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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended: March 31, 2016

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                     .

Commission File Number: 000-10661

 

 

TriCo Bancshares

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

CALIFORNIA   94-2792841

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices)(Zip Code)

(530) 898-0300

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

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

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: 22,785,173 shares outstanding as of April 29, 2016

 

 

 


Table of Contents

TriCo Bancshares

FORM 10-Q

TABLE OF CONTENTS

 

     Page  

Forward-Looking Statements

     1   

PART I – FINANCIAL INFORMATION

     2   

Item 1 – Financial Statements (Unaudited)

     2   

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

     45   

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

     64   

Item 4 – Controls and Procedures

     64   

PART II – OTHER INFORMATION

     65   

Item 1 – Legal Proceedings

     65   

Item 1A – Risk Factors

     65   

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

     65   

Item 6 – Exhibits

     65   

Signatures

     67   

Exhibits

     68   

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements about TriCo Bancshares (the “Company”) that are subject to the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current knowledge and belief of the Company’s management (“Management”) and include information concerning the Company’s possible or assumed future financial condition and results of operations. When you see any of the words “believes”, “expects”, “anticipates”, “estimates”, or similar expressions, it may mean the Company is making forward-looking statements. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. The reader is directed to the Company’s annual report on Form 10-K for the year ended December 31, 2015 and Part II, Item 1A of this report for further discussion of factors which could affect the Company’s business and cause actual results to differ materially from those suggested by any forward-looking statement made in this report. Such Form 10-K and this report should be read in their entirety to put any forward-looking statements in context and to gain a more complete understanding of the risks and uncertainties involved in the Company’s business. Any forward-looking statement may turn out to be wrong and cannot be guaranteed. The Company does not intend to update any forward-looking statement after the date of this report.

 

1


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)

 

     At March 31,
2016
    At December 31,
2015
 
     (in thousands, except share data)  

Assets:

    

Cash and due from banks

   $ 76,702      $ 94,305   

Cash at Federal Reserve and other banks

     312,176        209,156   
  

 

 

   

 

 

 

Cash and cash equivalents

     388,878        303,461   

Investment securities:

    

Available for sale

     477,454        404,885   

Held to maturity

     705,133        726,530   

Restricted equity securities

     16,956        16,956   

Loans held for sale

     2,240        1,873   

Loans

     2,541,547        2,522,937   

Allowance for loan losses

     (36,388     (36,011
  

 

 

   

 

 

 

Total loans, net

     2,505,159        2,486,926   

Foreclosed assets, net

     4,471        5,369   

Premises and equipment, net

     51,522        43,811   

Cash value of life insurance

     95,256        94,560   

Accrued interest receivable

     11,075        10,786   

Goodwill

     64,311        63,462   

Other intangible assets, net

     7,641        5,894   

Mortgage servicing rights

     7,140        7,618   

Other assets

     57,720        48,591   
  

 

 

   

 

 

 

Total assets

   $ 4,394,956      $ 4,220,722   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity:

    

Liabilities:

    

Deposits:

    

Noninterest-bearing demand

   $ 1,178,001      $ 1,155,695   

Interest-bearing

     2,607,039        2,475,571   
  

 

 

   

 

 

 

Total deposits

     3,785,040        3,631,266   

Accrued interest payable

     751        774   

Reserve for unfunded commitments

     2,475        2,475   

Other liabilities

     68,064        65,293   

Other borrowings

     18,671        12,328   

Junior subordinated debt

     56,519        56,470   
  

 

 

   

 

 

 

Total liabilities

     3,931,520        3,768,606   
  

 

 

   

 

 

 

Commitments and contingencies (Note 18)

    

Shareholders’ equity:

    

Common stock, no par value: 50,000,000 shares authorized; issued and outstanding:

    

22,785,173 at March 31, 2016

     248,101     

22,775,173 at December 31, 2015

       247,587   

Retained earnings

     213,563        206,307   

Accumulated other comprehensive income, net of tax

     1,772        (1,778
  

 

 

   

 

 

 

Total shareholders’ equity

     463,436        452,116   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,394,956      $ 4,220,722   
  

 

 

   

 

 

 

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

 

2


Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)

 

     Three months ended  
     March 31,  
     2016      2015  

Interest and dividend income:

     

Loans, including fees

   $ 34,738       $ 31,165   

Debt securities:

     

Taxable

     6,545         5,799   

Tax exempt

     897         161   

Dividends

     375         336   

Interest bearing cash at Federal Reserve and other banks

     239         264   
  

 

 

    

 

 

 

Total interest and dividend income

     42,794         37,725   
  

 

 

    

 

 

 

Interest expense:

     

Deposits

     855         899   

Other borrowings

     2         1   

Junior subordinated debt

     535         482   
  

 

 

    

 

 

 

Total interest expense

     1,392         1,382   
  

 

 

    

 

 

 

Net interest income

     41,402         36,343   

Provision for (benefit from reversal of) loan losses

     209         197   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     41,193         36,146   
  

 

 

    

 

 

 

Noninterest income:

     

Service charges and fees

     7,305         7,344   

Gain on sale of loans

     803         622   

Commissions on sale of non-deposit investment products

     532         965   

Increase in cash value of life insurance

     696         675   

Other

     454         574   
  

 

 

    

 

 

 

Total noninterest income

     9,790         10,180   
  

 

 

    

 

 

 

Noninterest expense:

     

Salaries and related benefits

     19,265         18,100   

Other

     14,486         14,182   
  

 

 

    

 

 

 

Total noninterest expense

     33,751         32,282   
  

 

 

    

 

 

 

Income before income taxes

     17,232         14,044   

Provision for income taxes

     6,558         5,708   
  

 

 

    

 

 

 

Net income

   $ 10,674       $ 8,336   
  

 

 

    

 

 

 

Earnings per share:

     

Basic

   $ 0.47       $ 0.37   

Diluted

   $ 0.46       $ 0.36   

See accompanying notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands; unaudited)

 

     Three months ended  
     March 31,  
     2016      2015  

Net income

   $ 10,674       $ 8,336   

Other comprehensive income (loss), net of tax:

     

Unrealized gains (losses) on available for sale securities arising during the period

     3,550         9   

Change in minimum pension liability

     —           111   
  

 

 

    

 

 

 

Other comprehensive income (loss)

     3,550         120   
  

 

 

    

 

 

 

Comprehensive income

   $ 14,224       $ 8,456   
  

 

 

    

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data; unaudited)

 

                       Accumulated        
     Shares of                 Other        
     Common     Common     Retained     Comprehensive        
     Stock     Stock     Earnings     Income (loss)     Total  

Balance at December 31, 2014

     22,714,964      $ 244,318      $ 176,057      $ (2,203   $ 418,172   

Net income

         8,336          8,336   

Other comprehensive income

           120        120   

Stock option vesting

       220            220   

RSU vesting

       76            76   

PSU vesting

       28            28   

Stock options exercised

     47,000        887            887   

Tax benefit of stock options exercised

       18            18   

Repurchase of common stock

     (21,461     (231     (278       (509

Dividends paid ($0.11 per share)

         (2,515       (2,515
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2015

     22,740,503      $ 245,316      $ 181,600      $ (2,083   $ 424,833   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

     22,775,173      $ 247,587      $ 206,307      $ (1,778   $ 452,116   

Net income

         10,674          10,674   

Other comprehensive income

           3,550        3,550   

Stock option vesting

       155            155   

RSU vesting

       120            120   

PSU vesting

       56            56   

Stock options exercised

     10,000        173            173   

Tax benefit of stock options exercised

       10            10   

Dividends paid ($0.15 per share)

         (3,418       (3,418
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2016

     22,785,173      $ 248,101      $ 213,563      $ 1,772      $ 463,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)

 

     For the three months ended March 31,  
     2016     2015  

Operating activities:

    

Net income

   $ 10,674      $ 8,336   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation of premises and equipment, and amortization

     1,526        1,494   

Amortization of intangible assets

     299        289   

Provision for loan losses

     209        197   

Amortization of investment securities premium, net

     1,131        719   

Originations of loans for resale

     (26,130     (24,527

Proceeds from sale of loans originated for resale

     26,243        23,130   

Gain on sale of loans

     (803     (622

Change in market value of mortgage servicing rights

     698        506   

(Reversal of) provision for losses on foreclosed assets

     (11     67   

Gain on sale of foreclosed assets

     (92     (311

Loss on disposal of fixed assets

     31        84   

Increase in cash value of life insurance

     (696     (675

Equity compensation vesting expense

     331        324   

Stock option excess tax benefits

     (10     (18

Change in:

    

Reserve for unfunded commitments

     —          (130

Interest receivable

     (289     (519

Interest payable

     (23     (126

Other assets and liabilities, net

     (8,988     4,743   
  

 

 

   

 

 

 

Net cash from operating activities

     4,100        12,961   
  

 

 

   

 

 

 

Investing activities:

    

Proceeds from maturities of securities available for sale

     10,052        5,280   

Proceeds from maturities of securities held to maturity

     20,815        19,474   

Purchases of securities available for sale

     (77,045     (147,335

Purchases of securities held to maturity

     —          (146,100

Loan origination and principal collections, net

     (45,515     (40,331

Proceeds from sale of loans other than loans originated for sale

     27,049        —     

Improvement of foreclosed assets

     —          (316

Proceeds from sale of other real estate owned

     1,417        806   

Proceeds from sale of premises and equipment

     1        1   

Purchases of premises and equipment

     (7,424     (706

Cash received from acquisition, net

     156,316        —     
  

 

 

   

 

 

 

Net cash used by investing activities

     85,666        (309,227
  

 

 

   

 

 

 

Financing activities:

    

Net decrease in deposits

     (7,457     (30,935

Net change in other borrowings

     6,343        (180

Stock option excess tax benefits

     10        18   

Repurchase of common stock

     —          (27

Dividends paid

     (3,418     (2,515

Exercise of stock options

     173        405   
  

 

 

   

 

 

 

Net cash used by financing activities

     (4,349     (33,234
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     85,417        (329,500
  

 

 

   

 

 

 

Cash and cash equivalents and beginning of year

     303,461        610,728   
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 388,878      $ 281,228   
  

 

 

   

 

 

 

Supplemental disclosure of noncash activities:

    

Unrealized gain on securities available for sale

   $ 6,125      $ 15   

Loans transferred to foreclosed assets

   $ 416      $ 1,244   

Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes

     —        $ 509   

Supplemental disclosure of cash flow activity:

    

Cash paid for interest expense

   $ 1,415      $ 1,508   

Cash paid for income taxes

     —          —     

Assets acquired in acquisition

   $ 161,231        —     

Liabilities assumed in acquisition

   $ 161,231        —     

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 26 California counties. Tri Counties Bank currently operates from 58 traditional branches and 12 in-store branches. The Company has five capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including two organized by TriCo and three acquired with the acquisition of North Valley Bancorp. See Note 17 – Junior Subordinated Debt.

The unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of the Company’s Management (“Management”), all adjustments, consisting solely of normal recurring adjustments, considered necessary for a fair presentation of results for the interim periods presented have been included. For financial reporting purposes, the Company’s investments in the Capital Trusts of $1,697,000 are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheet. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2016.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

As described in Note 2, the Company acquired three branch offices, and deposits totaling $161,231,000. The acquired assets and assumed liabilities were measured at estimated fair value values under the acquisition method of accounting. The Company made significant estimates and exercised significant judgment in accounting for the acquisition. Land and building were valued based on appraised values. An identifiable intangible was also recorded representing the fair value of the core deposit customer base based on an evaluation of the cost of such deposits relative to alternative funding sources.

Significant Group Concentration of Credit Risk

The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout the northern San Joaquin Valley, the Sacramento Valley and northern mountain regions of California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into one business segment that it denotes as community banking.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Net cash flows are reported for loan and deposit transactions and other borrowings.

Investment Securities

The Company classifies its debt and marketable equity securities into one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling in the near term. Held to maturity securities are those securities which the Company has the ability and intent to hold until maturity. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by the effective interest method over their contractual lives. All other securities not included in trading or held to maturity are classified as available for sale. Available for sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available for sale securities are reported as a separate component of other accumulated comprehensive income in shareholders’ equity until realized. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses are derived from the amortized cost of the security sold. During the three months ended March 31, 2016 and throughout 2015, the Company did not have any securities classified as trading.

The Company assesses other-than-temporary impairment (“OTTI”) based on whether it intends to sell a security or if it is likely that the Company would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity. For debt securities, if we intend to sell the security or it is more likely than not that we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is not likely that we will be required to sell the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. The accretion of the amount recorded in OCI increases the carrying value of the investment and does not affect earnings. If there is an indication of additional credit losses the security is re-evaluated according to the procedures described above. No OTTI losses were recognized during the three months ended March 31, 2016 and throughout 2015.

 

6


Table of Contents

Restricted Equity Securities

Restricted equity securities represent the Company’s investment in the stock of the Federal Home Loan Bank of San Francisco (“FHLB”) and are carried at par value, which reasonably approximates its fair value. While technically these are considered equity securities, there is no market for the FHLB stock. Therefore, the shares are considered as restricted investment securities. Management periodically evaluates FHLB stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB.

As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. The Bank may request redemption at par value of any stock in excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors of current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to noninterest income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. Gains or losses on the sale of loans that are held for sale are recognized at the time of the sale and determined by the difference between net sale proceeds and the net book value of the loans less the estimated fair value of any retained mortgage servicing rights.

Loans and Allowance for Loan Losses

Loans originated by the Company, i.e., not purchased or acquired in a business combination, are referred to as originated loans. Originated loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of deferred loan fees and costs. Loan origination and commitment fees and certain direct loan origination costs are deferred, and the net amount is amortized as an adjustment of the related loan’s yield over the actual life of the loan. Originated loans on which the accrual of interest has been discontinued are designated as nonaccrual loans.

Originated loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When an originated loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest.

An allowance for loan losses for originated loans is established through a provision for loan losses charged to expense. The allowance is maintained at a level which, in Management’s judgment, is adequate to absorb probable incurred credit losses inherent in the loan portfolio as of the balance sheet date. Originated loans and deposit related overdrafts are charged against the allowance for loan losses when Management believes that the collectability of the principal is unlikely or, with respect to consumer installment loans, according to an established delinquency schedule. The allowance is an amount that Management believes will be adequate to absorb probable incurred losses inherent in existing loans, based on evaluations of the collectability, impairment and prior loss experience of loans. The evaluations take into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. The Company defines an originated loan as impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired originated loans are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. As a practical expedient, impairment may be measured based on the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance.

In situations related to originated loans where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (TDR). The Company strives to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where the Company grants the borrower new terms that result in the loan being classified as a TDR, the Company measures any impairment on the restructuring as noted above for impaired loans. TDR loans are classified as impaired until they are fully paid off or charged off. Loans that are in nonaccrual status at the time they become TDR loans, remain in nonaccrual status until the borrower demonstrates a sustained period of performance which the Company generally believes to be six consecutive months of payments, or equivalent. Otherwise, TDR loans are subject to the same nonaccrual and charge-off policies as noted above with respect to their restructured principal balance.

Credit risk is inherent in the business of lending. As a result, the Company maintains an allowance for loan losses to absorb probable incurred losses inherent in the Company’s originated loan portfolio. This is maintained through periodic charges to earnings. These charges are

 

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included in the Consolidated Statements of Income as provision for loan losses. All specifically identifiable and quantifiable losses are immediately charged off against the allowance. However, for a variety of reasons, not all losses are immediately known to the Company and, of those that are known, the full extent of the loss may not be quantifiable at that point in time. The balance of the Company’s allowance for originated loan losses is meant to be an estimate of these probable incurred losses inherent in the portfolio.

The Company formally assesses the adequacy of the allowance for originated loan losses on a quarterly basis. Determination of the adequacy is based on ongoing assessments of the probable risk in the outstanding originated loan portfolio, and to a lesser extent the Company’s originated loan commitments. These assessments include the periodic re-grading of credits based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment, growth of the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded when originated. They are re-graded as they are renewed, when there is a new loan to the same borrower, when identified facts demonstrate heightened risk of nonpayment, or if they become delinquent. Re-grading of larger problem loans occurs at least quarterly. Confirmation of the quality of the grading process is obtained by independent credit reviews conducted by consultants specifically hired for this purpose and by various bank regulatory agencies.

The Company’s method for assessing the appropriateness of the allowance for originated loan losses includes specific allowances for impaired originated loans, formula allowance factors for pools of credits, and allowances for changing environmental factors (e.g., interest rates, growth, economic conditions, etc.). Allowance factors for loan pools were based on historical loss experience by product type and prior risk rating.

During the three months ended September 30, 2015, the Company modified its methodology used to determine the allowance for home equity lines of credit that are about to exit their revolving period, or have recently entered into their amortization period and are now classified as home equity loans. This change in methodology increased the required allowance for such lines and loans by $859,000, and $459,000, respectively, and represents the increase in estimated incurred losses in these lines and loans as of September 30, 2015 due to higher required contractual principal and interest payments of such lines and loans.

Loans purchased or acquired in a business combination are referred to as acquired loans. Acquired loans are valued as of the acquisition date in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 805, Business Combinations. Loans acquired with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are referred to as purchased credit impaired (PCI) loans. PCI loans are accounted for under FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under FASB ASC Topic 805 and FASB ASC Topic 310-30, PCI loans are recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date. Fair value is defined as the present value of the future estimated principal and interest payments of the loan, with the discount rate used in the present value calculation representing the estimated effective yield of the loan. Default rates, loss severity, and prepayment speed assumptions are periodically reassessed and our estimate of future payments is adjusted accordingly. The difference between contractual future payments and estimated future payments is referred to as the nonaccretable difference. The difference between estimated future payments and the present value of the estimated future payments is referred to as the accretable yield. The accretable yield represents the amount that is expected to be recorded as interest income over the remaining life of the loan. If after acquisition, the Company determines that the estimated future cash flows of a PCI loan are expected to be more than originally estimated, an increase in the discount rate (effective yield) would be made such that the newly increased accretable yield would be recognized, on a level yield basis, over the remaining estimated life of the loan. If, thereafter, the Company determines that the estimated future cash flows of a PCI loan are expected to be less than previously estimated, an allowance for loan loss would be established through a provision for loan losses charged to expense to decrease the present value to the required level. If the estimated cash flows improve after an allowance has been established for a loan, the allowance may be partially or fully reversed depending on the improvement in the estimated cash flows. Only after the allowance has been fully reversed may the discount rate be increased. PCI loans are put on nonaccrual status when cash flows cannot be reasonably estimated. PCI loans on nonaccrual status are accounted for using the cost recovery method or cash basis method of income recognition. The Company refers to PCI loans on nonaccrual status that are accounted for using the cash basis method of income recognition as “PCI – cash basis” loans; and the Company refers to all other PCI loans as “PCI – other” loans PCI loans are charged off when evidence suggests cash flows are not recoverable. Foreclosed assets from PCI loans are recorded in foreclosed assets at fair value with the fair value at time of foreclosure representing cash flow from the loan. ASC 310-30 allows PCI loans with similar risk characteristics and acquisition time frame to be “pooled” and have their cash flows aggregated as if they were one loan. The Company elected to use the “pooled” method of ASC 310-30 for PCI – other loans in the acquisition of certain assets and liabilities of Granite Community Bank, N.A. (“Granite”) during 2010 and Citizens Bank of Northern California (“Citizens”) during 2011.

Acquired loans that are not PCI loans are referred to as purchased not credit impaired (PNCI) loans. PNCI loans are accounted for under FASB ASC Topic 310-20, Receivables – Nonrefundable Fees and Other Costs, in which interest income is accrued on a level-yield basis for performing loans. For income recognition purposes, this method assumes that all contractual cash flows will be collected, and no allowance for loan losses is established at the time of acquisition. Post-acquisition date, an allowance for loan losses may need to be established for acquired loans through a provision charged to earnings for credit losses incurred subsequent to acquisition. Under ASC 310-20, the loss would be measured based on the probable shortfall in relation to the contractual note requirements, consistent with our allowance for loan loss policy for similar loans.

Throughout these financial statements, and in particular in Note 4 and Note 5, when we refer to “Loans” or “Allowance for loan losses” we mean all categories of loans, including Originated, PNCI, PCI – cash basis, and PCI - other. When we are not referring to all categories of loans, we will indicate which we are referring to – Originated, PNCI, PCI – cash basis, or PCI - other.

When referring to PNCI and PCI loans we use the terms “nonaccretable difference”, “accretable yield”, or “purchase discount”. Nonaccretable difference is the difference between undiscounted contractual cash flows due and undiscounted cash flows we expect to

 

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collect, or put another way, it is the undiscounted contractual cash flows we do not expect to collect. Accretable yield is the difference between undiscounted cash flows we expect to collect and the value at which we have recorded the loan on our financial statements. On the date of acquisition, all purchased loans are recorded on our consolidated financial statements at estimated fair value. Purchase discount is the difference between the estimated fair value of loans on the date of acquisition and the principal amount owed by the borrower, net of charge offs, on the date of acquisition. We may also refer to “discounts to principal balance of loans owed, net of charge-offs”. Discounts to principal balance of loans owed, net of charge-offs is the difference between principal balance of loans owed, net of charge-offs, and loans as recorded on our financial statements. Discounts to principal balance of loans owed, net of charge-offs arise from purchase discounts, and equal the purchase discount on the acquisition date.

Loans are also categorized as “covered” or “noncovered”. Covered loans refer to loans covered by a Federal Deposit Insurance Corporation (“FDIC”) loss sharing agreement. Noncovered loans refer to loans not covered by a FDIC loss sharing agreement.

Foreclosed Assets

Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Any write-downs based on the asset’s fair value less costs to sell at the date of acquisition are charged to the allowance for loan and lease losses. Any recoveries based on the asset’s fair value less estimated costs to sell in excess of the recorded value of the loan at the date of acquisition are recorded to the allowance for loan and lease losses. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. Revenue and expenses from operations and changes in the valuation allowance are included in other noninterest expense. Gain or loss on sale of foreclosed assets is included in noninterest income. Foreclosed assets that are not subject to a FDIC loss-share agreement are referred to as noncovered foreclosed assets.

Foreclosed assets acquired through FDIC-assisted acquisitions that are subject to a FDIC loss-share agreement, and all assets acquired via foreclosure of covered loans are referred to as covered foreclosed assets. Covered foreclosed assets are reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered foreclosed assets at the loan’s carrying value, inclusive of the acquisition date fair value discount.

Covered foreclosed assets are initially recorded at estimated fair value less estimated costs to sell on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to noninterest expense, and will be mostly offset by noninterest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

Premises and Equipment

Land is carried at cost. Land improvements, buildings and equipment, including those acquired under capital lease, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expenses are computed using the straight-line method over the estimated useful lives of the related assets or lease terms. Asset lives range from 3-10 years for furniture and equipment and 15-40 years for land improvements and buildings.

Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of net assets of businesses acquired. Goodwill and other intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

The Company has an identifiable intangible asset consisting of core deposit intangibles (CDI). CDI are amortized over their respective estimated useful lives, and reviewed for impairment.

Impairment of Long-Lived Assets and Goodwill

Long-lived assets, such as premises and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet.

As of December 31 of each year, goodwill is tested for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level. The Company may choose to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then goodwill is deemed not to be impaired. However, if the Company concludes otherwise, or if the Company elected not to first assess qualitative factors, then the Company performs the first step of a two-step

 

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impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. Second, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Currently, and historically, the Company is comprised of only one reporting unit that operates within the business segment it has identified as “community banking”. Goodwill was not impaired as of December 31, 2015 because the fair value of the reporting unit exceeded its carrying value.

Mortgage Servicing Rights

Mortgage servicing rights (MSR) represent the Company’s right to a future stream of cash flows based upon the contractual servicing fee associated with servicing mortgage loans. Our MSR arise from residential and commercial mortgage loans that we originate and sell, but retain the right to service the loans. The net gain from the retention of the servicing right is included in gain on sale of loans in noninterest income when the loan is sold. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing fees are recorded in noninterest income when earned.

The Company accounts for MSR at fair value. The determination of fair value of our MSR requires management judgment because they are not actively traded. The determination of fair value for MSR requires valuation processes which combine the use of discounted cash flow models and extensive analysis of current market data to arrive at an estimate of fair value. The cash flow and prepayment assumptions used in our discounted cash flow model are based on empirical data drawn from the historical performance of our MSR, which we believe are consistent with assumptions used by market participants valuing similar MSR, and from data obtained on the performance of similar MSR. The key assumptions used in the valuation of MSR include mortgage prepayment speeds and the discount rate. These variables can, and generally will, change from quarter to quarter as market conditions and projected interest rates change. The key risks inherent with MSR are prepayment speed and changes in interest rates. The Company uses an independent third party to determine fair value of MSR.

Indemnification Asset/Liability

The Company accounts for amounts receivable or payable under its loss-share agreements entered into with the FDIC in connection with its purchase and assumption of certain assets and liabilities of Granite as indemnification assets in accordance with FASB ASC Topic 805, Business Combinations. FDIC indemnification assets are initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreements. The difference between the fair value and the undiscounted cash flows the Company expects to collect from or pay to the FDIC will be accreted into noninterest income over the life of the FDIC indemnification asset. FDIC indemnification assets are reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolios. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases in cash flow of the covered assets over those expected will reduce the FDIC indemnification asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC indemnification asset. Increases and decreases to the FDIC indemnification asset are recorded as adjustments to noninterest income.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is established through a provision for losses – unfunded commitments charged to noninterest expense. The reserve for unfunded commitments is an amount that Management believes will be adequate to absorb probable losses inherent in existing commitments, including unused portions of revolving lines of credits and other loans, standby letters of credits, and unused deposit account overdraft privilege. The reserve for unfunded commitments is based on evaluations of the collectability, and prior loss experience of unfunded commitments. The evaluations take into consideration such factors as changes in the nature and size of the loan portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and related unfunded commitments, and current economic conditions that may affect the borrower’s or depositor’s ability to pay.

Income Taxes

The Company’s accounting for income taxes is based on an asset and liability approach. The Company recognizes the amount of taxes payable or refundable for the current year, and deferred tax assets and liabilities for the future tax consequences that have been recognized in its financial statements or tax returns. The measurement of tax assets and liabilities is based on the provisions of enacted tax laws. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. Interest and/or penalties related to income taxes are reported as a component of noninterest income.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Geographical Descriptions

For the purpose of describing the geographical location of the Company’s loans, the Company has defined northern California as that area of California north of, and including, Stockton; central California as that area of the state south of Stockton, to and including, Bakersfield; and southern California as that area of the state south of Bakersfield.

 

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Reclassifications

Certain amounts reported in previous consolidated financial statements have been reclassified to conform to the presentation in this report. These reclassifications did not affect previously reported net income or total shareholders’ equity.

Recent Accounting Pronouncements

FASB issued ASU No. 2016-9, Compensation – Stock Compensation (Topic 718). ASU 2016-9, among other things, requires: (i) that all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement, (ii) the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur, (iii) an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period, (iv) excess tax benefits should be classified along with other income tax cash flows as an operating activity, (v) an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur, (vi) the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions, and (vii) cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. ASU 2016-9 will be effective for the Company on January 1, 2017 and is not expected to have a significant impact on the Company’s consolidated financial statements.

Note 2 - Business Combinations

On March 18, 2016, Tri Counties Bank completed its acquisition of three branch banking offices from Bank of America originally announced October 28, 2015. The acquired branches are located in Arcata, Eureka and Fortuna in Humboldt County on the North Coast of California, and have significant overlap when compared to the Company’s Northern California customer base and branch locations. This made these branch acquisitions a very good fit in terms of potential cost savings and future growth potential. With the levels of capital at the time, the acquisitions fit well into the Company’s growth strategy. Also on March 18, 2016, the electronic customer service and other data processing systems of the acquired branches were converted into Tri Counties Bank’s systems, and the effect of revenue and expenses from the operations of the acquired branches are included in the results of the Company. The Bank paid $3,204,000 for deposit relationships with balances of $161,231,000 and loans with balances of $289,000, and received cash of $159,520,000 from Bank of America.

The assets acquired and liabilities assumed in the acquisition of these branches were accounted for in accordance with ASC 805 “Business Combinations,” using the acquisition method of accounting and were recorded at their estimated fair values on the March 18, 2016 acquisition date, and its results of operations are included in the Company’s consolidated statements of income since that date. The excess of the fair value of consideration transferred over total identifiable net assets was recorded as goodwill. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and the acquired branches. $849,000 of the goodwill is deductible for income tax purposes as the acquisition was accounted for as a purchase of assets and assumption of liabilities for tax purposes.

The following table discloses the calculation of the fair value of consideration transferred, the total identifiable net assets acquired and the resulting goodwill relating to the acquisition of three branch banking offices and certain deposits from Bank of America on March 18, 2016:

 

(in thousands)    March 18, 2016  

Fair value of consideration transferred:

  

Cash consideration

   $ 3,204   
  

 

 

 

Total fair value of consideration transferred

     3,204   
  

 

 

 

Asset acquired:

  

Cash and cash equivalents

     159,520   

Loans

     289   

Premises and equipment

     1,590   

Core deposit intangible

     2,046   

Other assets

     141   
  

 

 

 

Total assets acquired

     163,586   
  

 

 

 

Liabilities assumed:

  

Deposits

     161,231   
  

 

 

 

Total liabilities assumed

     161,231   
  

 

 

 

Total net assets acquired

     2,355   
  

 

 

 

Goodwill recognized

   $ 849   
  

 

 

 

 

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Note 2 - Business Combinations (continued)

 

A summary of the cash paid and estimated fair value adjustments resulting in the goodwill recorded in the acquisition of three branch banking offices and certain deposits from Bank of America on March 18, 2016 are presented below:

 

     March 18, 2016  
(in thousands)       

Cash paid

   $ 3,204   

Cost basis net assets acquired

     —     

Fair value adjustments:

  

Loans

     —     

Premises and Equipment

     (309

Core deposit intangible

     (2,046
  

 

 

 

Goodwill

   $ 849   
  

 

 

 

As part of the acquisition of three branch banking offices from Bank of America, the Company performed a valuation of premises and equipment acquired. This valuation resulted in a $309,000 increase in the net book value of the land and buildings acquired, and was based on current appraisals of such land and buildings.

The Company recognized a core deposit intangible of $2,046,000 related to the acquisition of the core deposits. The recorded core deposit intangibles represented approximately 1.50% of the core deposits acquired and will be amortized over their estimated useful lives of 7 years.

A valuation of the time deposits acquired was also performed as of the acquisition date. Time deposits were split into similar pools based on size, type of time deposits, and maturity. A discounted cash flow analysis was performed on the pools based on current market rates currently paid on similar time deposits. The valuation resulted in no material fair value discount or premium, and none was recorded.

 

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Note 3 - Investment Securities

The amortized cost and estimated fair values of investments in debt and equity securities are summarized in the following tables:

 

     March 31, 2016  
            Gross      Gross     Estimated  
     Amortized      Unrealized      Unrealized     Fair  
     Cost      Gains      Losses     Value  
Securities Available for Sale    (in thousands)  

Obligations of U.S. government corporations and agencies

   $ 354,388       $ 5,903       $ (38   $ 360,253   

Obligations of states and political subdivisions

     111,796         2,552         (174     114,174   

Marketable equity securities

     3,000         27         —          3,027   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available for sale

   $ 469,184       $ 8,482       $ (212   $ 477,454   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities Held to Maturity

                          

Obligations of U.S. government corporations and agencies

   $ 690,592       $ 18,317       $ (42   $ 708,867   

Obligations of states and political subdivisions

     14,541         402         (33     14,910   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities held to maturity

   $ 705,133       $ 18,719       $ (75   $ 723,777   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2015  
            Gross      Gross     Estimated  
     Amortized      Unrealized      Unrealized     Fair  
     Cost      Gains      Losses     Value  
Securities Available for Sale    (in thousands)  

Obligations of U.S. government corporations and agencies

   $ 312,917       $ 2,761       $ (1,996   $ 313,682   

Obligations of states and political subdivisions

     86,823         1,428         (33     88,218   

Corporate debt securities

     —           —           —          —     

Marketable equity securities

     3,000         —           (15     2,985   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available for sale

   $ 402,740       $ 4,189       $ (2,044   $ 404,885   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities Held to Maturity

                          

Obligations of U.S. government corporations and agencies

   $ 711,994       $ 8,394       $ (2,882   $ 717,506   

Obligations of states and political subdivisions

     14,536         277         (110     14,703   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities held to maturity

   $ 726,530       $ 8,671       $ (2,992   $ 732,209   
  

 

 

    

 

 

    

 

 

   

 

 

 

No investment securities were sold during the three months ended March 31, 2016 or the three months ended March 31, 2015. Investment securities with an aggregate carrying value of $288,887,000 and $297,547,000 at March 31, 2016 and December 31, 2015, respectively, were pledged as collateral for specific borrowings, lines of credit and local agency deposits.

The amortized cost and estimated fair value of debt securities at March 31, 2016 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2016, obligations of U.S. government corporations and agencies with a cost basis totaling $1,044,980,000 consist almost entirely of mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At March 31, 2016, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 4.8 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

 

Investment Securities

   Available for Sale      Held to Maturity  
(In thousands)    Amortized      Estimated      Amortized      Estimated  
     Cost      Fair Value      Cost      Fair Value  

Due in one year

   $ 5       $ 5         —           —     

Due after one year through five years

     13,608         14,124       $ 1,154       $ 1,178   

Due after five years through ten years

     16,948         17,856         838         899   

Due after ten years

     438,623         445,469         703,141         721,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 469,184       $ 477,454       $ 705,133       $ 723,777   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

     Less than 12 months     12 months or more     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
March 31, 2016    Value      Loss     Value      Loss     Value      Loss  
Securities Available for Sale:    (in thousands)  

Obligations of U.S. government corporations and agencies

   $ 31,493       $ (38     —           —        $ 31,493       $ (38

Obligations of states and political subdivisions

     18,092         (164   $ 2,777       $ (10     20,869         (174

Marketable equity securities

     —           —          —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total securities available-for-sale

   $   49,585       $ (202   $ 2,777       $ (10   $ 52,362       $ (212
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
Securities Held to Maturity:                                        

Obligations of U.S. government corporations and agencies

     —           —        $ 16,205       $ (42   $ 16,025       $ (42

Obligations of states and political subdivisions

   $ 1,188       $ (33     —           —          1,188         (33
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total securities held-to-maturity

   $ 1,188       $ (33   $ 16,025       $ (42   $   17,213       $ (75
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

     Less than 12 months     12 months or more     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
December 31, 2015    Value      Loss     Value      Loss     Value      Loss  
Securities Available for Sale:    (in thousands)  

Obligations of U.S. government corporations and agencies

   $ 193,306       $ (1,996     —           —        $ 193,306       $ (1,996

Obligations of states and political subdivisions

     6,469         (33     —           —          6,469         (33

Marketable equity securities

     2,985         (15     —           —          2,985         (15
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total securities available-for-sale

   $ 202,760       $ (2,044     —           —        $ 202,760       $ (2,044
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
Securities Held to Maturity:                                        

Obligations of U.S. government corporations and agencies

   $ 198,481       $ (2,882     —           —        $ 198,481       $ (2,882

Obligations of states and political subdivisions

     497         (11   $ 1,121       $ (99     1,618         (110
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total securities held-to-maturity

   $ 198,978       $ (2,893   $   1,121       $ (99   $ 200,099       $ (2,992
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Obligations of U.S. government corporations and agencies: Unrealized losses on investments in obligations of U.S. government corporations and agencies are caused by interest rate increases. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At March 31, 2016, 5 debt securities representing obligations of U.S. government corporations and agencies had unrealized losses with aggregate depreciation of (0.17%) from the Company’s amortized cost basis.

Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At March 31, 2016, 15 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of (0.93%) from the Company’s amortized cost basis.

Marketable equity securities: At March 31, 2016, no marketable equity securities had unrealized losses.

 

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Table of Contents

Note 4 – Loans

A summary of loan balances follows (in thousands):

 

     March 31, 2016  
                 PCI -     PCI -        
     Originated     PNCI     Cash basis     Other     Total  

Mortgage loans on real estate:

          

Residential 1-4 family

   $ 212,382      $ 101,117        —        $ 1,636      $ 315,135   

Commercial

     1,209,721        286,943        —          17,189        1,513,853   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loan on real estate

     1,422,103        388,060        —          18,825        1,828,988   

Consumer:

          

Home equity lines of credit

     277,253        28,148      $ 4,647        2,643        312,691   

Home equity loans

     35,712        4,016        124        1,513        41,365   

Auto Indirect

     —          —          —          —          —     

Other

     29,863        3,018        —          64        32,945   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loans

     342,828        35,182        4,771        4,220        387,001   

Commercial

     174,505        17,521        —          4,531        196,557   

Construction:

          

Residential

     38,748        13,523        —          712        52,983   

Commercial

     68,311        7,707        —          —          76,018   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total construction

     107,059        21,230        —          712        129,001   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of deferred loan fees and discounts

   $ 2,046,495      $ 461,993      $ 4,771      $ 28,288      $ 2,541,547   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total principal balance of loans owed, net of charge-offs

   $ 2,052,057      $ 475,095      $ 12,085      $ 33,356      $ 2,572,593   

Unamortized net deferred loan fees

     (5,562     —          —          —          (5,562

Discounts to principal balance of loans owed, net of charge-offs

     —          (13,102     (7,314     (5,068     (25,484
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees and discounts

   $ 2,046,495      $ 461,993      $ 4,771      $ 28,288      $ 2,541,547   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncovered loans

   $ 2,046,495      $ 461,993      $ 4,771      $ 23,532      $ 2,536,791   

Covered loans

     —          —          —          4,756        4,756   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees and discounts

   $ 2,046,495      $ 461,993      $ 4,771      $ 28,288      $ 2,541,547   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses

   $ (31,168   $ (2,222   $ (118   $ (2,880   $ (36,388
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents

Note 4 – Loans (continued)

 

A summary of loan balances follows (in thousands):

 

     December 31, 2015  
                 PCI -     PCI -        
     Originated     PNCI     Cash basis     Other     Total  

Mortgage loans on real estate:

          

Residential 1-4 family

   $ 207,585      $ 104,535        —        $ 2,145      $ 314,265   

Commercial

     1,163,643        310,864        —          23,060        1,497,567   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loan on real estate

     1,371,228        415,399        —          25,205        1,811,832   

Consumer:

          

Home equity lines of credit

     285,419        29,335      $ 4,954        2,784        322,492   

Home equity loans

     34,717        4,018        124        1,503        40,362   

Other

     28,998        3,367        —          64        32,429   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loans

     349,134        36,720        5,078        4,351        395,283   

Commercial

     170,320        19,744        1        4,848        194,913   

Construction:

          

Residential

     31,778        13,636        —          721        46,135   

Commercial

     66,285        8,489        —          —          74,774   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total construction

     98,063        22,125        —          721        120,909   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of deferred loan fees and discounts

   $ 1,988,745      $ 493,988      $ 5,079      $ 35,125      $ 2,522,937   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total principal balance of loans owed, net of charge-offs

   $ 1,995,296      $ 507,935      $ 12,686      $ 39,693      $ 2,555,610   

Unamortized net deferred loan fees

     (6,551     —          —          —          (6,551

Discounts to principal balance of loans owed, net of charge-offs

     —          (13,947     (7,607     (4,568     (26,122
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees and discounts

   $ 1,988,745      $ 493,988      $ 5,079      $ 35,125      $ 2,522,937   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncovered loans

   $ 1,988,745      $ 493,988      $ 5,079      $ 29,890      $ 2,517,702   

Covered loans

     —          —          —          5,235        5,235   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees and discounts

   $ 1,988,745      $ 493,988      $ 5,079      $ 35,125      $ 2,522,937   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses

   $ (31,271   $ (1,848   $ (121   $ (2,771   $ (36,011
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following is a summary of the change in accretable yield for PCI – other loans during the periods indicated (in thousands):

 

     Three months ended March 31,  
     2016      2015  

Change in accretable yield:

     

Balance at beginning of period

   $ 13,255       $ 14,159   

Accretion to interest income

     (1,091      (1,818

Reclassification (to) from nonaccretable difference

     (184      1,061   
  

 

 

    

 

 

 

Balance at end of period

   $ 11,980       $ 13,402   
  

 

 

    

 

 

 

 

16


Table of Contents

Note 5 – Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, and ending balance of loans, net of unearned fees for the periods indicated.

 

    Allowance for Loan Losses – Three Months Ended March 31, 2016  
    RE Mortgage     Home Equity     Auto     Other           Construction        
(in thousands)   Resid.     Comm.     Lines     Loans     Indirect     Consum.     C&I     Resid.     Comm.     Total  

Beginning balance

  $ 2,507      $ 11,443      $ 11,253      $ 3,138        —        $ 688      $ 5,271      $ 899      $ 812      $      36,011   

Charge-offs

    (37     (793     (214     —          —          (207     (38     —          —          (1,289

Recoveries

    2        817        281        49        —          130        177        —          1        1,457   

(Benefit) provision

    293        428        (1,413     (76     —          76        729        167        5        209   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 2,765      $ 11,895      $ 9,907      $ 3,111        —        $ 687      $ 6,139      $ 1,066      $      818      $ 36,388   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

                   

Individ. evaluated for impairment

  $ 454      $ 295      $ 705      $ 248        —        $ 84      $ 1,934        —          —        $ 3,720   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

  $   2,094      $    10,141      $ 9,083      $ 2,864        —        $     603      $     3,053      $   1,014      $ 818      $ 29,670   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

  $ 217      $ 1,459      $ 117        —          —          —        $ 1,153      $ 52        —        $ 2,998   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Loans, net of unearned fees – As of March 31, 2016  
    RE Mortgage     Home Equity     Auto     Other           Construction        
(in thousands)   Resid.     Comm.     Lines     Loans     Indirect     Consum.     C&I     Resid.     Comm.     Total  

Ending balance:

                   

Total loans

  $ 315,135      $ 1,513,853      $ 312,691      $ 41,365        —        $ 32,945      $ 196,557      $ 52,983      $ 76,018      $ 2,541,547   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individ. evaluated for impairment

  $ 7,015      $ 12,230      $ 5,994      $ 1,928        —        $ 300      $ 3,871        —          —        $ 31,338   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

  $ 306,484      $ 1,484,434      $ 299,407      $ 37,800        —        $ 32,581      $ 188,155      $ 52,271      $ 76,018      $ 2,477,150   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with Deteriorated credit quality

  $ 1,636      $ 17,189      $ 7,290      $ 1,637        —        $ 64      $ 4,531      $ 712        —        $ 33,059   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Allowance for Loan Losses - Year Ended December 31, 2015  
    RE Mortgage     Home Equity     Auto     Other           Construction        
(in thousands)   Resid.     Comm.     Lines     Loans     Indirect     Consum.     C&I     Resid.     Comm.     Total  

Beginning balance

  $ 3,086      $ 9,227      $ 15,676      $ 1,797      $ 9      $ 719      $ 4,226      $ 1,434      $ 411      $ 36,585   

Charge-offs

    (224     —          (694     (242     (4     (972     (680     —          —          (2,816

Recoveries

    204        243        666        252        42        500        677        1,728        140        4,452   

(Benefit) provision

    (559     1,973        (4,395     1,331        (47     441        1,048        (2,263     261        (2,210
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 2,507      $ 11,443      $ 11,253      $ 3,138        —        $ 688      $ 5,271      $ 899      $ 812      $ 36,011   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

                   

Individ. evaluated for impairment

  $ 335      $ 395      $ 605      $ 294        —        $ 74      $ 1,187        —          —        $ 2,890   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

  $ 2,112      $ 9,596      $ 10,423      $ 2,844        —        $ 614      $ 2,983      $ 844      $ 812      $ 30,228   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

  $ 60      $ 1,452      $ 225        —          —          —        $ 1,101      $ 55        —        $ 2,893   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Loans, net of unearned fees – As of December 31, 2015  
    RE Mortgage     Home Equity     Auto     Other           Construction        
(in thousands)   Resid.     Comm.     Lines     Loans     Indirect     Consum.     C&I     Resid.     Comm.     Total  

Ending balance:

                   

Total loans

  $ 314,265      $ 1,497,567      $ 322,492      $ 40,362        —        $ 32,429      $ 194,913      $ 46,135      $ 74,774      $ 2,522,937   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individ. evaluated for impairment

  $ 6,767      $ 32,407      $ 5,747      $ 1,731        —        $ 288      $ 2,671      $ 4      $ 490      $ 50,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

  $ 305,353      $ 1,442,100      $ 309,007      $ 37,004        —        $ 32,077      $ 187,393      $ 45,410      $ 74,284      $ 2,432,628   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

  $ 2,145      $ 23,060      $ 7,738      $ 1,627        —        $ 64      $ 4,849      $ 721        —        $ 40,204   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

17


Table of Contents

Note 5 – Allowance for Loan Losses (continued)

 

     Allowance for Loan Losses – Three Months Ended March 31, 2015  
     RE Mortgage      Home Equity     Auto     Other           Construction        
(in thousands)    Resid.     Comm.      Lines     Loans     Indirect     Consum.     C&I     Resid.     Comm.     Total  

Beginning balance

   $ 3,086      $ 9,227       $ 15,676      $ 1,797      $ 9      $      719      $     4,226      $   1,434      $      411      $      36,585   

Charge-offs

     (81     —           (341     (11     —          (268     (534     —          —          (1,235

Recoveries

     1        96         119        3        20        152        87        11        19        508   

(Benefit) provision

     (241     1,128         (221     191        (23     41        197        (695     (180     197   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $     2,765      $      10,451       $ 15,233      $ 1,980      $ 6      $ 644      $ 3,976      $ 750      $ 250      $ 36,055   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

                     

Individ. evaluated for impairment

   $ 988      $ 799       $ 1,857      $ 337      $ 1      $ 92      $ 559      $ 59        —        $ 4,692   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

   $ 1,709      $ 8,464       $   12,932      $   1,643      $ 5      $ 552      $ 2,205      $ 505      $ 250      $ 28,265   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

   $ 69      $ 1,188       $ 443        —          —          —        $ 1,212      $ 186        —        $ 3,098   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Loans, net of unearned fees – As of March 31, 2015  
     RE Mortgage      Home Equity     Auto     Other           Construction        
(in thousands)    Resid.     Comm.      Lines     Loans     Indirect     Consum.     C&I     Resid.     Comm.     Total  

Ending balance:

                     

Total loans

   $ 282,383      $ 1,364,480       $ 345,210      $ 32,486      $  32      $  32,999      $  177,540      $  40,105      $  45,648      $ 2,320,883   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individ. evaluated for impairment

   $ 7,786      $ 44,523       $ 6,290      $ 1,359      $ 14      $ 338      $ 1,967      $ 2,655      $ 94      $ 65,026   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

   $ 270,571      $ 1,292,006       $ 329,961      $ 30,374      $ 18      $ 32,591      $ 168,517      $ 36,714      $ 45,554      $ 2,206,306   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

   $ 4,026      $ 27,951       $ 8,959      $ 753        —        $ 70      $ 7,056      $ 736        —        $ 49,551   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio.

The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:

 

    Pass – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

 

    Special Mention – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

 

    Substandard – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well defined workout/rehabilitation program.

 

    Doubtful – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

 

    Loss – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

 

18


Table of Contents

Note 5 – Allowance for Loan Losses (continued)

 

The following tables present ending loan balances by loan category and risk grade for the periods indicated:

 

     Credit Quality Indicators – As of March 31, 2016  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

Originated loans:

                             

Pass

   $ 204,764       $ 1,185,024       $ 267,767       $ 31,962         —         $ 29,237       $ 168,284       $ 38,414       $ 68,311       $ 1,993,763   

Special mention

     2,178         10,483         2,760         1,104         —           459         3,517         334         —           20,835   

Substandard

     5,440         14,214         6,726         2,646         —           167         2,704         —           —           31,897   

Loss

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated

   $ 212,382       $ 1,209,721       $ 277,253       $ 35,712         —         $ 29,863       $ 174,505       $ 38,748       $ 68,311       $ 2,046,495   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PNCI loans:

                             

Pass

   $ 99,140       $ 267,577       $ 26,632       $ 3,791         —         $ 2,829       $ 17,252       $ 13,523       $ 7,707       $ 438,451   

Special mention

     593         11,550         410         77         —           62         —           —           —           12,692   

Substandard

     1,384         7,816         1,106         148         —           127         269         —           —           10,850   

Loss

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI

   $ 101,117       $ 286,943       $ 28,148       $ 4,016         —         $ 3,018       $ 17,521       $ 13,523       $ 7,707       $ 461,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PCI loans

   $ 1,636       $ 17,189       $ 7,290       $ 1,637         —         $ 64       $ 4,531       $ 712         —         $ 33,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 315,135       $ 1,513,853       $ 312,691       $ 41,365         —         $ 32,945       $ 196,557       $ 52,983       $ 76,018       $ 2,541,547   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Credit Quality Indicators – As of December 31, 2015  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

Originated loans:

                             

Pass

   $ 199,837       $ 1,118,868       $ 275,251       $ 31,427         —         $ 28,339       $ 166,559       $ 31,440       $ 66,285       $ 1,918,006   

Special mention

     2,018         10,321         2,494         1,027         —           415         1,037         334         —           17,646   

Substandard

     5,730         34,454         7,674         2,263         —           244         2,724         4         —           53,093   

Loss

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated

   $ 207,585       $ 1,163,643       $ 285,419       $ 34,717         —         $ 28,998       $ 170,320       $ 31,778       $ 66,285       $ 1,988,745   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PNCI loans:

                             

Pass

   $ 102,895       $ 293,935       $ 27,378       $ 3,789         —         $ 3,164       $ 19,666       $ 13,636       $ 8,489       $ 472,952   

Special mention

     600         10,795         445         80         —           74         —           —           —           11,994   

Substandard

     1,040         6,134         1,512         149         —           129         78         —           —           9,042   

Loss

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI

   $ 104,535       $ 310,864       $ 29,335       $ 4,018         —         $ 3,367       $ 19,744       $ 13,636       $ 8,489       $ 493,988   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PCI loans

   $ 2,145       $ 23,060       $ 7,738       $ 1,627         —         $ 64       $ 4,849       $ 721         —         $ 40,204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 314,265       $ 1,497,567       $ 322,492       $ 40,362         —         $ 32,429       $ 194,913       $ 46,135       $ 74,774       $ 2,522,937   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal property, are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of the two.

Problem consumer loans are generally identified by payment history of the borrower (delinquency). The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to encourage repayment, suggest modifications if appropriate, and, when continued scheduled payments become unrealistic, initiate repossession or foreclosure through appropriate channels. Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the loan has been classified.

Commercial real estate loans generally fall into two categories, owner-occupied and non-owner occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the business conditions of the related business. This may be driven by, among other things, industry changes, geographic business changes, changes in the individual fortunes of the business owner, and general economic conditions and changes in business cycles. These same risks apply to commercial loans whether secured by equipment or other personal property or unsecured. Losses on loans secured by owner occupied real estate, equipment, or other personal property generally are dictated by the value of underlying collateral at the time of default and liquidation of the collateral. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven by more general economic conditions, underlying collateral generally has devalued more and results in larger losses due to default. Loans secured by non-owner occupied real estate are primarily susceptible to risks associated with swings in occupancy or vacancy and related shifts in lease rates, rental rates or room rates. Most often these shifts are a result of changes in general economic or market conditions or overbuilding and resultant over-supply. Losses are dependent on value of underlying collateral at the time of default. Values are generally driven by these same factors and influenced by interest rates and required rates of return as well as changes in occupancy costs.

 

19


Table of Contents

Note 5 – Allowance for Loan Losses (continued)

 

Construction loans, whether owner occupied or non-owner occupied commercial real estate loans or residential development loans, are not only susceptible to the related risks described above but the added risks of construction itself including cost over-runs, mismanagement of the project, or lack of demand or market changes experienced at time of completion. Again, losses are primarily related to underlying collateral value and changes therein as described above.

Problem C&I loans are generally identified by periodic review of financial information which may include financial statements, tax returns, rent rolls and payment history of the borrower (delinquency). Based on this information the Bank may decide to take any of several courses of action including demand for repayment, additional collateral or guarantors, and, when repayment becomes unlikely through borrower’s income and cash flow, repossession or foreclosure of the underlying collateral.

Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the loan has been classified.

Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss, using a recent valuation as appropriate to the underlying collateral less estimated costs of sale, and charge the loan down to the estimated net realizable amount. Depending on the length of time until ultimate collection, the Bank may revalue the underlying collateral and take additional charge-offs as warranted. Revaluations may occur as often as every 3-12 months depending on the underlying collateral and volatility of values. Final charge-offs or recoveries are taken when collateral is liquidated and actual loss is known. Unpaid balances on loans after or during collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment liens on borrower’s other assets.

The following table shows the ending balance of current, past due, and nonaccrual originated loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual Originated Loans – As of March 31, 2016  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

Originated loan balance:

  

                          

Past due:

                             

30-59 Days

   $ 1,018       $ 496       $ 1,076       $ 641         —         $ 59       $ 290         —           —         $ 3,580   

60-89 Days

     72         —           237         497         —           20         195         —           —           1,021   

> 90 Days

     271         643         356         154         —           11         794         —           —           2,229   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     1,361         1,139         1,669         1,292         —           90         1,279         —           —           6,830   

Current

     211,021         1,208,582         275,584         34,420         —           29,773         173,226       $ 38,748       $ 68,311         2,039,665   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total orig. loans

   $ 212,382       $ 1,209,721       $ 277,253       $ 35,712         —         $ 29,863       $ 174,505       $ 38,748       $ 68,311       $ 2,046,495   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

   $ 2,963       $ 2,794       $ 3,383       $ 1,292         —         $ 11       $ 2,204       $ 12         —         $ 12,659   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the ending balance of current, past due, and nonaccrual PNCI loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual PNCI Loans – As of March 31, 2016  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

PNCI loan balance:

                             

Past due:

                             

30-59 Days

   $ 1,523         —           —         $ 60         —         $ 4         —           —         $ 56       $ 1,643   

60-89 Days

     —           —           —           —           —           —           —           —           —           —     

> 90 Days

     401       $ 80       $ 18         71         —           9         —           —           —           579   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     1,924         80         18         131         —           13         —           —           56         2,222   

Current

     99,193         286,863         28,130         3,885         —           3,005       $ 17,521       $ 13,523         7,651         459,771   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI loans

   $ 101,117       $ 286,943       $ 28,148       $ 4,016         —         $ 3,018       $ 17,521       $ 13,523       $ 7,707       $ 461,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

   $ 679       $ 2,736       $ 539       $ 108         —         $ 31         —           —           —         $ 4,093   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

Note 5 – Allowance for Loan Losses (continued)

 

The following table shows the ending balance of current, past due, and nonaccrual originated loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual Originated Loans – As of December 31, 2015  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

Originated loan balance:

  

                          

Past due:

                             

30-59 Days

   $ 791       $ 200       $ 1,033       $ 402         —         $ 12       $ 2,197         —           —         $ 4,635   

60-89 Days

     —           491         324         341         —           40         —           —           —           1,196   

> 90 Days

     271         3,425         520         82         —           19         24         —           —           4,341   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     1,062         4,116         1,877         825         —           71         2,221         —           —           10,172   

Current

     206,523         1,159,527         283,542         33,892         —           28,927         168,099       $ 31,778       $ 66,285         1,978,573   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total orig. loans

   $ 207,585       $ 1,163,643       $ 285,419       $ 34,717         —         $ 28,998       $ 170,320       $ 31,778       $ 66,285       $ 1,988,745   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

   $ 3,045       $ 14,196       $ 3,379       $ 1,195         —         $ 21       $ 976       $ 12         —         $ 22,824   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the ending balance of current, past due, and nonaccrual PNCI loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual PNCI Loans – As of December 31, 2015  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

PNCI loan balance:

                             

Past due:

                             

30-59 Days

   $ 3,106       $ 4,037       $ 92       $ 23         —           —         $ 1         —           —         $ 7,259   

60-89 Days

     —           —           —           —           —         $ 13         —           —           —           13   

> 90 Days

     58         748         275         71         —           10         —           —         $ 490         1,652   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     3,164         4,785         367         94         —           23         1         —           490         8,924   

Current

     101,371         306,079         28,968         3,924         —           3,344         19,743       $ 13,636         7,999         485,064   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI loans

   $ 104,535       $ 310,864       $ 29,335       $ 4,018         —         $ 3,367       $ 19,744       $ 13,636       $ 8,489       $ 493,988   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

   $ 348       $ 3,742       $ 676       $ 109         —         $ 33         —           —         $ 490       $ 5,398   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired originated loans are those where management has concluded that it is probable that the borrower will be unable to pay all amounts due under the contractual terms. The following tables show the recorded investment (financial statement balance), unpaid principal balance, average recorded investment, and interest income recognized for impaired Originated and PNCI loans, segregated by those with no related allowance recorded and those with an allowance recorded for the periods indicated.

 

     Impaired Originated Loans – As of, or for the Three Months Ended, March 31, 2016  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

With no related allowance recorded:

                             

Recorded investment

   $ 3,806       $ 7,917       $ 3,457       $ 1,154       $ 1       $ 10       $ 520         —             —         $ 16,865   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 5,963       $ 8,393       $ 6,325       $ 1,598       $ 10       $ 14       $ 635       $    63         —         $ 23,001   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 3,846       $ 17,513       $ 3,210       $ 1,051       $ 2       $ 13       $ 548       $ 2         —         $ 26,185   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 19       $ 72       $ 8       $ 3         —           —         $ 7         —           —         $ 109   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

                             

Recorded investment

   $ 1,991       $ 1,440       $ 1,304       $ 666         —           —         $ 3,351         —           —         $ 8,752   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 2,065       $ 1,480       $ 1,393       $ 696         —           —         $ 3,376         —           —         $ 9,010   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Related allowance

   $ 324       $ 175       $ 474       $ 248         —           —         $ 1,934         —           —         $ 3,155   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 1,998       $ 1,429       $ 1,514       $ 670         —         $ 1       $ 2,722         —           —         $ 8,334   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 13       $ 20       $ 4       $ 5         —           —         $ 34         —           —         $ 76   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

Note 5 – Allowance for Loan Losses (continued)

 

     Impaired PNCI Loans – As of, or for the Three Months Ended, March 31, 2016  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

With no related allowance recorded:

                             

Recorded investment

   $ 604       $ 844       $ 539       $ 108         —         $ 31         —           —           —         $ 2,126   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 643       $ 908       $ 597       $ 112         —         $ 51         —           —           —         $ 2,311   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 740       $ 988       $ 497       $ 89         —         $ 32       $ 1         —         $ 245       $ 2,592   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 2         —           —           —           —           —           —           —           —         $ 2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

                             

Recorded investment

   $ 614       $ 2,029       $ 694         —           —         $ 258         —           —           —         $ 3,595   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 614       $ 2,142       $ 694         —           —         $ 258         —           —           —         $ 3,708   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Related allowance

   $ 130       $ 120       $ 231         —           —         $ 84         —           —           —         $ 565   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 307       $ 2,389       $ 650       $ 19         —         $ 246         —           —           —         $ 3,611   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 2       $ 2       $ 7         —           —         $ 3         —           —           —         $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Impaired Originated Loans – As of December 31, 2015  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

With no related allowance recorded:

                             

Recorded investment

   $ 3,886       $ 27,109       $ 2,963       $ 947         —         $ 20       $ 576       $ 4         —         $ 35,505   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 5,998       $ 29,678       $ 6,079       $ 1,349         —         $ 35       $ 688       $ 65         —         $ 43,892   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 3,586       $ 32,793       $ 2,982       $ 848         —         $ 29       $ 494       $ 1,202       $ 50       $ 41,984   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 81       $ 893       $ 23       $ 5         —           —         $ 29         —           —         $ 1,031   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

                             

Recorded investment

   $ 2,006       $ 1,418       $ 1,724       $ 674         —         $ 1       $ 2,094         —           —         $ 7,917   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 2,073       $ 1,453       $ 1,904       $ 701         —         $ 1       $ 2,117         —           —         $ 8,249   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Related allowance

   $ 335       $ 146       $ 525       $ 256         —         $ 1       $ 1,187         —           —         $ 2,450   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 2,365       $ 2,180       $ 2,455       $ 589         —         $ 23       $ 1,716       $ 141         —         $ 9,469   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 49       $ 74       $ 31       $ 26         —           —         $ 122         —           —         $ 302   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Impaired PNCI Loans – As of December 31, 2015  
     RE Mortgage      Home Equity      Auto      Other             Construction         
(in thousands)    Resid.      Comm.      Lines      Loans      Indirect      Consum.      C&I      Resid.      Comm.      Total  

With no related allowance recorded:

                             

Recorded investment

   $ 875       $ 1,132       $ 454       $ 71         —         $ 33       $ 1         —         $ 490       $ 3,056   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unpaid principal

   $ 908       $ 1,248       $ 505       $ 73         —         $ 52       $ 1         —         $ 490       $ 3,277   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average recorded Investment

   $ 609       $ 749       $ 400       $ 48         —         $ 35       $ 4         —         $ 245       $ 2,090   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest income Recognized

   $ 31       $ 32       $ 3       $ 2         —         $ 1         —           —         $ 18       $