Notes to Consolidated Financial Statements
December 31, 2016
Note 1. Summary of Significant Accounting
Policies
(a)
Basis of Presentation
-
The
consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary - First Bank
(the “Bank”). The Bank has three wholly owned subsidiaries that are fully consolidated - First Bank Insurance Services, Inc. (“First
Bank Insurance”), SBA Complete, Inc. (“SBA Complete”), and First Troy SPE, LLC. All significant intercompany
accounts and transactions have been eliminated. Subsequent events have been evaluated through the date of filing this Form 10-K.
The Company is a bank holding company. The
principal activity of the Company is the ownership and operation of the Bank, a state chartered bank with its main office in Southern
Pines, North Carolina. The Company is also the parent company for a series of statutory trusts that were formed at various times
since 2002 for the purpose of issuing trust preferred debt securities. The trusts are not consolidated for financial reporting
purposes; however, notes issued by the Company to the trusts in return for the proceeds from the issuance of the trust preferred
securities are included in the consolidated financial statements and have terms that are substantially the same as the corresponding
trust preferred securities. The trust preferred securities qualify as capital for regulatory capital adequacy requirements. First
Bank Insurance is an agent for property and casualty insurance policies. SBA Complete is a firm that specializes in providing consulting
services for financial institutions across the country related to Small Business Administration (“SBA”) loan origination
and servicing. First Troy SPE, LLC was formed in order to hold and dispose of certain real estate foreclosed upon by the Bank.
The preparation of financial statements
in conformity with generally accepted accounting principles 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 liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The most significant estimates made by the Company in the preparation of its consolidated financial
statements are the determination of the allowance for loan losses, the valuation of other real estate, the accounting and impairment
testing related to intangible assets, and the fair value and discount accretion of loans acquired in FDIC-assisted transactions.
(b)
Cash and Cash Equivalents
-
The
Company considers all highly liquid assets such as cash on hand, noninterest-bearing and interest-bearing amounts due from banks
and federal funds sold to be “cash equivalents.”
(c)
Securities
-
Debt securities
that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and carried
at amortized cost. Securities not classified as held to maturity are classified as “available for sale” and carried
at fair value, with unrealized gains and losses being reported as other comprehensive income or loss and reported as a separate
component of shareholders’ equity.
A decline in the market value of any available
for sale or held to maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Any equity security
that is in an unrealized loss position for twelve consecutive months is presumed to be other than temporarily impaired and an impairment
charge is recorded unless the amount of the charge is insignificant.
Gains and losses on sales of securities
are recognized at the time of sale based upon the specific identification method. Premiums and discounts are amortized into income
on a level yield basis, with premiums being amortized to the earliest call date and discounts being accreted to the stated maturity
date.
(d)
Premises and Equipment
-
Premises
and equipment are stated at cost less accumulated depreciation. Depreciation, computed by the straight-line method, is charged
to operations over the estimated useful lives of the properties, which range from 2 to 40 years or, in the case of leasehold improvements,
over the term of the lease, if shorter. Maintenance and repairs are charged to operations in the year incurred. Gains and losses
on dispositions are included in current operations.
(e) Loans –
Loans are stated
at the principal amount outstanding less any partial charge-offs plus deferred origination costs, net of nonrefundable loan fees.
Interest on loans is accrued on the unpaid principal balance outstanding. Net deferred loan origination costs/fees are capitalized
and recognized as a yield adjustment over the life of the related loan.
The Company does not hold a significant
amount of interest-only strips, loans, other receivables, or retained interests in securitizations that can be contractually prepaid
or otherwise settled in a way that it would not recover substantially all of its recorded investment.
Purchased loans acquired in a business combination
are recorded at estimated fair value on their purchase date. No allowance for loan losses is carried over from the seller or otherwise
recorded.
The Company follows specific accounting
guidance related to purchased impaired loans when purchased loans have evidence of credit deterioration since origination and it
is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments.
Evidence of credit quality deterioration as of the purchase date may include statistics such as past due and nonaccrual status.
The accounting guidance permits the use of the cost recovery method of income recognition for those purchased impaired loans for
which the timing and amount of cash flows expected to be collected cannot be reasonably estimated. Under the cost recovery method
of income recognition, all cash receipts are initially applied to principal, with interest income being recorded only after the
carrying value of the loan has been reduced to zero. Substantially all of the Company’s purchased impaired loans to date
have had uncertain cash flows and thus are accounted for under the cost recovery method of income recognition.
For nonimpaired purchased loans, the Company
accretes any fair value discount over the life of the loan in a manner consistent with the guidance for accounting for loan origination
fees and costs.
A loan is placed on nonaccrual status when,
in management’s judgment, the collection of interest appears doubtful. The accrual of interest is discontinued on all loans
that become 90 days or more past due with respect to principal or interest. The past due status of loans is based on the contractual
payment terms. While a loan is on nonaccrual status, the Company’s policy is that all cash receipts are applied to principal.
Once the recorded principal balance has been reduced to zero, future cash receipts are applied to recoveries of any amounts previously
charged off. Further cash receipts are recorded as interest income to the extent that any interest has been foregone. Loans are
removed from nonaccrual status when they become current as to both principal and interest, when concern no longer exists as to
the collectability of principal or interest, and when the loan has provided generally six months of satisfactory payment performance.
In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly
different from the originally contracted terms. For a nonaccrual loan that has been restructured, if the borrower has six months
of satisfactory performance under the restructured terms and it is reasonably assured that the borrower will continue to be able
to comply with the restructured terms, the loan may be returned to accruing status. The nonaccrual policy discussed above applies
to all loan classifications.
A loan is considered to be impaired when,
based on current information and events, it is probable the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. A loan is specifically evaluated for an appropriate valuation allowance if the loan balance
is above a prescribed evaluation threshold (which varies based on credit quality, accruing status, troubled debt restructured status,
and type of collateral) and the loan is determined to be impaired. Impaired loans are measured using either 1) an estimate of the
cash flows that the Company expects to receive from the borrower discounted at the loan’s effective rate, or 2) in the case
of a collateral-dependent loan, the fair value of the collateral. Unless restructured, while a loan is considered to be impaired,
the Company’s policy is that interest accrual is discontinued and all cash receipts are applied to principal. Once the recorded
principal balance has been reduced to zero, future cash receipts are applied to recoveries of any amounts previously charged off.
Further cash receipts are recorded as interest income to the extent that any interest has been foregone. Impaired loans that are
restructured are returned to accruing status in accordance with the restructured terms if the Company believes that the borrower
will be able to meet the obligations of the restructured loan terms, and the loan has provided generally six months of satisfactory
payment performance. The impairment policy discussed above applies to all loan classifications.
(f)
Presold Mortgages in Process of Settlement
-
As
a part of normal business operations, the Company originates residential mortgage loans that have been pre-approved by secondary
investors to be sold on a best efforts basis. The terms of the loans are set by the secondary investors, and the purchase price
that the investor will pay for the loan is agreed to prior to the funding of the loan by the Company. Generally within three weeks
after funding, the loans are transferred to the investor in accordance with the agreed-upon terms. The Company records gains from
the sale of these loans on the settlement date of the sale equal to the difference between the proceeds received and the carrying
amount of the loan. The gain generally represents the portion of the proceeds attributed to service release premiums received from
the investors and the realization of origination fees received from borrowers that were deferred as part of the carrying amount
of the loan. Between the initial funding of the loans by the Company and the subsequent reimbursement by the investors, the Company
carries the loans on its balance sheet at the lower of cost or market.
(g) Loans Held for Sale
–
Beginning in 2016, the Company began providing loans guaranteed by the Small Business Administration (“SBA”) for
the purchase of businesses, business startups, business expansion, equipment, and working capital. All SBA loans are
underwritten and documented as prescribed by the SBA. SBA loans are generally fully amortizing and have maturity dates and
amortizations of up to 25 years. The portion of SBA loans originated that are guaranteed and intended for sale on the
secondary market are classified as held for sale and are carried at the lower of cost or fair value - there were no such
loans held for sale at December 31, 2016. The loan participations are sold and the servicing rights are retained. At the time
of the sale, an asset is recorded for the value of the servicing rights and is amortized over the remaining life of the loan
on the effective interest method. The servicing asset is included in other assets and the amortization of the servicing asset
is included in non-interest expense. Servicing fees are recorded in non-interest income. A gain is recorded for any premium
received in excess of the carrying value of the net assets transferred in the sale and is also included in non-interest
income. The portion of SBA loans that are retained are also adjusted for a retained discount to reflect the effective
interest rate on the retained unguaranteed portion of the loans. The net value of the retained loans is included in the
appropriate loan classification for disclosure purposes. These loans are primarily commercial real estate or commercial and
industrial.
Periodically, the Company originates other
types of commercial loans and decides to sell them in the secondary market. The Company carries these loans at the lower of cost
or fair value at each reporting date. There were no such loans held for sale as of December 31, 2016 or 2015.
(h)
Allowance for Loan Losses
-
The
allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged-off against
the allowance for loan losses when management believes that the collectability of the principal is unlikely. Recoveries on loans
previously charged-off are added back to the allowance. The provision for loan losses charged to operations is an amount sufficient
to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.
Management’s determination of the adequacy of the allowance is based on several factors, including:
|
1.
|
Risk grades assigned to the loans in the portfolio,
|
|
2.
|
Specific reserves for individually evaluated impaired loans,
|
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3.
|
Current economic conditions, including the local, state, and national economic outlook; interest rate
risk; trends in loan volume, mix and size of loans; levels and trends of delinquencies,
|
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4.
|
Historical loan loss experience, and
|
|
5.
|
An assessment of the risk characteristics of the Company’s loan portfolio, including industry
concentrations, payment structures, changes in property values, and credit administration practices.
|
While management uses the best information
available to make evaluations, future adjustments may be necessary if economic and other conditions differ substantially from the
assumptions used.
In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on the examiners’ judgment about information available
to them at the time of their examinations.
(i)
Foreclosed Real Estate
-
Foreclosed
real estate consists primarily of real estate acquired by the Company through legal foreclosure or deed in lieu of foreclosure.
The property is initially carried at the lower of cost (generally the loan balance plus additional costs incurred for improvements
to the property) or the estimated fair value of the property less estimated selling costs (also see Note 14). If there are subsequent
declines in fair value, which is reviewed routinely by management, the property is written down to its fair value through a charge
to expense. Capital expenditures made to improve the property are capitalized. Costs of holding real estate, such as property taxes,
insurance and maintenance, less related revenues during the holding period, are recorded as expense.
(j) FDIC Indemnification Asset –
The FDIC indemnification asset relates to loss share agreements with the FDIC, whereby the FDIC has agreed to reimburse to
the Company a percentage of the losses related to loans and other real estate that the Company assumed in the acquisition of two
failed banks. This indemnification asset is measured separately from the loan portfolio and foreclosed real estate because it is
not contractually embedded in the loans and is not transferable with the loans should the Company choose to dispose of them. The
carrying value of this receivable at each period end is the sum of: 1) the receivable (payable) related to actual loss claims
(recoveries) that have been submitted to the FDIC for reimbursement (repayment) and 2) the receivable associated with the Company’s
estimated amount of loan and foreclosed real estate losses covered by the agreements multiplied by the FDIC reimbursement percentage.
During 2016, the Company and the FDIC mutually agreed to terminate the loss share agreements and the remaining $5.7 million FDIC
indemnification asset was written off and is included in the line “FDIC indemnification asset expense, net” in the
accompanying consolidated statements of income.
(k)
Income Taxes
-
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are
not expected to be realized based upon available evidence. The Company’s investment tax credits, which are low income housing
tax credits and state historic tax credits, are recorded in the period that they are reflected in the Company’s tax returns.
(l)
Intangible Assets
-
Business
combinations are accounted for using the purchase method of accounting. Identifiable intangible assets are recognized separately
and are amortized over their estimated useful lives, which for the Company has generally been seven to ten years and at an accelerated
rate. Goodwill is recognized in business combinations to the extent that the price paid exceeds the fair value of the net assets
acquired, including any identifiable intangible assets. Goodwill is not amortized, but as discussed in Note 1(r), is subject to
fair value impairment tests on at least an annual basis.
(m) Bank-owned life insurance
–
The Company has purchased life insurance policies on certain current and past key employees and directors where the insurance policy
benefits and ownership are retained by the employer. These policies are recorded at their cash surrender value. Income from these
policies and changes in the net cash surrender value are recorded within noninterest income as “Bank-owned life insurance
income.”
(n) Other Investments
– The
Company accounts for investments in limited partnerships, limited liability companies (“LLCs”), and other privately
held companies using either the cost or the equity method of accounting. The accounting treatment depends upon the Company’s
percentage ownership and degree of management influence.
Under the cost method of accounting, the
Company records an investment in stock at cost and generally recognizes cash dividends received as income. If cash dividends received
exceed the Company’s relative ownership of the investee’s earnings since the investment date, these payments are considered
a return of investment and reduce the cost of the investment.
Under the equity method of accounting, the
Company records its initial investment at cost. Subsequently, the carrying amount of the investment is increased or decreased to
reflect the Company’s share of income or loss of the investee. The Company’s recognition of earnings or losses from
an equity method investment is based on the Company’s ownership percentage in the investee and the investee’s earnings
on a quarterly basis. The investees generally provide their financial information during the quarter following the end of a given
period. The Company’s policy is to record its share of earnings or losses on equity method investments in the quarter the
financial information is received.
All of the Company’s investments in
limited partnerships, LLCs, and other companies are privately held, and their market values are not readily available. The Company’s
management evaluates its investments in investees for impairment based on the investee’s ability to generate cash through
its operations or obtain alternative financing, and other subjective factors. There are inherent risks associated with the Company’s
investments in such companies, which may result in income statement volatility in future periods.
At December 31, 2016 and 2015, the
Company’s investments in limited partnerships, LLCs and other privately held companies totaled $3.1 million and $2.3 million,
respectively, and were included in other assets.
(o)
Stock Option Plan
-
At
December 31, 2016, the Company had two equity-based employee compensation plans, which are described more fully in Note 15. The
Company accounts for these plans under the recognition and measurement principles of relevant accounting guidance.
(p)
Per Share Amounts
-
Basic
Earnings Per Common Share is calculated by dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the period, excluding unvested shares of restricted stock. Diluted
Earnings Per Common Share is computed by assuming the issuance of common shares for all potentially dilutive common shares
outstanding during the reporting period. For the years presented, the Company’s potentially dilutive common stock
issuances related to unvested shares of restricted stock and stock option grants under the Company’s equity-based plans
and the Company’s Series C Preferred stock, which was convertible into common stock on a one-for-one ratio. As
discussed in Note 19, on December 22, 2016 each outstanding share of the Company’s Series C Preferred stock was
exchanged by the holder for an equal number of shares of common stock.
In computing Diluted Earnings Per Common
Share, adjustments are made to the computation of Basic Earnings Per Common shares, as follows. As it relates to unvested shares
of restricted stock, the number of shares added to the denominator is equal to the number of unvested shares less the assumed number
of shares bought back by the Company in the open market at the average market price with the amount of proceeds being equal to
the average deferred compensation for the reporting period. As it relates to stock options, it is assumed that all dilutive stock
options are exercised during the reporting period at their respective exercise prices, with the proceeds from the exercises used
by the Company to buy back stock in the open market at the average market price in effect during the reporting period. The difference
between the number of shares assumed to be exercised and the number of shares bought back is included in the calculation of dilutive
securities. As it relates to the Series C Preferred Stock for the period of time it was outstanding, it is assumed that the preferred
stock was converted to common stock at the beginning of the reporting period. Dividends on the preferred stock are added back to
net income and the shares assumed to be converted are included in the number of shares outstanding.
If any of the potentially dilutive common
stock issuances have an anti-dilutive effect, the potentially dilutive common stock issuance is disregarded.
The following is a reconciliation of the
numerators and denominators used in computing Basic and Diluted Earnings Per Common Share:
|
|
For the Years Ended December 31,
|
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|
|
2016
|
|
|
2015
|
|
|
2014
|
|
($ in thousands,
except per share
amounts)
|
|
Income
(Numer-
ator)
|
|
|
Shares
(Denom-
inator)
|
|
|
Per
Share
Amount
|
|
|
Income
(Numer-
ator)
|
|
|
Shares
(Denom-
inator)
|
|
|
Per
Share
Amount
|
|
|
Income
(Numer-
ator)
|
|
|
Shares
(Denom-
inator)
|
|
|
Per
Share
Amount
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
Basic EPS
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
27,334
|
|
|
|
19,964,727
|
|
|
$
|
1.37
|
|
|
$
|
26,431
|
|
|
|
19,767,470
|
|
|
$
|
1.34
|
|
|
$
|
24,128
|
|
|
|
19,699,801
|
|
|
$
|
1.22
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
Effect of dilutive securities
|
|
|
175
|
|
|
|
768,190
|
|
|
|
|
|
|
|
233
|
|
|
|
732,257
|
|
|
|
|
|
|
|
233
|
|
|
|
734,206
|
|
|
|
|
|
|
|
|
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|
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|
Diluted EPS per common share
|
|
$
|
27,509
|
|
|
|
20,732,917
|
|
|
$
|
1.33
|
|
|
$
|
26,664
|
|
|
|
20,499,727
|
|
|
$
|
1.30
|
|
|
$
|
24,361
|
|
|
|
20,434,007
|
|
|
$
|
1.19
|
|
For the years ended December 31, 2016, 2015
and 2014, there were 5,000 options, 50,000 options and 93,000 options, respectively, that were anti-dilutive because the exercise
price exceeded the average market price for the year, and thus are not included in the calculation to determine the effect of dilutive
securities. Also, for the year ended December 31, 2014, the Company excluded 75,000 options that had an exercise price below the
average market price for the year, but had performance vesting requirements that the Company had concluded were not probable to
vest, and ultimately did not vest during 2015.
(q)
Fair Value of Financial Instruments
-
Relevant
accounting guidance requires that the Company disclose estimated fair values for its financial instruments. Fair value methods
and assumptions are set forth below for the Company’s financial instruments.
Cash
and Amounts Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued
Interest Payable
-
The
carrying amounts approximate their fair value because of the short maturity of these financial instruments.
Available
for Sale and Held to Maturity Securities
-
Fair
values are provided by a third-party and are based on quoted market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments or matrix pricing.
Loans Held for Sale – Fair values
are based on third-party dealer quotes for the loans or loans with similar characteristics.
Loans
-
For nonimpaired loans,
fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as
commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each
loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined
by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. Fair
values for impaired loans are primarily based on estimated proceeds expected upon liquidation of the collateral or the present
value of expected cash flows.
FDIC Indemnification Asset – Fair
value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted
over the estimated period of receipt.
Bank-Owned Life Insurance – The carrying
value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the
issuer.
Deposits
-
The fair value of deposits
with no stated maturity, such as noninterest-bearing checking accounts, savings accounts, interest-bearing checking accounts, and
money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit
is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered in
the marketplace for deposits of similar remaining maturities.
Borrowings
-
The fair value of borrowings
is based on the discounted value of the contractual cash flows. The discount rate is estimated using the rates currently offered
by the Company’s lenders for debt of similar maturities.
Commitments
to Extend Credit and Standby Letters of Credit
-
At
December 31, 2016 and 2015, the Company’s off-balance sheet financial instruments had no carrying value. The large majority
of commitments to extend credit and standby letters of credit are at variable rates and/or have relatively short terms to maturity.
Therefore, the fair value for these financial instruments is considered to be immaterial.
Fair value estimates are made at a specific
point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular
financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments,
fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics
of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing
on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include net premises and equipment, intangible assets and other assets such as foreclosed
properties, deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses.
In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in any of the estimates.
(r)
Impairment
-
Goodwill
is evaluated for impairment on at least an annual basis by comparing the fair value of the reporting units to their related carrying
value. If the carrying value of a reporting unit exceeds its fair value, the Company determines whether the implied fair value
of the goodwill, using various valuation techniques, exceeds the carrying value of the goodwill. If the carrying value of the goodwill
exceeds the implied fair value of the goodwill, an impairment loss is recorded in an amount equal to that excess.
The Company reviews all other long-lived
assets, including identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The Company’s policy is that an impairment loss is recognized if the sum of the undiscounted
future cash flows is less than the carrying amount of the asset. Any long-lived assets to be disposed of are reported at the lower
of the carrying amount or fair value, less costs to sell.
To date, the Company has not recorded any
impairment write-downs of its long-lived assets or goodwill.
(s)
Comprehensive Income (Loss)
-
Comprehensive
income (loss) is defined as the change in equity during a period for non-owner transactions and is divided into net income (loss)
and other comprehensive income (loss). Other comprehensive income (loss) includes revenues, expenses, gains, and losses that are
excluded from earnings under current accounting standards. The components of accumulated other comprehensive income (loss) for
the Company are as follows:
($ in thousands)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Unrealized gain (loss) on securities available for sale
|
|
$
|
(3,085
|
)
|
|
|
(1,163
|
)
|
|
|
(691
|
)
|
Deferred tax asset (liability)
|
|
|
1,138
|
|
|
|
454
|
|
|
|
270
|
|
Net unrealized gain (loss) on securities available for sale
|
|
|
(1,947
|
)
|
|
|
(709
|
)
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
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|
Additional pension asset (liability)
|
|
|
(5,012
|
)
|
|
|
(4,657
|
)
|
|
|
(257
|
)
|
Deferred tax asset (liability)
|
|
|
1,852
|
|
|
|
1,816
|
|
|
|
100
|
|
Net additional pension asset (liability)
|
|
|
(3,160
|
)
|
|
|
(2,841
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(5,107
|
)
|
|
|
(3,550
|
)
|
|
|
(578
|
)
|
The following table discloses the changes
in accumulated other comprehensive income (loss) for the year ended December 31, 2016 (all amounts are net of tax).
($
in thousands)
|
|
Unrealized Gain
(Loss) on
Securities
Available for Sale
|
|
|
Additional
Pension Asset
(Liability)
|
|
|
Total
|
|
Beginning balance at January 1, 2016
|
|
$
|
(709
|
)
|
|
|
(2,841
|
)
|
|
|
(3,550
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(1,236
|
)
|
|
|
(442
|
)
|
|
|
(1,678
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(2
|
)
|
|
|
123
|
|
|
|
121
|
|
Net current-period other comprehensive income (loss)
|
|
|
(1,238
|
)
|
|
|
(319
|
)
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2016
|
|
$
|
(1,947
|
)
|
|
|
(3,160
|
)
|
|
|
(5,107
|
)
|
The following table discloses the changes
in accumulated other comprehensive income (loss) for the year ended December 31, 2015 (all amounts are net of tax).
($ in thousands)
|
|
Unrealized Gain
(Loss) on
Securities
Available for Sale
|
|
|
Additional
Pension Asset
(Liability)
|
|
|
Total
|
|
Beginning balance at January 1, 2015
|
|
$
|
(421
|
)
|
|
|
(157
|
)
|
|
|
(578
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(289
|
)
|
|
|
(2,636
|
)
|
|
|
(2,925
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
1
|
|
|
|
(48
|
)
|
|
|
(47
|
)
|
Net current-period other comprehensive income (loss)
|
|
|
(288
|
)
|
|
|
(2,684
|
)
|
|
|
(2,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
(709
|
)
|
|
|
(2,841
|
)
|
|
|
(3,550
|
)
|
(t)
Segment Reporting
-
Accounting
standards require management to report selected financial and descriptive information about reportable operating segments. The
standards also require related disclosures about products and services, geographic areas, and major customers. Generally, disclosures
are required for segments internally identified to evaluate performance and resource allocation. The Company’s operations
are primarily within the banking segment, and the financial statements presented herein reflect the results of that segment. The
Company has no foreign operations or customers.
(u)
Reclassifications
-
Certain
amounts for prior years have been reclassified to conform to the 2016 presentation. The reclassifications had no effect on net
income or shareholders’ equity as previously presented, nor did they materially impact trends in financial information.
(v)
Recent Accounting Pronouncements
-
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from
contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer
of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance
will be effective for the Company for reporting periods beginning after December 31, 2017. The Company can apply the guidance using
a full retrospective approach or a modified retrospective approach. The Company does not expect these amendments to have a material
effect on its financial statements.
In June 2014, the FASB issued guidance which
clarifies that performance targets associated with stock compensation should be treated as a performance condition and should not
be reflected in the grant date fair value of the stock award. The amendments were effective for the Company on January 1, 2016
for all stock awards granted or modified after January 1, 2016. The Company’s adoption of these amendments did not have a
material effect on its financial statements.
In January 2015, the FASB issued guidance
to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in
nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from
the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income
from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments
were effective for the Company on January 1, 2016, and did not have a material effect on its financial statements.
In February 2015, the FASB issued guidance which
amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Specifically,
the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities
(“VIEs”) or voting interest entities; (ii) eliminate the presumption that a general partner should consolidate a limited
partnership; (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that
have fee arrangements and related party relationships; and (iv) provide a scope exception from consolidation guidance for reporting
entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are
similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments were expected
to result in the deconsolidation of many entities. The amendments were effective for the Company on January 1, 2016. The adoption
of these amendments did not have a material effect on the Company’s financial statements.
In April 2015, the FASB issued guidance
that will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability. This update affects disclosures related to debt issuance costs but does not affect
existing recognition and measurement guidance for these items. The amendments were effective for the Company on January 1, 2016.
The Company’s adoption of these amendments did not have a material effect on its financial statements.
In April 2015, the FASB issued guidance
which provides a practical expedient that permits the Company to measure defined benefit plan assets and obligations using the
month-end that is closest to the Company’s fiscal year-end. The amendments were effective for the Company on January 1, 2016.
The Company’s adoption of these amendments did not have a material effect on its financial statements.
In September 2015, the FASB amended the
Business Combinations topic of the Accounting Standards Codification to simplify the accounting for adjustments made to provisional
amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The
amendments were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with
early adoption permitted for financial statements that have not been issued. All entities are required to apply the amendments
prospectively to adjustments to provisional amounts that occur after the effective date. The amendment was effective for the Company
on January 1, 2016 and these amendments did not have a material effect on its financial statements.
In January 2016, the FASB amended the Financial
Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation,
and disclosure of financial instruments. This update is intended to improve the recognition and measurement of financial instruments
and it requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present
in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair
value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv)
calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance
on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The guidance
also provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted
for certain observable price changes and requires a qualitative impairment assessment of such equity investments and amends certain
fair value disclosure requirements. The amendments will be effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the
balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable
fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company
does not expect these amendments to have a material effect on its financial statements.
In February 2016, the FASB issued new guidance
on accounting for leases, which generally requires all leases to be recognized in the statement of financial position by recording
an asset representing its right to use the underlying asset and recording a liability, which represents the Company’s obligation
to make lease payments. The provisions of this guidance are effective for reporting periods beginning after December 15, 2018;
early adoption is permitted. These provisions are to be applied using a modified retrospective approach. The Company is evaluating
the effect that this new guidance will have on our consolidated financial statements, but does not expect it will have a material
effect on its financial statements.
In March 2016, the FASB amended the Liabilities
topic of the Accounting Standards Codification to address the current and potential future diversity in practice related to the
derecognition of a prepaid stored-value product liability. The amendments will be effective for financial statements issued for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the
guidance using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of
the beginning of the fiscal year in which the guidance is effective to each period presented. The Company does not expect these
amendments to have a material effect on its financial statements.
In March 2016, the FASB amended the Investments—Equity
Method and Joint Ventures topic of the Accounting Standards Codification to eliminate the requirement to retroactively adopt the
equity method of accounting and instead apply the equity method of accounting starting with the date it qualifies for that method.
The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.
The Company will apply the guidance prospectively upon their effective date to increases in the level of ownership interest or
degree of influence that result in the adoption of the equity method. The Company does not expect these amendments to have a material
effect on its financial statements.
In March 2016, the FASB amended the Revenue
from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal
versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that
include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December
15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
In March 2016, the FASB issued guidance
to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences,
the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally,
the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient
to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also
allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them
at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim
periods within those annual periods. The Company does not expect these amendments to have a material effect on its financial statements.
In April 2016, the FASB amended the Revenue
from Contracts with Customers topic of the Accounting Standards Codification to clarify the guidance related to identifying performance
obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting
periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial
statements.
In May 2016, the FASB amended the Revenue
from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash
consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods
beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
In June 2016, the FASB issued guidance to
change the accounting for credit losses. The guidance requires an entity to utilize a new impairment model known as the current
expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance
that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the
financial asset. The CECL model is expected to result in earlier recognition of credit losses. The guidance
also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. The
updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim
periods within those fiscal years. Early adoption is permitted. Entities will apply the standard's provisions
as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance
is adopted. The Company is currently evaluating the effect that implementation of the new standard will have on its financial
position, results of operations, and cash flows.
In August 2016, the FASB amended the Statement
of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented
and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after
December 15, 2017, including interim periods within those years. The Company does not expect these amendments to have a material
effect on its financial statements.
In October 2016, the FASB amended the Consolidation
topic of the Accounting Standards Codification to revise the consolidation guidance on how a reporting entity that is the single
decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that
are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments
will be effective for the Company for fiscal years beginning after December 15, 2016 including interim periods within those fiscal
years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In November 2016, the FASB amended the Statement
of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the
statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including
interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a
material effect on its financial statements.
In January 2017, the FASB issued guidance to clarify the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted
for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address
concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded
as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company
for reporting periods beginning after December 15, 2017
.
Early adoption is permitted. The Company does not expect these
amendments to have a material effect on its financial statements.
In January 2017, the FASB updated the Accounting Changes and Error
Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The ASU
incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect
on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The
Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it
does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.
In January 2017, the FASB issued amended the Goodwill and Other Topic
of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other
entities that have goodwill reported in their financial statements and have not elected the private company alternative for the
subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. The amount of goodwill impairment
will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount
of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for
reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its
financial statements.
Other accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results
of operations or cash flows.
Note 2. Acquisitions
Since January 1, 2016, the Company
completed the acquisitions described below. The Company did not complete any acquisitions in 2014 or 2015. The results of each
acquired company/branch are included in the Company’s results beginning on its respective acquisition date.
|
(1)
|
On January 1, 2016, First Bank Insurance completed
the acquisition of
Bankingport, Inc. (“Bankingport”). The results of Bankingport are included in First
Bancorp’s results for the twelve months ended December 31, 2016 beginning on the January 1, 2016 acquisition date.
|
Bankingport was an insurance agency
based in Sanford, North Carolina. This acquisition represented an opportunity to expand the insurance agency operations into a
contiguous and significant banking market for the Company. Also, this acquisition provided the Company with a larger platform for
leveraging insurance services throughout the Company’s bank branch network. The deal value was $2.2 million and the transaction
was completed on January 1, 2016 with the Company paying $700,000 in cash and issuing 79,012 shares of its common stock, which
had a value of approximately $1.5 million. In connection with the acquisition, the Company also paid $1.1 million to purchase the
office space previously leased by Bankingport.
This acquisition has been accounted
for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Bankingport
were recorded based on estimates of fair values as of January 1, 2016. In connection with this transaction, the Company recorded
$1.7 million in goodwill, which is non-deductible for tax purposes, and $0.7 million in other amortizable intangible assets.
|
(2)
|
On May 5, 2016, the Company completed the acquisition of SBA Complete. The results of SBA Complete
are included in First Bancorp’s results for the twelve months ended December 31, 2016 beginning on the May 5, 2016 acquisition
date. SBA Complete is a consulting firm that specializes in consulting with financial institutions across the country related to
SBA loan origination and servicing. The deal value was approximately $8.5 million with the Company paying $1.5 million in cash
and issuing 199,829 shares of its common stock, which had a value of approximately $4.0 million. Per the terms of the agreement,
the Company has also recorded an earn-out liability valued at $3.0 million, which will be paid in shares of Company stock in annual
distributions over a three-year period if pre-determined goals are met for those three years.
|
This acquisition has been accounted
for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of SBA Complete
were recorded based on estimates of fair values, which according to applicable accounting guidance, are subject to change for twelve
months following the acquisition. In connection with this transaction, the Company recorded $5.6 million in goodwill, which is
non-deductible for tax purposes, and $2.0 million in other amortizable intangible assets.
|
(3)
|
On July 15, 2016, the Company completed a branch exchange with First Community Bank headquartered in Bluefield, Virginia. In
the branch exchange transaction, the Bank acquired six of First Community Bank’s branches located in North Carolina, while
concurrently selling seven of its branches in the southwestern area of Virginia to First Community Bank.
|
In connection with the sale, the Company sold $150.6 million
in loans, $5.7 million in premises and equipment and $134.3 million in deposits to First Community Bank. In connection with the
sale, the Company received a deposit premium of $3.8 million, removed $1.0 million of allowance for loan losses associated with
the sold loans, allocated and wrote-off $3.5 million of previously recorded goodwill, and recorded a net gain of $1.5 million in
this transaction.
In connection with the purchase transaction, the Company
acquired assets with a fair value of $157.2 million, including $152.2 million in loans and $3.4 million in premises and equipment.
Additionally, the Company assumed $111.3 million in deposits and $0.2 million in other liabilities. In connection with the purchase,
the Company recorded: i) a discount on acquired loans of $1.5 million, ii) a premium on deposits of $0.3 million, iii) a $1.2 million
core deposit intangible, iv) and $5.4 million in goodwill.
The branch acquisition has been accounted for using the
purchase method of accounting for business combinations, and accordingly, the assets and liabilities of the acquired branches were
recorded on the Company’s balance sheet at their fair values as of July 15, 2016 and the related results of operations for
the acquired branches have been included in the Company’s consolidated statement of comprehensive income since that date.
The goodwill recorded in the branch exchange is deductible for tax purposes.
|
(4)
|
On March 3, 2017, the Company completed its
acquisition of Carolina Bank Holdings, Inc. (“Carolina Bank”), headquartered in Greensboro, North Carolina,
pursuant to an Agreement and Plan of Merger and Reorganization dated June 21, 2016. The total merger consideration consisted
of $25.3 million
in cash and 3.8 million shares of the Company’s common stock, with each share of Carolina Bank common stock
being exchanged for either $20.00 in cash or 1.002 shares of the Company’s stock, subject to the total consideration
being 75% stock / 25% cash. Carolina Bank operates eight branches located in Greensboro, High Point, Burlington,
Winston-Salem, and Asheboro, North Carolina and also operates three mortgage offices in North Carolina. The acquisition is a
natural extension of the Company’s recent expansion into these high-growth areas. As of December 31, 2016, Carolina
Bank had $705 million in total assets, $530 million in gross loans, and $598 million in total deposits. As of the filing of
this annual report, the Company has not completed the fair value measurements of Carolina Bank’s assets, liabilities
and identifiable intangible assets.
|
Note 3. Securities
The book values and approximate fair values
of investment securities at December 31, 2016 and 2015 are summarized as follows:
|
|
2016
|
|
|
2015
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
($ in thousands)
|
|
Cost
|
|
|
Value
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Cost
|
|
|
Value
|
|
|
Gains
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise securities
|
|
$
|
17,497
|
|
|
|
17,490
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
19,000
|
|
|
|
18,972
|
|
|
|
1
|
|
|
|
(29
|
)
|
Mortgage-backed securities
|
|
|
151,001
|
|
|
|
148,065
|
|
|
|
155
|
|
|
|
(3,091
|
)
|
|
|
122,474
|
|
|
|
121,553
|
|
|
|
348
|
|
|
|
(1,269
|
)
|
Corporate bonds
|
|
|
33,833
|
|
|
|
33,600
|
|
|
|
91
|
|
|
|
(324
|
)
|
|
|
25,216
|
|
|
|
24,946
|
|
|
|
—
|
|
|
|
(270
|
)
|
Equity securities
|
|
|
83
|
|
|
|
174
|
|
|
|
96
|
|
|
|
(5
|
)
|
|
|
88
|
|
|
|
143
|
|
|
|
64
|
|
|
|
(9
|
)
|
Total available for sale
|
|
$
|
202,414
|
|
|
|
199,329
|
|
|
|
342
|
|
|
|
(3,427
|
)
|
|
|
166,778
|
|
|
|
165,614
|
|
|
|
413
|
|
|
|
(1,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
80,585
|
|
|
|
79,283
|
|
|
|
—
|
|
|
|
(1,302
|
)
|
|
|
102,509
|
|
|
|
101,767
|
|
|
|
—
|
|
|
|
(742
|
)
|
State and local governments
|
|
|
49,128
|
|
|
|
50,912
|
|
|
|
1,815
|
|
|
|
(31
|
)
|
|
|
52,101
|
|
|
|
55,379
|
|
|
|
3,284
|
|
|
|
(6
|
)
|
Total held to maturity
|
|
$
|
129,713
|
|
|
|
130,195
|
|
|
|
1,815
|
|
|
|
(1,333
|
)
|
|
|
154,610
|
|
|
|
157,146
|
|
|
|
3,284
|
|
|
|
(748
|
)
|
All of the Company’s mortgage-backed
securities, including the collateralized mortgage obligations, were issued by government-sponsored corporations.
The following table presents information
regarding securities with unrealized losses at December 31, 2016:
($ in thousands)
|
|
Securities in an Unrealized
Loss Position for
Less than 12 Months
|
|
|
Securities in an Unrealized
Loss Position for
More than 12 Months
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
Government-sponsored enterprise securities
|
|
$
|
7,990
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,990
|
|
|
|
7
|
|
Mortgage-backed securities
|
|
|
196,999
|
|
|
|
3,841
|
|
|
|
19,001
|
|
|
|
552
|
|
|
|
216,000
|
|
|
|
4,393
|
|
Corporate bonds
|
|
|
27,027
|
|
|
|
259
|
|
|
|
935
|
|
|
|
65
|
|
|
|
27,962
|
|
|
|
324
|
|
Equity securities
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
5
|
|
|
|
7
|
|
|
|
5
|
|
State and local governments
|
|
|
801
|
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
801
|
|
|
|
31
|
|
Total temporarily impaired securities
|
|
$
|
232,817
|
|
|
|
4,138
|
|
|
|
19,943
|
|
|
|
622
|
|
|
|
252,760
|
|
|
|
4,760
|
|
The following table presents information
regarding securities with unrealized losses at December 31, 2015:
($ in thousands)
|
|
Securities in an Unrealized
Loss Position for
Less than 12 Months
|
|
|
Securities in an Unrealized
Loss Position for
More than 12 Months
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
Government-sponsored enterprise securities
|
|
$
|
5,993
|
|
|
|
7
|
|
|
|
2,978
|
|
|
|
22
|
|
|
|
8,971
|
|
|
|
29
|
|
Mortgage-backed securities
|
|
|
150,853
|
|
|
|
1,148
|
|
|
|
27,460
|
|
|
|
863
|
|
|
|
178,313
|
|
|
|
2,011
|
|
Corporate bonds
|
|
|
24,006
|
|
|
|
210
|
|
|
|
940
|
|
|
|
60
|
|
|
|
24,946
|
|
|
|
270
|
|
Equity securities
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
9
|
|
|
|
17
|
|
|
|
9
|
|
State and local governments
|
|
|
840
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
840
|
|
|
|
6
|
|
Total temporarily impaired securities
|
|
$
|
181,692
|
|
|
|
1,371
|
|
|
|
31,395
|
|
|
|
954
|
|
|
|
213,087
|
|
|
|
2,325
|
|
In the above tables, all of the non-equity
securities that were in an unrealized loss position at December 31, 2016 and 2015 are bonds that the Company has determined are
in a loss position due primarily to interest rate factors and not credit quality concerns. The Company has evaluated the collectability
of each of these bonds and has concluded that there is no other-than-temporary impairment. The Company does not intend to sell
these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery
of the amortized cost.
The Company has concluded that each of the
equity securities in an unrealized loss position at December 31, 2016 and 2015 was in such a position due to temporary fluctuations
in the market prices of the securities. The Company’s policy is to record an impairment charge for any of these equity securities
that remains in an unrealized loss position for twelve consecutive months unless the amount is insignificant.
The book values and approximate fair values
of investment securities at December 31, 2016, by contractual maturity, are summarized in the table below. Expected maturities
may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
Securities Available for Sale
|
|
|
Securities Held to Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
($ in thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
2,016
|
|
|
|
2,028
|
|
Due after one year but within five years
|
|
|
17,497
|
|
|
|
17,490
|
|
|
|
16,256
|
|
|
|
16,767
|
|
Due after five years but within ten years
|
|
|
28,833
|
|
|
|
28,682
|
|
|
|
29,690
|
|
|
|
30,981
|
|
Due after ten years
|
|
|
5,000
|
|
|
|
4,918
|
|
|
|
1,166
|
|
|
|
1,136
|
|
Mortgage-backed securities
|
|
|
151,001
|
|
|
|
148,065
|
|
|
|
80,585
|
|
|
|
79,283
|
|
Total debt securities
|
|
|
202,331
|
|
|
|
199,155
|
|
|
|
129,713
|
|
|
|
130,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
83
|
|
|
|
174
|
|
|
|
—
|
|
|
|
—
|
|
Total securities
|
|
$
|
202,414
|
|
|
|
199,329
|
|
|
$
|
129,713
|
|
|
|
130,195
|
|
At December 31, 2016 and 2015, investment
securities with carrying values of $147,009,000 and $141,379,000, respectively, were pledged as collateral for public deposits.
In 2016, the Company received proceeds from
sales of securities of $8,000 and recorded $3,000 in gains from the sales. In 2015, the Company recorded $1,000 in securities losses
associated with write-downs and did not sell any securities. In 2014, the Company initiated security sales totaling $47,473,000,
which resulted in net gains of $786,000 in 2014.
Included in “other assets” in
the Consolidated Balance Sheets are cost-method investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve
Bank of Richmond (“FRB”) stock totaling $19,826,000 and $15,893,000 at December 31, 2016 and 2015, respectively. The
FHLB stock had a cost and fair value of $12,588,000 and $8,846,000 at December 31, 2016 and 2015, respectively, and serves as part
of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.
The FRB stock had a cost and fair value of $7,238,000 and $7,047,000 at December 31, 2016 and 2015, respectively. Periodically,
both the FHLB and FRB recalculate the Company’s required level of holdings, and the Company either buys more stock or the
redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end.
Note 4. Loans and Asset Quality Information
Prior to September 22, 2016, the
Company’s banking subsidiary, First Bank, had certain loans and foreclosed real estate that were covered by loss share
agreements between the FDIC and First Bank which afforded First Bank significant loss protection - see Note 2 to the
financial statements included in the Company’s 2011 Annual Report on Form 10-K for detailed information regarding
FDIC-assisted purchase transactions. On July 1, 2014, the loss share provisions associated with non-single family assets
related to the 2009 failed bank acquisition of Cooperative Bank expired. On April 1, 2016, the loss share provisions
associated with non-single family assets related to the 2011 failed bank acquisition of The Bank of Asheville expired. On
September 22, 2016, the Company terminated all of the loss share agreements with the FDIC, such that all future losses and
recoveries on loans and foreclosed real estate associated with the failed banks acquired through FDIC-assisted transactions
will be borne solely by First Bank. As a result of the termination of the agreements, the Company recorded a charge of $5.7
million, which primarily related to the write-off of the remaining indemnification asset associated with the agreements, and
is included in the indemnification asset expense amount of $10.3 million in the Consolidated Statement of Income for the year
ended December 31, 2016.
In the information presented below, the
term “covered” is used to describe assets that were subject to FDIC loss share agreements, while the term “non-covered”
refers to the Company’s legacy assets, which were not included in any type of loss share arrangement. As discussed previously,
all loss share agreements were terminated during 2016 and thus the entire loan portfolio is now classified as non-covered. Certain
prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered.
As a result of the termination of all loss
share agreements, the remaining balances associated with those loans and foreclosed real estate were reclassified from the covered
portfolio to the non-covered portfolio. Balances related to the expired agreements and the termination of all remaining agreements
as of the respective dates is as follows:
|
|
Cooperative
Bank non-single
family
agreement
termination
July 1, 2014
|
|
|
Bank of
Asheville non-
single family
agreement
termination
April 1, 2016
|
|
|
Remaining loss
share agreement
terminations
September 22,
2016
|
|
Carrying value of total covered loans transferred to non-covered
|
|
$
|
39,700
|
|
|
|
17,737
|
|
|
|
78,387
|
|
Covered nonaccrual loans transferred to non-covered
|
|
|
9,700
|
|
|
|
2,785
|
|
|
|
4,194
|
|
Covered foreclosed real estate transferred to non-covered
|
|
|
3,000
|
|
|
|
1,165
|
|
|
|
385
|
|
Allowance for loan losses associated with covered loans transferred to allowance for non-covered loans
|
|
|
1,700
|
|
|
|
307
|
|
|
|
1,074
|
|
The following is a summary of the major
categories of total loans outstanding:
($ in thousands)
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
All loans (non-covered and covered):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
261,813
|
|
|
|
9%
|
|
|
$
|
202,671
|
|
|
|
8%
|
|
Real estate – construction, land development & other land loans
|
|
|
354,667
|
|
|
|
13%
|
|
|
|
308,969
|
|
|
|
12%
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
750,679
|
|
|
|
28%
|
|
|
|
768,559
|
|
|
|
31%
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
239,105
|
|
|
|
9%
|
|
|
|
232,601
|
|
|
|
9%
|
|
Real estate – mortgage – commercial and other
|
|
|
1,049,460
|
|
|
|
39%
|
|
|
|
957,587
|
|
|
|
38%
|
|
Installment loans to individuals
|
|
|
55,037
|
|
|
|
2%
|
|
|
|
47,666
|
|
|
|
2%
|
|
Subtotal
|
|
|
2,710,761
|
|
|
|
100%
|
|
|
|
2,518,053
|
|
|
|
100%
|
|
Unamortized net deferred loan costs (fees)
|
|
|
(49
|
)
|
|
|
|
|
|
|
873
|
|
|
|
|
|
Total loans
|
|
$
|
2,710,712
|
|
|
|
|
|
|
$
|
2,518,926
|
|
|
|
|
|
Loans in the amount of $2.4 billion
and $2.0 billion were pledged as collateral for certain borrowings as of December 31, 2016 and December 31, 2015, respectively
(see Note 10).
The loans above also include loans to executive
officers and directors serving the Company at December 31, 2016 and to their associates, totaling approximately $2.6 million and
$3.6 million at December 31, 2016 and 2015, respectively. During 2016 additions to such loans were approximately $0.3 million and
repayments totaled approximately $1.3 million. These loans were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with other non-related borrowers. Management does not
believe these loans involve more than the normal risk of collectability or present other unfavorable features.
The following is a summary of the major
categories of loans outstanding allocated to the non-covered and covered loan portfolios for periods when the FDIC loss share agreements
were in effect at December 31, 2015. There were no covered loans at December 31, 2016.
($ in thousands)
|
|
December 31, 2015
|
|
|
|
Non-covered
|
|
|
Covered
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
201,798
|
|
|
|
873
|
|
|
|
202,671
|
|
Real estate – construction, land development & other land loans
|
|
|
305,228
|
|
|
|
3,741
|
|
|
|
308,969
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
692,902
|
|
|
|
75,657
|
|
|
|
768,559
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
221,995
|
|
|
|
10,606
|
|
|
|
232,601
|
|
Real estate – mortgage – commercial and other
|
|
|
945,823
|
|
|
|
11,764
|
|
|
|
957,587
|
|
Installment loans to individuals
|
|
|
47,666
|
|
|
|
—
|
|
|
|
47,666
|
|
Subtotal
|
|
|
2,415,412
|
|
|
|
102,641
|
|
|
|
2,518,053
|
|
Unamortized net deferred loan costs
|
|
|
873
|
|
|
|
—
|
|
|
|
873
|
|
Total
|
|
$
|
2,416,285
|
|
|
|
102,641
|
|
|
|
2,518,926
|
|
As a result of the termination of the FDIC
loss share agreements during the third quarter of 2016, there were no covered loans at December 31, 2016. The follow presents the
carrying amount of the covered loans at December 31, 2015 detailed by impaired and nonimpaired purchased loans (as determined on
the date of the acquisition):
($ in thousands)
|
|
Impaired
Purchased
Loans –
Carrying
Value
|
|
|
Impaired
Purchased
Loans –
Unpaid
Principal
Balance
|
|
|
Nonimpaired
Purchased
Loans –
Carrying
Value
|
|
|
Nonimpaired
Purchased
Loans -
Unpaid
Principal
Balance
|
|
|
Total
Covered
Loans –
Carrying
Value
|
|
|
Total
Covered
Loans –
Unpaid
Principal
Balance
|
|
Covered loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
—
|
|
|
|
—
|
|
|
|
873
|
|
|
|
886
|
|
|
|
873
|
|
|
|
886
|
|
Real estate – construction, land development & other land loans
|
|
|
277
|
|
|
|
365
|
|
|
|
3,464
|
|
|
|
3,457
|
|
|
|
3,741
|
|
|
|
3,822
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
102
|
|
|
|
633
|
|
|
|
75,555
|
|
|
|
88,434
|
|
|
|
75,657
|
|
|
|
89,067
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
7
|
|
|
|
14
|
|
|
|
10,599
|
|
|
|
12,099
|
|
|
|
10,606
|
|
|
|
12,113
|
|
Real estate – mortgage – commercial and other
|
|
|
1,003
|
|
|
|
3,136
|
|
|
|
10,761
|
|
|
|
11,458
|
|
|
|
11,764
|
|
|
|
14,594
|
|
Total
|
|
$
|
1,389
|
|
|
|
4,148
|
|
|
|
101,252
|
|
|
|
116,334
|
|
|
|
102,641
|
|
|
|
120,482
|
|
The following table presents information
regarding covered purchased nonimpaired loans since December 31, 2014. The amounts include principal only and do not reflect accrued
interest as of the date of the acquisition or beyond. All balances of covered loans were transferred to non-covered as of the termination
of the loss share agreements.
($ in thousands)
|
|
|
|
Carrying amount of nonimpaired covered loans at December 31, 2014
|
|
$
|
125,644
|
|
Principal repayments
|
|
|
(30,238
|
)
|
Transfers to foreclosed real estate
|
|
|
(1,211
|
)
|
Net loan recoveries
|
|
|
2,306
|
|
Accretion of loan discount
|
|
|
4,751
|
|
Carrying amount of nonimpaired covered loans at December 31, 2015
|
|
|
101,252
|
|
Principal repayments
|
|
|
(7,997
|
)
|
Transfers to foreclosed real estate
|
|
|
(1,036
|
)
|
Net loan recoveries
|
|
|
1,784
|
|
Accretion of loan discount
|
|
|
1,908
|
|
Transfer to non-covered loans due to expiration of loss-share agreement, April 1, 2016
|
|
|
(17,530
|
)
|
Transfer to non-covered loans due to termination of loss-share agreements, September 22, 2016
|
|
|
(78,381
|
)
|
Carrying amount of nonimpaired covered loans at December 31, 2016
|
|
$
|
—
|
|
As reflected in the table above, the Company
accreted $1,908,000 of the loan discount on covered purchased nonimpaired loans into interest income during 2016 prior to the termination
of the loss share agreements. Total loan discount accretion for all loans amounted to $4,451,000, $4,751,000 and $16,009,000 for
the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016, there was a remaining
loan discount of $11,258,000 related to purchased accruing loans, which is expected to be accreted into interest income over the
lives of the respective loans. At December 31, 2016, the Company also had $795,000 of loan discount related to purchased nonaccruing
loans, which the Company does not expect will be accreted into income.
The following table presents information
regarding all purchased impaired loans since December 31, 2014. The Company has applied the cost recovery method to all purchased
impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected
in the following table.
($ in thousands)
Purchased Impaired Loans
|
|
Contractual
Principal
Receivable
|
|
|
Fair Market
Value
Adjustment –
Write Down
(Nonaccretable
Difference)
|
|
|
Carrying
Amount
|
|
Balance at December 31, 2014
|
|
$
|
5,859
|
|
|
|
3,262
|
|
|
|
2,597
|
|
Change due to payments received
|
|
|
(634
|
)
|
|
|
(102
|
)
|
|
|
(532
|
)
|
Transfer to foreclosed real estate
|
|
|
(431
|
)
|
|
|
(336
|
)
|
|
|
(95
|
)
|
Other
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
—
|
|
Balance at December 31, 2015
|
|
$
|
4,791
|
|
|
|
2,821
|
|
|
|
1,970
|
|
Change due to payments received
|
|
|
(3,753
|
)
|
|
|
(2,367
|
)
|
|
|
(1,386
|
)
|
Change due to loan charge-off
|
|
|
(428
|
)
|
|
|
(358
|
)
|
|
|
(70
|
)
|
Balance at December 31, 2016
|
|
$
|
610
|
|
|
|
96
|
|
|
|
514
|
|
Because of the uncertainty of the expected
cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments
are applied to principal. Thus, there is no accretable yield associated with the above loans. During 2016, the Company received
$1,160,000 in payments that exceeded the carrying amount of the related purchased impaired loans, of which $786,000 was recognized
as discount accretion loan interest income and $374,000 was recorded as additional loan interest income. During 2015, the Company
received $332,000 in payments that exceeded the carrying amount of the related purchased impaired loans, of which $275,000 was
recognized as discount accretion loan interest income and $57,000 was recorded as additional loan interest income.
Nonperforming assets are defined as nonaccrual
loans, restructured loans, loans past due 90 or more days and still accruing interest, nonperforming loans held for sale, and foreclosed
real estate. Nonperforming assets are summarized as follows:
ASSET QUALITY DATA
($ in thousands)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Nonperforming assets
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
$
|
27,468
|
|
|
|
47,810
|
|
Restructured loans - accruing
|
|
|
22,138
|
|
|
|
31,489
|
|
Accruing loans > 90 days past due
|
|
|
—
|
|
|
|
—
|
|
Total nonperforming loans
|
|
|
49,606
|
|
|
|
79,299
|
|
Foreclosed real estate
|
|
|
9,532
|
|
|
|
9,994
|
|
Total nonperforming assets
|
|
$
|
59,138
|
|
|
|
89,293
|
|
|
|
|
|
|
|
|
|
|
Total covered nonperforming assets included above (1)
|
|
$
|
—
|
|
|
|
12,100
|
|
(1) All
FDIC loss share agreements were terminated effective September 22, 2016 and, accordingly, assets previously covered under those
agreements became non-covered on that date.
At December 31, 2016 and 2015, the Company
had $1.7 million and $2.5 million in residential mortgage loans in process of foreclosure, respectively.
If the nonaccrual and restructured loans
as of December 31, 2016, 2015 and 2014 had been current in accordance with their original terms and had been outstanding throughout
the period (or since origination if held for part of the period), gross interest income in the amounts of approximately $1,893,000,
$3,213,000, and $4,115,000 for nonaccrual loans and $1,417,000, $2,044,000, and $3,045,000, for restructured loans would have been
recorded for 2016, 2015, and 2014, respectively. Interest income on such loans that was actually collected and included in net
income in 2016, 2015 and 2014 amounted to approximately $266,000, $575,000, and $1,176,000 for nonaccrual loans (prior to their
being placed on nonaccrual status), and $423,000, $1,392,000, and $2,003,000 for restructured loans, respectively. At December
31, 2016 and 2015, there were no commitments to lend additional funds to debtors whose loans were nonperforming.
The following is a summary the Company’s
nonaccrual loans by major categories.
($ in thousands)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Commercial, financial, and agricultural
|
|
$
|
1,842
|
|
|
|
2,964
|
|
Real estate – construction, land development & other land loans
|
|
|
2,945
|
|
|
|
4,704
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
16,017
|
|
|
|
23,829
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
2,355
|
|
|
|
3,525
|
|
Real estate – mortgage – commercial and other
|
|
|
4,208
|
|
|
|
12,571
|
|
Installment loans to individuals
|
|
|
101
|
|
|
|
217
|
|
Total
|
|
$
|
27,468
|
|
|
|
47,810
|
|
|
|
|
|
|
|
|
|
|
Total covered nonaccrual loans included above
|
|
$
|
—
|
|
|
|
7,816
|
|
The following table presents an analysis
of the payment status of the Company’s loans as of December 31, 2016.
($ in thousands)
|
|
30-59
Days Past
Due
|
|
|
60-89 Days
Past Due
|
|
|
Nonaccrual
Loans
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
92
|
|
|
|
—
|
|
|
|
1,842
|
|
|
|
259,879
|
|
|
|
261,813
|
|
Real estate – construction, land development & other land loans
|
|
|
473
|
|
|
|
168
|
|
|
|
2,945
|
|
|
|
351,081
|
|
|
|
354,667
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
4,487
|
|
|
|
443
|
|
|
|
16,017
|
|
|
|
729,732
|
|
|
|
750,679
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
1,751
|
|
|
|
178
|
|
|
|
2,355
|
|
|
|
234,821
|
|
|
|
239,105
|
|
Real estate – mortgage – commercial and other
|
|
|
1,482
|
|
|
|
449
|
|
|
|
4,208
|
|
|
|
1,043,321
|
|
|
|
1,049,460
|
|
Installment loans to individuals
|
|
|
186
|
|
|
|
193
|
|
|
|
101
|
|
|
|
54,557
|
|
|
|
55,037
|
|
Total
|
|
$
|
8,471
|
|
|
|
1,431
|
|
|
|
27,468
|
|
|
|
2,673,391
|
|
|
|
2,710,761
|
|
Unamortized net deferred loan fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,710,712
|
|
The Company had no covered loans and no
loans that were past due greater than 90 days and accruing interest at December 31, 2016.
The following table presents an analysis
of the payment status of the Company’s loans as of December 31, 2015.
($ in thousands)
|
|
30-59
Days Past
Due
|
|
|
60-89 Days
Past Due
|
|
|
Nonaccrual
Loans
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
999
|
|
|
|
127
|
|
|
|
2,964
|
|
|
|
198,581
|
|
|
|
202,671
|
|
Real estate – construction, land development & other land loans
|
|
|
1,512
|
|
|
|
429
|
|
|
|
4,704
|
|
|
|
302,324
|
|
|
|
308,969
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
15,443
|
|
|
|
3,614
|
|
|
|
23,829
|
|
|
|
725,673
|
|
|
|
768,559
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
1,276
|
|
|
|
105
|
|
|
|
3,525
|
|
|
|
227,695
|
|
|
|
232,601
|
|
Real estate – mortgage – commercial and other
|
|
|
5,591
|
|
|
|
864
|
|
|
|
12,571
|
|
|
|
938,561
|
|
|
|
957,587
|
|
Installment loans to individuals
|
|
|
278
|
|
|
|
255
|
|
|
|
217
|
|
|
|
46,916
|
|
|
|
47,666
|
|
Total loans
|
|
$
|
25,099
|
|
|
|
5,394
|
|
|
|
47,810
|
|
|
|
2,439,750
|
|
|
|
2,518,053
|
|
Unamortized net deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,518,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covered loans included above
|
|
$
|
3,313
|
|
|
|
402
|
|
|
|
7,816
|
|
|
|
91,110
|
|
|
|
102,641
|
|
The Company had no non-covered or covered
loans that were past due greater than 90 days and accruing interest at December 31, 2015.
The following table presents the activity
in the allowance for loan losses for the year ended December 31, 2016. There were no covered loans at December 31, 2016 and all
reserves associated with previously covered loans were transferred to the non-covered allowance.
($ in thousands)
|
|
Commercial,
Financial,
and
Agricultural
|
|
|
Real Estate –
Construction,
Land
Development,
& Other Land
Loans
|
|
|
Real Estate –
Residential
(1-4
Family)
First
Mortgages
|
|
|
Real Estate
– Mortgage
– Home
Equity
Lines of
Credit
|
|
|
Real Estate –
Mortgage –
Commercial
and Other
|
|
|
Installment
Loans to
Individuals
|
|
|
Unallo-
cated
|
|
|
Covered
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,742
|
|
|
|
3,754
|
|
|
|
7,832
|
|
|
|
2,893
|
|
|
|
5,816
|
|
|
|
1,051
|
|
|
|
696
|
|
|
|
1,799
|
|
|
|
28,583
|
|
Charge-offs
|
|
|
(2,271
|
)
|
|
|
(1,101
|
)
|
|
|
(3,815
|
)
|
|
|
(969
|
)
|
|
|
(1,005
|
)
|
|
|
(1,008
|
)
|
|
|
(1
|
)
|
|
|
(244
|
)
|
|
|
(10,414
|
)
|
Recoveries
|
|
|
805
|
|
|
|
1,422
|
|
|
|
1,060
|
|
|
|
250
|
|
|
|
836
|
|
|
|
354
|
|
|
|
—
|
|
|
|
1,958
|
|
|
|
6,685
|
|
Transfer from covered status
|
|
|
56
|
|
|
|
65
|
|
|
|
839
|
|
|
|
293
|
|
|
|
127
|
|
|
|
—
|
|
|
|
1
|
|
|
|
(1,381
|
)
|
|
|
—
|
|
Removed due to branch loan sale
|
|
|
(263
|
)
|
|
|
(39
|
)
|
|
|
(347
|
)
|
|
|
(110
|
)
|
|
|
(228
|
)
|
|
|
(63
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,050
|
)
|
Provisions
|
|
|
760
|
|
|
|
(1,410
|
)
|
|
|
2,135
|
|
|
|
63
|
|
|
|
(448
|
)
|
|
|
811
|
|
|
|
198
|
|
|
|
(2,132
|
)
|
|
|
(23
|
)
|
Ending balance
|
|
$
|
3,829
|
|
|
|
2,691
|
|
|
|
7,704
|
|
|
|
2,420
|
|
|
|
5,098
|
|
|
|
1,145
|
|
|
|
894
|
|
|
|
—
|
|
|
|
23,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balances as of December 31, 2016: Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
7
|
|
|
|
184
|
|
|
|
1,339
|
|
|
|
5
|
|
|
|
105
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,640
|
|
Collectively evaluated for impairment
|
|
$
|
3,822
|
|
|
|
2,507
|
|
|
|
6,365
|
|
|
|
2,415
|
|
|
|
4,993
|
|
|
|
1,145
|
|
|
|
894
|
|
|
|
—
|
|
|
|
22,141
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance – total
|
|
$
|
261,813
|
|
|
|
354,667
|
|
|
|
750,679
|
|
|
|
239,105
|
|
|
|
1,049,460
|
|
|
|
55,037
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,710,761
|
|
Unamortized net deferred loan fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,710,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balances as of December 31, 2016: Loans
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
644
|
|
|
|
4,001
|
|
|
|
20,807
|
|
|
|
280
|
|
|
|
6,494
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,226
|
|
Collectively evaluated for impairment
|
|
$
|
261,169
|
|
|
|
350,666
|
|
|
|
729,872
|
|
|
|
238,825
|
|
|
|
1,042,452
|
|
|
|
55,037
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,678,021
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
514
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the activity
in the allowance for loan losses for non-covered and covered loans for the year ended December 31, 2015.
($ in thousands)
|
|
Commercial
Financial,
and
Agricultural
|
|
|
Real Estate –
Construction,
Land
Development,
& Other Land
Loans
|
|
|
Real Estate
– Residential
(1-4 Family)
First
Mortgages
|
|
|
Real
Estate–
Mortgage –
Home
Equity
Lines of
Credit
|
|
|
Real
Estate–
Mortgage–
Commercial
and Other
|
|
|
Installment
Loans to
Individuals
|
|
|
Unallo-
cated
|
|
|
Total Non-
Covered
|
|
|
Total
Covered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
6,769
|
|
|
|
8,158
|
|
|
|
10,136
|
|
|
|
4,753
|
|
|
|
6,466
|
|
|
|
1,916
|
|
|
|
147
|
|
|
|
38,345
|
|
|
|
2,281
|
|
Charge-offs
|
|
|
(2,908
|
)
|
|
|
(3,034
|
)
|
|
|
(4,904
|
)
|
|
|
(1,054
|
)
|
|
|
(2,804
|
)
|
|
|
(2,411
|
)
|
|
|
—
|
|
|
|
(17,115
|
)
|
|
|
(1,316
|
)
|
Recoveries
|
|
|
831
|
|
|
|
998
|
|
|
|
279
|
|
|
|
121
|
|
|
|
904
|
|
|
|
413
|
|
|
|
—
|
|
|
|
3,546
|
|
|
|
3,622
|
|
Provisions
|
|
|
50
|
|
|
|
(2,368
|
)
|
|
|
2,321
|
|
|
|
(927
|
)
|
|
|
1,250
|
|
|
|
1,133
|
|
|
|
549
|
|
|
|
2,008
|
|
|
|
(2,788
|
)
|
Ending balance
|
|
$
|
4,742
|
|
|
|
3,754
|
|
|
|
7,832
|
|
|
|
2,893
|
|
|
|
5,816
|
|
|
|
1,051
|
|
|
|
696
|
|
|
|
26,784
|
|
|
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balances as of December 31, 2015: Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
304
|
|
|
|
241
|
|
|
|
1,440
|
|
|
|
321
|
|
|
|
336
|
|
|
|
45
|
|
|
|
—
|
|
|
|
2,687
|
|
|
|
554
|
|
Collectively evaluated for impairment
|
|
$
|
4,438
|
|
|
|
3,513
|
|
|
|
6,392
|
|
|
|
2,572
|
|
|
|
5,480
|
|
|
|
1,006
|
|
|
|
696
|
|
|
|
24,097
|
|
|
|
1,175
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance – total
|
|
$
|
201,798
|
|
|
|
305,228
|
|
|
|
692,902
|
|
|
|
221,995
|
|
|
|
945,823
|
|
|
|
47,666
|
|
|
|
—
|
|
|
|
2,415,412
|
|
|
|
102,641
|
|
Unamortized net deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873
|
|
|
|
—
|
|
Total non-covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,416,285
|
|
|
|
102,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balances as of December 31, 2015: Loans
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
992
|
|
|
|
4,898
|
|
|
|
21,325
|
|
|
|
758
|
|
|
|
16,605
|
|
|
|
76
|
|
|
|
—
|
|
|
|
44,654
|
|
|
|
7,055
|
|
Collectively evaluated for impairment
|
|
$
|
200,806
|
|
|
|
300,330
|
|
|
|
671,577
|
|
|
|
221,237
|
|
|
|
928,637
|
|
|
|
47,590
|
|
|
|
—
|
|
|
|
2,370,177
|
|
|
|
94,197
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
581
|
|
|
|
—
|
|
|
|
—
|
|
|
|
581
|
|
|
|
1,389
|
|
The following table presents loans individually
evaluated for impairment as of December 31, 2016.
($ in thousands)
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
Impaired loans with no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
593
|
|
|
|
706
|
|
|
|
—
|
|
|
|
816
|
|
Real estate – mortgage – construction, land development & other land loans
|
|
|
3,221
|
|
|
|
4,558
|
|
|
|
—
|
|
|
|
3,641
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
10,035
|
|
|
|
12,220
|
|
|
|
—
|
|
|
|
11,008
|
|
Real estate – mortgage –home equity loans / lines of credit
|
|
|
114
|
|
|
|
146
|
|
|
|
—
|
|
|
|
139
|
|
Real estate – mortgage –commercial and other
|
|
|
5,112
|
|
|
|
5,722
|
|
|
|
—
|
|
|
|
8,713
|
|
Installment loans to individuals
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
1
|
|
Total impaired loans with no allowance
|
|
$
|
19,075
|
|
|
|
23,354
|
|
|
|
—
|
|
|
|
24,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
51
|
|
|
|
51
|
|
|
|
7
|
|
|
|
202
|
|
Real estate – mortgage – construction, land development & other land loans
|
|
|
780
|
|
|
|
798
|
|
|
|
184
|
|
|
|
844
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
10,772
|
|
|
|
11,007
|
|
|
|
1,339
|
|
|
|
13,314
|
|
Real estate – mortgage –home equity loans / lines of credit
|
|
|
166
|
|
|
|
166
|
|
|
|
5
|
|
|
|
324
|
|
Real estate – mortgage –commercial and other
|
|
|
1,896
|
|
|
|
1,929
|
|
|
|
105
|
|
|
|
4,912
|
|
Installment loans to individuals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
Total impaired loans with allowance
|
|
$
|
13,665
|
|
|
|
13,951
|
|
|
|
1,640
|
|
|
|
19,645
|
|
Interest income recorded on impaired loans
during the year ended December 31, 2016 was insignificant.
The following table presents loans individually
evaluated for impairment as of December 31, 2015.
($ in thousands)
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
Impaired loans with no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
360
|
|
|
|
422
|
|
|
|
—
|
|
|
|
235
|
|
Real estate – mortgage – construction, land development & other land loans
|
|
|
3,944
|
|
|
|
7,421
|
|
|
|
—
|
|
|
|
4,651
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
12,346
|
|
|
|
14,644
|
|
|
|
—
|
|
|
|
11,258
|
|
Real estate – mortgage –home equity loans / lines of credit
|
|
|
121
|
|
|
|
175
|
|
|
|
—
|
|
|
|
505
|
|
Real estate – mortgage –commercial and other
|
|
|
13,156
|
|
|
|
16,818
|
|
|
|
—
|
|
|
|
18,112
|
|
Installment loans to individuals
|
|
|
3
|
|
|
|
4
|
|
|
|
—
|
|
|
|
5
|
|
Total impaired loans with no allowance
|
|
$
|
29,930
|
|
|
|
39,484
|
|
|
|
—
|
|
|
|
34,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered impaired loans with no allowance included above
|
|
$
|
5,231
|
|
|
|
8,529
|
|
|
|
—
|
|
|
|
5,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
676
|
|
|
|
709
|
|
|
|
348
|
|
|
|
616
|
|
Real estate – mortgage – construction, land development & other land loans
|
|
|
954
|
|
|
|
976
|
|
|
|
241
|
|
|
|
1,980
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
15,285
|
|
|
|
15,691
|
|
|
|
1,912
|
|
|
|
15,636
|
|
Real estate – mortgage –home equity loans / lines of credit
|
|
|
667
|
|
|
|
678
|
|
|
|
344
|
|
|
|
430
|
|
Real estate – mortgage –commercial and other
|
|
|
6,094
|
|
|
|
6,279
|
|
|
|
421
|
|
|
|
4,950
|
|
Installment loans to individuals
|
|
|
73
|
|
|
|
80
|
|
|
|
45
|
|
|
|
111
|
|
Total impaired loans with allowance
|
|
$
|
23,749
|
|
|
|
24,413
|
|
|
|
3,311
|
|
|
|
23,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered impaired loans with allowance included above
|
|
$
|
3,213
|
|
|
|
3,476
|
|
|
|
624
|
|
|
|
3,742
|
|
Interest income recorded on impaired loans
during the year ended December 31, 2015 was insignificant.
The Company tracks credit quality based
on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors
such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as
substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit
quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value.
Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies
are consistent throughout each loan type.
The following describes the Company’s
internal risk grades in ascending order of likelihood of loss:
|
Risk Grade
|
Description
|
Pass:
|
|
|
1
|
Loans with virtually no risk, including cash secured loans.
|
|
2
|
Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation.
|
|
3
|
Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances.
|
|
4
|
Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability.
|
|
5
|
Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally available and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory.
|
|
P
(Pass)
|
Consumer loans (<$500,000) that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines.
|
Special Mention:
|
|
|
6
|
Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
|
Classified:
|
|
|
7
|
An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
|
|
8
|
Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain.
|
|
9
|
Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed.
|
|
F
(Fail)
|
Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.
|
In the second quarter of 2016, the Company
made nonsubstantive changes to the numerical scale of risk grades. Previously, the description for grade 5 noted above was assigned
a grade of 9. As a result of the change, most grade 9 loans were assigned a grade of 5 and the numerical grade assignments for
the previous grades of 5 and below were moved one row lower in the descriptions. In the tables below, prior periods have been adjusted
to be consistent with the presentation for December 31, 2016.
Also during the second quarter of 2016,
the Company introduced a pass/fail grade system for smaller balance consumer loans (balances less than $500,000), primarily residential
home loans and installment consumer loans. Accordingly, all such consumer loans are no longer graded on a scale of 1-9, but instead
are assigned a rating of “pass” or “fail”, with “fail” loans being considered as classified
loans. As of the implementation of the revised grade definitions, there were approximately $29.7 million of consumer loans that
had previously been assigned grade of “special mention” and were assigned a rating of “pass”, which impacts
the comparability of the December 31, 2016 table below to prior periods.
The changes noted above had no significant
impact on the Company’s allowance for loan loss calculation.
The following table presents the Company’s
recorded investment in loans by credit quality indicators as of December 31, 2016.
($ in thousands)
|
|
|
|
|
|
Pass
|
|
|
Special
Mention Loans
|
|
|
Classified
Accruing Loans
|
|
|
Classified
Nonaccrual
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
247,451
|
|
|
|
10,560
|
|
|
|
1,960
|
|
|
|
1,842
|
|
|
|
261,813
|
|
Real estate – construction, land development & other land loans
|
|
|
335,068
|
|
|
|
8,762
|
|
|
|
7,892
|
|
|
|
2,945
|
|
|
|
354,667
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
678,878
|
|
|
|
16,998
|
|
|
|
38,786
|
|
|
|
16,017
|
|
|
|
750,679
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
226,159
|
|
|
|
1,436
|
|
|
|
9,155
|
|
|
|
2,355
|
|
|
|
239,105
|
|
Real estate – mortgage – commercial and other
|
|
|
1,005,687
|
|
|
|
26,546
|
|
|
|
13,019
|
|
|
|
4,208
|
|
|
|
1,049,460
|
|
Installment loans to individuals
|
|
|
54,421
|
|
|
|
256
|
|
|
|
259
|
|
|
|
101
|
|
|
|
55,037
|
|
Total
|
|
$
|
2,547,664
|
|
|
|
64,558
|
|
|
|
71,071
|
|
|
|
27,468
|
|
|
|
2,710,761
|
|
Unamortized net deferred loan fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,710,712
|
|
The following table presents the Company’s
recorded investment in loans by credit quality indicators as of December 31, 2015.
($ in thousands)
|
|
|
|
|
|
Pass
|
|
|
Special
Mention Loans
|
|
|
Classified
Accruing Loans
|
|
|
Classified
Nonaccrual
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
192,454
|
|
|
|
3,733
|
|
|
|
3,520
|
|
|
|
2,964
|
|
|
|
202,671
|
|
Real estate – construction, land development & other land loans
|
|
|
280,647
|
|
|
|
13,489
|
|
|
|
10,129
|
|
|
|
4,704
|
|
|
|
308,969
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
664,618
|
|
|
|
39,895
|
|
|
|
40,217
|
|
|
|
23,829
|
|
|
|
768,559
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
212,391
|
|
|
|
7,374
|
|
|
|
9,311
|
|
|
|
3,525
|
|
|
|
232,601
|
|
Real estate – mortgage – commercial and other
|
|
|
897,579
|
|
|
|
33,155
|
|
|
|
14,282
|
|
|
|
12,571
|
|
|
|
957,587
|
|
Installment loans to individuals
|
|
|
46,209
|
|
|
|
776
|
|
|
|
464
|
|
|
|
217
|
|
|
|
47,666
|
|
Total
|
|
$
|
2,293,898
|
|
|
|
98,422
|
|
|
|
77,923
|
|
|
|
47,810
|
|
|
|
2,518,053
|
|
Unamortized net deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,518,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered loans included above
|
|
$
|
71,398
|
|
|
|
7,423
|
|
|
|
16,004
|
|
|
|
7,816
|
|
|
|
102,641
|
|
Troubled Debt Restructurings
The restructuring of a loan is considered
a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor
has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness,
restructuring amortization schedules and other actions intended to minimize potential losses.
The vast majority of the Company’s
troubled debt restructurings modified during the year ended December 31, 2016 and 2015 related to interest rate reductions combined
with restructured amortization schedules. The Company does not generally grant principal forgiveness.
All loans classified as troubled debt restructurings
are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s
troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled
debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.
The following table presents information
related to loans modified in a troubled debt restructuring during the years ended December 31, 2016 and 2015.
($ in thousands)
|
|
For the year ended
December 31, 2016
|
|
|
For the year ended
December 31, 2015
|
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Restructured
Balances
|
|
|
Post-
Modification
Restructured
Balances
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Restructured
Balances
|
|
|
Post-
Modification
Restructured
Balances
|
|
TDRs – Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
1
|
|
|
$
|
1,071
|
|
|
$
|
1,071
|
|
|
|
2
|
|
|
$
|
52
|
|
|
$
|
52
|
|
Real estate – construction, land development & other land loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
235
|
|
|
|
235
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
1
|
|
|
|
598
|
|
|
|
626
|
|
|
|
2
|
|
|
|
265
|
|
|
|
265
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Real estate – mortgage – commercial and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
557
|
|
|
|
557
|
|
Installment loans to individuals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs – Nonaccrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
5
|
|
|
|
5
|
|
Real estate – construction, land development & other land loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
496
|
|
|
|
496
|
|
Real estate – mortgage – residential (1-4 family) first mortgages
|
|
|
1
|
|
|
|
155
|
|
|
|
184
|
|
|
|
4
|
|
|
|
399
|
|
|
|
399
|
|
Real estate – mortgage – home equity loans / lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Real estate – mortgage – commercial and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Installment loans to individuals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total TDRs arising during period
|
|
|
3
|
|
|
$
|
1,824
|
|
|
$
|
1,881
|
|
|
|
17
|
|
|
$
|
2,009
|
|
|
$
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered TDRs arising during period included above
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
$
|
139
|
|
|
$
|
139
|
|
Accruing restructured loans that were modified
in the previous 12 months and that defaulted during the years ended December 31, 2016 and 2015 are presented in the table below.
The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred
to nonaccrual status, or has been transferred to foreclosed real estate.
($ in thousands)
|
|
For the year ended
December 31, 2016
|
|
|
For the year ended
December 31, 2015
|
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
2
|
|
|
$
|
744
|
|
|
|
1
|
|
|
$
|
7
|
|
Real estate – mortgage – residential (1-4 family first mortgages)
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
352
|
|
Real estate – mortgage – commercial and other
|
|
|
1
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing TDRs that subsequently defaulted
|
|
|
3
|
|
|
$
|
765
|
|
|
|
5
|
|
|
$
|
359
|
|
Total covered accruing TDRs that subsequently defaulted included above
|
|
|
1
|
|
|
$
|
44
|
|
|
|
—
|
|
|
$
|
—
|
|
Note 5. Premises and Equipment
Premises and equipment at December 31, 2016
and 2015 consisted of the following:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
23,404
|
|
|
|
23,750
|
|
Buildings
|
|
|
67,032
|
|
|
|
66,527
|
|
Furniture and equipment
|
|
|
37,780
|
|
|
|
36,246
|
|
Leasehold improvements
|
|
|
2,192
|
|
|
|
1,704
|
|
Total cost
|
|
|
130,408
|
|
|
|
128,227
|
|
Less accumulated depreciation and amortization
|
|
|
(55,057
|
)
|
|
|
(53,668
|
)
|
Net book value of premises and equipment
|
|
$
|
75,351
|
|
|
|
74,559
|
|
Note 6. FDIC Indemnification Asset
As discussed previously in Note 4 –
Loans and Asset Quality Information, the Company terminated all loss share agreements with the FDIC during 2016. As a result, the
remaining balance in the FDIC Indemnification Asset, which represented the estimated amount to be received from the FDIC under
the loss share agreements, was written off as indemnification asset expense as of the termination date.
At December 31, 2016 and 2015, the FDIC
indemnification asset was comprised of the following components:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Receivable (payable) related to loss claims incurred (recoveries), not yet received (paid), net
|
|
$
|
—
|
|
|
|
(633
|
)
|
Receivable related to estimated future claims on loans
|
|
|
—
|
|
|
|
8,675
|
|
Receivable related to estimated future claims on foreclosed real estate
|
|
|
—
|
|
|
|
397
|
|
FDIC indemnification asset
|
|
$
|
—
|
|
|
|
8,439
|
|
The following presents a rollforward of the FDIC indemnification
asset since January 1, 2014.
($ in thousands)
|
|
|
|
Balance at January 1, 2014
|
|
$
|
48,622
|
|
Increase (decrease) related to unfavorable (favorable) changes in loss estimates
|
|
|
2,923
|
|
Increase related to reimbursable expenses
|
|
|
3,925
|
|
Cash received
|
|
|
(17,724
|
)
|
Decrease related to accretion of loan discount
|
|
|
(15,281
|
)
|
Other
|
|
|
104
|
|
Balance at December 31, 2014
|
|
$
|
22,569
|
|
Increase (decrease) related to unfavorable (favorable) changes in loss estimates
|
|
|
(3,031
|
)
|
Increase related to reimbursable expenses
|
|
|
1,232
|
|
Cash received
|
|
|
(6,673
|
)
|
Decrease related to accretion of loan discount
|
|
|
(5,584
|
)
|
Decrease related to settlement of disputed claims
|
|
|
(406
|
)
|
Other
|
|
|
332
|
|
Balance at December 31, 2015
|
|
$
|
8,439
|
|
Increase (decrease) related to unfavorable (favorable) changes in loss estimates
|
|
|
(2,246
|
)
|
Increase related to reimbursable expenses
|
|
|
205
|
|
Cash paid
|
|
|
1,554
|
|
Decrease related to accretion of loan discount
|
|
|
(2,005
|
)
|
Other
|
|
|
(236
|
)
|
Write off of asset balance upon termination of FDIC loss share agreements effective September 22, 2016
|
|
|
(5,711
|
)
|
Balance at December 31, 2016
|
|
$
|
—
|
|
Note 7. Goodwill and Other Intangible
Assets
The following is a summary of the gross
carrying amount and accumulated amortization of amortized intangible assets as of December 31, 2016 and December 31, 2015 and the
carrying amount of unamortized intangible assets as of those same dates.
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
($ in thousands)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
$
|
2,369
|
|
|
|
746
|
|
|
|
678
|
|
|
|
550
|
|
Core deposit premiums
|
|
|
9,730
|
|
|
|
8,143
|
|
|
|
8,560
|
|
|
|
7,352
|
|
Other
|
|
|
1,032
|
|
|
|
224
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
13,131
|
|
|
|
9,113
|
|
|
|
9,238
|
|
|
|
7,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA servicing asset
|
|
$
|
415
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
75,042
|
|
|
|
|
|
|
|
65,835
|
|
|
|
|
|
Activity related to transactions during
the year includes the following:
|
(1)
|
In connection with the January 1, 2016 acquisition of Bankingport, Inc., an insurance agency located
in Sanford, North Carolina, the Company recorded $1,693,000 in goodwill, $591,000 in a customer list intangible, and $92,000 in
other amortizable intangible assets.
|
|
(2)
|
In connection with the May 5, 2016 acquisition of SBA Complete, Inc., an SBA loan consulting firm,
the Company recorded $5,553,000 in goodwill, $1,100,000 in a customer list intangible, and $940,000 in other amortizable intangible
assets.
|
|
(3)
|
In connection with the branch exchange transaction with First Community Bank in Bluefield, Virginia,
the Company recorded a net increase of $1,961,000 in goodwill and $1,170,000 in core deposit premiums.
|
In addition to the above acquisition related
activity, the Company recorded $415,000 in servicing assets associated with the guaranteed portion of SBA loans originated and
sold during 2016. Servicing assets are
recorded at fair value and amortized as a reduction of service fee income over the expected
life of the related loans.
Amortization expense totaled $1,211,000,
$722,000 and $777,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Goodwill is evaluated for impairment on
at least an annual basis – see Note 1(r). For each of the years presented, the Company’s evaluation indicated that
there was no goodwill impairment.
The following table presents the estimated
amortization expense for intangible assets for each of the five calendar years ending December 31, 2021 and the estimated amount
amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary
to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.
($ in thousands)
|
|
Estimated
Amortization Expense
|
|
2017
|
|
$
|
1,240
|
|
2018
|
|
|
874
|
|
2019
|
|
|
665
|
|
2020
|
|
|
439
|
|
2021
|
|
|
315
|
|
Thereafter
|
|
|
485
|
|
Total
|
|
$
|
4,018
|
|
Note 8. Income Taxes
Total income taxes for the years ended
December 31, 2016, 2015, and 2014 were allocated as follows:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Allocated to net income
|
|
$
|
14,624
|
|
|
|
14,126
|
|
|
|
13,535
|
|
Allocated to stockholders’ equity, for unrealized holding gain/loss on
debt and equity securities for financial reporting purposes
|
|
|
(685
|
)
|
|
|
(184
|
)
|
|
|
518
|
|
Allocated to stockholders’ equity, for tax benefit of pension liabilities
|
|
|
(36
|
)
|
|
|
(1,716
|
)
|
|
|
(2,103
|
)
|
Total income taxes
|
|
$
|
13,903
|
|
|
|
12,226
|
|
|
|
11,950
|
|
The components of income tax expense (benefit)
for the years ended December 31, 2016, 2015, and 2014 are as follows:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Current - Federal
|
|
$
|
12,827
|
|
|
|
9,149
|
|
|
|
1,316
|
|
- State
|
|
|
1,679
|
|
|
|
1,436
|
|
|
|
903
|
|
Deferred - Federal
|
|
|
16
|
|
|
|
3,205
|
|
|
|
10,104
|
|
- State
|
|
|
102
|
|
|
|
336
|
|
|
|
1,212
|
|
Total
|
|
$
|
14,624
|
|
|
|
14,126
|
|
|
|
13,535
|
|
The sources and tax effects of temporary
differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2016 and 2015 are presented
below:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
8,758
|
|
|
|
10,020
|
|
Excess book over tax pension & SERP retirement plan cost
|
|
|
290
|
|
|
|
2,528
|
|
Deferred compensation
|
|
|
36
|
|
|
|
50
|
|
Federal & state net operating loss carryforwards
|
|
|
868
|
|
|
|
58
|
|
Accruals, book versus tax
|
|
|
2,287
|
|
|
|
2,130
|
|
Pension liability adjustments
|
|
|
1,852
|
|
|
|
1,816
|
|
Foreclosed real estate
|
|
|
610
|
|
|
|
571
|
|
Basis differences in assets acquired in FDIC transactions
|
|
|
2,539
|
|
|
|
1,384
|
|
Nonqualified stock options
|
|
|
545
|
|
|
|
554
|
|
Partnership investments
|
|
|
160
|
|
|
|
164
|
|
Unrealized gain on securities available for sale
|
|
|
1,138
|
|
|
|
453
|
|
All other
|
|
|
191
|
|
|
|
200
|
|
Gross deferred tax assets
|
|
|
19,274
|
|
|
|
19,928
|
|
Less: Valuation allowance
|
|
|
(43
|
)
|
|
|
(67
|
)
|
Net deferred tax assets
|
|
|
19,231
|
|
|
|
19,861
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Loan fees
|
|
|
(1,548
|
)
|
|
|
(1,451
|
)
|
Excess tax over book pension cost
|
|
|
—
|
|
|
|
(1,857
|
)
|
Depreciable basis of fixed assets
|
|
|
(954
|
)
|
|
|
(1,313
|
)
|
Amortizable basis of intangible assets
|
|
|
(12,156
|
)
|
|
|
(11,263
|
)
|
FHLB stock dividends
|
|
|
(409
|
)
|
|
|
(416
|
)
|
All other
|
|
|
(12
|
)
|
|
|
(12
|
)
|
Gross deferred tax liabilities
|
|
|
(15,079
|
)
|
|
|
(16,312
|
)
|
Net deferred tax asset (liability) - included in other assets
|
|
$
|
4,152
|
|
|
|
3,549
|
|
|
|
|
|
|
|
|
|
|
A portion of the annual change in the net
deferred tax asset relates to unrealized gains and losses on securities available for sale. The related 2016 and 2015 deferred
tax expense (benefit) of approximately ($685,000) and ($184,000) respectively, has been recorded directly to shareholders’
equity. Additionally, a portion of the annual change in the net deferred tax asset relates to pension adjustments. The related
2016 and 2015 deferred tax expense (benefit) of ($36,000) and ($1,716,000) respectively, has been recorded directly to shareholders’
equity. The balance of the 2016 decrease in the net deferred tax asset of $118,000 is reflected as a deferred income tax expense,
and the balance of the 2015 decrease in the net deferred tax asset of $3,541,000 is reflected as a deferred income tax expense
in the consolidated statement of income.
The valuation allowances for 2016 and
2015 relate primarily to state net operating loss carryforwards. It is management’s belief that the realization of the
remaining net deferred tax assets is more likely than not. The Company adjusted its net deferred income tax asset as a result
of reductions in the North Carolina state income tax rate, which reduced the state income tax rate to 5% in 2015 and 4% in
2016. The North Carolina state income tax rate further declines to 3% effective January 1, 2017.
The Company had no significant uncertain
tax positions, and thus no reserve for uncertain tax positions has been recorded. Additionally, the Company determined that it
has no material unrecognized tax benefits that if recognized would affect the effective tax rate. The Company’s general policy
is to record tax penalties and interest as a component of “other operating expenses.”
The Company is subject to routine audits
of its tax returns by the Internal Revenue Service and various state taxing authorities. The Company’s federal tax
returns are subject to income tax audit by state agencies beginning with the year 2014. The Company’s state tax returns are
subject to income tax audit by state agencies beginning with the year 2013. There are no indications of any material adjustments
relating to any examination currently being conducted by any taxing authority.
Retained earnings at December 31, 2016 and
2015 includes approximately $6,869,000 representing pre-1988 tax bad debt reserve base year amounts for which no deferred income
tax liability has been provided since these reserves are not expected to reverse or may never reverse. Circumstances that would
require an accrual of a portion or all of this unrecorded tax liability are a reduction in qualifying loan levels relative to the
end of 1987, failure to meet the definition of a bank, dividend payments in excess of accumulated tax earnings and profits, or
other distributions in dissolution, liquidation or redemption of the Bank’s stock.
The following is a reconcilement of federal
income tax expense at the statutory rate of 35% to the income tax provision reported in the financial statements.
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Tax provision at statutory rate
|
|
$
|
14,746
|
|
|
|
14,405
|
|
|
|
13,486
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest income
|
|
|
(1,202
|
)
|
|
|
(930
|
)
|
|
|
(832
|
)
|
Low income housing tax credits
|
|
|
(192
|
)
|
|
|
(191
|
)
|
|
|
(179
|
)
|
Non-deductible interest expense
|
|
|
16
|
|
|
|
11
|
|
|
|
11
|
|
State income taxes, net of federal benefit
|
|
|
1,158
|
|
|
|
1,152
|
|
|
|
1,375
|
|
Change in valuation allowance
|
|
|
(24
|
)
|
|
|
(58
|
)
|
|
|
16
|
|
Other, net
|
|
|
122
|
|
|
|
(263
|
)
|
|
|
(342
|
)
|
Total
|
|
$
|
14,624
|
|
|
|
14,126
|
|
|
|
13,535
|
|
Note 9. Time Deposits and Related Party
Deposits
At December 31, 2016, the scheduled maturities
of time deposits were as follows:
($ in thousands)
|
|
|
|
|
|
|
|
2017
|
|
$
|
507,965
|
|
2018
|
|
|
83,954
|
|
2019
|
|
|
19,998
|
|
2020
|
|
|
25,442
|
|
2021
|
|
|
22,418
|
|
Thereafter
|
|
|
1,737
|
|
|
|
$
|
661,514
|
|
Deposits received from executive officers
and directors and their associates totaled approximately $3,030,000 and $1,982,000 at December 31, 2016 and 2015, respectively.
These deposit accounts have substantially the same terms, including interest rates, as those prevailing at the time for comparable
transactions with other non-related depositors.
As of December 31, 2016 and 2015, the Company
held $276.4 million and $226.0 million, respectively, in time deposits of $250,000 or more (which is the current FDIC insurance
limit for insured deposits as of December 31, 2016). Included in these deposits were brokered deposits of $133.4 million and $71.8
million at December 31, 2016 and 2015, respectively.
Note 10. Borrowings and Borrowings
Availability
The following tables present information
regarding the Company’s outstanding borrowings at December 31, 2016 and 2015:
Description - 2016
|
|
Due date
|
|
Call Feature
|
|
2016
Amount
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
FHLB Term Note
|
|
1/27/17
|
|
None
|
|
$
|
20,000,000
|
|
|
0.61% fixed
|
FHLB Term Note
|
|
1/30/17
|
|
None
|
|
|
80,000,000
|
|
|
0.63% fixed
|
FHLB Term Note
|
|
4/18/17
|
|
None
|
|
|
50,000,000
|
|
|
0.70% fixed
|
FHLB Term Note
|
|
12/26/17
|
|
None
|
|
|
20,000,000
|
|
|
1.19% fixed
|
FHLB Term Note
|
|
12/29/17
|
|
None
|
|
|
35,000,000
|
|
|
0.80% fixed
|
FHLB Term Note
|
|
12/24/18
|
|
None
|
|
|
20,000,000
|
|
|
1.57% fixed
|
Trust Preferred Securities
|
|
1/23/34
|
|
Quarterly by Company
beginning 1/23/09
|
|
|
20,620,000
|
|
|
3.59% at 12/31/16
adjustable rate
3 month LIBOR + 2.70%
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Securities
|
|
6/15/36
|
|
Quarterly by Company
beginning 6/15/11
|
|
|
25,774,000
|
|
|
2.35% at 12/31/16
adjustable rate
3 month LIBOR + 1.39%
|
Total borrowings / weighted average rate as of December 31, 2016
|
|
|
|
|
|
$
|
271,394,000
|
|
|
1.16%
|
Description - 2015
|
|
Due date
|
|
Call Feature
|
|
2015
Amount
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
FHLB Term Note
|
|
1/19/16
|
|
None
|
|
$
|
30,000,000
|
|
|
0.41% fixed
|
FHLB Term Note
|
|
1/29/16
|
|
None
|
|
|
50,000,000
|
|
|
0.38% fixed
|
FHLB Term Note
|
|
12/27/16
|
|
None
|
|
|
20,000,000
|
|
|
0.76% fixed
|
FHLB Term Note
|
|
12/26/17
|
|
None
|
|
|
20,000,000
|
|
|
1.19% fixed
|
FHLB Term Note
|
|
12/24/18
|
|
None
|
|
|
20,000,000
|
|
|
1.57% fixed
|
Trust Preferred Securities
|
|
1/23/34
|
|
Quarterly by Company
beginning 1/23/09
|
|
|
20,620,000
|
|
|
3.02% at 12/31/15
adjustable rate
3 month LIBOR + 2.70%
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Securities
|
|
6/15/36
|
|
Quarterly by Company
beginning 6/15/11
|
|
|
25,774,000
|
|
|
1.90% at 12/31/15
adjustable rate
3 month LIBOR + 1.39%
|
Total borrowings / weighted average rate as of December 31, 2015
|
|
|
|
|
|
$
|
186,394,000
|
|
|
1.14%
|
All outstanding FHLB borrowings may be accelerated
immediately by the FHLB in certain circumstances, including material adverse changes in the condition of the Company or if the
Company’s qualifying collateral amounts to less than that required under the terms of the FHLB borrowing agreement.
In the above tables, the $20.6 million in
borrowings due on January 23, 2034 relate to borrowings structured as trust preferred capital securities that were issued by First
Bancorp Capital Trusts II and III ($10.3 million by each trust), which are unconsolidated subsidiaries of the Company, on December
19, 2003 and qualify as capital for regulatory capital adequacy requirements. These unsecured debt securities are callable by the
Company at par on any quarterly interest payment date beginning on January 23, 2009. The interest rate on these debt securities
adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.70%.
In the above tables, the $25.8 million in
borrowings due on June 15, 2036 relate to borrowings structured as trust preferred capital securities that were issued by First
Bancorp Capital Trust IV, an unconsolidated subsidiary of the Company, on April 13, 2006 and qualify as capital for regulatory
capital adequacy requirements. These unsecured debt securities are callable by the Company at par on any quarterly interest payment
date beginning on June 15, 2011. The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month
LIBOR plus 1.39%.
At December 31, 2016, the Company had three
sources of readily available borrowing capacity – 1) an approximately $707 million line of credit with the FHLB, of which
$225 million was outstanding at December 31, 2016 and $140 million was outstanding at December 31, 2015, 2) a $35 million federal
funds line of credit with a correspondent bank, of which none was outstanding at December 31, 2016 or 2015, and 3) an approximately
$101 million line of credit through the Federal Reserve Bank of Richmond’s (FRB) discount window, of which none was outstanding
at December 31, 2016 or 2015.
The Company’s line of credit with
the FHLB totaling approximately $707 million can be structured as either short-term or long-term borrowings, depending on the particular
funding or liquidity needs and is secured by the Company’s FHLB stock and a blanket lien on most of its real estate loan
portfolio. The borrowing capacity was reduced by $193 million at both December 31, 2016 and 2015, as a result of the Company pledging
letters of credit for public deposits at each of those dates. Accordingly, the Company’s unused FHLB line of credit was $289
million at December 31, 2016.
The Company’s correspondent bank relationship
allows the Company to purchase up to $35 million in federal funds on an overnight, unsecured basis (federal funds purchased). The
Company had no borrowings outstanding under this line at December 31, 2016 or 2015.
The Company has a line of credit with the
FRB discount window. This line is secured by a blanket lien on a portion of the Company’s commercial and consumer loan portfolio
(excluding real estate). Based on the collateral owned by the Company as of December 31, 2016, the available line of credit was
approximately $101 million. The Company had no borrowings outstanding under this line of credit at December 31, 2016 or 2015.
Note 11. Leases
Certain bank premises are leased under operating
lease agreements. Generally, operating leases contain renewal options on substantially the same basis as current rental terms.
Rent expense charged to operations under all operating lease agreements was $1.5 million in 2016, $1.2 million in 2015, and $1.2
million in 2014.
Future obligations for minimum rentals under
noncancelable operating leases at December 31, 2016 are as follows:
($ in thousands)
|
|
Year ending December 31:
|
|
|
|
|
2017
|
|
$
|
1,404
|
|
2018
|
|
|
1,120
|
|
2019
|
|
|
1,001
|
|
2020
|
|
|
759
|
|
2021
|
|
|
541
|
|
Thereafter
|
|
|
2,674
|
|
Total
|
|
$
|
7,499
|
|
Note 12. Employee Benefit Plans
401(k) Plan
. The Company sponsors
a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code. New employees who have met the age requirement
are automatically enrolled in the plan at a 5% deferral rate on the next plan Entry Date. The automatic deferral can be modified
by the employee at any time. An eligible employee may contribute up to 15% of annual salary to the plan. The Company contributes
an amount equal to the sum of 1) 100% of the employee’s salary contributed up to 3% and 2) 50% of the employee’s salary
contributed between 3% and 5%. Company contributions are 100% vested immediately. The Company’s matching contribution expense
was $1.6 million for the year ended December 31, 2016 and $1.4 million for each of the years ended December 31, 2015 and 2014.
Although discretionary contributions by the Company are permitted by the plan, the Company did not make any such contributions
in 2016, 2015 or 2014. The Company’s matching and discretionary contributions are made according to the same investment elections
each participant has established for their deferral contributions.
Pension Plan
. Historically, the Company
offered a noncontributory defined benefit retirement plan (the “Pension Plan”) that qualified under Section 401(a)
of the Internal Revenue Code. The Pension Plan provided for a monthly payment, at normal retirement age of 65, equal to one-twelfth
of the sum of (i) 0.75% of Final Average Annual Compensation (5 highest consecutive calendar years’ earnings out of the last
10 years of employment) multiplied by the employee’s years of service not in excess of 40 years, and (ii) 0.65% of Final
Average Annual Compensation in excess of the average social security wage base multiplied by years of service not in excess of
35 years. Benefits were fully vested after five years of service. Effective December 31, 2012, the Company froze the Pension Plan
for all participants.
The Company’s contributions to the
Pension Plan are based on computations by independent actuarial consultants and are intended to be deductible for income tax purposes.
As discussed below, the contributions are invested to provide for benefits under the Pension Plan. The Company did not make any
contributions to the Pension Plan in 2016, 2015 or 2014. The Company does not expect to contribute to the Pension Plan in 2017.
The following table reconciles the beginning
and ending balances of the Pension Plan’s benefit obligation, as computed by the Company’s independent actuarial consultants,
and its plan assets, with the difference between the two amounts representing the funded status of the Pension Plan as of the end
of the respective year.
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
36,164
|
|
|
|
35,615
|
|
|
|
30,548
|
|
Service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest cost
|
|
|
1,502
|
|
|
|
1,364
|
|
|
|
1,461
|
|
Actuarial (gain) loss
|
|
|
1,288
|
|
|
|
1,236
|
|
|
|
5,320
|
|
Benefits paid
|
|
|
(2,114
|
)
|
|
|
(2,051
|
)
|
|
|
(1,714
|
)
|
Curtailment gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Benefit obligation at end of year
|
|
|
36,840
|
|
|
|
36,164
|
|
|
|
35,615
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at beginning of year
|
|
|
35,489
|
|
|
|
37,282
|
|
|
|
36,333
|
|
Actual return on plan assets
|
|
|
3,575
|
|
|
|
258
|
|
|
|
2,663
|
|
Employer contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Benefits paid
|
|
|
(2,114
|
)
|
|
|
(2,051
|
)
|
|
|
(1,714
|
)
|
Plan assets at end of year
|
|
|
36,950
|
|
|
|
35,489
|
|
|
|
37,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
110
|
|
|
|
(675
|
)
|
|
|
1,667
|
|
The accumulated benefit obligation related
to the Pension Plan was $36,840,000, $36,164,000, and $35,615,000 at December 31, 2016, 2015, and 2014, respectively.
The following table presents information
regarding the amounts recognized in the consolidated balance sheets at December 31, 2016 and 2015 as it relates to the Pension
Plan, excluding the related deferred tax assets.
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
110
|
|
|
|
—
|
|
Other liabilities
|
|
|
—
|
|
|
|
(675
|
)
|
|
|
$
|
110
|
|
|
|
(675
|
)
|
The following table presents information
regarding the amounts recognized in accumulated other comprehensive income (“AOCI”) at December 31, 2016 and 2015, as it relates
to the Pension Plan.
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
$
|
(5,856
|
)
|
|
|
(5,682
|
)
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
Amount recognized in AOCI before tax effect
|
|
|
(5,856
|
)
|
|
|
(5,682
|
)
|
Tax (expense) benefit
|
|
|
2,164
|
|
|
|
2,216
|
|
Net amount recognized as increase (decrease) to AOCI
|
|
$
|
(3,692
|
)
|
|
|
(3,466
|
)
|
The following table reconciles the beginning
and ending balances of AOCI at December 31, 2016 and 2015, as it relates to the Pension
Plan:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss at beginning of fiscal year
|
|
$
|
(3,466
|
)
|
|
|
(1,133
|
)
|
Net gain (loss) arising during period
|
|
|
(412
|
)
|
|
|
(3,825
|
)
|
Prior service cost
|
|
|
̶
|
|
|
|
̶
|
|
Transition Obligation
|
|
|
̶
|
|
|
|
̶
|
|
Amortization of unrecognized actuarial loss
|
|
|
238
|
|
|
|
̶
|
|
Amortization of prior service cost and transition obligation
|
|
|
̶
|
|
|
|
̶
|
|
Tax (expense) benefit of changes during the year, net
|
|
|
(52
|
)
|
|
|
1,492
|
|
Accumulated other comprehensive gain (loss) at end of fiscal year
|
|
$
|
(3,692
|
)
|
|
|
(3,466
|
)
|
The following table reconciles the beginning
and ending balances of the prepaid pension cost related to the Pension Plan:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Prepaid pension cost as of beginning of fiscal year
|
|
$
|
5,007
|
|
|
|
3,524
|
|
Net periodic pension income (cost) for fiscal year
|
|
|
958
|
|
|
|
1,483
|
|
Actual employer contributions
|
|
|
—
|
|
|
|
—
|
|
Prepaid pension asset as of end of fiscal year
|
|
$
|
5,965
|
|
|
|
5,007
|
|
Net pension (income) cost for the Pension
Plan included the following components for the years ended December 31, 2016, 2015, and 2014:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest cost on projected benefit obligation
|
|
|
1,502
|
|
|
|
1,364
|
|
|
|
1,461
|
|
Expected return on plan assets
|
|
|
(2,698
|
)
|
|
|
(2,847
|
)
|
|
|
(2,779
|
)
|
Net amortization and deferral
|
|
|
238
|
|
|
|
—
|
|
|
|
—
|
|
Net periodic pension (income) cost
|
|
$
|
(958
|
)
|
|
|
(1,483
|
)
|
|
|
(1,318
|
)
|
The following table is an estimate of the
benefits that will be paid in accordance with the Pension Plan during the indicated time periods:
($ in thousands)
|
|
Estimated
benefit
payments
|
|
Year ending December 31, 2017
|
|
$
|
1,443
|
|
Year ending December 31, 2018
|
|
|
1,554
|
|
Year ending December 31, 2019
|
|
|
1,705
|
|
Year ending December 31, 2020
|
|
|
1,769
|
|
Year ending December 31, 2021
|
|
|
1,858
|
|
Years ending December 31, 2022-2026
|
|
|
9,920
|
|
For each of the years ended December 31,
2016, 2015, and 2014, the Company used an expected long-term rate-of-return-on-assets assumption of 7.75%. The Company arrived
at this rate based primarily on a third-party investment consulting firm’s historical analysis of investment returns, which
indicated that the mix of the Pension Plan’s assets (generally 75% equities and 25% fixed income) can be expected to return
approximately 7.75% on a long term basis.
Funds in the Pension Plan are invested in
a mix of investment types in accordance with the Pension Plan’s investment policy, which is intended to provide an average
annual rate of return of 7% to 10%, while maintaining proper diversification. Except for Company stock, all of the Pension Plan’s
assets are invested in an unaffiliated bank money market account or mutual funds. The investment policy of the Pension Plan does
not permit the use of derivatives, except to the extent that derivatives are used by any of the mutual funds invested in by the
Pension Plan. The following table presents the targeted mix of the Pension Plan’s assets as of December 31, 2016, as set
out by the Plan’s investment policy:
Investment
type
|
|
Targeted %
of Total
Assets
|
|
Acceptable
Range % of
Total Assets
|
|
|
|
|
|
Fixed income investments
|
|
|
|
|
Cash/money market account
|
|
2%
|
|
1%-5%
|
US government bond fund
|
|
10%
|
|
10%-20%
|
US corporate bond fund
|
|
10%
|
|
5%-15%
|
US corporate high yield bond fund
|
|
5%
|
|
0%-10%
|
Equity investments
|
|
|
|
|
Large cap value fund
|
|
40%
|
|
30%-50%
|
Mid cap equity fund
|
|
10%
|
|
5%-15%
|
Small cap growth fund
|
|
8%
|
|
5%-15%
|
Foreign equity fund
|
|
10%
|
|
5%-15%
|
Company stock
|
|
5%
|
|
0%-10%
|
The Pension Plan’s investment strategy
contains certain investment objectives and risks for each permitted investment category. To ensure that risk and return characteristics
are consistently followed, the Pension Plan’s investments are reviewed at least semi-annually and rebalanced within the acceptable
range. Performance measurement of the investments employs the use of certain investment category and peer group benchmarks. The
investment category benchmarks as of December 31, 2016 are as follows:
Investment
Category
|
|
Investment
Category Benchmark
|
|
Range
of Acceptable Deviation
from Investment Category
Benchmark
|
|
|
|
|
|
Fixed income investments
|
|
|
|
|
Cash/money market account
|
|
BofAML USD LIBOR 3 Month Index
|
|
0-50 basis points
|
US government bond fund
|
|
Barclays Intermediate Government Bond Index
|
|
0-200 basis points
|
US corporate bond fund
|
|
Barclays Aggregate Index
|
|
0-200 basis points
|
US corporate high yield bond fund
|
|
Barclays High Yield Index
|
|
0-200 basis points
|
Equity investments
|
|
|
|
|
Large cap fund
|
|
S&P 500 Index
|
|
0-300 basis points
|
Mid cap fund
|
|
Russell Mid Cap Index
|
|
0-300 basis points
|
Small cap fund
|
|
Russell 2000 Growth Index
|
|
0-300 basis points
|
Foreign equity fund
|
|
MSCI EAFE Index
|
|
0-300 basis points
|
Company stock
|
|
Russell 2000 Index
|
|
0-300 basis points
|
Each of the investment fund’s average
annualized return over a three-year period should be within the range of acceptable deviation from the benchmarked index shown
above. In addition to the investment category benchmarks, the Pension Plan also utilizes certain Peer Group benchmarks, based on
Morningstar percentile rankings for each investment category. Funds are generally considered to be underperformers if their category
ranking is below the 75
th
percentile for the trailing one-year period; the 50
th
percentile for the trailing
three-year period; and the 25
th
percentile for the trailing five-year period.
The Pension Plan invests in various investment
securities which are exposed to various risks such as interest rate, market, and credit risks. All of these risks are monitored
and managed by the Company. No significant concentration of risk exists within the plan assets at December 31, 2016.
The fair values of the Company’s pension
plan assets at December 31, 2016, by asset category, are as follows:
($ in thousands)
|
|
|
|
|
|
|
|
|
Total Fair Value
at December 31,
2016
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
9,590
|
|
|
|
—
|
|
|
|
9,590
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap value fund
|
|
|
15,595
|
|
|
|
15,595
|
|
|
|
—
|
|
|
|
—
|
|
Small cap growth fund
|
|
|
2,624
|
|
|
|
2,624
|
|
|
|
—
|
|
|
|
—
|
|
Mid cap equity fund
|
|
|
3,220
|
|
|
|
3,220
|
|
|
|
—
|
|
|
|
—
|
|
Foreign equity fund
|
|
|
2,669
|
|
|
|
2,669
|
|
|
|
—
|
|
|
|
—
|
|
Company stock
|
|
|
3,252
|
|
|
|
3,252
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
36,950
|
|
|
|
27,360
|
|
|
|
9,590
|
|
|
|
—
|
|
The fair values of the Company’s pension
plan assets at December 31, 2015, by asset category, are as follows:
($ in thousands)
|
|
|
|
|
|
|
|
|
Total Fair Value
at December 31,
2015
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
155
|
|
|
|
—
|
|
|
|
155
|
|
|
|
—
|
|
US government bond fund
|
|
|
3,398
|
|
|
|
3,398
|
|
|
|
—
|
|
|
|
—
|
|
US corporate bond fund
|
|
|
3,357
|
|
|
|
3,357
|
|
|
|
—
|
|
|
|
—
|
|
US corporate high yield bond fund
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap value fund
|
|
|
14,703
|
|
|
|
14,703
|
|
|
|
—
|
|
|
|
—
|
|
Small cap growth fund
|
|
|
2,845
|
|
|
|
2,845
|
|
|
|
—
|
|
|
|
—
|
|
Mid cap equity fund
|
|
|
3,541
|
|
|
|
3,541
|
|
|
|
—
|
|
|
|
—
|
|
Foreign equity fund
|
|
|
3,544
|
|
|
|
3,544
|
|
|
|
—
|
|
|
|
—
|
|
Company stock
|
|
|
2,246
|
|
|
|
2,246
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
35,489
|
|
|
|
35,334
|
|
|
|
155
|
|
|
|
—
|
|
The following is a description of the
valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December
31, 2016 and 2015.
|
-
|
Money market fund: Valued at net asset value (“NAV”), which
can be validated with a sufficient level of observable activity (i.e. purchases and sales at NAV), and therefore, the funds were
classified within Level 2 of the fair value hierarchy.
|
|
-
|
Mutual funds: Valued at the daily closing price as reported by the fund.
Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission and are
deemed to be actively traded.
|
|
-
|
Common stock: Valued at the closing price reported on the active market
on which the individual securities are traded.
|
Supplemental Executive Retirement Plan
.
Historically, the Company sponsored a Supplemental Executive Retirement Plan (the “SERP”) for the benefit of certain
senior management executives of the Company. The purpose of the SERP was to provide additional monthly pension benefits to ensure
that each such senior management executive would receive lifetime monthly pension benefits equal to 3% of his or her final average
compensation multiplied by his or her years of service (maximum of 20 years) to the Company or its subsidiaries, subject to a maximum
of 60% of his or her final average compensation. The amount of a participant’s monthly SERP benefit is reduced by (i) the
amount payable under the Company’s qualified Pension Plan (described above), and (ii) 50% of the participant’s primary
social security benefit. Final average compensation means the average of the 5 highest consecutive calendar years of earnings during
the last 10 years of service prior to termination of employment. The SERP is an unfunded plan. Payments are made from the general
assets of the Company. Effective December 31, 2012, the Company froze the SERP to all participants.
The following table reconciles the beginning
and ending balances of the SERP’s benefit obligation, as computed by the Company’s independent actuarial consultants:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
5,778
|
|
|
|
5,216
|
|
|
|
5,292
|
|
Service cost
|
|
|
106
|
|
|
|
201
|
|
|
|
272
|
|
Interest cost
|
|
|
238
|
|
|
|
206
|
|
|
|
212
|
|
Actuarial (gain) loss
|
|
|
145
|
|
|
|
497
|
|
|
|
(265
|
)
|
Benefits paid
|
|
|
(357
|
)
|
|
|
(342
|
)
|
|
|
(295
|
)
|
Curtailment gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Projected benefit obligation at end of year
|
|
|
5,910
|
|
|
|
5,778
|
|
|
|
5,216
|
|
Plan assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Funded status at end of year
|
|
$
|
(5,910
|
)
|
|
|
(5,778
|
)
|
|
|
(5,216
|
)
|
The accumulated benefit obligation related
to the SERP was $5,910,000, $5,778,000, and $5,216,000 at December 31, 2016, 2015, and 2014, respectively.
The following table presents information
regarding the amounts recognized in the consolidated balance sheets at December 31, 2016 and 2015 as it relates to the SERP, excluding
the related deferred tax assets.
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Other assets – prepaid pension asset (liability)
|
|
$
|
(6,754
|
)
|
|
|
(6,802
|
)
|
Other assets (liabilities)
|
|
|
844
|
|
|
|
1,024
|
|
|
|
$
|
(5,910
|
)
|
|
|
(5,778
|
)
|
The following table presents information
regarding the amounts recognized in AOCI at December 31, 2016 and 2015, as it relates to the SERP:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
$
|
844
|
|
|
|
1,024
|
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
Amount recognized in AOCI before tax effect
|
|
|
844
|
|
|
|
1,024
|
|
Tax (expense) benefit
|
|
|
(311
|
)
|
|
|
(399
|
)
|
Net amount recognized as increase (decrease) to AOCI
|
|
$
|
533
|
|
|
|
625
|
|
The following table reconciles the beginning
and ending balances of AOCI at December 31, 2016 and 2015, as it relates to the SERP:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at beginning of fiscal year
|
|
$
|
625
|
|
|
|
976
|
|
Net gain (loss) arising during period
|
|
|
(145
|
)
|
|
|
(497
|
)
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
Amortization of unrecognized actuarial loss
|
|
|
(35
|
)
|
|
|
(79
|
)
|
Amortization of prior service cost and transition obligation
|
|
|
—
|
|
|
|
—
|
|
Tax benefit (expense) related to changes during the year, net
|
|
|
88
|
|
|
|
225
|
|
Accumulated other comprehensive income (loss) at end of fiscal year
|
|
$
|
533
|
|
|
|
625
|
|
The following table reconciles the beginning
and ending balances of the prepaid pension cost related to the SERP:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Prepaid pension cost (liability) as of beginning of fiscal year
|
|
$
|
(6,802
|
)
|
|
|
(6,816
|
)
|
Net periodic pension cost for fiscal year
|
|
|
(309
|
)
|
|
|
(328
|
)
|
Benefits paid
|
|
|
357
|
|
|
|
342
|
|
Prepaid pension cost (liability) as of end of fiscal year
|
|
$
|
(6,754
|
)
|
|
|
(6,802
|
)
|
Net pension cost for the SERP included the
following components for the years ended December 31, 2016, 2015, and 2014:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period
|
|
$
|
106
|
|
|
|
201
|
|
|
|
272
|
|
Interest cost on projected benefit obligation
|
|
|
238
|
|
|
|
206
|
|
|
|
212
|
|
Net amortization and deferral
|
|
|
(35
|
)
|
|
|
(79
|
)
|
|
|
(221
|
)
|
Net periodic pension cost
|
|
$
|
309
|
|
|
|
328
|
|
|
|
263
|
|
The following table is an estimate of the
benefits that will be paid in accordance with the SERP during the indicated time periods:
($ in thousands)
|
|
Estimated
benefit
payments
|
|
Year ending December 31, 2017
|
|
$
|
368
|
|
Year ending December 31, 2018
|
|
|
421
|
|
Year ending December 31, 2019
|
|
|
417
|
|
Year ending December 31, 2020
|
|
|
415
|
|
Year ending December 31, 2021
|
|
|
418
|
|
Years ending December 31, 2022-2026
|
|
|
2,052
|
|
The following assumptions were used in determining
the actuarial information for the Pension Plan and the SERP for the years ended December 31, 2016, 2015, and 2014:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Pension
Plan
|
|
|
SERP
|
|
|
Pension
Plan
|
|
|
SERP
|
|
|
Pension
Plan
|
|
|
SERP
|
|
Discount rate used to determine net periodic pension cost
|
|
|
4.17%
|
|
|
|
4.17%
|
|
|
|
3.82%
|
|
|
|
3.82%
|
|
|
|
4.78%
|
|
|
|
4.78%
|
|
Discount rate used to calculate end of year liability disclosures
|
|
|
3.97%
|
|
|
|
3.97%
|
|
|
|
4.17%
|
|
|
|
4.17%
|
|
|
|
3.82%
|
|
|
|
3.82%
|
|
Expected long-term rate of return on assets
|
|
|
7.75%
|
|
|
|
n/a
|
|
|
|
7.75%
|
|
|
|
n/a
|
|
|
|
7.75%
|
|
|
|
n/a
|
|
Rate of compensation increase
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
The Company’s discount
rate policy is based on a calculation of the Company’s expected pension payments, with those payments discounted using the
Citigroup Pension Index yield curve.
Note 13. Commitments, Contingencies,
and Concentrations of Credit Risk
See Note 11 with respect to future obligations
under noncancelable operating leases.
In the normal course of the Company’s
business, there are various outstanding commitments and contingent liabilities such as commitments to extend credit that are not
reflected in the financial statements. The following table presents the Company’s outstanding loan commitments at December
31, 2016.
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Commitment
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Total
|
|
Outstanding closed-end loan commitments
|
|
$
|
139
|
|
|
|
237
|
|
|
|
376
|
|
Unfunded commitments on revolving lines of credit, credit cards and home equity loans
|
|
|
116
|
|
|
|
256
|
|
|
|
372
|
|
Total
|
|
$
|
255
|
|
|
|
493
|
|
|
|
748
|
|
At December 31, 2016 and 2015, the Company
had $12.7 million and $13.1 million, respectively, in standby letters of credit outstanding. The Company has no carrying amount
for these standby letters of credit at either of those dates. The nature of the standby letters of credit is a guarantee made on
behalf of the Company’s customers to suppliers of the customers to guarantee payments owed to the supplier by the customer.
The standby letters of credit are generally for terms for one year, at which time they may be renewed for another year if both
parties agree. The payment of the guarantees would generally be triggered by a continued nonpayment of an obligation owed by the
customer to the supplier. The maximum potential amount of future payments (undiscounted) the Company could be required to make
under the guarantees in the event of nonperformance by the parties to whom credit or financial guarantees have been extended is
represented by the contractual amount of the standby letter of credit. In the event that the Company is required to honor a standby
letter of credit, a note, already executed with the customer, is triggered which provides repayment terms and any collateral. Over
the past two years, the Company has only had to honor a few standby letters of credit, which have been or are being repaid by the
borrower without any loss to the Company. Management expects any draws under existing commitments to be funded through normal operations.
The Company is not involved in any legal
proceedings which, in management’s opinion, could have a material effect on the consolidated financial position of the Company.
The Bank grants primarily commercial
and installment loans to customers throughout its market area, which consists of Anson, Beaufort, Bladen, Brunswick, Buncombe,
Cabarrus, Carteret, Chatham, Columbus, Cumberland, Dare, Davidson, Duplin, Guilford, Harnett, Hoke, Iredell, Lee, Mecklenburg,
Montgomery, Moore, New Hanover, Onslow, Pitt, Randolph, Richmond, Robeson, Rockingham, Rowan, Scotland, Stanly and Wake Counties
in North Carolina, and Chesterfield, Dillon, and Florence Counties in South Carolina. The real estate loan portfolio can be affected
by the condition of the local real estate market. The commercial and installment loan portfolios can be affected by local economic
conditions.
The Company’s loan portfolio is not
concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware
of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.
In addition to monitoring potential concentrations
of loans to particular borrowers or groups of borrowers, industries and geographic regions, the Company monitors exposure to credit
risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial
payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc), and loans with high loan-to-value
ratios. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions
change over the course of a loan’s life. For example, the Company makes variable rate loans and fixed rate principal-amortizing
loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored
to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending
policies or practices.
The Company’s investment portfolio
consists principally of obligations of government-sponsored enterprises, mortgage-backed securities guaranteed by government-sponsored
enterprises, corporate bonds, and general obligation municipal securities. The Company also holds stock with the Federal Reserve
Bank and the Federal Home Loan Bank as a requirement for membership in the system. The following are the fair values at December
31, 2016 of securities to any one issuer/guarantor that exceed $2.0 million, with such amounts representing the maximum amount
of credit risk that the Company would incur if the issuer did not repay the obligation.
(
$ in thousands
)
Issuer
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Fannie Mae – mortgage-backed securities
|
|
$
|
79,105
|
|
|
|
77,446
|
|
Freddie Mac – mortgage-backed securities
|
|
|
76,161
|
|
|
|
74,789
|
|
Small Business Administration
|
|
|
40,315
|
|
|
|
39,576
|
|
Ginnie Mae - mortgage-backed securities
|
|
|
36,006
|
|
|
|
35,538
|
|
Federal Home Loan Bank of Atlanta - common stock
|
|
|
12,588
|
|
|
|
12,588
|
|
Federal Home Loan Bank System - bonds
|
|
|
11,498
|
|
|
|
11,498
|
|
Federal Reserve Bank - common stock
|
|
|
7,238
|
|
|
|
7,238
|
|
Bank of America corporate bond
|
|
|
7,000
|
|
|
|
6,955
|
|
Citigroup, Inc. corporate bond
|
|
|
6,041
|
|
|
|
6,000
|
|
Goldman Sachs Group Inc. corporate bond
|
|
|
5,108
|
|
|
|
5,054
|
|
JP Morgan Chase corporate bond
|
|
|
5,027
|
|
|
|
4,995
|
|
Financial Institutions, Inc. corporate bond
|
|
|
4,000
|
|
|
|
3,983
|
|
Craven County, North Carolina municipal bond
|
|
|
3,554
|
|
|
|
3,686
|
|
Spartanburg, South Carolina Sanitary Sewer District municipal bond
|
|
|
3,264
|
|
|
|
3,423
|
|
Wells Fargo & Company corporate bond
|
|
|
3,100
|
|
|
|
3,053
|
|
Freddie Mac – bonds
|
|
|
3,000
|
|
|
|
3,000
|
|
Federal Farm Credit bonds
|
|
|
3,000
|
|
|
|
2,993
|
|
Eagle Bancorp corporate bond
|
|
|
2,556
|
|
|
|
2,625
|
|
South Carolina State municipal bond
|
|
|
2,170
|
|
|
|
2,320
|
|
Virginia State Housing Authority municipal bond
|
|
|
2,034
|
|
|
|
2,113
|
|
The Company places its deposits and correspondent
accounts with the Federal Home Loan Bank of Atlanta, the Federal Reserve Bank, Pacific Coast Bankers Bank (“PCBB”),
and Bank of America. At December 31, 2016, the Company had deposits in the Federal Home Loan Bank of Atlanta totaling $4.1 million,
deposits of $230.1 million in the Federal Reserve Bank, deposits of $40.9 million in Bank of America, and deposits of $0.1 million
with PCBB. None of the deposits held at the Federal Home Loan Bank of Atlanta or the Federal Reserve Bank are FDIC-insured, however
the Federal Reserve Bank is a government entity and therefore risk of loss is minimal. The deposits held at Bank of America and
PCBB are FDIC-insured up to $250,000.
Note 14. Fair Value of Financial Instruments
Relevant accounting guidance establishes
a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) of identical assets
or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than
Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect
a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The following table summarizes the Company’s
financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2016.
($ in thousands)
|
|
|
|
|
|
|
Description of Financial Instruments
|
|
Fair Value at
December 31,
2016
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise securities
|
|
$
|
17,490
|
|
|
|
—
|
|
|
|
17,490
|
|
|
|
—
|
|
Mortgage-backed securities
|
|
|
148,065
|
|
|
|
—
|
|
|
|
148,065
|
|
|
|
—
|
|
Corporate bonds
|
|
|
33,600
|
|
|
|
—
|
|
|
|
33,600
|
|
|
|
—
|
|
Equity securities
|
|
|
174
|
|
|
|
—
|
|
|
|
174
|
|
|
|
—
|
|
Total available for sale securities
|
|
$
|
199,329
|
|
|
|
—
|
|
|
|
199,329
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
12,284
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,284
|
|
Foreclosed real estate
|
|
|
9,532
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,532
|
|
The following table summarizes the Company’s
financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2015.
($ in thousands)
|
|
|
|
|
|
|
Description of Financial Instruments
|
|
Fair Value at
December 31,
2015
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise securities
|
|
$
|
18,972
|
|
|
|
—
|
|
|
|
18,972
|
|
|
|
—
|
|
Mortgage-backed securities
|
|
|
121,553
|
|
|
|
—
|
|
|
|
121,553
|
|
|
|
—
|
|
Corporate bonds
|
|
|
24,946
|
|
|
|
—
|
|
|
|
24,946
|
|
|
|
—
|
|
Equity securities
|
|
|
143
|
|
|
|
—
|
|
|
|
143
|
|
|
|
—
|
|
Total available for sale securities
|
|
$
|
165,614
|
|
|
|
—
|
|
|
|
165,614
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
20,645
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,645
|
|
Foreclosed real estate
|
|
|
9,994
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,994
|
|
The following is a description of the
valuation methodologies used for instruments measured at fair value.
Securities Available for Sale
— When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation
hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities
with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for
the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix
pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted
prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.
For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored
enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified
within Level 3 of the hierarchy.
The Company reviews the pricing
methodologies utilized by the bond accounting provider to ensure the fair value determination is consistent with the applicable
accounting guidance and that the investments are properly classified in the fair value hierarchy. Further, the Company validates
the fair values for a sample of securities in the portfolio by comparing the fair values provided by the bond accounting provider
to prices from other independent sources for the same or similar securities. The Company analyzes unusual or significant variances
and conducts additional research with the portfolio manager, if necessary, and takes appropriate action based on its findings.
Impaired loans — Fair values
for impaired loans in the above table are measured on a non-recurring basis and are based on the underlying collateral values securing
the loans, adjusted for estimated selling costs, or the net present value of the cash flows expected to be received for such loans.
Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast
majority of the collateral is real estate. The value of real estate collateral is determined using an income or market valuation
approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment
is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements
if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial
statement balances or aging reports on a discounted basis as appropriate (Level 3). Any fair value adjustments are recorded in
the period incurred as provision for loan losses on the Consolidated Statements of Income.
Foreclosed real estate –
Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower
of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals
that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party
appraiser, adjusted for estimated selling costs (Level 3). At the time of foreclosure, any excess of the loan balance over the
fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. For any real estate
valuations subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated
as a foreclosed real estate write-down on the Consolidated Statements of Income.
For Level 3 assets and liabilities measured
at fair value on a recurring or non-recurring basis as of December 31, 2016, the significant unobservable inputs used in the fair
value measurements were as follows:
($ in thousands)
|
|
|
|
|
|
Description
|
|
Fair Value at
December 31,
2016
|
|
|
Valuation
Technique
|
|
Significant Unobservable
Inputs
|
|
General Range
of Significant
Unobservable
Input Values
|
Impaired loans
|
|
$
|
12,284
|
|
|
Appraised value; PV of expected cash flows
|
|
Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell
|
|
0-10%
|
Foreclosed real estate
|
|
|
9,532
|
|
|
Appraised value; List or contract price
|
|
Discounts to reflect current market conditions and estimated costs to sell
|
|
0-10%
|
|
|
|
|
|
|
|
|
|
|
|
For Level 3 assets and liabilities measured
at fair value on a recurring or non-recurring basis as of December 31, 2015, the significant unobservable inputs used in the fair
value measurements were as follows:
($ in thousands)
|
|
|
|
|
|
Description
|
|
Fair Value at
December 31,
2015
|
|
|
Valuation
Technique
|
|
Significant Unobservable
Inputs
|
|
General Range
of Significant
Unobservable
Input Values
|
Impaired loans
|
|
$
|
20,645
|
|
|
Appraised value; PV of expected cash flows
|
|
Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell
|
|
0-10%
|
Foreclosed real estate
|
|
|
9,994
|
|
|
Appraised value; List or contract price
|
|
Discounts to reflect current market conditions and estimated costs to sell
|
|
0-10%
|
|
|
|
|
|
|
|
|
|
|
|
Transfers of assets or liabilities between
levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers
between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the years ended December 31, 2016 or
2015.
For the years
ended December 31, 2016 and 2015, the decrease in the fair value of securities available for sale was $1,919,000 and $473,000,
respectively, which is included in other comprehensive income (net of tax benefit of $683,000 and $184,000, respectively). Fair
value measurement methods at December 31, 2016 and 2015 are consistent with those used in prior reporting periods
.
As discussed in Note 1(q), the Company is
required to disclose estimated fair values for its financial instruments. Fair value estimates as of December 31, 2016 and 2015
and limitations thereon are set forth below for the Company’s financial instruments. See Note 1(q) for a discussion of fair
value methods and assumptions, as well as fair value information for off-balance sheet financial instruments.
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
($ in thousands)
|
|
Level in
Fair
Value
Hierarchy
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks, noninterest-bearing
|
|
Level 1
|
|
$
|
71,645
|
|
|
$
|
71,645
|
|
|
|
53,285
|
|
|
|
53,285
|
|
Due from banks, interest-bearing
|
|
Level 1
|
|
|
234,348
|
|
|
|
234,348
|
|
|
|
213,426
|
|
|
|
213,426
|
|
Federal funds sold
|
|
Level 1
|
|
|
—
|
|
|
|
—
|
|
|
|
557
|
|
|
|
557
|
|
Securities available for sale
|
|
Level 2
|
|
|
199,329
|
|
|
|
199,329
|
|
|
|
165,614
|
|
|
|
165,614
|
|
Securities held to maturity
|
|
Level 2
|
|
|
129,713
|
|
|
|
130,195
|
|
|
|
154,610
|
|
|
|
157,146
|
|
Presold mortgages in process of settlement
|
|
Level 1
|
|
|
2,116
|
|
|
|
2,116
|
|
|
|
4,323
|
|
|
|
4,323
|
|
Total loans, net of allowance
|
|
Level 3
|
|
|
2,686,931
|
|
|
|
2,650,820
|
|
|
|
2,490,343
|
|
|
|
2,484,059
|
|
Accrued interest receivable
|
|
Level 1
|
|
|
9,286
|
|
|
|
9,286
|
|
|
|
9,166
|
|
|
|
9,166
|
|
FDIC indemnification asset
|
|
Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
8,439
|
|
|
|
8,256
|
|
Bank-owned life insurance
|
|
Level 1
|
|
|
74,138
|
|
|
|
74,138
|
|
|
|
72,086
|
|
|
|
72,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Level 2
|
|
|
2,947,353
|
|
|
|
2,944,968
|
|
|
|
2,811,285
|
|
|
|
2,809,828
|
|
Borrowings
|
|
Level 2
|
|
|
271,394
|
|
|
|
263,255
|
|
|
|
186,394
|
|
|
|
178,468
|
|
Accrued interest payable
|
|
Level 2
|
|
|
539
|
|
|
|
539
|
|
|
|
585
|
|
|
|
585
|
|
Fair value estimates are made at a specific
point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular
financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments,
fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics
of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing
on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income
taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax
ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates
and have not been considered in any of the estimates.
Note 15. Equity-Based Compensation Plans
The Company recorded total stock-based compensation
expense of $714,000, $710,000 and $270,000 for the years ended December 31, 2016, 2015, and 2014, respectively. Stock based compensation
is reflected as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows.
The Company recognized $264,000, $277,000, and $105,000 of income tax benefits related to stock based compensation expense in the
income statement for the years ended December 31, 2016, 2015, and 2014, respectively.
At December 31, 2016, the Company had the
following equity-based compensation plans: the First Bancorp 2014 Equity Plan and the First Bancorp 2007 Equity Plan. The Company’s
shareholders approved all equity-based compensation plans. The First Bancorp 2014 Equity Plan became effective upon the approval
of shareholders on May 8, 2014. As of December 31, 2016, the First Bancorp 2014 Equity Plan was the only plan that had shares available
for future grants, and there were 853,920 shares remaining available for grant.
The First Bancorp 2014 Equity Plan is intended
to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’
participants with those of the Company and its shareholders. The First Bancorp 2014 Equity Plan allows for both grants of stock
options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance
stock, unrestricted stock, and performance units.
Recent equity grants to employees have either
had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over
the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized
for grants that do not vest and any previously recognized compensation cost will be reversed. The Company issues new shares of
common stock when options are exercised.
Certain of the Company’s stock option
grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite
service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over
the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock options
and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore
the Company assumes that all awards granted without performance conditions will become vested.
As it relates to director equity grants,
the Company grants common shares, valued at approximately $16,000 to each non-employee director (currently eight in total) in June
of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no
vesting conditions. Total stock-based compensation expense related to these grants was $129,000, $129,000, and $177,000 for each
the three years ended December 31, 2016, 2015 and 2014, respectively, and is classified as “other operating expense”
in the Consolidated Statements of Income.
In 2014, the Company’s Compensation
Committee determined that a group of the Company’s senior officers would receive their annual bonus earned under the Company’s
annual incentive plan in a mix of 50% cash and 50% stock, with the stock being subject to a three year vesting term. Previously,
awards under this plan were paid all in cash. Accordingly, in February 2015 and February 2016, a total of 40,914 shares of restricted
stock were granted related to performance in the preceding fiscal year. Total compensation expense associated with those grants
was $556,000 and is being recognized over the vesting period. For 2016 and 2015, total compensation expense related to these grants
was $220,000 and $93,000, respectively.
In 2014, 2015 and 2016, the Compensation
Committee also granted 105,616 shares of stock to various employees of the Company to promote retention. The total value associated
with these grants amounted to $1.9 million, which is being recorded as expense over their three year vesting periods. For 2016,
2015, and 2014, total compensation expense related to these grants was $366,000, $488,092, and $93,000, respectively. All grants
were issued based on the closing price of the Company’s common stock on the date of the grant.
Based on the vesting schedules of the shares
of restricted stock currently outstanding, the Company expects to record $546,000 in stock-based compensation expense in 2017.
Under the terms of the predecessor plans
and the First Bancorp 2014 Equity Plan, stock options can have a term of no longer than ten years. In a change in control (as defined
in the plans), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately
vested.
At December 31, 2016, there were 59,948
stock options outstanding related to the two First Bancorp plans, with exercise prices ranging from $14.35 to $20.80.
The following table presents information
regarding the activity since January 1, 2014 related to all of the Company’s stock options outstanding:
|
|
Options Outstanding
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
|
392,658
|
|
|
$
|
17.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,500
|
)
|
|
|
15.58
|
|
|
|
|
|
|
$
|
6,525
|
|
Forfeited
|
|
|
(75,000
|
)
|
|
|
9.76
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(134,056
|
)
|
|
|
21.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
179,102
|
|
|
$
|
18.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,353
|
)
|
|
|
15.20
|
|
|
|
|
|
|
$
|
19,843
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(54,341
|
)
|
|
|
19.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
117,408
|
|
|
$
|
18.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(23,710
|
)
|
|
|
15.84
|
|
|
|
|
|
|
$
|
81,894
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(33,750
|
)
|
|
|
21.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
59,948
|
|
|
$
|
17.18
|
|
|
|
1.39
|
|
|
$
|
597,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
59,948
|
|
|
$
|
17.18
|
|
|
|
1.39
|
|
|
$
|
597,148
|
|
In 2016, 2015 and 2014, the Company received
$375,000, $112,000 and $70,000, respectively, as a result of stock option exercises. The Company recorded insignificant tax benefits
from the exercise of nonqualified stock options during the years ended December 31, 2016, 2015, and 2014.
The following table summarizes information
about the stock options outstanding at December 31, 2016:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
at 12/31/16
|
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
at 12/31/16
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$13.27 to $15.48
|
|
|
9,000
|
|
|
2.4
|
|
$
|
14.35
|
|
|
|
9,000
|
|
|
$
|
14.35
|
|
$15.48 to $17.70
|
|
|
34,698
|
|
|
1.5
|
|
|
16.60
|
|
|
|
34,698
|
|
|
|
16.60
|
|
$17.70 to $19.91
|
|
|
11,250
|
|
|
0.4
|
|
|
19.61
|
|
|
|
11,250
|
|
|
|
19.61
|
|
$19.91 to $22.12
|
|
|
5,000
|
|
|
1.3
|
|
|
20.80
|
|
|
|
5,000
|
|
|
|
20.80
|
|
|
|
|
59,948
|
|
|
1.4
|
|
$
|
17.18
|
|
|
|
59,948
|
|
|
$
|
17.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information
regarding the activity during 2014, 2015, and 2016 related to the Company’s outstanding restricted stock:
|
|
Long-Term Restricted Stock
|
|
|
|
Number of
Units
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
|
|
Nonvested at January 1, 2014
|
|
|
45,374
|
|
|
$
|
9.90
|
|
|
|
|
|
|
|
|
|
|
Granted during the period
|
|
|
15,657
|
|
|
|
17.77
|
|
Vested during the period
|
|
|
(10,593
|
)
|
|
|
14.32
|
|
Forfeited or expired during the period
|
|
|
—
|
|
|
|
̶
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2014
|
|
|
50,438
|
|
|
$
|
11.42
|
|
|
|
|
|
|
|
|
|
|
Granted during the period
|
|
|
65,618
|
|
|
|
17.28
|
|
Vested during the period
|
|
|
(20,117
|
)
|
|
|
17.44
|
|
Forfeited or expired during the period
|
|
|
(40,610
|
)
|
|
|
9.87
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2015
|
|
|
55,329
|
|
|
$
|
17.31
|
|
|
|
|
|
|
|
|
|
|
Granted during the period
|
|
|
65,255
|
|
|
|
19.40
|
|
Vested during the period
|
|
|
(28,794
|
)
|
|
|
17.79
|
|
Forfeited or expired during the period
|
|
|
—
|
|
|
|
̶
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2016
|
|
|
91,790
|
|
|
$
|
18.65
|
|
Note 16. Regulatory Restrictions
The Company is regulated by the
Board of Governors of the Federal Reserve System (“FED”) and is subject to securities registration and public reporting
regulations of the Securities and Exchange Commission. The Bank is regulated by the FED and the North Carolina Commissioner
of Banks.
The primary source of funds for the payment
of dividends by the Company is dividends received from its subsidiary, the Bank. The Bank, as a North Carolina banking corporation,
may pay dividends only out of undivided profits as determined pursuant to North Carolina General Statutes Section 53-87. As of
December 31, 2016, the Bank had undivided profits of approximately $173,823,000 which were available for the payment of dividends
(subject to remaining in compliance with regulatory capital requirements). As of December 31, 2016, approximately $241,600,000
of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.
The average reserve balance maintained by
the Bank under the requirements of the FED was approximately $1,746,000 for the year ended December 31, 2016.
The Company and the Bank must comply with
regulatory capital requirements established by the FED. Failure to meet minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.
In 2013, the FED approved final rules implementing
the Basel Committee on Banking Supervision capital guidelines, referred to a “Basel III.” The final rules established
a new “Common Equity Tier I” ratio; new higher capital ratio requirements, including a capital conservation buffer;
narrowed the definitions of capital; imposed new operating restrictions on banking organizations with insufficient capital buffers;
and increased the risk weighting of certain assets. The final rules became effective January 1, 2015 for the Company. The capital
conservation buffer requirement were phased in beginning January 1, 2016, at 0.625% of risk weighted assets, and will increase
each year until fully implemented at 2.5% in January 1, 2019.
As of December 31, 2016, the capital standards
require the Company to maintain minimum ratios of “Common Equity Tier I” capital to total risk-weighted assets, “Tier
I” capital to total risk-weighted assets, and total capital to risk-weighted assets of 4.50%, 6.00% and 8.00%, respectively.
Common Equity Tier I capital is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill
and other intangible assets, net of associated deferred tax liabilities. Tier I capital is comprised of Common Equity Tier I capital
plus Additional Tier I Capital, which for the Company includes non-cumulative perpetual preferred stock and trust preferred securities.
Total capital is comprised of Tier I capital plus certain adjustments, the largest of which is our allowance for loan losses. Risk-weighted
assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in FED
and FDIC regulations.
In addition to the risk-based capital requirements
described above, the Company and the Bank are subject to a leverage capital requirement, which calls for a minimum ratio of Tier
I capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite
ratings as determined by its regulators. The FED has not advised the Company of any requirement specifically applicable to it.
In addition to the minimum capital requirements
described above, the regulatory framework for prompt corrective action also contains specific capital guidelines applicable to
banks for classification as “well capitalized,” which are presented with the minimum ratios, the Company’s ratios
and the Bank’s ratios as of December 31, 2016 and 2015 in the following table. Based on the most recent notification from
its regulators, the Bank is well capitalized under the framework. There are no conditions or events since that notification that
management believes have changed the Company’s classification.
Also see Note 19 for discussion of preferred
stock transactions that have affected the Company’s capital ratios.
|
|
Actual
|
|
|
Fully Phased-In Regulatory
Guidelines Minimum
|
|
|
To Be Well Capitalized
Under Current Prompt
Corrective Action Provisions
|
|
($ in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
(must equal or exceed)
|
|
|
(must equal or exceed)
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier I Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
308,712
|
|
|
|
10.92%
|
|
|
$
|
197,968
|
|
|
|
7.00%
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
350,578
|
|
|
|
12.40%
|
|
|
|
197,858
|
|
|
|
7.00%
|
|
|
|
183,725
|
|
|
|
6.50%
|
|
Total Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
377,847
|
|
|
|
13.36%
|
|
|
|
296,952
|
|
|
|
10.50%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
375,062
|
|
|
|
13.27%
|
|
|
|
296,787
|
|
|
|
10.50%
|
|
|
|
282,654
|
|
|
|
10.00%
|
|
Tier I Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
353,363
|
|
|
|
12.49%
|
|
|
|
240,390
|
|
|
|
8.50%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
350,578
|
|
|
|
12.40%
|
|
|
|
240,256
|
|
|
|
8.50%
|
|
|
|
226,124
|
|
|
|
8.00%
|
|
Leverage Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
353,363
|
|
|
|
10.17%
|
|
|
|
138,981
|
|
|
|
4.00%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
350,578
|
|
|
|
10.10%
|
|
|
|
138,908
|
|
|
|
4.00%
|
|
|
|
173,634
|
|
|
|
5.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier I Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
282,766
|
|
|
|
11.22%
|
|
|
$
|
176,344
|
|
|
|
7.00%
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
332,822
|
|
|
|
13.22%
|
|
|
|
176,231
|
|
|
|
7.00%
|
|
|
|
163,643
|
|
|
|
6.50%
|
|
Total Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
364,125
|
|
|
|
14.45%
|
|
|
|
264,515
|
|
|
|
10.50%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
361,405
|
|
|
|
14.36%
|
|
|
|
264,347
|
|
|
|
10.50%
|
|
|
|
251,759
|
|
|
|
10.00%
|
|
Tier I Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
335,053
|
|
|
|
13.30%
|
|
|
|
214,131
|
|
|
|
8.50%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
332,822
|
|
|
|
13.22%
|
|
|
|
213,995
|
|
|
|
8.50%
|
|
|
|
201,407
|
|
|
|
8.00%
|
|
Leverage Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
335,053
|
|
|
|
10.38%
|
|
|
|
129,087
|
|
|
|
4.00%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
332,822
|
|
|
|
10.32%
|
|
|
|
129,014
|
|
|
|
4.00%
|
|
|
|
161,267
|
|
|
|
5.00%
|
|
Note 17. Supplementary Income Statement
Information
Components of other noninterest income/expense
exceeding 1% of total income for any of the years ended December 31, 2016, 2015, and 2014 are as follows:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Other service charges, commissions, and fees – debit card interchange income
|
|
$
|
6,564
|
|
|
|
6,433
|
|
|
|
6,137
|
|
Other service charges, commissions, and fees – other interchange income
|
|
|
3,018
|
|
|
|
2,288
|
|
|
|
1,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses – credit/debit card processing expense
|
|
|
2,296
|
|
|
|
2,181
|
|
|
|
1,728
|
|
Other operating expenses – stationery and supplies
|
|
|
2,066
|
|
|
|
2,039
|
|
|
|
1,710
|
|
Other operating expenses – telephone and data line expense
|
|
|
2,311
|
|
|
|
2,133
|
|
|
|
1,990
|
|
Other operating expenses – FDIC insurance expense
|
|
|
2,009
|
|
|
|
2,394
|
|
|
|
3,988
|
|
Other operating expenses – data processing expense
|
|
|
2,010
|
|
|
|
1,935
|
|
|
|
1,654
|
|
Other operating expenses – dues and subscriptions
|
|
|
1,604
|
|
|
|
1,710
|
|
|
|
1,716
|
|
Other operating expenses – repossession and collection
|
|
|
1,842
|
|
|
|
2,167
|
|
|
|
2,092
|
|
Other operating expenses – outside consultants
|
|
|
1,700
|
|
|
|
1,677
|
|
|
|
1,663
|
|
Other operating expenses – legal and audit
|
|
|
1,408
|
|
|
|
1,689
|
|
|
|
1,955
|
|
Other operating expenses – marketing
|
|
|
1,999
|
|
|
|
1,674
|
|
|
|
1,487
|
|
Note 18. Condensed Parent Company Information
Condensed financial data for First Bancorp
(parent company only) follows:
CONDENSED BALANCE SHEETS
|
|
As of December 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash on deposit with bank subsidiary
|
|
$
|
4,530
|
|
|
|
3,816
|
|
Investment in wholly-owned subsidiaries, at equity
|
|
|
410,261
|
|
|
|
384,926
|
|
Premises and Equipment
|
|
|
7
|
|
|
|
7
|
|
Other assets
|
|
|
1,659
|
|
|
|
1,652
|
|
Total assets
|
|
$
|
416,457
|
|
|
|
390,401
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
|
$
|
46,394
|
|
|
|
46,394
|
|
Other liabilities
|
|
|
1,962
|
|
|
|
1,817
|
|
Total liabilities
|
|
|
48,356
|
|
|
|
48,211
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
368,101
|
|
|
|
342,190
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
416,457
|
|
|
|
390,401
|
|
CONDENSED STATEMENTS OF INCOME
|
|
Year Ended December 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from wholly-owned subsidiaries
|
|
$
|
9,000
|
|
|
|
72,500
|
|
|
|
9,000
|
|
Earnings of wholly-owned subsidiaries, net of dividends
|
|
|
20,517
|
|
|
|
(43,328
|
)
|
|
|
18,343
|
|
Interest expense
|
|
|
(1,216
|
)
|
|
|
(1,032
|
)
|
|
|
(1,007
|
)
|
All other income and expenses, net
|
|
|
(792
|
)
|
|
|
(1,106
|
)
|
|
|
(1,340
|
)
|
Net income
|
|
|
27,509
|
|
|
|
27,034
|
|
|
|
24,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(175
|
)
|
|
|
(603
|
)
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
27,334
|
|
|
|
26,431
|
|
|
|
24,128
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,509
|
|
|
|
27,034
|
|
|
|
24,996
|
|
Excess of dividends over earnings of subsidiaries (Equity in undistributed earnings of subsidiaries)
|
|
|
(20,517
|
)
|
|
|
43,328
|
|
|
|
(18,343
|
)
|
Decrease in other assets
|
|
|
15
|
|
|
|
1
|
|
|
|
23
|
|
Increase (decrease) in other liabilities
|
|
|
130
|
|
|
|
(272
|
)
|
|
|
489
|
|
Total – operating activities
|
|
|
7,137
|
|
|
|
70,091
|
|
|
|
7,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of preferred and common cash dividends
|
|
|
(6,632
|
)
|
|
|
(7,105
|
)
|
|
|
(7,171
|
)
|
Redemption of preferred stock
|
|
|
—
|
|
|
|
(63,500
|
)
|
|
|
—
|
|
Proceeds from issuance of common stock
|
|
|
375
|
|
|
|
112
|
|
|
|
70
|
|
Stock withheld for payment of taxes
|
|
|
(166
|
)
|
|
|
(54
|
)
|
|
|
—
|
|
Total - financing activities
|
|
|
(6,423
|
)
|
|
|
(70,547
|
)
|
|
|
(7,101
|
)
|
Net increase (decrease) in cash
|
|
|
714
|
|
|
|
(456
|
)
|
|
|
64
|
|
Cash, beginning of year
|
|
|
3,816
|
|
|
|
4,272
|
|
|
|
4,208
|
|
Cash, end of year
|
|
$
|
4,530
|
|
|
|
3,816
|
|
|
|
4,272
|
|
Note 19. Shareholders’ Equity
Transactions
Small Business Lending Fund
On September 1, 2011, the Company completed
the sale of $63.5 million of Series B Preferred Stock to the Secretary of the Treasury under the Small Business Lending Fund (“SBLF”).
The fund was established under the Small Business Jobs Act of 2010 that was created to encourage lending to small businesses by
providing capital to qualified community banks with assets less than $10 billion.
Under the terms of the stock purchase agreement,
the Treasury received 63,500 shares of non-cumulative perpetual preferred stock with a liquidation value of $1,000 per share, in
exchange for $63.5 million. On June 25, 2015, the Company redeemed $32 million (32,000 shares) of the outstanding SBLF stock. The
shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends. On October 16, 2015, the Company redeemed
the remaining $31.5 million (31,500 shares) of the outstanding SBLF stock. The shares were redeemed at their liquidation value
of $1,000 per share plus accrued dividends. With these redemptions, the Company ended its participation in the SBLF.
For the twelve months ended December 31,
2015 and 2014, the Company accrued approximately $370,000 and $635,000, respectively, in preferred dividend payments for the Series
B Preferred Stock. This amount is deducted from net income in computing “Net income available to common shareholders.”
Stock Issuance
On December 21, 2012, the Company issued
2,656,294 shares of its common stock and 728,706 shares of the Company’s Series C Preferred Stock to certain accredited investors,
each at the price of $10.00 per share, pursuant to a private placement transaction. Net proceeds from this sale of common and preferred
stock were $33.8 million and were used to strengthen and remove risk from the Company’s balance sheet in anticipation of
a planned disposition of certain classified loans and write-down of foreclosed real estate.
On December 22, 2016, the Company and the
holder of the Series C Preferred Stock entered into an agreement to convert the preferred stock into common stock. The Company
exchanged 728,706 shares of preferred stock for the same number of shares of the Company’s common stock. As a result of the
exchange, the Company has no shares of preferred stock currently outstanding.
The Series C Preferred Stock qualified as Tier 1 capital and was
Convertible Perpetual Preferred Stock, with dividend rights equal to the Company’s common stock. The Series C Preferred Stock
was non-voting, except in limited circumstances.
The Series C Preferred Stock paid a dividend
per share equal to that of the Company’s common stock. The Company accrued approximately $175,000, $233,000, and $233,000
in preferred dividend payments for the Series C Preferred Stock during 2016, 2015, and 2014, respectively.
Note 20. Subsequent Events
As discussed in more detail in Note 2,
on March 3, 2017, the Company completed its acquisition of Carolina Bank Holdings, Inc., headquartered in Greensboro, North Carolina,
with approximately $705 million in total assets. The total merger consideration consisted of $25.3 million in cash and 3.8 million
shares of the Company’s common stock.