NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
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BUSINESS
Organization:
The consolidated financial statements of First Financial Corporation and its subsidiaries (the Corporation) include the parent company and its wholly-owned subsidiaries, First Financial Bank, N.A. headquartered in Vigo County, Indiana, The Morris Plan Company of Terre Haute (Morris Plan), First Chanticleer Corporation, a property rental entity headquartered in Terre Haute, Indiana, and FFB Risk Management Co., Inc., a captive insurance subsidiary headquartered in Las Vegas, Nevada. Inter-company transactions and balances have been eliminated.
First Financial Bank also has
two
investment subsidiaries, Portfolio Management Specialists A (Specialists A) and Portfolio Management Specialists B (Specialists B), which were established to hold and manage certain assets as part of a strategy to better manage various income streams and provide opportunities for capital creation as needed. Specialists A and Specialists B subsequently entered into a limited partnership agreement, Global Portfolio Limited Partners. Portfolio Management Specialists B also owns First Financial Real Estate, LLC. At
December 31, 2017
,
$743.3 million
of securities and loans were owned by these subsidiaries. Specialists A, Specialists B, Global Portfolio Limited Partners and First Financial Real Estate LLC are included in the consolidated financial statements.
The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial, mortgage and consumer lending, lease financing, trust account services and depositor services through its four subsidiaries. The Corporation's primary source of revenue is derived from loans to customers and investment activities.
The Corporation operates 66 branches in west-central Indiana and east-central Illinois. First Financial Bank is the largest bank in Vigo County. It operates
11
full-service banking branches within the county;
one
in Daviess County, Indiana.; three in Clay County, Indiana;
one
in Gibson County, Indiana.;
one
in Greene County, Indiana; two in Knox County, Indiana; four in Parke County, Indiana;
one
in Putnam County, Indiana;
four
in Sullivan County, Indiana;
one
in Vanderburgh County, Indiana,;
four
in Vermillion County, Indiana; four in Champaign County, Illinois;
one
in Clark County, Illinois;
three
in Coles County, Illinois;
two
in Crawford County, Illinois;
two
in Franklin County, Illinois;
one
in Jasper County, Illinois;
two
in Jefferson County, Illinois;
one
in Lawrence County, Illinois;
two
in Livingston County, Illinois;
two
in Marion County, Illinois;
three
in McLean County, Illinois;
two
in Richland County, Illinois; six in Vermilion County, Illinois; and
one
in Wayne County, Illinois. It also has a main office in downtown Terre Haute and an operations center/office building in southern Terre Haute.
Regulatory Agencies:
First Financial Corporation is a multi-bank holding company and as such is regulated by various banking agencies. The holding company is regulated by the Seventh District of the Federal Reserve System. The national bank subsidiary is regulated by the Office of the Comptroller of the Currency. The state bank subsidiary is jointly regulated by the state banking organization and the Federal Deposit Insurance Corporation. FFB Risk Management Company is regulated by the State of Nevada Division of Insurance.
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates:
To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.
Cash Flows
: Cash and cash equivalents include cash and demand deposits with other financial institutions. Net cash flows are reported for customer loan and deposit transactions and short-term borrowings. Non-cash transactions include loans transferred to other real estate of
$0.9 million
,
$0.7 million
and
$1.3 million
for the years ended
December 31, 2017
,
2016
and
2015
respectively.
Securities
: The Corporation classifies all securities as "available for sale." Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value with unrealized holdings gains and losses, net of taxes, reported in other comprehensive income within shareholders' equity.
Interest income includes amortization of purchase premium or discount. Premiums and discounts are amortized on the level yield method without anticipating prepayments. Mortgage-backed securities are amortized over the expected life. Realized gains and losses on sales are based on the amortized cost of the security sold. Management evaluates securities for other-than temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
Loans:
Loans that management has the intent and ability to hold for the foreseeable future until maturity or pay-off are reported at the principal balance outstanding, net of unearned interest, purchase premiums and discounts, deferred loan fees and costs, and allowance for loan losses. Loans held for sale are reported at the lower of cost or fair value, on an aggregate basis. Interest income is accrued on the unpaid principal balance and includes amortization of net deferred loan fees and costs over the loan term without anticipating prepayments. The recorded investment in loans includes accrued interest receivable and net deferred loan fees and costs. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are significantly past due. Past-due status is based on the contractual terms of the loan.
All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. In all cases, loans are placed on non-accrual or charged-off if collection of principal or interest is considered doubtful. The above policies are consistent for all segments of loans.
Certain Purchased Loans:
The Corporation purchases individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased loans are recorded at the amount paid, such that there is no carryover of the seller's allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses. Such purchased loans are accounted for individually. The Corporation estimates the amount and timing of expected cash flows for each
purchased loan, and the expected cash flows in excess of amount paid are recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan's contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).
Over the life of the loan, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a provision for loan loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.
Concentration of Credit Risk:
Most of the Corporation's business activity is with customers located within west central Indiana and east central Illinois. Therefore, the Corporation's exposure to credit risk is significantly affected by changes in the economy of this area. A major economic downturn in this area would have a negative effect on the Corporation's loan portfolio.
The risk characteristics of each loan portfolio segment are as follows:
Commercial
Commercial loans are predominately loans to expand a business or finance asset purchases. The underlying risk in the Commercial loan segment is primarily a function of the reliability and sustainability of the cash flows of the borrower and secondarily on the underlying collateral securing the transaction. From time to time, the cash flows of borrowers may be less than historical or as planned. In addition, the underlying collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets financed or other business assets and most commercial loans are further supported by a personal guarantee. However, in some instances, short term loans are made on an unsecured basis. Agriculture production loans are typically secured by growing crops and generally secured by other assets such as farm equipment. Production loans are subject to weather and market pricing risks. The Corporation has established underwriting standards and guidelines for all commercial loan types.
The Corporation strives to maintain a geographically diverse commercial real estate portfolio. Commercial real estate loans are primarily underwritten based upon the cash flows of the underlying real estate or from the cash flows of the business conducted at the real estate. Generally, these types of loans will be fully guaranteed by the principal owners of the real estate and loan amounts must be supported by adequate collateral value. Commercial real estate loans may be adversely affected by factors in the local market, the regional economy, or industry specific factors. In addition, Commercial Construction loans are a specific type of commercial real estate loan which inherently carry more risk than loans for completed projects. Since these types of loans are underwritten utilizing estimated costs, feasibility studies, and estimated absorption rates, the underlying value of the project may change based upon the inaccuracy of these projections. Commercial construction loans are closely monitored, subject to industry standards, and disbursements are controlled during the construction process.
Residential
Retail real estate mortgages that are secured by 1-4 family residences are generally owner occupied and include residential real estate and residential real estate construction loans. The Corporation typically establishes a maximum loan-to-value ratio and generally requires private mortgage insurance if the ratio is exceeded. The Corporation sells substantially all of its long-term fixed mortgages to secondary market purchasers. Mortgages sold to secondary market purchasers are underwritten to specific guidelines. The Corporation originates some mortgages that are maintained in the bank’s loan portfolio. Portfolio loans are generally adjustable rate mortgages and are underwritten to conform to Qualified Mortgage standards. Several factors are considered in underwriting
all Mortgages including the value of the underlying real estate, debt-to-income ratio and credit history of the borrower. Repayment is primarily dependent upon the personal income of the borrower and can be impacted by changes in borrower’s circumstances such as changes in employment status and changes in real estate property values. Risk is mitigated by the sale of substantially all long-term fixed rate mortgages, the underwriting of portfolio loans to Qualified Mortgage standards and the fact that mortgages are generally smaller individual amounts spread over a large number of borrowers.
Consumer
The consumer portfolio primarily consists of home equity loans and lines (typically secured by a subordinate lien on a 1-4 family residence), secured loans (typically secured by automobiles, boats, recreational vehicles, or motorcycles), cash/CD secured, and unsecured loans. Pricing, loan terms, and loan to value guidelines vary by product line. The underlying value of collateral dependent loans may vary based on a number of economic conditions, including fluctuations in home prices and unemployment levels. Underwriting of consumer loans is based on the individual credit profile and analysis of the debt repayment capacity for each borrower. Payments for consumer loans is typically set-up on equal monthly installments, however, future repayment may be impacted by a change in economic conditions or a change in the personal income levels of individual customers. Overall risks within the consumer portfolio are mitigated by the mix of various loan products, lending in various markets and the overall make-up of the portfolio (small loan sizes and a large number of individual borrowers).
Allowance for Loan Losses:
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans as well as non-impaired classified loans and is based on historical loss experience adjusted for current factors.
A loan is impaired when full payment under the loan terms is not expected. Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgages and consumer loans, and on an individual basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows, using the loan's existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures.
The general component covers non-classified loans as well as non-impaired classified loans and is based on historical loss experience adjusted for current factors. The historical loss experience is based on the actual loss history experienced over the most recent four years. This actual loss experience is supplemented with other current factors based on the risks present for each portfolio segment. These current factors include consideration of the following: levels of and trends in delinquent, classified, and impaired loans; levels of and trends in charge-offs and recoveries; national and local economic trends and conditions; changes in lending policies and procedures; trends in volume and terms of loans; experience, ability, and depth of lending management and other relevant staff; credit concentrations; value of underlying collateral for collateral dependent loans; and other external factors such as competition and legal and regulatory requirements. The following portfolio segments have been identified: commercial loans, residential loans and consumer loans. A characteristic of the commercial loan segment is that the loans are for business purchases. A characteristic of the residential loan segment is that the loans are secured by residential properties. A characteristic of the consumer loan segment is that the loans are for automobiles and other consumer purchases. Commercial loans are generally well secured, which mitigates the risk of loss and has contributed to the low historical loss rate. However, concentrations in commercial real estate, along with the potential impact of rising interest rates to commercial real estate, raises the risk of loss on commercial loans. For these reasons, commercial loans have the highest adjustment to the historical loss rate. Continued weakness in local economic conditions along with declining auto values resulted in consumer loans having the next highest level of adjustment to the historical loss rate. The residential loan portfolio segment had the lowest level of adjustment to the historical loss rate.
Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
FDIC Indemnification Asset:
The FDIC indemnification asset results from the loss share agreements in the 2009 FDIC-assisted transaction. The asset is measured separately from the related covered assets as they are not contractually embedded in the assets and are not transferable with the assets should the Corporation choose to dispose of them. It represents the acquisition date fair value of expected reimbursements from the FDIC which was determined to be
$12.1 million
. Pursuant to the terms of the loss sharing agreement, covered loans and other real estate are subject to a stated loss threshold whereby the FDIC will reimburse the Corporation for up to
95%
of losses incurred. These expected reimbursements do not include reimbursable amounts related to future covered expenditures. These cash flows are discounted to reflect a metric of uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. This asset decreases when losses are realized and claims are paid by the FDIC or when customers repay their loans in full and expected losses do not occur. This asset also increases when estimated future losses increase. When estimated future losses increase, the Corporation records a provision for loan losses and increases its allowance for loan losses accordingly. The related increase or decrease in the FDIC indemnification asset is recorded as an (increase) or offset to the provision for loan losses. There were not any changes to the provision for loan losses related to the FDIC indemnification asset in
2017
,
2016
, and
2015
. At
December 31, 2017
,
2016
, and
2015
, the balance of the indemnification asset was not material and is included in other assets.
Foreclosed Assets:
Assets acquired through or instead of loan foreclosures are initially recorded at fair value less estimated selling costs when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.
Premises and Equipment:
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the useful lives of the assets, which range from
3
to
5
years for furniture and equipment and
33
to
39
years for buildings and leasehold improvements.
Restricted Stock:
Restricted stock includes Federal Home Loan Bank (FHLB) of Indianapolis and Federal Reserve stock. This restricted stock is carried at cost and periodically evaluated for impairment. Because this stock is viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Servicing Rights:
Servicing rights are recognized separately when they are acquired through sales of loans. When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on third-party valuations that incorporate assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, ancillary income, prepayment speeds and default rates and losses. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Corporation later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with Other Service Charges and Fees on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income, which is included in Other Service Charges and Fees on the income statement, is for fees earned for servicing loans.
The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled
$1.3 million
,
$1.3 million
and
$1.3 million
for the years ended
December 31, 2017
,
2016
and
2015
. Late fees and ancillary fees related to loan servicing are not material.
Stock based compensation:
Compensation cost is recognized for restricted stock awards and units issued to employees based on the fair value of these awards at the date of grant. Market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation expense is recognized over the requisite service period.
Transfers of Financial Assets:
Transfers of financial assets are accounted for as sales, when control over the assets has been
relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Bank-Owned Life Insurance:
The Corporation has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. Income on the investments in life insurance is included in other interest income.
Goodwill and Other Intangible Assets:
Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009 represents the future economic benefits arising from other assets acquired that are not individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Corporation has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.
Other intangible assets consist of core deposit assets arising from the whole bank and branch acquisitions. They are initially measured at fair value and then are amortized on an accelerated basis over their estimated useful lives, which are
10
and
12
years, respectively.
Long-Term Assets:
Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Benefit Plans:
Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The amount contributed is determined by a formula as decided by the Board of Directors. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.
Employee Stock Ownership Plan:
Shares of treasury stock are issued to the ESOP and compensation expense is recognized based upon the total market price of shares when contributed.
Deferred Compensation Plan:
Prior to 2011, a deferred compensation plan covered all directors. Under the plan, the Corporation pays each director, or their beneficiary, the amount of fees deferred plus interest over
10
years, beginning when the director achieves age
65
. A liability is accrued for the obligation under these plans. The expense incurred for the deferred compensation for each of the last three years was
$95 thousand
,
$114 thousand
and
$142 thousand
, resulting in a deferred compensation liability of
$2.0 million
at
December 31, 2017
and
$2.1 million
at
December 31, 2016
. There are no deferred compensation plans now in effect for directors.
Incentive Plans:
A long-term incentive plan established in 2000 provides for the payment of incentive rewards as a
15
-year annuity to all directors and certain key officers. That plan was in place through December 31, 2009, and compensation expense is recognized over the service period. Payments under the plan generally did not begin until the earlier of January 1, 2015, or the January 1 immediately following the year in which the participant reaches age
65
. There was no compensation expense related to this plan for
2017
,
2016
and
2015
. There is a liability of
$11.4 million
and
$12.3 million
as of year-end
2017
and
2016
. In 2011 the Corporation adopted the 2011 Short-term Incentive Plan and the 2011 Omnibus Equity Incentive Plan designed to reward key officers based on certain performance measures. The short-term portion of the plan is paid out within 75 days of year end and the long-term plan vests over a
three
year period and is paid out within 75 days of the end of each vesting period. The compensation expense related to the plans in
2017
,
2016
and
2015
was
$1.6 million
,
$1.5 million
and
$1.4 million
, respectively, and resulted in a liability of
$836 thousand
at
December 31, 2017
and
$823 thousand
at
December 31, 2016
.
The Omnibus Equity Incentive Plan is a long term incentive plan that was designed to align the interests of participants with the interest of shareholders. Under the plan, awards may be made based on certain performance measures. The grants are made in restricted stock units that are subject to a vesting schedule.
Income Taxes:
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.
Loan Commitments and Related Financial Instruments:
Financial instruments include credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Earnings Per Share:
Earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. The Corporation does not have any potentially dilutive securities as the restricted stock awards are included in outstanding shares.. Earnings and dividends per share are restated for stock splits and dividends through the date of issue of the financial statements.
Comprehensive Income:
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the retirement plans, net of taxes, which are also recognized as separate components of equity.
Loss Contingencies:
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of range of loss can be reasonably estimated. Management does not believe there are currently such matters that will have a material effect on the financial statements.
Dividend Restriction:
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders.
Fair Value of Financial Instruments:
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or market conditions could significantly affect the estimates.
Operating Segment:
While the Corporation's chief decision-makers monitor the revenue streams of the various products and services, the operating results of significant segments are similar and operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all of the Corporation's financial service operations are considered by management to be aggregated in one reportable operating segment, which is banking.
Accounting Pronouncements Adopted:
ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting” includes provisions intended to simplify
various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the
key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in
additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense
or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that
excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present
excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the
amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification
for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an
employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding
obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should
be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition
of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur.
The Corporation adopted ASU 2016-09 in the first quarter of 2017. The adoption of ASU No. 2016-09 did not have a material
impact on the consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, “Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the
accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Corporation elected to early adopt ASU 2017-08 in the fourth quarter of 2017. The adoption of this guidance did not have a material impact on the Corporation’s financial statements.
Recently Issued Not Yet Effective Accounting Pronouncements
:
In May 2014, the FASB issued an update (ASU No. 2014-09, Revenue from Contracts with Customers) creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2015-4 “Revenue from Contracts with Customers - Deferral of the Effective Date” deferred the effective date of ASU 2014-09 by one year and as a result, the new standard will be effective the first quarter of 2018. The Corporation’s revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. Based on the Corporation’s analysis of the effect of the new standard on its recurring revenue streams, the Corporation did not expect and did not experience an impact on the Corporation’s financial statements upon adoption in the first quarter of 2018. No adjustments to opening retained earnings was recorded on January 1, 2018.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, amending ASU Subtopic 825-10. The amendments in this update make targeted improvements to generally accepted accounting principles (GAAP) as follows: 1) Require equity investments to be measured at fair value with changes in fair value recognized in net income.; 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.; 3) Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities.; 4) Eliminate the requirement for public business entities to disclose the method(s) 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.; 5) Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.; 6) Require 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.; 7) Require 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 8) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update are effective for fiscal years beginning after December 15, 2017. ASU 2016-1 became effective on January 1, 2018 and did not have a significant impact on the Corporation’s financial statements. However, the fair value disclosures for our loan portfolio will consider the exit price.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, 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. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. The Corporation continues to evaluate the provision of the new lease standard but, due to the small number of lease agreements presently in effect for the Corporation, does not expect the new guidance will have a significant impact on the Corporation’s financial statements.
In June 2016 ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), was issued and requires entities to use a current expected credit loss ("CECL") model which is a new impairment model based on expected losses rather than incurred losses. Under this model an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost. The entity's estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts, which will result in recognition of lifetime expected credit losses upon loan origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018. Management has initiated an implementation committee to assist in assessing data and system needs for the new standard. Management anticipates the effect will be an increase to the allowance for loan losses upon adoption, however, the overall increase is uncertain at this time.
In August of 2016 ASU 2016-15 "Statement of Cash Flows (Topic 230)" ("ASU 2016-15") was issued and is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. ASU 2016-15 became effective on January 1, 2018 and did not have a significant impact on the Corporation’s accounting and disclosures.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Corporation is assessing ASU 2017-04 but does not expect a significant impact on its accounting and disclosures.
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, the Corporation has decided not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. ASU 2017-07 became effective on January 1, 2018 and did not have a significant impact on the Corporation’s accounting and disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification”. ASU 2017-09 was issued to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. Diversity in practice has arisen in part because some entities apply modification accounting under Topic 718 for modifications to terms and conditions that they consider substantive, but do not when they conclude that particular modifications are not substantive. Others apply modification accounting for any change to an award, except for changes that they consider purely administrative in nature. Still others apply modification accounting when a change to an award changes the fair value, the vesting, or the classification of the award. In practice, it appears that the evaluation of a change in fair value, vesting, or classification may be used to evaluate whether a change is substantive. ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. ASU 2017-09 is effective for the annual period, and interim periods within the annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for: (a) public business entities for reporting periods for which financial statements have not yet been issued, and (b) all other entities for reporting periods for which financial statements have not yet been made available for issuance. ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. ASU 2017-07 became effective on January 1, 2018 and did not have a significant impact on the Corporation’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017 that changed the Company’s income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15,
2018 although early adoption is permitted. The Corporation will adopt the standard in the first quarter of 2018 and adoption will not have a material impact on the consolidated financial statements.
|
|
2.
|
FAIR VALUES OF FINANCIAL INSTRUMENTS:
|
Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair value of securities available-for-sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).
For those securities that cannot be priced using quoted market prices or observable inputs, a Level 3 valuation is determined. These securities are primarily trust preferred securities, which are priced using Level 3 due to current market illiquidity, and state and municipal securities. The fair value of the trust preferred securities is obtained from a third party provider without adjustment. Management obtains values from other pricing sources to validate the Standard & Poors pricing that they currently utilizes. The fair value of state and municipal obligations are derived by comparing the securities to current market rates plus an appropriate credit spread to determine an estimated value. Illiquidity spreads are then considered. Credit reviews are performed on each of the issuers. The significant unobservable inputs used in the fair value measurement of the Corporation’s state and municipal obligations are credit spreads related to specific issuers. Significantly higher credit spread assumptions would result in significantly lower fair value measurement. Conversely, significantly lower credit spreads would result in a significantly higher fair value measurement.
The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2 inputs).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
Fair Value Measurement Using
|
(Dollar amounts in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Carrying Value
|
U.S. Government entity mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
13,695
|
|
|
$
|
—
|
|
|
$
|
13,695
|
|
Mortgage-backed securities, residential
|
|
—
|
|
|
215,338
|
|
|
—
|
|
|
215,338
|
|
Mortgage-backed securities, commercial
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Collateralized mortgage obligations
|
|
—
|
|
|
339,670
|
|
|
—
|
|
|
339,670
|
|
State and municipal obligations
|
|
—
|
|
|
227,942
|
|
|
3,680
|
|
|
231,622
|
|
Collateralized debt obligations
|
|
—
|
|
|
—
|
|
|
14,605
|
|
|
14,605
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
796,646
|
|
|
$
|
18,285
|
|
|
$
|
814,931
|
|
Derivative Assets
|
|
|
|
|
$
|
298
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
(298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
Fair Value Measurement Using
|
(Dollar amounts in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Carrying Value
|
U.S. Government entity mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
13,249
|
|
|
$
|
—
|
|
|
$
|
13,249
|
|
Mortgage-backed securities, residential
|
|
—
|
|
|
261,005
|
|
|
—
|
|
|
261,005
|
|
Mortgage-backed securities, commercial
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Collateralized mortgage obligations
|
|
—
|
|
|
348,176
|
|
|
—
|
|
|
348,176
|
|
State and municipal obligations
|
|
—
|
|
|
214,713
|
|
|
4,210
|
|
|
218,923
|
|
Collateralized debt obligations
|
|
—
|
|
|
—
|
|
|
12,368
|
|
|
12,368
|
|
TOTAL
|
|
$
|
—
|
|
|
$
|
837,147
|
|
|
$
|
16,578
|
|
|
$
|
853,725
|
|
Derivative Assets
|
|
|
|
|
$
|
653
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
(653
|
)
|
|
|
|
|
|
|
There were no transfers between Level 1 and Level 2 during
2017
and
2016
.
The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve months ended
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
December 31, 2017
|
|
|
State and municipal obligations
|
|
Collateralized debt obligations
|
|
Total
|
Beginning balance, January 1
|
|
$
|
4,210
|
|
|
$
|
12,368
|
|
|
$
|
16,578
|
|
Total realized/unrealized gains or losses
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
—
|
|
|
—
|
|
|
—
|
|
Included in other comprehensive income
|
|
—
|
|
|
2,773
|
|
|
2,773
|
|
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
(530
|
)
|
|
(536
|
)
|
|
(1,066
|
)
|
Ending balance, December 31
|
|
$
|
3,680
|
|
|
$
|
14,605
|
|
|
$
|
18,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
December 31, 2016
|
|
|
State and
municipal
obligations
|
|
Collateralized
debt obligations
|
|
Total
|
Beginning balance, January 1
|
|
$
|
4,725
|
|
|
$
|
14,875
|
|
|
$
|
19,600
|
|
Total realized/unrealized gains or losses
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
—
|
|
|
—
|
|
|
—
|
|
Included in other comprehensive income
|
|
—
|
|
|
(2,066
|
)
|
|
(2,066
|
)
|
Transfers
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
(515
|
)
|
|
(441
|
)
|
|
(956
|
)
|
Ending balance, December 31
|
|
$
|
4,210
|
|
|
$
|
12,368
|
|
|
$
|
16,578
|
|
There were no unrealized gains and losses recorded in earnings for the years ended December 31,
2017
,
2016
or
2015
.
Impaired loans disclosed in footnote 7, which are measured for impairment using the fair value of collateral, are valued at Level 3. They are carried at a fair value of
$3.9 million
, after a valuation allowance of
$0.6 million
at
December 31, 2017
and at a fair value of
$1.4 million
, net of a valuation allowance of
$0.3 million
at
December 31, 2016
. The impact to the provision for loan losses for the twelve months ended
December 31, 2017
and
December 31, 2016
was a
$294 thousand
increase and a
$523 thousand
decrease, respectively. Other real estate owned is valued at Level 3. Other real estate owned at
December 31, 2017
with a value of
$1.9 million
was reduced
$951 thousand
for fair value adjustment. At
December 31, 2017
other real estate owned was comprised
of
$1.7 million
from commercial loans and
$212 thousand
from residential loans. Other real estate owned at
December 31, 2016
with a value of
$2.5 million
was reduced
$930 thousand
for fair value adjustment. At
December 31, 2016
other real estate owned was comprised of
$2.0 million
from commercial loans and
$483 thousand
from residential loans.
Fair value is measured based on the value of the collateral securing those loans, and is determined using several methods. Generally the fair value of real estate is determined based on appraisals by qualified licensed appraisers. Appraisals for real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value on the cost to replace current property. The market comparison evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and the investor’s required return. The final fair value is based on a reconciliation of these three approaches. If an appraisal is not available, the fair value may be determined by using a cash flow analysis, a broker’s opinion of value, the net present value of future cash flows, or an observable market price from an active market. Fair value of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions. Appraisals are obtained annually and reductions in value are recorded as a valuation through a charge to expense. The primary unobservable input used by management in estimating fair value are additional discounts to the appraised value to consider market conditions and the age of the appraisal, which are based on management’s past experience in resolving these types of properties. These discounts range from
0%
to
50%
. Values for non-real estate collateral, such as business equipment, are based on appraisals performed by qualified licensed appraisers or the customers financial statements. Values for non real estate collateral use much higher discounts than real estate collateral. Other real estate and impaired loans carried at fair value are primarily comprised of smaller balance properties.
The following tables present quantitative information about recurring and non-recurring Level 3 fair value measurements at
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
Fair Value
|
|
Valuation Technique(s)
|
|
Unobservable Input(s)
|
|
Range
|
State and municipal obligations
|
|
$
|
3,680
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
2.30%-5.45%
|
|
|
|
|
|
|
|
|
Probability of default
|
|
—
|
%
|
Other real estate
|
|
$
|
1,880
|
|
|
Sales comparison/income approach
|
|
Discount rate for age of appraisal and market conditions
|
|
5.00%-20.00%
|
|
Impaired Loans
|
|
$
|
3,882
|
|
|
Sales comparison/income approach
|
|
Discount rate for age of appraisal and market conditions
|
|
0.00%-50.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Fair Value
|
|
Valuation Technique(s)
|
|
Unobservable Input(s)
|
|
Range
|
State and municipal obligations
|
|
$
|
4,210
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
3.05%-5.50%
|
|
|
|
|
|
|
|
|
Probability of default
|
|
—
|
%
|
Other real estate
|
|
$
|
2,531
|
|
|
Sales comparison/income approach
|
|
Discount rate for age of appraisal and market conditions
|
|
5.00%-20.00%
|
|
Impaired Loans
|
|
$
|
1,387
|
|
|
Sales comparison/income approach
|
|
Discount rate for age of appraisal and market conditions
|
|
0.00%-50.00%
|
|
The following tables present impaired collateral dependent loans measured at fair value on a non-recurring basis by class of loans as of
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
(Dollar amounts in thousands)
|
|
Carrying Value
|
|
Allowance
for Loan
Losses
Allocated
|
|
Fair Value
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
493
|
|
|
$
|
146
|
|
|
$
|
347
|
|
Farmland
|
|
3,035
|
|
|
268
|
|
|
2,767
|
|
Non Farm, Non Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
Agriculture
|
|
537
|
|
|
205
|
|
|
332
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
442
|
|
|
6
|
|
|
436
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
TOTAL
|
|
$
|
4,507
|
|
|
$
|
625
|
|
|
$
|
3,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
(Dollar amounts in thousands)
|
|
Carrying Value
|
|
Allowance
for Loan
Losses
Allocated
|
|
Fair Value
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
537
|
|
|
$
|
36
|
|
|
$
|
501
|
|
Farmland
|
|
—
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
657
|
|
|
206
|
|
|
451
|
|
Agriculture
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
524
|
|
|
89
|
|
|
435
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
TOTAL
|
|
$
|
1,718
|
|
|
$
|
331
|
|
|
$
|
1,387
|
|
The carrying amounts and estimated fair values of financial instruments are shown below. Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, accrued interest receivable and payable, demand deposits, short-term and certain other borrowings, and variable-rate loans or deposits that reprice frequently and fully. Security fair values are determined as previously described. It is not practicable to determine the fair value of restricted stock due to restrictions placed on their transferability. For fixed-rate loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. Fair values for
impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.
The carrying amount and estimated fair value of assets and liabilities are presented in the table below and were determined based on the above assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Carrying
|
|
Fair Value
|
(Dollar amounts in thousands)
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and due from banks
|
|
$
|
74,107
|
|
|
$
|
20,682
|
|
|
$
|
53,425
|
|
|
$
|
—
|
|
|
$
|
74,107
|
|
Securities available-for-sale
|
|
814,931
|
|
|
—
|
|
|
796,646
|
|
|
18,285
|
|
|
814,931
|
|
Restricted stock
|
|
10,379
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Loans, net
|
|
1,886,852
|
|
|
—
|
|
|
—
|
|
|
1,878,166
|
|
|
1,878,166
|
|
Accrued interest receivable
|
|
12,913
|
|
|
—
|
|
|
3,596
|
|
|
9,317
|
|
|
12,913
|
|
Deposits
|
|
(2,458,653
|
)
|
|
—
|
|
|
(2,456,900
|
)
|
|
—
|
|
|
(2,456,900
|
)
|
Short-term borrowings
|
|
(57,686
|
)
|
|
—
|
|
|
(57,686
|
)
|
|
—
|
|
|
(57,686
|
)
|
Federal Home Loan Bank advances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accrued interest payable
|
|
(372
|
)
|
|
—
|
|
|
(372
|
)
|
|
—
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Carrying
|
|
Fair Value
|
(Dollar amounts in thousands)
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and due from banks
|
|
$
|
75,012
|
|
|
$
|
21,047
|
|
|
$
|
53,965
|
|
|
$
|
—
|
|
|
$
|
75,012
|
|
Federal funds sold
|
|
6,952
|
|
|
—
|
|
|
6,952
|
|
|
—
|
|
|
6,952
|
|
Securities available-for-sale
|
|
853,725
|
|
|
—
|
|
|
837,147
|
|
|
16,578
|
|
|
853,725
|
|
Restricted stock
|
|
10,359
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Loans, net
|
|
1,820,407
|
|
|
—
|
|
|
—
|
|
|
1,854,046
|
|
|
1,854,046
|
|
Accrued interest receivable
|
|
12,311
|
|
|
—
|
|
|
3,340
|
|
|
8,971
|
|
|
12,311
|
|
Deposits
|
|
(2,428,526
|
)
|
|
—
|
|
|
(2,414,555
|
)
|
|
—
|
|
|
(2,414,555
|
)
|
Short-term borrowings
|
|
(80,989
|
)
|
|
—
|
|
|
(80,989
|
)
|
|
—
|
|
|
(80,989
|
)
|
Federal Home Loan Bank advances
|
|
(132
|
)
|
|
—
|
|
|
(137
|
)
|
|
—
|
|
|
(137
|
)
|
Accrued interest payable
|
|
(363
|
)
|
|
—
|
|
|
(363
|
)
|
|
—
|
|
|
(363
|
)
|
|
|
3.
|
RESTRICTIONS ON CASH AND DUE FROM BANKS:
|
Certain affiliate banks are required to maintain average reserve balances with the Federal Reserve Bank. The amount of those reserve balances was approximately
$12.5 million
and
$12.0 million
at
December 31, 2017
and
2016
, respectively.
4.
SECURITIES:
The fair value of securities available-for-sale and related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Amortized
|
|
Unrealized
|
|
|
(Dollar amounts in thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
U.S. Government entity mortgage-backed securities
|
|
$
|
13,989
|
|
|
$
|
24
|
|
|
$
|
(318
|
)
|
|
$
|
13,695
|
|
Mortgage-backed securities, residential
|
|
215,079
|
|
|
2,071
|
|
|
(1,812
|
)
|
|
215,338
|
|
Mortgage-backed securities, commercial
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Collateralized mortgage obligations
|
|
346,005
|
|
|
370
|
|
|
(6,705
|
)
|
|
339,670
|
|
State and municipal obligations
|
|
227,651
|
|
|
4,671
|
|
|
(700
|
)
|
|
231,622
|
|
Collateralized debt obligations
|
|
8,644
|
|
|
5,961
|
|
|
—
|
|
|
14,605
|
|
TOTAL
|
|
$
|
811,369
|
|
|
$
|
13,097
|
|
|
$
|
(9,535
|
)
|
|
$
|
814,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Amortized
|
|
Unrealized
|
|
|
(Dollar amounts in thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
U.S. Government entity mortgage-backed securities
|
|
$
|
13,594
|
|
|
$
|
32
|
|
|
$
|
(377
|
)
|
|
$
|
13,249
|
|
Mortgage-backed securities, residential
|
|
261,878
|
|
|
3,200
|
|
|
(4,073
|
)
|
|
261,005
|
|
Mortgage-backed securities, commercial
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Collateralized mortgage obligations
|
|
353,499
|
|
|
1,021
|
|
|
(6,344
|
)
|
|
348,176
|
|
State and municipal obligations
|
|
217,365
|
|
|
3,954
|
|
|
(2,396
|
)
|
|
218,923
|
|
Collateralized debt obligations
|
|
9,181
|
|
|
4,411
|
|
|
(1,224
|
)
|
|
12,368
|
|
TOTAL
|
|
$
|
855,521
|
|
|
$
|
12,618
|
|
|
$
|
(14,414
|
)
|
|
$
|
853,725
|
|
As of
December 31, 2017
, the Corporation does not have any securities from any issuer, other than the U.S. Government, with an aggregate book or fair value that exceeds ten percent of shareholders' equity.
Securities with a carrying value of approximately
$423.9 million
and
$391.1 million
at
December 31, 2017
and
2016
, respectively, were pledged as collateral for short-term borrowings and for other purposes.
Below is a summary of the gross gains and losses realized by the Corporation on investment sales and calls during the years ended
December 31, 2017
,
2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Proceeds
|
|
$
|
15,348
|
|
|
$
|
8,160
|
|
|
$
|
3,735
|
|
Gross gains
|
|
185
|
|
|
39
|
|
|
23
|
|
Gross losses
|
|
(126
|
)
|
|
(5
|
)
|
|
(6
|
)
|
Gains of
$185 thousand
and losses of
$126 thousand
in
2017
and gains of
$39 thousand
and losses of
$5 thousand
in
2016
and gains of
$23 thousand
and losses of
$6 thousand
in
2015
resulted from redemption premiums on called and sold securities.
Contractual maturities of debt securities at year-end
2017
were as follows. Securities not due at a single maturity or with no maturity date, primarily mortgage-backed and collateralized mortgage obligations, are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Amortized
|
|
Fair
|
(Dollar amounts in thousands)
|
|
Cost
|
|
Value
|
Due in one year or less
|
|
$
|
4,683
|
|
|
$
|
4,701
|
|
Due after one but within five years
|
|
30,765
|
|
|
31,338
|
|
Due after five but within ten years
|
|
83,483
|
|
|
85,726
|
|
Due after ten years
|
|
131,353
|
|
|
138,157
|
|
|
|
250,284
|
|
|
259,922
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
561,085
|
|
|
555,009
|
|
TOTAL
|
|
$
|
811,369
|
|
|
$
|
814,931
|
|
The following tables show the securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Less Than 12 Months
|
|
More Than 12 Months
|
|
Total
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
(Dollar amounts in thousands)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
U.S. Government entity mortgage-backed securities
|
|
$
|
9,321
|
|
|
$
|
(86
|
)
|
|
3,538
|
|
|
(232
|
)
|
|
$
|
12,859
|
|
|
$
|
(318
|
)
|
Mortgage-backed securities, residential
|
|
79,918
|
|
|
(425
|
)
|
|
53,815
|
|
|
(1,387
|
)
|
|
133,733
|
|
|
(1,812
|
)
|
Collateralized mortgage obligations
|
|
150,182
|
|
|
(1,418
|
)
|
|
146,750
|
|
|
(5,287
|
)
|
|
296,932
|
|
|
(6,705
|
)
|
State and municipal obligations
|
|
27,347
|
|
|
(183
|
)
|
|
18,660
|
|
|
(517
|
)
|
|
46,007
|
|
|
(700
|
)
|
Total temporarily impaired securities
|
|
$
|
266,768
|
|
|
$
|
(2,112
|
)
|
|
$
|
222,763
|
|
|
$
|
(7,423
|
)
|
|
$
|
489,531
|
|
|
$
|
(9,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Less Than 12 Months
|
|
More Than 12 Months
|
|
Total
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
(Dollar amounts in thousands)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
U.S. Government entity mortgage-backed securities
|
|
$
|
12,224
|
|
|
$
|
(377
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,224
|
|
|
$
|
(377
|
)
|
Mortgage-backed securities, residential
|
|
202,248
|
|
|
(4,072
|
)
|
|
152
|
|
|
(1
|
)
|
|
202,400
|
|
|
(4,073
|
)
|
Collateralized mortgage obligations
|
|
169,717
|
|
|
(3,086
|
)
|
|
79,999
|
|
|
(3,258
|
)
|
|
249,716
|
|
|
(6,344
|
)
|
State and municipal obligations
|
|
72,852
|
|
|
(2,396
|
)
|
|
—
|
|
|
—
|
|
|
72,852
|
|
|
(2,396
|
)
|
Collateralized debt obligations
|
|
7,561
|
|
|
(1,224
|
)
|
|
—
|
|
|
—
|
|
|
7,561
|
|
|
(1,224
|
)
|
Total temporarily impaired securities
|
|
$
|
464,602
|
|
|
$
|
(11,155
|
)
|
|
$
|
80,151
|
|
|
$
|
(3,259
|
)
|
|
$
|
544,753
|
|
|
$
|
(14,414
|
)
|
The Corporation held
239
investment securities with an amortized cost greater than fair value as of
December 31, 2017
. The unrealized losses on collateralized mortgage obligations, all mortgage-backed securities and state and municipal obligations represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the issuer. Gross unrealized losses on investment securities were
$9.5 million
as of
December 31, 2017
and
$14.4 million
as of
December 31, 2016
. Management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery. Management believes the value will recover as the securities approach maturity or market rates change.
Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model.
Investment securities are generally evaluated for OTTI under FASB ASC 320,
Investments—Debt and Equity Securities.
However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40,
Beneficial Interests in Securitized Financial Assets.
In determining OTTI under the FASB ASC-320 model, management considers many factors, including: (1)the length of time and the extent to which the fair value has been less than cost, (2)the financial condition and near-term prospects of the issuer, (3) whether the fair value decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
The second segment of the portfolio uses the OTTI guidance provided by FASB ASC-325 that is specific to purchase beneficial interests that, on the purchase date, were rated below AA. Under the FASB ASC-325 model, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
In prior years, a significant portion of the total unrealized losses relates to collateralized debt obligations that were separately evaluated under FASB ASC 325-40,
Beneficial Interests in Securitized Financial Assets.
Based upon qualitative considerations, such as a downgrade in credit rating or further defaults of underlying issuers during the year, and an analysis of expected cash flows, we determined that three CDOs included in collateralized debt obligations were other-than-temporarily impaired. One of the CDO's was called in first quarter 2017. The remaining
two
CDO’s have a contractual balance of
$18.4 million
at
December 31, 2017
which has been reduced to
$14.6 million
by
$2.6 million
of interest payments received,
$7.2 million
of cumulative OTTI charges recorded through earnings to date and increased by
$6.0 million
recorded in other comprehensive income. The severity of the OTTI recorded varies by security, based on the analysis described below, and ranges, at
December 31, 2017
from
28%
to
80%
. The temporary impairment recorded in other comprehensive income is due to factors other than credit loss, mainly current market illiquidity. These securities are collateralized by trust preferred securities issued primarily by bank holding companies, but certain pools do include a limited number of insurance companies. The Corporation uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to determine if there are adverse changes in cash flows during the year. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. Cash flows are projected using a forward rate LIBOR curve, as these CDOs are variable-rate instruments. An average rate is then computed using this same forward rate curve to determine an appropriate discount rate (
3 month LIBOR
plus margin ranging from 160 to 180 basis points). The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information, including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and treat all interest payment deferrals as defaults. In addition we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Corporation’s note class. In the current year management determined there was no OTTI. There was no OTTI recorded in 2016 or 2015.
Collateralized debt obligations include one additional investment in a CDO consisting of pooled trust preferred securities in which the issuers are primarily banks. This CDO was paid in full in 2015. In the first quarter of 2017 a CDO with no remaining book value was called with the bank receiving
$3.1 million
, which is included in other non-interest income on the consolidated statements of income and comprehensive income.
Management has consistently used Standard & Poors pricing to value these investments. There are a number of other pricing sources available to determine fair value for these investments. These sources utilize a variety of methods to determine fair value. The result is a wide range of estimates of fair value for these securities. The Standard & Poors pricing ranges from
67.64
to
79.33
while Moody’s Investor Service pricing ranges from
19.53
to
49.45
, with others falling somewhere in between. We recognize that the Standard & Poors pricing utilized is an estimate, but have been consistent in using this source and its estimate of fair value.
The table below presents a rollforward of the credit losses recognized in earnings for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance, January 1,
|
|
$
|
13,974
|
|
|
$
|
13,995
|
|
|
$
|
14,050
|
|
Amounts related to credit loss for which other-than-
|
|
|
|
|
|
|
|
|
|
temporary impairment was not previously recognized
|
|
—
|
|
|
—
|
|
|
—
|
|
Reductions for securities called during the period
|
|
(6,842
|
)
|
|
|
|
|
|
|
Reductions for increase in cash flows expected to be collected
|
|
|
|
|
|
|
|
|
|
that are recognized over the remaining life of the security
|
|
—
|
|
|
(21
|
)
|
|
(55
|
)
|
Increases to the amount related to the credit loss for which other-
|
|
|
|
|
|
|
|
|
|
than-temporary impairment was previously recognized
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance, December 31,
|
|
$
|
7,132
|
|
|
$
|
13,974
|
|
|
$
|
13,995
|
|
5. LOANS:
Loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Commercial
|
|
$
|
1,139,490
|
|
|
$
|
1,106,182
|
|
Residential
|
|
436,143
|
|
|
423,911
|
|
Consumer
|
|
327,976
|
|
|
305,881
|
|
Total gross loans
|
|
1,903,609
|
|
|
1,835,974
|
|
Deferred costs, net
|
|
3,152
|
|
|
3,206
|
|
Allowance for loan losses
|
|
(19,909
|
)
|
|
(18,773
|
)
|
TOTAL
|
|
$
|
1,886,852
|
|
|
$
|
1,820,407
|
|
Loans in the above summary include loans totaling
$4.3 million
and
$5.1 million
at
December 31, 2017
and
2016
that are subject to the FDIC loss share arrangement (“covered loans”) discussed in footnote 6.
The Corporation periodically sells residential mortgage loans it originates based on the overall loan demand of the Corporation and the outstanding balances in the residential mortgage portfolio. At
December 31, 2017
and
2016
, loans held for sale included
$4.1 million
and
$6.1 million
, respectively, and are included in the totals above.
In the normal course of business, the Corporation’s subsidiary banks make loans to directors and executive officers and to their associates. In
2017
, the aggregate dollar amount of these loans to directors and executive officers who held office amounted to
$59.1 million
at the beginning of the year. During
2017
, advances of
$26.9 million
, repayments of
$43.3 million
were made with respect to related party loans for an aggregate dollar amount outstanding of
$42.7 million
at
December 31, 2017
.
Loans serviced for others, which are not reported as assets, total
$484.4 million
and
$496.2 million
at year-end
2017
and
2016
. Custodial escrow balances maintained in connection with serviced loans were
$2.8 million
and
$2.7 million
at year-end
2017
and
2016
.
Activity for capitalized mortgage servicing rights (included in other assets) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Servicing rights:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
1,549
|
|
|
$
|
1,746
|
|
|
$
|
1,863
|
|
Additions
|
|
477
|
|
|
480
|
|
|
531
|
|
Amortized to expense
|
|
(592
|
)
|
|
(677
|
)
|
|
(648
|
)
|
End of year
|
|
$
|
1,434
|
|
|
$
|
1,549
|
|
|
$
|
1,746
|
|
Third party valuations are conducted periodically for mortgage servicing rights. Based on these valuations, fair values were approximately
$2.3 million
and
$2.6 million
at year end
2017
and
2016
. There was no valuation allowance in
2017
or
2016
.
Fair value for
2017
was determined using a discount rate of
13%
, prepayment speeds ranging from
112%
to
250%
, depending on the stratification of the specific right. Fair value at year end
2016
was determined using a discount rate of
12%
, prepayment speeds ranging from
108%
to
316%
, depending on the stratification of the specific right. Mortgage servicing rights are amortized over
8
years, the expected life of the sold loans.
|
|
6.
|
ACQUISITIONS, DIVESTITURES AND FDIC INDEMNIFICATION ASSET:
|
The Bank is party to a loss sharing agreement with the Federal Deposit Insurance Corporation (“FDIC”) as a result of a 2009 acquisition. Under the loss-sharing agreement (“LSA”), the Bank will share in the losses on assets covered under the agreement (referred to as covered assets). On losses up to
$29 million
, the FDIC agreed to reimburse the Bank for
80%
of the losses. On losses exceeding
$29 million
, the FDIC agreed to reimburse the Bank for
95%
of the losses. The loss-sharing agreement is subject to following servicing procedures as specified in the agreement with the FDIC. Loans acquired that are subject to the loss-sharing agreement with the FDIC are referred to as covered loans for disclosure purposes. Since the acquisition date the Bank has been reimbursed
$24.3 million
for losses and carrying expenses. In 2014 the non-single family (NSF) loss period ended eliminating future loss reimbursements only to the extent of recoveries received. There is no estimate for the loans subject to the loss-sharing agreement identified in the allowance for loan loss evaluation as future potential losses at
December 31, 2017
. Loans covered by the loss share agreement excluding AS 310-30 loans at
December 31, 2017
and
2016
totaled
$4.3 million
and
$5.1 million
, respectively.
FASB ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality,
applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. FASB ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition. The carrying amount of loans accounted for in accordance with FASB ASC 310-30 at
December 31, 2017
and
2016
, are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Consumer
|
|
Total
|
Beginning balance
|
|
$
|
3,451
|
|
|
$
|
1,430
|
|
|
$
|
4,881
|
|
Discount accretion
|
|
—
|
|
|
—
|
|
|
—
|
|
Disposals
|
|
(1,555
|
)
|
|
(1,430
|
)
|
|
(2,985
|
)
|
ASC 310-30 Loans
|
|
$
|
1,896
|
|
|
$
|
—
|
|
|
$
|
1,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Consumer
|
|
Total
|
Beginning balance
|
|
$
|
4,122
|
|
|
$
|
1,480
|
|
|
$
|
5,602
|
|
Discount accretion
|
|
—
|
|
|
—
|
|
|
—
|
|
Disposals
|
|
(671
|
)
|
|
(50
|
)
|
|
(721
|
)
|
ASC 310-30 Loans
|
|
$
|
3,451
|
|
|
$
|
1,430
|
|
|
$
|
4,881
|
|
During the quarter ended March 31, 2016 the Corporation sold a significant portion of the assets and liabilities of the insurance operation for a gain of
$12.8 million
. Settlement of the transaction has been completed and the original gain was reduced by
$199 thousand
during the third quarter of 2016. The total assets, total revenues and net income of the insurance operation for 2015 were
$13.0 million
,
$7.6 million
and
$168 thousand
, respectively. For 2014 they were
$15.8 million
,
$8.3 million
and
$544 thousand
, respectively. The Corporation has chosen to focus its resources on the core banking activities. The sale of the insurance operations eliminated the goodwill of
$5.1 million
from the original acquisition.
7. ALLOWANCE FOR LOAN LOSSES:
The following table presents the activity of the allowance for loan losses by portfolio segment for the years ended
December 31, 2017
,
2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses:
|
|
|
|
December 31, 2017
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Beginning balance
|
|
$
|
9,731
|
|
|
$
|
1,553
|
|
|
$
|
5,767
|
|
|
$
|
1,722
|
|
|
$
|
18,773
|
|
Provision for loan losses
|
|
745
|
|
|
(179
|
)
|
|
4,987
|
|
|
(258
|
)
|
|
5,295
|
|
Loans charged -off
|
|
(1,572
|
)
|
|
(761
|
)
|
|
(6,429
|
)
|
|
—
|
|
|
(8,762
|
)
|
Recoveries
|
|
1,377
|
|
|
842
|
|
|
2,384
|
|
|
—
|
|
|
4,603
|
|
Ending Balance
|
|
$
|
10,281
|
|
|
$
|
1,455
|
|
|
$
|
6,709
|
|
|
$
|
1,464
|
|
|
$
|
19,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses:
|
|
|
|
December 31, 2016
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Beginning balance
|
|
$
|
11,482
|
|
|
$
|
1,834
|
|
|
$
|
4,945
|
|
|
$
|
1,685
|
|
|
$
|
19,946
|
|
Provision for loan losses
|
|
(755
|
)
|
|
54
|
|
|
3,964
|
|
|
37
|
|
|
3,300
|
|
Loans charged -off
|
|
(2,659
|
)
|
|
(1,011
|
)
|
|
(5,279
|
)
|
|
—
|
|
|
(8,949
|
)
|
Recoveries
|
|
1,663
|
|
|
676
|
|
|
2,137
|
|
|
—
|
|
|
4,476
|
|
Ending Balance
|
|
$
|
9,731
|
|
|
$
|
1,553
|
|
|
$
|
5,767
|
|
|
$
|
1,722
|
|
|
$
|
18,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses:
|
|
|
|
December 31, 2015
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Beginning balance
|
|
$
|
10,915
|
|
|
$
|
1,374
|
|
|
$
|
4,370
|
|
|
$
|
2,180
|
|
|
$
|
18,839
|
|
Provision for loan losses
|
|
990
|
|
|
874
|
|
|
3,331
|
|
|
(495
|
)
|
|
4,700
|
|
Loans charged -off
|
|
(2,852
|
)
|
|
(866
|
)
|
|
(4,810
|
)
|
|
—
|
|
|
(8,528
|
)
|
Recoveries
|
|
2,429
|
|
|
452
|
|
|
2,054
|
|
|
—
|
|
|
4,935
|
|
Ending Balance
|
|
$
|
11,482
|
|
|
$
|
1,834
|
|
|
$
|
4,945
|
|
|
$
|
1,685
|
|
|
$
|
19,946
|
|
The following tables present the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method at
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses:
|
|
|
|
December 31, 2017
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
619
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
625
|
|
Collectively evaluated for impairment
|
|
9,662
|
|
|
1,449
|
|
|
6,709
|
|
|
1,464
|
|
|
19,284
|
|
Acquired with deteriorated credit quality
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
BALANCE AT END OF YEAR
|
|
$
|
10,281
|
|
|
$
|
1,455
|
|
|
$
|
6,709
|
|
|
$
|
1,464
|
|
|
$
|
19,909
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
9,619
|
|
|
$
|
463
|
|
|
$
|
—
|
|
|
|
|
|
$
|
10,082
|
|
Collectively evaluated for impairment
|
|
1,134,701
|
|
|
436,944
|
|
|
329,435
|
|
|
|
|
|
1,901,080
|
|
Acquired with deteriorated credit quality
|
|
1,860
|
|
|
—
|
|
|
—
|
|
|
|
|
|
1,860
|
|
BALANCE AT END OF YEAR
|
|
$
|
1,146,180
|
|
|
$
|
437,407
|
|
|
$
|
329,435
|
|
|
|
|
|
$
|
1,913,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses:
|
|
|
|
December 31, 2016
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
242
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
331
|
|
Collectively evaluated for impairment
|
|
9,489
|
|
|
1,464
|
|
|
5,767
|
|
|
1,722
|
|
|
18,442
|
|
Acquired with deteriorated credit quality
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
BALANCE AT END OF YEAR
|
|
$
|
9,731
|
|
|
$
|
1,553
|
|
|
$
|
5,767
|
|
|
$
|
1,722
|
|
|
$
|
18,773
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
|
Residential
|
|
|
Consumer
|
|
|
|
|
|
Total
|
|
Individually evaluated for impairment
|
|
$
|
8,051
|
|
|
$
|
549
|
|
|
$
|
—
|
|
|
|
|
|
$
|
8,600
|
|
Collectively evaluated for impairment
|
|
1,101,269
|
|
|
423,099
|
|
|
307,226
|
|
|
|
|
|
1,831,594
|
|
Acquired with deteriorated credit quality
|
|
3,415
|
|
|
1,431
|
|
|
—
|
|
|
|
|
|
4,846
|
|
BALANCE AT END OF YEAR
|
|
$
|
1,112,735
|
|
|
$
|
425,079
|
|
|
$
|
307,226
|
|
|
|
|
|
$
|
1,845,040
|
|
The following tables present loans individually evaluated for impairment by class of loan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
Cash Basis
|
|
|
Unpaid
|
|
|
|
for Loan
|
|
Average
|
|
Interest
|
|
Interest
|
|
|
Principal
|
|
Recorded
|
|
Losses
|
|
Recorded
|
|
Income
|
|
Income
|
|
|
Balance
|
|
Investment
|
|
Allocated
|
|
Investment
|
|
Recognized
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
802
|
|
|
$
|
802
|
|
|
$
|
—
|
|
|
$
|
971
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Farmland
|
|
930
|
|
|
930
|
|
|
—
|
|
|
1,265
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
2,461
|
|
|
2,461
|
|
|
—
|
|
|
2,781
|
|
|
—
|
|
|
—
|
|
Agriculture
|
|
123
|
|
|
123
|
|
|
—
|
|
|
239
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
1,238
|
|
|
1,238
|
|
|
—
|
|
|
1,308
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
21
|
|
|
21
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
493
|
|
|
493
|
|
|
146
|
|
|
514
|
|
|
—
|
|
|
—
|
|
Farmland
|
|
3,035
|
|
|
3,035
|
|
|
268
|
|
|
669
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
131
|
|
|
|
|
|
—
|
|
Agriculture
|
|
738
|
|
|
537
|
|
|
205
|
|
|
279
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
442
|
|
|
442
|
|
|
6
|
|
|
483
|
|
|
—
|
|
|
—
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
TOTAL
|
|
$
|
10,283
|
|
|
$
|
10,082
|
|
|
$
|
625
|
|
|
$
|
8,663
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
Cash Basis
|
|
|
Unpaid
|
|
|
|
for Loan
|
|
Average
|
|
Interest
|
|
Interest
|
|
|
Principal
|
|
Recorded
|
|
Losses
|
|
Recorded
|
|
Income
|
|
Income
|
|
|
Balance
|
|
Investment
|
|
Allocated
|
|
Investment
|
|
Recognized
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
1,181
|
|
|
$
|
1,181
|
|
|
$
|
—
|
|
|
$
|
981
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Farmland
|
|
826
|
|
|
826
|
|
|
—
|
|
|
770
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
3,368
|
|
|
2,996
|
|
|
—
|
|
|
3,096
|
|
|
—
|
|
|
—
|
|
Agriculture
|
|
622
|
|
|
487
|
|
|
—
|
|
|
351
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
1,367
|
|
|
1,367
|
|
|
—
|
|
|
1,477
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
25
|
|
|
25
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
537
|
|
|
537
|
|
|
36
|
|
|
819
|
|
|
—
|
|
|
—
|
|
Farmland
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
657
|
|
|
657
|
|
|
206
|
|
|
1,016
|
|
|
|
|
|
—
|
|
Agriculture
|
|
—
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
524
|
|
|
524
|
|
|
89
|
|
|
647
|
|
|
—
|
|
|
—
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
TOTAL
|
|
$
|
9,107
|
|
|
$
|
8,600
|
|
|
$
|
331
|
|
|
$
|
9,343
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
Cash Basis
|
|
|
Average
|
|
Interest
|
|
Interest
|
|
|
Recorded
|
|
Income
|
|
Income
|
|
|
Investment
|
|
Recognized
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
1,796
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Farmland
|
|
—
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
2,080
|
|
|
—
|
|
|
—
|
|
Agriculture
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
1,175
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
18
|
|
|
—
|
|
|
—
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
—
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
3,463
|
|
|
—
|
|
|
—
|
|
Farmland
|
|
—
|
|
|
—
|
|
|
—
|
|
Non Farm, Non Residential
|
|
3,682
|
|
|
|
|
|
—
|
|
Agriculture
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Commercial
|
|
483
|
|
|
—
|
|
|
—
|
|
Residential
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
460
|
|
|
—
|
|
|
—
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
Junior Liens
|
|
|
|
|
—
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
TOTAL
|
|
$
|
13,157
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following tables present the recorded investment in nonperforming loans by class of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
Loans Past
|
|
Troubled Debt
|
|
|
|
|
Due Over
90 Day Still
|
|
Restructured
|
|
|
(Dollar amounts in thousands)
|
|
Accruing
|
|
Accrual
|
|
Non-accrual
|
|
Non-accrual
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
41
|
|
|
$
|
2
|
|
|
$
|
212
|
|
|
$
|
1,679
|
|
Farmland
|
|
19
|
|
|
—
|
|
|
—
|
|
|
4,141
|
|
Non Farm, Non Residential
|
|
—
|
|
|
56
|
|
|
2,440
|
|
|
172
|
|
Agriculture
|
|
—
|
|
|
—
|
|
|
—
|
|
|
707
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,236
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
1,011
|
|
|
3,105
|
|
|
575
|
|
|
3,972
|
|
Home Equity
|
|
8
|
|
|
—
|
|
|
—
|
|
|
249
|
|
Junior Liens
|
|
137
|
|
|
—
|
|
|
—
|
|
|
134
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
268
|
|
|
9
|
|
|
—
|
|
|
242
|
|
All Other Consumer
|
|
—
|
|
|
177
|
|
|
527
|
|
|
623
|
|
TOTAL
|
|
$
|
1,484
|
|
|
$
|
3,349
|
|
|
$
|
3,754
|
|
|
$
|
13,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Loans Past
|
|
Troubled Debt
|
|
|
|
|
Due Over
90 Day Still
|
|
Restructured
|
|
|
(Dollar amounts in thousands)
|
|
Accruing
|
|
Accrual
|
|
Non-accrual
|
|
Non-accrual
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
45
|
|
|
$
|
3
|
|
|
$
|
383
|
|
|
$
|
2,405
|
|
Farmland
|
|
—
|
|
|
—
|
|
|
—
|
|
|
978
|
|
Non Farm, Non Residential
|
|
—
|
|
|
60
|
|
|
2,941
|
|
|
1,027
|
|
Agriculture
|
|
—
|
|
|
—
|
|
|
—
|
|
|
744
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,380
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
276
|
|
|
3,525
|
|
|
995
|
|
|
5,496
|
|
Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
285
|
|
Junior Liens
|
|
55
|
|
|
—
|
|
|
—
|
|
|
202
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
94
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
293
|
|
|
60
|
|
|
—
|
|
|
140
|
|
All Other Consumer
|
|
—
|
|
|
150
|
|
|
517
|
|
|
741
|
|
TOTAL
|
|
$
|
669
|
|
|
$
|
3,798
|
|
|
$
|
4,836
|
|
|
$
|
13,492
|
|
Covered loans included in loans past due over 90 days still on accrual are
$88 thousand
at
December 31, 2017
and
$80 thousand
at
December 31, 2016
. Covered loans included in non-accrual loans are
$62 thousand
at
December 31, 2017
and
$112 thousand
at
December 31, 2016
. No covered loans are deemed impaired at
December 31, 2017
and
2016
. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
During the years ending
December 31, 2017
,
2016
, and
2015
the terms of certain loans were modified as troubled debt restructurings (TDRs). The following tables present the activity for TDR's.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Total
|
January 1,
|
|
$
|
3,386
|
|
|
$
|
4,447
|
|
|
$
|
732
|
|
|
$
|
8,565
|
|
Added
|
|
—
|
|
|
227
|
|
|
386
|
|
|
613
|
|
Charged Off
|
|
—
|
|
|
(289
|
)
|
|
(141
|
)
|
|
(430
|
)
|
Payments
|
|
(677
|
)
|
|
(774
|
)
|
|
(263
|
)
|
|
(1,714
|
)
|
December 31,
|
|
$
|
2,709
|
|
|
$
|
3,611
|
|
|
$
|
714
|
|
|
$
|
7,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Total
|
January 1,
|
|
$
|
3,584
|
|
|
$
|
5,593
|
|
|
$
|
683
|
|
|
$
|
9,860
|
|
Added
|
|
—
|
|
|
123
|
|
|
369
|
|
|
492
|
|
Charged Off
|
|
—
|
|
|
(321
|
)
|
|
(70
|
)
|
|
(391
|
)
|
Payments
|
|
(198
|
)
|
|
(948
|
)
|
|
(250
|
)
|
|
(1,396
|
)
|
December 31,
|
|
$
|
3,386
|
|
|
$
|
4,447
|
|
|
$
|
732
|
|
|
$
|
8,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
(Dollar amounts in thousands)
|
|
Commercial
|
|
Residential
|
|
Consumer
|
|
Total
|
January 1,
|
|
$
|
8,955
|
|
|
$
|
5,189
|
|
|
$
|
614
|
|
|
$
|
14,758
|
|
Added
|
|
—
|
|
|
748
|
|
|
342
|
|
|
1,090
|
|
Charged Off
|
|
—
|
|
|
(65
|
)
|
|
(52
|
)
|
|
(117
|
)
|
Payments
|
|
(5,371
|
)
|
|
(279
|
)
|
|
(221
|
)
|
|
(5,871
|
)
|
December 31,
|
|
$
|
3,584
|
|
|
$
|
5,593
|
|
|
$
|
683
|
|
|
$
|
9,860
|
|
Modification of the terms of such loans typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modification in
2017
,
2016
or
2015
resulted in the permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from
twelve months
to
five years
. Modifications involving an extension of the maturity date were for periods ranging from
twelve months
to
ten years
.
During the years ended
December 31, 2017
,
2016
and
2015
the Corporation modified
43
,
42
, and
57
loans respectively as troubled debt restructurings. All of the loans modified were smaller balance residential and consumer loans. There were no loans that were charged off within 12 months of the modification for
2017
,
2016
, or
2015
.
The Corporation had no allocation of specific reserves to customers whose loan terms have been modified in troubled debt restructurings at both
December 31, 2017
and
2016
and
$25 thousand
of specific reserves at
December 31, 2015
. The Corporation has not committed to lend additional amounts as of
December 31, 2017
and
2016
to customers with outstanding loans that are classified as troubled debt restructurings.
The following tables present the aging of the recorded investment in loans by past due category and class of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
December 31, 2017
|
|
30-59 Days
|
|
60-89 Days
|
|
than 90 days
|
|
Total
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Current
|
|
Total
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
372
|
|
|
$
|
80
|
|
|
$
|
640
|
|
|
$
|
1,092
|
|
|
$
|
474,709
|
|
|
$
|
475,801
|
|
Farmland
|
|
341
|
|
|
—
|
|
|
3,671
|
|
|
4,012
|
|
|
104,457
|
|
|
108,469
|
|
Non Farm, Non Residential
|
|
141
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
200,804
|
|
|
200,945
|
|
Agriculture
|
|
141
|
|
|
—
|
|
|
561
|
|
|
702
|
|
|
152,388
|
|
|
153,090
|
|
All Other Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
207,875
|
|
|
207,875
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
5,467
|
|
|
1,317
|
|
|
1,434
|
|
|
8,218
|
|
|
247,029
|
|
|
255,247
|
|
Home Equity
|
|
310
|
|
|
46
|
|
|
8
|
|
|
364
|
|
|
35,752
|
|
|
36,116
|
|
Junior Liens
|
|
274
|
|
|
106
|
|
|
194
|
|
|
574
|
|
|
41,688
|
|
|
42,262
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90,141
|
|
|
90,141
|
|
All Other Residential
|
|
300
|
|
|
—
|
|
|
12
|
|
|
312
|
|
|
13,329
|
|
|
13,641
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
4,770
|
|
|
697
|
|
|
294
|
|
|
5,761
|
|
|
298,211
|
|
|
303,972
|
|
All Other Consumer
|
|
107
|
|
|
22
|
|
|
—
|
|
|
129
|
|
|
25,334
|
|
|
25,463
|
|
TOTAL
|
|
$
|
12,223
|
|
|
$
|
2,268
|
|
|
$
|
6,814
|
|
|
$
|
21,305
|
|
|
$
|
1,891,717
|
|
|
$
|
1,913,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
December 31, 2016
|
|
30-59 Days
|
|
60-89 Days
|
|
than 90 days
|
|
Total
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Current
|
|
Total
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
370
|
|
|
$
|
114
|
|
|
$
|
1,199
|
|
|
$
|
1,683
|
|
|
$
|
474,406
|
|
|
$
|
476,089
|
|
Farmland
|
|
235
|
|
|
22
|
|
|
46
|
|
|
303
|
|
|
110,897
|
|
|
111,200
|
|
Non Farm, Non Residential
|
|
153
|
|
|
—
|
|
|
215
|
|
|
368
|
|
|
195,120
|
|
|
195,488
|
|
Agriculture
|
|
246
|
|
|
—
|
|
|
467
|
|
|
713
|
|
|
151,059
|
|
|
151,772
|
|
All Other Commercial
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
178,171
|
|
|
178,186
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
3,862
|
|
|
954
|
|
|
1,516
|
|
|
6,332
|
|
|
264,446
|
|
|
270,778
|
|
Home Equity
|
|
186
|
|
|
64
|
|
|
27
|
|
|
277
|
|
|
35,782
|
|
|
36,059
|
|
Junior Liens
|
|
271
|
|
|
—
|
|
|
224
|
|
|
495
|
|
|
36,912
|
|
|
37,407
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67,799
|
|
|
67,799
|
|
All Other Residential
|
|
42
|
|
|
12
|
|
|
—
|
|
|
54
|
|
|
12,982
|
|
|
13,036
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
4,048
|
|
|
732
|
|
|
313
|
|
|
5,093
|
|
|
277,604
|
|
|
282,697
|
|
All Other Consumer
|
|
143
|
|
|
22
|
|
|
3
|
|
|
168
|
|
|
24,361
|
|
|
24,529
|
|
TOTAL
|
|
$
|
9,571
|
|
|
$
|
1,920
|
|
|
$
|
4,010
|
|
|
$
|
15,501
|
|
|
$
|
1,829,539
|
|
|
$
|
1,845,040
|
|
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance greater than
$100 thousand
.
Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:
Special Mention:
Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard:
Loans classified as substandard are inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These loans have a well-defined weakness or weaknesses which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the institution will sustain some future loss if the deficiencies are not corrected.
Doubtful:
Loans classified as doubtful have all the weaknesses inherent in those graded substandard, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values.
Furthermore, non-homogeneous loans which were not individually analyzed, but are 90+ days past due or on non-accrual are classified as substandard. Loans included in homogeneous pools, such as residential or consumer, may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than
$100 thousand
or are included in groups of homogeneous loans. Beginning in July 2016, the Company's loan rating process no longer includes all loans in a loan relationship. Therefore, certain first lien mortgage loans and consumer loans that were previously rated in a loan relationship have been included in the not rated category as of December 31, 2016. As of
December 31, 2017
and
2016
, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Pass
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Not Rated
|
|
Total
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
430,015
|
|
|
$
|
19,889
|
|
|
$
|
18,611
|
|
|
$
|
38
|
|
|
$
|
5,947
|
|
|
$
|
474,500
|
|
Farmland
|
|
88,338
|
|
|
10,782
|
|
|
7,466
|
|
|
—
|
|
|
10
|
|
|
106,596
|
|
Non Farm, Non Residential
|
|
179,181
|
|
|
7,689
|
|
|
13,632
|
|
|
—
|
|
|
—
|
|
|
200,502
|
|
Agriculture
|
|
111,724
|
|
|
17,482
|
|
|
21,388
|
|
|
—
|
|
|
342
|
|
|
150,936
|
|
All Other Commercial
|
|
194,170
|
|
|
2,723
|
|
|
7,459
|
|
|
—
|
|
|
2,604
|
|
|
206,956
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
45,320
|
|
|
750
|
|
|
3,980
|
|
|
5
|
|
|
204,329
|
|
|
254,384
|
|
Home Equity
|
|
319
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
35,653
|
|
|
36,036
|
|
Junior Liens
|
|
1,882
|
|
|
76
|
|
|
342
|
|
|
100
|
|
|
39,755
|
|
|
42,155
|
|
Multifamily
|
|
89,936
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
89,972
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
13,529
|
|
|
13,596
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
731
|
|
|
—
|
|
|
301,900
|
|
|
302,631
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
25,301
|
|
|
25,345
|
|
TOTAL
|
|
$
|
1,140,885
|
|
|
$
|
59,391
|
|
|
$
|
73,784
|
|
|
$
|
143
|
|
|
$
|
629,406
|
|
|
$
|
1,903,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Pass
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Not Rated
|
|
Total
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
$
|
427,262
|
|
|
$
|
16,286
|
|
|
$
|
25,177
|
|
|
$
|
449
|
|
|
$
|
5,730
|
|
|
$
|
474,904
|
|
Farmland
|
|
95,115
|
|
|
8,300
|
|
|
5,238
|
|
|
—
|
|
|
532
|
|
|
109,185
|
|
Non Farm, Non Residential
|
|
172,739
|
|
|
5,745
|
|
|
16,601
|
|
|
—
|
|
|
—
|
|
|
195,085
|
|
Agriculture
|
|
121,983
|
|
|
13,885
|
|
|
12,301
|
|
|
—
|
|
|
1,366
|
|
|
149,535
|
|
All Other Commercial
|
|
163,492
|
|
|
596
|
|
|
10,058
|
|
|
76
|
|
|
3,251
|
|
|
177,473
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Liens
|
|
43,674
|
|
|
1,541
|
|
|
4,466
|
|
|
18
|
|
|
220,249
|
|
|
269,948
|
|
Home Equity
|
|
363
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
35,554
|
|
|
36,003
|
|
Junior Liens
|
|
1,826
|
|
|
85
|
|
|
401
|
|
|
26
|
|
|
34,977
|
|
|
37,315
|
|
Multifamily
|
|
66,133
|
|
|
1,430
|
|
|
15
|
|
|
—
|
|
|
65
|
|
|
67,643
|
|
All Other Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,002
|
|
|
13,002
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor Vehicle
|
|
—
|
|
|
—
|
|
|
331
|
|
|
—
|
|
|
281,134
|
|
|
281,465
|
|
All Other Consumer
|
|
—
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
24,391
|
|
|
24,416
|
|
TOTAL
|
|
$
|
1,092,587
|
|
|
$
|
47,868
|
|
|
$
|
74,699
|
|
|
$
|
569
|
|
|
$
|
620,251
|
|
|
$
|
1,835,974
|
|
|
|
8.
|
PREMISES AND EQUIPMENT:
|
Premises and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Land
|
|
$
|
12,118
|
|
|
$
|
12,265
|
|
Building and leasehold improvements
|
|
55,854
|
|
|
55,711
|
|
Furniture and equipment
|
|
46,399
|
|
|
44,608
|
|
|
|
114,371
|
|
|
112,584
|
|
Less accumulated depreciation
|
|
(66,099
|
)
|
|
(63,344
|
)
|
TOTAL
|
|
$
|
48,272
|
|
|
$
|
49,240
|
|
Aggregate depreciation expense was
$3.95 million
,
$4.34 million
and
$4.66 million
for
2017
,
2016
and
2015
, respectively.
The Company leases certain branch properties and equipment under operating leases. Rent expense was
$1.0 million
,
$0.9 million
, and
$0.9 million
for
2017
,
2016
, and
2015
. Rent commitments, before considering renewal options that generally are present, were as follows:
|
|
|
|
|
2018
|
$
|
920
|
|
2019
|
546
|
|
2020
|
382
|
|
2021
|
198
|
|
2022
|
158
|
|
Thereafter
|
1,019
|
|
|
$
|
3,223
|
|
|
|
9.
|
GOODWILL AND INTANGIBLE ASSETS:
|
The Corporation completed its annual impairment testing of goodwill during the fourth quarter of
2017
and
2016
. Management does not believe any amount of goodwill is impaired.
Intangible assets subject to amortization at
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
(Dollar amounts in thousands)
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
Core deposit intangible
|
|
$
|
10,836
|
|
|
$
|
9,206
|
|
|
$
|
10,836
|
|
|
$
|
8,727
|
|
|
|
$
|
10,836
|
|
|
$
|
9,206
|
|
|
$
|
10,836
|
|
|
$
|
8,727
|
|
Aggregate amortization expense was
$479 thousand
,
$627 thousand
and
$826 thousand
for
2017
,
2016
and
2015
, respectively.
Estimated amortization expense for the next five years is as follows:
|
|
|
|
|
|
In thousands
|
|
2018
|
$
|
434
|
|
2019
|
350
|
|
2020
|
252
|
|
2021
|
232
|
|
2022
|
224
|
|
In 2016, the sale of certain assets and liabilities of the insurance brokerage operations resulted in the reduction of customer list intangible by
$.4
million and the reduction of goodwill by
$5.1 million
.
Scheduled maturities of time deposits for the next five years are as follows:
|
|
|
|
|
(dollar amounts in thousands)
|
|
2018
|
$
|
181,508
|
|
2019
|
68,985
|
|
2020
|
40,919
|
|
2021
|
20,227
|
|
2022
|
25,240
|
|
|
|
11.
|
SHORT-TERM BORROWINGS:
|
A summary of the carrying value of the Corporation's short-term borrowings at
December 31, 2017
and
2016
is presented below:
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Federal funds purchased
|
|
$
|
30,165
|
|
|
$
|
49,982
|
|
Repurchase-agreements
|
|
27,521
|
|
|
31,007
|
|
|
|
$
|
57,686
|
|
|
$
|
80,989
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Average amount outstanding
|
|
$
|
39,704
|
|
|
$
|
37,949
|
|
Maximum amount outstanding at a month end
|
|
85,714
|
|
|
80,989
|
|
Average interest rate during year
|
|
0.62
|
%
|
|
0.35
|
%
|
Interest rate at year-end
|
|
0.96
|
%
|
|
0.64
|
%
|
Federal funds purchased are generally due in one day and bear interest at market rates. The Corporation enters into sales of securities under agreements to repurchase. The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying these agreements are included in investment securities in the consolidated balance sheets. The Corporation has no control over the market value of the securities, which fluctuates due to market conditions. However, the Corporation is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Corporation manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.
Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. The Corporation maintains possession of and control over these securities.
Collateral pledged to repurchase agreements by remaining maturity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Repurchase Agreements and Repurchase to Maturity Transactions
|
|
Remaining Contractual Maturity of the Agreements
|
(Dollar amounts in thousands)
|
|
Overnight and continuous
|
|
Up to 30 days
|
|
30 - 90 days
|
|
Greater than 90 days
|
|
Total
|
Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations
|
|
$
|
11,929
|
|
|
$
|
6,282
|
|
|
$
|
8,552
|
|
|
$
|
758
|
|
|
$
|
27,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Repurchase Agreements and Repurchase to Maturity Transactions
|
|
Remaining Contractual Maturity of the Agreements
|
(Dollar amounts in thousands)
|
|
Overnight and continuous
|
|
Up to 30 days
|
|
30 - 90 days
|
|
Greater than 90 days
|
|
Total
|
Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations
|
|
$
|
11,238
|
|
|
$
|
9,495
|
|
|
$
|
9,516
|
|
|
$
|
758
|
|
|
$
|
31,007
|
|
Other borrowings at
December 31, 2017
and
2016
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
FHLB advances
|
|
$
|
—
|
|
|
$
|
132
|
|
The aggregate minimum annual retirements of other borrowings are as follows:
|
|
|
|
|
2018
|
$
|
—
|
|
2019
|
—
|
|
2020
|
—
|
|
2021
|
—
|
|
2022
|
—
|
|
Thereafter
|
—
|
|
|
$
|
—
|
|
The Corporation's subsidiary banks are members of the Federal Home Loan Bank (FHLB) and accordingly are permitted to obtain advances. There are no advances from the FHLB at
December 31, 2017
, and
$132 thousand
at
December 31, 2016
, which accrue interest, payable monthly, at annual rates, primarily fixed, varying from
0.8%
to
6.6%
in
2017
and
0.5%
to
6.6%
in
2016
. FHLB advances are, generally, due in full at maturity. They are secured by eligible securities totaling
$120.1 million
at
December 31, 2017
, and
$57.1 million
at
December 31, 2016
, and a blanket pledge on real estate loan collateral. Based on this collateral and the Corporation's holdings of FHLB stock, the Corporation is eligible to borrow up to
$223.4 million
at year end
2017
. Certain advances may be prepaid, without penalty, prior to maturity. The FHLB can adjust the interest rate from fixed to variable on certain advances, but those advances may then be prepaid, without penalty.
Income tax expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Federal:
|
|
|
|
|
|
|
|
|
|
Currently payable
|
|
$
|
8,303
|
|
|
$
|
15,514
|
|
|
$
|
9,890
|
|
Deferred
|
|
3,756
|
|
|
1,326
|
|
|
(774
|
)
|
Expense due to enactment of federal tax reform
|
|
6,282
|
|
|
—
|
|
|
—
|
|
|
|
18,341
|
|
|
16,840
|
|
|
9,116
|
|
State:
|
|
|
|
|
|
|
|
|
|
Currently payable
|
|
1,818
|
|
|
2,857
|
|
|
1,426
|
|
Deferred
|
|
463
|
|
|
186
|
|
|
(150
|
)
|
|
|
2,281
|
|
|
3,043
|
|
|
1,276
|
|
TOTAL
|
|
$
|
20,622
|
|
|
$
|
19,883
|
|
|
$
|
10,392
|
|
The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of
35%
to income before income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Federal income taxes computed at the statutory rate
|
|
$
|
17,414
|
|
|
$
|
20,403
|
|
|
$
|
14,206
|
|
Add (deduct) tax effect of:
|
|
|
|
|
|
|
|
|
|
Tax exempt income
|
|
(4,102
|
)
|
|
(3,992
|
)
|
|
(4,047
|
)
|
Non-deductible insurance brokerage goodwill
|
|
—
|
|
|
1,797
|
|
|
—
|
|
ESOP dividend deduction
|
|
(102
|
)
|
|
(47
|
)
|
|
(164
|
)
|
State tax, net of federal benefit
|
|
1,483
|
|
|
1,978
|
|
|
829
|
|
Affordable housing credits
|
|
(148
|
)
|
|
(148
|
)
|
|
(148
|
)
|
Expense due to enactment of federal tax reform
|
|
6,282
|
|
|
—
|
|
|
—
|
|
Other, net
|
|
(205
|
)
|
|
(108
|
)
|
|
(284
|
)
|
TOTAL
|
|
$
|
20,622
|
|
|
$
|
19,883
|
|
|
$
|
10,392
|
|
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The primary change for the Corporation was to lower the corporate income tax rate from 35% to 21%. The Corporation's deferred tax assets and liabilities were re-measured based on the income tax rates at which they are expected to reverse in the future, which is generally 21%. The amount recorded related to the re-measurement of the Corporation's deferred tax balance was $6.3 million, an increase to income tax expense for the year ended December 31, 2017.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at
December 31, 2017
and
2016
, are as follows:
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
|
Other than temporary impairment
|
|
$
|
1,829
|
|
|
$
|
5,397
|
|
Net unrealized losses on retirement plans
|
|
6,609
|
|
|
8,576
|
|
Net unrealized losses on securities available for sale
|
|
—
|
|
|
719
|
|
Loan loss provisions
|
|
5,195
|
|
|
7,318
|
|
Deferred compensation
|
|
3,661
|
|
|
5,881
|
|
Compensated absences
|
|
563
|
|
|
832
|
|
Post-retirement benefits
|
|
1,359
|
|
|
2,043
|
|
Deferred loss on acquisition
|
|
663
|
|
|
1,111
|
|
Other
|
|
2,123
|
|
|
3,119
|
|
GROSS DEFERRED ASSETS
|
|
22,002
|
|
|
34,996
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Net unrealized gains on securities available-for-sale
|
|
(804
|
)
|
|
—
|
|
Depreciation
|
|
(1,989
|
)
|
|
(2,778
|
)
|
Mortgage servicing rights
|
|
(308
|
)
|
|
(486
|
)
|
Pensions
|
|
(201
|
)
|
|
(65
|
)
|
Intangibles
|
|
(2,446
|
)
|
|
(3,015
|
)
|
Other
|
|
(2,408
|
)
|
|
(3,180
|
)
|
GROSS DEFERRED LIABILITIES
|
|
(8,156
|
)
|
|
(9,524
|
)
|
NET DEFERRED TAX ASSETS
|
|
$
|
13,846
|
|
|
$
|
25,472
|
|
Unrecognized Tax Benefits — A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Balance at January 1
|
|
$
|
698
|
|
|
$
|
513
|
|
|
$
|
589
|
|
Additions based on tax positions related to the current year
|
|
257
|
|
|
288
|
|
|
68
|
|
Additions based on tax positions related to prior years
|
|
—
|
|
|
—
|
|
|
—
|
|
Reductions due to the statute of limitations
|
|
(130
|
)
|
|
(103
|
)
|
|
(144
|
)
|
Balance at December 31
|
|
$
|
825
|
|
|
$
|
698
|
|
|
$
|
513
|
|
Of this total,
$825
thousand represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next 12 months.
The total amount of interest and penalties recorded in the income statement for the years ended
December 31, 2017
,
2016
and
2015
was an expense increase of
$4
thousand, an increase of
$4
thousand, and a decrease of
$17
thousand, respectively. The amount accrued for interest and penalties at
December 31, 2017
,
2016
and
2015
was
$40
thousand,
$31
thousand and
$27
thousand, respectively.
The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Indiana and Illinois. The Corporation is no longer subject to examination by taxing authorities for years before 2014.
|
|
14.
|
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
|
The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include conditional commitments and commercial letters of credit. The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. The Corporation's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans is limited generally by the contractual amount of those instruments. The Corporation
follows the same credit policy to make such commitments as is followed for those loans recorded in the consolidated financial statements.
Commitment and contingent liabilities are summarized as follows at December 31:
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Home Equity
|
|
$
|
57,060
|
|
|
$
|
55,362
|
|
Commercial Operating Lines
|
|
246,855
|
|
|
268,577
|
|
Other Commitments
|
|
83,786
|
|
|
66,408
|
|
TOTAL
|
|
$
|
387,701
|
|
|
$
|
390,347
|
|
Commercial letters of credit
|
|
$
|
5,012
|
|
|
$
|
5,673
|
|
The majority of commercial operating lines and home equity lines are variable rate, while the majority of other commitments to fund loans are fixed rate. Fixed rate commitments had a range of interest rates from
4.00%
to
7.25%
in
2017
. In
2016
this range of rates was from
3.25%
to
7.00%
. Since many commitments to make loans expire without being used, these amounts do not necessarily represent future cash commitments. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower, and may include accounts receivable, inventory, property, land and other items. The approximate duration of these commitments is generally one year or less.
Derivatives:
The Corporation enters into derivative instruments for the benefit of its customers. At the inception of a derivative contract, the Corporation designates the derivative as an instrument with no hedging designation ("standalone derivative"). Changes in the fair value of derivatives are reported currently in earnings as non-interest income. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income.
First Financial Bank offers clients the ability on certain transactions to enter into interest rate swaps. Typically, these are pay fixed, receive floating swaps used in conjunction with commercial loans. These derivative contracts do not qualify for hedge accounting. The Bank hedges the exposure to these contracts by entering into offsetting contracts with substantially matching terms. The notional amount of these interest rate swaps was
$20.1
million and
$21.3 million
at
December 31, 2017
and
2016
. The fair value of these contracts combined was zero, as gains offset losses. The gross gain and loss associated with these interest rate swaps was
$0.2 million
and
$0.6 million
at
December 31, 2017
and
2016
.
Employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). Plan assets consist primarily of the Corporation's stock and obligations of U.S. Government agencies. Benefits under the defined benefit plan are actuarially determined based on an employee's service and compensation, as defined, and funded as necessary. This plan was frozen for the majority of employees as of December 31, 2012.Those employees will be eligible to participate in a 401K plan that the Corporation can contribute a discretionary match of the pay contributed by the employee. In addition the ESOP plan will continue in place for all employees.
Assets in the ESOP are considered in calculating the funding to the defined benefit plan required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided by the defined benefit plan. The ESOP may provide benefits beyond those determined under the defined benefit plan. Contributions to the ESOP are determined by the Corporation's Board of Directors. The Corporation made contributions to the defined benefit plan of
$2.55 million
,
$2.70 million
and
$1.84 million
in
2017
,
2016
and
2015
. The Corporation contributed
$1.06 million
,
$1.36 million
and
$1.29 million
to the ESOP in
2017
,
2016
and
2015
. There were contributions of
$676 thousand
,
$872 thousand
and
$746 thousand
to the ESOP for employees no longer participating in the defined benefit plan in
2017
,
2016
and
2015
respectively.
The Corporation uses a measurement date of December 31.
Net periodic benefit cost and other amounts recognized in other comprehensive income included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Service cost - benefits earned
|
|
$
|
1,432
|
|
|
$
|
1,882
|
|
|
$
|
2,153
|
|
Interest cost on projected benefit obligation
|
|
3,621
|
|
|
3,729
|
|
|
3,516
|
|
Expected return on plan assets
|
|
(3,940
|
)
|
|
(3,429
|
)
|
|
(3,452
|
)
|
Net amortization and deferral
|
|
1,205
|
|
|
1,936
|
|
|
2,065
|
|
Net periodic pension cost
|
|
2,318
|
|
|
4,118
|
|
|
4,282
|
|
Net loss (gain) during the period
|
|
5,366
|
|
|
(6,150
|
)
|
|
(1,894
|
)
|
Amortization of prior service cost
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Amortization of unrecognized gain (loss)
|
|
(1,204
|
)
|
|
(1,935
|
)
|
|
(2,064
|
)
|
Total recognized in other comprehensive (income) loss
|
|
4,161
|
|
|
(8,086
|
)
|
|
(3,959
|
)
|
Total recognized net periodic pension cost and other comprehensive income
|
|
$
|
6,479
|
|
|
$
|
(3,968
|
)
|
|
$
|
323
|
|
The estimated net loss and prior service costs (credits) for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are
$1.7 million
and
$1 thousand
.
The information below sets forth the change in projected benefit obligation, reconciliation of plan assets, and the funded status of the Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels.
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
93,233
|
|
|
$
|
90,855
|
|
Service cost
|
|
1,432
|
|
|
1,882
|
|
Interest cost
|
|
3,621
|
|
|
3,729
|
|
Actuarial (gain) loss
|
|
5,305
|
|
|
2,839
|
|
Benefits paid
|
|
(5,495
|
)
|
|
(6,072
|
)
|
Benefit obligation at December 31
|
|
98,096
|
|
|
93,233
|
|
Reconciliation of fair value of plan assets:
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
70,132
|
|
|
60,602
|
|
Actual return on plan assets
|
|
3,879
|
|
|
12,418
|
|
Employer contributions
|
|
2,933
|
|
|
3,184
|
|
Benefits paid
|
|
(5,495
|
)
|
|
(6,072
|
)
|
Fair value of plan assets at December 31
|
|
71,449
|
|
|
70,132
|
|
Funded status at December 31 (plan assets less benefit obligation)
|
|
$
|
(26,647
|
)
|
|
$
|
(23,101
|
)
|
Amounts recognized in accumulated other comprehensive income at
December 31, 2017
and
2016
consist of:
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Net loss (gain)
|
|
$
|
25,621
|
|
|
$
|
21,459
|
|
Prior service cost (credit)
|
|
3
|
|
|
4
|
|
|
|
$
|
25,624
|
|
|
$
|
21,463
|
|
The accumulated benefit obligation for the defined benefit pension plan was
$93.3
million and
$88.5
million at year-end
2017
and
2016
.
|
|
|
|
|
|
|
|
Principal assumptions used to determine pension benefit obligation at year end:
|
|
2017
|
|
2016
|
Discount rate
|
|
3.60
|
%
|
|
4.14
|
%
|
Rate of increase in compensation levels
|
|
3.00
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
Principal assumptions used to determine net periodic pension cost:
|
|
2017
|
|
2016
|
Discount rate
|
|
4.14
|
%
|
|
4.34
|
%
|
Rate of increase in compensation levels
|
|
3.00
|
|
|
3.00
|
|
Expected long-term rate of return on plan assets
|
|
6.00
|
|
|
6.00
|
|
The expected long-term rate of return was estimated using market benchmarks for equities and bonds applied to the plan's target asset allocation. Management estimated the rate by which plan assets would perform based on historical experience as adjusted for changes in asset allocations and expectations for future return on equities as compared to past periods.
Plan Assets
— The Corporation's pension plan weighted-average asset allocation for the years
2017
and
2016
by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
Target Allocation
|
|
ESOP
Target Allocation
|
|
Pension
Percentage of Plan
Assets at December 31,
|
|
ESOP
Percentage of Plan
Assets at December 31,
|
ASSET CATEGORY
|
|
2017
|
|
2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Equity securities
|
|
25-75%
|
|
95-99%
|
|
72
|
%
|
|
68
|
%
|
|
98
|
%
|
|
99
|
%
|
Debt securities
|
|
0-50%
|
|
0-0%
|
|
25
|
%
|
|
29
|
%
|
|
—
|
%
|
|
—
|
%
|
Other
|
|
0-20%
|
|
0-5%
|
|
3
|
%
|
|
3
|
%
|
|
2
|
%
|
|
1
|
%
|
TOTAL
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Fair Value of Plan Assets
— Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Equity, Debt, Investment Funds and Other Securities
— The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
The fair value of the plan assets at
December 31, 2017
and
2016
, by asset category, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2017 Using:
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Observable
Inputs
|
(Dollar amounts in thousands)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
48,152
|
|
|
$
|
48,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Debt securities
|
|
10,717
|
|
|
—
|
|
|
10,717
|
|
|
—
|
|
Investment Funds
|
|
12,580
|
|
|
12,580
|
|
|
—
|
|
|
—
|
|
Total plan assets
|
|
$
|
71,449
|
|
|
$
|
60,732
|
|
|
$
|
10,717
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2016 Using:
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Observable
Inputs
|
(Dollar amounts in thousands)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
51,170
|
|
|
$
|
51,170
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Debt securities
|
|
11,566
|
|
|
—
|
|
|
11,566
|
|
|
—
|
|
Investment Funds
|
|
7,396
|
|
|
7,396
|
|
|
—
|
|
|
—
|
|
Total plan assets
|
|
$
|
70,132
|
|
|
$
|
58,566
|
|
|
$
|
11,566
|
|
|
$
|
—
|
|
The investment objective for the retirement program is to maximize total return without exposure to undue risk. Asset allocation favors equities. This target includes the Corporation's ESOP, which is fully invested in corporate stock. Other investment allocations include fixed income securities and cash.
The plan is prohibited from investing in the following: private placement equity and debt transactions; letter stock and uncovered options; short-sale margin transactions and other specialized investment activity; and fixed income or interest rate futures. All other investments not prohibited by the plan are permitted.
Equity securities in the defined benefit plan include First Financial Corporation common stock in the amount of
$21.4 million
(
30 percent
of total plan assets) and
$26.7 million
(
38 percent
of total plan assets) at
December 31, 2017
and
2016
, respectively. In addition the ESOP for non plan participants holds an estimated
$3.8 million
and $
4.1 million
of First Financial Corporation stock at
December 31, 2017
and
December 31, 2016
respectively. Other equity securities are predominantly stocks in large cap U.S. companies.
Contributions —
The Corporation expects to contribute
$2.3 million
to its pension plan and
$813 thousand
to its ESOP in
2018
.
Estimated Future Payments
— The following benefit payments, which reflect expected future service, are expected:
|
|
|
|
|
PENSION BENEFITS
|
(Dollar amounts in thousands)
|
2018
|
$
|
5,837
|
|
2019
|
6,067
|
|
2020
|
6,166
|
|
2021
|
6,341
|
|
2022
|
6,474
|
|
2023-2027
|
35,078
|
|
Supplemental Executive Retirement Plan
— The Corporation has established a Supplemental Executive Retirement Plan (SERP) for certain executive officers. The provisions of the SERP allow the Plan's participants who are also participants in the Corporation's defined benefit pension plan to receive supplemental retirement benefits to help recompense for benefits lost due to the imposition of IRS limitations on benefits under the Corporation's tax qualified defined benefit pension plan. Expenses related to the plan were
$321 thousand
in
2017
and
$418 thousand
in
2016
and
$437 thousand
in
2015
.The plan is unfunded and has a measurement date of December 31. The amounts recognized in other comprehensive income in the current year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net loss (gain) during the period
|
|
$
|
527
|
|
|
$
|
(511
|
)
|
|
$
|
(255
|
)
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of unrecognized gain (loss)
|
|
—
|
|
|
(57
|
)
|
|
(88
|
)
|
Total recognized in other comprehensive (income) loss
|
|
$
|
527
|
|
|
$
|
(568
|
)
|
|
$
|
(343
|
)
|
The Corporation has
$4.4 million
and
$3.6 million
recognized in the balance sheet as a liability at
December 31, 2017
and
2016
. Amounts in accumulated other comprehensive income consist of
$859 thousand
net loss at
December 31, 2017
and
$332 thousand
net loss at
December 31, 2016
. The estimated loss for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is
$51 thousand
.
Estimated Future Payments
— The following benefit payments, which reflect expected future service, are expected:
|
|
|
|
|
(Dollar amounts on thousands)
|
2018
|
$
|
—
|
|
2019
|
180
|
|
2020
|
352
|
|
2021
|
343
|
|
2022
|
334
|
|
2023-2027
|
1,593
|
|
Post-retirement medical benefits
— The Corporation also provides medical benefits to certain employees subsequent to their retirement. The Corporation uses a measurement date of December 31. Accrued post-retirement benefits as of
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
4,276
|
|
|
$
|
4,383
|
|
Service cost
|
|
53
|
|
|
55
|
|
Interest cost
|
|
172
|
|
|
186
|
|
Plan participants' contributions
|
|
75
|
|
|
69
|
|
Actuarial (gain) loss
|
|
83
|
|
|
(144
|
)
|
Benefits paid
|
|
(298
|
)
|
|
(273
|
)
|
Benefit obligation at December 31
|
|
$
|
4,361
|
|
|
$
|
4,276
|
|
Funded status at December 31
|
|
$
|
4,361
|
|
|
$
|
4,276
|
|
Amounts recognized in accumulated other comprehensive income consist of a net loss of
$257 thousand
at
December 31, 2017
and
$174 thousand
net loss at
December 31, 2016
. The post-retirement benefits paid in
2017
and
2016
of
$298 thousand
and
$273 thousand
, respectively, were fully funded by company and participant contributions.
There is no estimated transition obligation for the post-retirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year.
Weighted average assumptions at December 31:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Discount rate
|
|
3.60
|
%
|
|
4.14
|
%
|
Initial weighted health care cost trend rate
|
|
5.00
|
%
|
|
5.00
|
%
|
Ultimate health care cost trend rate
|
|
5.00
|
|
|
5.00
|
|
Year that the rate is assumed to stabilize and remain unchanged
|
|
2018
|
|
|
2017
|
|
Post-retirement health benefit expense included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
53
|
|
|
$
|
55
|
|
|
$
|
63
|
|
Interest cost
|
|
172
|
|
|
186
|
|
|
173
|
|
Net periodic benefit cost
|
|
225
|
|
|
241
|
|
|
236
|
|
Net loss (gain) during the period
|
|
83
|
|
|
(144
|
)
|
|
(200
|
)
|
Total recognized in other comprehensive income (loss)
|
|
83
|
|
|
(144
|
)
|
|
(200
|
)
|
Total recognized net periodic benefit cost and other comprehensive income
|
|
$
|
308
|
|
|
$
|
97
|
|
|
$
|
36
|
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
1% Point
|
|
1% Point
|
(Dollar amounts in thousands)
|
|
Increase
|
|
Decrease
|
Effect on total of service and interest cost components
|
|
$
|
1
|
|
|
$
|
1
|
|
Effect on post-retirement benefit obligation
|
|
25
|
|
|
23
|
|
Contributions
— The Corporation expects to contribute
$264 thousand
to its other post-retirement benefit plan in
2017
.
Estimated Future Payments
— The following benefit payments, which reflect expected future service, are expected:
|
|
|
|
|
(Dollar amounts in thousands)
|
2018
|
$
|
264
|
|
2019
|
266
|
|
2020
|
274
|
|
2021
|
265
|
|
2022
|
279
|
|
2023-2027
|
1,408
|
|
|
|
16.
|
STOCK BASED COMPENSATION:
|
On February 5, 2011, the Corporation's Board of Directors adopted and approved the First Financial Corporation 2011 Omnibus Equity Incentive Plan (the "2011 Stock Incentive Plan") effective upon the approval of the Plan by the Company's shareholders, which occurred on April 20, 2011 at the Corporation’s annual meeting of shareholders. The 2011 Stock Incentive Plan provides for the grant of non qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and incentive awards. An aggregate of
700,000
shares of common stock are reserved for issuance under the 2011 Stock Incentive Plan. Shares issuable under the 2011 Stock Incentive Plan may be authorized and unissued shares of common stock or treasury shares.
During the first quarter of
2017
and
2016
, the Compensation Committee of the Board of Directors of the Company granted restricted stock awards to certain executive officers pursuant to the Corporation's annual performance-based stock incentive bonus plan. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the grant date. The value of the awards was determined by dividing the award amount by the median price of a share of Company common stock on the grant dates. The restricted stock awards vest as follows —
33%
on the first anniversary,
33%
on the second anniversary and the remaining
34%
on the third anniversary of the earned date. The Corporation has the right to retain shares to satisfy any withholding tax obligation. A total of
149,069
shares of restricted common stock of the Company were granted under the 2011 Stock Incentive Plan. A total of
550,931
remain to be granted under this plan.
Restricted Stock
Restricted stock awards require certain service-based or performance requirements and have a vesting period of
3
years. Compensation expense is recognized over the vesting period of the award based on the fair value of the stock at the date of
issue. Compensation related to the plan was
$706 thousand
,
$684 thousand
, and
$684 thousand
in
2017
,
2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
Number
|
|
Weighted Average
Grant Date
|
|
Number
|
|
Weighted Average
Grant Date
|
(shares in thousands)
|
|
Outstanding
|
|
Fair Value
|
|
Outstanding
|
|
Fair Value
|
Nonvested balance at January 1,
|
|
20,524
|
|
|
32.83
|
|
|
20,466
|
|
|
33.26
|
|
Granted during the year
|
|
16,562
|
|
|
46.70
|
|
|
20,943
|
|
|
32.35
|
|
Vested during the year
|
|
(19,067
|
)
|
|
37.03
|
|
|
(20,885
|
)
|
|
32.76
|
|
Forfeited during the year
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Nonvested balance at December 31,
|
|
18,019
|
|
|
41.14
|
|
|
20,524
|
|
|
32.83
|
|
As of
December 31, 2017
and
2016
, there was
$741 thousand
and
$674 thousand
, respectively of total unrecognized compensation cost related to non-vested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of
1.5
years. The total fair value of the shares vested during the years ended
December 31, 2017
and
2016
was
$0.9 million
and
$1.1 million
, respectively.
17. OTHER COMPREHENSIVE INCOME (LOSS):
The following table summarizes the changes, net of tax within each classification of accumulated other comprehensive income for the years ended
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
gains and
|
|
2017
|
|
|
Losses on
available-
for-sale
|
|
Retirement
|
|
|
(Dollar amounts in thousands)
|
|
Securities
|
|
plans
|
|
Total
|
Beginning balance, January 1
|
|
$
|
(1,077
|
)
|
|
$
|
(13,087
|
)
|
|
$
|
(14,164
|
)
|
Change in other comprehensive income before reclassification
|
|
3,371
|
|
|
(4,609
|
)
|
|
(1,238
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
(36
|
)
|
|
734
|
|
|
698
|
|
Net current period other comprehensive income (loss)
|
|
3,335
|
|
|
(3,875
|
)
|
|
(540
|
)
|
Ending balance, December 31
|
|
$
|
2,258
|
|
|
$
|
(16,962
|
)
|
|
$
|
(14,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
gains and
|
|
2016
|
|
|
Losses on
available-
for-sale
|
|
Retirement
|
|
|
(Dollar amounts in thousands)
|
|
Securities
|
|
plans
|
|
Total
|
Beginning balance, January 1
|
|
$
|
9,053
|
|
|
$
|
(18,454
|
)
|
|
$
|
(9,401
|
)
|
Change in other comprehensive income before reclassification
|
|
(10,109
|
)
|
|
4,151
|
|
|
(5,958
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
(21
|
)
|
|
1,216
|
|
|
1,195
|
|
Net current period other comprehensive income (loss)
|
|
(10,130
|
)
|
|
5,367
|
|
|
(4,763
|
)
|
Ending balance, December 31
|
|
$
|
(1,077
|
)
|
|
$
|
(13,087
|
)
|
|
$
|
(14,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
Current
Period
|
|
Balance
at
|
(Dollar amounts in thousands)
|
|
1/1/2017
|
|
Change
|
|
12/31/2017
|
Unrealized gains (losses) on securities available-for-sale
|
|
|
|
|
|
|
without other than temporary impairment
|
|
$
|
(3,018
|
)
|
|
$
|
1,647
|
|
|
$
|
(1,371
|
)
|
Unrealized gains (losses) on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
with other than temporary impairment
|
|
1,941
|
|
|
1,688
|
|
|
3,629
|
|
Total unrealized gain (loss) on securities available-for-sale
|
|
$
|
(1,077
|
)
|
|
$
|
3,335
|
|
|
$
|
2,258
|
|
Unrealized loss on retirement plans
|
|
(13,087
|
)
|
|
(3,875
|
)
|
|
(16,962
|
)
|
TOTAL
|
|
$
|
(14,164
|
)
|
|
$
|
(540
|
)
|
|
$
|
(14,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
Current
Period
|
|
Balance
at
|
(Dollar amounts in thousands)
|
|
1/1/2016
|
|
Change
|
|
12/31/2016
|
Unrealized gains (losses) on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
without other than temporary impairment
|
|
$
|
5,855
|
|
|
$
|
(8,873
|
)
|
|
$
|
(3,018
|
)
|
Unrealized gains (losses) on securities available-for-sale
|
|
|
|
|
|
|
|
|
|
with other than temporary impairment
|
|
3,198
|
|
|
(1,257
|
)
|
|
1,941
|
|
Total unrealized gain (loss) on securities available-for-sale
|
|
$
|
9,053
|
|
|
$
|
(10,130
|
)
|
|
$
|
(1,077
|
)
|
Unrealized loss on retirement plans
|
|
(18,454
|
)
|
|
5,367
|
|
|
(13,087
|
)
|
TOTAL
|
|
$
|
(9,401
|
)
|
|
$
|
(4,763
|
)
|
|
$
|
(14,164
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
Details about accumulated
|
|
Amount reclassified from
|
|
Affected line item in
|
other comprehensive
|
|
accumulated other
|
|
the statement where
|
income components
|
|
comprehensive income
|
|
net income is presented
|
|
|
(in thousands)
|
|
|
Unrealized gains and losses
|
|
$
|
59
|
|
|
Net securities gains (losses)
|
on available-for-sale
|
|
(23
|
)
|
|
Income tax expense
|
securities
|
|
$
|
36
|
|
|
Net of tax
|
|
|
|
|
|
Amortization of
|
|
$
|
(1,204
|
)
|
|
(a)
|
retirement plan items
|
|
470
|
|
|
Income tax expense
|
|
|
$
|
(734
|
)
|
|
Net of tax
|
Total reclassifications for the period
|
|
$
|
(698
|
)
|
|
Net of tax
|
(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits. (see Footnote 15 for additional details).
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
Details about accumulated
|
|
Amount reclassified from
|
|
Affected line item in
|
other comprehensive
|
|
accumulated other
|
|
the statement where
|
income components
|
|
comprehensive income
|
|
net income is presented
|
|
|
(in thousands)
|
|
|
Unrealized gains and losses
|
|
$
|
34
|
|
|
Net securities gains (losses)
|
on available-for-sale
|
|
(13
|
)
|
|
Income tax expense
|
securities
|
|
$
|
21
|
|
|
Net of tax
|
|
|
|
|
|
Amortization of
|
|
$
|
(1,992
|
)
|
|
(a)
|
retirement plan items
|
|
776
|
|
|
Income tax expense
|
|
|
$
|
(1,216
|
)
|
|
Net of tax
|
Total reclassifications for the period
|
|
$
|
(1,195
|
)
|
|
Net of tax
|
(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits. (see Footnote 15 for additional details).
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
Details about accumulated
|
|
Amount reclassified from
|
|
Affected line item in
|
other comprehensive
|
|
accumulated other
|
|
the statement where
|
income components
|
|
comprehensive income
|
|
net income is presented
|
|
|
(in thousands)
|
|
|
Unrealized gains and losses
|
|
$
|
17
|
|
|
Net securities gains (losses)
|
on available-for-sale
|
|
(6
|
)
|
|
Income tax expense
|
securities
|
|
$
|
11
|
|
|
Net of tax
|
|
|
|
|
|
Amortization of
|
|
$
|
(8,066
|
)
|
|
(a)
|
retirement plan items
|
|
3,146
|
|
|
Income tax expense
|
|
|
$
|
(4,920
|
)
|
|
Net of tax
|
Total reclassifications for the period
|
|
$
|
(4,909
|
)
|
|
Net of tax
|
(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits. (see Footnote 15 for additional details).
The Corporation and its bank affiliates are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements.
Further, the Corporation's primary source of funds to pay dividends to shareholders is dividends from its subsidiary banks and compliance with these capital requirements can affect the ability of the Corporation and its banking affiliates to pay dividends. At
December 31, 2017
, approximately
$42.1 million
of undistributed earnings of the subsidiary banks, included in consolidated retained earnings, were available for distribution to the Corporation without regulatory approval. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and Banks must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's and Banks' capital amounts and classification 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 the Corporation and Banks to maintain minimum amounts and ratios of Total, Common equity tier I capital and Tier I Capital to risk-weighted assets, and of Tier I Capital to average assets.
The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel lll rules) became effective for the Corporation on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel lll rules, the Corporation must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2017 and 2016 is 1.25% and 0.625%, respectively. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.
Management believes, as of
December 31, 2017
and
2016
, that the Corporation meets all capital adequacy requirements to which it is subject.
As of
December 31, 2017
, the most recent notification from the respective regulatory agencies categorized the subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the banks must maintain minimum total risk-based, Common equity tier I capital, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the banks' category.
The following table presents the actual and required capital amounts and related ratios for the Corporation and First Financial Bank, N.A., at year-end
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized
|
|
|
|
|
|
|
For Capital
|
|
Under Prompt Corrective
|
|
|
Actual
|
|
Adequacy Purposes
|
|
Action Provisions
|
(Dollar amounts in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
Total risk-based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation – 2017
|
|
$
|
412,525
|
|
|
17.88
|
%
|
|
$
|
213,446
|
|
|
9.250
|
%
|
|
N/A
|
|
|
N/A
|
|
Corporation – 2016
|
|
$
|
411,713
|
|
|
18.26
|
%
|
|
$
|
194,435
|
|
|
8.625
|
%
|
|
N/A
|
|
|
N/A
|
|
First Financial Bank – 2017
|
|
386,593
|
|
|
17.30
|
%
|
|
206,745
|
|
|
9.250
|
%
|
|
223,508
|
|
|
10.00
|
%
|
First Financial Bank – 2016
|
|
384,522
|
|
|
17.64
|
%
|
|
188,003
|
|
|
8.625
|
%
|
|
217,974
|
|
|
10.00
|
%
|
Common equity tier I capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation – 2017
|
|
$
|
392,615
|
|
|
17.01
|
%
|
|
$
|
132,682
|
|
|
5.750
|
%
|
|
N/A
|
|
|
N/A
|
|
Corporation – 2016
|
|
$
|
392,939
|
|
|
17.43
|
%
|
|
$
|
115,534
|
|
|
5.125
|
%
|
|
N/A
|
|
|
N/A
|
|
First Financial Bank – 2017
|
|
370,061
|
|
|
16.56
|
%
|
|
128,517
|
|
|
5.750
|
%
|
|
145,280
|
|
|
6.50
|
%
|
First Financial Bank – 2016
|
|
368,797
|
|
|
16.92
|
%
|
|
111,712
|
|
|
5.125
|
%
|
|
141,683
|
|
|
6.50
|
%
|
Tier I risk-based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation – 2017
|
|
$
|
392,615
|
|
|
17.01
|
%
|
|
$
|
167,295
|
|
|
7.250
|
%
|
|
N/A
|
|
|
N/A
|
|
Corporation – 2016
|
|
$
|
392,939
|
|
|
17.43
|
%
|
|
$
|
149,348
|
|
|
6.625
|
%
|
|
N/A
|
|
|
N/A
|
|
First Financial Bank – 2017
|
|
370,061
|
|
|
16.56
|
%
|
|
162,044
|
|
|
7.250
|
%
|
|
178,807
|
|
|
8.00
|
%
|
First Financial Bank – 2016
|
|
368,797
|
|
|
16.92
|
%
|
|
144,408
|
|
|
6.625
|
%
|
|
174,379
|
|
|
8.00
|
%
|
Tier I leverage capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation – 2017
|
|
$
|
392,615
|
|
|
13.31
|
%
|
|
$
|
117,956
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
Corporation – 2016
|
|
$
|
392,939
|
|
|
13.39
|
%
|
|
$
|
117,376
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Financial Bank – 2017
|
|
370,061
|
|
|
12.81
|
%
|
|
115,553
|
|
|
4.00
|
%
|
|
144,441
|
|
|
5.00
|
%
|
First Financial Bank – 2016
|
|
368,797
|
|
|
12.82
|
%
|
|
115,047
|
|
|
4.00
|
%
|
|
143,809
|
|
|
5.00
|
%
|
|
|
19.
|
PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:
|
The parent company’s condensed balance sheets as of
December 31, 2017
and
2016
, and the related condensed statements of income and comprehensive income and cash flows for each of the three years in the period ended
December 31, 2017
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
Cash deposits in affiliated banks
|
|
$
|
3,198
|
|
|
$
|
2,765
|
|
Investments in subsidiaries
|
|
414,839
|
|
|
416,024
|
|
Land and headquarters building, net
|
|
5,193
|
|
|
5,388
|
|
Other
|
|
—
|
|
|
—
|
|
Total Assets
|
|
$
|
423,230
|
|
|
$
|
424,177
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Dividends payable
|
|
$
|
6,234
|
|
|
$
|
6,104
|
|
Other liabilities
|
|
3,427
|
|
|
3,678
|
|
TOTAL LIABILITIES
|
|
9,661
|
|
|
9,782
|
|
Shareholders' Equity
|
|
413,569
|
|
|
414,395
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
423,230
|
|
|
$
|
424,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Dividends from subsidiaries
|
|
$
|
30,814
|
|
|
$
|
31,781
|
|
|
$
|
19,397
|
|
Other income
|
|
720
|
|
|
722
|
|
|
795
|
|
Other operating expenses
|
|
(2,647
|
)
|
|
(2,581
|
)
|
|
(2,314
|
)
|
Income before income taxes and equity in undistributed earnings of subsidiaries
|
|
28,887
|
|
|
29,922
|
|
|
17,878
|
|
Income tax benefit
|
|
889
|
|
|
821
|
|
|
815
|
|
Income before equity in undistributed earnings of subsidiaries
|
|
29,776
|
|
|
30,743
|
|
|
18,693
|
|
Equity in undistributed earnings of subsidiaries
|
|
(645
|
)
|
|
7,670
|
|
|
11,503
|
|
Net income
|
|
$
|
29,131
|
|
|
$
|
38,413
|
|
|
$
|
30,196
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
28,591
|
|
|
$
|
33,650
|
|
|
$
|
35,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollar amounts in thousands)
|
|
2017
|
|
2016
|
|
2015
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
29,131
|
|
|
$
|
38,413
|
|
|
$
|
30,196
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
195
|
|
|
200
|
|
|
203
|
|
Equity in undistributed earnings
|
|
645
|
|
|
(7,670
|
)
|
|
(11,503
|
)
|
Contribution of shares to ESOP
|
|
1,062
|
|
|
1,361
|
|
|
1,294
|
|
Restricted stock compensation
|
|
706
|
|
|
684
|
|
|
684
|
|
Increase (decrease) in other liabilities
|
|
(247
|
)
|
|
(262
|
)
|
|
(1,524
|
)
|
(Increase) decrease in other assets
|
|
—
|
|
|
12
|
|
|
188
|
|
NET CASH FROM OPERATING ACTIVITIES
|
|
31,492
|
|
|
32,738
|
|
|
19,538
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of furniture and fixtures
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
NET CASH FROM INVESTING ACTIVITIES
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
(503
|
)
|
|
(19,396
|
)
|
|
(8,698
|
)
|
Dividends paid
|
|
(30,556
|
)
|
|
(12,359
|
)
|
|
(12,632
|
)
|
NET CASH FROM FINANCING ACTIVITES
|
|
(31,059
|
)
|
|
(31,755
|
)
|
|
(21,330
|
)
|
NET (DECREASE) INCREASE IN CASH
|
|
433
|
|
|
983
|
|
|
(1,857
|
)
|
CASH, BEGINNING OF YEAR
|
|
2,765
|
|
|
1,782
|
|
|
3,639
|
|
CASH, END OF YEAR
|
|
$
|
3,198
|
|
|
$
|
2,765
|
|
|
$
|
1,782
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes
|
|
$
|
11,158
|
|
|
$
|
18,739
|
|
|
$
|
12,869
|
|
|
|
20.
|
SELECTED QUARTERLY DATA (UNAUDITED):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
(Dollar amounts in thousands)
|
|
Interest
Income
|
|
Interest
Expense
|
|
Net Interest
Income
|
|
Provision
For Loan
Losses
|
|
Net Income (a)
|
|
Net Income
Per Share
|
March 31
|
|
$
|
27,846
|
|
|
$
|
1,339
|
|
|
$
|
26,507
|
|
|
$
|
1,596
|
|
|
$
|
9,369
|
|
|
$
|
0.77
|
|
June 30
|
|
$
|
28,128
|
|
|
$
|
1,568
|
|
|
$
|
26,560
|
|
|
$
|
1,040
|
|
|
$
|
8,352
|
|
|
$
|
0.68
|
|
September 30
|
|
$
|
28,805
|
|
|
$
|
1,697
|
|
|
$
|
27,108
|
|
|
$
|
1,185
|
|
|
$
|
8,794
|
|
|
$
|
0.72
|
|
December 31
|
|
$
|
29,416
|
|
|
$
|
1,734
|
|
|
$
|
27,682
|
|
|
$
|
1,474
|
|
|
$
|
2,616
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
(Dollar amounts in thousands)
|
|
Interest
Income
|
|
Interest
Expense
|
|
Net
Interest
Income
|
|
Provision
For Loan
Losses
|
|
Net Income (b)
|
|
Net Income
Per Share
|
March 31
|
|
$
|
27,201
|
|
|
$
|
1,044
|
|
|
$
|
26,157
|
|
|
$
|
835
|
|
|
$
|
13,675
|
|
|
$
|
1.08
|
|
June 30
|
|
$
|
27,150
|
|
|
$
|
1,091
|
|
|
$
|
26,059
|
|
|
$
|
435
|
|
|
$
|
8,232
|
|
|
$
|
0.68
|
|
September 30
|
|
$
|
27,450
|
|
|
$
|
1,099
|
|
|
$
|
26,351
|
|
|
$
|
1,091
|
|
|
$
|
8,162
|
|
|
$
|
0.67
|
|
December 31
|
|
$
|
27,579
|
|
|
$
|
1,173
|
|
|
$
|
26,406
|
|
|
$
|
939
|
|
|
$
|
8,344
|
|
|
$
|
0.69
|
|
(a) The fourth quarter of 2017 was reduced due to the additional expense of $6.3 million for the enactment of federal tax reform.
(b) The first quarter of 2016 included the gain on sale of certain assets and liabilities of the insurance brokerage operations that resulted in an after-tax gain of
$5.75 million
.