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EX-32.2 - EXHIBIT 32.2 - WESTAMERICA BANCORPORATIONexh_322.htm
EX-32.1 - EXHIBIT 32.1 - WESTAMERICA BANCORPORATIONexh_321.htm
EX-31.2 - EXHIBIT 31.2 - WESTAMERICA BANCORPORATIONexh_312.htm
EX-31.1 - EXHIBIT 31.1 - WESTAMERICA BANCORPORATIONexh_311.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

  or  
  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: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

CALIFORNIA

(State or Other Jurisdiction of

Incorporation or Organization)

 

94-2156203

(I.R.S. Employer

Identification No.)

 

1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901

(Address of Principal Executive Offices) (Zip Code)

 

Registrant's Telephone Number, Including Area Code (707) 863-6000

 

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.

 

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).

 

Yes ☒ No ☐

 

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

 

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
  (Do not check if a 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 ☐ No ☒

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

 

Title of Class Shares outstanding as of October 25, 2016
   
Common Stock,
No Par Value
25,671,339

 

 

 

 

 

 
 

TABLE OF CONTENTS

 

   Page
   
Forward Looking Statements 3
   
PART I - FINANCIAL INFORMATION  
   
Item 1 Financial Statements 4
   
  Notes to Unaudited Consolidated Financial Statements   9
   
  Financial Summary  30
   
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations  31
   
Item 3 Quantitative and Qualitative Disclosures about Market Risk  52
   
Item 4 Controls and Procedures  53
   
PART II - OTHER INFORMATION  
   
Item 1 Legal Proceedings  53
   
Item 1A Risk Factors  53
   
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds  53
   
Item 3 Defaults upon Senior Securities   54
   
Item 4 Mine Safety Disclosures    54
   
Item 5 Other Information  54
   
Item 6 Exhibits  54
   
Signatures  55
   
Exhibit Index  56
   
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)  57
   
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)  58
   
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350  59
   
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350  60

 

 

- 2 -
 

FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains forward-looking statements about Westamerica Bancorporation (the “Company”) for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, future credit quality and performance, the appropriateness of the allowance for loan losses, loan growth or the reduction, mitigation of risk in the Company’s loan and investment portfolios, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", “estimates”, "intends", "targeted", "projected", “forecast”, "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. 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. These factors include but are not limited to (1) the length and severity of difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, flood, drought, and other disasters, on the uninsured value of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (13) changes in the securities markets and (14) the outcome of contingencies, such as legal proceedings. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2015, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. However, the reader should not consider these factors to be a complete set of all potential risks or uncertainties.

 

Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law.

 

- 3 -
 

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

 

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

    At September 30,
2016
  At December 31,
2015
    (In thousands)
Assets:                
Cash and due from banks   $ 471,367     $ 433,044  
Investment securities available for sale     1,762,408       1,570,216  
Investment securities held to maturity, with fair values of: $1,440,119 at September 30, 2016 and $1,325,699 at December 31, 2015     1,411,019       1,316,075  
Loans     1,364,329       1,533,396  
Allowance for loan losses     (26,359 )     (29,771 )
Loans, net of allowance for loan losses     1,337,970       1,503,625  
Other real estate owned     3,032       9,264  
Premises and equipment, net     37,059       38,693  
Identifiable intangibles, net     7,789       10,431  
Goodwill     121,673       121,673  
Other assets     154,461       165,854  
Total Assets   $ 5,306,778     $ 5,168,875  
                 
Liabilities:                
Noninterest bearing deposits   $ 2,064,988     $ 2,026,049  
Interest bearing deposits     2,579,882       2,514,610  
Total deposits     4,644,870       4,540,659  
Short-term borrowed funds     56,358       53,028  
Other liabilities     42,554       42,983  
Total Liabilities     4,743,782       4,636,670  
                 
Shareholders' Equity:                
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 25,665 at September 30, 2016 and 25,528 at December 31, 2015     391,601       378,858  
Deferred compensation     1,533       2,578  
Accumulated other comprehensive income     9,001       675  
Retained earnings     160,861       150,094  
Total Shareholders' Equity     562,996       532,205  
Total Liabilities and  Shareholders' Equity   $ 5,306,778     $ 5,168,875  

 

See accompanying notes to unaudited consolidated financial statements.

 

- 4 -
 

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

    For the Three Months   For the Nine  Months
    Ended September 30,
    2016   2015   2016   2015
    (In thousands, except per share data)
Interest and Fee Income:                                
Loans   $ 16,968     $ 19,378     $ 52,904     $ 59,643  
Investment securities available for sale     8,796       7,880       24,855       23,347  
Investment securities held to maturity     7,704       7,041       23,083       19,651  
Total Interest and Fee Income     33,468       34,299       100,842       102,641  
Interest Expense:                                
Deposits     512       573       1,586       1,816  
Short-term borrowed funds     11       12       30       44  
Federal Home Loan Bank advances     -       -       -       1  
Total Interest Expense     523       585       1,616       1,861  
Net Interest Income     32,945       33,714       99,226       100,780  
Reversal of Provision for Loan Losses     (3,200 )     -       (3,200 )     -  
Net Interest Income After Reversal of Provision For Loan Losses     36,145       33,714       102,426       100,780  
Noninterest Income:                                
Service charges on deposit accounts     5,303       5,581       15,790       16,981  
Debit card fees     1,587       1,538       4,724       4,528  
Merchant processing services     1,532       1,485       4,699       4,971  
Trust fees     686       682       2,004       2,061  
Other service fees     671       693       1,951       2,041  
ATM processing fees     600       616       1,860       1,828  
Financial services commissions     118       177       411       527  
Other     1,101       1,221       3,590       3,625  
Total Noninterest Income     11,598       11,993       35,029       36,562  
Noninterest Expense:                                
Salaries and related benefits     13,063       12,761       39,067       39,795  
Occupancy     3,749       3,746       10,546       11,199  
Outsourced data processing services     2,114       2,115       6,375       6,334  
Professional fees     1,693       746       3,183       1,876  
Furniture and equipment     1,211       1,075       3,611       3,353  
Amortization of identifiable intangibles     867       952       2,642       2,908  
Courier service     451       604       1,458       1,744  
Other real estate owned     (206 )     83       (487 )     451  
Other     3,146       4,091       10,780       12,136  
Total Noninterest Expense     26,088       26,173       77,175       79,796  
Income Before Income Taxes     21,655       19,534       60,280       57,546  
Provision for income taxes     6,027       4,677       15,880       13,371  
Net Income   $ 15,628     $ 14,857     $ 44,400     $ 44,175  
                                 
Average Common Shares Outstanding     25,641       25,530       25,558       25,565  
Diluted Average Common Shares Outstanding     25,687       25,565       25,595       25,585  
Per Common Share Data:                                
Basic earnings   $ 0.61     $ 0.58     $ 1.74     $ 1.73  
Diluted earnings     0.61       0.58       1.73       1.73  
Dividends paid     0.39       0.38       1.17       1.14  

 

See accompanying notes to unaudited consolidated financial statements.

 

- 5 -
 

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

    For the Three Months   For the Nine Months
    Ended September 30,
    2016   2015   2016   2015
    (In thousands)
Net income   $ 15,628     $ 14,857     $ 44,400     $ 44,175  
Other comprehensive (loss) income:                                
(Decrease) increase in net unrealized gains on securities available for sale     (4,992 )     5,522       14,319       3,242  
Deferred tax benefit (expense)     2,099       (2,321 )     (6,020 )     (1,363 )
(Decrease) increase in net unrealized gains on securities available for sale, net of tax     (2,893 )     3,201       8,299       1,879  
Post-retirement benefit transition obligation amortization     15       15       45       45  
Deferred tax expense     (6 )     (6 )     (18 )     (18 )
Post-retirement benefit transition obligation amortization, net of tax     9       9       27       27  
Total other comprehensive (loss) income     (2,884 )     3,210       8,326       1,906  
Total comprehensive income   $ 12,744     $ 18,067     $ 52,726     $ 46,081  

 

See accompanying notes to unaudited consolidated financial statements.

 

- 6 -
 

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

 

    Common
Shares
Outstanding
  Common
Stock
  Deferred
Compensation
  Accumulated
Other
Comprehensive
Income
  Retained
Earnings
  Total
    (In thousands)
                         
Balance, December 31, 2014     25,745     $ 378,132     $ 2,711     $ 5,292     $ 140,468     $ 526,603  
Net income for the period                                     44,175       44,175  
Other comprehensive income                             1,906               1,906  
Exercise of stock options     108       4,848                               4,848  
Tax benefit decrease upon exercise and expiration of stock options             (1,215 )                             (1,215 )
Restricted stock activity     17       874       (133 )                     741  
Stock based compensation             987                               987  
Stock awarded to employees     2       89                               89  
Retirement of common stock     (342 )     (5,066 )                     (9,962 )     (15,028 )
Dividends                                     (29,168 )     (29,168 )
Balance, September 30, 2015     25,530     $ 378,649     $ 2,578     $ 7,198     $ 145,513     $ 533,938  
                                                 
Balance, December 31, 2015     25,528     $ 378,858     $ 2,578     $ 675     $ 150,094     $ 532,205  
Net income for the period                                     44,400       44,400  
Other comprehensive income                             8,326               8,326  
Exercise of stock options     258       11,588                               11,588  
Tax benefit increase upon exercise and expiration of stock options             199                               199  
Restricted stock activity     15       1,798       (1,045 )                     753  
Stock based compensation             1,142                               1,142  
Stock awarded to employees     1       75                               75  
Retirement of common stock     (137 )     (2,059 )                     (3,721 )     (5,780 )
Dividends                                     (29,912 )     (29,912 )
Balance, September 30, 2016     25,665     $ 391,601     $ 1,533     $ 9,001     $ 160,861     $ 562,996  

 

See accompanying notes to unaudited consolidated financial statements.

 

- 7 -
 

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

    For the Nine Months
Ended September 30,
    2016   2015
    (In thousands)
Operating Activities:                
Net income   $ 44,400     $ 44,175  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     14,211       12,379  
Reversal of provision for loan losses     (3,200 )     -  
Net amortization of deferred loan fees     (281 )     (263 )
Decrease in interest income receivable     475       757  
(Increase) decrease in other assets     (753 )     107  
Increase (decrease) in income taxes payable     403       (257 )
Decrease in net deferred tax asset     3,258       968  
Decrease in interest expense payable     (19 )     (56 )
Decrease in other liabilities     143       (2,571 )
Stock option compensation expense     1,142       987  
Tax benefit (increase) decrease upon exercise and expiration of stock options     (199 )     1,215  
Net writedown/loss on sale of premises and equipment     21       24  
Net gain on sale of foreclosed assets     (1,182 )     (73 )
Writedown of foreclosed assets     759       315  
Net Cash Provided by Operating Activities     59,178       57,707  
Investing Activities:                
Net repayments of loans     171,573       124,615  
Change in payable to FDIC(1)      3,180       -  
Purchases of investment securities available for sale     (812,697 )     (828,169 )
Proceeds from sale/maturity/calls of securities available for sale     632,795       858,850  
Purchases of investment securities held to maturity     (246,956 )     (366,247 )
Proceeds from maturity/calls of securities held to maturity     141,770       117,877  
Purchases of premises and equipment     (1,299 )     (4,049 )
Net change in FRB(2)/FHLB(3) securities     -       940  
Proceeds from sale of foreclosed assets     7,143       1,774  
Net Cash Used in Investing Activities     (104,491 )     (94,409 )
Financing Activities:                
Net increase in deposits     104,211       17,737  
Net increase (decrease) in short-term borrowings and FHLB(3) advances     3,330       (52,721 )
Exercise of stock options/issuance of shares     11,588       4,848  
Tax benefit increase (decrease) upon exercise and expiration of stock options     199       (1,215 )
Retirement of common stock     (5,780 )     (15,028 )
Common stock dividends paid     (29,912 )     (29,168 )
Net Cash Provided by (Used in) Financing Activities     83,636       (75,547 )
Net Change In Cash and Due from Banks     38,323       (112,249 )
Cash and Due from Banks at Beginning of Period     433,044       380,836  
Cash and Due from Banks at End of Period   $ 471,367     $ 268,587  
                 
Supplemental Cash Flow Disclosures:                
Supplemental disclosure of non cash activities:                
Loan collateral transferred to other real estate owned   $ 488     $ 4,911  
Securities purchases pending settlement     171       -  
Supplemental disclosure of cash flow activities:                
Interest paid for the period     1,635       1,941  
Income tax payments for the period     14,032       12,596  

 

See accompanying notes to unaudited consolidated financial statements.

(1) Federal Deposit Insurance Corporation ("FDIC")

(2) Federal Reserve Bank ("FRB")

(3) Federal Home Loan Bank ("FHLB")

 

- 8 -
 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1: Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

Note 2: Accounting Policies

 

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, Management has identified the allowance for loan losses accounting to be the accounting area requiring the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. A discussion of the factors affecting accounting for the allowance for loan losses and purchased loans is included in the “Loan Portfolio Credit Risk” discussion below.

 

Application of these principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

 

Recently Issued Accounting Standards

 

FASB Accounting Standards Update (ASU) 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, was issued January 2016. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

 

The Company will be required to adopt the ASU provisions on January 1, 2018. Management does not expect the adoption of the ASU to have a material effect on the Company’s financial statements.

 

FASB Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), was issued February 25, 2016. The provisions of the new standard require lessees to recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP.

 

The Company will be required to adopt the ASU provisions January 1, 2019, utilizing the modified retrospective transition approach. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

 

- 9 -
 

FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, was issued March 30, 2016. The provisions of the new standard changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification.

 

The Company will be required to adopt the ASU provisions January 1, 2017. Management does not expect the adoption of the ASU to have a material effect on the Company’s financial statements. The most notable impact will be the effect of Excess Tax Benefits on the provision for income taxes.

 

FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued on June 16, 2016. The ASU significantly changes estimates for credit losses related to financial assets measured at amortized cost and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with the current expected credit loss (CECL) model, which will accelerate recognition of credit losses. Additionally, credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses under the new standard. The Company will also be required to provide additional disclosures related to the financial assets within the scope of the new standard.

 

The Company will be required to adopt the ASU provisions on January 1, 2020. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

 

 

Note 3: Investment Securities

 

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

 

    Investment Securities Available for Sale
At September 30, 2016
    Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Fair
Value
    (In thousands)
Securities of U.S. Government sponsored entities   $ 171,579     $ 300     $ (33 )   $ 171,846  
Agency residential mortgage-backed securities (MBS)     499,860       1,712       (1,883 )     499,689  
Non-agency residential MBS     301       1       -       302  
Non-agency commercial MBS     2,127       1       (10 )     2,118  
Obligations of states and political subdivisions     177,786       8,086       (378 )     185,494  
Asset-backed securities     1,003       -       (3 )     1,000  
FHLMC(1) and FNMA(2) stock     775       3,481       -       4,256  
Corporate securities     891,335       5,808       (1,911 )     895,232  
Other securities     2,034       577       (140 )     2,471  
Total   $ 1,746,800     $ 19,966     $ (4,358 )   $ 1,762,408  

 

(1) Federal Home Loan Mortgage Corporation

(2) Federal National Mortgage Association

 

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- 10 -
 

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

 

    Investment Securities Held to Maturity
At September 30, 2016
    Amortized
Cost
  Gross
Unrecognized
Gains
  Gross
Unrecognized
Losses
  Fair
Value
    (In thousands)
Securities of U.S. government sponsored entities   $ 621     $ 3     $ -     $ 624  
Agency residential MBS     712,470       10,210       (194 )     722,486  
Non-agency residential MBS     5,678       54       (1 )     5,731  
Agency commercial MBS     9,404       24       (163 )     9,265  
Obligations of states and political subdivisions     682,846       19,508       (341 )     702,013  
Total   $ 1,411,019     $ 29,799     $ (699 )   $ 1,440,119  

 

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

 

    Investment Securities Available for Sale
At December 31, 2015
    Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Fair
Value
    (In thousands)
Securities of U.S. Government sponsored entities   $ 302,292     $ 255     $ (665 )   $ 301,882  
Agency residential MBS     208,046       1,407       (6,909 )     202,544  
Non-agency residential MBS     354       16       -       370  
Non-agency commercial MBS     2,383       5       (9 )     2,379  
Obligations of states and political subdivisions     148,705       8,861       (57 )     157,509  
Asset-backed securities     2,025       -       (22 )     2,003  
FHLMC(1) and FNMA(2) stock     775       3,554       -       4,329  
Corporate securities     902,308       882       (6,821 )     896,369  
Other securities     2,039       952       (160 )     2,831  
Total   $ 1,568,927     $ 15,932     $ (14,643 )   $ 1,570,216  

 

(1) Federal Home Loan Mortgage Corporation

(2) Federal National Mortgage Association

 

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

 

    Investment Securities Held to Maturity
At December 31, 2015
    Amortized
Cost
  Gross
Unrecognized
Gains
  Gross
Unrecognized
Losses
  Fair
Value
    (In thousands)
Securities of U.S. government sponsored entities   $ 764     $ -     $ -     $ 764  
Agency residential MBS     595,503       1,810       (4,966 )     592,347  
Non-agency residential MBS     9,667       185       -       9,852  
Agency commercial MBS     16,258       20       (274 )     16,004  
Obligations of states and political subdivisions     693,883       13,638       (789 )     706,732  
Total   $ 1,316,075     $ 15,653     $ (6,029 )   $ 1,325,699  

 

- 11 -
 

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table s at the dates indicated:

 

    At September 30, 2016
    Securities Available
for Sale
  Securities Held
to Maturity
    Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
    (In thousands)
Maturity in years:                                
1 year or less   $ 159,685     $ 160,009     $ 18,809     $ 19,437  
Over 1 to 5 years     745,541       750,330       290,412       295,190  
Over 5 to 10 years     301,266       308,276       308,222       319,417  
Over 10 years     35,211       34,957       66,024       68,593  
Subtotal     1,241,703       1,253,572       683,467       702,637  
MBS     502,288       502,109       727,552       737,482  
Other securities     2,809       6,727       -       -  
Total   $ 1,746,800     $ 1,762,408     $ 1,411,019     $ 1,440,119  

 

    At December 31, 2015
    Securities Available
for Sale
  Securities Held
to Maturity
    Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
    (In thousands)
Maturity in years:                                
1 year or less   $ 136,717     $ 136,976     $ 20,709     $ 21,354  
Over 1 to 5 years     1,049,786       1,044,453       259,556       262,163  
Over 5 to 10 years     166,352       173,585       289,568       296,352  
Over 10 years     2,475       2,749       124,814       127,627  
Subtotal     1,355,330       1,357,763       694,647       707,496  
MBS     210,783       205,293       621,428       618,203  
Other securities     2,814       7,160       -       -  
Total   $ 1,568,927     $ 1,570,216     $ 1,316,075     $ 1,325,699  

 

Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities. At September 30, 2016 and December 31, 2015, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

 

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- 12 -
 

An analysis of the gross unrealized losses of the available for sale investment securities portfolio follows:

 

    Investment Securities Available for Sale
At September 30, 2016
    No. of   Less than 12 months   No. of   12 months or longer   No. of   Total
    Investment
Positions
  Fair Value   Unrealized
Losses
  Investment
Positions
  Fair Value   Unrealized
Losses
  Investment
Positions
  Fair Value   Unrealized
Losses
    ($ in thousands)
Securities of U.S. Government sponsored entities     3     $ 39,965     $ (33 )     -     $ -     $ -       3     $ 39,965     $ (33 )
Agency residential MBS     9       109,244       (222 )     28       133,665       (1,661 )     37       242,909       (1,883 )
Non-agency residential MBS     1       31       -       -       -       -       1       31       -  
Non-agency commercial MBS     1       324       (4 )     1       794       (6 )     2       1,118       (10 )
Obligations of states and political subdivisions     30       42,214       (356 )     3       1,118       (22 )     33       43,332       (378 )
Asset-backed securities     -       -       -       1       1,000       (3 )     1       1,000       (3 )
Corporate securities     25       136,421       (704 )     26       102,085       (1,207 )     51       238,506       (1,911 )
Other securities     -       -       -       1       1,860       (140 )     1       1,860       (140 )
Total     69     $ 328,199     $ (1,319 )     60     $ 240,522     $ (3,039 )     129     $ 568,721     $ (4,358 )

 

An analysis of gross unrecognized losses of the held to maturity investment securities portfolio follows:

 

    Investment Securities Held to Maturity
At September 30, 2016
    No. of   Less than 12 months   No. of   12 months or longer   No. of   Total
    Investment
Positions
  Fair Value   Unrecognized
Losses
  Investment
Positions
  Fair Value   Unrecognized
Losses
  Investment
Positions
  Fair Value   Unrecognized
Losses
    ($ in thousands)
Agency residential MBS     6     $ 12,463     $ (79 )     3     $ 11,615     $ (115 )     9     $ 24,078     $ (194 )
Non-agency residential MBS     1       1,253       (1 )     -       -       -       1       1,253       (1 )
Agency commercial MBS     -       -       -       1       7,250       (163 )     1       7,250       (163 )
Obligations of states and political subdivisions     31       30,041       (182 )     9       6,779       (159 )     40       36,820       (341 )
Total     38     $ 43,757     $ (262 )     13     $ 25,644     $ (437 )     51     $ 69,401     $ (699 )

 

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, and, for mortgage-backed and asset-backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a major rating agency. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities.

 

The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of September 30, 2016.

 

The fair values of the investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than temporary impairments may occur in the future.

 

As of September 30, 2016, $755,762  thousand of investment securities were pledged to secure public deposits and short-term borrowed funds. As of December 31, 2015, $738,865  thousand of investment securities were pledged to secure public deposits and short-term borrowed funds.

 

- 13 -
 

An analysis of gross unrealized losses  of investment securities available for sale follows:

 

    Investment Securities Available for Sale
At December 31, 2015
    No. of   Less than 12 months   No. of   12 months or longer   No. of   Total
    Investment
Positions
  Fair Value   Unrealized
Losses
  Investment
Positions
  Fair Value   Unrealized
Losses
  Investment
Positions
  Fair Value   Unrealized
Losses
    ($ in thousands)
Securities of U.S. Government sponsored entities     8     $ 121,392     $ (665 )     -     $ -     $ -       8     $ 121,392     $ (665 )
Agency residential MBS     2       12,491       (366 )     31       161,296       (6,543 )     33       173,787       (6,909 )
Non-agency commercial MBS     1       1,071       -       1       855       (9 )     2       1,926       (9 )
Obligations of states and political subdivisions     3       2,728       (18 )     4       1,644       (39 )     7       4,372       (57 )
Asset-backed securities     -       -       -       1       2,003       (22 )     1       2,003       (22 )
Corporate securities     97       548,177       (5,442 )     25       86,762       (1,379 )     122       634,939       (6,821 )
Other securities     -       -       -       1       1,840       (160 )     1       1,840       (160 )
Total     111     $ 685,859     $ (6,491 )     63     $ 254,400     $ (8,152 )     174     $ 940,259     $ (14,643 )

 

An analysis of gross unrecognized losses  of investment securities held to maturity follows:

 

    Investment Securities Held to Maturity
At December 31, 2015
    No. of   Less than 12 months   No. of   12 months or longer   No. of   Total
    Investment
Positions
  Fair Value   Unrecognized
Losses
  Investment
Positions
  Fair Value   Unrecognized
Losses
  Investment
Positions
  Fair Value   Unrecognized
Losses
    ($ in thousands)
Agency residential MBS     41     $ 426,317     $ (3,490 )     13     $ 62,041     $ (1,476 )     54     $ 488,358     $ (4,966 )
Agency commercial MBS     -       -       -       2       13,951       (274 )     2       13,951       (274 )
Obligations of states and political subdivisions     55       44,585       (249 )     54       42,081       (540 )     109       86,666       (789 )
Total     96     $ 470,902     $ (3,739 )     69     $ 118,073     $ (2,290 )     165     $ 588,975     $ (6,029 )

 

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax:

 

    For the Three Months   For the Nine Months
    Ended September 30,
    2016   2015   2016   2015
    (In thousands)
                 
Taxable   $ 11,024     $ 9,120     $ 31,256     $ 25,067  
Tax-exempt from regular federal income tax     5,476       5,801       16,682       17,931  
Total interest income from investment securities   $ 16,500     $ 14,921     $ 47,938     $ 42,998  

 

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- 14 -
 

Note 4: Loans and Allowance for Loan Losses

 

A summary of the major categories of loans outstanding is shown in the following tables.

 

    At September 30, 2016
    Commercial   Commercial
Real Estate
  Construction   Residential
Real Estate
  Consumer
Installment
& Other
  Total
    (In thousands)
Originated loans   $ 331,429     $ 480,950     $ 2,282     $ 91,934     $ 335,629     $ 1,242,224  
Purchased covered loans     -       -       -       2,233       9,512       11,745  
Purchased non-covered loans:                                                
Gross purchased non-covered loans     12,337       74,595       153       224       27,973       115,282  
Purchased loan discount     (682 )     (3,197 )     -       (23 )     (1,020 )     (4,922 )
Total   $ 343,084     $ 552,348     $ 2,435     $ 94,368     $ 372,094     $ 1,364,329  

 

    At December 31, 2015
    Commercial   Commercial
Real Estate
  Construction   Residential
Real Estate
  Consumer
Installment
& Other
  Total
    (In thousands)
Originated loans   $ 368,117     $ 517,070     $ 2,978     $ 117,631     $ 346,043     $ 1,351,839  
Purchased covered loans:                                                
Gross purchased covered loans     -       -       -       2,385       11,828       14,213  
Purchased loan discount     -       -       -       (133 )     (19 )     (152 )
Purchased non-covered loans:                                                
Gross purchased non-covered loans     15,620       124,650       973       231       32,454       173,928  
Purchased loan discount     (989 )     (4,264 )     -       (23 )     (1,156 )     (6,432 )
Total   $ 382,748     $ 637,456     $ 3,951     $ 120,091     $ 389,150     $ 1,533,396  

 

Changes in the carrying amount of impaired purchased loans were as follows:

 

    For the
Nine Months Ended
September 30, 2016
  For the Year Ended
December 31, 2015
Impaired purchased loans   (In thousands)
Carrying amount at the beginning of the period   $ 3,887     $ 4,672  
Reductions during the period     (2,651 )     (785 )
Carrying amount at the end of the period   $ 1,236     $ 3,887  

 

Changes in the accretable yield for purchased loans were as follows:

 

    For the
Nine Months Ended
September 30, 2016
  For the
Year Ended
December 31, 2015
Accretable yield:   (In thousands)
Balance at the beginning of the period   $ 1,259     $ 2,261  
Reclassification from nonaccretable difference     3,322       3,051  
Accretion     (2,936 )     (4,053 )
Balance at the end of the period   $ 1,645     $ 1,259  
                 
Accretion   $ (2,936 )   $ (4,053 )
Change in FDIC indemnification     995       698  
(Increase) in interest income   $ (1,941 )   $ (3,355 )

 

- 15 -
 

The following summarizes activity in the allowance for loan losses:

 

    Allowance for Loan Losses
For the Three Months Ended September 30, 2016
    Commercial   Commercial
Real Estate
  Construction   Residential
Real Estate
  Consumer
Installment
and Other
  Purchased
Non-covered
Loans
  Purchased
Covered
Loans
  Unallocated   Total
    (In thousands)
Allowance for loan losses:                                                                        
Balance at beginning of period   $ 10,402     $ 3,912     $ 127     $ 1,601     $ 6,616     $ 1,044     $ 66     $ 5,142     $ 28,910  
Additions:                                                                        
Provision     (3,638 )     (328 )     9       (193 )     1,651       (399 )     (4 )     (298 )     (3,200 )
Deductions:                                                                        
Chargeoffs     (88 )     -       -       -       (1,736 )     (112 )     -       -       (1,936 )
Recoveries     1,735       15       -       -       337       498       -       -       2,585  
Net loan recoveries (losses)     1,647       15       -       -       (1,399 )     386       -       -       649  
Total allowance for loan losses   $ 8,411     $ 3,599     $ 136     $ 1,408     $ 6,868     $ 1,031     $ 62     $ 4,844     $ 26,359  

 

    Allowance for Loan Losses
For the Nine Months Ended September 30, 2016
    Commercial   Commercial
Real Estate
  Construction   Residential
Real Estate
  Consumer
Installment
and Other
  Purchased
Non-covered
Loans
  Purchased
Covered
Loans
  Unallocated   Total
    (In thousands)
Allowance for loan losses:                                                                        
Balance at beginning of period   $ 9,559     $ 4,224     $ 177     $ 1,801     $ 7,080     $ 967     $ -     $ 5,963     $ 29,771  
Additions:                                                                        
Provision     (1,641 )     (670 )     (41 )     (393 )     2,074       (1,472 )     62       (1,119 )     (3,200 )
Deductions:                                                                        
Chargeoffs     (2,024 )     -       -       -       (3,418 )     (150 )     -       -       (5,592 )
Recoveries     2,517       45       -       -       1,132       1,686       -       -       5,380  
Net loan recoveries (losses)     493       45       -       -       (2,286 )     1,536       -       -       (212 )
Total allowance for loan losses   $ 8,411     $ 3,599     $ 136     $ 1,408     $ 6,868     $ 1,031     $ 62     $ 4,844     $ 26,359  

 

    Allowance for Loan Losses
For the Three Months Ended September 30, 2015
    Commercial   Commercial
Real Estate
  Construction   Residential
Real Estate
  Consumer
Installment
and Other
  Purchased
Non-covered
Loans
  Purchased
Covered
Loans
  Unallocated   Total
    (In thousands)
Allowance for loan losses:                                                                        
Balance at beginning of period   $ 7,107     $ 4,896     $ 403     $ 2,058     $ 7,248     $ 1,244     $ -     $ 7,872     $ 30,828  
Additions:                                                                        
Provision     1,246       (96 )     (205 )     (50 )     367       (15 )     65       (1,312 )     -  
Deductions:                                                                        
Chargeoffs     (239 )     (449 )     -       -       (773 )     -       -       -       (1,461 )
Recoveries     300       27       -       -       336       6       -       -       669  
Net loan recoveries (losses)     61       (422 )     -       -       (437 )     6       -       -       (792 )
Total allowance for loan losses   $ 8,414     $ 4,378     $ 198     $ 2,008     $ 7,178     $ 1,235     $ 65     $ 6,560     $ 30,036  

 

    Allowance for Loan Losses
For the Nine Months Ended September 30, 2015
    Commercial   Commercial
Real Estate
  Construction   Residential
Real Estate
  Consumer
Installment
and Other
  Purchased
Non-covered
Loans
  Purchased
Covered
Loans
  Unallocated   Total
    (In thousands)
Allowance for loan losses:                                                                        
Balance at beginning of period   $ 5,460     $ 4,245     $ 644     $ 2,241     $ 7,717     $ 2,120     $ -     $ 9,058     $ 31,485  
Additions:                                                                        
Provision     2,840       525       (446 )     (233 )     436       (689 )     65       (2,498 )     -  
Deductions:                                                                        
Chargeoffs     (700 )     (449 )     -       -       (2,344 )     (431 )     -       -       (3,924 )
Recoveries     814       57       -       -       1,369       235       -       -       2,475  
Net loan recoveries (losses)     114       (392 )     -       -       (975 )     (196 )     -       -       (1,449 )
Total allowance for loan losses   $ 8,414     $ 4,378     $ 198     $ 2,008     $ 7,178     $ 1,235     $ 65     $ 6,560     $ 30,036  

 

- 16 -
 

The allowance for loan losses and recorded investment in loans were evaluated for impairment as follows:

 

    Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At September 30, 2016
    Commercial   Commercial Real Estate   Construction   Residential Real Estate   Consumer Installment and Other   Purchased Non-covered Loans   Purchased Covered Loans   Unallocated   Total
    (In thousands)
Allowance for loan losses:                                                                        
Individually evaluated for impairment   $ 5,070     $ 216     $ -     $ -     $ -     $ -     $ -     $ -     $ 5,286  
Collectively evaluated for impairment     3,341       3,383       136       1,408       6,868       1,031       62       4,844       21,073  
Purchased loans with evidence of credit deterioration     -       -       -       -       -       -       -       -       -  
Total   $ 8,411     $ 3,599     $ 136     $ 1,408     $ 6,868     $ 1,031     $ 62     $ 4,844     $ 26,359  
Carrying value of loans:                                                                        
Individually evaluated for impairment   $ 11,210     $ 5,270     $ -     $ -     $ -     $ 6,125     $ -     $ -     $ 22,605  
Collectively evaluated for impairment     320,219       475,680       2,282       91,934       335,629       103,189       11,555       -       1,340,488  
Purchased loans with evidence of credit deterioration     -       -       -       -       -       1,046       190       -       1,236  
Total   $ 331,429     $ 480,950     $ 2,282     $ 91,934     $ 335,629     $ 110,360     $ 11,745     $ -     $ 1,364,329  

 

    Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2015
    Commercial   Commercial Real Estate   Construction   Residential Real Estate   Consumer Installment and Other   Purchased Non-covered Loans   Purchased Covered Loans   Unallocated   Total
    (In thousands)
Allowance for loan losses:                                                                        
Individually evaluated for impairment   $ 4,942     $ 585     $ -     $ -     $ -     $ -     $ -     $ -     $ 5,527  
Collectively evaluated for impairment     4,617       3,639       177       1,801       7,080       967       -       5,963       24,244  
Purchased loans with evidence of credit deterioration     -       -       -       -       -       -       -       -       -  
Total   $ 9,559     $ 4,224     $ 177     $ 1,801     $ 7,080     $ 967     $ -     $ 5,963     $ 29,771  
Carrying value of loans:                                                                        
Individually evaluated for impairment   $ 12,587     $ 5,541     $ -     $ -     $ -     $ 11,777     $ -     $ -     $ 29,905  
Collectively evaluated for impairment     355,530       511,529       2,978       117,631       346,043       152,038       13,855       -       1,499,604  
Purchased loans with evidence of credit deterioration     -       -       -       -       -       3,681       206       -       3,887  
Total   $ 368,117     $ 517,070     $ 2,978     $ 117,631     $ 346,043     $ 167,496     $ 14,061     $ -     $ 1,533,396  

 

The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department evaluations occur every calendar quarter. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

 

The following summarizes the credit risk profile by internally assigned grade:

 

    Credit Risk Profile by Internally Assigned Grade
At September 30, 2016
    Commercial   Commercial Real Estate   Construction   Residential Real Estate   Consumer Installment and Other   Purchased Non-covered Loans   Purchased Covered Loans (1)   Total
    (In thousands)
Grade:                                
Pass   $ 318,077     $ 466,364     $ 2,282     $ 88,920     $ 334,163     $ 101,295     $ 10,126     $ 1,321,227  
Substandard     13,352       14,586       -       3,014       1,000       13,983       1,619       47,554  
Doubtful     -       -       -       -       26       -       -       26  
Loss     -       -       -       -       440       4       -       444  
Purchased loan discount     -       -       -       -       -       (4,922 )     -       (4,922 )
Total   $ 331,429     $ 480,950     $ 2,282     $ 91,934     $ 335,629     $ 110,360     $ 11,745     $ 1,364,329  

 

(1)   Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

 

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    Credit Risk Profile by Internally Assigned Grade
At December 31, 2015
    Commercial   Commercial Real Estate   Construction   Residential Real Estate   Consumer Installment and Other   Purchased Non-covered Loans   Purchased Covered Loans (1)   Total
    (In thousands)
Grade:                                
Pass   $ 353,474     $ 496,744     $ 2,978     $ 114,525     $ 344,876     $ 149,100     $ 12,563     $ 1,474,260  
Substandard     14,643       20,326       -       3,106       781       24,810       1,650       65,316  
Doubtful     -       -       -       -       12       18       -       30  
Loss     -       -       -       -       374       -       -       374  
Purchased loan discount     -       -       -       -       -       (6,432 )     (152 )     (6,584 )
Total   $ 368,117     $ 517,070     $ 2,978     $ 117,631     $ 346,043     $ 167,496     $ 14,061     $ 1,533,396  

 

(1)   Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

 

The following tables summarize loans by delinquency and nonaccrual status:

 

    Summary of Loans by Delinquency and Nonaccrual Status
At September 30, 2016
    Current and Accruing   30-59 Days Past Due and Accruing   60-89 Days Past Due and Accruing   Past Due 90 Days or More and Accruing   Nonaccrual   Total Loans
    (In thousands)
Commercial   $ 330,596     $ 647     $ 186     $ -     $ -     $ 331,429  
Commercial real estate     474,741       914       -       -       5,295       480,950  
Construction     2,282       -       -       -       -       2,282  
Residential real estate     90,713       908       -       -       313       91,934  
Consumer installment and other     331,310       3,198       683       438       -       335,629  
Total originated loans     1,229,642       5,667       869       438       5,608       1,242,224  
Purchased non-covered loans     105,255       4,030       370       49       656       110,360  
Purchased covered loans     11,716       -       -       -       29       11,745  
Total   $ 1,346,613     $ 9,697     $ 1,239     $ 487     $ 6,293     $ 1,364,329  

 

    Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2015
    Current and Accruing   30-59 Days Past Due and Accruing   60-89 Days Past Due and Accruing   Past Due 90 Days or More and Accruing   Nonaccrual   Total Loans
    (In thousands)
Commercial   $ 365,450     $ 1,777     $ 122     $ -     $ 768     $ 368,117  
Commercial real estate     504,970       5,930       726       -       5,444       517,070  
Construction     2,978       -       -       -       -       2,978  
Residential real estate     115,575       1,202       414       -       440       117,631  
Consumer installment and other     341,566       3,263       919       295       -       346,043  
Total originated loans     1,330,539       12,172       2,181       295       6,652       1,351,839  
Purchased non-covered loans     158,554       589       7       -       8,346       167,496  
Purchased covered loans     13,929       132       -       -       -       14,061  
Total   $ 1,503,022     $ 12,893     $ 2,188     $ 295     $ 14,998     $ 1,533,396  

 

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The following is a summary of the effect of nonaccrual loans on interest income:

 

    For the Three Months Ended   For the Nine Months Ended
    September 30,
    2016   2015   2016   2015
    (In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms   $ 193     $ 315     $ 756     $ 969  
Less: Interest income (recognized) reversed on nonaccrual loans     (500 )     17       (1,033 )     (308 )
Total (addition) reduction of interest income   $ (307 )   $ 332     $ (277</