of funds. Common examples of loans and leases made by the Company include:
Commercial andAgricultural Real Estate - These are loans secured by owner-occupied real estate, non-owner-occupied real estate, owner-occupied farmland, and multifamily residential properties. Commercial mortgage term loans can be made if the property is either income producing or scheduled to become income producing based upon acceptable pre-leasing, or the income will be the Bank's primary source of repayment for the loan. Loans are made both on owner occupied and investor properties; maturities generally do not exceed 15 years (and may have pricing adjustments on a shorter timeframe) amortizations of up to 25 years (30 years for multifamily residential properties); have debt service coverage ratios of 1.00 or better with a target of 1.25 or greater; and fixed rates that are most often tied to treasury indices with an appropriate spread based on the amount of perceived risk in the loan.Real Estate Construction - These are loans for acquisition, development and construction and are secured by commercial or residential real estate. These loans are generally made only to experienced local developers with a successful track record; for projects in our service area; with Loan to Value (LTV) below 75%; and where the property can be developed and sold within 2 years. Commercial construction loans are made only when there is an approved take-out commitment from the Bank or an acceptable financial institution or government agency. Most acquisition, development and construction loans are tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.Single Family Residential Real Estate - These are loans primarily made on owner occupied residences; generally underwritten to income and LTV guidelines similar to those used byFNMA and FHLMC. However, the Company will make loans on rural residential properties up to 41 acres. Most residential loans have terms from ten to thirty years and carry fixed or variable rates priced to treasury rates. The Company has always underwritten mortgage loans based upon traditional underwriting criteria and does not make loans that are known in the industry as "subprime," "no or low doc," or "stated income" loans. 37
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Home Equity Lines and Loans - These are loans made to individuals for home improvements and other personal needs. Generally, amounts do not exceed$500,000 ; but can be made for up to$1,000,000 in high cost counties. Combined Loan to Value (CLTV) does not exceed 75%; FICO scores are at or above 670; Total Debt Ratios do not exceed 43%; and in some situations the Company is in a 1st lien position. Agricultural - These are non-real estate loans and lines of credit made to farmers to finance agricultural production. Lines of credit are extended to finance the seasonal needs of farmers during peak growing periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on livestock, crops, crop proceeds and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a processing plant, or orchard/vineyard development; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices or variable rates tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Commercial - These are non-real estate loans and lines of credit to businesses that are sole proprietorships, partnerships, LLC's and corporations. Lines of credit are extended to finance the seasonal working capital needs of customers during peak business periods; are usually established for periods no longer than 12 to 36 months; are often secured by general filing liens on accounts receivable, inventory and equipment; and are most often tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan. Term loans are primarily made for the financing of equipment, expansion or modernization of a plant or purchase of a business; have maturities from five to seven years; and fixed rates that are most often tied to treasury indices or variable rates tied to the prime rate with an appropriate spread based on the amount of perceived risk in the loan.
Consumer - These are loans to individuals for personal use, and primarily include loans to purchase automobiles or recreational vehicles, and unsecured lines of credit. The Company has a minimal consumer loan portfolio.
Commercial Leases - These are leases primarily to businesses and farmers for
financing the acquisition of equipment. They can be either "finance leases"
where the lessee retains the tax benefits of ownership but obtains 100%
financing on their equipment purchases; or "true tax leases" where the Company,
as lessor, places reliance on equipment residual value and in doing so obtains
the tax benefits of ownership. Leases typically have a maturity of three to ten
years, and fixed rates that are most often tied to treasury indices with an
appropriate spread based on the amount of perceived risk. Credit risks are
underwritten using the same credit criteria the Company would use when making an
equipment term loan. Residual value risk is managed with qualified, independent
appraisers that establish the residual values the Company uses in structuring a
lease.
The Company accounts for leases with Investment Tax Credits ("ITC") under the
deferred method as established in ASC 740-10. ITCs are viewed and accounted for
as a reduction of the cost of the related assets and presented as deferred
income on the Company's financial statement.
Each loan or lease type involves risks specific to the: (1) borrower; (2)
collateral; and (3) loan or lease structure. See "Results of Operations -
Provision and Allowance for Credit Losses" for a more detailed discussion of
risks by loan and lease type. The Company's current underwriting policies and
standards are designed to mitigate the risks involved in each loan and lease
type. The Company's policies require that loans and leases be approved only to
those borrowers exhibiting a clear source of repayment and the ability to
service existing and proposed debt. The Company's underwriting procedures for
all loan and lease types require careful consideration of the borrower, the
borrower's financial condition, the borrower's management capability, the
borrower's industry, and the economic environment affecting the loan or lease.
Most loans and leases made by the Company are secured, but collateral is the
secondary or tertiary source of repayment; cash flow is our primary source of
repayment. The quality and liquidity of collateral are important and must be
confirmed before the loan or lease is made.
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In order to be responsive to borrower needs, the Company prices loans and leases: (1) on both a fixed rate and adjustable rate basis; (2) over different terms; and (3) based upon different rate indices as long as these structures are consistent with the Company's interest rate risk management policies and procedures. See "Item 3. Quantitative and Qualitative Disclosures about Market Risk" in this Report on Form 10-Q for further details.
Overall, the Company's loan and lease portfolio at
The following table sets forth the distribution of the loan and lease portfolio by type and percent at the end of each period presented:
March 31, December 31,
2023 2022
Percent of Percent of
(Dollars in thousands) Dollars Total Dollars Total
Gross Loans and Leases
Real estate:
Commercial $ 1,312,745 38.19 % $ 1,328,691 37.73 %
Agricultural 707,412 20.58 % 726,938 20.64 %
Residential and home equity 387,370 11.27 % 387,753 11.01 %
Construction 153,394 4.46 % 166,538 4.73 %
Total real estate 2,560,921 74.50 % 2,609,920 74.11 %
Commercial & industrial 472,189 13.74 % 478,758 13.59 %
Agricultural 275,785 8.02 % 314,525 8.93 %
Commercial leases 123,314 3.59 % 112,629 3.20 %
Consumer and other 5,382 0.15 % 5,886 0.17 %
Total gross loans and leases $ 3,437,591 100.00 % $ 3,521,718 100.00 %
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The following table shows the maturity distribution and interest rate sensitivity of the loan and lease portfolio of the Company as ofMarch 31, 2023 . Loan Contractual Maturity After Five After One Years But After One Year But Within Within Fifteen (Dollars in thousands) or Less Five Years Fifteen Years Years Total Gross loan and leases: Real estate: Commercial$ 49,850 $ 360,141 $ 866,582 $ 36,172 $ 1,312,745 Agricultural 21,983 188,884 420,950 75,595 707,412 Residential and home equity 359 4,209 117,774 265,028 387,370 Construction 65,460 87,934 - - 153,394 Total real estate 137,652 641,168 1,405,306 376,795 2,560,921 Commercial & industrial 184,852 211,857 69,404 6,076 472,189 Agricultural 158,681 97,633 19,471 - 275,785 Commercial leases 6,125 45,975 71,214 - 123,314 Consumer and other 865 3,457 1,060 - 5,382 Total gross loans and leases$ 488,175 $ 1,000,090 $ 1,566,455 $ 382,871 $ 3,437,591 Rate Structure for Loans Fixed Rate$ 230,809 $ 506,642 $ 840,918 $ 188,726 $ 1,767,095 Adjustable Rate 257,366 493,448
725,537 194,145 1,670,496
Total gross loans and leases
The following table summarizes the loans for which the accrual of interest has been discontinued and loans more than 90 days past due and still accruing interest, and OREO (as hereinafter defined):
March 31,
(Dollars in thousands) 2023 December 31, 2022
Non-performing assets:
Non-accrual loans and leases
Real estate:
Commercial $ 387 $ 403
Agricultural - -
Residential and home equity - -
Construction - 168
Total real estate 387 571
Commercial & industrial - -
Agricultural - -
Commercial leases - -
Consumer and other - -
Total non-performing loans and leases $ 387 $ 571
Other real estate owned ("OREO") $ 873 $ 873
Total non-performing assets $ 1,260 $ 1,444
Selected ratios:
Non-performing loans to total loans and leases 0.01 % 0.02 %
Non-performing assets to total assets 0.02 % 0.03 %
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Non-Accrual Loans and Leases - Accrual of interest on loans and leases is generally discontinued when a loan or lease becomes contractually past due by 90 days or more with respect to interest or principal. When loans and leases are 90 days past due, but in management's judgment are well secured and in the process of collection, they may not be classified as non-accrual. When a loan or lease is placed on non-accrual status, all interest previously accrued but not collected is reversed. Income on such loans and leases is then recognized only to the extent that cash is received and where the future collection of principal is probable. Non-accrual loans and leases totaled$387,000 and$571,000 atMarch 31, 2023 andDecember 31, 2022 , respectively. Other Real Estate Owned -OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. The Company records all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The Company reported$873,000 of foreclosed OREO atMarch 31, 2023 , and atDecember 31, 2022 . Although management believes that non-performing loans and leases are generally well-secured and that potential losses are provided for in the Company's allowance for credit losses, there can be no assurance that future deterioration in economic conditions and/or collateral values will not result in future credit losses. See Note 3. "Loans and Leases", located in "Item 1. Financial Statements" in this Quarterly Report on Form 10-Q for an allocation of the allowance classified to collateral dependent loans and leases. Except for non-performing loans and leases discussed above, the Company's management is not aware of any loans and leases as ofMarch 31, 2023 , for which known financial problems of the borrower would cause serious doubts as to the ability of these borrowers to materially comply with their present loan or lease repayment terms, or any known events that would result in the loan or lease being designated as non-performing at some future date. However, theState of California has routinely experienced drought conditions such as from 2013 through 2016 and 2020-2022. Although the availability of water in our primary service area was not an issue for the 2022 growing season, the weather patterns over the past nine years further reinforce the fact that the long-term risks associated with the availability of water are significant. Loan Modifications/Restructurings - A modification/restructuring of a loan or lease happens when the Company makes certain concessions to a borrower experiencing financial difficulty. These concessions either stem from an agreement between the Company and the borrower or is imposed by law or a court; some of these concessions include: term extension, principle forgiveness, rate reduction, or a combination of any of those. The Company has granted a concession when, as a result of the modification/restructuring, it does not expect to collect all amounts due, including interest accrued at the original contract rate. ASU 2022-02 requires certain disclosure of loans and leases that have been modified or restructured within the past 12 months and the effects that had on the loans or leases modified. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
The Company did not enter into any loan modifications with borrowers
experiencing financial difficulty during the three months ended
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Allowance for Credit Losses-Loans and Leases
The Company maintains an allowance for credit losses ("ACL") under the guidance
of Financial Accounting Standards Board Accounting Standards Update 2016-13,
Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments ("CECL"). The allowance is established through a
provision for credit losses, which is charged to expense. Additions to the
allowance are expected to maintain the adequacy of the total allowance after
credit losses and loan and lease growth. Credit exposures determined to be
uncollectible are charged against the allowance. Cash received on previously
charged off amounts is recorded as a recovery to the allowance. The overall
allowance consists of three primary components: specific reserves related to
collateral dependent loans and leases; general reserves for current expected
credit losses related to loans and leases that are not collateral dependent; and
an unallocated component that takes into account the imprecision in estimating
and allocating allowance balances associated with macro factors. See "Summary of
Critical Accounting Policies and Estimates - Allowance for Credit Losses - Loans
and Leases."
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The following table sets forth the activity in our ACL for the periods
indicated:
Three Months Ended
March 31,
(Dollars in thousands) 2023 2022
Allowance for credit losses:
Balance at beginning of year $ 66,885 $ 61,007
Provision for credit losses 1,500 -
Charge-offs:
Real estate:
Commercial - -
Agricultural - -
Residential and home equity (14 ) -
Construction - -
Total real estate (14 ) -
Commercial & industrial - -
Agricultural - -
Commercial leases - -
Consumer and other (10 ) (9 )
Total charge-offs (24 ) (9 )
Recoveries:
Real estate:
Commercial 170 -
Agricultural - -
Residential and home equity 10 14
Construction - -
Total real estate 180 14
Commercial & industrial 19 16
Agricultural 1 2
Commercial leases - -
Consumer and other 12 2
Total recoveries 212 34
Net recoveries / (charge-offs) 188 25
Balance at end of year $ 68,573 $ 61,032
Selected financial information:
Net loans and leases held for investment $ 3,427,133 $ 3,237,619
Average loans and leases 3,422,375 3,196,841
Non-performing loans and leases 387 437
Allowance for credit losses to non-performing loans and leases 17719.12 % 13966.13 %
Net (recoveries)/charge-offs to average loans and leases (0.01 %) 0.00 %
Provision for credit losses to average loans and leases 0.04 % 0.00 %
Allowance for credit losses to gross loans and leases held-for-investment
1.99 % 1.88 %
The increase in ACL during the first quarter of 2023 was primarily related to
higher expected probable losses inherent in the loan and lease portfolio that
was directly related to quantitative and qualitative factors associated with the
current economic environment.
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The following table indicates management's allocation of the ACL by loan type as of each of the following dates:
March 31, December 31,
2023 2022
Percent of Percent of
Each Loan Each Loan
Type to Type to
(Dollars in thousands) Dollars Total Loans Dollars Total Loans
Allowance for credit losses:
Real estate:
Commercial $ 24,253 38.19 % $ 18,055 37.73 %
Agricultural 8,441 20.58 % 14,496 20.64 %
Residential and home equity 7,334 11.27 % 7,508 11.01 %
Construction 2,785 4.46 % 3,026 4.73 %
Total real estate 42,813 74.50 % 43,085 74.11 %
Commercial & industrial 11,346 13.74 % 11,503 13.59 %
Agricultural 12,542 8.02 % 10,202 8.93 %
Commercial leases 1,720 3.59 % 1,924 3.20 %
Consumer and other 152 0.15 % 171 0.17 %
Total allowance for credit losses $ 68,573 100.00 % $ 66,885 100.00 %
Deposits
Total deposits were $4.5 billion and $4.8 billion as of March 31, 2023 and
December 31, 2022 , respectively a decrease of 4.62% due in part to traditional
seasonality related to the cyclical nature of our agricultural customers.
Despite the slight decrease in deposits during the first quarter, the Company is
highly focused on business development activities for deposits, and the
following factors contributed positively to our deposit gathering abilities: (1)
the Company's strong financial results and position and F&M Bank's reputation as
one of the most safe and sound banks in its market area; and (2) the Company's
expansion of its service area into Walnut Creek , Oakland , Concord and Napa .
Non-interest bearing demand deposits were $1.55 billion as of March 31, 2023 and
$1.76 billion at December 31, 2022 . Non-interest bearing deposits were 34.19% of
total deposits, as of March 31, 2023 and 36.96% as of December 31, 2022 .
Interest bearing deposits are comprised of interest-bearing transaction
accounts, money market accounts, regular savings accounts, and certificates of
deposit.
The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:
Three Months Ended March 31,
2023 2022
Average Average
(Dollars in thousands) Average Balance Interest Expense Rate Average Balance Interest Expense Rate
Total deposits:
Interest bearing deposits:
Demand $ 1,068,504 $ 444 0.17 % $ 1,115,578 $ 259 0.09 %
Savings and money market 1,561,684 2,503 0.65 % 1,517,234 342 0.09 %
Certificates of deposit greater than $250,000 147,704 487 1.34 % 167,515 97 0.23 %
Certificates of deposit less than $250,000 206,214 280 0.55 % 223,842 105 0.19 %
Total interest bearing deposits 2,984,106 3,714 0.50 % 3,024,169 803 0.11 %
Non-interest bearing deposits 1,663,152 1,722,597
Total deposits $ 4,647,258 $ 3,714 0.32 % $ 4,746,766 $ 803 0.07 %
Deposits are gathered from individuals and businesses in our market areas. The
interest rates paid are competitively priced for each particular deposit product
and structured to meet our funding requirements. The significant increase in
short-term interest rates during 2022 and into 2023 has placed pressure on
deposit pricing, and we will continue to manage this ongoing impact through
careful deposit pricing. The average cost of deposits, including non-interest
bearing deposits, increased to 0.32% for the three months ended March 31, 2023
compared with 0.07% for the same period a year ago.
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The following table shows deposits with a balance greater than
March 31 ,December 31 , (Dollars in thousands) 2023
2022
Non-Maturity Deposits greater than$250,000 $ 2,549,674 $ 2,872,754 Certificates of deposit greater than$250,000 , by maturity: Less than 3 months 38,866 45,078 3 months to 6 months 30,924 30,426 6 months to 12 months 81,347 44,189 More than 12 months 16,618 9,153 Total certificates of deposit greater than$250,000 $ 167,755 $ 128,846 Total deposits greater than$250,000 $ 2,717,429
Refer to the Year-To-Date Average Balances and Rate Schedules located in this "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information on separate deposit categories. The Bank participates in a program wherein theState of California places time deposits with the Bank at the Bank's option. AtMarch 31, 2023 andDecember 31, 2022 , the Bank had$3.0 million , of these deposits.
Lines of Credit with theFederal Reserve Bank andFederal Home Loan Bank are other key sources of funds to support earning assets and liquidity. These sources of funds are also used to manage the Company's interest rate risk exposure; and, as opportunities arise, to borrow and invest the proceeds at a positive spread through the investment portfolio. There were no FHLB advances atMarch 31, 2023 orDecember 31, 2022 . There were no Federal Funds purchased or advances from the FRB atMarch 31, 2023 orDecember 31, 2022 .
Long-Term Subordinated Debentures
OnDecember 17, 2003 , the Company raised$10.0 million through the sale of subordinated debentures to an off-balance-sheet trust and its sale of trust-preferred securities. See Note 9. "Long-Term Subordinated Debentures" located in "Item 8. Financial Statements and Supplementary Data" in our Annual Report on Form 10-K filed with theSEC onMarch 15, 2023 . Although this amount is reflected as subordinated debt on the Company's balance sheet, under current regulatory guidelines, our Trust Preferred Securities will continue to qualify as regulatory capital. These securities accrue interest at a variable rate based upon 3-month LIBOR plus 2.85%. Interest rates reset quarterly (the next reset isJune 18, 2023 ) and the rate was 7.76% as ofMarch 31, 2023 and 7.59% atDecember 31, 2022 . The average rate paid for these securities was 7.71% for the first three months of 2023 and 3.23% for the first three months of 2022. Additionally, if the Company decided to defer interest on the subordinated debentures, the Company would be prohibited from paying cash dividends on the Company's common stock.
Capital Resources
The Company relies primarily on capital generated through the retention of
earnings to satisfy its capital requirements. The Company engages in an ongoing
assessment of its capital needs in order to support business growth and to
insure depositor protection. Shareholders' Equity totaled
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The Company and the Bank are subject to various regulatory capital adequacy guidelines as outlined under Part 324 of the FDIC Rules and Regulations. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Company believes that it is currently in compliance with all of these capital requirements and that they will not result in any restrictions on the Company's business activity.
Management believes that the Bank meets the requirements to be categorized as "well capitalized" under theFDIC regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. The Company's and Bank's actual and required capital amounts and ratios are as follows: March 31, 2023 Required for Capital Minimum to be Categorized Adequacy Purposes as "Well Capitalized" Under Prompt Actual Corrective Action Regulation (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
4.50 % N/A N/A
Tier 1 capital to risk-weighted assets 520,441 12.43 %
251,247 6.00 % N/A N/A
Risk-based capital to risk-weighted assets 573,015 13.68 %
334,996 8.00 % N/A N/A
Tier 1 leverage capital ratio 520,441 9.94 % 209,497 4.00 % N/A N/A
4.50 % $ 272,179 6.50 %
Tier 1 capital to risk-weighted assets 521,449 12.45 %
251,242 6.00 % 334,990 8.00 %
Risk-based capital to risk-weighted assets 574,022 13.71 %
334,990 8.00 % 418,737 10.00 %
Tier 1 leverage capital ratio 521,449 9.96 % 209,405 4.00 % 261,756 5.00 %
December 31, 2022
Required for Capital Minimum to be Categorized
Adequacy Purposes as "Well Capitalized" Under Prompt
Actual Corrective Action Regulation
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
4.50 % N/A N/A
Tier 1 capital to risk-weighted assets 503,438 11.80 %
255,978 6.00 % N/A N/A
Risk-based capital to risk-weighted assets 556,964 13.06 %
341,305 8.00 % N/A N/A
Tier 1 leverage capital ratio 503,438 9.36 % 215,201 4.00 % N/A N/A
4.50 % $ 277,290 6.50 %
Tier 1 capital to risk-weighted assets 502,838 11.79 %
255,960 6.00 % 341,280 8.00 %
Risk-based capital to risk-weighted assets 556,361 13.04 %
341,280 8.00 % 426,600 10.00 %
Tier 1 leverage capital ratio 502,838 9.35 % 215,018 4.00 % 268,772 5.00 %
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OnNovember 8, 2022 , the Board of Directors authorized an extension to its share repurchase program throughDecember 31, 2024 for an additional$20.0 million of the Company's common stock ("Repurchase Plan"), which represents approximately 4% of outstanding shareholders' equity. Repurchases by the Company under the Repurchase Plan may be made from time to time through open market purchases, trading plans established in accordance withSEC rules, privately negotiated transactions, or by other means.
During the first three months of 2023 the Company repurchased 5,406 shares under
the Repurchase Plan, for a total of
Off-Balance-Sheet Arrangements
Off-balance-sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which the Company has: (1) any obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company, or engages in leasing, hedging, or research and development services with the Company. The Company had the following off balance sheet commitments as of the dates indicated.
The following table sets forth our off-balance-sheet lending commitments as of
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