NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
General
Glacier Bancorp, Inc. (“Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individuals and businesses in Montana, Idaho, Utah, Washington, Wyoming, Colorado and Arizona through its wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including: 1) retail banking; 2) business banking; 3) real estate, commercial, agriculture and consumer loans; and 4) mortgage origination services. The Company serves individuals, small to medium-sized businesses, community organizations and public entities.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial condition as of
March 31, 2019
, the results of operations and comprehensive income for the
three
month periods ended
March 31, 2019
and
2018
, and changes in stockholders’ equity and cash flows for the
three
month periods ended
March 31, 2019
and
2018
. The condensed consolidated statement of financial condition of the Company as of
December 31, 2018
has been derived from the audited consolidated statements of the Company as of that date.
The accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
. Operating results for the
three
months ended
March 31, 2019
are not necessarily indicative of the results anticipated for the year ending
December 31, 2019
.
The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material affect on the Company’s consolidated financial position, results of operations or liquidity.
Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for loan and lease losses (“ALLL” or “allowance”); 2) the valuation of debt securities; 3) the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ALLL and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investment valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on internal calculations using significant independent party inputs.
Principles of Consolidation
The consolidated financial statements of the Company include the parent holding company and the Bank. The Bank consists of
fourteen
bank divisions, a treasury division, an information technology division and a centralized mortgage division. The treasury division includes the Bank’s investment portfolio and wholesale borrowings, the information technology division includes the Bank’s internal data processing, and the centralized mortgage division includes mortgage loan servicing and secondary market sales. The Bank divisions operate under separate names, management teams and advisory directors. The Company considers the Bank to be its sole operating segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses; 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (“CEO”) (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank; and 3) financial information is available for the Bank. All significant inter-company transactions have been eliminated in consolidation.
The Bank has subsidiary interests in variable interest entities (“VIE”) for which the Bank has both the power to direct the VIE’s significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. These subsidiary interests are included in the Company’s consolidated financial statements. The Bank also has subsidiary interests in VIEs for which the Bank does not have a controlling financial interest and is not the primary beneficiary. These subsidiary interests are not included in the Company’s consolidated financial statements.
The parent holding company owns non-bank subsidiaries that have issued trust preferred securities as Tier 1 capital instruments. The trust subsidiaries are not included in the Company’s consolidated financial statements. The Company's investments in the trust subsidiaries are included in other assets on the Company's statements of financial condition.
On April 30, 2019, the Company acquired the outstanding common stock of FNB Bancorp and its wholly-owned subsidiary, The First National Bank of Layton, a community bank based in Layton, Utah (collectively, “FNB”). As of March 31, 2019, FNB had total assets of
$328,893,000
, gross loans of
$248,725,000
and total deposits of
$279,674,000
. For additional information relating to this subsequent event, see Note 13.
Loans Receivable
Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Fees and costs on originated loans and premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan utilizing the interest method. The objective of the interest method is to calculate periodic interest income at a constant effective yield. When a loan is paid off prior to maturity, the remaining fees and costs on originated loans and premiums or discounts on acquired loans are immediately recognized into interest income.
The Company’s loan segments, which are based on the purpose of the loan, include residential real estate, commercial, and consumer loans. The Company’s loan classes, a further disaggregation of segments, include residential real estate loans (residential real estate segment), commercial real estate and other commercial loans (commercial segment), and home equity and other consumer loans (consumer segment).
Loans that are
thirty days
or more past due based on payments received and applied to the loan are considered delinquent. Loans are designated non-accrual and the accrual of interest is discontinued when the collection of the contractual principal or interest is unlikely. A loan is typically placed on non-accrual when principal or interest is due and has remained unpaid for
ninety days
or more. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments on non-accrual loans are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on nonaccrual, interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
The Company considers impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio. Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and, therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans
ninety days
or more past due) and accruing loans under
ninety days
past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). Interest income on accruing impaired loans is recognized using the interest method. The Company measures impairment on a loan-by-loan basis in the same manner for each class within the loan portfolio. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due.
A restructured loan is considered a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company periodically enters into restructure agreements with borrowers whereby the loans were previously identified as TDRs. When such circumstances occur, the Company carefully evaluates the facts of the subsequent restructure to determine the appropriate accounting and under certain circumstances it may be acceptable not to account for the subsequently restructured loan as a TDR. When assessing whether a concession has been granted by the Company, any prior forgiveness on a cumulative basis is considered a continuing concession. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company has made the following types of loan modifications, some of which were considered a TDR:
|
|
•
|
reduction of the stated interest rate for the remaining term of the debt;
|
|
|
•
|
extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having similar risk characteristics; and
|
|
|
•
|
reduction of the face amount of the debt as stated in the debt agreements.
|
The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity for debt repayment. In determining whether non-restructured or unimpaired loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are impaired or are TDRs, the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations. Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including for example:
|
|
•
|
analysis of global, i.e., aggregate debt service for total debt obligations;
|
|
|
•
|
assessment of the value and security protection of collateral pledged using current market conditions and alternative market assumptions across a variety of potential future situations; and
|
|
|
•
|
loan structures and related covenants.
|
For additional information relating to loans, see Note 3.
Allowance for Loan and Lease Losses
Based upon management’s analysis of the Company’s loan portfolio, the balance of the ALLL is an estimate of probable credit losses known and inherent within the Bank’s loan portfolio as of the date of the consolidated financial statements. The ALLL is analyzed at the loan class level and is maintained within a range of estimated losses. Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The determination of the ALLL and the related provision for loan losses is a critical accounting estimate that involves management’s judgments about known relevant internal and external environmental factors that affect loan losses. The balance of the ALLL is highly dependent upon management’s evaluations of borrowers’ current and prospective performance, appraisals and other variables affecting the quality of the loan portfolio. Individually significant loans and major lending areas are reviewed periodically to determine potential problems at an early date. Changes in management’s estimates and assumptions are reasonably possible and may have a material impact upon the Company’s consolidated financial statements, results of operations or capital.
Risk characteristics considered in the ALLL analysis applicable to each loan class within the Company's loan portfolio are as follows:
Residential Real Estate.
Residential real estate loans are secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan class include a large number of borrowers, geographic dispersion of market areas and the loans are originated for relatively smaller amounts.
Commercial Real Estate
. Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operation of the property securing the loan and/or the business conducted on the property securing the loan. Credit risk in these loans is impacted by the creditworthiness of a borrower, valuation of the property securing the loan and conditions within the local economies in the Company’s diverse, geographic market areas.
Commercial
. Commercial loans consist of loans to commercial customers for use in financing working capital needs, equipment purchases and business expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations across the Company’s diverse, geographic market areas.
Home Equity
. Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and amortizing closed-end) secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan class are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from
10
to
15 years
.
Other Consumer
. The other consumer loan portfolio consists of various short-term loans such as automobile loans and loans for other personal purposes. Repayment of these loans is primarily dependent on the personal income of the borrowers. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s diverse, geographic market area) and the creditworthiness of a borrower.
The ALLL consists of a specific valuation allowance component and a general valuation allowance component. The specific component relates to loans that are determined to be impaired and individually evaluated for impairment. The Company measures impairment on a loan-by-loan basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when it is determined that repayment of the loan is expected to be provided solely by the underlying collateral. For impairment based on expected future cash flows, the Company considers all information available as of a measurement date, including past events, current conditions, potential prepayments, and estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the best estimate of expected future cash flows. The effective interest rate for a loan restructured in a TDR is based on the original contractual rate. For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of foreclosure is probable, impairment is measured by the fair value of the collateral, less estimated cost to sell. The fair value of the collateral is determined primarily based upon appraisal or evaluation of the underlying real property value.
The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors. The historical loss experience is based on the previous
twelve
quarters loss experience by loan class adjusted for risk characteristics in the existing loan portfolio. The same trends and conditions are evaluated for each class within the loan portfolio; however, the risk characteristics are weighted separately at the individual class level based on the Company’s judgment and experience.
The changes in trends and conditions evaluated for each class within the loan portfolio include the following:
|
|
•
|
changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;
|
|
|
•
|
changes in global, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;
|
|
|
•
|
changes in the nature and volume of the portfolio and in the terms of loans;
|
|
|
•
|
changes in experience, ability, and depth of lending management and other relevant staff;
|
|
|
•
|
changes in the volume and severity of past due and nonaccrual loans;
|
|
|
•
|
changes in the quality of the Company’s loan review system;
|
|
|
•
|
changes in the value of underlying collateral for collateral-dependent loans;
|
|
|
•
|
the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
|
|
|
•
|
the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.
|
The ALLL is increased by provisions for loan losses which are charged to expense. The portions of loan and overdraft balances determined by management to be uncollectible are charged-off as a reduction of the ALLL and recoveries of amounts previously charged-off are credited as an increase to the ALLL. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged-off when the loan becomes over
120 days
delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (“OREO”) until such time as it is sold.
At acquisition date, the assets and liabilities of acquired banks are recorded at their estimated fair values which results in no ALLL carried over from acquired banks. Subsequent to acquisition, an allowance will be recorded on the acquired loan portfolios for further credit deterioration, if any.
Leases
The Company leases certain land, premises and equipment from third parties. A lessee lease is classified as an operating lease unless it meets certain criteria (e.g., lease contains option to purchase that Company is reasonably certain to exercise), in which case it is classified as a finance lease. Effective January 1, 2019, operating leases are included in net premises and equipment and other liabilities on the Company’s statements of financial condition and lease expense for lease payments is recognized on a straight-line basis over the lease term. Finance leases are included in net premises and equipment and other borrowed funds on the Company’s statements of financial condition. Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. An ROU asset represents the right to use the underlying asset for the lease term and also includes any direct costs and payments made prior to lease commencement and excludes lease incentives. When an implicit rate is not available, an incremental borrowing rate based on the information available at commencement date is used in determining the present value of the lease payments. A lease term may include an option to extend or terminate the lease when it is reasonably certain the option will be exercised. The Company accounts for lease and nonlease components (e.g., common-area maintenance) together as a single combined lease component for all asset classes. Short-term leases of
12 months
or less are excluded from accounting guidance; as a result, the lease payments are recognized on a straight-line basis over the lease term and the leases are not reflected on the Company’s statements of financial condition. Renewal and termination options are considered when determining short-term leases. Leases are accounted for on an individual lease level.
Lease improvements incurred at the inception of the lease are recorded as an asset and depreciated over the initial term of the lease and lease improvements incurred subsequently are depreciated over the remaining term of the lease.
The Company also leases certain premises and equipment to third parties. A lessor lease is classified as an operating lease unless it meets certain criteria that would classify it as either a sales-type lease or a direct financing lease. For additional information relating to leases, see Note 4.
Revenue Recognition
The Company recognizes revenue when services or products are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled. The Company’s principal source of revenue is interest income from debt securities and loans. Revenue from contracts with customers within the scope of Accounting Standards Codification
™
(“ASC”) Topic 606 was
$18,446,000
and
$17,291,000
for the
three
months ended
March 31, 2019
and
2018
, respectively, and largely consisted of revenue from service charges and other fees from deposits (e.g., overdraft fees, ATM fees, debit card fees). Due to the short-term nature of the Company’s contracts with customers, an insignificant amount of receivables related to such revenue was recorded at
March 31, 2019
and
December 31, 2018
and there were no impairment losses recognized. Policies specific to revenue from contracts with customers include the following:
Service Charges.
Revenue from service charges consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds and, when applicable, pay interest on deposits. Service charges on deposit accounts may be transactional or non-transactional in nature. Transactional service charges occur in the form of a service or penalty and are charged upon the occurrence of an event (e.g., overdraft fees, ATM fees, wire transfer fees). Transactional service charges are recognized as services are delivered to and consumed by the customer, or as penalty fees are charged. Non-transactional service charges are charges that are based on a broader service, such as account maintenance fees and dormancy fees, and are recognized on a monthly basis.
Debit Card Fees.
Revenue from debit card fees includes interchange fee income from debit cards processed through card association networks. Interchange fees represent a portion of a transaction amount that the Company and other involved parties retain to compensate themselves for giving the cardholder immediate access to funds. Interchange rates are generally set by the card association networks and are based on purchase volumes and other factors. The Company records interchange fees as services are provided.
Accounting Guidance Adopted in
2019
The ASC is the Financial Accounting Standards Board’s (“FASB”) officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative. The following paragraphs provide descriptions of recently adopted Accounting Standards Updates (“ASU”) that may have had a material effect on the Company’s financial position or results of operations.
ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs.
In March 2017, FASB amended ASC Subtopic 310-20 to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments required the premium to be amortized to the earliest call date instead of the maturity date. The amendments did not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2018 and any adjustments were to be reflected as of the beginning of the year that includes the interim period. Entities were to apply the amendments on a modified retrospective basis; therefore, a cumulative-effect reduction to retained earnings of
$24,102,000
was recognized as of the January 1, 2019 effective date. The Company’s debt securities that were effected by the amendments were primarily in the state and local governments category. The Company’s accounting policies and procedures were updated to reflect the amendments.
ASU 2016-02 - Leases.
In February 2016, FASB amended ASC Topic 842 to address several aspects of lease accounting with the significant change being the recognition of lease assets and lease liabilities for leases previously classified as operating leases. The amendments were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2018. The Company has lease agreements for which the amendments required the recognition of a lease liability to make lease payments and an ROU asset which represents its right to use the underlying asset for the lease term. An entity is permitted to elect not to restate its comparative periods in the period of adoption when transitioning to ASC Topic 842 and the Company made this election. In addition, the Company made the following elections related to implementation: 1) to not use hindsight in determining lease terms and in assessing impairment of ROU assets; and 2) to use the practical expedient package, which required no reassessment of whether existing contracts are or contain leases as well as no reassessment of lease classification for existing leases. At the date of adoption, the Company recognized an ROU asset and related lease liability on the Company’s statement of financial condition of
$36,178,000
and
$38,220,000
, respectively. The Company developed new processes to comply with the accounting and disclosure requirements of such amendments and policies and procedures were updated accordingly.
Accounting Guidance Pending Adoption at
March 31, 2019
The following paragraphs provide descriptions of newly issued but not yet effective ASUs that could have a material effect on the Company’s financial position or results of operations.
ASU 2017-04 - Intangibles - Goodwill and Other.
In January 2017, FASB amended ASC Topic 350 to simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under these amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual 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 has goodwill from prior business combinations and performs an annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. During the third quarter of 2018, the Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s goodwill was not considered impaired. Although the Company cannot anticipate future goodwill impairment assessments, based on the most recent assessment, it is unlikely that an impairment amount would need to be calculated and, therefore, the Company does not anticipate a material impact from these amendments to the Company’s financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis. For additional information regarding goodwill impairment testing, see Note 5.
ASU 2016-13 - Financial Instruments - Credit Losses.
In June 2016, FASB amended ASC Topic 326 to replace the incurred loss model with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. The ALLL is a material estimate of the Company and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALLL at adoption date. The Company is anticipating a significant change in the processes and procedures to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Company will also develop new procedures for determining an allowance for credit losses relating to held-to-maturity debt securities. In addition, the current accounting policy and procedures for other-than-temporary impairment on available-for-sale debt securities will be replaced with an allowance approach. The Company has engaged a third-party vendor solution and is currently in the implementation phase and evaluating the appropriate models, loan pools and assumptions to be utilized. The project team anticipates running parallel models during 2019 to refine its processes and procedures. For additional information on the ALLL, see Note 3.
Note 2. Debt Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Amortized Cost
|
|
Gross Unrealized
|
|
Fair Value
|
(Dollars in thousands)
|
|
Gains
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
21,685
|
|
|
22
|
|
|
(186
|
)
|
|
21,521
|
|
U.S. government sponsored enterprises
|
105,189
|
|
|
1,269
|
|
|
(1
|
)
|
|
106,457
|
|
State and local governments
|
700,070
|
|
|
25,426
|
|
|
(305
|
)
|
|
725,191
|
|
Corporate bonds
|
217,494
|
|
|
1,293
|
|
|
(239
|
)
|
|
218,548
|
|
Residential mortgage-backed securities
|
828,103
|
|
|
3,154
|
|
|
(6,209
|
)
|
|
825,048
|
|
Commercial mortgage-backed securities
|
612,407
|
|
|
14,235
|
|
|
(1,085
|
)
|
|
625,557
|
|
Total available-for-sale
|
2,484,948
|
|
|
45,399
|
|
|
(8,025
|
)
|
|
2,522,322
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
State and local governments
|
255,572
|
|
|
5,842
|
|
|
(6
|
)
|
|
261,408
|
|
Total held-to-maturity
|
255,572
|
|
|
5,842
|
|
|
(6
|
)
|
|
261,408
|
|
Total debt securities
|
$
|
2,740,520
|
|
|
51,241
|
|
|
(8,031
|
)
|
|
2,783,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Amortized Cost
|
|
Gross Unrealized
|
|
Fair Value
|
(Dollars in thousands)
|
|
Gains
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
23,757
|
|
|
54
|
|
|
(162
|
)
|
|
23,649
|
|
U.S. government sponsored enterprises
|
120,670
|
|
|
52
|
|
|
(514
|
)
|
|
120,208
|
|
State and local governments
|
844,636
|
|
|
18,936
|
|
|
(11,322
|
)
|
|
852,250
|
|
Corporate bonds
|
292,052
|
|
|
378
|
|
|
(1,613
|
)
|
|
290,817
|
|
Residential mortgage-backed securities
|
808,537
|
|
|
628
|
|
|
(16,250
|
)
|
|
792,915
|
|
Commercial mortgage-backed securities
|
490,868
|
|
|
3,312
|
|
|
(2,356
|
)
|
|
491,824
|
|
Total available-for-sale
|
2,580,520
|
|
|
23,360
|
|
|
(32,217
|
)
|
|
2,571,663
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
State and local governments
|
297,915
|
|
|
1,380
|
|
|
(11,039
|
)
|
|
288,256
|
|
Total held-to-maturity
|
297,915
|
|
|
1,380
|
|
|
(11,039
|
)
|
|
288,256
|
|
Total debt securities
|
$
|
2,878,435
|
|
|
24,740
|
|
|
(43,256
|
)
|
|
2,859,919
|
|
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at
March 31, 2019
. Actual maturities may differ from expected or contractual maturities since issuers have the right to prepay obligations with or without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
(Dollars in thousands)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Due within one year
|
$
|
88,040
|
|
|
88,011
|
|
|
—
|
|
|
—
|
|
Due after one year through five years
|
243,020
|
|
|
245,035
|
|
|
7,061
|
|
|
7,230
|
|
Due after five years through ten years
|
272,600
|
|
|
282,663
|
|
|
76,025
|
|
|
78,561
|
|
Due after ten years
|
440,778
|
|
|
456,008
|
|
|
172,486
|
|
|
175,617
|
|
|
1,044,438
|
|
|
1,071,717
|
|
|
255,572
|
|
|
261,408
|
|
Mortgage-backed securities
1
|
1,440,510
|
|
|
1,450,605
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
2,484,948
|
|
|
2,522,322
|
|
|
255,572
|
|
|
261,408
|
|
______________________________
1
Mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.
Proceeds from sales and calls of debt securities and the associated gains and losses that have been included in earnings are listed below:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2019
|
|
March 31,
2018
|
Available-for-sale
|
|
|
|
Proceeds from sales and calls of debt securities
|
$
|
304,048
|
|
|
228,681
|
|
Gross realized gains
1
|
2,937
|
|
|
6
|
|
Gross realized losses
1
|
(2,716
|
)
|
|
(288
|
)
|
Held-to-maturity
|
|
|
|
Proceeds from calls of debt securities
|
29,945
|
|
|
15,465
|
|
Gross realized gains
1
|
2
|
|
|
54
|
|
Gross realized losses
1
|
(10
|
)
|
|
(105
|
)
|
______________________________
1
The gain or loss on the sale or call of each debt security is determined by the specific identification method.
Debt securities with an unrealized loss position are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars in thousands)
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
6,553
|
|
|
(71
|
)
|
|
9,565
|
|
|
(115
|
)
|
|
16,118
|
|
|
(186
|
)
|
U.S. government sponsored enterprises
|
—
|
|
|
—
|
|
|
4,961
|
|
|
(1
|
)
|
|
4,961
|
|
|
(1
|
)
|
State and local governments
|
3,736
|
|
|
(4
|
)
|
|
34,411
|
|
|
(301
|
)
|
|
38,147
|
|
|
(305
|
)
|
Corporate bonds
|
18,409
|
|
|
(37
|
)
|
|
53,314
|
|
|
(202
|
)
|
|
71,723
|
|
|
(239
|
)
|
Residential mortgage-backed securities
|
28,049
|
|
|
(86
|
)
|
|
441,716
|
|
|
(6,123
|
)
|
|
469,765
|
|
|
(6,209
|
)
|
Commercial mortgage-backed securities
|
20,363
|
|
|
(254
|
)
|
|
49,988
|
|
|
(831
|
)
|
|
70,351
|
|
|
(1,085
|
)
|
Total available-for-sale
|
$
|
77,110
|
|
|
(452
|
)
|
|
593,955
|
|
|
(7,573
|
)
|
|
671,065
|
|
|
(8,025
|
)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
—
|
|
|
—
|
|
|
6,896
|
|
|
(6
|
)
|
|
6,896
|
|
|
(6
|
)
|
Total held-to-maturity
|
$
|
—
|
|
|
—
|
|
|
6,896
|
|
|
(6
|
)
|
|
6,896
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars in thousands)
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
4,287
|
|
|
(27
|
)
|
|
10,519
|
|
|
(135
|
)
|
|
14,806
|
|
|
(162
|
)
|
U.S. government sponsored enterprises
|
43,400
|
|
|
(103
|
)
|
|
35,544
|
|
|
(411
|
)
|
|
78,944
|
|
|
(514
|
)
|
State and local governments
|
72,080
|
|
|
(922
|
)
|
|
232,244
|
|
|
(10,400
|
)
|
|
304,324
|
|
|
(11,322
|
)
|
Corporate bonds
|
119,111
|
|
|
(937
|
)
|
|
114,800
|
|
|
(676
|
)
|
|
233,911
|
|
|
(1,613
|
)
|
Residential mortgage-backed securities
|
132,405
|
|
|
(833
|
)
|
|
537,202
|
|
|
(15,417
|
)
|
|
669,607
|
|
|
(16,250
|
)
|
Commercial mortgage-backed securities
|
73,118
|
|
|
(402
|
)
|
|
86,504
|
|
|
(1,954
|
)
|
|
159,622
|
|
|
(2,356
|
)
|
Total available-for-sale
|
$
|
444,401
|
|
|
(3,224
|
)
|
|
1,016,813
|
|
|
(28,993
|
)
|
|
1,461,214
|
|
|
(32,217
|
)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
87,392
|
|
|
(2,778
|
)
|
|
126,226
|
|
|
(8,261
|
)
|
|
213,618
|
|
|
(11,039
|
)
|
Total held-to-maturity
|
$
|
87,392
|
|
|
(2,778
|
)
|
|
126,226
|
|
|
(8,261
|
)
|
|
213,618
|
|
|
(11,039
|
)
|
Based on an analysis of its debt securities with unrealized losses as of
March 31, 2019
and
December 31, 2018
, the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the debt securities is expected to recover as payments are received and the securities approach maturity. At
March 31, 2019
, management determined that it did not intend to sell debt securities with unrealized losses, and there was no expected requirement to sell any of its debt securities with unrealized losses before recovery of their amortized cost.
Note 3. Loans Receivable, Net
The Company’s loan portfolio is comprised of
three
segments: residential real estate, commercial, and consumer and other loans. The loan segments are further disaggregated into the following classes: residential real estate, commercial real estate, other commercial, home equity and other consumer loans. The following table presents loans receivable for each portfolio class of loans:
|
|
|
|
|
|
|
|
|
At or for the Three Months ended
|
|
At or for the Year ended
|
(Dollars in thousands)
|
March 31,
2019
|
|
December 31,
2018
|
Residential real estate loans
|
$
|
884,732
|
|
|
887,742
|
|
Commercial loans
|
|
|
|
Real estate
|
4,686,082
|
|
|
4,657,561
|
|
Other commercial
|
1,909,452
|
|
|
1,911,171
|
|
Total
|
6,595,534
|
|
|
6,568,732
|
|
Consumer and other loans
|
|
|
|
Home equity
|
562,381
|
|
|
544,688
|
|
Other consumer
|
283,423
|
|
|
286,387
|
|
Total
|
845,804
|
|
|
831,075
|
|
Loans receivable
|
8,326,070
|
|
|
8,287,549
|
|
Allowance for loan and lease losses
|
(129,786
|
)
|
|
(131,239
|
)
|
Loans receivable, net
|
$
|
8,196,284
|
|
|
8,156,310
|
|
Net deferred origination (fees) costs included in loans receivable
|
$
|
(5,022
|
)
|
|
(5,685
|
)
|
Net purchase accounting (discounts) premiums included in loans receivable
|
$
|
(23,681
|
)
|
|
(25,172
|
)
|
Weighted-average interest rate on loans (tax-equivalent)
|
5.18
|
%
|
|
4.97
|
%
|
Allowance for Loan and Lease Losses
The ALLL is a valuation allowance for probable incurred credit losses. The following tables summarize the activity in the ALLL by loan class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2019
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Balance at beginning of period
|
$
|
131,239
|
|
|
10,631
|
|
|
72,448
|
|
|
38,160
|
|
|
5,811
|
|
|
4,189
|
|
Provision for loan losses
|
57
|
|
|
278
|
|
|
(148
|
)
|
|
(915
|
)
|
|
64
|
|
|
778
|
|
Charge-offs
|
(3,341
|
)
|
|
(292
|
)
|
|
(283
|
)
|
|
(840
|
)
|
|
(8
|
)
|
|
(1,918
|
)
|
Recoveries
|
1,831
|
|
|
94
|
|
|
311
|
|
|
444
|
|
|
13
|
|
|
969
|
|
Balance at end of period
|
$
|
129,786
|
|
|
10,711
|
|
|
72,328
|
|
|
36,849
|
|
|
5,880
|
|
|
4,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2018
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Balance at beginning of period
|
$
|
129,568
|
|
|
10,798
|
|
|
68,515
|
|
|
39,303
|
|
|
6,204
|
|
|
4,748
|
|
Provision for loan losses
|
795
|
|
|
(177
|
)
|
|
245
|
|
|
(3
|
)
|
|
(202
|
)
|
|
932
|
|
Charge-offs
|
(5,007
|
)
|
|
(3
|
)
|
|
(1,033
|
)
|
|
(1,788
|
)
|
|
(12
|
)
|
|
(2,171
|
)
|
Recoveries
|
2,252
|
|
|
16
|
|
|
615
|
|
|
596
|
|
|
50
|
|
|
975
|
|
Balance at end of period
|
$
|
127,608
|
|
|
10,634
|
|
|
68,342
|
|
|
38,108
|
|
|
6,040
|
|
|
4,484
|
|
The following tables disclose the recorded investment in loans and the balance in the ALLL by loan class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
104,411
|
|
|
10,646
|
|
|
65,104
|
|
|
22,954
|
|
|
3,057
|
|
|
2,650
|
|
Collectively evaluated for impairment
|
8,221,659
|
|
|
874,086
|
|
|
4,620,978
|
|
|
1,886,498
|
|
|
559,324
|
|
|
280,773
|
|
Total loans receivable
|
$
|
8,326,070
|
|
|
884,732
|
|
|
4,686,082
|
|
|
1,909,452
|
|
|
562,381
|
|
|
283,423
|
|
ALLL
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
702
|
|
|
1
|
|
|
57
|
|
|
642
|
|
|
—
|
|
|
2
|
|
Collectively evaluated for impairment
|
129,084
|
|
|
10,710
|
|
|
72,271
|
|
|
36,207
|
|
|
5,880
|
|
|
4,016
|
|
Total ALLL
|
$
|
129,786
|
|
|
10,711
|
|
|
72,328
|
|
|
36,849
|
|
|
5,880
|
|
|
4,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
108,788
|
|
|
12,685
|
|
|
68,837
|
|
|
20,975
|
|
|
3,497
|
|
|
2,794
|
|
Collectively evaluated for impairment
|
8,178,761
|
|
|
875,057
|
|
|
4,588,724
|
|
|
1,890,196
|
|
|
541,191
|
|
|
283,593
|
|
Total loans receivable
|
$
|
8,287,549
|
|
|
887,742
|
|
|
4,657,561
|
|
|
1,911,171
|
|
|
544,688
|
|
|
286,387
|
|
ALLL
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
3,223
|
|
|
83
|
|
|
568
|
|
|
2,313
|
|
|
39
|
|
|
220
|
|
Collectively evaluated for impairment
|
128,016
|
|
|
10,548
|
|
|
71,880
|
|
|
35,847
|
|
|
5,772
|
|
|
3,969
|
|
Total ALLL
|
$
|
131,239
|
|
|
10,631
|
|
|
72,448
|
|
|
38,160
|
|
|
5,811
|
|
|
4,189
|
|
Substantially all of the Company’s loans receivable are with customers in the Company’s geographic market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their obligations is dependent upon the economic performance in the Company’s market areas.
Aging Analysis
The following tables present an aging analysis of the recorded investment in loans by loan class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Accruing loans 30-59 days past due
|
$
|
28,938
|
|
|
5,211
|
|
|
14,345
|
|
|
5,620
|
|
|
2,273
|
|
|
1,489
|
|
Accruing loans 60-89 days past due
|
7,956
|
|
|
768
|
|
|
3,564
|
|
|
1,839
|
|
|
1,082
|
|
|
703
|
|
Accruing loans 90 days or more past due
|
2,451
|
|
|
998
|
|
|
234
|
|
|
998
|
|
|
115
|
|
|
106
|
|
Non-accrual loans
|
40,269
|
|
|
6,219
|
|
|
24,096
|
|
|
6,766
|
|
|
2,454
|
|
|
734
|
|
Total past due and non-accrual loans
|
79,614
|
|
|
13,196
|
|
|
42,239
|
|
|
15,223
|
|
|
5,924
|
|
|
3,032
|
|
Current loans receivable
|
8,246,456
|
|
|
871,536
|
|
|
4,643,843
|
|
|
1,894,229
|
|
|
556,457
|
|
|
280,391
|
|
Total loans receivable
|
$
|
8,326,070
|
|
|
884,732
|
|
|
4,686,082
|
|
|
1,909,452
|
|
|
562,381
|
|
|
283,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Accruing loans 30-59 days past due
|
$
|
24,312
|
|
|
5,251
|
|
|
9,477
|
|
|
4,282
|
|
|
3,213
|
|
|
2,089
|
|
Accruing loans 60-89 days past due
|
9,255
|
|
|
860
|
|
|
3,231
|
|
|
3,838
|
|
|
735
|
|
|
591
|
|
Accruing loans 90 days or more past due
|
2,018
|
|
|
788
|
|
|
—
|
|
|
492
|
|
|
428
|
|
|
310
|
|
Non-accrual loans
|
47,252
|
|
|
8,021
|
|
|
27,264
|
|
|
8,619
|
|
|
2,575
|
|
|
773
|
|
Total past due and non-accrual loans
|
82,837
|
|
|
14,920
|
|
|
39,972
|
|
|
17,231
|
|
|
6,951
|
|
|
3,763
|
|
Current loans receivable
|
8,204,712
|
|
|
872,822
|
|
|
4,617,589
|
|
|
1,893,940
|
|
|
537,737
|
|
|
282,624
|
|
Total loans receivable
|
$
|
8,287,549
|
|
|
887,742
|
|
|
4,657,561
|
|
|
1,911,171
|
|
|
544,688
|
|
|
286,387
|
|
Impaired Loans
Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. The following tables disclose information related to impaired loans by loan class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Three Months ended March 31, 2019
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
16,061
|
|
|
44
|
|
|
6,004
|
|
|
10,004
|
|
|
—
|
|
|
9
|
|
Unpaid principal balance
|
16,061
|
|
|
44
|
|
|
6,004
|
|
|
10,004
|
|
|
—
|
|
|
9
|
|
Specific valuation allowance
|
702
|
|
|
1
|
|
|
57
|
|
|
642
|
|
|
—
|
|
|
2
|
|
Average balance
|
17,629
|
|
|
1,001
|
|
|
7,674
|
|
|
8,636
|
|
|
60
|
|
|
258
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
88,350
|
|
|
10,602
|
|
|
59,100
|
|
|
12,950
|
|
|
3,057
|
|
|
2,641
|
|
Unpaid principal balance
|
105,100
|
|
|
12,009
|
|
|
69,991
|
|
|
16,516
|
|
|
3,699
|
|
|
2,885
|
|
Average balance
|
88,970
|
|
|
10,665
|
|
|
59,296
|
|
|
13,328
|
|
|
3,217
|
|
|
2,464
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
104,411
|
|
|
10,646
|
|
|
65,104
|
|
|
22,954
|
|
|
3,057
|
|
|
2,650
|
|
Unpaid principal balance
|
121,161
|
|
|
12,053
|
|
|
75,995
|
|
|
26,520
|
|
|
3,699
|
|
|
2,894
|
|
Specific valuation allowance
|
702
|
|
|
1
|
|
|
57
|
|
|
642
|
|
|
—
|
|
|
2
|
|
Average balance
|
106,599
|
|
|
11,666
|
|
|
66,970
|
|
|
21,964
|
|
|
3,277
|
|
|
2,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year ended December 31, 2018
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
19,197
|
|
|
1,957
|
|
|
9,345
|
|
|
7,268
|
|
|
120
|
|
|
507
|
|
Unpaid principal balance
|
19,491
|
|
|
2,220
|
|
|
9,345
|
|
|
7,268
|
|
|
120
|
|
|
538
|
|
Specific valuation allowance
|
3,223
|
|
|
83
|
|
|
568
|
|
|
2,313
|
|
|
39
|
|
|
220
|
|
Average balance
|
19,519
|
|
|
2,686
|
|
|
8,498
|
|
|
7,081
|
|
|
82
|
|
|
1,172
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
89,591
|
|
|
10,728
|
|
|
59,492
|
|
|
13,707
|
|
|
3,377
|
|
|
2,287
|
|
Unpaid principal balance
|
107,486
|
|
|
11,989
|
|
|
71,300
|
|
|
17,689
|
|
|
3,986
|
|
|
2,522
|
|
Average balance
|
106,747
|
|
|
10,269
|
|
|
73,889
|
|
|
17,376
|
|
|
3,465
|
|
|
1,748
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
108,788
|
|
|
12,685
|
|
|
68,837
|
|
|
20,975
|
|
|
3,497
|
|
|
2,794
|
|
Unpaid principal balance
|
126,977
|
|
|
14,209
|
|
|
80,645
|
|
|
24,957
|
|
|
4,106
|
|
|
3,060
|
|
Specific valuation allowance
|
3,223
|
|
|
83
|
|
|
568
|
|
|
2,313
|
|
|
39
|
|
|
220
|
|
Average balance
|
126,266
|
|
|
12,955
|
|
|
82,387
|
|
|
24,457
|
|
|
3,547
|
|
|
2,920
|
|
Interest income recognized on impaired loans for the
three
months ended
March 31, 2019
and
2018
was not significant.
Restructured Loans
A restructured loan is considered a troubled debt restructuring if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The following tables present TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2019
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
4
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
—
|
|
Pre-modification recorded balance
|
$
|
1,705
|
|
|
—
|
|
|
1,035
|
|
|
567
|
|
|
103
|
|
|
—
|
|
Post-modification recorded balance
|
$
|
1,705
|
|
|
—
|
|
|
1,035
|
|
|
567
|
|
|
103
|
|
|
—
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recorded balance
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2018
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
12
|
|
|
2
|
|
|
4
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Pre-modification recorded balance
|
$
|
15,997
|
|
|
439
|
|
|
8,278
|
|
|
7,280
|
|
|
—
|
|
|
—
|
|
Post-modification recorded balance
|
$
|
15,997
|
|
|
439
|
|
|
8,278
|
|
|
7,280
|
|
|
—
|
|
|
—
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recorded balance
|
$
|
334
|
|
|
334
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The modifications for the TDRs that occurred during the
three
months ended
March 31, 2019
and
2018
included one or a combination of the following: an extension of the maturity date, a reduction of the interest rate or a reduction in the principal amount.
In addition to the TDRs that occurred during the period provided in the preceding tables, the Company had TDRs with pre-modification loan balances of
$1,940,000
and
$431,000
for the
three
months ended
March 31, 2019
and
2018
, respectively, for which OREO was received in full or partial satisfaction of the loans. The majority of such TDRs were in commercial real estate for the
three
months ended
March 31, 2019
and
2018
. At
March 31, 2019
and
December 31, 2018
, the Company had
$1,134,000
and
$350,000
, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At
March 31, 2019
and
December 31, 2018
, the Company had
$2,076,000
and
$698,000
, respectively, of OREO secured by residential real estate properties.
Note 4. Leases
The Company leases certain land, premises and equipment from third parties. Effective January 1, 2019, ROU assets for operating and finance leases are included in net premises and equipment and lease liabilities are included in other liabilities and other borrowed funds, respectively, on the Company’s statements of financial condition. The following table summarizes the Company’s leases:
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(Dollars in thousands)
|
Finance Leases
|
|
Operating Leases
|
ROU assets
|
$
|
951
|
|
|
|
Accumulated depreciation
|
(832
|
)
|
|
|
Net ROU assets
|
$
|
119
|
|
|
36,247
|
|
Lease liabilities
|
$
|
163
|
|
|
38,389
|
|
Weighted-average remaining lease term
|
2 years
|
|
|
19 years
|
|
Weighted-average discount rate
|
5.3
|
%
|
|
3.7
|
%
|
Maturities of lease liabilities consist of the following:
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(Dollars in thousands)
|
Finance Leases
|
|
Operating Leases
|
Maturing within one year
|
$
|
92
|
|
|
3,286
|
|
Maturing one year through two years
|
77
|
|
|
3,238
|
|
Maturing two years through three years
|
1
|
|
|
3,032
|
|
Maturing three years through four years
|
1
|
|
|
2,832
|
|
Maturing four years through five years
|
—
|
|
|
2,716
|
|
Thereafter
|
—
|
|
|
39,839
|
|
Total lease payments
|
171
|
|
|
54,943
|
|
Present value of lease payments
|
|
|
|
Short-term
|
86
|
|
|
1,920
|
|
Long-term
|
77
|
|
|
36,469
|
|
Total present value of lease payments
|
163
|
|
|
38,389
|
|
Difference between lease payments and present value of lease payments
|
$
|
8
|
|
|
16,554
|
|
The components of lease expense consist of the following:
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2019
|
Finance lease cost
|
|
Amortization of ROU assets
|
$
|
16
|
|
Interest on lease liabilities
|
2
|
|
Operating lease cost
|
913
|
|
Short-term lease cost
|
109
|
|
Variable lease cost
|
199
|
|
Sublease income
|
(2
|
)
|
Total lease expense
|
$
|
1,237
|
|
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
March 31, 2019
|
(Dollars in thousands)
|
Finance Leases
|
|
Operating Leases
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flows
|
$
|
2
|
|
|
479
|
|
Financing cash flows
|
21
|
|
|
N/A
|
|
The Company also leases office space to third parties through operating leases. Rent income from these leases for the
three
months ended
March 31, 2019
was not significant.
Note 5. Goodwill
The following schedule discloses the changes in the carrying value of goodwill:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2019
|
|
March 31,
2018
|
Net carrying value at beginning of period
|
$
|
289,586
|
|
|
177,811
|
|
Acquisitions
|
—
|
|
|
111,724
|
|
Net carrying value at end of period
|
$
|
289,586
|
|
|
289,535
|
|
The Company performed its annual goodwill impairment test during the third quarter of 2018 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s goodwill was not considered impaired. In recognition there were no events or circumstances that occurred during the first quarter of 2019 that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value, the Company did not perform interim testing at
March 31, 2019
. Changes in the economic environment, operations of the aggregated reporting units, or other factors could result in the decline in the fair value of the aggregated reporting units which could result in a goodwill impairment in the future. Accumulated impairment charges were $40,159,000 as of
March 31, 2019
and
December 31, 2018
.
Note 6. Variable Interest Entities
A VIE is a partnership, limited liability company, trust or other legal entity that meets one of the following criteria: 1) the entity’s equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; 2) the holders of the equity investment at risk, as a group, lack the characteristics of a controlling financial interest; and 3) the voting rights of some holders of the equity investment at risk are disproportionate to their obligation to absorb losses or receive returns, and substantially all of the activities are conducted on behalf of the holder of equity investment at risk with disproportionately few voting rights. A VIE must be consolidated by the Company if it is deemed to be the primary beneficiary, which is the party involved with the VIE that has both: 1) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and 2) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company’s VIEs are regularly monitored to determine if any reconsideration events have occurred that could cause the primary beneficiary status to change. A previously unconsolidated VIE is consolidated when the Company becomes the primary beneficiary. A previously consolidated VIE is deconsolidated when the Company ceases to be the primary beneficiary or the entity is no longer a VIE.
Consolidated Variable Interest Entities
The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax Credits (“NMTC”). The NMTC program provides federal tax incentives to investors to make investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTC is available to investors over a
seven
-year period and is subject to recapture if certain events occur during such period. The maximum exposure to loss in the CDEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each CDE (NMTC) investment and determined the Company does not individually meet the characteristics of a primary beneficiary; however, the related-party group does meet the criteria as a group and substantially all of the activities of the CDEs either involve or are conducted on behalf of the Company. As a result, the Company is the primary beneficiary of the CDEs and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements. The primary activities of the CDEs are recognized in commercial loans interest income and other borrowed funds interest expense on the Company’s statements of operations and the federal income tax credit allocations from the investments are recognized in the Company’s statements of operations as a component of income tax expense. Such related cash flows are recognized in loans originated, principal collected on loans and change in other borrowed funds.
The Bank is also the sole member of certain tax credit funds that make direct investments in qualified affordable housing projects (e.g., Low-Income Housing Tax Credit [“LIHTC”] partnerships). As such, the Company is the primary beneficiary of these tax credit funds and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements.
The following table summarizes the carrying amounts of the consolidated VIEs’ assets and liabilities included in the Company’s statements of financial condition and are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have no recourse to the general credit of the Company.
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31,
2019
|
|
December 31,
2018
|
Assets
|
|
|
|
Loans receivable
|
$
|
80,466
|
|
|
80,123
|
|
Accrued interest receivable
|
99
|
|
|
96
|
|
Other assets
|
45,808
|
|
|
45,779
|
|
Total assets
|
$
|
126,373
|
|
|
125,998
|
|
Liabilities
|
|
|
|
Other borrowed funds
|
$
|
14,575
|
|
|
14,527
|
|
Accrued interest payable
|
3
|
|
|
1
|
|
Other liabilities
|
123
|
|
|
125
|
|
Total liabilities
|
$
|
14,701
|
|
|
14,653
|
|
Unconsolidated Variable Interest Entities
The Company has equity investments in LIHTC partnerships, both directly and through tax credit funds, with carrying values of
$34,272,000
and
$35,112,000
as of
March 31, 2019
and
December 31, 2018
, respectively. The LIHTCs are indirect federal subsidies to finance low-income housing and are used in connection with both newly constructed and renovated residential rental buildings. Once a project is placed in service, it is generally eligible for the tax credit for
ten
consecutive years. To continue generating the tax credit and to avoid tax credit recapture, a LIHTC building must satisfy specific low-income housing compliance rules for a full
fifteen
-year period. The maximum exposure to loss in the VIEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each LIHTC investment and determined that the Company does not have controlling financial interests in such investments, and is not the primary beneficiary. The Company reports the investments in the unconsolidated LIHTCs as other assets on the Company’s statements of financial condition. Total unfunded contingent commitments related to the Company’s LIHTC investments totaled
$11,362,000
at
March 31, 2019
, and the Company expects to fulfill the majority of these commitments during 2019. There were no impairment losses on the Company’s LIHTC investments during the
three
months ended
March 31, 2019
and
2018
.
The Company has elected to use the proportional amortization method, and more specifically the practical expedient method, for the amortization of all eligible LIHTC investments and amortization expense is recognized as a component of income tax expense. The following table summarizes the amortization expense and the amount of tax credits and other tax benefits recognized for qualified affordable housing project investments during the periods presented.
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2019
|
|
March 31,
2018
|
Amortization expense
|
$
|
1,417
|
|
|
891
|
|
Tax credits and other tax benefits recognized
|
1,958
|
|
|
1,240
|
|
The Company also owns the following trust subsidiaries, each of which issued trust preferred securities as Tier 1 capital instruments: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001, and First Company Statutory Trust 2003. The trust subsidiaries have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the securities held by third parties. The trust subsidiaries are not included in the Company’s consolidated financial statements because the sole asset of each trust subsidiary is a receivable from the Company, even though the Company owns all of the voting equity shares of the trust subsidiaries, has fully guaranteed the obligations of the trust subsidiaries and may have the right to redeem the third party securities under certain circumstances. The Company reports the trust preferred securities issued to the trust subsidiaries as subordinated debentures on the Company’s statements of financial condition.
Note 7. Securities Sold Under Agreements to Repurchase
The Company’s securities sold under agreements to repurchase (“repurchase agreements”) totaled
$489,620,000
and
$396,151,000
at
March 31, 2019
and
December 31, 2018
, respectively, and are secured by debt securities with carrying values of
$607,780,000
and
$511,294,000
, respectively. Securities are pledged to customers at the time of the transaction in an amount at least equal to the outstanding balance and are held in custody accounts by third parties. The fair value of collateral is continually monitored and additional collateral is provided as deemed appropriate. The following tables summarize the carrying value of the Company’s repurchase agreements by remaining contractual maturity and category of collateral:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Remaining Contractual Maturity of the Agreements
|
(Dollars in thousands)
|
Overnight and Continuous
|
|
Up to 30 Days
|
|
Total
|
U.S. government and federal agency
|
$
|
4,402
|
|
|
—
|
|
|
4,402
|
|
Residential mortgage-backed securities
|
397,077
|
|
|
—
|
|
|
397,077
|
|
Commercial mortgage-backed securities
|
88,141
|
|
|
—
|
|
|
88,141
|
|
Total
|
$
|
489,620
|
|
|
—
|
|
|
489,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Remaining Contractual Maturity of the Agreements
|
(Dollars in thousands)
|
Overnight and Continuous
|
|
Up to 30 Days
|
|
Total
|
Residential mortgage-backed securities
|
$
|
328,174
|
|
|
—
|
|
|
328,174
|
|
Commercial mortgage-backed securities
|
66,339
|
|
|
1,638
|
|
|
67,977
|
|
Total
|
$
|
394,513
|
|
|
1,638
|
|
|
396,151
|
|
Note 8. Derivatives and Hedging Activities
Interest Rate Swap Derivatives
As of
March 31, 2019
, the Company’s interest rate swap derivative financial instruments were designated as cash flow hedges and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Forecasted
Notional Amount
|
|
Variable
Interest Rate
1
|
|
Fixed
Interest Rate
1
|
|
Payment Term
|
Interest rate swap
|
$
|
160,000
|
|
|
3 month LIBOR
|
|
3.378
|
%
|
|
Oct. 21, 2014 - Oct. 21, 2021
|
Interest rate swap
|
100,000
|
|
|
3 month LIBOR
|
|
2.498
|
%
|
|
Nov. 30, 2015 - Nov. 30, 2022
|
______________________________
1
The Company pays the fixed interest rate and the counterparty pays the Company the variable interest rate.
The hedging strategy converts the LIBOR-based variable interest rate on borrowings to a fixed interest rate, thereby protecting the Company from interest rate variability.
The interest rate swaps with the
$160,000,000
and
$100,000,000
notional amounts began their payment terms in October 2014 and November 2015, respectively. The Company designated wholesale deposits and Federal Home Loan Bank (“FHLB”) advances as the cash flow hedge and these hedged items were determined to be fully effective during current and prior periods. The aggregate fair value of the interest rate swaps was recorded in other liabilities with changes recorded in OCI. The Company expects the hedges to remain highly effective during the remaining terms of the interest rate swaps. Interest expense recorded on the interest rate swaps totaled
$1,976,000
for the
three
months ended
March 31, 2019
and
2018
, and is reported as a component of interest expense on deposits and FHLB advances. Unless the interest rate swaps are terminated during the next year, the Company expects
$1,118,000
of the unrealized loss reported in OCI at
March 31, 2019
to be reclassified to interest expense during the next twelve months.
The following table presents the pre-tax gains or losses recorded in OCI and the Company’s statements of operations relating to the interest rate swap derivative financial instruments:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2019
|
|
March 31,
2018
|
Interest rate swaps
|
|
|
|
Amount of (loss) gain recognized in OCI
|
$
|
(1,834
|
)
|
|
4,379
|
|
Amount of loss reclassified from OCI to interest expense
|
(223
|
)
|
|
(900
|
)
|
The following table discloses the offsetting of financial assets and interest rate swap derivative assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Gross Amount of Recognized Assets
|
|
Gross Amount Offset in the Statements of Financial Position
|
|
Net Amounts of Assets Presented in the Statements of Financial Position
|
|
Gross Amount of Recognized Assets
|
|
Gross Amount Offset in the Statements of Financial Position
|
|
Net Amounts of Assets Presented in the Statements of Financial Position
|
Interest rate swaps
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
139
|
|
|
(139
|
)
|
|
—
|
|
The following table discloses the offsetting of financial liabilities and interest rate swap derivative liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Statements of Financial Position
|
|
Net Amounts of Liabilities Presented in the Statements of Financial Position
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Statements of Financial Position
|
|
Net Amounts of Liabilities Presented in the Statements of Financial Position
|
Interest rate swaps
|
$
|
5,380
|
|
|
—
|
|
|
5,380
|
|
|
3,908
|
|
|
(139
|
)
|
|
3,769
|
|
Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparty in the form of debt securities totaling
$6,402,000
at
March 31, 2019
. There was
$0
collateral pledged from the counterparty to the Company as of
March 31, 2019
. There is the possibility that the Company may need to pledge additional collateral in the future if there were declines in the fair value of the interest rate swap derivative financial instruments versus the collateral pledged.
Residential Real Estate Derivatives
At
March 31, 2019
, the Company had residential real estate derivatives for commitments (“interest rate locks”) to fund certain residential real estate loans to be sold into the secondary market. At
March 31, 2019
and
December 31, 2018
, loan commitments with interest rate lock commitments totaled
$82,604,000
and
$59,974,000
, respectively, and the fair value of the related derivatives was included in other assets with corresponding changes recorded in gain on sale of loans. It has been the Company’s practice to enter into “best efforts” forward sales commitments for the future delivery of residential real estate loans to third party investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. Forward sales commitments on a “best efforts” basis are not designated in hedge relationships until the loan is funded. Due to the forward sales commitments being short-term in nature, the corresponding derivatives are not significant. The Company also enters into free-standing derivatives to mitigate the interest rate risk associated with certain residential real estate loans to be sold. These derivatives include forward commitments to sell to-be-announced securities (“TBA”) which are used to economically hedge the interest rate risk associated with certain residential real estate loans held for sale and unfunded commitments. At
March 31, 2019
and
December 31, 2018
, TBA commitments were
$52,500,000
and
$40,750,000
, respectively, and the fair value of the related derivatives was included in other liabilities with corresponding changes recorded in gain on sale of loans.
Note 9. Other Expenses
Other expenses consists of the following:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2019
|
|
March 31,
2018
|
Debit card expenses
|
$
|
1,869
|
|
|
1,640
|
|
Consulting and outside services
|
1,767
|
|
|
1,379
|
|
Telephone
|
1,175
|
|
|
1,021
|
|
Employee expenses
|
996
|
|
|
791
|
|
Business development
|
890
|
|
|
468
|
|
Loan expenses
|
859
|
|
|
804
|
|
Postage
|
833
|
|
|
779
|
|
Printing and supplies
|
725
|
|
|
691
|
|
VIE amortization and other expenses
|
545
|
|
|
474
|
|
ATM expenses
|
494
|
|
|
289
|
|
Accounting and audit fees
|
453
|
|
|
418
|
|
Checking and operating expenses
|
362
|
|
|
113
|
|
Legal fees
|
307
|
|
|
314
|
|
Mergers and acquisition expenses
|
214
|
|
|
1,836
|
|
Other
|
778
|
|
|
1,144
|
|
Total other expenses
|
$
|
12,267
|
|
|
12,161
|
|
Note 10. Accumulated Other Comprehensive Income (Loss)
The following table illustrates the activity within accumulated other comprehensive income (loss) by component, net of tax:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Gains (Losses) on Available-For-Sale Debt Securities
|
|
Losses on Derivatives Used for Cash Flow Hedges
|
|
Total
|
Balance at January 1, 2018
|
$
|
5,031
|
|
|
(7,010
|
)
|
|
(1,979
|
)
|
Other comprehensive (loss) income before reclassifications
|
(19,196
|
)
|
|
3,269
|
|
|
(15,927
|
)
|
Reclassification adjustments for losses included in net income
|
211
|
|
|
672
|
|
|
883
|
|
Net current period other comprehensive (loss) income
|
(18,985
|
)
|
|
3,941
|
|
|
(15,044
|
)
|
Balance at March 31, 2018
|
$
|
(13,954
|
)
|
|
(3,069
|
)
|
|
(17,023
|
)
|
Balance at January 1, 2019
|
$
|
(6,613
|
)
|
|
(2,814
|
)
|
|
(9,427
|
)
|
Other comprehensive income (loss) before reclassifications
|
34,681
|
|
|
(1,369
|
)
|
|
33,312
|
|
Reclassification adjustments for (gains) losses included in net income
|
(165
|
)
|
|
167
|
|
|
2
|
|
Net current period other comprehensive income (loss)
|
34,516
|
|
|
(1,202
|
)
|
|
33,314
|
|
Balance at March 31, 2019
|
$
|
27,903
|
|
|
(4,016
|
)
|
|
23,887
|
|
Note 11. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding restricted stock awards were vested and stock options were exercised, using the treasury stock method.
Basic and diluted earnings per share has been computed based on the following:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands, except per share data)
|
March 31,
2019
|
|
March 31,
2018
|
Net income available to common stockholders, basic and diluted
|
$
|
49,132
|
|
|
38,559
|
|
Average outstanding shares - basic
|
84,549,974
|
|
|
80,808,904
|
|
Add: dilutive restricted stock awards and stock options
|
64,274
|
|
|
78,231
|
|
Average outstanding shares - diluted
|
84,614,248
|
|
|
80,887,135
|
|
Basic earnings per share
|
$
|
0.58
|
|
|
0.48
|
|
Diluted earnings per share
|
$
|
0.58
|
|
|
0.48
|
|
There were 41,593 and 0 restricted stock awards and stock options excluded from the diluted average outstanding share calculation for the
three
months ended
March 31, 2019
and
2018
, respectively. Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock award or the exercise price of a stock option exceeds the market price of the Company’s stock.
Note 12. Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is 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 three levels of inputs that may be used to measure fair value are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities
|
|
Level 2
|
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 for substantially the full term of the assets or liabilities
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the
three
month periods ended
March 31, 2019
and
2018
.
Recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended
March 31, 2019
.
Debt securities, available-for-sale: fair value for available-for-sale debt securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, market spreads, prepayments, defaults, recoveries, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level 3 within the hierarchy.
Fair value determinations of available-for-sale debt securities are the responsibility of the Company’s corporate accounting and treasury departments. The Company obtains fair value estimates from independent third party vendors on a monthly basis. The vendors’ pricing system methodologies, procedures and system controls are reviewed to ensure they are appropriately designed and operating effectively. The Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value hierarchy. The review includes the extent to which markets for debt securities are determined to have limited or no activity, or are judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are judged to not reflect orderly transactions, or are non-binding indications. In assessing credit risk, the Company reviews payment performance, collateral adequacy, third party research and analyses, credit rating histories and issuers’ financial statements. For those markets determined to be inactive or limited, the valuation techniques used are models for which management has verified that discount rates are appropriately adjusted to reflect illiquidity and credit risk.
Loans held for sale, at fair value: loans held for sale measured at fair value, for which an active secondary market and readily available market prices exist, are initially valued at the transaction price and are subsequently valued by using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors. Loans held for sale measured at fair value are classified within Level 2. Included in gain on sale of loans were net
losses
of
$1,000
and
$108,000
for the
three
month periods ended
March 31, 2019
and
2018
, respectively, from the changes in fair value of loans held for sale measured at fair value. Electing to measure loans held for sale at fair value reduces certain timing differences and better matches changes in fair value of these assets with changes in the value of the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.
Interest rate swap derivative financial instruments: fair values for interest rate swap derivative financial instruments are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The inputs used to determine fair value include the 3 month LIBOR forward curve to estimate variable rate cash inflows and the Fed Funds Effective Swap Rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The Company also obtains and compares the reasonableness of the pricing from an independent third party.
The following tables disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value March 31, 2019
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Debt securities, available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
21,521
|
|
|
—
|
|
|
21,521
|
|
|
—
|
|
U.S. government sponsored enterprises
|
106,457
|
|
|
—
|
|
|
106,457
|
|
|
—
|
|
State and local governments
|
725,191
|
|
|
—
|
|
|
725,191
|
|
|
—
|
|
Corporate bonds
|
218,548
|
|
|
—
|
|
|
218,548
|
|
|
—
|
|
Residential mortgage-backed securities
|
825,048
|
|
|
—
|
|
|
825,048
|
|
|
—
|
|
Commercial mortgage-backed securities
|
625,557
|
|
|
—
|
|
|
625,557
|
|
|
—
|
|
Loans held for sale, at fair value
|
29,389
|
|
|
—
|
|
|
29,389
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
$
|
2,551,711
|
|
|
—
|
|
|
2,551,711
|
|
|
—
|
|
Interest rate swaps
|
$
|
5,380
|
|
|
—
|
|
|
5,380
|
|
|
—
|
|
Total liabilities measured at fair value on a recurring basis
|
$
|
5,380
|
|
|
—
|
|
|
5,380
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value December 31, 2018
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Debt securities, available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
23,649
|
|
|
—
|
|
|
23,649
|
|
|
—
|
|
U.S. government sponsored enterprises
|
120,208
|
|
|
—
|
|
|
120,208
|
|
|
—
|
|
State and local governments
|
852,250
|
|
|
—
|
|
|
852,250
|
|
|
—
|
|
Corporate bonds
|
290,817
|
|
|
—
|
|
|
290,817
|
|
|
—
|
|
Residential mortgage-backed securities
|
792,915
|
|
|
—
|
|
|
792,915
|
|
|
—
|
|
Commercial mortgage-backed securities
|
491,824
|
|
|
—
|
|
|
491,824
|
|
|
—
|
|
Loans held for sale, at fair value
|
33,156
|
|
|
—
|
|
|
33,156
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
$
|
2,604,819
|
|
|
—
|
|
|
2,604,819
|
|
|
—
|
|
Interest rate swaps
|
$
|
3,769
|
|
|
—
|
|
|
3,769
|
|
|
—
|
|
Total liabilities measured at fair value on a recurring basis
|
$
|
3,769
|
|
|
—
|
|
|
3,769
|
|
|
—
|
|
Non-recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended
March 31, 2019
.
Other real estate owned: OREO is initially recorded at fair value less estimated cost to sell, establishing a new cost basis. OREO is subsequently accounted for at lower of cost or fair value less estimated cost to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the fair value hierarchy.
Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s loan portfolio for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired. Estimated fair value of collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company’s credit department reviews appraisals for OREO and collateral-dependent loans, giving consideration to the highest and best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The key inputs used to determine the fair value of the collateral-dependent loans and OREO include selling costs, discounted cash flow rate or capitalization rate, and adjustment to comparables. Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness. The Company also considers other factors and events in the environment that may affect the fair value. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains appraisals or evaluations (new or updated) annually.
The following tables disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value March 31, 2019
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other real estate owned
|
$
|
204
|
|
|
—
|
|
|
—
|
|
|
204
|
|
Collateral-dependent impaired loans, net of ALLL
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Total assets measured at fair value on a non-recurring basis
|
$
|
212
|
|
|
—
|
|
|
—
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value December 31, 2018
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other real estate owned
|
$
|
1,011
|
|
|
—
|
|
|
—
|
|
|
1,011
|
|
Collateral-dependent impaired loans, net of ALLL
|
6,985
|
|
|
—
|
|
|
—
|
|
|
6,985
|
|
Total assets measured at fair value on a non-recurring basis
|
$
|
7,996
|
|
|
—
|
|
|
—
|
|
|
7,996
|
|
Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)
The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value March 31, 2019
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(Dollars in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted-Average)
1
|
Other real estate owned
|
$
|
204
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 15.0% (10.6%)
|
Collateral-dependent impaired loans, net of ALLL
|
$
|
8
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value December 31, 2018
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(Dollars in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted-Average)
1
|
Other real estate owned
|
$
|
1,011
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 15.0% (9.2%)
|
Collateral-dependent impaired loans, net of ALLL
|
$
|
2,384
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 20.0% (9.9%)
|
|
4,601
|
|
|
Combined approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
$
|
6,985
|
|
|
|
|
|
|
|
______________________________
1
The range for selling cost inputs represents reductions to the fair value of the assets.
Fair Value of Financial Instruments
The following tables present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments not carried at fair value. Receivables and payables due in one year or less, equity securities without readily determinable fair values and deposits with no defined or contractual maturities are excluded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Carrying Amount March 31, 2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
202,527
|
|
|
202,527
|
|
|
—
|
|
|
—
|
|
Debt securities, held-to-maturity
|
255,572
|
|
|
—
|
|
|
261,408
|
|
|
—
|
|
Loans receivable, net of ALLL
|
8,196,284
|
|
|
—
|
|
|
—
|
|
|
8,148,954
|
|
Total financial assets
|
$
|
8,654,383
|
|
|
202,527
|
|
|
261,408
|
|
|
8,148,954
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Term deposits
|
$
|
1,089,684
|
|
|
—
|
|
|
1,089,785
|
|
|
—
|
|
FHLB advances
|
154,683
|
|
|
—
|
|
|
154,915
|
|
|
—
|
|
Repurchase agreements and other borrowed funds
|
504,358
|
|
|
—
|
|
|
504,358
|
|
|
—
|
|
Subordinated debentures
|
134,048
|
|
|
—
|
|
|
121,369
|
|
|
—
|
|
Total financial liabilities
|
$
|
1,882,773
|
|
|
—
|
|
|
1,870,427
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Carrying Amount December 31, 2018
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
203,790
|
|
|
203,790
|
|
|
—
|
|
|
—
|
|
Debt securities, held-to-maturity
|
297,915
|
|
|
—
|
|
|
288,256
|
|
|
—
|
|
Loans receivable, net of ALLL
|
8,156,310
|
|
|
—
|
|
|
—
|
|
|
8,079,112
|
|
Total financial assets
|
$
|
8,658,015
|
|
|
203,790
|
|
|
288,256
|
|
|
8,079,112
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Term deposits
|
$
|
1,070,208
|
|
|
—
|
|
|
1,069,777
|
|
|
—
|
|
FHLB advances
|
440,175
|
|
|
—
|
|
|
439,615
|
|
|
—
|
|
Repurchase agreements and other borrowed funds
|
410,859
|
|
|
—
|
|
|
410,859
|
|
|
—
|
|
Subordinated debentures
|
134,051
|
|
|
—
|
|
|
120,302
|
|
|
—
|
|
Total financial liabilities
|
$
|
2,055,293
|
|
|
—
|
|
|
2,040,553
|
|
|
—
|
|
Note 13. Subsequent Events
On April 30, 2019, the Company acquired the outstanding common stock of FNB Bancorp and its wholly-owned subsidiary, The First National Bank of Layton, a community bank based in Layton, Utah.
FNB provides banking services to individuals and businesses throughout Utah with locations in Layton, Bountiful, Clearfield and Draper. The branches of FNB, along with the Bank’s branches operating in Utah, will operate as a new division of the Bank under the name “First Community Bank Utah, division of Glacier Bank.” The initial accounting for the FNB acquisition has not been completed because the fair value of financial assets, financial liabilities and goodwill has not yet been determined.
On April 3, 2019, the Company announced the signing of a definitive agreement to acquire Heritage Bancorp and its wholly-owned subsidiary, Heritage Bank of Nevada, a community bank based in Reno, Nevada (collectively, “Heritage”).
Heritage provides banking services to individuals and businesses throughout northern Nevada with locations in Carson City, Gardnerville, Reno and Sparks. As of March 31, 2019, Heritage had total assets of
$840,769,000
, gross loans of
$589,458,000
and total deposits of
$722,955,000
. The acquisition is subject to required regulatory approvals and other customary conditions of closing and is anticipated to take place in the third quarter of 2019. Upon closing of the transaction, the branches of Heritage will operate as a new division of the Bank.