NOTE 1. BASIS OF PRESENTATION
We, Summit Financial Group, Inc. and subsidiaries, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.
The results of operations for the three and six months ended
June 30, 2018
are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our
2017
audited financial statements and Annual Report on Form 10-K.
NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Recently Adopted
We adopted ASU 2014-09,
Revenue from Contracts with Customers: Topic 606,
and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. We concluded that ASU 2014-09 did not materially change the method in which we currently recognize revenue for these revenue streams. We also completed our evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on our evaluation, we determined that any classification changes are immaterial to both revenue and expense.
ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 was effective for us on January 1, 2018 and did not have a significant impact on our financial statements. In accordance with (iv) above, we measure the fair value of our loan portfolio using exit price notion (see Note 3. Fair Value Measurements).
Pending Adoption
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.
While we are currently assessing the impact of the adoption of this pronouncement, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our consolidated balance sheets resulting in the recording of right of use assets and lease obligations. Our current minimum commitments under long-term operating leases are disclosed in Note 12, Commitments and Contingencies.
During June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments
. The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. We will adopt the guidance by the first quarter of 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. In this regard, we have thus far formed a cross-functional implementation team comprised of personnel from risk management, operations and information technology, loan administration and finance and engaged a third-party to assist us. The implementation team has developed a project plan and is staying informed about the broader industry's perspectives and insights, and is identifying and researching key decision points. We are in the process of preparing a readiness assessment and gap analysis relative to required data which will serve to direct our areas of focus. We will continue to evaluate the impact the new standard will have on our consolidated financial statements as the final impact will be dependent, among other items, upon the loan portfolio composition and credit quality at the adoption date, as well as economic conditions, financial models used and forecasts at that time.
In March of 2017, the FASB issued ASU No. 2017-08,
Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
. This guidance shortens the amortization period for premiums on certain callable debt securities to the earliest call date (with an explicit, noncontingent call feature that is callable at a fixed price and on a preset date), rather than contractual maturity date as currently required under GAAP. The ASU does not impact instruments without preset call dates such as mortgage-backed securities. For instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the ASU. ASU 2017-08 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. The adoption of the new pronouncement will not have a significant impact on our consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12,
Targeted Improvements to Accounting for Hedging Activities
which will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. We are assessing the impact of ASU 2017-12 and do not expect it to have a material impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
. The amendments expand the scope of Topic 718 to include share-based payments issued to non-employees for goods or services, which were previously excluded. The amendments will align the accounting for share-based payments to nonemployees and employees more similarly and are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2018-07 to have a material impact on our consolidated financial statements.
NOTE 3. FAIR VALUE MEASUREMENTS
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
June 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Securities available for sale
|
|
|
|
|
|
|
|
U.S. Government sponsored agencies
|
$
|
28,682
|
|
|
$
|
—
|
|
|
$
|
28,682
|
|
|
$
|
—
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored agencies
|
76,505
|
|
|
—
|
|
|
76,505
|
|
|
—
|
|
Nongovernment sponsored entities
|
821
|
|
|
—
|
|
|
821
|
|
|
—
|
|
State and political subdivisions
|
18,975
|
|
|
—
|
|
|
18,975
|
|
|
—
|
|
Corporate debt securities
|
10,725
|
|
|
—
|
|
|
10,725
|
|
|
—
|
|
Other equity securities
|
137
|
|
|
—
|
|
|
137
|
|
|
—
|
|
Tax-exempt state and political subdivisions
|
147,376
|
|
|
—
|
|
|
147,376
|
|
|
—
|
|
Total securities available for sale
|
$
|
283,221
|
|
|
$
|
—
|
|
|
$
|
283,221
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
927
|
|
|
$
|
—
|
|
|
$
|
927
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
620
|
|
|
$
|
—
|
|
|
$
|
620
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Securities available for sale
|
|
|
|
|
|
|
|
U.S. Government sponsored agencies
|
$
|
31,613
|
|
|
$
|
—
|
|
|
$
|
31,613
|
|
|
$
|
—
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored agencies
|
121,321
|
|
|
—
|
|
|
121,321
|
|
|
—
|
|
Nongovernment sponsored entities
|
2,077
|
|
|
—
|
|
|
2,077
|
|
|
—
|
|
State and political subdivisions
|
17,677
|
|
|
—
|
|
|
17,677
|
|
|
—
|
|
Corporate debt securities
|
16,245
|
|
|
—
|
|
|
16,245
|
|
|
—
|
|
Other equity securities
|
137
|
|
|
—
|
|
|
137
|
|
|
—
|
|
Tax-exempt state and political subdivisions
|
139,653
|
|
|
—
|
|
|
139,653
|
|
|
—
|
|
Total securities available for sale
|
$
|
328,723
|
|
|
$
|
—
|
|
|
$
|
328,723
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
312
|
|
|
$
|
—
|
|
|
$
|
312
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
2,057
|
|
|
$
|
—
|
|
|
$
|
2,057
|
|
|
$
|
—
|
|
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
June 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Residential mortgage loans held for sale
|
$
|
135
|
|
|
$
|
—
|
|
|
$
|
135
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
$
|
648
|
|
|
$
|
—
|
|
|
$
|
648
|
|
|
$
|
—
|
|
Residential real estate
|
785
|
|
|
—
|
|
|
785
|
|
|
—
|
|
Total collateral-dependent impaired loans
|
$
|
1,433
|
|
|
$
|
—
|
|
|
$
|
1,433
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Property held for sale
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
1,733
|
|
|
$
|
—
|
|
|
$
|
1,733
|
|
|
$
|
—
|
|
Construction and development
|
16,673
|
|
|
—
|
|
|
16,673
|
|
|
—
|
|
Residential real estate
|
439
|
|
|
—
|
|
|
439
|
|
|
—
|
|
Total property held for sale
|
$
|
18,845
|
|
|
$
|
—
|
|
|
$
|
18,845
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Residential mortgage loans held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
518
|
|
|
$
|
—
|
|
|
$
|
518
|
|
|
$
|
—
|
|
Construction and development
|
940
|
|
|
—
|
|
|
940
|
|
|
—
|
|
Residential real estate
|
203
|
|
|
—
|
|
|
203
|
|
|
—
|
|
Total collateral-dependent impaired loans
|
$
|
1,661
|
|
|
$
|
—
|
|
|
$
|
1,661
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Property held for sale
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
1,493
|
|
|
$
|
—
|
|
|
$
|
1,493
|
|
|
$
|
—
|
|
Construction and development
|
16,177
|
|
|
—
|
|
|
16,177
|
|
|
—
|
|
Residential real estate
|
322
|
|
|
—
|
|
|
322
|
|
|
—
|
|
Total property held for sale
|
$
|
17,992
|
|
|
$
|
—
|
|
|
$
|
17,992
|
|
|
$
|
—
|
|
The carrying values and estimated fair values of our financial instruments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
Level 1
|
Level 2
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46,411
|
|
|
$
|
46,411
|
|
|
$
|
—
|
|
$
|
46,411
|
|
$
|
—
|
|
Securities available for sale
|
|
283,221
|
|
|
283,221
|
|
|
—
|
|
283,221
|
|
—
|
|
Other investments
|
|
12,844
|
|
|
12,844
|
|
|
—
|
|
12,844
|
|
—
|
|
Loans held for sale, net
|
|
135
|
|
|
135
|
|
|
—
|
|
135
|
|
—
|
|
Loans, net
|
|
1,617,373
|
|
|
1,611,346
|
|
|
—
|
|
1,433
|
|
1,609,913
|
|
Accrued interest receivable
|
|
8,425
|
|
|
8,425
|
|
|
—
|
|
8,425
|
|
—
|
|
Derivative financial assets
|
|
927
|
|
|
927
|
|
|
—
|
|
927
|
|
—
|
|
|
|
$
|
1,969,336
|
|
|
$
|
1,963,309
|
|
|
$
|
—
|
|
$
|
353,396
|
|
$
|
1,609,913
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,639,996
|
|
|
$
|
1,634,320
|
|
|
$
|
—
|
|
$
|
1,634,320
|
|
$
|
—
|
|
Short-term borrowings
|
|
202,429
|
|
|
202,429
|
|
|
—
|
|
202,429
|
|
—
|
|
Long-term borrowings
|
|
20,743
|
|
|
20,929
|
|
|
—
|
|
20,929
|
|
—
|
|
Subordinated debentures owed to unconsolidated subsidiary trusts
|
|
19,589
|
|
|
19,589
|
|
|
—
|
|
19,589
|
|
—
|
|
Accrued interest payable
|
|
967
|
|
|
967
|
|
|
—
|
|
967
|
|
—
|
|
Derivative financial liabilities
|
|
620
|
|
|
620
|
|
|
—
|
|
620
|
|
—
|
|
|
|
$
|
1,884,344
|
|
|
$
|
1,878,854
|
|
|
$
|
—
|
|
$
|
1,878,854
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
Level 1
|
Level 2
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,631
|
|
|
$
|
52,631
|
|
|
$
|
—
|
|
$
|
52,631
|
|
$
|
—
|
|
Securities available for sale
|
|
328,723
|
|
|
328,723
|
|
|
—
|
|
328,723
|
|
—
|
|
Other investments
|
|
14,934
|
|
|
14,934
|
|
|
—
|
|
14,934
|
|
—
|
|
Loans held for sale, net
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Loans, net
|
|
1,593,744
|
|
|
1,592,821
|
|
|
—
|
|
1,661
|
|
1,591,160
|
|
Accrued interest receivable
|
|
8,329
|
|
|
8,329
|
|
|
—
|
|
8,329
|
|
—
|
|
Derivative financial assets
|
|
312
|
|
|
312
|
|
|
—
|
|
312
|
|
—
|
|
|
|
$
|
1,998,673
|
|
|
$
|
1,997,750
|
|
|
$
|
—
|
|
$
|
406,590
|
|
$
|
1,591,160
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,600,601
|
|
|
$
|
1,620,033
|
|
|
$
|
—
|
|
$
|
1,620,033
|
|
$
|
—
|
|
Short-term borrowings
|
|
250,499
|
|
|
250,499
|
|
|
—
|
|
250,499
|
|
—
|
|
Long-term borrowings
|
|
45,751
|
|
|
46,530
|
|
|
—
|
|
46,530
|
|
—
|
|
Subordinated debentures owed to unconsolidated subsidiary trusts
|
|
19,589
|
|
|
19,589
|
|
|
—
|
|
19,589
|
|
—
|
|
Accrued interest payable
|
|
987
|
|
|
987
|
|
|
—
|
|
987
|
|
—
|
|
Derivative financial liabilities
|
|
2,057
|
|
|
2,057
|
|
|
—
|
|
2,057
|
|
—
|
|
|
|
$
|
1,919,484
|
|
|
$
|
1,939,695
|
|
|
$
|
—
|
|
$
|
1,939,695
|
|
$
|
—
|
|
NOTE 4. EARNINGS PER SHARE
The computations of basic and diluted earnings per share follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
Dollars in thousands,
except per share amounts
|
|
Income
(Numerator)
|
|
Common
Shares
(Denominator)
|
|
Per
Share
|
|
Income
(Numerator)
|
|
Common
Shares
(Denominator)
|
|
Per
Share
|
Net income
|
|
$
|
6,280
|
|
|
|
|
|
|
$
|
5,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
6,280
|
|
|
12,366,522
|
|
|
$
|
0.51
|
|
|
$
|
5,278
|
|
|
12,288,514
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
7,814
|
|
|
|
|
|
|
|
10,593
|
|
|
|
|
Stock appreciation rights (SARs)
|
|
|
|
57,648
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
6,280
|
|
|
12,431,984
|
|
|
$
|
0.51
|
|
|
$
|
5,278
|
|
|
12,299,187
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
Dollars in thousands,
except per share amounts
|
|
Income
(Numerator)
|
|
Common
Shares
(Denominator)
|
|
Per
Share
|
|
Income
(Numerator)
|
|
Common
Shares
(Denominator)
|
|
Per
Share
|
Net income
|
|
$
|
13,723
|
|
|
|
|
|
|
$
|
3,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
13,723
|
|
|
12,362,679
|
|
|
$
|
1.11
|
|
|
$
|
3,662
|
|
|
11,517,721
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
7,668
|
|
|
|
|
|
|
|
11,549
|
|
|
|
|
Stock appreciation rights (SARs)
|
|
|
|
55,405
|
|
|
|
|
|
|
17,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
13,723
|
|
|
12,425,751
|
|
|
$
|
1.10
|
|
|
$
|
3,662
|
|
|
11,546,725
|
|
|
$
|
0.32
|
|
Stock option and stock appreciation right (SAR) grants are disregarded in this computation if they are determined to be anti-dilutive. There were
no
anti-dilutive stock options for the three and six months ended
June 30,
2018
. Our anti-dilutive stock options for the three and six months ended
June 30, 2017
were
23,400
shares. Our anti-dilutive SARs for the three and six months ended
June 30,
2018
and
June 30, 2017
were
87,615
.
NOTE 5. SECURITIES
The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at
June 30, 2018
and
December 31, 2017
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available for Sale
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
U.S. Government and agencies and corporations
|
$
|
28,830
|
|
|
$
|
224
|
|
|
$
|
372
|
|
|
$
|
28,682
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
77,142
|
|
|
662
|
|
|
1,299
|
|
|
76,505
|
|
Nongovernment-sponsored entities
|
820
|
|
|
6
|
|
|
5
|
|
|
821
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
6,086
|
|
|
—
|
|
|
208
|
|
|
5,878
|
|
Other revenues
|
13,468
|
|
|
1
|
|
|
372
|
|
|
13,097
|
|
Corporate debt securities
|
10,893
|
|
|
—
|
|
|
168
|
|
|
10,725
|
|
Total taxable debt securities
|
137,239
|
|
|
893
|
|
|
2,424
|
|
|
135,708
|
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
74,920
|
|
|
741
|
|
|
512
|
|
|
75,149
|
|
Water and sewer revenues
|
21,858
|
|
|
203
|
|
|
105
|
|
|
21,956
|
|
Lease revenues
|
12,366
|
|
|
162
|
|
|
4
|
|
|
12,524
|
|
Sales tax revenues
|
5,235
|
|
|
32
|
|
|
29
|
|
|
5,238
|
|
Other revenues
|
32,664
|
|
|
226
|
|
|
381
|
|
|
32,509
|
|
Total tax-exempt debt securities
|
147,043
|
|
|
1,364
|
|
|
1,031
|
|
|
147,376
|
|
Equity securities
|
137
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Total securities available for sale
|
$
|
284,419
|
|
|
$
|
2,257
|
|
|
$
|
3,455
|
|
|
$
|
283,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available for Sale
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
U.S. Government and agencies and corporations
|
$
|
31,260
|
|
|
$
|
498
|
|
|
$
|
145
|
|
|
$
|
31,613
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
120,948
|
|
|
1,276
|
|
|
903
|
|
|
121,321
|
|
Nongovernment-sponsored entities
|
2,045
|
|
|
39
|
|
|
7
|
|
|
2,077
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
6,090
|
|
|
—
|
|
|
55
|
|
|
6,035
|
|
Other revenues
|
11,657
|
|
|
47
|
|
|
62
|
|
|
11,642
|
|
Corporate debt securities
|
16,375
|
|
|
—
|
|
|
130
|
|
|
16,245
|
|
Total taxable debt securities
|
188,375
|
|
|
1,860
|
|
|
1,302
|
|
|
188,933
|
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
65,560
|
|
|
1,530
|
|
|
198
|
|
|
66,892
|
|
Water and sewer revenues
|
23,108
|
|
|
566
|
|
|
3
|
|
|
23,671
|
|
Lease revenues
|
13,024
|
|
|
451
|
|
|
2
|
|
|
13,473
|
|
Electric revenues
|
6,205
|
|
|
128
|
|
|
—
|
|
|
6,333
|
|
Sales tax revenues
|
4,126
|
|
|
140
|
|
|
—
|
|
|
4,266
|
|
University revenues
|
5,272
|
|
|
38
|
|
|
9
|
|
|
5,301
|
|
Other revenues
|
19,101
|
|
|
616
|
|
|
—
|
|
|
19,717
|
|
Total tax-exempt debt securities
|
136,396
|
|
|
3,469
|
|
|
212
|
|
|
139,653
|
|
Equity securities
|
137
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Total securities available for sale
|
$
|
324,908
|
|
|
$
|
5,329
|
|
|
$
|
1,514
|
|
|
$
|
328,723
|
|
The below information is relative to the
five
states where issuers with the highest volume of state and political subdivision securities held in our portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
California
|
$
|
20,384
|
|
|
$
|
215
|
|
|
$
|
154
|
|
|
$
|
20,445
|
|
Texas
|
19,978
|
|
|
226
|
|
|
97
|
|
|
20,107
|
|
Michigan
|
15,800
|
|
|
108
|
|
|
216
|
|
|
15,692
|
|
New York
|
13,605
|
|
|
127
|
|
|
176
|
|
|
13,556
|
|
West Virginia
|
12,119
|
|
|
92
|
|
|
97
|
|
|
12,114
|
|
Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.
The maturities, amortized cost and estimated fair values of securities at
June 30, 2018
, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
Due in one year or less
|
|
$
|
28,893
|
|
|
$
|
28,891
|
|
Due from one to five years
|
|
49,496
|
|
|
49,248
|
|
Due from five to ten years
|
|
46,075
|
|
|
44,936
|
|
Due after ten years
|
|
159,818
|
|
|
160,009
|
|
Equity securities
|
|
137
|
|
|
137
|
|
|
|
$
|
284,419
|
|
|
$
|
283,221
|
|
The proceeds from sales, calls and maturities of securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the
six
months ended
June 30, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
|
|
Gross realized
|
Dollars in thousands
|
Sales
|
|
Calls and
Maturities
|
|
Principal
Payments
|
|
Gains
|
|
Losses
|
For the Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
$
|
69,235
|
|
|
$
|
1,050
|
|
|
$
|
13,393
|
|
|
$
|
1,637
|
|
|
$
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
$
|
111,176
|
|
|
$
|
2,010
|
|
|
$
|
16,355
|
|
|
$
|
230
|
|
|
$
|
198
|
|
We held
117
available for sale securities having an unrealized loss at
June 30, 2018
. We do not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to the lack of market liquidity and to changes in market interest rates and not due to credit quality. Accordingly, no other-than-temporary impairment charge to earnings is warranted at this time.
Provided below is a summary of securities available for sale which were in an unrealized loss position at
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
Dollars in thousands
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
Temporarily impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
$
|
19,787
|
|
|
$
|
(318
|
)
|
|
$
|
2,003
|
|
|
$
|
(54
|
)
|
|
$
|
21,790
|
|
|
$
|
(372
|
)
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
17,563
|
|
|
(559
|
)
|
|
15,311
|
|
|
(740
|
)
|
|
32,874
|
|
|
(1,299
|
)
|
Nongovernment-sponsored entities
|
13
|
|
|
—
|
|
|
585
|
|
|
(5
|
)
|
|
598
|
|
|
(5
|
)
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
5,878
|
|
|
(208
|
)
|
|
—
|
|
|
—
|
|
|
5,878
|
|
|
(208
|
)
|
Other revenues
|
11,474
|
|
|
(344
|
)
|
|
781
|
|
|
(28
|
)
|
|
12,255
|
|
|
(372
|
)
|
Corporate debt securities
|
960
|
|
|
(40
|
)
|
|
3,661
|
|
|
(128
|
)
|
|
4,621
|
|
|
(168
|
)
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
26,460
|
|
|
(370
|
)
|
|
3,898
|
|
|
(142
|
)
|
|
30,358
|
|
|
(512
|
)
|
Water and sewer revenues
|
5,960
|
|
|
(105
|
)
|
|
—
|
|
|
—
|
|
|
5,960
|
|
|
(105
|
)
|
Lease revenues
|
1,121
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
1,121
|
|
|
(4
|
)
|
Sales tax revenues
|
2,265
|
|
|
(29
|
)
|
|
—
|
|
|
—
|
|
|
2,265
|
|
|
(29
|
)
|
Other revenues
|
21,495
|
|
|
(381
|
)
|
|
—
|
|
|
—
|
|
|
21,495
|
|
|
(381
|
)
|
Total temporarily impaired securities
|
112,976
|
|
|
(2,358
|
)
|
|
26,239
|
|
|
(1,097
|
)
|
|
139,215
|
|
|
(3,455
|
)
|
Total
|
$
|
112,976
|
|
|
$
|
(2,358
|
)
|
|
$
|
26,239
|
|
|
$
|
(1,097
|
)
|
|
$
|
139,215
|
|
|
$
|
(3,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
Dollars in thousands
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
Temporarily impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
$
|
10,864
|
|
|
$
|
(91
|
)
|
|
$
|
2,394
|
|
|
$
|
(54
|
)
|
|
$
|
13,258
|
|
|
$
|
(145
|
)
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
32,156
|
|
|
(269
|
)
|
|
22,584
|
|
|
(634
|
)
|
|
54,740
|
|
|
(903
|
)
|
Nongovernment-sponsored entities
|
5
|
|
|
—
|
|
|
810
|
|
|
(7
|
)
|
|
815
|
|
|
(7
|
)
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
6,035
|
|
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
6,035
|
|
|
(55
|
)
|
Other revenues
|
7,532
|
|
|
(62
|
)
|
|
—
|
|
|
—
|
|
|
7,532
|
|
|
(62
|
)
|
Corporate debt securities
|
3,008
|
|
|
(39
|
)
|
|
1,659
|
|
|
(91
|
)
|
|
4,667
|
|
|
(130
|
)
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
2,999
|
|
|
(20
|
)
|
|
9,937
|
|
|
(178
|
)
|
|
12,936
|
|
|
(198
|
)
|
Water and sewer revenues
|
282
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
282
|
|
|
(3
|
)
|
Lease revenues
|
569
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
569
|
|
|
(2
|
)
|
University revenues
|
1,749
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
1,749
|
|
|
(9
|
)
|
Total temporarily impaired securities
|
65,199
|
|
|
(550
|
)
|
|
37,384
|
|
|
(964
|
)
|
|
102,583
|
|
|
(1,514
|
)
|
Total
|
$
|
65,199
|
|
|
$
|
(550
|
)
|
|
$
|
37,384
|
|
|
$
|
(964
|
)
|
|
$
|
102,583
|
|
|
$
|
(1,514
|
)
|
NOTE 6. LOANS
Loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
June 30,
2018
|
|
December 31,
2017
|
Commercial
|
|
$
|
171,410
|
|
|
$
|
189,981
|
|
Commercial real estate
|
|
|
|
|
|
|
Owner-occupied
|
|
262,174
|
|
|
250,202
|
|
Non-owner occupied
|
|
503,047
|
|
|
484,902
|
|
Construction and development
|
|
|
|
|
|
|
Land and land development
|
|
74,018
|
|
|
67,219
|
|
Construction
|
|
25,711
|
|
|
33,412
|
|
Residential real estate
|
|
|
|
|
|
|
Non-jumbo
|
|
343,044
|
|
|
354,101
|
|
Jumbo
|
|
66,831
|
|
|
62,267
|
|
Home equity
|
|
82,409
|
|
|
84,028
|
|
Mortgage warehouse lines
|
|
54,332
|
|
|
30,757
|
|
Consumer
|
|
34,249
|
|
|
36,202
|
|
Other
|
|
12,728
|
|
|
13,238
|
|
Total loans, net of unearned fees
|
|
1,629,953
|
|
|
1,606,309
|
|
Less allowance for loan losses
|
|
12,580
|
|
|
12,565
|
|
Loans, net
|
|
$
|
1,617,373
|
|
|
$
|
1,593,744
|
|
The outstanding balance and the recorded investment of acquired loans included in the consolidated balance sheet at
June 30, 2018
and December 31,
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Loans
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Dollars in thousands
|
|
Purchased Credit Impaired
|
|
Purchased Performing
|
|
Total
|
|
Purchased Credit Impaired
|
|
Purchased Performing
|
|
Total
|
Outstanding balance
|
|
$
|
5,259
|
|
|
$
|
173,814
|
|
|
$
|
179,073
|
|
|
$
|
5,923
|
|
|
$
|
220,131
|
|
|
$
|
226,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
11,192
|
|
|
$
|
11,192
|
|
|
$
|
9
|
|
|
$
|
25,125
|
|
|
$
|
25,134
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
689
|
|
|
19,073
|
|
|
19,762
|
|
|
689
|
|
|
21,893
|
|
|
22,582
|
|
Non-owner occupied
|
|
1,319
|
|
|
29,153
|
|
|
30,472
|
|
|
1,837
|
|
|
33,293
|
|
|
35,130
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
|
—
|
|
|
6,365
|
|
|
6,365
|
|
|
—
|
|
|
7,512
|
|
|
7,512
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,760
|
|
|
2,760
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
|
1,429
|
|
|
92,203
|
|
|
93,632
|
|
|
1,485
|
|
|
109,570
|
|
|
111,055
|
|
Jumbo
|
|
982
|
|
|
3,314
|
|
|
4,296
|
|
|
999
|
|
|
3,400
|
|
|
4,399
|
|
Home equity
|
|
—
|
|
|
2,923
|
|
|
2,923
|
|
|
—
|
|
|
3,311
|
|
|
3,311
|
|
Consumer
|
|
—
|
|
|
7,837
|
|
|
7,837
|
|
|
—
|
|
|
11,229
|
|
|
11,229
|
|
Other
|
|
—
|
|
|
135
|
|
|
135
|
|
|
—
|
|
|
211
|
|
|
211
|
|
Total recorded investment
|
|
$
|
4,419
|
|
|
$
|
172,195
|
|
|
$
|
176,614
|
|
|
$
|
5,019
|
|
|
$
|
218,304
|
|
|
$
|
223,323
|
|
The following table presents a summary of the change in the accretable yield of the purchased credit impaired ("PCI") loan portfolio for the three months and six months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
Dollars in thousands
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Accretable yield
|
|
$
|
708
|
|
|
$
|
245
|
|
|
$
|
745
|
|
|
$
|
290
|
|
Accretion
|
|
(32
|
)
|
|
(55
|
)
|
|
(69
|
)
|
|
(86
|
)
|
Additions for First Century Bankshares, Inc. acquisition
|
|
—
|
|
|
661
|
|
|
—
|
|
|
661
|
|
Reclassification of nonaccretable difference due to improvement
in expected cash flows
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other changes, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Accretable yield, June 30
|
|
$
|
676
|
|
|
$
|
851
|
|
|
$
|
676
|
|
|
$
|
851
|
|
The following table presents the contractual aging of the recorded investment in past due loans by class as of
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2018
|
|
Past Due
|
|
|
|
> 90 days and Accruing
|
Dollars in thousands
|
30-59 days
|
|
60-89 days
|
|
> 90 days
|
|
Total
|
|
Current
|
|
Commercial
|
$
|
278
|
|
|
$
|
191
|
|
|
$
|
576
|
|
|
$
|
1,045
|
|
|
$
|
170,365
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
55
|
|
|
—
|
|
|
437
|
|
|
492
|
|
|
261,682
|
|
|
—
|
|
Non-owner occupied
|
465
|
|
|
281
|
|
|
2,214
|
|
|
2,960
|
|
|
500,087
|
|
|
—
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
101
|
|
|
168
|
|
|
3,229
|
|
|
3,498
|
|
|
70,520
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,711
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
3,978
|
|
|
1,226
|
|
|
4,207
|
|
|
9,411
|
|
|
333,633
|
|
|
284
|
|
Jumbo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66,831
|
|
|
—
|
|
Home equity
|
254
|
|
|
9
|
|
|
397
|
|
|
660
|
|
|
81,749
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54,332
|
|
|
—
|
|
Consumer
|
269
|
|
|
76
|
|
|
89
|
|
|
434
|
|
|
33,815
|
|
|
33
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,728
|
|
|
—
|
|
Total
|
$
|
5,400
|
|
|
$
|
1,951
|
|
|
$
|
11,149
|
|
|
$
|
18,500
|
|
|
$
|
1,611,453
|
|
|
$
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
Past Due
|
|
|
|
> 90 days and Accruing
|
Dollars in thousands
|
30-59 days
|
|
60-89 days
|
|
> 90 days
|
|
Total
|
|
Current
|
|
Commercial
|
$
|
488
|
|
|
$
|
98
|
|
|
$
|
229
|
|
|
$
|
815
|
|
|
$
|
189,166
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
626
|
|
|
162
|
|
|
507
|
|
|
1,295
|
|
|
248,907
|
|
|
—
|
|
Non-owner occupied
|
369
|
|
|
150
|
|
|
2,065
|
|
|
2,584
|
|
|
482,318
|
|
|
237
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
1,132
|
|
|
—
|
|
|
3,563
|
|
|
4,695
|
|
|
62,524
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,412
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4,220
|
|
|
2,379
|
|
|
4,451
|
|
|
11,050
|
|
|
343,051
|
|
|
—
|
|
Jumbo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62,267
|
|
|
—
|
|
Home equity
|
1,978
|
|
|
—
|
|
|
530
|
|
|
2,508
|
|
|
81,520
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,757
|
|
|
—
|
|
Consumer
|
417
|
|
|
196
|
|
|
167
|
|
|
780
|
|
|
35,422
|
|
|
37
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,238
|
|
|
—
|
|
Total
|
$
|
9,230
|
|
|
$
|
2,985
|
|
|
$
|
11,512
|
|
|
$
|
23,727
|
|
|
$
|
1,582,582
|
|
|
$
|
274
|
|
Nonaccrual loans:
The following table presents the nonaccrual loans included in the net balance of loans at
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
Dollars in thousands
|
|
2018
|
|
2017
|
Commercial
|
|
$
|
954
|
|
|
$
|
696
|
|
Commercial real estate
|
|
|
|
|
|
|
Owner-occupied
|
|
639
|
|
|
726
|
|
Non-owner occupied
|
|
2,599
|
|
|
2,201
|
|
Construction and development
|
|
|
|
|
|
|
Land & land development
|
|
3,233
|
|
|
3,569
|
|
Construction
|
|
—
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
Non-jumbo
|
|
7,443
|
|
|
6,944
|
|
Jumbo
|
|
—
|
|
|
—
|
|
Home equity
|
|
514
|
|
|
712
|
|
Mortgage warehouse lines
|
|
—
|
|
|
—
|
|
Consumer
|
|
77
|
|
|
201
|
|
Total
|
|
$
|
15,459
|
|
|
$
|
15,049
|
|
Impaired loans:
Impaired loans include the following:
|
|
▪
|
Loans which we risk-rate (loan relationships having aggregate balances in excess of $
2.5 million
, or loans exceeding $
500,000
and exhibiting credit weakness) through our normal loan review procedures and which, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Risk-rated loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired.
|
|
|
▪
|
Loans that have been modified in a troubled debt restructuring.
|
Both commercial and consumer loans are deemed impaired upon being contractually modified in a troubled debt restructuring. Troubled debt restructurings typically result from our loss mitigation activities and occur when we grant a concession to a borrower who is experiencing financial difficulty in order to minimize our economic loss and to avoid foreclosure or repossession of collateral. Once restructured, a loan is generally considered impaired until its maturity, regardless of whether the borrower performs under the modified terms. Although such a loan may be returned to accrual status if the criteria set forth in accounting principles generally accepted in the United States are met, the loan would continue to be evaluated for an asset-specific allowance for loan losses and we would continue to report the loan in the impaired loan table below.
The following tables present loans individually evaluated for impairment at
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
Dollars in thousands
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
|
Average
Impaired
Balance
|
|
Interest Income
Recognized
while impaired
|
|
|
|
|
|
|
|
|
|
|
Without a related allowance
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
464
|
|
|
$
|
464
|
|
|
$
|
—
|
|
|
$
|
266
|
|
|
$
|
10
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
4,679
|
|
|
4,685
|
|
|
—
|
|
|
2,714
|
|
|
129
|
|
Non-owner occupied
|
9,684
|
|
|
9,689
|
|
|
—
|
|
|
9,723
|
|
|
489
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
5,007
|
|
|
5,007
|
|
|
—
|
|
|
5,104
|
|
|
112
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
3,602
|
|
|
3,612
|
|
|
—
|
|
|
3,332
|
|
|
152
|
|
Jumbo
|
3,510
|
|
|
3,509
|
|
|
—
|
|
|
3,514
|
|
|
167
|
|
Home equity
|
523
|
|
|
523
|
|
|
—
|
|
|
523
|
|
|
29
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
13
|
|
|
13
|
|
|
—
|
|
|
14
|
|
|
1
|
|
Total without a related allowance
|
$
|
27,482
|
|
|
$
|
27,502
|
|
|
$
|
—
|
|
|
$
|
25,190
|
|
|
$
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
6,737
|
|
|
6,737
|
|
|
161
|
|
|
6,746
|
|
|
274
|
|
Non-owner occupied
|
194
|
|
|
196
|
|
|
14
|
|
|
263
|
|
|
18
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
1,077
|
|
|
1,078
|
|
|
430
|
|
|
1,083
|
|
|
54
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,989
|
|
|
2,989
|
|
|
540
|
|
|
2,263
|
|
|
100
|
|
Jumbo
|
829
|
|
|
829
|
|
|
109
|
|
|
831
|
|
|
49
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with a related allowance
|
$
|
11,826
|
|
|
$
|
11,829
|
|
|
$
|
1,254
|
|
|
$
|
11,186
|
|
|
$
|
495
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
27,842
|
|
|
$
|
27,856
|
|
|
$
|
605
|
|
|
$
|
25,899
|
|
|
$
|
1,086
|
|
Residential real estate
|
11,453
|
|
|
11,462
|
|
|
649
|
|
|
10,463
|
|
|
497
|
|
Consumer
|
13
|
|
|
13
|
|
|
—
|
|
|
14
|
|
|
1
|
|
Total
|
$
|
39,308
|
|
|
$
|
39,331
|
|
|
$
|
1,254
|
|
|
$
|
36,376
|
|
|
$
|
1,584
|
|
The table above does not include PCI loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Dollars in thousands
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
|
Average
Impaired
Balance
|
|
Interest Income
Recognized
while impaired
|
|
|
|
|
|
|
|
|
|
|
Without a related allowance
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
243
|
|
|
$
|
243
|
|
|
$
|
—
|
|
|
$
|
259
|
|
|
$
|
13
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
7,109
|
|
|
7,111
|
|
|
—
|
|
|
5,149
|
|
|
265
|
|
Non-owner occupied
|
9,105
|
|
|
9,106
|
|
|
—
|
|
|
9,736
|
|
|
684
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
5,018
|
|
|
5,018
|
|
|
—
|
|
|
4,743
|
|
|
329
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4,190
|
|
|
4,199
|
|
|
—
|
|
|
4,214
|
|
|
240
|
|
Jumbo
|
3,555
|
|
|
3,554
|
|
|
—
|
|
|
3,592
|
|
|
228
|
|
Home equity
|
523
|
|
|
523
|
|
|
—
|
|
|
523
|
|
|
35
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
17
|
|
|
17
|
|
|
—
|
|
|
28
|
|
|
3
|
|
Total without a related allowance
|
$
|
29,760
|
|
|
$
|
29,771
|
|
|
$
|
—
|
|
|
$
|
28,244
|
|
|
$
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
252
|
|
|
$
|
252
|
|
|
$
|
252
|
|
|
$
|
262
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
2,436
|
|
|
2,436
|
|
|
125
|
|
|
2,451
|
|
|
161
|
|
Non-owner occupied
|
1,338
|
|
|
1,344
|
|
|
517
|
|
|
676
|
|
|
43
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
1,464
|
|
|
1,464
|
|
|
524
|
|
|
1,477
|
|
|
74
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
1,717
|
|
|
1,718
|
|
|
158
|
|
|
1,691
|
|
|
100
|
|
Jumbo
|
838
|
|
|
839
|
|
|
14
|
|
|
845
|
|
|
57
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with a related allowance
|
$
|
8,045
|
|
|
$
|
8,053
|
|
|
$
|
1,590
|
|
|
$
|
7,402
|
|
|
$
|
435
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
26,965
|
|
|
$
|
26,974
|
|
|
$
|
1,418
|
|
|
$
|
24,753
|
|
|
$
|
1,569
|
|
Residential real estate
|
10,823
|
|
|
10,833
|
|
|
172
|
|
|
10,865
|
|
|
660
|
|
Consumer
|
17
|
|
|
17
|
|
|
—
|
|
|
28
|
|
|
3
|
|
Total
|
$
|
37,805
|
|
|
$
|
37,824
|
|
|
$
|
1,590
|
|
|
$
|
35,646
|
|
|
$
|
2,232
|
|
The table above does not include PCI loans.
Included in impaired loans are TDRs of
$27.8 million
, of which
$27.6 million
were current with respect to restructured contractual payments at
June 30, 2018
, and
$28.4 million
, all of which were current with respect to restructured contractual payments at
December 31, 2017
. There were no commitments to lend additional funds under these restructurings at either balance sheet date.
The following table presents by class the TDRs that were restructured during the
three and six
months ended
June 30, 2018
and
June 30, 2017
. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. All TDRs are evaluated individually for allowance for loan loss purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30, 2018
|
|
For the Three Months Ended
June 30, 2017
|
Dollars in thousands
|
Number of
Modifications
|
|
Pre-modification
Recorded
Investment
|
|
Post-modification
Recorded
Investment
|
|
Number of
Modifications
|
|
Pre-modification
Recorded
Investment
|
|
Post-modification
Recorded
Investment
|
Commercial
|
2
|
|
|
$
|
157
|
|
|
$
|
157
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
5
|
|
|
741
|
|
|
741
|
|
|
1
|
|
|
206
|
|
|
206
|
|
Total
|
7
|
|
|
$
|
898
|
|
|
$
|
898
|
|
|
1
|
|
|
$
|
206
|
|
|
$
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2018
|
|
For the Six Months Ended
June 30, 2017
|
Dollars in thousands
|
Number of
Modifications
|
|
Pre-modification
Recorded
Investment
|
|
Post-modification
Recorded
Investment
|
|
Number of
Modifications
|
|
Pre-modification
Recorded
Investment
|
|
Post-modification
Recorded
Investment
|
Commercial
|
2
|
|
|
$
|
157
|
|
|
$
|
157
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
6
|
|
|
805
|
|
|
805
|
|
|
5
|
|
|
1,087
|
|
|
1,087
|
|
Total
|
8
|
|
|
$
|
962
|
|
|
$
|
962
|
|
|
5
|
|
|
$
|
1,087
|
|
|
$
|
1,087
|
|
The following table presents defaults during the stated period of TDRs that were restructured during the past twelve months. For purposes of these tables, a default is considered as either the loan was past due
30
days or more at any time during the period, or the loan was fully or partially charged off during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30, 2018
|
|
For the Six Months Ended
June 30, 2018
|
Dollars in thousands
|
Number
of
Defaults
|
|
Recorded
Investment
at Default Date
|
|
Number
of
Defaults
|
|
Recorded
Investment
at Default Date
|
Commercial
|
2
|
|
|
$
|
157
|
|
|
2
|
|
|
$
|
157
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
1
|
|
|
2,302
|
|
|
1
|
|
|
2,302
|
|
Non-owner occupied
|
1
|
|
|
341
|
|
|
1
|
|
|
341
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
1
|
|
|
438
|
|
|
1
|
|
|
438
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2
|
|
|
506
|
|
|
3
|
|
|
712
|
|
Total
|
7
|
|
|
$
|
3,744
|
|
|
8
|
|
|
$
|
3,950
|
|
The following tables detail the activity regarding TDRs by loan type, net of fees, for the three and
six
months ended
June 30, 2018
, and the related allowance on TDRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2018
|
|
Construction & Land Development
|
|
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Land &
Land
Develop-
ment
|
|
Construc-
tion
|
|
Commer-
cial
|
|
Owner
Occupied
|
|
Non-
Owner
Occupied
|
|
Non-
jumbo
|
|
Jumbo
|
|
Home
Equity
|
|
Mortgage Warehouse Lines
|
|
Con-
sumer
|
|
Other
|
|
Total
|
Troubled debt restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 1, 2018
|
$
|
2,968
|
|
|
$
|
—
|
|
|
$
|
142
|
|
|
$
|
9,474
|
|
|
$
|
5,478
|
|
|
$
|
4,519
|
|
|
$
|
4,354
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
27,473
|
|
Additions
|
—
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
—
|
|
|
741
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
898
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
Net (paydowns) advances
|
(20
|
)
|
|
—
|
|
|
(6
|
)
|
|
(41
|
)
|
|
(172
|
)
|
|
(233
|
)
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(489
|
)
|
Transfer into foreclosed properties
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Refinance out of TDR status
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance, June 30, 2018
|
$
|
2,948
|
|
|
$
|
—
|
|
|
$
|
293
|
|
|
$
|
9,433
|
|
|
$
|
5,306
|
|
|
$
|
4,972
|
|
|
$
|
4,339
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
27,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance related to troubled debt restructurings
|
$
|
430
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
161
|
|
|
$
|
14
|
|
|
$
|
165
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2018
|
|
Construction & Land Development
|
|
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Land &
Land
Develop-
ment
|
|
Construc-
tion
|
|
Commer-
cial
|
|
Owner
Occupied
|
|
Non-
Owner
Occupied
|
|
Non-
jumbo
|
|
Jumbo
|
|
Home
Equity
|
|
Mortgage Warehouse Lines
|
|
Con-
sumer
|
|
Other
|
|
Total
|
Troubled debt restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2018
|
$
|
3,043
|
|
|
$
|
—
|
|
|
$
|
412
|
|
|
$
|
9,545
|
|
|
$
|
5,234
|
|
|
$
|
5,195
|
|
|
$
|
4,393
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
28,363
|
|
Additions
|
—
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
—
|
|
|
805
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
962
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
Net (paydowns) advances
|
(95
|
)
|
|
—
|
|
|
(276
|
)
|
|
(112
|
)
|
|
72
|
|
|
(973
|
)
|
|
(54
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(1,443
|
)
|
Transfer into foreclosed properties
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Refinance out of TDR status
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance, June 30, 2018
|
$
|
2,948
|
|
|
$
|
—
|
|
|
$
|
293
|
|
|
$
|
9,433
|
|
|
$
|
5,306
|
|
|
$
|
4,972
|
|
|
$
|
4,339
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
27,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance related to troubled debt restructurings
|
$
|
430
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
161
|
|
|
$
|
14
|
|
|
$
|
165
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
878
|
|
The following table presents the recorded investment in construction and development, commercial, and commercial real estate loans which are generally evaluated based upon our internal risk ratings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Risk Profile by Internal Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Development
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
Land and Land Development
|
|
Construction
|
|
Commercial
|
|
Owner Occupied
|
|
Non-Owner Occupied
|
|
Mortgage Warehouse Lines
|
Dollars in thousands
|
6/30/2018
|
|
12/31/2017
|
|
6/30/2018
|
|
12/31/2017
|
|
6/30/2018
|
|
12/31/2017
|
|
6/30/2018
|
|
12/31/2017
|
|
6/30/2018
|
|
12/31/2017
|
|
6/30/2018
|
12/31/2017
|
Pass
|
$
|
68,747
|
|
|
$
|
60,850
|
|
|
$
|
25,585
|
|
|
$
|
33,412
|
|
|
$
|
164,582
|
|
|
$
|
186,941
|
|
|
$
|
255,289
|
|
|
$
|
242,702
|
|
|
$
|
494,277
|
|
|
$
|
474,522
|
|
|
$
|
54,332
|
|
$
|
30,757
|
|
OLEM (Special Mention)
|
798
|
|
|
1,397
|
|
|
126
|
|
|
—
|
|
|
6,095
|
|
|
2,267
|
|
|
1,748
|
|
|
3,534
|
|
|
1,779
|
|
|
2,221
|
|
|
—
|
|
—
|
|
Substandard
|
4,473
|
|
|
4,972
|
|
|
—
|
|
|
—
|
|
|
733
|
|
|
773
|
|
|
5,137
|
|
|
3,966
|
|
|
6,991
|
|
|
8,159
|
|
|
—
|
|
—
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
Total
|
$
|
74,018
|
|
|
$
|
67,219
|
|
|
$
|
25,711
|
|
|
$
|
33,412
|
|
|
$
|
171,410
|
|
|
$
|
189,981
|
|
|
$
|
262,174
|
|
|
$
|
250,202
|
|
|
$
|
503,047
|
|
|
$
|
484,902
|
|
|
$
|
54,332
|
|
$
|
30,757
|
|
The following table presents the recorded investment and payment activity in consumer, residential real estate, and home equity loans, which are generally evaluated based on the aging status of the loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
Nonperforming
|
Dollars in thousands
|
6/30/2018
|
|
12/31/2017
|
|
6/30/2018
|
|
12/31/2017
|
Residential real estate
|
|
|
|
|
|
|
|
Non-jumbo
|
$
|
335,600
|
|
|
$
|
347,183
|
|
|
$
|
7,444
|
|
|
$
|
6,918
|
|
Jumbo
|
66,831
|
|
|
62,267
|
|
|
—
|
|
|
—
|
|
Home Equity
|
81,895
|
|
|
83,316
|
|
|
514
|
|
|
712
|
|
Consumer
|
34,139
|
|
|
35,932
|
|
|
110
|
|
|
270
|
|
Other
|
12,728
|
|
|
13,238
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
531,193
|
|
|
$
|
541,936
|
|
|
$
|
8,068
|
|
|
$
|
7,900
|
|
NOTE 7. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses for the
six
month period ended
June 30, 2018
and for the year ended
December 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
Dollars in thousands
|
|
2018
|
|
2017
|
Balance, beginning of year
|
|
$
|
12,565
|
|
|
$
|
11,674
|
|
Charge-offs:
|
|
|
|
|
Commercial
|
|
50
|
|
|
23
|
|
Commercial real estate
|
|
|
|
|
Owner occupied
|
|
38
|
|
|
5
|
|
Non-owner occupied
|
|
500
|
|
|
65
|
|
Construction and development
|
|
|
|
|
Land and land development
|
|
220
|
|
|
3
|
|
Construction
|
|
—
|
|
|
33
|
|
Residential real estate
|
|
|
|
|
Non-jumbo
|
|
393
|
|
|
359
|
|
Jumbo
|
|
—
|
|
|
2
|
|
Home equity
|
|
25
|
|
|
158
|
|
Mortgage warehouse lines
|
|
—
|
|
|
—
|
|
Consumer
|
|
120
|
|
|
389
|
|
Other
|
|
139
|
|
|
251
|
|
Total
|
|
1,485
|
|
|
1,288
|
|
Recoveries:
|
|
|
|
|
|
|
Commercial
|
|
13
|
|
|
124
|
|
Commercial real estate
|
|
|
|
|
Owner occupied
|
|
13
|
|
|
89
|
|
Non-owner occupied
|
|
—
|
|
|
91
|
|
Construction and development
|
|
|
|
|
Land and land development
|
|
15
|
|
|
278
|
|
Construction
|
|
1
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
Non-jumbo
|
|
64
|
|
|
134
|
|
Jumbo
|
|
—
|
|
|
—
|
|
Home equity
|
|
2
|
|
|
30
|
|
Mortgage warehouse lines
|
|
—
|
|
|
—
|
|
Consumer
|
|
79
|
|
|
82
|
|
Other
|
|
63
|
|
|
101
|
|
Total
|
|
250
|
|
|
929
|
|
Net charge-offs
|
|
1,235
|
|
|
359
|
|
Provision for loan losses
|
|
1,250
|
|
|
1,250
|
|
Balance, end of period
|
|
$
|
12,580
|
|
|
$
|
12,565
|
|
The following table presents the activity in the allowance for loan losses, balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment during the first
six
months of
2018
and for the year ended 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2018
|
|
At June 30, 2018
|
|
At June 30, 2018
|
|
Allowance for loan losses
|
|
Allowance related to:
|
|
Loans
|
|
Beginning
Balance
|
Charge-
offs
|
Recoveries
|
Provision
|
Ending
Balance
|
|
Loans
individua-
lly
evaluated
for
impairm-
ent
|
Loans
collective-
ly
evaluated
for
impairm-
ent
|
Loans
acquired
with
deteriora-
ted credit
quality (PCI)
|
Total
|
|
Loans
individua-
lly
evaluated
for
impairm-
ent
|
Loans
collective-
ly
evaluated
for
impairm-
ent
|
Loans
acquired
with
deteriora-
ted credit
quality (PCI)
|
Total
|
Commercial
|
$
|
1,303
|
|
$
|
(50
|
)
|
$
|
13
|
|
$
|
(329
|
)
|
$
|
937
|
|
|
$
|
—
|
|
$
|
937
|
|
$
|
—
|
|
$
|
937
|
|
|
$
|
464
|
|
$
|
170,946
|
|
$
|
—
|
|
$
|
171,410
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
2,424
|
|
(38
|
)
|
13
|
|
47
|
|
2,446
|
|
|
161
|
|
2,285
|
|
—
|
|
2,446
|
|
|
11,416
|
|
250,069
|
|
689
|
|
262,174
|
|
Non-owner occupied
|
4,950
|
|
(500
|
)
|
—
|
|
501
|
|
4,951
|
|
|
14
|
|
4,932
|
|
5
|
|
4,951
|
|
|
9,878
|
|
491,850
|
|
1,319
|
|
503,047
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
641
|
|
(220
|
)
|
15
|
|
183
|
|
619
|
|
|
430
|
|
189
|
|
—
|
|
619
|
|
|
6,084
|
|
67,934
|
|
—
|
|
74,018
|
|
Construction
|
153
|
|
—
|
|
1
|
|
(29
|
)
|
125
|
|
|
—
|
|
125
|
|
—
|
|
125
|
|
|
—
|
|
25,711
|
|
—
|
|
25,711
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
1,911
|
|
(393
|
)
|
64
|
|
820
|
|
2,402
|
|
|
540
|
|
1,859
|
|
3
|
|
2,402
|
|
|
6,591
|
|
335,024
|
|
1,429
|
|
343,044
|
|
Jumbo
|
72
|
|
—
|
|
—
|
|
364
|
|
436
|
|
|
109
|
|
327
|
|
—
|
|
436
|
|
|
4,339
|
|
61,510
|
|
982
|
|
66,831
|
|
Home equity
|
638
|
|
(25
|
)
|
2
|
|
(344
|
)
|
271
|
|
|
—
|
|
271
|
|
—
|
|
271
|
|
|
523
|
|
81,886
|
|
—
|
|
82,409
|
|
Mortgage warehouse lines
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
54,332
|
|
—
|
|
54,332
|
|
Consumer
|
210
|
|
(120
|
)
|
79
|
|
37
|
|
206
|
|
|
—
|
|
206
|
|
—
|
|
206
|
|
|
13
|
|
34,236
|
|
—
|
|
34,249
|
|
Other
|
263
|
|
(139
|
)
|
63
|
|
—
|
|
187
|
|
|
—
|
|
187
|
|
—
|
|
187
|
|
|
—
|
|
12,728
|
|
—
|
|
12,728
|
|
Total
|
$
|
12,565
|
|
$
|
(1,485
|
)
|
$
|
250
|
|
$
|
1,250
|
|
$
|
12,580
|
|
|
$
|
1,254
|
|
$
|
11,318
|
|
$
|
8
|
|
$
|
12,580
|
|
|
$
|
39,308
|
|
$
|
1,586,226
|
|
$
|
4,419
|
|
$
|
1,629,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
At December 31, 2017
|
|
At December 31, 2017
|
|
Allowance for loan losses
|
|
Allowance related to:
|
|
Loans
|
|
Beginning
Balance
|
Charge-
offs
|
Recoveries
|
Provision
|
Ending
Balance
|
|
Loans
individua-
lly
evaluated
for
impairm-
ent
|
Loans
collective-
ly
evaluated
for
impairm-
ent
|
Loans
acquired
with
deteriora-
ted credit
quality (PCI)
|
Total
|
|
Loans
individua-
lly
evaluated
for
impairm-
ent
|
Loans
collective-
ly
evaluated
for
impairm-
ent
|
Loans
acquired
with
deteriora-
ted credit
quality (PCI)
|
Total
|
Commercial
|
$
|
934
|
|
$
|
(23
|
)
|
$
|
124
|
|
$
|
268
|
|
$
|
1,303
|
|
|
$
|
252
|
|
$
|
1,051
|
|
$
|
—
|
|
$
|
1,303
|
|
|
$
|
495
|
|
$
|
189,477
|
|
$
|
9
|
|
$
|
189,981
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
2,109
|
|
(5
|
)
|
89
|
|
231
|
|
2,424
|
|
|
125
|
|
2,299
|
|
—
|
|
2,424
|
|
|
9,545
|
|
239,968
|
|
689
|
|
250,202
|
|
Non-owner occupied
|
3,438
|
|
(65
|
)
|
91
|
|
1,486
|
|
4,950
|
|
|
517
|
|
4,432
|
|
1
|
|
4,950
|
|
|
10,443
|
|
472,622
|
|
1,837
|
|
484,902
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
2,263
|
|
(3
|
)
|
278
|
|
(1,897
|
)
|
641
|
|
|
524
|
|
117
|
|
—
|
|
641
|
|
|
6,482
|
|
60,737
|
|
—
|
|
67,219
|
|
Construction
|
24
|
|
(33
|
)
|
—
|
|
162
|
|
153
|
|
|
—
|
|
153
|
|
—
|
|
153
|
|
|
—
|
|
33,412
|
|
—
|
|
33,412
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,174
|
|
(359
|
)
|
134
|
|
(38
|
)
|
1,911
|
|
|
158
|
|
1,747
|
|
6
|
|
1,911
|
|
|
5,907
|
|
346,709
|
|
1,485
|
|
354,101
|
|
Jumbo
|
95
|
|
(2
|
)
|
—
|
|
(21
|
)
|
72
|
|
|
14
|
|
58
|
|
—
|
|
72
|
|
|
4,393
|
|
56,875
|
|
999
|
|
62,267
|
|
Home equity
|
413
|
|
(158
|
)
|
30
|
|
353
|
|
638
|
|
|
—
|
|
638
|
|
—
|
|
638
|
|
|
523
|
|
83,505
|
|
—
|
|
84,028
|
|
Mortgage warehouse lines
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
30,757
|
|
—
|
|
30,757
|
|
Consumer
|
121
|
|
(389
|
)
|
82
|
|
396
|
|
210
|
|
|
—
|
|
210
|
|
—
|
|
210
|
|
|
17
|
|
36,185
|
|
—
|
|
36,202
|
|
Other
|
103
|
|
(251
|
)
|
101
|
|
310
|
|
263
|
|
|
—
|
|
263
|
|
—
|
|
263
|
|
|
—
|
|
13,238
|
|
—
|
|
13,238
|
|
Total
|
$
|
11,674
|
|
$
|
(1,288
|
)
|
$
|
929
|
|
$
|
1,250
|
|
$
|
12,565
|
|
|
$
|
1,590
|
|
$
|
10,968
|
|
$
|
7
|
|
$
|
12,565
|
|
|
$
|
37,805
|
|
$
|
1,563,485
|
|
$
|
5,019
|
|
$
|
1,606,309
|
|
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The following tables present our goodwill by reporting unit at
June 30, 2018
and other intangible assets by reporting unit at
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Activity
|
Dollars in thousands
|
|
Community Banking
|
|
Insurance Services
|
|
Total
|
Balance, January 1, 2018
|
|
$
|
10,562
|
|
|
$
|
4,710
|
|
|
$
|
15,272
|
|
Reclassifications to goodwill
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquired goodwill, net
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance, June 30, 2018
|
|
$
|
10,562
|
|
|
$
|
4,710
|
|
|
$
|
15,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Dollars in thousands
|
|
Community
Banking
|
|
Insurance
Services
|
|
Total
|
|
Community
Banking
|
|
Insurances
Services
|
|
Total
|
Identifiable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
12,598
|
|
|
$
|
3,000
|
|
|
$
|
15,598
|
|
|
$
|
12,598
|
|
|
$
|
3,000
|
|
|
$
|
15,598
|
|
Less: accumulated amortization
|
|
2,005
|
|
|
2,200
|
|
|
4,205
|
|
|
1,257
|
|
|
2,100
|
|
|
3,357
|
|
Net carrying amount
|
|
$
|
10,593
|
|
|
$
|
800
|
|
|
$
|
11,393
|
|
|
$
|
11,341
|
|
|
$
|
900
|
|
|
$
|
12,241
|
|
We recorded amortization expense of
$848,000
and
$526,000
for the
six
months ended
June 30, 2018
and
2017
, respectively, relative to our identifiable intangible assets.
Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years:
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposit
|
|
Customer
|
Dollars in thousands
|
|
Intangible
|
|
Intangible
|
2018
|
|
$
|
1,471
|
|
|
$
|
200
|
|
2019
|
|
1,368
|
|
|
200
|
|
2020
|
|
1,265
|
|
|
200
|
|
2021
|
|
1,162
|
|
|
200
|
|
2022
|
|
1,060
|
|
|
100
|
|
NOTE 9. DEPOSITS
The following is a summary of interest bearing deposits by type as of
June 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
June 30,
2018
|
|
December 31,
2017
|
Demand deposits, interest bearing
|
|
$
|
472,041
|
|
|
$
|
410,606
|
|
Savings deposits
|
|
322,940
|
|
|
358,168
|
|
Time deposits
|
|
627,881
|
|
|
614,334
|
|
Total
|
|
$
|
1,422,862
|
|
|
$
|
1,383,108
|
|
Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling
$238.7 million
and
$216.9 million
at
June 30, 2018
and
December 31, 2017
, respectively.
A summary of the scheduled maturities for all time deposits as of
June 30, 2018
is as follows:
|
|
|
|
|
Dollars in thousands
|
|
Six month period ending December 31, 2018
|
$
|
116,750
|
|
Year ending December 31, 2019
|
208,584
|
|
Year ending December 31, 2020
|
128,825
|
|
Year ending December 31, 2021
|
73,802
|
|
Year ending December 31, 2022
|
38,142
|
|
Thereafter
|
61,778
|
|
Total
|
$
|
627,881
|
|
The following is a summary of the maturity distribution of all certificates of deposit in denominations of $100,000 or more as of
June 30, 2018
:
|
|
|
|
|
|
|
|
Dollars in thousands
|
Amount
|
|
Percent
|
Three months or less
|
$
|
25,243
|
|
|
5.8
|
%
|
Three through six months
|
35,519
|
|
|
8.2
|
%
|
Six through twelve months
|
89,158
|
|
|
20.5
|
%
|
Over twelve months
|
284,088
|
|
|
65.5
|
%
|
Total
|
$
|
434,008
|
|
|
100.00
|
%
|
NOTE 10. BORROWED FUNDS
Short-term borrowings:
A summary of short-term borrowings is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Dollars in thousands
|
Short-term
FHLB
Advances
|
|
Federal Funds
Purchased
and Lines
of Credit
|
|
Short-term
FHLB
Advances
|
|
Federal Funds
Purchased
and Lines
of Credit
|
Balance at June 30
|
$
|
199,900
|
|
|
$
|
2,529
|
|
|
$
|
202,250
|
|
|
$
|
3,478
|
|
Average balance outstanding for the period
|
211,884
|
|
|
3,497
|
|
|
194,071
|
|
|
3,469
|
|
Maximum balance outstanding at any month end during period
|
262,000
|
|
|
3,523
|
|
|
229,300
|
|
|
3,478
|
|
Weighted average interest rate for the period
|
1.87
|
%
|
|
1.65
|
%
|
|
0.98
|
%
|
|
0.91
|
%
|
Weighted average interest rate for balances
|
|
|
|
|
|
|
|
|
|
|
|
outstanding at June 30
|
2.19
|
%
|
|
2.00
|
%
|
|
1.30
|
%
|
|
1.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
Dollars in thousands
|
Short-term
FHLB
Advances
|
|
Short-term
Repurchase
Agreements
|
|
Federal Funds
Purchased
and Lines
of Credit
|
Balance at December 31
|
$
|
247,000
|
|
|
$
|
—
|
|
|
3,499
|
|
Average balance outstanding for the period
|
201,712
|
|
|
519
|
|
|
3,512
|
|
Maximum balance outstanding at any month end
during period
|
247,000
|
|
|
—
|
|
|
3,499
|
|
Weighted average interest rate for the period
|
1.19
|
%
|
|
0.12
|
%
|
|
1.10
|
%
|
Weighted average interest rate for balances
|
|
|
|
|
|
outstanding at December 31
|
1.60
|
%
|
|
—
|
%
|
|
1.50
|
%
|
Long-term borrowings:
Our long-term borrowings of
$20.7 million
and
$45.8 million
at
June 30, 2018
and
December 31, 2017
, respectively, consisted of advances from the Federal Home Loan Bank (“FHLB”) and structured repurchase agreements with unaffiliated institutions. All FHLB advances are collateralized primarily by similar amounts of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U. S. Government agencies and corporations.
|
|
|
|
|
|
|
|
|
|
Balance at June 30,
|
|
Balance at
December 31,
|
Dollars in thousands
|
2018
|
|
2017
|
Long-term FHLB advances
|
$
|
743
|
|
|
$
|
751
|
|
Long-term repurchase agreements
|
20,000
|
|
|
45,000
|
|
Total
|
$
|
20,743
|
|
|
$
|
45,751
|
|
Our long term FHLB borrowings and repurchase agreements bear both fixed and variable rates and mature in varying amounts through the year 2026.
The average interest rate paid on long-term borrowings for the
six
month period ended
June 30, 2018
was
4.26%
compared to
4.29%
for the first
six
months of
2017
.
Subordinated debentures owed to unconsolidated subsidiary trusts:
We have
three
statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. Our subordinated debentures totaled $
19.6 million
at
June 30, 2018
and
December 31, 2017
.
The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to
25%
of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Long-term
borrowings
|
|
Subordinated
debentures owed
to unconsolidated
subsidiary trusts
|
Year Ending December 31,
|
2018
|
|
$
|
20,008
|
|
|
$
|
—
|
|
|
2019
|
|
18
|
|
|
—
|
|
|
2020
|
|
18
|
|
|
—
|
|
|
2021
|
|
20
|
|
|
—
|
|
|
2022
|
|
21
|
|
|
—
|
|
|
Thereafter
|
|
658
|
|
|
19,589
|
|
|
|
|
$
|
20,743
|
|
|
$
|
19,589
|
|
NOTE 11. SHARE-BASED COMPENSATION
The 2014 Long-Term Incentive Plan (“2014 LTIP”) was adopted by our shareholders in May 2014 to enhance the ability of the Company to attract and retain exceptionally qualified individuals to serve as key employees. The LTIP provides for the issuance of up to
500,000
shares of common stock, in the form of equity awards including stock options, restricted stock, restricted stock units, stock appreciation rights ("SARs"), performance units, other stock-based awards or any combination thereof, to our key employees.
Stock options awarded under the 2009 Officer Stock Option Plan and the 1998 Officer Stock Option Plan (collectively, the “Plans”) were not altered by the 2014 LTIP, and remain subject to the terms of the Plans. However, under the terms of the 2014
LTIP, all shares of common stock remaining issuable under the Plans at the time the 2014 LTIP was adopted ceased to be available for future issuance.
Under the 2014 LTIP and the Plans, stock options and SARs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees. During first quarter 2017, we granted
53,309
SARs that become exercisable ratably over
five
years (
20%
per year) and expire
ten
years after the grant date and granted
34,306
SARS that become exercisable ratably over
seven
years (
14.29%
per year) and expire
ten
years after the grant date. There were
no
grants of stock options or SARs during the six months ended
June 30, 2018
.
The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. The assumptions used to value SARs issued during 2017 were as follows:
|
|
|
|
|
|
|
5-year vesting SARs
|
7-year vesting SARs
|
Risk-free interest rate
|
2.16
|
%
|
2.24
|
%
|
Expected dividend yield
|
1.45
|
%
|
1.45
|
%
|
Expected common stock volatility
|
60.05
|
%
|
59.60
|
%
|
Expected life
|
6.5 years
|
|
7.0 years
|
|
We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first
six
months of
2018
and
2017
, our share-based compensation expense was
$193,000
and
$184,000
and the related deferred tax benefits were approximately
$46,000
and
$68,000
.
A summary of activity in our Plans during the first
six
months of
2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
Options/SARs
|
|
Aggregate
Intrinsic
Value
|
|
Remaining
Contractual
Term (Yrs.)
|
|
Weighted-Average
Exercise Price
|
Outstanding, January 1
|
250,291
|
|
|
|
|
|
|
$
|
17.75
|
|
Granted
|
—
|
|
|
|
|
|
|
—
|
|
Exercised
|
(200
|
)
|
|
|
|
|
|
17.79
|
|
Forfeited
|
(3,000
|
)
|
|
|
|
|
|
26.01
|
|
Expired
|
—
|
|
|
|
|
|
|
—
|
|
Outstanding, June 30
|
247,091
|
|
|
$
|
2,272
|
|
|
6.83
|
|
$
|
17.65
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30
|
110,924
|
|
|
$
|
1,225
|
|
|
5.72
|
|
$
|
15.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2017
|
|
Options/SARs
|
|
Aggregate
Intrinsic
Value
|
|
Remaining
Contractual
Term (Yrs.)
|
|
Weighted-Average
Exercise Price
|
Outstanding, January 1
|
217,857
|
|
|
|
|
|
|
$
|
13.56
|
|
Granted
|
87,615
|
|
|
|
|
|
|
26.01
|
|
Exercised
|
(2,000
|
)
|
|
|
|
|
|
6.21
|
|
Forfeited
|
—
|
|
|
|
|
|
|
—
|
|
Expired
|
—
|
|
|
|
|
|
|
—
|
|
Outstanding, June 30
|
303,472
|
|
|
$
|
1,900
|
|
|
7.36
|
|
$
|
17.20
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30
|
115,827
|
|
|
$
|
900
|
|
|
5.26
|
|
$
|
15.02
|
|
NOTE 12. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
|
|
|
|
|
|
Dollars in thousands
|
|
June 30,
2018
|
Commitments to extend credit:
|
|
|
Revolving home equity and credit card lines
|
|
$
|
70,196
|
|
Construction loans
|
|
62,975
|
|
Other loans
|
|
141,754
|
|
Standby letters of credit
|
|
6,179
|
|
Total
|
|
$
|
281,104
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
Litigation
We are not a party to litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability if any, with respect to these contingent matters, in the opinion of management, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 13. REGULATORY MATTERS
We and our subsidiaries are subject to various regulatory capital requirements administered by the banking regulatory agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and each of our subsidiaries must meet specific capital guidelines that involve quantitative measures of our and our subsidiaries’ assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. We and each of our subsidiaries’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us and each of our subsidiaries to maintain minimum amounts and ratios of Common Equity Tier ("CET1") 1, Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of
June 30, 2018
, that we and each of our subsidiaries met all capital adequacy requirements to which they were subject.
The most recent notifications from the banking regulatory agencies categorized us and each of our subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, we and each of our subsidiaries must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
The Basel III Capital Rules became effective for us on January 1, 2015, with full compliance with all of the final rule's requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of
June 30, 2018
, our capital levels remained characterized as "well-capitalized" under the new rules. See the Capital Requirements section included in Part I Item 1 Business of our 2017 Annual Report on Form 10-K for further discussion of Basel III.
The following table presents Summit's, as well as our subsidiary, Summit Community Bank's ("Summit Community"), actual and required minimum capital amounts and ratios as of
June 30, 2018
and
December 31, 2017
under the Basel III Capital Rules. The minimum required capital levels presented below reflect the minimum required capital levels (inclusive of the full capital conservation buffers) that will be effective as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required Capital - Basel III Fully Phased-in
|
|
Minimum Required To Be Well Capitalized
|
Dollars in thousands
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
$
|
186,881
|
|
|
11.0
|
%
|
|
$
|
118,924
|
|
|
7.0
|
%
|
|
$
|
110,430
|
|
|
6.5
|
%
|
Summit Community
|
|
205,204
|
|
|
12.0
|
%
|
|
119,702
|
|
|
7.0
|
%
|
|
111,152
|
|
|
6.5
|
%
|
Tier I Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
205,881
|
|
|
12.1
|
%
|
|
144,627
|
|
|
8.5
|
%
|
|
136,120
|
|
|
8.0
|
%
|
Summit Community
|
|
205,204
|
|
|
12.0
|
%
|
|
145,353
|
|
|
8.5
|
%
|
|
136,803
|
|
|
8.0
|
%
|
Total Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
218,461
|
|
|
12.8
|
%
|
|
179,206
|
|
|
10.5
|
%
|
|
170,673
|
|
|
10.0
|
%
|
Summit Community
|
|
217,784
|
|
|
12.8
|
%
|
|
178,651
|
|
|
10.5
|
%
|
|
170,144
|
|
|
10.0
|
%
|
Tier I Capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
205,881
|
|
|
9.9
|
%
|
|
83,184
|
|
|
4.0
|
%
|
|
103,980
|
|
|
5.0
|
%
|
Summit Community
|
|
205,204
|
|
|
9.8
|
%
|
|
83,757
|
|
|
4.0
|
%
|
|
104,696
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required Capital - Basel III Fully Phased-in
|
|
Minimum Required To Be Well Capitalized
|
Dollars in thousands
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
177,010
|
|
|
10.6
|
%
|
|
116,893
|
|
|
7.0
|
%
|
|
108,544
|
|
|
6.5
|
%
|
Summit Community
|
|
195,008
|
|
|
11.7
|
%
|
|
116,671
|
|
|
7.0
|
%
|
|
108,338
|
|
|
6.5
|
%
|
Tier I Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
196,010
|
|
|
11.8
|
%
|
|
141,194
|
|
|
8.5
|
%
|
|
132,888
|
|
|
8.0
|
%
|
Summit Community
|
|
195,008
|
|
|
11.7
|
%
|
|
141,672
|
|
|
8.5
|
%
|
|
133,339
|
|
|
8.0
|
%
|
Total Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
208,575
|
|
|
12.5
|
%
|
|
175,203
|
|
|
10.5
|
%
|
|
166,860
|
|
|
10.0
|
%
|
Summit Community
|
|
207,573
|
|
|
12.5
|
%
|
|
174,361
|
|
|
10.5
|
%
|
|
166,058
|
|
|
10.0
|
%
|
Tier I Capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
196,010
|
|
|
9.4
|
%
|
|
83,409
|
|
|
4.0
|
%
|
|
104,261
|
|
|
5.0
|
%
|
Summit Community
|
|
195,008
|
|
|
9.4
|
%
|
|
82,982
|
|
|
4.0
|
%
|
|
103,728
|
|
|
5.0
|
%
|
NOTE 14. SEGMENT INFORMATION
We operate
three
business segments: community banking, insurance services and trust and wealth management services. These segments are primarily identified by the products or services offered. The community banking segment consists of our full service banks which offer customers traditional banking products and services through various delivery channels. The insurance services segment includes
two
insurance agency offices that sell insurance products. The trust and wealth management segment includes Summit Community Bank's trust division and other non-bank investment products. The accounting policies discussed throughout the notes to the consolidated financial statements apply to each of our business segments.
Inter-segment revenue and expense consists of management fees allocated to the community banking, insurance services and trust and wealth management segments for all centralized functions that are performed by the parent, including overall direction in the areas of strategic planning, investment portfolio management, asset/liability management, financial reporting and other financial and administrative services. Information for each of our segments is included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
Dollars in thousands
|
|
Community
Banking
|
|
Trust and
Wealth Management
|
|
Insurance
Services
|
|
Parent
|
|
Eliminations
|
|
Total
|
Net interest income
|
|
$
|
17,495
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(220
|
)
|
|
$
|
—
|
|
|
$
|
17,275
|
|
Provision for loan losses
|
|
750
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
750
|
|
Net interest income after provision
for loan losses
|
|
16,745
|
|
|
—
|
|
|
—
|
|
|
(220
|
)
|
|
—
|
|
|
16,525
|
|
Other income
|
|
2,467
|
|
|
672
|
|
|
1,009
|
|
|
389
|
|
|
(389
|
)
|
|
4,148
|
|
Other expenses
|
|
10,922
|
|
|
484
|
|
|
953
|
|
|
765
|
|
|
(389
|
)
|
|
12,735
|
|
Income (loss) before income taxes
|
|
8,290
|
|
|
188
|
|
|
56
|
|
|
(596
|
)
|
|
—
|
|
|
7,938
|
|
Income tax expense (benefit)
|
|
1,717
|
|
|
45
|
|
|
16
|
|
|
(120
|
)
|
|
—
|
|
|
1,658
|
|
Net income (loss)
|
|
$
|
6,573
|
|
|
$
|
143
|
|
|
$
|
40
|
|
|
$
|
(476
|
)
|
|
$
|
—
|
|
|
$
|
6,280
|
|
Inter-segment revenue (expense)
|
|
$
|
(359
|
)
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
389
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Average assets
|
|
$
|
2,128,314
|
|
|
$
|
—
|
|
|
$
|
6,055
|
|
|
$
|
229,129
|
|
|
$
|
(252,067
|
)
|
|
$
|
2,111,431
|
|
Capital expenditures
|
|
$
|
917
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
Dollars in thousands
|
|
Community
Banking
|
|
Trust and
Wealth Management
|
|
Insurance
Services
|
|
Parent
|
|
Eliminations
|
|
Total
|
Net interest income
|
|
$
|
18,017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(169
|
)
|
|
$
|
—
|
|
|
$
|
17,848
|
|
Provision for loan losses
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Net interest income after provision
for loan losses
|
|
17,767
|
|
|
—
|
|
|
—
|
|
|
(169
|
)
|
|
—
|
|
|
17,598
|
|
Other income
|
|
2,364
|
|
|
595
|
|
|
957
|
|
|
491
|
|
|
(491
|
)
|
|
3,916
|
|
Other expenses
|
|
12,441
|
|
|
529
|
|
|
807
|
|
|
650
|
|
|
(491
|
)
|
|
13,936
|
|
Income (loss) before income taxes
|
|
7,690
|
|
|
66
|
|
|
150
|
|
|
(328
|
)
|
|
—
|
|
|
7,578
|
|
Income tax expense (benefit)
|
|
2,336
|
|
|
25
|
|
|
58
|
|
|
(119
|
)
|
|
—
|
|
|
2,300
|
|
Net income (loss)
|
|
$
|
5,354
|
|
|
$
|
41
|
|
|
$
|
92
|
|
|
$
|
(209
|
)
|
|
$
|
—
|
|
|
$
|
5,278
|
|
Inter-segment revenue (expense)
|
|
$
|
(451
|
)
|
|
$
|
—
|
|
|
$
|
(40
|
)
|
|
$
|
491
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Average assets
|
|
$
|
2,118,423
|
|
|
$
|
—
|
|
|
$
|
6,189
|
|
|
$
|
212,193
|
|
|
$
|
(242,486
|
)
|
|
$
|
2,094,319
|
|
Capital expenditures
|
|
$
|
1,057
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
Dollars in thousands
|
|
Community
Banking
|
|
Trust and
Wealth Management
|
|
Insurance
Services
|
|
Parent
|
|
Eliminations
|
|
Total
|
Net interest income
|
|
$
|
34,944
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(411
|
)
|
|
$
|
—
|
|
|
$
|
34,533
|
|
Provision for loan losses
|
|
1,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,250
|
|
Net interest income after provision
for loan losses
|
|
33,694
|
|
|
—
|
|
|
—
|
|
|
(411
|
)
|
|
—
|
|
|
33,283
|
|
Other income
|
|
5,561
|
|
|
1,339
|
|
|
2,123
|
|
|
778
|
|
|
(778
|
)
|
|
9,023
|
|
Other expenses
|
|
21,575
|
|
|
1,009
|
|
|
1,849
|
|
|
1,394
|
|
|
(778
|
)
|
|
25,049
|
|
Income (loss) before income taxes
|
|
17,680
|
|
|
330
|
|
|
274
|
|
|
(1,027
|
)
|
|
—
|
|
|
17,257
|
|
Income tax expense (benefit)
|
|
3,574
|
|
|
79
|
|
|
67
|
|
|
(186
|
)
|
|
—
|
|
|
3,534
|
|
Net income (loss)
|
|
$
|
14,106
|
|
|
$
|
251
|
|
|
$
|
207
|
|
|
$
|
(841
|
)
|
|
$
|
—
|
|
|
$
|
13,723
|
|
Inter-segment revenue (expense)
|
|
$
|
(718
|
)
|
|
$
|
—
|
|
|
$
|
(60
|
)
|
|
$
|
778
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Average assets
|
|
$
|
2,138,326
|
|
|
$
|
—
|
|
|
$
|
6,020
|
|
|
$
|
226,851
|
|
|
$
|
(250,165
|
)
|
|
$
|
2,121,032
|
|
Capital expenditures
|
|
$
|
2,767
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
2,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
Dollars in thousands
|
|
Community
Banking
|
|
Trust and
Wealth Management
|
|
Insurance
Services
|
|
Parent
|
|
Eliminations
|
|
Total
|
Net interest income
|
|
$
|
31,812
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(335
|
)
|
|
$
|
—
|
|
|
$
|
31,477
|
|
Provision for loan losses
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Net interest income after provision
for loan losses
|
|
31,312
|
|
|
—
|
|
|
—
|
|
|
(335
|
)
|
|
—
|
|
|
30,977
|
|
Other income
|
|
3,871
|
|
|
695
|
|
|
1,930
|
|
|
982
|
|
|
(982
|
)
|
|
6,496
|
|
Other expenses
|
|
30,508
|
|
|
673
|
|
|
1,681
|
|
|
1,073
|
|
|
(982
|
)
|
|
32,953
|
|
Income (loss) before income taxes
|
|
4,675
|
|
|
22
|
|
|
249
|
|
|
(426
|
)
|
|
—
|
|
|
4,520
|
|
Income tax expense (benefit)
|
|
903
|
|
|
9
|
|
|
98
|
|
|
(152
|
)
|
|
—
|
|
|
858
|
|
Net income (loss)
|
|
$
|
3,772
|
|
|
$
|
13
|
|
|
$
|
151
|
|
|
$
|
(274
|
)
|
|
$
|
—
|
|
|
$
|
3,662
|
|
Inter-segment revenue (expense)
|
|
$
|
(902
|
)
|
|
$
|
—
|
|
|
$
|
(80
|
)
|
|
$
|
982
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Average assets
|
|
$
|
1,934,268
|
|
|
$
|
—
|
|
|
$
|
6,216
|
|
|
$
|
196,622
|
|
|
$
|
(224,803
|
)
|
|
$
|
1,912,303
|
|
Capital expenditures
|
|
$
|
4,049
|
|
|
$
|
—
|
|
|
$
|
35
|
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
4,175
|
|
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS
We have entered into
three
forward-starting, pay-fixed/receive LIBOR interest rate swaps. $
40 million
notional with an effective date of July 18, 2016, was designated as a cash flow hedge of $
40 million
of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of
2.98%
for a
3
year period. $
30 million
notional with an effective date of April 18, 2016, was designated as a cash flow hedge of $
30 million
of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of
2.89%
for a
4.5
year period. $
40 million
notional with an effective date of October 18, 2016, was designated as a cash flow hedge of $
40 million
of forecasted variable rate Federal Home Loan Bank advances. Under the terms of the swap we will pay a fixed rate of
2.84%
for a
3
year period.
We have entered into
two
pay fixed/receive variable interest rate swaps to hedge fair value variability of two commercial fixed rate loans with the same principal, amortization, and maturity terms of the underlying loans, which are designated as fair value hedges. Under the terms of a
$9.95 million
original notional swap with an effective date of January 15, 2015, we will pay a fixed rate of
4.33%
for a
10
year period. Under the terms of a
$11.3 million
original notional swap with an effective date of December 18, 2015, we will pay a fixed rate of
4.30%
for a
10
year period.
A summary of our derivative financial instruments as of
June 30, 2018
and
December 31, 2017
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Notional
Amount
|
|
Derivative Fair Value
|
|
Net Ineffective
|
Dollars in thousands
|
|
Asset
|
|
Liability
|
|
Hedge Gains/(Losses)
|
CASH FLOW HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
|
Short term borrowings
|
$
|
110,000
|
|
|
$
|
—
|
|
|
$
|
620
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
FAIR VALUE HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
|
Commercial real estate loans
|
$
|
19,685
|
|
|
$
|
927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Notional
Amount
|
|
Derivative Fair Value
|
|
Net Ineffective
|
Dollars in thousands
|
|
Asset
|
|
Liability
|
|
Hedge Gains/(Losses)
|
CASH FLOW HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
Short term borrowings
|
$
|
110,000
|
|
|
$
|
—
|
|
|
$
|
2,057
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
FAIR VALUE HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
|
Commercial real estate loans
|
$
|
19,965
|
|
|
$
|
312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loan commitments:
ASC Topic 815,
Derivatives and Hedging,
requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 16. ACQUISITIONS
FCB Acquisition
On April 1, 2017, Summit Community Bank, Inc. ("SCB"), a wholly-owned subsidiary of Summit, acquired
100%
of the ownership of First Century Bankshares, Inc. ("FCB") and its subsidiary First Century Bank, headquartered in Bluefield, West Virginia. FCB's assets and liabilities approximated
$406 million
and
$361 million
, respectively, at March 31, 2017.
HCB Acquisition
On October 1, 2016, Summit Community Bank, Inc. ("SCB"), a wholly-owned subsidiary of Summit, acquired
100%
of the ownership of Highland County Bankshares, Inc. ("HCB") and its subsidiary First and Citizens Bank, headquartered in Monterey, Virginia. HCB's assets and liabilities approximated
$123 million
and
$107 million
, respectively, at September 30, 2016.
The following presents the financial effects of adjustments recognized in the statement of income for the three months and six months ended June 30, 2018 and 2017 related to business combinations that occurred during 2016 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income increase (decrease)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Dollars in thousands
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest and fees on loans
|
$
|
56
|
|
|
$
|
345
|
|
|
$
|
201
|
|
|
$
|
488
|
|
Interest expense on deposits
|
53
|
|
|
87
|
|
|
114
|
|
|
91
|
|
Amortization of intangibles
|
(363
|
)
|
|
(379
|
)
|
|
(748
|
)
|
|
(426
|
)
|
Income before income tax expense
|
$
|
(254
|
)
|
|
$
|
53
|
|
|
$
|
(433
|
)
|
|
$
|
153
|
|
Pending Peoples Acquisition
On July 24, 2018, we entered into a Definitive Merger Agreement with Peoples Bankshares, Inc. ("Peoples"). Pursuant to the terms of the merger agreement, Summit will acquire all of the outstanding shares of common stock of Peoples in exchange for cash in the amount of
$47.00
per share or
1.7193
shares of Summit common stock. Peoples shareholders will have a right to receive cash, Summit’s common stock or a combination of cash and Summit common stock, subject to proration to result in approximately
50%
cash and
50%
stock consideration in the aggregate. Total merger consideration received by Peoples shareholders is subject to an adjustment if Peoples’ adjusted shareholders’ equity as of the effective date of the merger deviates from the range mutually determined by the parties. Peoples' assets approximated
$131 million
at March 31, 2018.
We anticipate the acquisition will close in the first quarter of 2019, subject to customary closing conditions, including regulatory approval and approval of Peoples' shareholders. Following the consummation of the merger, Peoples' wholly-owned subsidiary First Peoples Bank, Inc. will be consolidated with Summit's subsidiary, Summit Community Bank, Inc.
NOTE 17. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is changes in accumulated other comprehensive (loss) income by component, net of tax, for the three and six months ending June 30,
2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30, 2018
|
Dollars in thousands
|
|
Gains and Losses on Other Post-Retirement Benefits
|
|
Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Total
|
Beginning balance
|
|
$
|
398
|
|
|
$
|
(849
|
)
|
|
$
|
(437
|
)
|
|
$
|
(888
|
)
|
Other comprehensive income (loss) before reclassification
|
|
—
|
|
|
377
|
|
|
(409
|
)
|
|
(32
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
(66
|
)
|
|
(66
|
)
|
Net current period other comprehensive income (loss)
|
|
—
|
|
|
377
|
|
|
(475
|
)
|
|
(98
|
)
|
Ending balance
|
|
$
|
398
|
|
|
$
|
(472
|
)
|
|
$
|
(912
|
)
|
|
$
|
(986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30, 2017
|
Dollars in thousands
|
|
Gains and Losses on Other Post-Retirement Benefits
|
|
Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Total
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
(2,408
|
)
|
|
$
|
(166
|
)
|
|
$
|
(2,574
|
)
|
Other comprehensive income before reclassification
|
|
219
|
|
|
170
|
|
|
1,936
|
|
|
2,325
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
(57
|
)
|
|
(57
|
)
|
Net current period other comprehensive income
|
|
219
|
|
|
170
|
|
|
1,879
|
|
|
2,268
|
|
Ending balance
|
|
$
|
219
|
|
|
$
|
(2,238
|
)
|
|
$
|
1,713
|
|
|
$
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2018
|
Dollars in thousands
|
|
Gains and Losses on Other Post-Retirement Benefits
|
|
Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Total
|
Beginning balance
|
|
$
|
398
|
|
|
$
|
(1,564
|
)
|
|
$
|
2,898
|
|
|
$
|
1,732
|
|
Other comprehensive income (loss) before reclassification
|
|
—
|
|
|
1,092
|
|
|
(3,188
|
)
|
|
(2,096
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
(622
|
)
|
|
(622
|
)
|
Net current period other comprehensive income (loss)
|
|
—
|
|
|
1,092
|
|
|
(3,810
|
)
|
|
(2,718
|
)
|
Ending balance
|
|
$
|
398
|
|
|
$
|
(472
|
)
|
|
$
|
(912
|
)
|
|
$
|
(986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2017
|
Dollars in thousands
|
|
Gains and Losses on Other Post-Retirement Benefits
|
|
Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Total
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
(2,905
|
)
|
|
$
|
(357
|
)
|
|
$
|
(3,262
|
)
|
Other comprehensive income before reclassification
|
|
219
|
|
|
667
|
|
|
2,090
|
|
|
2,976
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
(20
|
)
|
Net current period other comprehensive income
|
|
219
|
|
|
667
|
|
|
2,070
|
|
|
2,956
|
|
Ending balance
|
|
$
|
219
|
|
|
$
|
(2,238
|
)
|
|
$
|
1,713
|
|
|
$
|
(306
|
)
|
NOTE 18. INCOME TAXES
Our income tax expense for the three months ended
June 30, 2018
and
June 30, 2017
totaled
$1.7 million
and
$2.3 million
, respectively. For the six months ended
June 30, 2018
and
June 30, 2017
our income tax expense totaled
$3.5 million
and
$0.9 million
, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended
June 30, 2018
and
2017
was
20.9%
and
30.3%
, respectively, and for the six months ended
June 30, 2018
and
2017
were
20.5%
and
19.0%
, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and six months ended
June 30, 2018
and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Dollars in thousands
|
Percent
|
|
Percent
|
|
Percent
|
|
Percent
|
Applicable statutory rate
|
21.0
|
%
|
|
35.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
Increase (decrease) in rate resulting from:
|
|
|
|
|
|
|
|
Tax-exempt interest and dividends, net
|
(3.2
|
)%
|
|
(5.5
|
)%
|
|
(2.9
|
)%
|
|
(15.7
|
)%
|
State income taxes (benefit), net of Federal income tax benefit
|
2.3
|
%
|
|
2.1
|
%
|
|
2.2
|
%
|
|
1.8
|
%
|
Low-income housing and rehabilitation tax credits
|
(1.2
|
)%
|
|
—
|
%
|
|
(1.1
|
)%
|
|
—
|
%
|
Other, net
|
2.0
|
%
|
|
(1.3
|
)%
|
|
1.3
|
%
|
|
(2.1
|
)%
|
Effective income tax rate
|
20.9
|
%
|
|
30.3
|
%
|
|
20.5
|
%
|
|
19.0
|
%
|
The components of applicable income tax expense for the three and six months ended June 30, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
Dollars in thousands
|
2018
|
2017
|
|
2018
|
2017
|
Current
|
|
|
|
|
|
Federal
|
$
|
1,464
|
|
$
|
(1,299
|
)
|
|
$
|
3,217
|
|
$
|
879
|
|
State
|
233
|
|
(52
|
)
|
|
510
|
|
136
|
|
|
1,697
|
|
(1,351
|
)
|
|
3,727
|
|
1,015
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
(34
|
)
|
3,354
|
|
|
(167
|
)
|
(143
|
)
|
State
|
(5
|
)
|
297
|
|
|
(26
|
)
|
(14
|
)
|
|
(39
|
)
|
3,651
|
|
|
(193
|
)
|
(157
|
)
|
Total
|
$
|
1,658
|
|
$
|
2,300
|
|
|
$
|
3,534
|
|
$
|
858
|
|
NOTE 19. REVENUE FROM CONTRACTS WITH CUSTOMERS
I
nterest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606,
Revenue from Contracts with Customers
. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less. As of June 30, 2018, remaining performance obligations consisted of insurance products with an original expected length of one year or less.
A description of our significant sources of revenue accounted for under ASC 606 follows:
Service fees on deposit accounts
are fees we charge our deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which are earned based on specific transactions or customer activity within a customer’s deposit account, are recognized at the time the related transaction or activity occurs, as it is at this point when we fulfill the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Summit satisfied the performance obligation. Overdraft fees are recognized when the overdraft occurs. Service fees on deposit accounts are paid through a direct charge to the customer’s account.
Bank card revenue
is comprised of interchange revenue and ATM fees. Interchange revenue is earned when Summit’s debit and credit cardholders conduct transactions through Mastercard and other payment networks. Interchange fees represent a percentage of the underlying cardholder’s transaction value and are generally recognized daily, concurrent with the transaction processing services provided to the cardholder. ATM fees are earned when a non-Summit cardholder uses a Summit ATM. ATM fees are recognized daily, as the related ATM transactions are settled.
Trust and wealth management fees
consist of 1) trust fees and 2) commissions earned from an independent, third-party broker-dealer. We earn trust fees from our contracts with trust clients to administer or manage assets for investment. Trust fees are earned over time (generally monthly) as Summit provides the contracted services and are assessed based on the value of assets under management at each month-end. We earn commissions from investment brokerage services provided to our clients by an independent, third-party broker-dealer. We receive monthly commissions from the third-party broker-dealer based upon client activity for the previous month.
Insurance commissions
principally consist of commissions we earn as agents of insurers for selling group employee benefit and property and casualty insurance products to clients. Group employee benefit insurance commissions are recognized over time (generally monthly) as the related customary implied servicing obligations of group policyholders are fulfilled. Property and casualty insurance commissions are recognized using methods which approximate the time of placement of the underlying policy. We are paid insurance commissions ratably as the related policy premiums are paid by clients.
The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended
June 30, 2018
|
Service fees on deposit accounts
|
|
$
|
1,116
|
|
|
$
|
2,207
|
|
Bank card revenue
|
|
801
|
|
|
1,550
|
|
Trust and wealth management fees
|
|
672
|
|
|
1,339
|
|
Insurance commissions
|
|
1,013
|
|
|
2,126
|
|
Other
|
|
58
|
|
|
137
|
|
Net revenue from contracts with customers
|
|
3,660
|
|
|
7,359
|
|
Non-interest income within the scope of other ASC topics
|
|
488
|
|
|
1,664
|
|
Total noninterest income
|
|
$
|
4,148
|
|
|
$
|
9,023
|
|
Gain or loss on sale of foreclosed properties
is recorded when control of the property transfers to the buyer, which generally occurs at the time of transfer of the deed. If Summit finances the sale of a foreclosed property to the buyer, we assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed property is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. For the three and six months ended June 30, 2018, net gains (losses) on sales of foreclosed properties were
$(58,000)
and
$6,000
.