Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
All loans classified by management as substandard or worse are individually evaluated for impairment. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loans existing rate or at the fair value of collateral if repayment is expected solely from the collateral.
Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future
cash flows using the loans effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that
subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
The general component covers non-impaired loans and is based on historical loss experience adjusted
for current factors. The historical loss experience is determined by portfolio segment and is based on a combination of the Banks loss history and loss history from the Banks peer group over the past three years. This actual loss
experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and
trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending
management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
COMPARISON OF RESULTS OF OPERATIONS FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(Dollar Amounts in Thousands)
The Company reported net income of $10,169 and $20,221 for the three and six months ended June 30, 2018, respectively, compared
to $8,874 and $16,608 for the three and six months ended June 30, 2017, respectively. After earnings attributable to noncontrolling interest, the Companys net earnings available to common shareholders for the three and six months ended
June 30, 2018 was $10,161 and $20,213, respectively, compared to $8,866 and $16,800 for the three and six months ended June 30, 2017, respectively. The increase in net earnings available to common shareholders for the three and six months
ended June 30, 2018 was attributable to the increase in net interest income and the decrease in income tax expense related to the Tax Cuts and Jobs Act (the Tax Act) that was passed in December 2017.
Net Interest Income/Margin
income consists of interest income generated by earning assets less interest expense paid on interest-bearing liabilities and is the most significant component of our revenues. Net interest income for the three and six months ended June 30,
2018, totaled $26,905 and $52,021, respectively, compared to $24,469 and $48,112 for the same periods in 2017, an increase of $2,436 and $3,909, or 10.0% and 8.1%, between the respective periods. For the three and six months ended June 30,
2018, interest income increased $9,125 and $16,631, or 27.6% and 26.2%, respectively, compared with the same periods in 2017, due to growth in both the loan and investment securities portfolios. For the three and six months ended June 30, 2018,
interest expense increased $6,689 and $12,722, or 78.3% and 82.4%, respectively, primarily due to increases in interest-bearing deposits combined with an increase in interest rates for deposits, Federal Home Loan Bank (FHLB) advances,
federal funds purchased and other borrowings.
Interest-earning assets averaged $4,046,709 and $3,375,905 during the three months ended
June 30, 2018 and 2017, respectively, an increase of $670,804, or 19.9%. This increase was due to growth in all types of interest-earning assets, but the largest growth occurred in loans and investment securities. Average loans increased 22.7%,
and available for sale securities increased 15.0%, when comparing the three months ended June 30, 2018 with the same period in 2017.
When comparing the three months ended June 30, 2018 and 2017, the yield on average interest earning assets, adjusted for tax equivalent
yield, increased 16 basis points in 2018 to 4.25% compared to 4.09% for the same period during 2017. For the three months ended June 30, 2018, the tax equivalent yield on available for sale securities was 2.53%, and for the three months ended
June 30, 2017, the tax equivalent yield on available for sale securities was 2.68%. For the three months ended June 30, 2018, the tax equivalent yield on held to maturity securities was 3.74%, and for the three months ended June 30,
2017, the tax equivalent yield on held to maturity securities was 4.24%. The primary driver for the yield decreases in both available for sale securities and held to maturity securities was the decrease in volume of
tax-exempt securities that have been purchased combined with the reduction of the effective tax rate.