Pacific Financial Corporation (PFLC) 2016年年度報告「OTC」.pdf

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1、CMYCMMYCYCMYK2016 Annual Report Cover-Proof1.ai 1 3/20/2017 2:32:11 PM2016 SH Dear FellIn 2016,wthe history18%fromcapital anAs we stremarket popresence iconsecutivThe dividan annualOur total state of Wdeposits r2016.Weour mortgthey buy oRegardingperforman W O Om Acl2 Wlo InreHAREHOLDElow Shareholwe

2、achieved oy of our bankm 2015.Drivid excellent creamlined our osition in Norin Vancouverve year by 5%dend was paid yield of 2.4%deposit growtWashington at remained highe expect loan gage lending tor build in theg the effectivence,highlightWe delivered rOur net interesOur credit quamillion,or 0.20Alt

3、hough our classification o.65%at year-We remained woans.n 2016,we streinvesting in pERS LETTElders:our seventh cok.We generating our solid rredit quality.operations durthwestern War,Portland an%to$0.23 perd on January 9%,at recent mth rate was 9.5.6%*and thh at 84%of toand deposit gteam is expece co

4、ming yeareness of our bts from 2016 record earningst margin(NIMlity continued0%of total asclassified asseof one comme-end comparewell reserved reamlined ourpeople and teER onsecutive yeted earnings oresults were s uring the yearashington andd Salem.In ar share,demo9,2017,to shamarket levels.1%for th

5、e yehe national motal deposits.growth to concted to be veryrs.business strateare detailed ags of$6.6 miM)improvedd to improve,ssets-the lowets increased ercial propertyd to 3.62%laat year end,wr operating foechnology throear of profitabof$6.6 milliostrong loan grr,we expanded Coastal Waaddition,we r

6、onstrating ourareholders of ear,outpacingedian growthIn addition,wntinue to be roy active in heegy and contias follows:llion for 2016d to 4.11%.with nonperfwest level sincslightly to$1y,the ratio ofast year.with our allowootprint by clooughout the fbility and poson for the full rowth,accelered our c

7、lient rshington and raised our annr commitmentf record as of g the median h rate at 4.6%we increased obust in the nlping homeowinuing the mo6.forming assetce 2007.17.5 million,df classified aswance for loaosing two undfranchise.ted the most pyear,or$0.6rated deposit relationships,Oregon,whinual cash

8、 divit to building sDecember 31deposit grow*.Our core tour loan portnext few yearswners financeomentum of ots declining 6due primarilyssets to gross an losses at 1.derperformingprofitable yea63 per share,ugrowth,stron,deepening oile expanding idend for the shareholder v1,2016,proviwth rate for thetr

9、ansaction tfolio by 5.1%s.In particulae the next homour strong fina5%to$1.8 y to the adversloans was 39%of total g branches anar in up ng our our third value.iding e%for ar,me ancial se nd Denise Portmann President&CEO 2016 SHAREHOLDERS LETTER All capital levels exceeded regulatory requirements for

10、a“well-capitalized”financial institution,ending the year with a total risk-based capital ratio of 12.56%,a Tier 1 risk-based ratio of 11.31%and a leverage ratio of 9.25%.Our objectives for 2017 include expansion of treasury management services in growth markets,enhancing the digital banking experien

11、ce and increasing branch productivity,resulting in impressive and memorable customer service.We believe these initiatives will result in commercial deposit and fee income growth,broaden access to digital application processing,and increase digital transactions with greater customer adoption of mobil

12、e banking and person-to-person payments.We also expect our business banking team to grow as they gain momentum from an integrated calling effort with commercial and branch relationship managers.We continue to build an outstanding franchise.We have a strong team of highly-experienced bankers,and ever

13、y day they deliver the distinct level of service our customers deserve.We are ideally positioned to serve our communities in 2017 and beyond.We are also proud of the strong financial and service commitment we have to our local community organizations.Its a commitment that goes beyond offering financ

14、ial products,services and expertise.In 2016,we invested over$100,000 back into our communities,and our loyal employees volunteered over 800 hours to local non-profit groups,like local food banks and student food programs,financial literacy programs,medical services and community foundations.As a com

15、munity bank,we are keenly aware that reinvesting in our communities empowers our neighborhoods,stimulates economic development,helps our small businesses grow,and generates long-lasting customer loyalty.As we look forward to 2017,we are striving to deliver another strong performance to benefit our s

16、hareholders,customers,communities and employees.Please join us for our annual Shareholders meeting on Wednesday,April 26,2017,at 4:00 pm at 1216 Skyview Drive,Aberdeen,WA 98520.Sincerely,Randy Rognlin Denise Portmann Chairman of the Board President and Chief Executive Officer Pacific Financial Corpo

17、ration Pacific Financial Corporation *Source:SNL Financial.Pacific Financial Corporation Selected Financial Data The following selected consolidated five year financial data should be read in conjunction with the Companys audited consolidated financial statements and the accompanying notes presented

18、 in this report.20162015201420132012Operations DataNet interest income$31,663$29,139$27,033$23,800$24,011Loan loss provision(recapture)998582300(450)(1,100)Noninterest income11,2259,7998,0799,9559,391Noninterest expense32,84030,85928,15529,50228,417Provision for income taxes2,4601,9211,7309721,300Ne

19、t income$6,590$5,576$4,927$3,731$4,78520162015201420132012Net income per share:Basic$0.63$0.54$0.48$0.37$0.47 Diluted0.62 0.53 0.48 0.37 0.47 Dividends declared$2,398$2,287$2,178$2,036$2,024Dividends declared per share$0.23$0.22$0.21$0.20$0.20 Dividends payout ratio36%41%44%55%0.42 Performance Ratio

20、sInterest rate spread3.99%3.99%4.06%3.87%4.20%Net interest margin4.11%4.10%4.17%4.00%4.34%Efficiency ratio76.62%79.25%80.19%87.40%85.08%Return on average assets0.77%0.71%0.68%0.55%0.75%Return on average equity8.16%7.35%6.92%5.48%7.28%Balance Sheet DataTotal assets$891,383$824,613$744,807$705,039$643

21、,594Loans,net648,611617,019554,746496,307438,838Total deposits779,731714,499639,054607,347548,243Total borrowings22,05624,70624,85623,40323,903Shareholders equity80,00576,28572,48367,13766,721Book value per share$7.67$7.34$6.99$6.59$6.59 Tangible book value per share$6.38$6.03$5.68$5.25$5.35 Equity

22、to assets ratio8.98%9.25%9.73%9.52%10.37%Asset Quality RatiosNonperforming loans to total loans0.19%0.24%1.62%1.98%3.37%Allowance for loan losses to total loans1.39%1.33%1.48%1.66%2.09%Allowance for loan losses tononperforming loans747.93%547.89%91.54%115.41%61.92%Nonperforming assets to total asset

23、s0.20%0.62%1.36%1.42%3.08%Net interest income divided by average earning assets Noninterest expense divided by the sum of net interest income and noninterest income Shareholder equity divided by shares outstanding Shareholder equity less intangibles divided by shares outstandingFor the Year Ended De

24、cember 31,(in thousands)For the Year Ended December 31,(dollars in thousands,except per share data)Tel:509-747-8095Fax:509-747-8415 601 West Riverside AvenueSuite 900 Spokane,WA 99201 BDO USA,LLP,a Delaware limited liability partnership,is the U.S.member of BDO International Limited,a UK company lim

25、ited by guarantee,and forms part of the international BDO network of independent member firms.BDO is the brand name for the BDO network and for each of the BDO Member Firms.Independent Auditors Report Board of Directors Pacific Financial Corporation Aberdeen,Washington Report on the Financial Statem

26、ents We have audited the accompanying consolidated financial statements of Pacific Financial Corporation(which includes its wholly owned subsidiary,Bank of the Pacific)(the“Company”),which comprise the consolidated balance sheets as of December 31,2016 and 2015,and the related consolidated statement

27、s of income,comprehensive income,changes in stockholders equity,and cash flows for the years then ended,and the related notes to the consolidated financial statements.Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these

28、consolidated financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are fr

29、ee from material misstatement,whether due to fraud or error.Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of Amer

30、ica and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are fre

31、e from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.The procedures selected depend on the auditors judgment,including the assessment of the risks of material misstatement of the conso

32、lidated financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circu

33、mstances,but not for the purpose of expressing an opinion on the effectiveness of the companys internal control.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by

34、management,as well as evaluating the overall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.Opinion In our opinion,the consolidated financial statements referred to above

35、 present fairly,in all material respects,the consolidated financial position of Pacific Financial Corporation as of December 31,2016 and 2015,and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States

36、of America.Spokane,Washington March 24,2017 Pacific Financial Corporation Consolidated Statements of Financial Condition(Dollars in thousands,except per share data)December 31,December 31,ASSETS20162015Cash on hand and in banks$15,707$17,680Interest bearing deposits43,5919,846Cash and cash equivalen

37、ts59,29827,526Other interest earning deposits2,2312,727Investment securities available for sale,at fair value111,296100,024Investment securities held to maturity(fair value of$863 and$1,713,respectively)8591,697Loans held for sale6,57312,333Loans,net657,803625,336Allowance for loan losses(9,192)(8,3

38、17)Total Loans,net648,611617,019Federal Home Loan Bank stock,at cost1,3351,346Pacific Coast Bankers Bank stock,at cost1,0001,000Premises and equipment,net16,32615,749Other real estate owned and foreclosed assets4053,610Accrued interest receivable 2,8852,674Cash surrender value of life insurance19,34

39、619,231Goodwill12,16812,168Other intangible assets1,3771,404Other assets7,6736,105Total assets$891,383$824,613LIABILITIES AND SHAREHOLDERS EQUITYDepositsDemand$233,631$185,001Interest bearing demand and savings416,925389,723Time deposits129,175139,775Total deposits779,731714,499Federal Home Loan Ban

40、k advances8,65311,303Junior subordinated debentures13,40313,403Accrued interest payable and other liabilities9,5919,123Total liabilities811,378748,328Shareholders Equity:Preferred Stock,no par value;5,000,000 shares authorized;no shares issuedor outstanding at December 31,2016 and December 31,2015-C

41、ommon Stock,$1 par value;25,000,000 shares authorized,10,424,541 and 10,394,828 shares issued and outstanding at December 31,2016 and 2015,respectively10,42510,395Additional paid-in-capital43,53443,245Retained earnings26,73722,545Accumulated other comprehensive(loss)income,net(691)100Total sharehold

42、ers equity80,00576,285Total liabilities and shareholders equity$891,383$824,613 See accompanying Notes to Consolidated Financial Statements.2 Pacific Financial Corporation Consolidated Statements of Income(Dollars in thousands,except per share data)20162015INTEREST AND DIVIDEND INCOMELoans,including

43、 fees$31,828$29,294Deposits in banks and Federal Funds sold16392Taxable interest on investment securities1,1221,094Tax-exempt interest on investment securities922792FHLB&PCBB dividends10068Total interest and dividend income34,13531,340INTEREST EXPENSEDeposits1,9281,715Federal Funds purchased102Feder

44、al Home Loan Bank advances230236Junior subordinated debentures304248Total interest expense2,4722,201Net interest income31,66329,139Loan loss provision998582Net interest income after loan loss provision30,66528,557NONINTEREST INCOMEService charges on deposits1,8761,764Gain on sale of loans,net6,3034,

45、961Gain on sales of securities available for sale,net653Earnings on bank owned life insurance467490Other noninterest income2,5732,403Total noninterest income11,2259,671NONINTEREST EXPENSECompensation and employee benefits20,88419,070Occupancy2,0641,965Equipment1,0521,061Data processing2,0471,872Prof

46、essional services516599Marketing585638Other real estate owned,net438160State and local taxes459815Federal deposit insurance premium456512Other noninterest expense4,3394,039Total noninterest expense32,84030,731Income before income taxes9,0507,497Income tax expense2,4601,921Net income$6,590$5,576Basic

47、 earnings per common share$0.63$0.54 Diluted earnings per common share$0.62$0.53 Twelve Months Ended December 31,See accompanying Notes to Consolidated Financial Statements.3 Pacific Financial Corporation Consolidated Statements of Comprehensive Income(Dollars in thousands)20162015Net Income$6,590$5

48、,576Change in fair value of securities available for sale(856)4Defined benefit pension plan65231Other comprehensive(loss)income,net of tax(791)235Comprehensive income$5,799$5,811Twelve Months Ended December 31,See accompanying Notes to Consolidated Financial Statements.4 Pacific Financial Corporatio

49、n Consolidated Statements of Shareholders Equity(Dollars in thousands,except share amounts)Number of Common Shares Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income(Loss)Total Shareholders Equity Balance at December 31,201410,371,460$10,371$42,991$19,25

50、6$(135)$72,483Net income-5,576-5,576Other comprehensive income,net of taxUnrealized holding gain on securities less reclassification-adjustments for net gains included in net income-44Amortization of unrecognized prior service costs andnet gains-231231Issuance of common stock23,368 2441-65Cash divid

51、ends declared($0.22 per share)-(2,287)-(2,287)Stock-based compensation expense-213-213Balance at December 31,201510,394,828$10,395$43,245$22,545$100$76,285Net income-6,590-6,590Other comprehensive(loss)income,net of taxUnrealized loss on securities less reclassification-adjustments for net losses in

52、cluded in net income-(856)(856)Amortization of unrecognized prior service costs andnet gains-6565Issuance of common stock29,713 30(36)-(6)Cash dividends declared($0.23 per share)-(2,398)-(2,398)Stock-based compensation expense-325-325Balance at December 31,201610,424,541$10,425$43,534$26,737$(691)$8

53、0,005 See accompanying Notes to Consolidated Financial Statements.Pacific Financial Corporation 5 Consolidated Statements of Cash Flow(Dollars in thousands)20162015Cash flows from operating activities:Net Income$6,590$5,576Adjustments to reconcile net income to net cash from operating activitiesProv

54、ision for loan losses998582Depreciation and amortization2,7222,861Deferred income taxes(101)29Originations of loans held for sale(233,610)(206,986)Proceeds from sales of loans held for sale245,496205,400Gain on sale of loans,net(6,126)(4,961)Gain on sale of securities available for sale,net(6)(53)Ga

55、in on sale of other real estate owned,net(97)(128)Gain on sale of premises and equipment(4)(30)Earnings on bank owned life insurance(467)(490)Increase in accrued interest receivable(211)(326)(Decrease)increase in accrued interest payable(3)7Other real estate owned write-downs71104Decrease(increase)i

56、n prepaid expenses78(376)Other operating activities1,043644Net cash provided by operating activities16,3731,853Cash flows from investing activitiesLoans originated,net of principal payments(31,344)(66,952)Net(decrease)increase in interest bearing balances with banks(33,249)6,409Maturities of investm

57、ent securities held to maturity838131Maturities of investment securities available for sale12,78210,262Purchase of investment securities available for sale(29,156)(28,268)Purchases of FHLB Stock(3,215)(972)Purchases of premises and equipment(3,013)(844)Proceeds from sales of investment securities av

58、ailable for sale2,5644,287Proceeds from redemption of FHLB Stock3,2262,521Proceeds from sales of other real estate owned1,9321,289Net cash used in investing activities(78,635)(72,137)Cash flows from financing activitiesNet increase in deposits65,23275,445Repayments of FHLB Advances(2,650)(150)Issuan

59、ce of common stock(6)65Cash dividends paid(2,287)(2,178)Net cash provided by financing activities60,28973,182Net(decrease)increase in cash and cash equivalents(1,973)2,898Cash and cash equivalents at beginning of year17,68014,782Cash and cash equivalents at end of year$15,707$17,680Supplemental disc

60、losures of cash flow information:Cash paid for interest$2,475$2,194Cash paid for taxes$2,199$2,306Supplemental non-cash disclosures of cash flow information:Other real estate owned acquired in settlement of loans$(219)$(3,876)Financed sale of other real estate owned$1,518$448Assets transferred to as

61、sets held for sale$838$-Twelve Months Ended December 31,See accompanying Notes to Consolidated Financial Statements.6 Pacific Financial Corporation and Subsidiary Notes to Consolidated Financial Statements For the Years Ended December 31,2016 and December 31,2015 NOTE 1 ORGANIZATION AND SUMMARY OF S

62、IGNIFICANT ACCOUNTING POLICIES Organization Pacific Financial Corporation(the“Company”)is a bank holding company headquartered in Aberdeen,Washington.The Company owns one banking subsidiary,Bank of the Pacific(the“Bank”),which is also headquartered in Aberdeen,Washington.The Company was incorporated

63、 in the State of Washington in February,1997,pursuant to a holding company reorganization of the Bank.The Company has two wholly owned subsidiaries,PFC Statutory Trust I and II(the“Trusts”),which do not meet the criteria for consolidation,and therefore,are not consolidated in the Companys financial

64、statements.The Company conducts its banking business through the Bank,which operates fifteen branches located in communities in Grays Harbor,Pacific,Whatcom,Clark,Skagit and Wahkiakum counties in the state of Washington and three branches in Clatsop County,Oregon.In addition,the Bank operates three

65、loan production offices in Burlington and DuPont,Washington and Salem Oregon and has a residential real estate mortgage department.Basis of presentation The consolidated financial statements include the accounts of Pacific Financial Corporation and its wholly-owned subsidiary.All intercompany accoun

66、ts and transactions have been eliminated in consolidation.The interim consolidated financial statements are not audited,but include all adjustments that Management considers necessary for a fair presentation of consolidated financial condition and results of operations for the interim periods presen

67、ted.Certain prior year amounts have been reclassified to conform with the 2016 presentation.None of these reclassifications have an effect on net income or net cash flows.Method of accounting and use of estimates The Company prepares its consolidated financial statements in conformity with accountin

68、g principles generally accepted in the United States of America and prevailing practices within the banking industry.This requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities,the disclosure of contingent assets and liabilities at the date o

69、f the consolidated financial statements and the reported amounts of income and expenses during the reporting periods.Actual results could differ from those estimates.Significant estimates made by Management involve the calculation of the allowance for loan losses,impaired loans,the fair value of ava

70、ilable for sale investment securities,deferred tax assets,and the value of other real estate owned and foreclosed assets.The Company utilizes the accrual method of accounting,which recognizes income when earned and expenses when incurred.Subsequent events The Company performed an evaluation of subse

71、quent events through March 24,2017,the date these financial statements were available to be issued.There were no significant subsequent events identified.Securities available for sale Securities available for sale consist of debt securities that the Company intends to hold for an indefinite period,b

72、ut not necessarily to maturity.Securities available for sale are reported at fair value.Unrealized gains and losses,net of the related deferred tax effect,are reported net as a separate component of shareholders equity entitled“accumulated other comprehensive income(loss).”Realized gains and losses

73、on securities available for sale,determined using the specific identification method,are included in earnings.Amortization of premiums and accretion of discounts are recognized in interest income over the period to maturity.For mortgage backed securities,actual maturity may differ from contractual m

74、aturity due to principal payments and amortization of premiums and accretion of discounts may vary due to prepayment speed assumptions.Securities held to maturity Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at cost,adjusted for amortizat

75、ion of premiums and accretion of discounts,which are recognized in interest income over the period to maturity.Declines in the fair value of individual securities held to maturity and available for sale that are deemed to be other than temporary are reflected in earnings when identified.Management e

76、valuates individual securities for other than temporary impairment(“OTTI”)on a quarterly basis.OTTI is separated into a credit and noncredit component.Noncredit component losses are recorded in other comprehensive income(loss)when the fair value of the debt security is below the carrying value prima

77、rily due to changes in interest rates,there has not been significant deterioration in the financial condition of the issuer,and it is not more likely than not that the Company will be required to,nor does it have the intent to sell the security before the anticipated recovery of its remaining carryi

78、ng value.Credit component losses are reported in noninterest income.Federal Home Loan Bank stock The Companys investment in Federal Home Loan Bank(“FHLB”)stock is carried at cost.The Company is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outs

79、tanding 7 mortgages,total assets,or FHLB advances.At December 31,2016 and December 31,2015 the stock was that of FHLB of Des Moines.Pacific Coast Bankers Bank stock The Companys investment in Pacific Coast Bankers Bank(“PCBB”)stock is carried at cost.Loans held for sale Mortgage loans originated for

80、 sale in the foreseeable future in the secondary market are carried at the lower of aggregate cost or estimated fair value.Gains and losses on sales of loans are recognized at settlement date and are determined by the difference between the sales proceeds and the carrying value of the loans.Net unre

81、alized losses are recognized through a valuation allowance established by charges to income.Loans held for sale that are unable to be sold in the secondary market are transferred to loans receivable when identified.Loans receivable Loans receivable that management has the intent and ability to hold

82、for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for any charge-offs,the allowance for loan losses,any deferred fees or costs on originated loans,and unamortized premiums or discounts on purchased loans.Loan fees and certain direct

83、loan origination costs are deferred,and the net fee or cost is recognized as an adjustment of yield over the contractual life of the related loans using the effective interest method.Interest income on loans is accrued over the term of the loans based upon the principal outstanding.The accrual of in

84、terest on loans is discontinued when,in managements opinion,the borrower may be unable to meet payments as they come due.When interest accrual is discontinued,all unpaid accrued interest is reversed against interest income.Interest income is subsequently recognized only to the extent that cash payme

85、nts are received until,in managements judgment,the borrower has the ability to make contractual interest and principal payments,in which case the loan is returned to accrual status.Allowance for loan losses The allowance for loan losses is established through a provision that is charged to earnings

86、as probable losses are incurred.Losses are charged against the allowance when management believes the collectability of a loan balance is unlikely.Subsequent recoveries,if any,are credited to the allowance.The allowance for loan losses is evaluated on a regular basis by management and is based upon

87、managements periodic review of the collectability of the loans in light of historical experience,the nature and volume of the loan portfolio,adverse situations that may affect the borrowers ability to repay,estimated value of underlying collateral and prevailing economic conditions.The evaluation is

88、 inherently subjective,as it requires estimates that are susceptible to significant revision as more information becomes available.The Companys methodology for assessing the appropriateness of the allowance consists of several key elements,which includes a general formulaic allowance and a specific

89、allowance on impaired loans.The formulaic portion of the general credit loss allowance is established by applying a loss percentage factor to the different loan types based on historical loss experience adjusted for qualitative factors.A loan is considered impaired when,based on current information

90、and events,it is probable the Company will be unable to collect principal and interest when due according to the contractual terms of the original loan agreement.Factors considered by management in determining impairment include payment status,collateral value,and the probability of collecting sched

91、uled principal and interest payments when due.Loans that experience insignificant payment delays and payment shortfalls are generally 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 th

92、e circumstances surrounding the loan and the borrowers,including the length of the delay,the reasons for the delay,the borrowers 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,construct

93、ion and real estate loans by either the present value of the expected future cash flows discounted at the loans effective interest rate,or the fair value of the collateral less estimated selling costs if the loan is collateral dependent.When the net realizable value of an impaired loan is less than

94、the book value of the loan,impairment is recognized by adjusting the allowance for loan losses.Uncollected accrued interest is reversed against interest income.If ultimate collection of principal is in doubt,all subsequent cash receipts including interest payments on impaired loans are applied to re

95、duce the principal balance.For all portfolio segments,a restructuring of a debt constitutes a troubled debt restructuring(“TDR”)if the Company grants a concession to the borrower for economic or legal reasons related to the borrowers financial difficulties that it would not otherwise consider.TDRs t

96、ypically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms.Loans or leases that are reported as TDRs are considered impaired and measured for impairment as described above.Premises and equipment Premises and equipment are st

97、ated at cost less accumulated depreciation,which is computed on the straight-line method over the estimated useful lives of the assets.Asset lives range from 3 to 39 years.Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements,w

98、hichever is less.Gains or losses on dispositions are reflected in earnings.8 Other real estate owned Real estate properties acquired through,or in lieu of,foreclosure are to be sold and are initially recorded at the fair value of the properties less estimated costs of disposal.Any write-down to fair

99、 value at the time of transfer to other real estate owned(“OREO”)is charged to the allowance for loan losses.Properties are evaluated regularly to ensure that the recorded amounts are supported by their current fair values,and that write-downs to reduce the carrying amounts to fair value less estima

100、ted costs to dispose are recorded as necessary.Any subsequent reductions in carrying values,and revenue and expense from the operations of properties,are charged to operations.Goodwill and other intangible assets At December 31,2016 the Company had$13.5 million in goodwill and other intangible asset

101、s.Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.Goodwill is reviewed for potential impairment during the second quarter on an annual basis or more frequently if events or c

102、ircumstances indicate a potential impairment,at the reporting unit level.The Company has one reporting unit,the Bank,for purposes of computing goodwill.The analysis of potential impairment of goodwill requires a two-step process.The first step is a comparison of the reporting units fair value to its

103、 carrying value.If the reporting units fair value is less than its carrying value,the Company would be required to progress to the second step.In the second step the Company calculates the implied fair value of its reporting unit.The Company compares the implied fair value of goodwill to the carryin

104、g amount of goodwill on the Companys balance sheet.If the carrying amount of the goodwill is greater than the implied fair value of that goodwill,an impairment loss must be recognized in an amount equal to that excess.The implied fair value of goodwill is determined in the same manner as goodwill re

105、cognized in a business combination.The estimated fair value of the Company is allocated to all of the Companys individual assets and liabilities,including any unrecognized identifiable intangible assets,as if the Company had been acquired in a business combination and the estimated fair value of the

106、 Company is the price paid to acquire it.The allocation process is performed only for purposes of determining the amount of goodwill impairment,as no assets or liabilities are written up or down,nor are any additional unrecognized identifiable intangible assets recorded as a part of this process.The

107、 results of the Companys annual impairment test determined the reporting units fair value exceeded its carrying value and no goodwill impairment existed.As of December 31,2016 management determined there were no events or circumstances which would more likely than not reduce the fair value of its re

108、porting unit below its carrying value.No assurance can be given that the Company will not record an impairment loss on goodwill in the future.Core deposit intangibles are amortized to noninterest expenses using an accelerated method over ten years.Net unamortized core deposit intangible totaled$110,

109、000 and$137,000 at December 31,2016 and 2015,respectively.Amortization expense related to core deposit intangible totaled$27,000 and$34,000 during the years ended December 31,2016 and 2015,respectively.In 2006,the Bank completed a deposit transfer and assumption transaction with an Oregon-based bank

110、 for a$1.3 million premium.In connection with completion of the transaction,the Oregon Department of Consumer and Business Services issued a Certificate of Authority to the Bank authorizing it to conduct a banking business in the State of Oregon.The premium,and the resultant right to conduct busines

111、s in Oregon,is recorded as an indefinite-lived intangible asset.Impairment of long-lived assets Management periodically reviews the carrying value of its long-lived assets to determine if impairment has occurred or whether changes in circumstances have occurred that would require a revision to the r

112、emaining useful life,of which there have been none.In making such determination,management evaluates the performance,on an undiscounted basis,of the underlying operations or assets which give rise to such amount.Transfers of financial assets Transfers of financial assets,including cash,investment se

113、curities,loans and loans held for sale,are accounted for as sales when control over the assets has been surrendered.Control over transferred assets is deemed to be surrendered when(1)the assets have been isolated from the Company,(2)the transferee obtains the right(free of conditions that constrain

114、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 either an agreement to repurchase them before their maturity,or the ability to cause the buyer to return specific assets.Incom

115、e taxes Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities,and are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expect

116、ed to be realized or settled.Deferred tax assets are reduced by a valuation allowance when management determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized.As changes in tax laws or rates are enacted,deferred tax assets and liabilities ar

117、e adjusted through the provision for income taxes.The Company files a consolidated federal income tax return.The Bank provides for income taxes separately and remits to the Company amounts currently due in accordance with a tax allocation agreement between the Company and the Bank.9 As of December 3

118、1,2016,the Company had no unrecognized tax benefits.The Companys policy is to recognize interest and penalties on unrecognized tax benefits in“Income Taxes”in the consolidated statements of income.There were no amounts related to interest and penalties recognized for the year ended December 31,2016.

119、The tax years that remain subject to examination by federal and state taxing authorities are the years ended December 31,2015,2014 and 2013.Stock-based compensation Accounting guidance requires measurement of compensation cost for all stock based awards based on the grant date fair value and recogni

120、tion of compensation cost over the service period of stock based awards.The fair value of stock options is determined using the Black-Scholes valuation model.The Companys stock compensation plans are described more fully in Note 15.Cash equivalents and cash flows The Company considers all amounts in

121、cluded in the balance sheet caption“Cash and due from banks”to be cash equivalents.Cash and cash equivalents have a maturity of 90 days or less at the time of purchase.Cash flows from loans,interest bearing deposits in banks,federal funds sold,short-term borrowings,secured borrowings and deposits ar

122、e reported net.The Company maintains balances in depository institution accounts which,at times,may exceed federally insured limits.The Company has not experienced any losses in such accounts.Certificates of deposit held for investment Certificates of deposit held for investments include amounts inv

123、ested with financial institutions for a stated interest rate and maturity date.Early withdraw penalties apply,however the Company plans to hold these investments to maturity.Earnings per share Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average n

124、umber of common shares outstanding.Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options under the Companys stock option plans.Stock options excluded from the calculation of diluted earnings per share because they

125、are antidilutive,were 291,034 and 260,350 in 2016 and 2015,respectively.Comprehensive(loss)income Recognized revenue,expenses,gains and losses are included in net income.Certain changes in assets and liabilities,such as prior service costs and amortization of prior service costs related to defined b

126、enefit plans and unrealized gains and losses on securities available for sale,are reported within equity in other accumulated comprehensive(loss)income in the consolidated balance sheet.Such items,along with net income,are components of comprehensive(loss)income.Gains and losses on securities availa

127、ble for sale are reclassified to net income as the gains or losses are realized upon sale of the securities.Other-than-temporary impairment charges are reclassified to net income at the time of the charge.Business segment The Company operates a single business segment.The financial information that

128、is used by the chief operating decision maker in allocating resources and assessing performance is only provided for one reportable segment as of December 31,2016 and 2015.Recent accounting pronouncements Financial Accounting Standards Board(“FASB”)Accounting Standards update(“ASU”or“Update”)ASU 201

129、4-09,Revenue from Contracts with Customers,was issued in May 2014,Under this Update,FASB created a new Topic 606 which is in response to a joint initiative of FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue stand

130、ard for U.S.GAAP and international financial reporting standards that would:1.Remove inconsistencies and weaknesses in revenue requirements.2.Provide a more robust framework for addressing revenue issues.3.Improve comparability of revenue recognition practices across entities,industries,jurisdiction

131、s,and capital markets.4.Provide more useful information to users of financial statements through improved disclosure requirements.5.Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.The original effective date for this Update was de

132、ferred in FASB ASU 2015-14 below.The Company is currently evaluating the impact that the Update will have on its Consolidated Financial Statements.FASB ASU 2015-14,Revenue from Contracts with Customers,was issued in August 2015 and defers the effective date of the above-mentioned FASB ASU 2014-09 fo

133、r certain entities.Public business entities,certain not-for-profit entities,and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15,2017,including interim reporting periods within that reporting period.Earlier application

134、 is now permitted,but only as of annual reporting periods beginning after December 15,2016,including interim reporting periods within that reporting period.The Company is a public business entity and will not early adopt the guidance in Update 2014-09 as permitted in this Update.The Company is curre

135、ntly evaluating the impact that Update 2014-09 will have on its Consolidated Financial Statements upon adoption.10 FASB ASU 2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities(Subtopic 825-10),was issued in January 2016,to enhance the reporting model for financial instr

136、uments to provide users of financial statements with more decision-useful information.This Update contains several provisions,including but not limited to 1)requiring equity investments,with certain exceptions,to be measured at fair value with changes in fair value recognized in net income;2)simplif

137、ying the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;3)eliminating the requirement to disclose the method(s)and significant assumptions used to estimate fair value;and 4)requiring separate presentat

138、ion of financial assets and liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements.The Update also changes certain financial statement disclosure requirements,including requiring disclosures of the fair value of fina

139、ncial instruments be made on the basis of exit price.The Update is effective for public entities for fiscal years beginning after December 15,2017,including interim periods within those fiscal years.The Company is currently evaluating the impact that the Update will have on its Consolidated Financia

140、l Statements.FASB ASU 2016-02,Leases(Topic 842),was issued in February 2016,to increase transparency and comparability of leases among organizations and to disclose key information about leasing arrangements.The Update sets out the principles for the recognition,measurement,presentation and disclosu

141、re of leases for both lessees and lessors.The Update requires lessees to apply a dual approach,classifying leases as either a finance or operating lease.This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over t

142、he term of the lease.A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification.All cash payments will be classified within operating activities in the statement of cash flows.In transition,lesse

143、es and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.The Update is effective for public entities for fiscal years beginning after December 15,2018,including interim periods within those fiscal years.The

144、Company is currently evaluating the impact that the Update will have on its Consolidated Financial Statements.FASB ASU 2016-08,Revenue from Contracts with Customers:Principal versus Agent Considerations,was issued in March 2016 and it clarifies the implementation guidance of the above-mentioned FASB

145、 ASU 2014-09 as it relates to principal versus agent considerations.The Update addresses identifying the unit of account and nature of the goods or services as well as applying the control principle and interactions with the control principle.The amendments to the Update do not change the core princ

146、iple of the guidance.The effective date and transition requirements for this Update are the same as FASB ASU 2014-09.The Company is currently evaluating the impact that the Update will have on its Consolidated Financial Statements.FASB ASU 2016-09,Stock Compensation(Topic 718),issued in March 2016,i

147、s intended to simplify several aspects of the accounting for share-based payment award transactions.For public business entities,the guidance is effective for annual periods after December 15,2016,including interim periods within those annual periods with early adoption permitted.Certain amendments

148、will be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted.Other amendments will be applied retroactively(such as presentation of employee taxes paid on the statement of cash

149、 flows)or prospectively(such as recognition of excess tax benefits on the income statement).The Company is currently evaluating the impact that this Update will have on its Consolidated Financial Statements.FASB ASU 2016-10,Revenue from Contracts with Customers(Topic 606):Identifying Performance Obl

150、igations and Licensing,was issued in April 2016 which clarifies the implementation guidance of the above-mentioned FASB ASU 2014-09 as it relates to identifying performance obligations and licensing.The effective date and transition requirements for this Update are the same as FASB ASU 2014-09.The C

151、ompany is currently evaluating the impact that this Update will have on its Consolidated Financial Statements.FASB ASU 2016-13,Financial Instruments:Credit Losses(Topic 326):Measurement of Credit Losses on Financial Instruments,was issued in June 2016.Commonly referred to as the current expected cre

152、dit loss model(CECL),this Update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carry

153、ing value at the amount expected to be collected on the financial asset.The measurement of expected credit losses is based on relevant information about past events including historical experience,current conditions,and reasonable and supportable forecasts that affect the collectability of the repor

154、ted amount.The amendment affects loans,debt securities,trade receivables,net investments in leases,off balance-sheet credit exposures,reinsurance receivables,and any other financial asset not excluded from the scope that have the contractual right to receive cash.The Update replaces the incurred los

155、s impairment methodology,which generally only considered past events and current conditions,with a methodology that reflects the expected credit losses and required consideration of a broader range of reasonable and supportable information to estimate all expected credit losses.For public business e

156、ntities that are not U.S.Securities and Exchange Commission filers,the Update is effective for fiscal years beginning after December 15,2020,including interim periods within those fiscal years with early adoption permitted for fiscal years after December 15,2018.An entity will apply the amendments t

157、hrough a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.A prospective transition approach is required for debt securities.The Company is currently evaluating the impact that this Update will have on its Consolidate

158、d Financial Statements.11 FASB ASU 2016-15,Statement of Cash Flows(Topic 213):Classification of Certain Cash Receipts and Cash Payments,was issued in August 2016.The Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.For public business

159、 entities,the guidance is effective for fiscal years beginning after December 15,2017,including interim periods within those fiscal years.Early adoption is permitted and must be applied using a retrospective transitional method to each period presented.The Company is currently evaluating the impact

160、that this Update will have on its Consolidated Financial Statements.FASB ASU 2017-04,Intangibles-Goodwill and Other(Topic 350):Simplifying the Test for Goodwill Impairment,was issued in January 2017.The Update simplifies how an entity is required to test goodwill for impairment by eliminating a step

161、 from the goodwill impairment test.The amendments in this update provide that 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 should recognize an impairment charge for the amount by which the c

162、arrying amount exceeds the reporting units fair value;however,the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.Additionally,an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit wh

163、en measuring the goodwill impairment loss,if applicable.An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.This Update is effective for fiscal years beginning after December 15,2019,including interim

164、 periods within those fiscal years.As we approach the adoption date,we will consult the updated goodwill impairment test steps to determine if an impairment charge should be recognized.NOTE 2 RESTRICTED ASSETS Federal Reserve Board regulations require that the Bank maintain certain minimum reserve b

165、alances in cash on hand and on deposit with the Federal Reserve Bank,based on a percentage of deposits.The required reserve balance at December 31,2016 and 2015 was met by holding cash.NOTE 3 SECURITIES Investment securities consist principally of short and intermediate term debt instruments issued

166、by the U.S.Treasury,other U.S.government agencies,state and local governments,other corporations,and mortgaged backed securities(“MBS”).Investment securities have been classified according to managements intent.The amortized cost of securities and their approximate fair value were as follows:GrossGr

167、ossAmortizedUnrealizedUnrealizedFair Cost GainsLossesValueAvailable for SaleCollateralized mortgage obligations:agency issued$35,840$63$388$35,515Collateralized mortgage obligations:non-agency336-5331Mortgage backed securities:agency issued15,2664811515,199U.S.Government and agency securities7,56772

168、47,635State and municipal securities53,0475761,00752,616Total available for sale$112,056$759$1,519$111,296Held to maturityMortgage backed securities:agency issued$49$4$-$53State and municipal securities810-810Total held to maturity$859$4$-$863December 31,2016(in thousands)12 GrossGrossAmortizedUnrea

169、lizedUnrealizedFair Cost GainsLossesValueAvailable for SaleCollateralized mortgage obligations:agency issued$39,445$129$529$39,045Collateralized mortgage obligations:non agency434-12422Mortgage backed securities:agency issued12,2565012812,178U.S.Government agency securities8,58881238,646State and mu

170、nicipal securities38,7659993139,733Total available for sale$99,488$1,259$723$100,024Held to maturityMortgage backed securities:agency issued$65$5$-$70State and municipal securities1,63211-1,643Total held to maturity$1,697$16$-$1,713December 31,2015(in thousands)Unrealized losses and fair value,aggre

171、gated by investment category and length of time that individual securities have been in continuous unrealized loss position,as of December 31,2016 and December 31,2015,were as follows:UnrealizedUnrealizedUnrealizedFair ValueLossesFair ValueLossesFair ValueLossesAvailable for saleCollateralized mortg

172、age obligations:agency issued$23,601$279$5,630$109$29,231$388Collateralized mortgage obligations:non agency-33153315Mortgage backed securities:agency issued9,9051012,8251412,730115U.S.Government agency securities2,5864-2,5864State and municipal securities30,4611,007-30,4611,007Total$66,553$1,391$8,7

173、86$128$75,339$1,519UnrealizedUnrealizedUnrealizedFair ValueLossesFair ValueLossesFair ValueLossesAvailable for saleCollateralized mortgage obligations:agency issued$25,029$325$7,987$204$33,016$529Collateralized mortgage obligations:non agency-4221242212Mortgage backed securities:agency issued6,24064

174、3,273649,513128U.S.Government agency securities5,59523-5,59523State and municipal securities5,13331-5,13331Total$41,997$443$11,682$280$53,679$723(in thousands)December 31,2016Less Than 12 Months12 Months or More TotalLess Than 12 Months12 Months or More Total(in thousands)December 31,2015 At Decembe

175、r 31,2016,there were 105 investment securities in an unrealized loss position.The unrealized losses on these securities were caused by changes in interest rates,widening pricing spreads and market illiquidity,leading to a decline in the fair value subsequent to their purchase.The Company has evaluat

176、ed the securities shown above and anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market environment.Based on managements evaluation,and because the Company does not have the intent to sell these securities and it is

177、 not more likely than not that it will have to sell the securities before recovery of cost basis,the Company does not consider these investments to be other-than-temporarily impaired at December 31,2016.For collateralized mortgage obligations(“CMOs”)the Company estimates expected future cash flows o

178、f the underlying collateral,together with any credit enhancements.The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses(which considers current delinquencies,future expected default rates and c

179、ollateral value by vintage)and prepayments.The expected cash flows of the security are then discounted to arrive at a present value amount.For the years ended December 31,2016 and 2015,no CMO was determined to be other-than-temporarily-impaired.The Company has not recorded impairments related to cre

180、dit losses through earnings for the years ended December 31,2016 and 2015.13 Proceeds from sales of securities available-for-sale were$2.6 million and$4.3 million for the years ended December 31,2016 and December 31,2015,respectively.The following table provides the gross realized gains and losses o

181、n the sales of securities for the periods indicated:20162015Gross realized gain on sale of securities$8$108Gross realized loss on sale of securities(2)(55)Net realized gain on sale of securities$6$53Twelve Months Ended December 31,(in thousands)The Company did not engage in originating subprime mort

182、gage loans,and it does not believe that it has material exposure to subprime mortgage loans or subprime mortgage backed securities.Additionally,the Company does not own any sovereign debt of Eurozone nations or structured financial products,such as collateralized debt obligations or structured inves

183、tment vehicles,which are known by the Company to have elevated risk characteristics.The amortized cost and fair value of collateralized mortgage obligations and mortgage backed securities are presented by expected average life,rather than contractual maturity.Expected maturities may differ from cont

184、ractual maturities because borrowers may have the right to prepay underlying loans without prepayment penalties.The amortized cost and estimated fair value of investment securities at December 31,2016,by maturity were as follows:Held to MaturityAvailable for SaleAmortizedAmortizedCostFair ValueCostF

185、air ValueDue in one year or less$-$-$5,241$5,277Due after one year through five years10410425,86225,909Due after five years through ten years48548933,65033,793Due after ten years27027042,05941,122Declining Balance Securities-5,2445,195Total investment securities$859$863$112,056$111,296December 31,20

186、16(in thousands)At December 31,2016 and December 31,2015,investment securities with an estimated fair value of$72.4 million and$84.4 million,respectively,were pledged to secure public deposits,certain nonpublic deposits and borrowings.As required of all members of the FHLB system,the Company maintai

187、ns an investment in the capital stock of the FHLB in an amount equal to the greater of$500,000 or 0.5%of home mortgage loans and pass-through securities plus 5.0%of the outstanding balance of mortgage home loans sold to FHLB under the Mortgage Purchase Program.Participating banks record the value of

188、 FHLB stock equal to its par value at$100 per share.At December 31,2016 and December 31,2015,the Company held$1.3 million in FHLB stock.The Company owns$1.0 million in common stock in PCBB,from which the Company receives a variety of corresponding banking services through its banking subsidiary Paci

189、fic Coast Bankers Bank.An investment by the Company in such an entity is permissible under 12 CFR 362.3(a)(2)(iv).When evaluating this investment for impairment,the value is determined based on the recovery of the par value through any redemption by PCBB or from the sale to another eligible purchase

190、r,rather than by recognizing temporary declines in value.PCBB disclosed that it reported net income for the twelve month period ended December 31,2016 and maintains capital ratios that exceed“well capitalized”standards for regulatory purposes.14 NOTE 4 LOANS AND ALLOWANCE FOR LOAN LOSSES AND CREDIT

191、QUALITY Loans held in the portfolio at December 31,2016 and December 31,2015,were as follows:20162015Commercial and agricultural$134,318$131,734Real estate:Construction and development41,98333,170Residential 1-4 family91,68694,217Multi-family29,74726,828Commercial real estate-owner occupied132,44913

192、4,366Commercial real estate-non owner occupied138,078134,612Farmland25,58820,492Total real estate459,531443,685Consumer65,44251,352Gross loans659,291626,771 Deferred fees(1,488)(1,435)Loans,net$657,803$625,336(in thousands)December 31,Allowance for loan losses and credit quality The allowance for lo

193、an losses represents the Companys estimate as to the probable credit losses inherent in its loan portfolio.The allowance for loan losses is increased through periodic charges to earnings through provision for loan losses and represents the aggregate amount,net of loans charged-off and recoveries on

194、previously charged-off loans,that is needed to establish an appropriate reserve for credit losses.The allowance is estimated based on a variety of factors and using a methodology as described below:The Company classifies loans into relatively homogeneous pools by loan type in accordance with regulat

195、ory guidelines for regulatory reporting purposes.The Company regularly reviews all loans within each loan category to establish risk ratings for them that include Pass,Watch,Special Mention,Substandard,Doubtful and Loss.Pursuant to ASC 310“Accounting by Creditors for Impairment of a Loan”,the impair

196、ed portion of collateral dependent loans is charged-off.Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential for provisioning purposes.Analyses are performed to establish the loss factors based on historical experien

197、ce,as well as expected losses based on qualitative evaluations of such factors as the economic trends and conditions,industry conditions,levels and trends in delinquencies and impaired loans,levels and trends in charge-offs and recoveries,among others.The loss factors are applied to loan category po

198、ols segregated by risk classification to estimate the loss inherent in the Companys loan portfolio pursuant to ASC 450“Accounting for Contingencies.”Additionally,impaired loans are evaluated for loss potential on an individual basis in accordance with ASC 310“Accounting by Creditors for Impairment o

199、f a Loan”and specific reserves are established based on thorough analysis of collateral values where loss potential exists.When an impaired loan is collateral dependent and a deficiency exists in the fair value of collateral securing the loan in comparison to the associated loan balance,the deficien

200、cy is charged-off at that time or a specific reserve is established.Impaired loans are reviewed no less frequently than quarterly.In the event that a current appraisal to support the fair value of the real estate collateral underlying an impaired loan has not yet been received,but the Company believ

201、es that the collateral value is insufficient to support the loan amount,an impairment reserve is recorded.In these instances,the receipt of a current appraisal triggers an updated review of the collateral support for the loan and any deficiency is charged-off or reserved at that time.In those instan

202、ces where a current appraisal is not available in a timely manner in relation to a financial reporting cut-off date,the Company discounts the most recent third-party appraisal depending on a number of factors including,but not limited to,property location,local price volatility,local economic condit

203、ions,and recent comparable sales.In all cases,the costs to sell the subject property are deducted in arriving at the fair value of the collateral.15 Changes in the allowance for loan losses for the twelve months ended December 31,2016 and December 31,2015 were as follows:Balance at Beginning of Year

204、Charge-offsRecoveriesProvision for Loan LossesBalance at End of YearCommercial and agricultural$1,095$(8)$7$1,174$2,268Real estate:Residential 1-4,Multi family,Const&Dev905(159)1343801,260Commercial real estate-owner occupied2,038-(479)1,559Commercial real estate-non owner occupied1,440-(318)1,122Fa

205、rmland39-557596Total real estate4,422(159)1341404,537Consumer803(108)111,0661,772Unallocated1,997-(1,382)615Total$8,317$(275)$152$998$9,192Twelve Months Ended December 31,2016(in thousands)Balance at Beginning of YearCharge-offsRecoveriesProvision for Loan LossesBalance at End of YearCommercial and

206、agricultural$1,022$-$49$24$1,095Real estate:Residential 1-4,Multi family,Const&Dev701(86)94196905Commercial real estate-owner occupied1,143-18942,038Commercial real estate-non owner occupied2,249(806)254(257)1,440Farmland27-1239Total real estate4,120(892)3498454,422Consumer979(143)19(52)803Unallocat

207、ed2,232-(235)1,997Total$8,353$(1,035)$417$582$8,317Twelve Months Ended December 31,2015(in thousands)The allowance for loan losses disaggregated on the basis of the Companys impairment method as of December 31,2016 and December 31,2015 were as follows:Loans Individually Evaluated for ImpairmentLoans

208、 Collectively Evaluated for ImpairmentTotal Allowance for Loan LossesCommercial and agricultural$-$2,268$2,268Real estate:Residential 1-4,Multi family,Const&Dev-1,2601,260Commercial real estate-owner occupied-1,5591,559Commercial real estate-non owner occupied-1,1221,122Farmland-596596Total real est

209、ate-4,5374,537Consumer121,7601,772Unallocated-615615Total$12$9,180$9,192(in thousands)Twelve Months Ended December 31,2016 16 Loans Individually Evaluated for ImpairmentLoans Collectively Evaluated for ImpairmentTotal Allowance for Loan LossesCommercial and agricultural$-$1,095$1,095Real estate:Resi

210、dential 1-4,Multi family,Const&Dev-905905Commercial real estate-owner occupied-2,0382,038Commercial real estate-non owner occupied-1,4401,440Farmland-3939Total real estate-4,4224,422Consumer-803803Unallocated-1,9971,997Total$-$8,317$8,317Twelve Months Ended December 31,2015(in thousands)The recorded

211、 investment of loans disaggregated on the basis of the Companys impairment method as of December 31,2016 and December 31,2016 were as follows:Loans Individually Evaluated for ImpairmentLoans Collectively Evaluated for ImpairmentGross LoansCommercial and agricultural$287$134,031$134,318Real estate:Re

212、sidential 1-4,Multi family,Const&Dev791162,625163,416Commercial real estate-owner occupied-132,449132,449Commercial real estate-non owner occupied-138,078138,078Farmland-25,58825,588Total real estate791458,740459,531Consumer53864,90465,442Total$1,616$657,675$659,291Twelve Months Ended December 31,20

213、16(in thousands)Loans Individually Evaluated for ImpairmentLoans Collectively Evaluated for ImpairmentGross LoansCommercial and agricultural$430$131,304$131,734Real estate:Residential 1-4,Multi family,Const&Dev1,221152,994154,215Commercial real estate-owner occupied56134,310134,366Commercial real es

214、tate-non owner occupied217134,395134,612Farmland-20,49220,492Total real estate1,494442,191443,685Consumer5751,29551,352Total$1,981$624,790$626,771(in thousands)Twelve Months Ended December 31,2015 17 Credit Quality Indicators Federal regulations require that the Bank periodically evaluate the risks

215、inherent in its loan portfolios.In addition,the Washington Division of Banks and the Federal Deposit Insurance Corporation(“FDIC”)have authority to identify problem loans and,if appropriate,require them to be reclassified.There are three classifications for problem loans:Substandard,Doubtful,and Los

216、s.These terms are used as follows:“Substandard”loans have one or more defined weaknesses and are characterized by the distinct possibility some loss will be sustained if the deficiencies are not corrected.“Doubtful”loans have the weaknesses of loans classified as Substandard,with additional characte

217、ristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts,conditions,and values.There is a high possibility of loss in loans classified as Doubtful.“Loss”loans are considered uncollectible and of such

218、 little value that continued classification of the credit as a loan is not warranted.If a loan or a portion thereof is classified as Loss,it must be charged-off;meaning the amount of the loss is charged against the allowance for loan losses,thereby reducing that reserve.The Bank also classifies some

219、 loans as“Pass”or Other Loans Especially Mentioned(“OLEM”).Within the“Pass”classification certain loans are“Watch”rated because they have elements of risk that require more monitoring than other performing loans.“Pass”grade loans include a range of loans from very high credit quality to acceptable c

220、redit quality.These borrowers generally have strong to acceptable capital levels and consistent earnings and debt service capacity.Loans with higher grades within the“Pass”category may include borrowers who are experiencing unusual operating difficulties,but have acceptable payment performance to da

221、te.Overall,loans with a“Pass”grade show no immediate loss exposure.Loans classified as OLEM continue to perform but have shown deterioration in credit quality and require close monitoring.Credit quality indicators as of December 31,2016 and December 31,2015 were as follows:Other Loans Especially Pas

222、sMentionedSubstandardDoubtfulTotalCommercial and agricultural$121,841$3,734$8,743$-$134,318Real estate:Construction and development38,344-3,639-41,983Residential 1-4 family89,6722291,785-91,686Multi-family29,356-391-29,747Commercial real estate-owner occupied128,9031,1202,426-132,449Commercial real

223、estate-non owner occupied136,4511,627-138,078Farmland24,574778236-25,588Total real estate447,3003,7548,477-459,531Consumer65,210-232-65,442Gross Loans634,3517,48817,452-659,291Deferred fees(1,488)-(1,488)Loans,net$632,863$7,488$17,452$-$657,803(in thousands)December 31,2016 18 Other Loans Especially

224、 PassMentionedSubstandardDoubtfulTotalCommercial and agricultural$123,098$5,690$2,946$-$131,734Real estate:Construction and development32,375-796-33,171Residential 1-4 family91,3151,3321,569-94,216Multi-family26,828-26,828Commercial real estate-owner occupied126,8945,5521,920-134,366Commercial real

225、estate-non owner occupied123,2362,7078,669-134,612Farmland20,251241-20,492Total real estate420,8999,83212,954-443,685Consumer51,16119172-51,352Gross Loans595,15815,54116,072-626,771Deferred fees(1,435)-(1,435)Loans,net$593,723$15,541$16,072$-$625,336(in thousands)December 31,2015 Impaired Loans Impa

226、ired loans by type as of December 31,2016 and 2015,and interest income recognized for the twelve months ended December 31,2016 and 2015,were as follows:Recorded Investment With No Specific Valuation AllowanceRecorded Investment With Specific Valuation AllowanceTotal Recorded InvestmentUnpaid Contrac

227、tual Principal BalanceRelated Specific Valuation AllowanceAverage Recorded Investment Interest Income RecognizedCommercial and agricultural$287$-$287$287$-$322$5Real Estate:Residential 1-4,Multi family,Const&Dev791-7911,308-94986Commercial real estate-owner occupied-56-Commercial real estate-non own

228、er occupied-15-Total real estate791-7911,308-1,02086Consumer3551835385381243114Total$1,433$183$1,616$2,133$12$1,773$105December 31,2016(in thousands)Recorded Investment With No Specific Valuation AllowanceRecorded Investment With Specific Valuation AllowanceTotal Recorded InvestmentUnpaid Contractua

229、l Principal BalanceRelated Specific Valuation AllowanceAverage Recorded Invesetment Interest Income RecognizedCommercial and agricultural$430$-$430$430$-$375$10Real Estate:Residential 1-4,Multi family,Const&Dev1,221-1,2211,809-1,59394Commercial real estate-owner occupied56-5656-7792Commercial real e

230、state-non owner occupied217-217217-2,88370Farmland-41-Total real estate1,494-1,4942,082-5,296166Consumer57-5757-353Total$1,981$-$1,981$2,569$-$5,706$179December 31,2015(in thousands)Insider Loans Certain related parties of the Company,principally directors and their affiliates,were loan customers of

231、 the Bank in the ordinary course of business during 2016 and 2015.Total related party loans outstanding at December 31,2016 and 2015 to executive officers 19 and directors were$2.2 million and$2.1 million,respectively.During 2016 and 2015,new loans of$324,000 and$401,000,respectively,were made,and r

232、epayments totaled$251,000 and$679,000 respectively.In managements opinion,these loans and transactions were on the same terms as those for comparable loans and transactions with non-related parties.No loans to related parties were on non-accrual,past due or restructured at December 31,2016.Aging Ana

233、lysis The following tables summarize the Companys loans past due,both accruing and nonaccruing,by type as of December 31,2016 and December 31,2015:Greater30-59 Days60-89 DaysThanTotal PastNon-accrualTotalPast DuePast Due90 DaysDueLoansLoansCommercial and agricultural$176$-$-$176$38$134,104$134,318Re

234、al estate:Construction and development-65341,33041,983Residential 1-4 family441-44135590,89091,686Multi-family-29,74729,747Commercial real estate-owner occupied-132,449132,449Commercial real estate-non owner occupied-138,078138,078Farmland236-25,58825,588Total real estate677-4411,008458,082459,531Co

235、nsumer205219-42418364,83565,442Deferred fees-(1,488)(1,488)Total$1,058$219$-$1,041$1,229$655,533$657,803(in thousands)December 31,2016Loans Not Past Due Greater30-59 Days60-89 DaysThanTotal PastNon-accrualTotalPast DuePast Due90 DaysDueLoansLoansCommercial and agricultural$76$-$-$76$164$131,494$131,

236、734Real estate:Construction and development14-1479632,36033,170Residential 1-4 family100-10028493,83394,217Multi-family-26,82826,828Commercial real estate-owner occupied-857-857-133,509134,366Commercial real estate-non owner occupied-66-66217134,329134,612Farmland-20,49220,492Total real estate114923

237、-1,0371,297441,351443,685Consumer114-1145751,18151,352Deferred fees-(1,435)(1,435)Total$304$923$-$1,227$1,518$622,591$625,336December 31,2015(in thousands)Loans Not Past Due Troubled Debt Restructured Loans A modification of a loan constitutes a troubled debt restructuring(“TDR”)when a borrower is e

238、xperiencing financial difficulty and the modification constitutes a concession.There are various types of concessions when modifying a loan,however,forgiveness of principal is rarely granted by the Company.Commercial and industrial loans modified in a TDR may involve term extensions,below market int

239、erest rates and/or interest-only payments wherein the delay in the repayment of principal is determined to be significant when all elements of the loan and circumstances are considered.Additional collateral,a co-borrower,or a guarantor is often required.Commercial mortgage and construction loans mod

240、ified in a TDR often involve reducing the interest rate for the remaining term of the loan,extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk,or substituting or adding a new borrower or guarantor.Construction loans modified in a TDR may

241、also involve extending the interest-only payment period.Residential mortgage loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers financial needs.Land loans are typically structured as interest-only monthly payments with a balloon p

242、ayment due at maturity.Land loans modified in a TDR typically involve extending the balloon payment by one to three years,and 20 providing an interest rate concession.Home equity modifications are made infrequently and are uniquely designed to meet the specific needs of each borrower.Loans modified

243、in a TDR are considered impaired loans and typically already on non-accrual status.Partial charge-offs have in some cases already been taken against the outstanding loan balance.Loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with

244、 the loan.An allowance for impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loans effective interest rate,the loans observable market price,or the estimated fair value of the collateral,less any selling costs,if th

245、e loan is collateral dependent.The Companys practice is to re-appraise collateral dependent loans every six to nine months.During the twelve months ended December 31,2016,there was no impact on the allowance from TDRs during the period,as the loans classified as TDRs during the period did not have a

246、 specific reserve and were already considered impaired loans at the time of modification and no further impairment was required upon modification.The Company had no commitments to lend additional funds for loans classified as TDRs at December 31,2016.The Company closely monitors the performance of m

247、odified loans for delinquency,as delinquency is considered an early indicator of possible future default.The allowance may be increased,adjustments may be made in the allocation of the allowance,or partial charge-offs may be taken to further write-down the carrying value of the loan.The following ta

248、ble presents TDRs as of December 31,2016 and 2015,all of which were modified due to financial stress of the borrower.There were not any subsequent defaulted TDRs as of December 31,2016 and 2015.There were no loans modified or recorded as TDRs during the years ended December 31,2016 and 2015.The foll

249、owing tables summarize the Companys TDRs by type as of December 31,2016 and December 31,2015:Number of Loans Pre-TDR Outstanding Recorded Investment Post-TDR Outstanding Recorded Investment Commercial and agriculture1$335$250Construction and development11,000654Residential 1-4 family1192137Total TDR

250、s(1)3$1,527$1,041Number of Loans Pre-TDR Outstanding Recorded Investment Post-TDR Outstanding Recorded Investment Commercial and agriculture1$335$266Construction and development11,000796Residential 1-4 family1192141CRE-owner occupied15956Total TDRs(1)4$1,586$1,259(1)The period end balances are inclu

251、sive of all partial pay-downs and charge-offs since the modification date.(dollars in thousands)(dollars in thousands)December 31,2016December 31,2015 21 The following tables present troubled debt restructurings by accrual or nonaccrual status as of December 31,2016 and 2015:Accrual StatusNon-Accrua

252、l StatusTotal TDRsCommercial and agriculture$250$-$250Construction and development-654654Residential 1-4 family137-137Total TDRs$387$654$1,041Accrual StatusNon-Accrual StatusTotal TDRsCommercial and agriculture$266$-$266Construction and development-796796Residential 1-4 family141-141CRE-owner occupi

253、ed56-56Total TDRs$463$796$1,259December 31,2016(in thousands)December 31,2015(in thousands)NOTE 5 ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)The following table presents the changes in each component of accumulated other comprehensive income(loss),net of tax,for the twelve months ended December 31,

254、2016 and December 31,2015:Net Unrealized Gain(Loss)on Investment SecuritiesDefined Benefit PlansTotalBalance,December 31,2015$354$(254)$100Other comprehensive(loss)gain before reclassifications(852)65(787)Amounts reclassified from AOCI(4)-(4)Net current period other comprehensive income(856)65(791)B

255、alance,December 31,2016$(502)$(189)$(691)Net Unrealized Gain(Loss)on Investment SecuritiesDefined Benefit PlansTotalBalance,December 31,2014$350$(485)$(135)Other comprehensive gain before reclassifications39231270Amounts reclassified from AOCI(35)-(35)Net current period other comprehensive income423

256、1235Balance,December 31,2015$354$(254)$100(in thousands)(in thousands)22 The following table presents the amounts reclassified out of each component of accumulated other comprehensive income(loss)for the twelve months ended December 31,2016 and December 31,2015:20162015Gain on sales of investments a

257、vailable for sale$(6)$(53)Income tax expense218Unrealized gain on investment securities,net of tax$(4)$(35)Twelve Months Ended December 31,(in thousands)The following table presents the components of other comprehensive income for the twelve months ended December 31,2016 and December 31,2015:Before

258、TaxTax EffectNet of TaxNet unrealized gains on investment securities:Net unrealized gains arising during the period$(1,291)$(439)$(852)Less:reclassification adjustments for net gains realized in net income(6)(2)(4)Net unrealized gains on investment securities(1,297)(441)(856)Defined benefit plans:Am

259、ortization of unrecognized prior service costs and net actuarial gains983365Other Comprehensive Income$(1,199)$(408)$(791)Before TaxTax EffectNet of TaxNet unrealized gains on investment securities:Net unrealized gains arising during the period$59$20$39Less:reclassification adjustments for net gains

260、 realized in net income(53)(18)(35)Net unrealized gains on investment securities624Defined benefit plans:Amortization of unrecognized prior service costs and net actuarial losses350119231Other Comprehensive Income$356$121$235(in thousands)Twelve Months Ended December 31,2016Twelve Months Ended Decem

261、ber 31,2015(in thousands)NOTE 6 PREMISES AND EQUIPMENT The components of premises and equipment at December 31,2016 and 2015 were as follows:20162015Land and premises$18,766$19,600Equipment,furniture and fixtures8,5187,993Construction in progress2,17243129,45628,024Less accumulated deprecation and a

262、mortization(13,130)(12,275)Total premises and equipment$16,326$15,749December 31,(in thousands)20162015Depreciation expense$1,213$1,235Rental expense$675$567December 31,(in thousands)23 Minimum net rental commitments under non-cancelable operating leases having an original or remaining term of more

263、than one year for future years ending December 31 were as follows(in thousands):2017$6102018579201951020204132021-2025314$2,426 Certain leases contain renewal options from five to ten years and escalation clauses based on increases in property taxes and other costs.NOTE 7 OTHER REAL ESTATE OWNED The

264、 following table presents the activity related to OREO for the years ended December 31,2016 and December 31,2015:20162015Other real estate owned,beginning of period$3,610$999Transfers from outstanding loans2193,876Proceeds from sales(3,450)(1,289)Net gain on sales97128Impairment charges(71)(104)Tota

265、l other real estate owned,end of period$405$3,610(in thousands)December 31,OREO property types were as follows for the years ended December 31,2016 and December 31,2015:AmountNumber of PropertiesAmountNumber of PropertiesCommercial real estate-owner occupied$4051$1,7473 Commercial real estate-non ow

266、ner occupied-1,8631 Total OREO$4051$3,6104 December 31,(dollars in thousands)20162015 NOTE 8 DEPOSITS Time deposits that meet or exceed the FDIC Insurance limit of$250,000 at December 31,2016 and 2015 were$66.9 million and$71.4 million,respectively.The composition of deposits at December 31,2016 and

267、 December 31,2015 was as follows:20162015Interest-bearing demand(NOW)$179,209$165,544Money market deposits153,570133,799Savings deposits84,14690,380Time deposits(CDs)129,175139,775 Total interest-bearing deposits546,100529,498Non-interest bearing demand233,631185,001 Total deposits$779,731$714,499De

268、cember 31,(in thousands)24 Scheduled maturities of CDs were as follows for future years ending December 31(in thousands):Maturities2017$59,380201824,540201928,02820208,92620218,301Thereafter-Total$129,175 NOTE 9 BORROWINGS Federal funds purchased and short-term advances from the Federal Home Loan Ba

269、nk generally mature within one to four days from the transaction date.The following is a summary of these borrowings:20162015Amount outstanding at end of period$-$-Average balance during the year$5,091$3,519Average interest rate during the year0.53%0.29%(dollars in thousands)December 31,Federal Home

270、 Loan Bank advances at December 31,2016 and 2015 represent longer term advances from the Federal Home Loan Bank of Des Moines.Advances at December 31,2016 bear interest from 2.23%to 2.54%with a weighted average rate of 2.41%.The advances mature in various years as follows(in thousands):2019$5,000202

271、0$2,5002024$1,153 NOTE 10 JUNIOR SUBORDINATED DEBENTURES At December 31,2016,two wholly-owned subsidiary grantor trusts established by the Company had outstanding$13.4 million of Trust Preferred Securities.Trust preferred securities accrue and pay distributions periodically at specified annual rates

272、 as provided in the indentures.The trusts used the net proceeds from the offering of trust preferred securities to purchase a like amount of Junior Subordinated Debentures(the“Debentures”)of the Company.The Debentures are the sole assets of the trusts.The Companys obligations under the Debentures an

273、d the related documents,taken together,constitute a full and unconditional guarantee by the Company of the obligations of the trusts.The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures,or upon earlier redemption as provided in the indentures.The Company has

274、the right to redeem the Debentures in whole or in part,at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.The Debentures issued by the Company to the grantor trusts totaling$13.0 million are reflected in the consolidated balance sheet in the

275、 liabilities section under the caption“junior subordinated debentures.”The Company records interest expense on the corresponding junior subordinated debentures in the consolidated statements of income.The Company recorded$403,000 in the consolidated balance sheet at December 31,2016 and December 31,

276、2015,respectively,for the common capital securities issued by the issuer trusts.As of December 31,2016 and December 31,2015,regular accrued interest on junior subordinated debentures totaled$54,000 and$42,000,respectively and is included in accrued interest payable on the balance sheet.25 The terms

277、of the junior subordinated debentures as of December 31,2016 are:Issued Maturity Trust NameIssue DateAmountRateDatePacific Financial CorporationDecemberMarchStatutory Trust I20055,000$LIBOR+1.45%(1)2036Pacific Financial CorporationJuneJulyStatutory Trust II20068,000 LIBOR+1.60%(2)203613,000$(1)Pacif

278、ic Financial Corporation Statutory Trust I securities incurred interest at the fixed rate of 6.39%until mid March2011,at which the rate changed to a variable rate of 3-month LIBOR(0.96%at December 13,2016)plus 1.45%or 1.41%,adjusted quarterly,through the final maturity date in March 2036.(2)Pacific

279、Financial Corporation Statutory Trust II securities incur interest at a variable rate of 3-month LIBOR(0.88%at October 13,2016)plus 1.60%or 1.48%,adjusted quarterly,through the final maturity date in July 2036.(dollars in thousands)NOTE 11 INCOME TAXES The Company recorded an income tax provision fo

280、r the twelve months ended December 31,2016 and 2015.The amount of the provision for each period was commensurate with the estimated tax liability associated with the net income earned during the period.As of December 31,2016,the Company believes that it is more likely than not that it will be able t

281、o fully realize its deferred tax asset and therefore has not recorded a valuation allowance.The Companys provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to the Companys income before taxes.The principal differe

282、nce between statutory tax rates and the Companys effective tax rate is the benefit derived from investing in tax-exempt securities and bank owned life insurance.Income taxes are accounted for using the asset and liability method.Under this method a deferred tax asset or liability is determined based

283、 on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Companys income tax returns.The effect on deferred taxes of a change in tax rates is recognized

284、in income in the period that includes the enactment date.Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not,that all or some portion of the potential deferred tax asset will not be realized.The Company applies

285、the provisions of FASB ASC 740,Income Taxes,relating to the accounting for uncertainty in income taxes.The Company periodically reviews its income tax positions based on tax laws and regulations,and financial reporting considerations,and records adjustments as appropriate.This review takes into cons

286、ideration the status of current taxing authorities examinations of the Companys tax returns,recent positions taken by the taxing authorities on similar transactions,if any,and the overall tax environment.The Companys uncertain tax positions were nominal in amount as of December 31,2016.Income taxes

287、for the years ended December 31,2016 and December 31,2015 was as follows:20162015Current$2,621$1,866Deferred(161)55Total income tax expense$2,460$1,921December 31,(in thousands)26 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities a

288、nd net deferred tax assets are recorded in other assets in the consolidated financial statements at December 31,2016 and December 31,2015 are:20162015Deferred Tax AssetsAllowance for loan losses$3,170$2,855Deferred compensation7792Supplemental executive retirement plan1,3521,286Unrealized loss on se

289、curities available for sale260-OREO write-downs257118Compensation expense239196Other245239Total deferred tax assets$5,600$4,786Deferred Tax LiabilitiesDepreciation$219$115Loan fees/costs1,4571,165Unrealized gain on securities available for sale-183Prepaid expenses137144FHLB Stock2020Other8970Total d

290、eferred tax liabilities1,9221,697Net deferred tax assets$3,678$3,089(in thousands)December 31,The following is a reconciliation between the statutory and effective federal income tax rate for the years ended December 31,2016 and December 31,2015:PercentPercentof Pre-taxof Pre-taxAmountIncomeAmountIn

291、comeIncome tax at statutory rate$3,16735.0%$2,62435.0%Adjustments resulting from:Tax-exempt income(488)-5.4%(395)-5.3%Net earnings on life insurance policies(195)-2.2%(167)-2.2%Low income housing tax credit(18)0.2%(66)0.9%Other(6)0.1%(75)-1.0%Total income tax expense$2,46027.2%$1,92125.6%(dollars in

292、 thousands)December 31,20162015 NOTE 12 EMPLOYEE BENEFITS Incentive Compensation Plan The Bank has a plan that provides incentive compensation to key employees if the Bank meets certain performance criteria established by the Board of Directors.The cost of this plan was$958,000 and$671,000 in 2016 a

293、nd 2015,respectively.401(k)Plans The Bank has established a 401(k)profit sharing plan for those employees who meet the eligibility requirements set forth in the plan.Eligible employees may contribute up to 15%of their compensation.Matching contributions by the Bank are at the discretion of the Board

294、 of Directors.Contributions totaled$290,000 and$205,000 for 2016 and 2015,respectively.Director and Employee Deferred Compensation Plans The Company has director and employee deferred compensation plans.Under the terms of the plans,a director or employee may participate upon approval by the Board.Th

295、e participant may then elect to defer a portion of his or her earnings(directors fees or salary)as designated at the beginning of each plan year.Payments begin upon retirement,termination,death or permanent disability,sale of the Company,the ten-year anniversary of the participants participation dat

296、e,or at the discretion of the Company.There are currently no participants in the director or employee deferred compensation plan.There were no deferrals or ongoing expense to the Company for these plans in 2016 and 2015.27 The directors of a bank acquired by the Company in 1999 adopted two deferred

297、compensation plans for directors.One plan provides retirement income benefits for all directors and the other,a deferred compensation plan,covers only those directors who have chosen to participate in the plan.At the time of adopting these plans,the Bank purchased life insurance policies on director

298、s participating in both plans which may be used to fund payments to them under these plans.Cash surrender values on these policies were$4.2 million and$4.1 million at December 31,2016 and 2015,respectively.In 2016 and 2015,the net benefit recorded from these plans,including the cost of the related l

299、ife insurance,was$324,000 and$378,000,respectively.Both of these plans were fully funded and frozen as of September 30,2001.Plan participants were given the option to either remain in the plan until reaching the age of 70 or to receive a lump-sum distribution.Participants electing to remain in the p

300、lan will receive annual payments over a ten-year period upon reaching 70 years of age.The liability associated with these plans totaled$224,000 and$268,000 at December 31,2016 and 2015,respectively.Executive Long-Term Compensation Agreements The Company has executive long-term compensation agreement

301、s to selected employees that provide incentive for those covered employees to remain employed with the Company for a defined period of time.The cost of these agreements was$147,000 and$136,000 in 2016 and 2015,respectively.Supplemental Executive Retirement Plan Effective January 1,2007,the Company a

302、dopted a non-qualified Supplemental Executive Retirement Plan(“SERP”)that provides retirement benefits to its executive officers.The SERP is unsecured and unfunded and there are no plan assets.The post-retirement benefit provided by the SERP is designed to supplement a participating officers retirem

303、ent benefits from social security,in order to provide the officer with a certain percentage of final average income at retirement age.The benefit is generally based on average earnings,years of service and age at retirement.At the inception of the SERP,the Company recorded a prior service cost to ac

304、cumulate other comprehensive income of$704,000.The Company has purchased bank owned life insurance covering all participants in the SERP.The cash surrender value of these policies totaled$6.2 million and$6.1 million at December 31,2016 and 2015,respectively.The following table sets forth the net per

305、iodic pension cost and obligation assumptions used in the measurement of the benefit obligation for the years ended December 31,2016 and 2015:20162015Net periodic pension cost:Service cost$99$134Interest cost111103Amortization of prior service cost9190 Amortization of net loss2351Net periodic pensio

306、n cost$324$378Weighted average assumptions:Discount rate3.91%3.57%Rate of compensation increasen/an/a(dollars in thousands)December 31,The following table sets forth the change in benefit obligation at December 31,2016 and December 31,2015:20162015Change in benefit obligation:Benefit obligation at t

307、he beginning of year$3,045$2,944Service cost99134Interest cost111103Benefits paid(254)(45)Actuarial(gain)loss48(91)Benefit obligation at end of year$3,049$3,045December 31,(in thousands)28 Amounts recognized in accumulated other comprehensive income at December 31,2016 and December 31,2015 was as fo

308、llows:20162015Loss$189$164Prior service cost-90Total recognized in AOCI$189$254December 31,(in thousands)The following table summarizes the projected and accumulated benefit obligations at December 31,2016 and December 31,2015:20162015Projected benefit obligation$3,049$3,045Accumulated benefit oblig

309、ation$3,049$3,045December 31,(in thousands)Estimated future benefit payments as of December 31,2016 were as follows(in thousands):2017$1502018$2342019$2342020$2342021$2342022-2026$1,172 NOTE 13 COMMITMENTS AND CONTINGENCIES The Bank is party to financial instruments with off-balance-sheet risk in th

310、e normal course of business to meet the financing needs of its customers.These financial instruments include commitments to extend credit and standby letters of credit,and involve,to varying degrees,elements of credit risk in excess of the amount recognized on the consolidated balance sheets.The Ban

311、ks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.The Bank uses the same credit policies in making commitments and condi

312、tional obligations as they do for on-balance-sheet instruments.A summary of the Banks off-balance sheet commitments at December 31,2016 and December 31,2015 is as follows:20162015Commitments to extend credit$181,034$159,911Standby letters of credit$2,205$1,756December 31,(in thousands)Commitments to

313、 extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.Many of the commitments expire without being drawn upon;therefore total commitment amounts do not necessarily represent future cash requirements.The Bank evaluates each c

314、ustomers creditworthiness on a case-by-case basis.The amount of collateral obtained,if deemed necessary upon extension of credit,is based on managements credit evaluation of the customer.Collateral held varies,but may include accounts receivable,inventory,property and equipment,residential real esta

315、te,and income-producing commercial properties.Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan faciliti

316、es to customers.Certain executive officers have entered into employment contracts with the Bank which provide for contingent payments subject to future events.In connection with certain loans held for sale,the Bank typically makes representations and warranties that the underlying loans conform to s

317、pecified guidelines.If the underlying loans do not conform to the specifications,the Bank may have an obligation to repurchase the loans or indemnify the purchaser against loss.The Bank believes that the potential for loss under these arrangements is remote.Accordingly,no contingent liability is rec

318、orded in the consolidated financial statements.29 At December 31,2016,the Bank had$8.7 million in outstanding borrowings against its$170.3 million in established borrowing capacity with the FHLB,as compared to$11.3 million outstanding against a borrowing capacity of$158.7 million at December 31,2015

319、.The Banks borrowing facility with the FHLB is subject to collateral and stock ownership requirements.The Bank also had an available discount window primary credit line with the Federal Reserve Bank of San Francisco of approximately$58.8 million,subject to collateral requirements,and$16.0 million fr

320、om correspondent banks with no balance outstanding on any of these facilities.The Company is currently not party to any material pending litigation.However,because of the nature of its activities,the Company may be subject to or threatened with legal actions in the ordinary course of business.In the

321、 opinion of management,liabilities arising from these claims,if any,will not have a material effect on the results of operations or financial condition of the Company.NOTE 14 SIGNIFICANT CONCENTRATION OF CREDIT RISK Most of the Banks business activity is with customers and governmental entities loca

322、ted in the states of Washington and Oregon,including investments in state and municipal securities.Loans to any single borrower or group of borrowers are generally limited by state banking regulations to 20%of the Banks shareholders equity,excluding accumulated other comprehensive income(loss).Stand

323、by letters of credit were granted primarily to commercial borrowers.The Bank,as a matter of practice,generally does not extend credit to any single borrower or group of borrowers in excess of$8.5 million.NOTE 15 STOCK BASED COMPENSATION The Companys 2011 Equity Incentive Plan,as amended(the“2011 Pla

324、n”),provides for the issuance of up to 900,000 shares in connection with incentive and nonqualified stock options,restricted stock,restricted stock units and other equity-based awards.Prior to adoption of the 2011 Plan,the Company made equity-based awards under the Companys 2000 Stock Incentive Plan

325、,which expired January 1,2011.Stock Options The 2011 Plan authorizes the issuance of incentive and non-qualified stock options,as defined under current tax laws,to key personnel.Options granted under the 2011 Plan either become exercisable ratably over five years or in a single installment five year

326、s from the date of grant.The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards based on assumptions in the following table.Expected volatility is based on historical volatility of the Companys common stock.The expected term of stock options grante

327、d is based on the simplified method,which is the simple average between contractual term and vesting period.The risk-free rate is based on the expected term of stock options and the applicable U.S.Treasury yield in effect at the time of grant.Grant period endedExpected LifeRisk Free Interest RateExp

328、ected Stock Price VolatilityDividend YieldWeighted Average Fair value of Options GrantedDecember 31,20166.5 years1.50%22.70%3.08%1.13$December 31,20156.5 years1.85%22.82%3.20%1.05$30 The following tables summarize the stock option activity for the years ended December 31,2016 and 2015:SharesWeighted

329、 Average Exercise PriceWeighted Average Remaining Contractual Term (in Years)Outstanding at December 31,2014565,120$8.75 Granted12,500 6.64 Exercised(4,000)5.00 Forfeited(23,575)8.94 Expired(78,545)14.71 Outstanding at December 31,2015471,500$7.72 Granted16,000 7.14 Exercised(1,000)5.00 Forfeited(11

330、,325)7.07 Expired(39,875)13.75 Outstanding at December 31,2016435,300$7.17 4.42 Vested and expected to vest at December 31,2016435,300$7.17 4.42 Exercisable at December 31,2016329,800$7.69 3.64 Information related to the stock option plan during each year follows:20162015Intrinsic value of options e

331、xercised$5$8Cash received from option exercises$5$20(in thousands)The Company accounts for stock based compensation in accordance with GAAP,which requires measurement of compensation cost for all stock-based awards based on grant date fair value and recognition of compensation cost over the service

332、period of each award.The following information summarizes information about stock expense for the years ended December 31,2016 and 2015:20162015Compensation Expense$24$31Tax Effect811Compensation Expense,net$16$20Twelve Months Ended December 31,(in thousands)As of December 31,2016,there was$25,000 o

333、f total unrecognized compensation cost related to nonvested stock options.The cost is expected to be recognized over a weighted-average period of 5.0 years.Restricted Stock Units The Company grants restricted stock units(“RSUs”)to employees qualifying for awards under the Companys Annual Incentive Compensation Plan.Recipients of RSUs will be issued a specified number of shares of common stock unde