UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
| |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: SeptemberJune 30, 20172019
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| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13349
BAR HARBOR BANKSHARES
(Exact name of registrant as specified in its charter)
|
| | |
Maine | | 01-0393663 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
PO Box 400 | | |
82 Main Street, Bar Harbor, ME | | 04609-0400 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (207) 288-3314
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large"large accelerated filer,” “accelerated filer”" "accelerated filer", “smaller"smaller reporting company”company", or "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer o Accelerated Filer ý Non-Accelerated Filer o Smaller Reporting Company o Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $2.00 per share | BHB | NYSE American |
The Registrant had 15,433,95715,545,756 shares of common stock, par value $2.00 per share, outstanding as of November 3, 2017.August 2, 2019.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
FORM 10-Q
INDEX
The Company conducts business operations principally through Bar Harbor Bank & Trust, which may be referred to as the Bank and which is a subsidiary of Bar Harbor Bankshares. Unless the context requires otherwise, references in this report to "our company, "our," "us," "we" and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past results of operations do not necessarily indicate future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.
PART II. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | | |
(In thousands, except share data) | | September 30, 2017 | | December 31, 2016 |
Assets | | |
| | |
|
Cash and due from banks | | $ | 31,223 |
| | $ | 8,219 |
|
Interest-bearing deposit with the Federal Reserve Bank | | 17,501 |
| | 220 |
|
Total cash and cash equivalents | | 48,724 |
| | 8,439 |
|
Securities available for sale, at fair value | | 718,459 |
| | 528,856 |
|
Federal Home Loan Bank stock | | 37,107 |
| | 25,331 |
|
Total securities | | 755,566 |
| | 554,187 |
|
Commercial real estate | | 793,572 |
| | 418,119 |
|
Commercial and industrial | | 357,072 |
| | 151,240 |
|
Residential real estate | | 1,152,628 |
| | 506,612 |
|
Consumer | | 125,590 |
| | 53,093 |
|
Total loans | | 2,428,862 |
| | 1,129,064 |
|
Less: Allowance for loan losses | | (11,950 | ) | | (10,419 | ) |
Net loans | | 2,416,912 |
| | 1,118,645 |
|
Premises and equipment, net | | 48,309 |
| | 23,419 |
|
Other real estate owned | | 122 |
| | 90 |
|
Goodwill | | 100,255 |
| | 4,935 |
|
Other intangible assets | | 8,811 |
| | 377 |
|
Cash surrender value of bank-owned life insurance | | 57,613 |
| | 24,450 |
|
Deferred tax assets, net | | 13,052 |
| | 5,990 |
|
Other assets | | 26,368 |
| | 14,817 |
|
Total assets | | $ | 3,475,732 |
| | $ | 1,755,349 |
|
| | | | |
Liabilities | | |
| | |
|
Demand and other non-interest bearing deposits | | $ | 357,398 |
| | $ | 98,856 |
|
NOW deposits | | 442,085 |
| | 175,150 |
|
Savings deposits | | 373,118 |
| | 77,623 |
|
Money market deposits | | 300,398 |
| | 282,234 |
|
Time deposits | | 802,110 |
| | 416,437 |
|
Total deposits | | 2,275,109 |
| | 1,050,300 |
|
Senior borrowings | | 775,582 |
| | 531,596 |
|
Subordinated borrowings | | 43,048 |
| | 5,000 |
|
Total borrowings | | 818,630 |
| | 536,596 |
|
Other liabilities | | 28,534 |
| | 11,713 |
|
Total liabilities | | 3,122,273 |
| | 1,598,609 |
|
Shareholders’ equity | | |
| | |
|
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,387 and 10,182,611 shares at September 30, 2017 and December 31, 2016, respectively | | 32,858 |
| | 13,577 |
|
Additional paid-in capital | | 186,220 |
| | 23,027 |
|
Retained earnings | | 141,251 |
| | 130,489 |
|
Accumulated other comprehensive loss | | (1,435 | ) | | (4,326 | ) |
Less: cost of 996,531 and 1,067,016 shares of treasury stock at September 30, 2017 and December 31, 2016, respectively | | (5,435 | ) | | (6,027 | ) |
Total shareholders’ equity | | 353,459 |
| | 156,740 |
|
Total liabilities and shareholders’ equity | | $ | 3,475,732 |
| | $ | 1,755,349 |
|
|
| | | | | | | | | |
| (in thousands, except share data) | | June 30, 2019 | | December 31, 2018 |
| Assets | | |
| | |
|
| Cash and due from banks | | $ | 42,657 |
| | $ | 35,208 |
|
| Interest-bearing deposit with the Federal Reserve Bank | | 17,203 |
| | 63,546 |
|
| Total cash and cash equivalents | | 59,860 |
| | 98,754 |
|
| Securities available for sale, at fair value | | 748,560 |
| | 725,837 |
|
| Federal Home Loan Bank stock | | 35,220 |
| | 35,659 |
|
| Total securities | | 783,780 |
| | 761,496 |
|
| Loans: | | | | |
| Commercial real estate | | 881,479 |
| | 826,699 |
|
| Commercial and industrial | | 416,725 |
| | 404,870 |
|
| Residential real estate | | 1,167,759 |
| | 1,144,698 |
|
| Consumer | | 112,275 |
| | 113,960 |
|
| Total loans | | 2,578,238 |
| | 2,490,227 |
|
| Less: Allowance for loan losses | | (14,572 | ) | | (13,866 | ) |
| Net loans | | 2,563,666 |
| | 2,476,361 |
|
| Premises and equipment, net | | 50,230 |
| | 48,804 |
|
| Other real estate owned | | 2,351 |
| | 2,351 |
|
| Goodwill | | 100,085 |
| | 100,085 |
|
| Other intangible assets | | 7,072 |
| | 7,459 |
|
| Cash surrender value of bank-owned life insurance | | 74,871 |
| | 73,810 |
|
| Deferred tax assets, net | | 5,649 |
| | 9,514 |
|
| Other assets | | 40,071 |
| | 29,853 |
|
| Total assets | | $ | 3,687,635 |
| | $ | 3,608,487 |
|
| | | | | |
| Liabilities | | |
| | |
|
| Deposits: | | | | |
| Demand | | $ | 354,125 |
| | $ | 370,889 |
|
| NOW | | 472,576 |
| | 484,717 |
|
| Savings | | 352,657 |
| | 358,888 |
|
| Money market | | 305,506 |
| | 335,951 |
|
| Time | | 996,512 |
| | 932,793 |
|
| Total deposits | | 2,481,376 |
| | 2,483,238 |
|
| Borrowings: | | | | |
| Senior | | 733,084 |
| | 680,823 |
|
| Subordinated | | 42,943 |
| | 42,973 |
|
| Total borrowings | | 776,027 |
| | 723,796 |
|
| Other liabilities | | 39,670 |
| | 30,874 |
|
| Total liabilities | | 3,297,073 |
| | 3,237,908 |
|
| (continued) |
|
| Shareholders’ equity | | |
| | |
|
| Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 and 16,428,388 shares at June 30, 2019 and December 31, 2018, respectively | | 32,857 |
| | 32,857 |
|
| Additional paid-in capital | | 188,144 |
| | 187,653 |
|
| Retained earnings | | 173,400 |
| | 166,526 |
|
| Accumulated other comprehensive income (loss) | | 877 |
| | (11,802 | ) |
| Less: 884,082 and 905,201 shares of treasury stock at June 30, 2019 and December 31, 2018, respectively | | (4,716 | ) | | (4,655 | ) |
| Total shareholders’ equity | | 390,562 |
| | 370,579 |
|
| Total liabilities and shareholders’ equity | | $ | 3,687,635 |
| | $ | 3,608,487 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands, except per share data) | 2017 | | 2016 | | 2017 | | 2016 |
Interest and dividend income | | | | | |
| | |
|
Loans | $ | 24,661 |
| | $ | 10,295 |
| | $ | 70,081 |
| | $ | 30,627 |
|
Securities and other | 5,402 |
| | 3,828 |
| | 15,832 |
| | 12,014 |
|
Total interest and dividend income | 30,063 |
| | 14,123 |
| | 85,913 |
| | 42,641 |
|
Interest expense | |
| | |
| | |
| | |
|
Deposits | 3,177 |
| | 1,755 |
| | 7,926 |
| | 4,931 |
|
Borrowings | 3,408 |
| | 1,369 |
| | 9,327 |
| | 3,993 |
|
Total interest expense | 6,585 |
| | 3,124 |
| | 17,253 |
| | 8,924 |
|
Net interest income | 23,478 |
| | 10,999 |
| | 68,660 |
| | 33,717 |
|
Provision for loan losses | 660 |
| | 139 |
| | 2,191 |
| | 754 |
|
Net interest income after provision for loan losses | 22,818 |
| | 10,860 |
| | 66,469 |
| | 32,963 |
|
Non-interest income | |
| | |
| | |
| | |
|
Trust and investment management fee income | 3,040 |
| | 975 |
| | 9,228 |
| | 2,878 |
|
Insurance and brokerage service income | 329 |
| | — |
| | 1,020 |
| | — |
|
Customer service fees | 2,638 |
| | 706 |
| | 5,990 |
| | 1,999 |
|
Gain on sales of securities, net | 19 |
| | 1,354 |
| | 19 |
| | 4,489 |
|
Bank-owned life insurance income | 380 |
| | 197 |
| | 1,165 |
| | 540 |
|
Other income | 554 |
| | 140 |
| | 2,043 |
| | 408 |
|
Total non-interest income | 6,960 |
| | 3,372 |
| | 19,465 |
| | 10,314 |
|
Non-interest expense | |
| | |
| | |
| | |
|
Salaries and employee benefits | 9,617 |
| | 4,832 |
| | 30,065 |
| | 14,648 |
|
Occupancy and equipment | 2,894 |
| | 1,156 |
| | 8,573 |
| | 3,466 |
|
Loss on premises and equipment, net | (1 | ) | | 216 |
| | 94 |
| | 216 |
|
Outside services | 907 |
| | 181 |
| | 2,220 |
| | 430 |
|
Professional services | 428 |
| | 250 |
| | 1,357 |
| | 1,084 |
|
Communication | 382 |
| | 128 |
| | 1,040 |
| | 492 |
|
Amortization of intangible assets | 189 |
| | 1 |
| | 534 |
| | 25 |
|
Acquisition expenses | 346 |
| | 320 |
| | 5,917 |
| | 812 |
|
Other expenses | 2,824 |
| | 1,666 |
| | 8,663 |
| | 4,305 |
|
Total non-interest expense | 17,586 |
| | 8,750 |
| | 58,463 |
| | 25,478 |
|
| | | | | | | |
Income before income taxes | 12,192 |
| | 5,482 |
| | 27,471 |
| | 17,799 |
|
Income tax expense | 3,575 |
| | 1,850 |
| | 8,085 |
| | 5,450 |
|
Net income | $ | 8,617 |
| | $ | 3,632 |
| | $ | 19,386 |
| | $ | 12,349 |
|
| | | | | | | |
Earnings per share: | |
| | |
| | |
| | |
|
Basic | $ | 0.56 |
| | $ | 0.40 |
| | $ | 1.27 |
| | $ | 1.37 |
|
Diluted | $ | 0.56 |
| | $ | 0.40 |
| | $ | 1.27 |
| | $ | 1.35 |
|
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 15,420 |
| | 9,064 |
| | 15,098 |
| | 9,037 |
|
Diluted | 15,511 |
| | 9,162 |
| | 15,204 |
| | 9,138 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share data) | | 2019 | | 2018 | | 2019 | | 2018 |
Interest and dividend income | | | | | | |
| | |
|
Loans | | $ | 27,660 |
| | $ | 25,934 |
| | $ | 54,524 |
| | $ | 51,060 |
|
Securities and other | | 6,125 |
| | 5,784 |
| | 12,488 |
| | 11,435 |
|
Total interest and dividend income | | 33,785 |
| | 31,718 |
| | 67,012 |
| | 62,495 |
|
Interest expense | | |
| | |
| | |
| | |
|
Deposits | | 6,886 |
| | 4,405 |
| | 13,193 |
| | 8,390 |
|
Borrowings | | 5,403 |
| | 4,321 |
| | 10,558 |
| | 7,955 |
|
Total interest expense | | 12,289 |
| | 8,726 |
| | 23,751 |
| | 16,345 |
|
Net interest income | | 21,496 |
| | 22,992 |
| | 43,261 |
| | 46,150 |
|
Provision for loan losses | | 562 |
| | 770 |
| | 886 |
| | 1,565 |
|
Net interest income after provision for loan losses | | 20,934 |
| | 22,222 |
| | 42,375 |
| | 44,585 |
|
Non-interest income | | |
| | |
| | |
| | |
|
Trust and investment management fee income | | 3,066 |
| | 3,122 |
| | 5,823 |
| | 6,084 |
|
Customer service fees | | 2,618 |
| | 2,347 |
| | 4,783 |
| | 4,571 |
|
Bank-owned life insurance income | | 519 |
| | 377 |
| | 1,061 |
| | 823 |
|
Customer derivative income | | 696 |
| | 545 |
| | 725 |
| | 545 |
|
Other income | | 554 |
| | 730 |
| | 1,228 |
| | 1,336 |
|
Total non-interest income | | 7,453 |
| | 7,121 |
| | 13,620 |
| | 13,359 |
|
Non-interest expense | | |
| | |
| | |
| | |
|
Salaries and employee benefits | | 11,685 |
| | 10,375 |
| | 22,204 |
| | 21,364 |
|
Occupancy and equipment | | 3,300 |
| | 2,925 |
| | 6,686 |
| | 5,998 |
|
Loss on premises and equipment, net | | 21 |
| | — |
| | 21 |
| | — |
|
Outside services | | 443 |
| | 581 |
| | 854 |
| | 1,141 |
|
Professional services | | 570 |
| | 360 |
| | 1,114 |
| | 793 |
|
Communication | | 283 |
| | 304 |
| | 518 |
| | 484 |
|
Marketing | | 511 |
| | 588 |
| | 806 |
| | 914 |
|
Amortization of intangible assets | | 207 |
| | 207 |
| | 414 |
| | 414 |
|
Acquisition, conversion and other expenses | | 280 |
| | 214 |
| | 280 |
| | 549 |
|
Other expenses | | 3,606 |
| | 3,131 |
| | 6,633 |
| | 5,880 |
|
Total non-interest expense | | 20,906 |
| | 18,685 |
| | 39,530 |
| | 37,537 |
|
| | | | | | | | |
Income before income taxes | | 7,481 |
| | 10,658 |
| | 16,465 |
| | 20,407 |
|
Income tax expense | | 1,364 |
| | 2,123 |
| | 3,067 |
| | 4,060 |
|
Net income | | $ | 6,117 |
| | $ | 8,535 |
| | $ | 13,398 |
| | $ | 16,347 |
|
| | | | | | | | |
Earnings per share: | | |
| | |
| | |
| | |
|
Basic | | $ | 0.39 |
| | $ | 0.55 |
| | $ | 0.86 |
| | $ | 1.06 |
|
Diluted | | $ | 0.39 |
| | $ | 0.55 |
| | $ | 0.86 |
| | $ | 1.05 |
|
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 15,538 |
| | 15,482 |
| | 15,531 |
| | 15,465 |
|
Diluted | | 15,586 |
| | 15,571 |
| | 15,582 |
| | 15,560 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Net income | | $ | 8,617 |
| | $ | 3,632 |
| | $ | 19,386 |
| | $ | 12,349 |
|
Other comprehensive income (loss), before tax: | | |
| | |
| | |
| | |
|
Changes in unrealized loss on securities available-for-sale | | 512 |
| | (5,577 | ) | | 5,119 |
| | 3,041 |
|
Changes in unrealized loss on derivative hedges | | (84 | ) | | (92 | ) | | (805 | ) | | (1,309 | ) |
Changes in unrealized loss on pension | | 5 |
| | 8 |
| | 45 |
| | 86 |
|
Income taxes related to other comprehensive income (loss): | | |
| | |
| | | | |
|
Changes in unrealized loss on securities available-for-sale | | (192 | ) | | 1,952 |
| | (1,839 | ) | | (1,064 | ) |
Changes in unrealized loss on derivative hedges | | 31 |
| | 32 |
| | 373 |
| | 458 |
|
Changes in unrealized loss on pension | | (2 | ) | | (3 | ) | | (2 | ) | | (30 | ) |
Total other comprehensive income | | 270 |
| | (3,680 | ) | | 2,891 |
| | 1,182 |
|
Total comprehensive income | | $ | 8,887 |
| | $ | (48 | ) | | $ | 22,277 |
| | $ | 13,531 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Net income | | $ | 6,117 |
| | $ | 8,535 |
| | $ | 13,398 |
| | $ | 16,347 |
|
Other comprehensive income, before tax: | | | | | | | | |
Changes in unrealized gain (loss) on securities available-for-sale | | 9,646 |
| | (3,087 | ) | | 18,546 |
| | (13,789 | ) |
Changes in unrealized (loss) gain on cash flow hedging derivatives | | (1,157 | ) | | 226 |
| | (2,002 | ) | | 880 |
|
Changes in unrealized loss on pension | | — |
| | — |
| | — |
| | 41 |
|
Income taxes related to other comprehensive income: | | | | | | | | |
Changes in unrealized (gain) loss on securities available-for-sale | | (2,255 | ) | | 731 |
| | (4,334 | ) | | 3,274 |
|
Changes in unrealized loss (gain) on cash flow hedging derivatives | | 271 |
| | (54 | ) | | 469 |
| | (209 | ) |
Changes in unrealized loss on pension | | — |
| | — |
| | — |
| | (10 | ) |
Total other comprehensive income (loss) | | 6,505 |
| | (2,184 | ) | | 12,679 |
| | (9,813 | ) |
Total comprehensive income | | $ | 12,622 |
| | $ | 6,351 |
| | $ | 26,077 |
| | $ | 6,534 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Common stock amount | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | | Treasury stock | | Total |
Balance at December 31, 2015 | | $ | 13,577 |
| | $ | 21,624 |
| | $ | 122,260 |
| | $ | 3,629 |
| | $ | (6,938 | ) | | $ | 154,152 |
|
| | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | |
Net income | | — |
| | — |
| | 12,349 |
| | — |
| | — |
| | 12,349 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | 1,182 |
| | — |
| | 1,182 |
|
Total comprehensive income | | — |
| | — |
| | 12,349 |
| | 1,182 |
| | — |
| | 13,531 |
|
Cash dividends declared ($0.54 per share) | | — |
| | — |
| | (4,880 | ) | | — |
| | — |
| | (4,880 | ) |
Treasury stock purchased (23,072) | | — |
| | — |
| | — |
| | — |
| | (497 | ) | | (497 | ) |
Net issuance (91,466) to employee stock plans, including related tax effects | | — |
| | 35 |
| | (127 | ) | | — |
| | 1,140 |
| | 1,048 |
|
Recognition of stock based compensation | | — |
| | 982 |
| | — |
| | — |
| | | | 982 |
|
Balance at September 30, 2016 | | $ | 13,577 |
| | $ | 22,641 |
| | $ | 129,602 |
| | $ | 4,811 |
| | $ | (6,295 | ) | | $ | 164,336 |
|
| | | | | | | | | | | | |
Balance at December 31, 2016 | | $ | 13,577 |
| | $ | 23,027 |
| | $ | 130,489 |
| | $ | (4,326 | ) | | $ | (6,027 | ) | | $ | 156,740 |
|
| | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | |
Net income | | — |
| | — |
| | 19,386 |
| | — |
| | — |
| | 19,386 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | 2,891 |
| | — |
| | 2,891 |
|
Total comprehensive income | | — |
| | — |
| | 19,386 |
| | 2,891 |
| | — |
| | 22,277 |
|
Cash dividends declared ($0.56 per share) | | — |
| | — |
| | (8,624 | ) | | — |
| | — |
| | (8,624 | ) |
Acquisition of Lake Sunapee Bank Group | | 8,328 |
| | 173,591 |
| | — |
| | — |
| | — |
| | 181,919 |
|
Treasury stock purchased (9,603 shares) | | — |
| | — |
| | — |
| | — |
| | (282 | ) | | (282 | ) |
Net issuance (80,448 shares) to employee stock plans, including related tax effects | | — |
| | (265 | ) | | — |
| | — |
| | 874 |
| | 609 |
|
Three-for-two stock split | | 10,953 |
| | (10,968 | ) | | — |
| | — |
| | — |
| | (15 | ) |
Recognition of stock based compensation | | — |
| | 835 |
| | — |
| | — |
| | — |
| | 835 |
|
Balance at September 30, 2017 | | $ | 32,858 |
| | $ | 186,220 |
| | $ | 141,251 |
| | $ | (1,435 | ) | | $ | (5,435 | ) | | $ | 353,459 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share data) | | Common stock amount | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Total |
Balance at December 31, 2017 | | $ | 32,857 |
| | $ | 186,702 |
| | $ | 144,977 |
| | $ | (4,554 | ) | | $ | (5,341 | ) | | $ | 354,641 |
|
Net income | | — |
| | — |
| | 7,812 |
| | — |
| | — |
| | 7,812 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | (7,629 | ) | | — |
| | (7,629 | ) |
Cash dividends declared ($0.19 per share) | | — |
| | — |
| | (2,884 | ) | | — |
| | — |
| | (2,884 | ) |
Net issuance (16,180 shares) to employee stock plans, including related tax effects | | — |
| | (112 | ) | | — |
| | — |
| | 127 |
| | 15 |
|
Modified retrospective basis adoption of Revenue Recognition Accounting Codification Standard 606 | | — |
| | — |
| | (184 | ) | | — |
| | — |
| | (184 | ) |
Reclassification of the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income for adoption of ASU 2018-02 | | — |
| | — |
| | 980 |
| | (980 | ) | | — |
| | — |
|
Recognition of stock based compensation | | — |
| | 379 |
| | — |
| | — |
| | — |
| | 379 |
|
Balance at March 31, 2018 | | 32,857 |
| | 186,969 |
| | 150,701 |
| | (13,163 | ) | | (5,214 | ) | | 352,150 |
|
| | | | | | | | | | | | |
Net income | | — |
| | — |
| | 8,535 |
| | — |
| | — |
| | 8,535 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | (2,184 | ) | | — |
| | (2,184 | ) |
Cash dividends declared ($0.20 per share) | | — |
| | — |
| | (3,097 | ) | | — |
| | — |
| | (3,097 | ) |
Treasury stock purchased (9,294 shares) | | — |
| | — |
| | — |
| | — |
| | (278 | ) | | (278 | ) |
Net issuance (46,602 shares) to employee stock plans, including related tax effects | | — |
| | (19 | ) | | — |
| | — |
| | 608 |
| | 589 |
|
Recognition of stock based compensation | | — |
| | 248 |
| | — |
| | — |
| | — |
| | 248 |
|
Balance at June 30, 2018 | | $ | 32,857 |
| | $ | 187,198 |
| | $ | 156,139 |
| | $ | (15,347 | ) | | $ | (4,884 | ) | | $ | 355,963 |
|
| | | | | | | | | | | | |
Balance at December 31, 2018 | | $ | 32,857 |
| | $ | 187,653 |
| | $ | 166,526 |
| | $ | (11,802 | ) | | $ | (4,655 | ) | | $ | 370,579 |
|
Net income | | — |
| | — |
| | 7,281 |
| | — |
| | — |
| | 7,281 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | 6,174 |
| | — |
| | 6,174 |
|
Cash dividends declared ($0.20 per share) | | — |
| | — |
| | (3,105 | ) | | — |
| | — |
| | (3,105 | ) |
Net issuance (441 shares) to employee stock plans, including related tax effects | | — |
| | (173 | ) | | — |
| | — |
| | 4 |
| | (169 | ) |
Recognition of stock based compensation | | — |
| | 263 |
| | — |
| | — |
| | — |
| | 263 |
|
Balance at March 31, 2019 | | 32,857 |
| | 187,743 |
| | 170,702 |
| | (5,628 | ) | | (4,651 | ) | | 381,023 |
|
| | | | | | | | | | | | |
Net income | | — |
| | — |
| | 6,117 |
| | — |
| | — |
| | 6,117 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | 6,505 |
| | — |
| | 6,505 |
|
Cash dividends declared ($0.22 per share) | | — |
| | — |
| | (3,419 | ) | | — |
| | — |
| | (3,419 | ) |
Treasury stock purchased (8,010 shares) | | — |
| | — |
| | — |
| | — |
| | (210 | ) | | (210 | ) |
Net issuance (20,678 shares) to employee stock plans, including related tax effects | | — |
| | 104 |
| | — |
| | — |
| | 145 |
| | 249 |
|
Recognition of stock based compensation | | — |
| | 297 |
| | — |
| | — |
| | — |
| | 297 |
|
Balance at June 30, 2019 | | $ | 32,857 |
| | $ | 188,144 |
| | $ | 173,400 |
| | $ | 877 |
| | $ | (4,716 | ) | | $ | 390,562 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
(In thousands) | | 2017 | | 2016 | |
(in thousands) | | | 2019 | | 2018 |
Cash flows from operating activities: | | |
| | |
| | |
| | |
|
Net income | | $ | 19,386 |
| | $ | 12,349 |
| | $ | 13,398 |
| | $ | 16,347 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Provision for loan losses | | 2,191 |
| | 754 |
| | 886 |
| | 1,565 |
|
Net amortization of securities | | 4,006 |
| | 2,293 |
| | 1,735 |
| | 2,089 |
|
Deferred tax benefit | | (237 | ) | | — |
| |
Change in unamortized net loan costs and premiums | | (368 | ) | | — |
| | (190 | ) | | 214 |
|
Premises and equipment depreciation and amortization expense | | 2,745 |
| | 1,159 |
| |
Premises and equipment depreciation | | | 1,905 |
| | 1,676 |
|
Stock-based compensation expense | | 835 |
| | 982 |
| | 560 |
| | 627 |
|
Accretion of purchase accounting entries, net | | (2,482 | ) | | — |
| | (1,017 | ) | | (1,240 | ) |
Amortization of other intangibles | | 542 |
| | 69 |
| | 414 |
| | 414 |
|
Income from cash surrender value of bank-owned life insurance policies | | (1,165 | ) | | (540 | ) | | (1,061 | ) | | (823 | ) |
Gain on sales of securities, net | | (19 | ) | | (4,489 | ) | |
Loss on premises and equipment, net | | 95 |
| | — |
| | 21 |
| | — |
|
Net change in other | | (2,387 | ) | | (695 | ) | |
Net change in other assets and liabilities | | | (3,052 | ) | | (5,695 | ) |
Net cash provided by operating activities | | 23,142 |
| | 11,882 |
| | 13,599 |
| | 15,174 |
|
| | | | | | | | |
Cash flows from investing activities: | | |
| | |
| | |
| | |
|
Proceeds from sales of securities available for sale | | 1,581 |
| | 66,431 |
| |
Proceeds from maturities, calls and prepayments of securities available for sale | | 92,817 |
| | 78,190 |
| | 50,546 |
| | 48,942 |
|
Purchases of securities available for sale | | (138,785 | ) | | (171,702 | ) | | (56,831 | ) | | (57,725 | ) |
Net change in loans | | (71,669 | ) | | (2,842 | ) | | (86,745 | ) | | 693 |
|
Purchase of loans | | (18,621 | ) | | (95,421 | ) | |
Purchase of Federal Home Loan Bank stock | | (327 | ) | | (2,233 | ) | | (9,720 | ) | | (848 | ) |
Proceeds from sale of Federal Home Loan Bank stock | | | 10,159 |
| | 241 |
|
Purchase of premises and equipment, net | | (3,011 | ) | | (3,567 | ) | | (3,352 | ) | | (2,002 | ) |
Acquisitions, net of cash (paid) acquired | | 39,537 |
| | — |
| |
Proceeds from sale of other real estate | | 322 |
| | — |
| |
Proceeds from sale of other real estate owned | | | — |
| | 94 |
|
Net cash used in investing activities | | (98,156 | ) | | (131,144 | ) | | (95,943 | ) | | (10,605 | ) |
| | | | | | |
| | |
|
Cash flows from financing activities: | | |
| | |
| | | | |
Net decrease in deposits | | 74,725 |
| | 90,738 |
| |
Net (decrease) increase in deposits | | | (1,448 | ) | | 22,558 |
|
Net change in short-term advances from the Federal Home Loan Bank | | 110,801 |
| | 31,250 |
| | (62,510 | ) | | (47,467 | ) |
Net change in long term advances from the Federal Home Loan Bank | | (62,531 | ) | | 8,238 |
| |
Net change in securities sold repurchase agreements | | 672 |
| | (1,784 | ) | |
Net change in long-term advances from the Federal Home Loan Bank | | | 114,062 |
| | (3,297 | ) |
Exercise of stock options | | 451 |
| | 1,048 |
| | 80 |
| | 604 |
|
Purchase of treasury stock | | (196 | ) | | (497 | ) | |
Common stock cash dividends paid | | (8,623 | ) | | (4,880 | ) | |
Net cash provided by financing activities | | 115,299 |
| | 124,113 |
| |
Treasury stock purchased | | | (210 | ) | | (278 | ) |
Cash dividends paid on common stock | | | (6,524 | ) | | (5,981 | ) |
Net cash provided by (used in) financing activities | | | 43,450 |
| | (33,861 | ) |
| | | | | | | | |
Net change in cash and cash equivalents | | 40,285 |
| | 4,851 |
| | (38,894 | ) | | (29,292 | ) |
Cash and cash equivalents at beginning of year | | 8,439 |
| | 9,720 |
| | 98,754 |
| | 90,685 |
|
Cash and cash equivalents at end of year | | $ | 48,724 |
| | $ | 14,571 |
| | $ | 59,860 |
| | $ | 61,393 |
|
| | | | | |
Supplemental cash flow information: | | |
| | |
| | |
| | |
|
Interest paid | | $ | 16,184 |
| | $ | 8,858 |
| | $ | 22,577 |
| | $ | 17,182 |
|
Income taxes paid, net | | 6,764 |
| | 5,342 |
| | 1,685 |
| | 6,218 |
|
| | | | | | | | |
Acquisition of non-cash assets and liabilities: | | | | | |
Assets acquired | | 1,454,076 |
| | — |
| |
Liabilities assumed | | 1,406,672 |
| | — |
| |
| | | | | |
Other non-cash changes: | | | | | | | | |
Real estate owned acquired in settlement of loans | | 32 |
| | — |
| | — |
| | 124 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company” or “Bar Harbor”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Bar Harbor Bankshares is a Maine Financial Institution Holding Company for the purposes of the laws of the state of Maine, and as such is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include the accounts of the Company, its wholly-owned subsidiary Bar Harbor Bank & Trust (the "Bank") and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless U.S. GAAP requires otherwise.
In addition, these interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to U.S. GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company's Annual Report on Form 10-K for the year ended December 31, 20162018 previously filed with the Securities and Exchange Commission.Commission (the "SEC"). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.
As a result of the Lake Sunapee Group acquisition, the Company has the following new significant and critical accounting policy regarding acquired loans:
Acquired Loans:Reclassifications: Loans that the Company acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Going forward, the Company will continue to evaluate reasonableness of expectations for the timing and the amount of cash to be collected. Subsequent decreases or increases in expected cash flows may result in changesWhenever necessary, amounts in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral dependent loans with deteriorated credit quality, the Company estimates the fair value of the underlying collateral of the loans. These valuesprior years’ financial statements are discounted using market derived rates of return, with consideration givenreclassified to the period of time and costs associated with the foreclosure and disposition of the collateral.
Recently Adopted Accounting Principles
In March 2016, the FASB issued ASU No. 2016-09, “Improvementsconform to Employee Share-Based Payment Accounting.” This ASU 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.current presentation. 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
currently, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted ASU No. 2016-09 on January 1, 2017 and elected to recognize forfeitures as they occur. As allowed by the ASU, the Company’s adoption was prospective, therefore, prior periods have not been adjusted. The adoption of ASU No. 2016-09 could result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for employee share-based transactions, however, the actual amounts recognized in income tax expense will be dependent on the amount of employee share-based transactions and the stock price at the time of vesting or exercise. In 2017, the adoption of ASU No. 2016-09 resulted in an insignificant decrease to the provision for income taxes primarily due to the tax benefit from the exercise of stock options and the vesting of restricted stock.
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 Company elected to adopt the provisions of ASU No. 2017-08 as of March 31, 2017, whichreclassifications had no impact on net income in the Company’s Consolidated Financial Statements.consolidated income statement.
Future Application of
Recent Accounting Pronouncements
In May 2014, the FASB and the International Accounting Standards Board (the “IASB”
The following table provides a brief description of recent accounting standards updates ("ASU") jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards (“IFRS”). Current revenue recognition guidance in U.S. GAAP consists of broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosure requirements; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The common revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard was initially effective for public entities for interim and annual reporting periods beginning after December 15, 2016; early adoption was not permitted. However, in August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers - Deferral of the Effective Date” which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. In addition, the FASB has begun to issue targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Company does not expect the new guidance to have a material impact on revenue most
closely associated with financial instruments, including interest income. The Company is currently performing an overall assessment of revenue streams and reviewing contracts potentially affected by the ASU including trust and asset management fees, deposit related fees, interchange fees, and merchant income, to determine the potential impact the new guidance is expected to have on the Company’s Consolidated Financial Statements. In addition, the Company continues to follow certain implementation issues relevant to the banking industry which are still pending resolution. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach.
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to U.S. GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (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 (that is, securities or loans and receivables) 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. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. The Company has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the Company will continue to closely monitor developments and additional guidance.
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 Company has several lease agreements, such as branch locations, which are currently considered operating leases, and therefore, not recognized on the Company’s consolidated financial statements of condition. The Company expects the new guidance will require these leaseupon adoption:
agreements to now be recognized on the consolidated statements of condition as a right-of-use asset and a corresponding lease liability. Therefore, the Company’s preliminary evaluation indicates the provisions of ASU No. 2016-02 are expected to impact the Company’s consolidated statements of condition. However, the Company continues to evaluate the extent of potential impact the new guidance will have on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s Consolidated Financial Statements, in particular the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact.
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” Current U.S. GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU No. 2016-15 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
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 Company expects to early adopt upon the next goodwill impairment test in 2017. ASU No. 2017-04 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement 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 as other employee compensation costs (e.g., Salaries and Benefits) 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 from the line item (e.g., Other Noninterest Expense) 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 Company 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. The Company expects to utilize the ASU’s practical expedient allowing entities to estimate amounts for comparative periods using the information previously disclosed in their pension and other post-retirement benefit plan footnote. ASU No. 2017-07 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In May 2017, the FASB issued ASU No. 2017-09, “Stock Compensation, Scope of Modification Accounting.” This ASU clarifies when changes to the terms of conditions of a share-based payment award must be accounted for as modifications. Companies will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. The new guidance should reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications, as the guidance will allow companies to make certain non-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASU No. 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU No. 2017-09 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” This ASU’s objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company’s interest rate cap agreements are derivative financial instruments that are designated as formal hedging relationships. The Company is currently evaluating this ASU to determine whether its provisions will enhance the Company’s ability to employ risk management strategies, while improving the transparency and understanding of those strategies for financial statement users.
|
| | | |
Standard | Description | Required Date of Adoption | Effect on financial statements |
Standards Adopted in 2019 |
ASU 2016-02, Leases | This ASU creates ASU Topic 842, Leases, and supersedes Topic 840, Leases. The new guidance requires lessees to record a right-of-use asset and a corresponding liability equal to the present value of future rental payments on their balance sheets for all leases with a term greater than one year. There are not significant changes to lessor accounting; however, there are certain improvements made to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. This guidance expands both quantitative and qualitative required disclosures. This ASU is required to be adopted on a modified retrospective basis and allows for practical expedients and elections in conjunction with implementation. The Company may elect some of the expedients upon the adoption date, which may be applied prospectively or retrospectively. | January 1, 2019 | The Company adopted this ASU as of January 1, 2019 including the election of the practical expedients, allowing for existing leases to be accounted for consistent with current guidance, with the exception of balance sheet recognition for lessees. A modified retrospective transition approach was utilized, applying the new standard to all leases existing at the date of initial application. At January 1, 2019 the Company recognized a right-of-use asset and corresponding lease liability of $9.0 million. This computation is based, primarily, on the present value of unpaid future minimum lease payments. Additionally, that amount is impacted by assumptions around renewals and/or extensions, and the interest rate used to discount those future lease obligations. Due to the limited size of the Company's leasing portfolio, many other items related to this standard don't apply, or had an immaterial impact on the Company's consolidated financial statements. For transitional disclosures see Note 12 - Leases. |
ASU 2018-11 Practical Expedients to Topic 842, Leases |
ASU 2018-20 Scope Improvements for Lessors |
ASU 2019-01 Leases: Codification Improvements |
ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities | This ASU amends Accounting Standards Codification ("ASC") 815, Derivatives and Hedging to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity's risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. | January 1, 2019 | The Company adopted this ASU as of January 1, 2019, although it did not have a material impact on the Company's consolidated financial statements. |
ASU 2018-16, Inclusion of Overnight Financing Rate or Overnight Swap Rate as a Benchmark for Hedge Accounting |
ASU 2018-07, Share Based Payment Accounting | This ASU expands the scope of Topic 718, Compensation- Stock Compensation to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity-Based Payments to non-employees. | January 1, 2019 | The Company adopted this ASU as of January 1, 2019, with no material impact on the Company's consolidated financial statements. |
NOTE 2.ACQUISITION
Lake Sunapee Bank Group
On January 13, 2017, the Company completed its acquisition of Lake Sunapee Bank Group (“Lake Sunapee”). Lake Sunapee, as a holding company, had one banking subsidiary (“Lake Sunapee Bank”) that had 33 full service branches located throughout New Hampshire and Vermont. As a result of the transaction, Lake Sunapee Bank Group merged into Bar Harbor Bankshares, and Lake Sunapee Bank merged into Bar Harbor Bank. This business combination expanded the Company's geographic footprint and increased market share in its New England based franchise. The goodwill recognized results from the expected synergies and earnings accretion from this combination, including future cost savings related to the operations of Lake Sunapee Bank Group.
On the acquisition date, Lake Sunapee had 8.38 million common shares outstanding, which were exchanged for 4.16 million of the Company's common shares based on a 0.4970 exchange ratio as defined in the merger agreement. The merger qualified as a reorganization for federal income tax purposes, and as a result, Lake Sunapee common shares exchanged for the Company's common shares were transferred on a tax-free basis. Bar Harbor Bankshares common stock issued in this exchange was valued at $43.69 per share based on the closing price posted on January 13, 2017 resulting in a consideration value of $181.92 million. The Company also paid $27 thousand to Lake Sunapee shareholders in lieu of the issuance of fractional shares. Total consideration paid at closing reflected the increase in Bar Harbor Bankshare's stock price since the time of the announcement.
The results of Lake Sunapee's operations are included in the Company's Consolidated Statement of Income from the date of acquisition. The assets and liabilities in the Lake Sunapee acquisition were recorded at their fair value based on management’s best estimate using information available as of the date of acquisition.
Consideration paid, and fair values of Lake Sunapee’s assets acquired and liabilities assumed, along with the resulting goodwill, are summarized in the following tables:
|
| | | | | | | | | | | | | | |
(in thousands) | | As Acquired | | Fair Value Adjustments | | | | As Recorded at Acquisition |
Consideration paid: | | | | | | | | |
Bar Harbor Bankshares common stock issued to Lake Sunapee Bank Group stockholders (4,163,853 shares) | | | | | | | | $ | 181,919 |
|
Cash paid for fractional shares | | | | | | | | 27 |
|
Total consideration paid | | | | | | | | 181,946 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value: | | | | | | | | |
Cash and short-term investments | | $ | 40,970 |
| | $ | (1,406 | ) | | (a) | | $ | 39,564 |
|
Investment securities | | 156,960 |
| | (1,381 | ) | | (b) | | 155,579 |
|
Loans | | 1,217,927 |
| | (9,728 | ) | | (c) | | 1,208,199 |
|
Premises and equipment | | 22,561 |
| | (351 | ) | | (d) | | 22,210 |
|
Core deposit intangible | | — |
| | 7,786 |
| | (e) | | 7,786 |
|
Other assets | | 102,298 |
| | (50,419 | ) | | (f) | | 51,879 |
|
Deposits | | (1,149,865 | ) | | (746 | ) | | (g) | | (1,150,611 | ) |
Borrowings | | (232,261 | ) | | (16 | ) | | (h) | | (232,277 | ) |
Deferred taxes, net | | (1,921 | ) | | 10,217 |
| | (i) | | 8,296 |
|
Other liabilities | | (19,924 | ) | | (4,087 | ) | | (j) | | (24,011 | ) |
Total identifiable net assets | | $ | 136,745 |
| | $ | (50,131 | ) | | | | $ | 86,614 |
|
| | | | | | | | |
Goodwill | | | | | | | | $ | 95,332 |
|
Explanation of Certain Fair Value Adjustments
|
| | | |
a.Standard | Represents in-process payments that were madeDescription | Required Date of Adoption | Effect on the date of acquisition that were not recorded on Lake Sunapee's general ledger until after acquisition. |
| financial statements |
b.Standards Not Yet Adopted |
ASU 2016-13, Measurement of Credit Losses on Financial Instruments | RepresentsThis ASU amends Topic 326, Financial Instruments- Credit Losses to replace the write downcurrent incurred loss accounting model with a current expected credit loss approach (CECL) for financial instruments measured at amortized cost and other commitments to extend credit. The amendments require entities to consider all available relevant information when estimating current expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is to reflect the portion of the book valueamortized cost basis that the entity does not expect to collect. The amendments also eliminate the current accounting model for purchased credit impaired loans and certain off-balance sheet exposures. Additional quantitative and qualitative disclosures are required upon adoption. | January 1, 2020 | Adoption of investmentsthis ASU is expected to their estimatedprimarily change how the Company estimates credit losses on loans with the application of the expected credit loss model. Also, for acquired purchased impaired loans it requires the reclassification of the credit portion of the total remaining fair value based on fair values onadjustment directly to the date of acquisition. |
| |
c. | Represents the write down of the book value of loans to their estimated fair value based on current interest rates and expected cash flows, which includes an estimate of expected loan loss inherent in the portfolio. The adjustments also includes the reversal of Lake Sunapee Bank's historic allowance for loan losses. Loans that met the criteriaFair value adjustments on purchased credit impaired loans related to interest rates and are being accounted for in accordance with ASC 310-30, Loans and Securities Acquired with Deteriorated Credit Quality, had a book value of $23.34 million and have a fair value $18.45 million. Non-impairedadjustments on other acquired loans will continue to be accreted into income over time. |
ASU 2018-19, Codification Improvements to ASU 2016-13 |
| In addition, the Company expects the ASU to change the presentation of credit losses for AFS debt securities through an allowance method rather than as a direct write-off and may allow for recovery of these amounts in the future. |
| While the CECL model does not apply to available for sale debt securities, the ASU does require entities to record an allowance when recognizing credit losses for available for sale securities with unrealized losses, rather than reduce the amortized cost of the securities by direct write-offs. The guidances will require companies to recognize improvements to estimated credit losses immediately in earning rather than interest income over time. |
| The Company is in the process of evaluating and implementing allowance loan loss estimation models to comply with the guidance under this ASU, which may result in a higher allowance for losses then currently recorded under the existing standard. |
| The ASU should be adopted on a modified retrospective basis. Entities that have loans accounted for under ASC 310-10, Overall, had a book value of $1.20 billion and have a fair value of $1.188 billion. ASC 310-30 loans have a $1.09 million fair value adjustment discount that is accretable in earnings over the weighted average life of three years using the effective yield as determined on the date of acquisition. The effective yield is periodically adjusted for changes in expected flows. ASC 310-10 loans have a $11.40 million fair value adjustment discount that is amortized into expense over the remaining term of the loans using the effective interest method, or a straight-line method if the loan is a revolving credit facility. |
| |
d. | Represents the adjustment of the book value of buildings and equipment, to their estimated fair value based on appraisals and other methods. The adjustments will be depreciated over the estimated economic lives of the assets. |
| |
e. | Represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized using a straight-line method over the average life of the deposit base, which is estimated to be twelve years. |
| |
f. | Primarily represents the write-off of historical goodwill and unamortized intangibles recorded by Lake Sunapee from prior acquisitions that are not carried over to the Company's balance sheet. These adjustments are not |
accretable into earnings in the statement of income. Also represents the value of customer list intangibles which are accretable into earnings in the statement of income.
| |
g. | Represents adjustments made to time deposits due to the weighted average contractual interest rates exceeding the cost of similar funding at the time of acquisition. The amount will be amortized using a straight-line method overadoption should prospectively apply the estimated useful life of one year. |
guidance in this amendment for purchase credit deteriorated assets. | Early adoption is permitted in 2019 |
h.ASU 2017-04, Simplifying the Test for Goodwill Impairment | RepresentsThis ASU amends Topic 350, Intangibles-Goodwill and Other, and eliminates Step 2 from the present value difference between cash flowsgoodwill impairment test. | January 1, 2020 | Adoption of current debt instruments using contractual rates and those of similar borrowingsthis ASU is not expected to have a material impact on the date of acquisition. The adjustment will be amortized over the remaining four year weighted average contractual life. |
| Company's consolidated financial statements. |
i.Early adoption is permitted. |
ASU 2018-13 Changes to Disclosure Requirements Fair Value Measurement, Topic 820 | Represents net deferred tax assets resulting fromThis ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value adjustments relatedhierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. | January 1, 2020 | Adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements. |
Early adoption is permitted. |
ASU 2018-14 Compensation- Disclosure Requirements for Defined Pension Plans Topic 715-20 | This ASU makes minor changes to the acquired assets and liabilities, identifiable intangibles, anddisclosure requirements for employers that sponsor defined benefit pension and/or other purchase accounting adjustments. |
post-retirement benefit plans. | January 1, 2021 | Adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements. |
j. | Primarily represents the impact of change in control effects on post-retirement liabilities assumed by the Company, which are not accretable into earnings in the statement of income.Early adoption is permitted. |
Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value for collateral dependent loans with deteriorated credit quality, we analyzed the underlying collateral of the loans assuming the fair values of the loans were derived from the eventual sale of the collateral. Those values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of the seller’s allowance for credit losses associated with the loans that were acquired in the acquisition as the loans were initially recorded at fair value.
Information about the acquired loan portfolio subject to ASC 310-30 as of January 13, 2017 is, as follows (in thousands):
|
| | | |
| ASC 310-30 Loans |
Gross contractual receivable amounts at acquisition | $ | 23,338 |
|
Contractual cash flows not expected to be collected (nonaccretable discount) | (3,801 | ) |
Expected cash flows at acquisition | 19,537 |
|
Interest component of expected cash flows (accretable discount) | (1,089 | ) |
Fair value of acquired loans | $ | 18,448 |
|
Direct acquisition and integration costs were expensed as incurred, and totaled $5.9 million during the nine months ending September 30, 2017 and were $812 thousand for the same period of 2016. For the three months ending September 30, 2017 direct acquisition and integration costs totaled $346 thousand and were $320 thousand for the same period of 2016.
Pro Forma Information (unaudited)
The following table presents selected unaudited pro forma financial information reflecting the acquisition of Lake Sunapee Bank Group assuming the acquisition was completed as of January 1, 2016. The unaudited pro forma financial information includes adjustments for scheduled amortization and accretion of fair value adjustments recorded at the acquisition. These adjustments would have been different if they had been recorded on January 1, 2016, and they do not include the impact of prepayments. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the combined financial results of the Company and Lake Sunapee had the transaction actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period. Pro forma basic and diluted earnings per common share were calculated using the Company's actual weighted-average shares outstanding for the periods presented plus 4.16 million shares issued as a result of the acquisition. The unaudited pro forma information is based on the actual financial statements of the Company and Lake Sunapee for the periods shown until the date of acquisition, at which time Lake Sunapee operations became included in the Company's financial statements. The Company has determined it is impractical to report the amounts of revenue and earnings of the acquired entity since the acquisition date. Due to the integration of its operations with those of the organization, the Company does not record revenue and earnings separately for these operations.
The unaudited pro forma information, for the nine months ended September 30, 2017 and 2016, set forth below reflects adjustments related to amortization and accretion of purchase accounting fair value adjustments and an estimated tax rate of 37.57%. Direct acquisition expenses incurred by the Company during 2017, as noted above, are reversed for the purposes of this unaudited pro forma information. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing or anticipated cost-savings that could occur as a result of the acquisition.
Information in the following table is shown in thousands, except earnings per share:
|
| | | | | | | | |
| | Pro Forma (unaudited) Nine Months Ended September 30, |
| | 2017 | | 2016 |
Net interest income | | $ | 69,846 |
| | $ | 67,670 |
|
Non-interest income | | 20,883 |
| | 25,808 |
|
Net income | | 26,133 |
| | 21,371 |
|
| | | | |
Pro forma earnings per share: | | | | |
Basic | | $ | 1.69 |
| | $ | 1.40 |
|
Diluted | | $ | 1.68 |
| | $ | 1.39 |
|
NOTE 3.2. SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale:
| | (In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
September 30, 2017 | | |
| | |
| | |
| | |
| |
Securities available for sale | | |
| | |
| | |
| | |
| |
(in thousands) | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
June 30, 2019 | | | |
| | |
| | |
| | |
|
Debt securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of US Government sponsored enterprises | | $ | 6,952 |
| | $ | 27 |
| | $ | — |
| | $ | 6,979 |
| |
Mortgage-backed securities: | | | | | | | |
|
| | | | | | | |
|
|
US Government-sponsored enterprises | | 438,332 |
| | 3,413 |
| | 3,788 |
| | 437,957 |
| | $ | 401,311 |
| | $ | 4,795 |
| | $ | 2,578 |
| | $ | 403,528 |
|
US Government agency | | 102,044 |
| | 695 |
| | 601 |
| | 102,138 |
| | 118,583 |
| | 1,785 |
| | 383 |
| | 119,985 |
|
Private label | | 562 |
| | 162 |
| | 5 |
| | 719 |
| | 20,306 |
| | 80 |
| | 225 |
| | 20,161 |
|
Obligations of states and political subdivisions thereof | | 140,475 |
| | 2,818 |
| | 1,311 |
| | 141,982 |
| | 124,254 |
| | 3,130 |
| | 306 |
| | 127,078 |
|
Corporate bonds | | 28,245 |
| | 441 |
| | 2 |
| | 28,684 |
| | 76,864 |
| | 1,200 |
| | 256 |
| | 77,808 |
|
Total securities available for sale | | $ | 716,610 |
| | $ | 7,556 |
| | $ | 5,707 |
| | $ | 718,459 |
| | $ | 741,318 |
| | $ | 10,990 |
| | $ | 3,748 |
| | $ | 748,560 |
|
| | | | | | | | | | | | | | | | |
December 31, 2016 | | |
| | |
| | |
| | |
| |
Securities available for sale | | |
| | |
| | |
| | |
| |
December 31, 2018 | | | |
| | |
| | |
| | |
|
Debt securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of US Government sponsored enterprises | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | |
US Government-sponsored enterprises | | 330,635 |
| | 2,682 |
| | 4,865 |
| | 328,452 |
| | $ | 413,492 |
| | $ | 904 |
| | $ | 9,444 |
| | $ | 404,952 |
|
US Government agency | | 76,722 |
| | 797 |
| | 613 |
| | 76,906 |
| | 111,938 |
| | 509 |
| | 1,935 |
| | 110,512 |
|
Private label | | 936 |
| | 207 |
| | 11 |
| | 1,132 |
| | 20,353 |
| | 113 |
| | 84 |
| | 20,382 |
|
Obligations of states and political subdivisions thereof | | 123,832 |
| | 1,941 |
| | 3,407 |
| | 122,366 |
| | 133,260 |
| | 1,081 |
| | 2,076 |
| | 132,265 |
|
Corporate bonds | | — |
| | — |
| | — |
| | — |
| | 58,098 |
| | 264 |
| | 636 |
| | 57,726 |
|
Total securities available for sale | | $ | 532,125 |
| | $ | 5,627 |
| | $ | 8,896 |
| | $ | 528,856 |
| | $ | 737,141 |
| | $ | 2,871 |
| | $ | 14,175 |
| | $ | 725,837 |
|
The amortized cost and estimated fair value of available for sale (“AFS”) securities segregated by contractual maturity at SeptemberJune 30, 20172019 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
| | | | Available for sale | | Available for sale |
| | Amortized | | Fair | |
(In thousands) | | Cost | | Value | |
(in thousands) | | | Amortized Cost | | Fair Value |
Within 1 year | | $ | 3,613 |
| | $ | 3,627 |
| | $ | 275 |
| | $ | 276 |
|
Over 1 year to 5 years | | 18,499 |
| | 18,735 |
| | 42,015 |
| | 42,878 |
|
Over 5 years to 10 years | | 73,997 |
| | 75,366 |
| | 61,672 |
| | 62,668 |
|
Over 10 years | | 620,501 |
| | 620,731 |
| | 97,156 |
| | 99,064 |
|
Total bonds and obligations | | | 201,118 |
| | 204,886 |
|
Mortgage-backed securities | | | 540,200 |
| | 543,674 |
|
Total securities available for sale | | $ | 716,610 |
| | $ | 718,459 |
| | $ | 741,318 |
| | $ | 748,560 |
|
Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows: | | | | Less Than Twelve Months | | Over Twelve Months | | Total | | Less Than Twelve Months | | Over Twelve Months | | Total |
(In thousands) | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value |
September 30, 2017 | | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | | |
Securities available for sale | | |
| | |
| | |
| | |
| | |
| | |
| |
June 30, 2019 | | | |
| | |
| | |
| | |
| | |
| | |
|
Debt securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of US Government sponsored enterprises | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Mortgage-backed securities: | | | | | | | | | | | |
|
| | | | | | | | | | | |
|
|
US Government-sponsored enterprises | | 1,559 |
| | 150,524 |
| | 2,229 |
| | 64,882 |
| | 3,788 |
| | 215,406 |
| | $ | 230 |
| | $ | 6,510 |
| | $ | 2,348 |
| | $ | 119,451 |
| | $ | 2,578 |
| | $ | 125,961 |
|
US Government agency | | 345 |
| | 48,529 |
| | 256 |
| | 11,880 |
| | 601 |
| | 60,409 |
| | 5 |
| | 3,160 |
| | 378 |
| | 26,316 |
| | 383 |
| | 29,476 |
|
Private label | | — |
| | 7 |
| | 5 |
| | 134 |
| | 5 |
| | 141 |
| | 221 |
| | 19,729 |
| | 4 |
| | 40 |
| | 225 |
| | 19,769 |
|
Obligations of states and political subdivisions thereof | | 89 |
| | 8,838 |
| | 1,222 |
| | 31,570 |
| | 1,311 |
| | 40,408 |
| | — |
| | — |
| | 306 |
| | 12,086 |
| | 306 |
| | 12,086 |
|
Corporate bonds | | 2 |
| | 3,038 |
| | — |
| | — |
| | 2 |
| | 3,038 |
| | 109 |
| | 10,012 |
| | 147 |
| | 2,122 |
| | 256 |
| | 12,134 |
|
Total securities available for sale | | $ | 1,995 |
| | $ | 210,936 |
| | $ | 3,712 |
| | $ | 108,466 |
| | $ | 5,707 |
| | $ | 319,402 |
| | $ | 565 |
| | $ | 39,411 |
| | $ | 3,183 |
| | $ | 160,015 |
| | $ | 3,748 |
| | $ | 199,426 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2016 | | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | | |
Securities available for sale | | |
| | |
| | |
| | |
| | |
| | |
| |
December 31, 2018 | | | |
| | |
| | |
| | |
| | |
| | |
|
Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Obligations of US Government sponsored enterprises | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
US Government-sponsored enterprises | | 4,369 |
| | 197,914 |
| | 496 |
| | 10,120 |
| | 4,865 |
| | 208,034 |
| | $ | 155 |
| | $ | 19,367 |
| | $ | 9,289 |
| | $ | 297,569 |
| | $ | 9,444 |
| | $ | 316,936 |
|
US Government agency | | 472 |
| | 36,941 |
| | 141 |
| | 4,263 |
| | 613 |
| | 41,204 |
| | 16 |
| | 2,570 |
| | 1,919 |
| | 68,266 |
| | 1,935 |
| | 70,836 |
|
Private label | | — |
| | 107 |
| | 11 |
| | 312 |
| | 11 |
| | 419 |
| | 79 |
| | 10,393 |
| | 5 |
| | 47 |
| | 84 |
| | 10,440 |
|
Obligations of states and political subdivisions thereof | | 3,252 |
| | 76,803 |
| | 155 |
| | 3,916 |
| | 3,407 |
| | 80,719 |
| | 43 |
| | 6,784 |
| | 2,033 |
| | 47,930 |
| | 2,076 |
| | 54,714 |
|
Corporate bonds | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 224 |
| | 11,759 |
| | 412 |
| | 14,460 |
| | 636 |
| | 26,219 |
|
Total securities available for sale | | $ | 8,093 |
| | $ | 311,765 |
| | $ | 803 |
| | $ | 18,611 |
| | $ | 8,896 |
| | $ | 330,376 |
| | $ | 517 |
| | $ | 50,873 |
| | $ | 13,658 |
| | $ | 428,272 |
| | $ | 14,175 |
| | $ | 479,145 |
|
Securities Impairment: As a part of the Company’s ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired. For the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 the Company did not record any other-than-temporary impairment (“OTTI”) losses.
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
Estimated credit losses as of June 30, | $ | 1,697 |
| | $ | 1,697 |
| |
Estimated credit losses as of prior year-end | | | $ | 1,697 |
| | $ | 1,697 |
| | $ | 1,697 |
| | $ | 1,697 |
|
Reductions for securities paid off during the period | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Estimated credit losses at end of the period | $ | 1,697 |
| | $ | 1,697 |
| | $ | 1,697 |
| | $ | 1,697 |
| | $ | 1,697 |
| | $ | 1,697 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Estimated credit losses as of prior year-end, | $ | 1,697 |
| | $ | 3,180 |
|
Reductions for securities paid off during the period | — |
| | 1,483 |
|
Estimated credit losses at end of the period | $ | 1,697 |
| | $ | 1,697 |
|
Visa Class B Common Shares
The Company was a member of the Visa USA payment network and was issued Class B shares in connection with the Visa Reorganization and the Visa Inc. initial public offering in March 2008. The Visa Class B shares are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of Visa stock. This conversion cannot happen until the settlement of certain litigation, which is indemnified by Visa members. Since its initial public offering, Visa has funded a litigation reserve based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares. At its discretion, Visa may continue to increase the conversion rate in connection with any settlements in excess of amounts then in escrow for that purpose and reduce the conversion rate to the extent that it adds any funds to the escrow in the future. Based on the existing transfer restriction and the uncertainty of the litigation, the Company has recorded its Visa Class B shares on its statements of condition at zero value for all reporting periods since 2008. At September 30, 2017, the Company owned 11,623 of Visa Class B shares with a then current conversion ratio to Visa Class A shares of 1.648 (or 19,158 Visa Class A shares). Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.
For securities with unrealized losses, the following information was considered in determining that the impairments were not other-than-temporary:
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS portfolio. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of SeptemberJune 30, 2017,2019, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.
The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS were not other-than-temporarily impaired at SeptemberJune 30, 2017:2019:
US Government-sponsored enterprises
At September 30, 2017, 275249 out of the total 789752 securities in the Company’s portfolios of AFS US Government sponsoredGovernment-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 1.7%2.0% of the amortized cost of securities in unrealized loss positions.The Federal National Mortgage Association (“FNMA”)positions. The FNMA and Federal Home Loan Mortgage Corporation (“FHLMC”)FHLMC guarantee the contractual cash flows of all of the Company’s US
government-sponsored Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
US Government agenciesagency
At September 30, 2017, 6257 out of the total 208196 securities in the Company’s portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 1.0%1.3% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association (“GNMA”) guarantees the contractual cash flows of all of the Company’s US governmentGovernment agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
Private-labelPrivate label
At September 30, 2017, 8Seven of the total 2620 securities in the Company’s portfolio of AFS private-labelprivate label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 3.3%1.1% of the amortized cost of securities in unrealized loss positions. Based upon the foregoing considerations, and the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities.
Obligations of states and political subdivisions thereof
At September 30, 2017, 7920 of the total 262239 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 3.1%2.5% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for thatthe risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
Corporate bonds
At September 30, 2017, oneFive out of 12the total 27 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 0.1%2.1% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities.
NOTE 4.3. LOANS
The Company’s loan portfolio is comprised of the following segments: commercial real estate, commercial and industrial, residential real estate, and consumer loans. Commercial real estate loans includes single andinclude multi-family, commercial construction and land development, and other commercial real estate classes. Commercial and industrial loans includesinclude loans to commercial businesses,and agricultural and other loans to farmers,businesses and tax exempt loans.entities. Residential real estate loans consistsconsist of mortgages for 1 to 41-to-4 family housing. Consumer loans include home equity loans, indirect auto and other installment lending.loans.
The Company’s lending activities are principally conducted in Maine, New Hampshire, and Vermont.
Total loans include business activity loans and acquired loans. Acquired loans are those loans previously acquired from Lake Sunapee Bank Group.other institutions. The following is a summary of total loans:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(In thousands) | | Business Activities Loans | | Acquired Loans | | Total | | Business Activities Loans | | Acquired Loans | | Total |
Commercial Real Estate: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | 33,692 |
| | $ | 15,593 |
| | $ | 49,285 |
| | $ | 14,695 |
| | $ | — |
| | $ | 14,695 |
|
Other commercial real estate | | 455,847 |
| | 288,440 |
| | 744,287 |
| | 403,424 |
| | — |
| | 403,424 |
|
Total Commercial Real Estate: | | 489,539 |
| | 304,033 |
| | 793,572 |
| | 418,119 |
| | — |
| | 418,119 |
|
| | | | | | | | | | | | |
Commercial and Industrial: | | |
| | |
| | |
| | |
| | |
| | |
|
Other Commercial | | 172,186 |
| | 68,090 |
| | 240,276 |
| | 103,586 |
| | — |
| | 103,586 |
|
Agricultural and other loans to farmers | | 30,483 |
| | — |
| | 30,483 |
| | 31,808 |
| | — |
| | 31,808 |
|
Tax exempt | | 40,776 |
| | 45,537 |
| | 86,313 |
| | 15,846 |
| | — |
| | 15,846 |
|
Total Commercial and Industrial: | | 243,445 |
| | 113,627 |
| | 357,072 |
| | 151,240 |
| | — |
| | 151,240 |
|
| | | | | | | | | | | | |
Total Commercial Loans: | | 732,984 |
| | 417,660 |
| | 1,150,644 |
| | 569,359 |
| | — |
| | 569,359 |
|
| | | | | | | | | | | | |
Residential Real Estate: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential mortgages | | 568,277 |
| | 584,351 |
| | 1,152,628 |
| | 506,612 |
| | — |
| | 506,612 |
|
Total Residential Real Estate: | | 568,277 |
| | 584,351 |
| | 1,152,628 |
| | 506,612 |
| | — |
| | 506,612 |
|
| | | | | | | | | | | | |
Consumer: | | |
| | | | |
| | |
| | |
| | |
|
Home equity | | 50,610 |
| | 64,695 |
| | 115,305 |
| | 46,921 |
| | �� |
| | 46,921 |
|
Other consumer | | 7,645 |
| | 2,640 |
| | 10,285 |
| | 6,172 |
| | — |
| | 6,172 |
|
Total Consumer: | | 58,255 |
| | 67,335 |
| | 125,590 |
| | 53,093 |
| | — |
| | 53,093 |
|
| | | | | | | | | | | | |
Total Loans: | | $ | 1,359,516 |
| | $ | 1,069,346 |
| | $ | 2,428,862 |
| | $ | 1,129,064 |
| | $ | — |
| | $ | 1,129,064 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
(in thousands) | | Business Activities Loans | | Acquired Loans | | Total | | Business Activities Loans | | Acquired Loans | | Total |
Commercial real estate: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | 33,524 |
| | $ | 2,858 |
| | $ | 36,382 |
| | $ | 23,754 |
| | $ | 2,890 |
| | $ | 26,644 |
|
Other commercial real estate | | 615,743 |
| | 229,354 |
| | 845,097 |
| | 555,980 |
| | 244,075 |
| | 800,055 |
|
Total commercial real estate | | 649,267 |
| | 232,212 |
| | 881,479 |
| | 579,734 |
| | 246,965 |
| | 826,699 |
|
| | | | | | | | | | | | |
Commercial and industrial: | | |
| | |
| | |
| | |
| | |
| | |
|
Commercial | | 244,515 |
| | 45,867 |
| | 290,382 |
| | 234,757 |
| | 52,470 |
| | 287,227 |
|
Agricultural | | 21,647 |
| | — |
| | 21,647 |
| | 22,317 |
| | — |
| | 22,317 |
|
Tax exempt | | 67,374 |
| | 37,322 |
| | 104,696 |
| | 56,588 |
| | 38,738 |
| | 95,326 |
|
Total commercial and industrial | | 333,536 |
| | 83,189 |
| | 416,725 |
| | 313,662 |
| | 91,208 |
| | 404,870 |
|
| | | | | | | | | | | | |
Total commercial loans | | 982,803 |
| | 315,401 |
| | 1,298,204 |
| | 893,396 |
| | 338,173 |
| | 1,231,569 |
|
| | | | | | | | | | | | |
Residential real estate: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential mortgages | | 731,443 |
| | 436,316 |
| | 1,167,759 |
| | 670,189 |
| | 474,509 |
| | 1,144,698 |
|
Total residential real estate | | 731,443 |
| | 436,316 |
| | 1,167,759 |
| | 670,189 |
| | 474,509 |
| | 1,144,698 |
|
| | | | | | | | | | | | |
Consumer: | | |
| | | | |
| | |
| | |
| | |
|
Home equity | | 60,323 |
| | 40,135 |
| | 100,458 |
| | 57,898 |
| | 45,291 |
| | 103,189 |
|
Other consumer | | 10,678 |
| | 1,139 |
| | 11,817 |
| | 9,414 |
| | 1,357 |
| | 10,771 |
|
Total consumer | | 71,001 |
| | 41,274 |
| | 112,275 |
| | 67,312 |
| | 46,648 |
| | 113,960 |
|
| | | | | | | | | | | | |
Total loans | | $ | 1,785,247 |
| | $ | 792,991 |
| | $ | 2,578,238 |
| | $ | 1,630,897 |
| | $ | 859,330 |
| | $ | 2,490,227 |
|
The carrying amount of the acquired loans at SeptemberJune 30, 20172019 totaled $1.069 billion.$793.0 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $14.4$10.1 million (and atotal note balancebalances of $19.5$13.5 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. LoansAcquired loans considered not impaired at the acquisition date had a carrying amount of $1.055 billion.$782.9 million as of June 30, 2019.
The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer:
|
| | | | | | | | |
| | Three Months Ended September 30, |
(In thousands) | | 2017 | | 2016 |
Balance at beginning of period | | $ | 4,567 |
| | $ | — |
|
Acquisitions | | — |
| | — |
|
Reclassification from nonaccretable difference for loans with improved cash flows | | 513 |
| | — |
|
Accretion | | (423 | ) | | — |
|
Balance at end of period | | $ | 4,657 |
| | $ | — |
|
| | | | Nine Months Ended September 30, | | Three Months Ended June 30, |
(In thousands) | | 2017 | | 2016 | |
(in thousands) | | | 2019 | | 2018 |
Balance at beginning of period | | $ | — |
| | $ | — |
| | $ | 4,150 |
| | $ | 3,347 |
|
Acquisitions | | 3,398 |
| | — |
| |
Reclassification from nonaccretable difference for loans with improved cash flows | | 2,257 |
| | — |
| |
Reclassification from non-accretable difference for loans with improved (decreased) cash flows | | | 402 |
| | (153 | ) |
Accretion | | (998 | ) | | — |
| | (357 | ) | | (387 | ) |
Balance at end of period | | $ | 4,657 |
| | $ | — |
| | $ | 4,195 |
| | $ | 2,807 |
|
| | | | | |
| | | Six Months Ended June 30, |
(in thousands) | | | 2019 | | 2018 |
Balance at beginning of period | | | $ | 4,377 |
| | $ | 3,509 |
|
Reclassification from non-accretable difference for loans with improved cash flows | | | 624 |
| | 46 |
|
Accretion | | | (806 | ) | | (748 | ) |
Balance at end of period | | | $ | 4,195 |
| | $ | 2,807 |
|
The following is a summary of past due loans at SeptemberJune 30, 20172019 and December 31, 2016:2018:
Business Activities Loans |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans | | Past Due > 90 days and Accruing |
June 30, 2019 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial real estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | 73 |
| | $ | — |
| | $ | — |
| | $ | 73 |
| | $ | 33,451 |
| | $ | 33,524 |
| | $ | — |
|
Other commercial real estate | | 958 |
| | 831 |
| | 5,256 |
| | 7,045 |
| | 608,698 |
| | 615,743 |
| | — |
|
Total commercial real estate | | 1,031 |
| | 831 |
| | 5,256 |
| | 7,118 |
| | 642,149 |
| | 649,267 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | | | |
Commercial | | 144 |
| | 385 |
| | 600 |
| | 1,129 |
| | 243,386 |
| | 244,515 |
| | — |
|
Agricultural | | 167 |
| | — |
| | 25 |
| | 192 |
| | 21,455 |
| | 21,647 |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | 67,374 |
| | 67,374 |
| | — |
|
Total commercial and industrial | | 311 |
| | 385 |
| | 625 |
| | 1,321 |
| | 332,215 |
| | 333,536 |
| | — |
|
| | | | | | | | | | | | | | |
Total commercial loans | | 1,342 |
| | 1,216 |
| | 5,881 |
| | 8,439 |
| | 974,364 |
| | 982,803 |
| | — |
|
| | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | |
Residential mortgages | | 1,194 |
| | 233 |
| | 1,744 |
| | 3,171 |
| | 728,272 |
| | 731,443 |
| | 124 |
|
Total residential real estate | | 1,194 |
| | 233 |
| | 1,744 |
| | 3,171 |
| | 728,272 |
| | 731,443 |
| | 124 |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | 253 |
| | 72 |
| | 349 |
| | 674 |
| | 59,649 |
| | 60,323 |
| | — |
|
Other consumer | | 19 |
| | 7 |
| | — |
| | 26 |
| | 10,652 |
| | 10,678 |
| | — |
|
Total consumer | | 272 |
| | 79 |
| | 349 |
| | 700 |
| | 70,301 |
| | 71,001 |
| | — |
|
| | | | | | | | | | | | | |
|
Total loans | | $ | 2,808 |
| | $ | 1,528 |
| | $ | 7,974 |
| | $ | 12,310 |
| | $ | 1,772,937 |
| | $ | 1,785,247 |
| | $ | 124 |
|
Acquired Loans
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans | | Past Due > 90 days and Accruing |
September 30, 2017 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial Real Estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | 637 |
| | $ | 637 |
| | $ | 33,055 |
| | $ | 33,692 |
| | $ | — |
|
Other commercial real estate | | 407 |
| | 121 |
| | 702 |
| | 1,230 |
| | 454,617 |
| | 455,847 |
| | — |
|
Total Commercial Real Estate: | | 407 |
| | 121 |
| | 1,339 |
| | 1,867 |
| | 487,672 |
| | 489,539 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and Industrial: | | | | | | | | | | | | | | |
Other Commercial | | 401 |
| | 150 |
| | 159 |
| | 710 |
| | 171,476 |
| | 172,186 |
| | — |
|
Agricultural and other loans to farmers | | 600 |
| | 90 |
| | 10 |
| | 700 |
| | 29,783 |
| | 30,483 |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | 40,776 |
| | 40,776 |
| | — |
|
Total Commercial and Industrial: | | 1,001 |
| | 240 |
| | 169 |
| | 1,410 |
| | 242,035 |
| | 243,445 |
| | — |
|
| | | | | | | | | | | | | | |
Total Commercial Loans: | | 1,408 |
| | 361 |
| | 1,508 |
| | 3,277 |
| | 729,707 |
| | 732,984 |
| | — |
|
| | | | | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | |
Residential mortgages | | 2,904 |
| | 172 |
| | 1,260 |
| | 4,336 |
| | 563,941 |
| | 568,277 |
| | — |
|
Total Residential Real Estate: | | 2,904 |
| | 172 |
| | 1,260 |
| | 4,336 |
| | 563,941 |
| | 568,277 |
| | — |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | 306 |
| | 25 |
| | 100 |
| | 431 |
| | 50,179 |
| | 50,610 |
| | — |
|
Other consumer | | 60 |
| | 21 |
| | 26 |
| | 107 |
| | 7,538 |
| | 7,645 |
| | — |
|
Total Consumer: | | 366 |
| | 46 |
| | 126 |
| | 538 |
| | 57,717 |
| | 58,255 |
| | — |
|
| | | | | | | | | | | | | | — |
|
Total Loans: | | $ | 4,678 |
| | $ | 579 |
| | $ | 2,894 |
| | $ | 8,151 |
| | $ | 1,351,365 |
| | $ | 1,359,516 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Acquired Credit Impaired | | Total Loans | | Past Due > 90 days and Accruing |
June 30, 2019 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial real estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 181 |
| | $ | 2,858 |
| | $ | — |
|
Other commercial real estate | | 810 |
| | 63 |
| | 258 |
| | 1,131 |
| | 6,209 |
| | 229,354 |
| | — |
|
Total commercial real estate | | 810 |
| | 63 |
| | 258 |
| | 1,131 |
| | 6,390 |
| | 232,212 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | | | |
Commercial | | 98 |
| | 36 |
| | 455 |
| | 589 |
| | 509 |
| | 45,867 |
| | — |
|
Agricultural | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | — |
| | 37,322 |
| | — |
|
Total commercial and industrial | | 98 |
| | 36 |
| | 455 |
| | 589 |
| | 509 |
| | 83,189 |
| | — |
|
| | | | | | | | | | | | | | |
Total commercial loans | | 908 |
| | 99 |
| | 713 |
| | 1,720 |
| | 6,899 |
| | 315,401 |
| | — |
|
| | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | |
Residential mortgages | | 1,014 |
| | 735 |
| | 562 |
| | 2,311 |
| | 3,152 |
| | 436,316 |
| | — |
|
Total residential real estate | | 1,014 |
| | 735 |
| | 562 |
| | 2,311 |
| | 3,152 |
| | 436,316 |
| | — |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | 312 |
| | 43 |
| | 16 |
| | 371 |
| | 20 |
| | 40,135 |
| | — |
|
Other consumer | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,139 |
| | — |
|
Total consumer | | 312 |
| | 43 |
| | 16 |
| | 371 |
| | 20 |
| | 41,274 |
| | — |
|
| | | | | | | | | | | | | | |
Total loans | | $ | 2,234 |
| | $ | 877 |
| | $ | 1,291 |
| | $ | 4,402 |
| | $ | 10,071 |
| | $ | 792,991 |
| | $ | — |
|
Business Activities Loans |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans | | Past Due > 90 days and Accruing |
December 31, 2016 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial Real Estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 14,695 |
| | $ | 14,695 |
| | $ | — |
|
Other commercial real estate | | 195 |
| | 554 |
| | 1,665 |
| | 2,414 |
| | 401,010 |
| | 403,424 |
| | — |
|
Total Commercial Real Estate: | | 195 |
| | 554 |
| | 1,665 |
| | 2,414 |
| | 415,705 |
| | 418,119 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and Industrial: | | | | | | | | | | | | | | |
Other Commercial | | 61 |
| | 45 |
| | 201 |
| | 307 |
| | 103,279 |
| | 103,586 |
| | — |
|
Agricultural and other loans to farmers | | 231 |
| | — |
| | — |
| | 231 |
| | 31,577 |
| | 31,808 |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | 15,846 |
| | 15,846 |
| | — |
|
Total Commercial and Industrial: | | 292 |
| | 45 |
| | 201 |
| | 538 |
| | 150,702 |
| | 151,240 |
| | — |
|
| | | | | | | | | | | | | | |
Total Commercial Loans: | | 487 |
| | 599 |
| | 1,866 |
| | 2,952 |
| | 566,407 |
| | 569,359 |
| | — |
|
| | | | | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | |
Residential mortgages | | 4,484 |
| | 429 |
| | 938 |
| | 5,851 |
| | 500,761 |
| | 506,612 |
| | — |
|
Total Residential Real Estate: | | 4,484 |
| | 429 |
| | 938 |
| | 5,851 |
| | 500,761 |
| | 506,612 |
| | — |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | — |
| | — |
| | 15 |
| | 15 |
| | 46,906 |
| | 46,921 |
| | — |
|
Other consumer | | 103 |
| | 1 |
| | 6 |
| | 110 |
| | 6,062 |
| | 6,172 |
| | — |
|
Total Consumer: | | 103 |
| | 1 |
| | 21 |
| | 125 |
| | 52,968 |
| | 53,093 |
| | — |
|
| | | | | | | | | | | | | | — |
|
Total Loans: | | $ | 5,074 |
| | $ | 1,029 |
| | $ | 2,825 |
| | $ | 8,928 |
| | $ | 1,120,136 |
| | $ | 1,129,064 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans | | Past Due > 90 days and Accruing |
December 31, 2018 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial real estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 23,754 |
| | $ | 23,754 |
| | $ | — |
|
Other commercial real estate | | 1,146 |
| | — |
| | 6,725 |
| | 7,871 |
| | 548,109 |
| | 555,980 |
| | — |
|
Total commercial real estate | | 1,146 |
| | — |
| | 6,725 |
| | 7,871 |
| | 571,863 |
| | 579,734 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | | | |
Commercial | | 395 |
| | 60 |
| | 402 |
| | 857 |
| | 233,900 |
| | 234,757 |
| | 50 |
|
Agricultural | | 65 |
| | 6 |
| | 25 |
| | 96 |
| | 22,221 |
| | 22,317 |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | 56,588 |
| | 56,588 |
| | — |
|
Total commercial and industrial | | 460 |
| | 66 |
| | 427 |
| | 953 |
| | 312,709 |
| | 313,662 |
| | 50 |
|
| | | | | | | | | | | | | | |
Total commercial loans | | 1,606 |
| | 66 |
| | 7,152 |
| | 8,824 |
| | 884,572 |
| | 893,396 |
| | 50 |
|
| | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | |
Residential mortgages | | 3,565 |
| | 641 |
| | 1,309 |
| | 5,515 |
| | 664,674 |
| | 670,189 |
| | — |
|
Total residential real estate | | 3,565 |
| | 641 |
| | 1,309 |
| | 5,515 |
| | 664,674 |
| | 670,189 |
| | — |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | 72 |
| | — |
| | — |
| | 72 |
| | 57,826 |
| | 57,898 |
| | — |
|
Other consumer | | 17 |
| | — |
| | 11 |
| | 28 |
| | 9,386 |
| | 9,414 |
| | — |
|
Total consumer | | 89 |
| | — |
| | 11 |
| | 100 |
| | 67,212 |
| | 67,312 |
| | — |
|
| | | | | | | | | | | | | | |
Total loans | | $ | 5,260 |
| | $ | 707 |
| | $ | 8,472 |
| | $ | 14,439 |
| | $ | 1,616,458 |
| | $ | 1,630,897 |
| | $ | 50 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Acquired Credit Impaired | | Total Loans | | Past Due > 90 days and Accruing |
September 30, 2017 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial Real Estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | 20 |
| | $ | 10 |
| | $ | — |
| | $ | 30 |
| | $ | 258 |
| | $ | 15,593 |
| | $ | — |
|
Other commercial real estate | | 314 |
| | 25 |
| | 591 |
| | 930 |
| | 9,760 |
| | 288,440 |
| | — |
|
Total Commercial Real Estate: | | 334 |
| | 35 |
| | 591 |
| | 960 |
| | 10,018 |
| | 304,033 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and Industrial: | | | | | | | | | | | | | | |
Other Commercial | | 396 |
| | 144 |
| | — |
| | 540 |
| | 917 |
| | 68,090 |
| | 163 |
|
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | — |
| | 45,537 |
| | — |
|
Total Commercial and Industrial: | | 396 |
| | 144 |
| | — |
| | 540 |
| | 917 |
| | 113,627 |
| | 163 |
|
| | | | | | | | | | | | | | |
Total Commercial Loans: | | 730 |
| | 179 |
| | 591 |
| | 1,500 |
| | 10,935 |
| | 417,660 |
| | 163 |
|
| | | | | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | |
Residential mortgages | | 1,089 |
| | 13 |
| | 868 |
| | 1,970 |
| | 3,398 |
| | 584,351 |
| | — |
|
Total Residential Real Estate: | | 1,089 |
| | 13 |
| | 868 |
| | 1,970 |
| | 3,398 |
| | 584,351 |
| | — |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | 388 |
| | 155 |
| | 193 |
| | 736 |
| | 40 |
| | 64,695 |
| | — |
|
Other consumer | | 12 |
| | 144 |
| | 49 |
| | 205 |
| | 3 |
| | 2,640 |
| | — |
|
Total Consumer: | | 400 |
| | 299 |
| | 242 |
| | 941 |
| | 43 |
| | 67,335 |
| | — |
|
| | | | | | | | | | | | | | — |
|
Total Loans: | | $ | 2,219 |
| | $ | 491 |
| | $ | 1,701 |
| | $ | 4,411 |
| | $ | 14,376 |
| | $ | 1,069,346 |
| | $ | 163 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Acquired Credit Impaired | | Total Loans | | Past Due > 90 days and Accruing |
December 31, 2018 | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial real estate: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 164 |
| | $ | 2,890 |
| | $ | — |
|
Other commercial real estate | | 631 |
| | 99 |
| | 211 |
| | 941 |
| | 6,143 |
| | 244,075 |
| | — |
|
Total commercial real estate | | 631 |
| | 99 |
| | 211 |
| | 941 |
| | 6,307 |
| | 246,965 |
| | — |
|
| | | | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | | | |
Commercial | | 149 |
| | 26 |
| | 494 |
| | 669 |
| | 679 |
| | 52,470 |
| | — |
|
Agricultural | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | — |
| | 38,738 |
| | — |
|
Total commercial and industrial | | 149 |
| | 26 |
| | 494 |
| | 669 |
| | 679 |
| | 91,208 |
| | — |
|
| | | | | | | | | | | | | | |
Total commercial loans | | 780 |
| | 125 |
| | 705 |
| | 1,610 |
| | 6,986 |
| | 338,173 |
| | — |
|
| | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | |
Residential mortgages | | 3,419 |
| | 254 |
| | 1,792 |
| | 5,465 |
| | 3,095 |
| | 474,509 |
| | — |
|
Total residential real estate | | 3,419 |
| | 254 |
| | 1,792 |
| | 5,465 |
| | 3,095 |
| | 474,509 |
| | — |
|
| | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Home equity | | 198 |
| | — |
| | 66 |
| | 264 |
| | 22 |
| | 45,291 |
| | 7 |
|
Other consumer | | 17 |
| | — |
| | — |
| | 17 |
| | 3 |
| | 1,357 |
| | 189 |
|
Total consumer | | 215 |
| | — |
| | 66 |
| | 281 |
| | 25 |
| | 46,648 |
| | 196 |
|
| | | | | | | | | | | | | | |
Total loans | | $ | 4,414 |
| | $ | 379 |
| | $ | 2,563 |
| | $ | 7,356 |
| | $ | 10,106 |
| | $ | 859,330 |
| | $ | 196 |
|
Non AccrualNon-Accrual Loans
The following is summary information pertaining to non-accrual loans at SeptemberJune 30, 20172019 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(In thousands) | | Business Activities Loans | | Acquired Loans | | Total | | Business Activities Loans | | Acquired Loans | | Total |
Commercial Real Estate: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | 637 |
| | $ | — |
| | $ | 637 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | 1,238 |
| | 591 |
| | 1,829 |
| | 2,564 |
| | — |
| | 2,564 |
|
Total Commercial Real Estate: | | 1,875 |
| | 591 |
| | 2,466 |
| | 2,564 |
| | — |
| | 2,564 |
|
| | | | | | | | | | | | |
Commercial and Industrial: | | | | | | | | | | | | |
Other Commercial | | 183 |
| | — |
| | 183 |
| | 284 |
| | — |
| | 284 |
|
Agricultural and other loans to farmers | | 53 |
| | — |
| | 53 |
| | 31 |
| | — |
| | 31 |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Commercial and Industrial: | | 236 |
| | — |
| | 236 |
| | 315 |
| | — |
| | 315 |
|
| | | | | | | | | | | | |
Total Commercial Loans: | | 2,111 |
| | 591 |
| | 2,702 |
| | 2,879 |
| | — |
| | 2,879 |
|
| | | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | |
Residential mortgages | | 2,751 |
| | 868 |
| | 3,619 |
| | 3,419 |
| | — |
| | 3,419 |
|
Total Residential Real Estate: | | 2,751 |
| | 868 |
| | 3,619 |
| | 3,419 |
| | — |
| | 3,419 |
|
| | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | |
Home equity | | 151 |
| | 193 |
| | 344 |
| | 90 |
| | — |
| | 90 |
|
Other consumer | | 103 |
| | 49 |
| | 152 |
| | 108 |
| | — |
| | 108 |
|
Total Consumer: | | 254 |
| | 242 |
| | 496 |
| | 198 |
| | — |
| | 198 |
|
| | | | | | | | | | | | |
Total Loans: | | $ | 5,116 |
| | $ | 1,701 |
| | $ | 6,817 |
| | $ | 6,496 |
| | $ | — |
| | $ | 6,496 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
(in thousands) | | Business Activities Loans | | Acquired Loans | | Total | | Business Activities Loans | | Acquired Loans | | Total |
Commercial real estate: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
Other commercial real estate | | 6,698 |
| | 349 |
| | 7,047 |
| | 7,873 |
| | 282 |
| | 8,155 |
|
Total commercial real estate | | 6,699 |
| | 349 |
| | 7,048 |
| | 7,874 |
| | 282 |
| | 8,156 |
|
| | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | |
Commercial | | 1,254 |
| | 584 |
| | 1,838 |
| | 1,423 |
| | 643 |
| | 2,066 |
|
Agricultural | | 243 |
| | — |
| | 243 |
| | 265 |
| | — |
| | 265 |
|
Tax exempt | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial and industrial | | 1,497 |
| | 584 |
| | 2,081 |
| | 1,688 |
| | 643 |
| | 2,331 |
|
| | | | | | | | | | | | |
Total commercial loans | | 8,196 |
| | 933 |
| | 9,129 |
| | 9,562 |
| | 925 |
| | 10,487 |
|
| | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | |
Residential mortgages | | 4,023 |
| | 1,942 |
| | 5,965 |
| | 4,213 |
| | 2,997 |
| | 7,210 |
|
Total residential real estate | | 4,023 |
| | 1,942 |
| | 5,965 |
| | 4,213 |
| | 2,997 |
| | 7,210 |
|
| | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | |
Home equity | | 585 |
| | 194 |
| | 779 |
| | 246 |
| | 201 |
| | 447 |
|
Other consumer | | 82 |
| | — |
| | 82 |
| | 90 |
| | 1 |
| | 91 |
|
Total consumer | | 667 |
| | 194 |
| | 861 |
| | 336 |
| | 202 |
| | 538 |
|
| | | | | | | | | | | | |
Total loans | | $ | 12,886 |
| | $ | 3,069 |
| | $ | 15,955 |
| | $ | 14,111 |
| | $ | 4,124 |
| | $ | 18,235 |
|
Loans evaluated for impairment as of SeptemberJune 30, 20172019 and December 31, 2016 were2018 are, as follows:
Business Activities Loans
| | (In thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total | |
September 30, 2017 | | |
| | |
| | |
| | |
| | |
| |
Loans receivable: | | |
| | |
| | |
| | |
| | |
| |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
June 30, 2019 | | | |
| | |
| | |
| | |
| | |
|
Balance at end of period | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 2,585 |
| | $ | 138 |
| | $ | 1,744 |
| | $ | 68 |
| | $ | 4,535 |
| | $ | 8,737 |
| | $ | 1,385 |
| | $ | 2,669 |
| | $ | 13 |
| | $ | 12,804 |
|
Collectively evaluated | | 486,954 |
| | 243,307 |
| | 566,533 |
| | 58,187 |
| | 1,354,981 |
| | 640,530 |
| | 332,151 |
| | 728,774 |
| | 70,988 |
| | 1,772,443 |
|
Total | | $ | 489,539 |
| | $ | 243,445 |
| | $ | 568,277 |
| | $ | 58,255 |
| | $ | 1,359,516 |
| | $ | 649,267 |
| | $ | 333,536 |
| | $ | 731,443 |
| | $ | 71,001 |
| | $ | 1,785,247 |
|
Acquired Loans
|
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
June 30, 2019 | | |
| | |
| | |
| | |
| | |
|
Balance at end of period | | | | | | | | | | |
Individually evaluated for impairment | | $ | 258 |
| | $ | 417 |
| | $ | 721 |
| | $ | — |
| | $ | 1,396 |
|
Purchased credit impaired | | 6,390 |
| | 509 |
| | 3,152 |
| | 20 |
| | 10,071 |
|
Collectively evaluated | | 225,564 |
| | 82,263 |
| | 432,443 |
| | 41,254 |
| | 781,524 |
|
Total | | $ | 232,212 |
| | $ | 83,189 |
| | $ | 436,316 |
| | $ | 41,274 |
| | $ | 792,991 |
|
Business Activities Loans
| | (In thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total | |
December 31, 2016 | | |
| | |
| | |
| | |
| | |
| |
Loans receivable: | | |
| | |
| | |
| | |
| | |
| |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
December 31, 2018 | | | |
| | |
| | |
| | |
| | |
|
Balance at end of period | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 4,481 |
| | $ | 486 |
| | $ | 1,709 |
| | $ | 33 |
| | $ | 6,709 |
| | $ | 9,835 |
| | $ | 1,445 |
| | $ | 2,562 |
| | $ | 13 |
| | $ | 13,855 |
|
Collectively evaluated | | 413,638 |
| | 150,754 |
| | 504,903 |
| | 53,060 |
| | 1,122,355 |
| | 569,899 |
| | 312,217 |
| | 667,627 |
| | 67,299 |
| | 1,617,042 |
|
Total | | $ | 418,119 |
| | $ | 151,240 |
| | $ | 506,612 |
| | $ | 53,093 |
| | $ | 1,129,064 |
| | $ | 579,734 |
| | $ | 313,662 |
| | $ | 670,189 |
| | $ | 67,312 |
| | $ | 1,630,897 |
|
Acquired Loans
| | (In thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total | |
September 30, 2017 | | |
| | |
| | |
| | |
| | |
| |
Loans receivable: | | |
| | |
| | |
| | |
| | |
| |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
December 31, 2018 | | | |
| | |
| | |
| | |
| | |
|
Balance at end of period | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
Individually evaluated for impairment | | $ | 408 |
| | $ | 470 |
| | $ | 271 |
| | $ | 156 |
| | $ | 1,305 |
| | $ | 188 |
| | $ | 426 |
| | $ | 744 |
| | $ | — |
| | $ | 1,358 |
|
Purchased Credit Impaired | | 10,018 |
| | 917 |
| | 3,398 |
| | 43 |
| | 14,376 |
| |
Purchased credit impaired | | | 6,307 |
| | 679 |
| | 3,095 |
| | 25 |
| | 10,106 |
|
Collectively evaluated | | 293,607 |
| | 112,240 |
| | 580,682 |
| | 67,136 |
| | 1,053,665 |
| | 240,470 |
| | 90,103 |
| | 470,670 |
| | 46,623 |
| | 847,866 |
|
Total | | $ | 304,033 |
| | $ | 113,627 |
| | $ | 584,351 |
| | $ | 67,335 |
| | $ | 1,069,346 |
| | $ | 246,965 |
| | $ | 91,208 |
| | $ | 474,509 |
| | $ | 46,648 |
| | $ | 859,330 |
|
The following is a summary of impaired loans at SeptemberJune 30, 20172019 and December 31, 2016:2018:
Business Activities Loans
| | | | September 30, 2017 | | June 30, 2019 |
(In thousands) | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | |
(in thousands) | | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
With no related allowance: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 1,198 |
| | 1,175 |
| | — |
| |
Commercial other | | 96 |
| | 97 |
| | — |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| |
Other commercial real estate | | | 7,502 |
| | 7,552 |
| | — |
|
Commercial | | | 975 |
| | 1,032 |
| | — |
|
Agricultural | | | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 1,257 |
| | 1,267 |
| | — |
| | 2,099 |
| | 2,246 |
| | — |
|
Home equity | | 13 |
| | 13 |
| | — |
| | — |
| | — |
| | — |
|
Consumer other | | — |
| | — |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | |
Construction and land development | | $ | 637 |
| | $ | 2,563 |
| | $ | 59 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
Commercial real estate other | | 750 |
| | 808 |
| | 331 |
| |
Commercial other | | 42 |
| | 42 |
| | 2 |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| |
Other commercial real estate | | | 1,234 |
| | 1,332 |
| | 448 |
|
Commercial | | | 410 |
| | 438 |
| | 39 |
|
Agricultural | | | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 487 |
| | 487 |
| | 44 |
| | 570 |
| | 597 |
| | 75 |
|
Home equity | | 55 |
| | 55 |
| | 55 |
| | 13 |
| | 13 |
| | 1 |
|
Consumer other | | — |
| | — |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Commercial real estate | | $ | 2,585 |
| | $ | 4,546 |
| | $ | 390 |
| | $ | 8,737 |
| | $ | 8,885 |
| | $ | 449 |
|
Commercial and industrial | | 138 |
| | 139 |
| | 2 |
| | 1,385 |
| | 1,470 |
| | 39 |
|
Residential real estate | | 1,744 |
| | 1,754 |
| | 44 |
| | 2,669 |
| | 2,843 |
| | 75 |
|
Consumer | | 68 |
| | 68 |
| | 55 |
| | 13 |
| | 13 |
| | 1 |
|
Total impaired loans | | $ | 4,535 |
| | $ | 6,507 |
| | $ | 491 |
| | $ | 12,804 |
| | $ | 13,211 |
| | $ | 564 |
|
Acquired Loans
| | | | September 30, 2017 | | June 30, 2019 |
(In thousands) | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | |
(in thousands) | | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
With no related allowance: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 108 |
| | 107 |
| | — |
| |
Commercial other | | 470 |
| | 483 |
| | — |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| |
Other commercial real estate | | | 188 |
| | 187 |
| | — |
|
Commercial | | | 417 |
| | 505 |
| | — |
|
Agricultural | | | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 271 |
| | 278 |
| | — |
| | 361 |
| | 518 |
| | — |
|
Home equity | | 156 |
| | 156 |
| | — |
| | — |
| | — |
| | — |
|
Consumer other | | — |
| | — |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | |
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 300 |
| | 302 |
| | 168 |
| |
Commercial other | | — |
| | — |
| | — |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| |
Other commercial real estate | | | 70 |
| | 71 |
| | 12 |
|
Commercial | | | — |
| | — |
| | — |
|
Agricultural | | | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | — |
| | — |
| | — |
| | 360 |
| | 377 |
| | 35 |
|
Home equity | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer other | | — |
| | — |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Commercial real estate | | $ | 408 |
| | $ | 409 |
| | $ | 168 |
| | $ | 258 |
| | $ | 258 |
| | $ | 12 |
|
Commercial and industrial | | 470 |
| | 483 |
| | — |
| | 417 |
| | 505 |
| | — |
|
Residential real estate | | 271 |
| | 278 |
| | — |
| | 721 |
| | 895 |
| | 35 |
|
Consumer | | 156 |
| | 156 |
| | — |
| | — |
| | — |
| | — |
|
Total impaired loans | | $ | 1,305 |
| | $ | 1,326 |
| | $ | 168 |
| | $ | 1,396 |
| | $ | 1,658 |
| | $ | 47 |
|
Business Activities Loans
| | | | December 31, 2016 | | December 31, 2018 |
(In thousands) | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | |
(in thousands) | | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
With no related allowance: | | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 2,831 |
| | 2,919 |
| | — |
| |
Commercial other | | 130 |
| | 130 |
| | — |
| |
Agricultural and other loans to farmers | | 139 |
| | 139 |
| | — |
| |
Other commercial real estate | | | 8,209 |
| | 8,301 |
| | — |
|
Commercial | | | 649 |
| | 669 |
| | — |
|
Agricultural | | | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 1,387 |
| | 1,504 |
| | — |
| | 1,671 |
| | 1,709 |
| | — |
|
Home equity | | 16 |
| | 16 |
| | — |
| | — |
| | — |
| | — |
|
Consumer other | | 2 |
| | 2 |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | |
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
Commercial real estate other | | 1,650 |
| | 3,575 |
| | 193 |
| |
Commercial other | | 217 |
| | 367 |
| | 173 |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| |
Other commercial real estate | | | 1,625 |
| | 1,660 |
| | 421 |
|
Commercial | | | 796 |
| | 855 |
| | 78 |
|
Agricultural | | | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 322 |
| | 322 |
| | 49 |
| | 891 |
| | 916 |
| | 111 |
|
Home equity | | — |
| | — |
| | — |
| | 13 |
| | 13 |
| | — |
|
Consumer other | | 15 |
| | 15 |
| | 9 |
| |
Other consumer | | | — |
| | — |
| | — |
|
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Commercial real estate | | $ | 4,481 |
| | $ | 6,494 |
| | $ | 193 |
| | $ | 9,835 |
| | $ | 9,962 |
| | $ | 422 |
|
Commercial and industrial | | 486 |
| | 636 |
| | 173 |
| | 1,445 |
| | 1,524 |
| | 78 |
|
Residential real estate | | 1,709 |
| | 1,826 |
| | 49 |
| | 2,562 |
| | 2,625 |
| | 111 |
|
Consumer | | 33 |
| | 33 |
| | 9 |
| | 13 |
| | 13 |
| | — |
|
Total impaired loans | | $ | 6,709 |
| | $ | 8,989 |
| | $ | 424 |
| | $ | 13,855 |
| | $ | 14,124 |
| | $ | 611 |
|
Acquired Loans
|
| | | | | | | | | | | | |
| | December 31, 2018 |
(in thousands) | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
With no related allowance: | | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | 188 |
| | 187 |
| | — |
|
Commercial | | 426 |
| | 510 |
| | — |
|
Agricultural | | — |
| | — |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
|
Residential mortgages | | 375 |
| | 524 |
| | — |
|
Home equity | | — |
| | — |
| | — |
|
Other consumer | | — |
| | — |
| | — |
|
| | | | | | |
With an allowance recorded: | | | | | | |
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | — |
| | — |
| | — |
|
Commercial | | — |
| | — |
| | — |
|
Agricultural | | — |
| | — |
| | — |
|
Tax exempt | | — |
| | — |
| | — |
|
Residential mortgages | | 369 |
| | 379 |
| | 41 |
|
Home equity | | — |
| | — |
| | — |
|
Other consumer | | — |
| | — |
| | — |
|
| | | | | | |
Total | | | | | | |
Commercial real estate | | $ | 188 |
| | $ | 187 |
| | $ | — |
|
Commercial and industrial | | 426 |
| | 510 |
| | — |
|
Residential real estate | | 744 |
| | 903 |
| | 41 |
|
Consumer | | — |
| | — |
| | — |
|
Total impaired loans | | $ | 1,358 |
| | $ | 1,600 |
| | $ | 41 |
|
The following is a summary of the average recorded investment and interest income recognized on impaired loans as of Septemberfor the three and six months ended June 30, 20172019 and 2016:2018:
Business Activities LoanLoans
| | | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
(in thousands) | | Average Recorded Investment | | Cash Basis Interest Income Recognized | | Average Recorded Investment | | Cash Basis Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 1,716 |
| | 64 |
| | 2,713 |
| | 131 |
| |
Commercial other | | 99 |
| | 6 |
| | 141 |
| | 2 |
| |
Agricultural and other loans to farmers | | 8 |
| | 1 |
| | 131 |
| | 8 |
| |
Other commercial real estate | | | 7,499 |
| | 20 |
| | 6,519 |
| | 9 |
|
Commercial | | | 940 |
| | 2 |
| | 731 |
| | 3 |
|
Agricultural | | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 1,245 |
| | 31 |
| | 1,344 |
| | 55 |
| | 2,104 |
| | 16 |
| | 4,057 |
| | 9 |
|
Home equity | | 13 |
| | — |
| | 17 |
| | 1 |
| | — |
| | — |
| | 303 |
| | — |
|
Consumer other | | 5 |
| | 2 |
| | — |
| | 1 |
| |
Other consumer | | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | |
Construction and land development | | $ | 637 |
| | $ | — |
| | $ | 928 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 693 |
| | — |
| | 551 |
| | — |
| |
Commercial other | | 44 |
| | 1 |
| | 221 |
| | — |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| | — |
| |
Other commercial real estate | | | 1,396 |
| | — |
| | 1,328 |
| | — |
|
Commercial | | | 412 |
| | — |
| | 783 |
| | — |
|
Agricultural | | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 268 |
| | 5 |
| | 331 |
| | — |
| | 572 |
| | 3 |
| | 798 |
| | 2 |
|
Home equity | | 12 |
| | — |
| | — |
| | — |
| | 13 |
| | — |
| | — |
| | — |
|
Consumer other | | — |
| | — |
| | 17 |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | |
Commercial real estate | | $ | 3,046 |
| | $ | 64 |
| | $ | 4,192 |
| | $ | 131 |
| | $ | 8,896 |
| | $ | 20 |
| | $ | 7,847 |
| | $ | 9 |
|
Commercial and industrial | | 151 |
| | 8 |
| | 493 |
| | 10 |
| | 1,352 |
| | 2 |
| | 1,514 |
| | 3 |
|
Residential real estate | | 1,513 |
| | 36 |
| | 1,675 |
| | 55 |
| | 2,676 |
| | 19 |
| | 4,855 |
| | 11 |
|
Consumer | | 30 |
| | 2 |
| | 34 |
| | 2 |
| | 13 |
| | — |
| | 303 |
| | — |
|
Total impaired loans | | $ | 4,740 |
| | $ | 110 |
| | $ | 6,394 |
| | $ | 198 |
| | $ | 12,937 |
| | $ | 41 |
| | $ | 14,519 |
| | $ | 23 |
|
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
(in thousands) | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance: | | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | 7,219 |
| | 46 |
| | 6,364 |
| | 15 |
|
Commercial | | 931 |
| | 3 |
| | 680 |
| | 5 |
|
Agricultural | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 2,113 |
| | 31 |
| | 4,063 |
| | 19 |
|
Home equity | | — |
| | — |
| | 288 |
| | — |
|
Other consumer | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | |
With an allowance recorded: | | | | | | | | |
Construction and land development | | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | 1,497 |
| | — |
| | 1,073 |
| | — |
|
Commercial | | 417 |
| | — |
| | 647 |
| | — |
|
Agricultural | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 534 |
| | 5 |
| | 696 |
| | 5 |
|
Home equity | | 13 |
| | — |
| | — |
| | — |
|
Other consumer | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | |
Total | | | | | | | | |
Commercial real estate | | $ | 8,719 |
| | $ | 46 |
| | $ | 7,437 |
| | $ | 15 |
|
Commercial and industrial | | 1,348 |
| | 3 |
| | 1,327 |
| | 5 |
|
Residential real estate | | 2,647 |
| | 36 |
| | 4,759 |
| | 24 |
|
Consumer | | 13 |
| | — |
| | 288 |
| | — |
|
Total impaired loans | | $ | 12,727 |
| | $ | 85 |
| | $ | 13,811 |
| | $ | 44 |
|
Acquired Loans
| | | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
(in thousands) | | Average Recorded Investment | | Cash Basis Interest Income Recognized | | Average Recorded Investment | | Cash Basis Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 89 |
| | — |
| | — |
| | — |
| |
Commercial other | | 171 |
| | — |
| | — |
| | — |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| | — |
| |
Other commercial real estate | | | 187 |
| | — |
| | 230 |
| | — |
|
Commercial | | | 412 |
| | — |
| | 49 |
| | — |
|
Agricultural | | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 254 |
| | 1 |
| | — |
| | — |
| | 426 |
| | — |
| | 93 |
| | — |
|
Home equity | | 47 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer other | | 9 |
| | — |
| | — |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | |
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Commercial real estate other | | 46 |
| | — |
| | — |
| | — |
| |
Commercial other | | — |
| | — |
| | — |
| | — |
| |
Agricultural and other loans to farmers | | — |
| | — |
| | — |
| | — |
| |
Other commercial real estate | | | 71 |
| | — |
| | — |
| | — |
|
Commercial | | | — |
| | — |
| | 383 |
| | 1 |
|
Agricultural | | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | — |
| | — |
| | — |
| | — |
| | 363 |
| | — |
| | — |
| | — |
|
Home equity | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer other | | — |
| | — |
| | — |
| | — |
| |
Other consumer | | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | |
Commercial real estate | | $ | 135 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 258 |
| | $ | — |
| | $ | 230 |
| | $ | — |
|
Commercial and industrial | | 171 |
| | — |
| | — |
| | — |
| | 412 |
| | — |
| | 432 |
| | 1 |
|
Residential real estate | | 254 |
| | 1 |
| | — |
| | — |
| | 789 |
| | — |
| | 93 |
| | — |
|
Consumer | | 56 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total impaired loans | | $ | 616 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1,459 |
| | $ | — |
| | $ | 755 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
(in thousands) | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance: | | |
| | |
| | |
| | |
|
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | 157 |
| | — |
| | 230 |
| | 1 |
|
Commercial | | 446 |
| | — |
| | 49 |
| | — |
|
Agricultural | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 431 |
| | — |
| | 47 |
| | — |
|
Home equity | | — |
| | — |
| | — |
| | — |
|
Other consumer | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | |
With an allowance recorded: | | | | | | | | |
Construction and land development | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Other commercial real estate | | 36 |
| | — |
| | — |
| | — |
|
Commercial | | — |
| | — |
| | 383 |
| | 1 |
|
Agricultural | | — |
| | — |
| | — |
| | — |
|
Tax exempt loans | | — |
| | — |
| | — |
| | — |
|
Residential real estate | | 365 |
| | — |
| | — |
| | — |
|
Home equity | | — |
| | — |
| | — |
| | — |
|
Other consumer | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | |
Total | | | | | | | | |
Commercial real estate | | $ | 193 |
| | $ | — |
| | $ | 230 |
| | $ | 1 |
|
Commercial and industrial | | 446 |
| | — |
| | 432 |
| | 1 |
|
Residential real estate | | 796 |
| | — |
| | 47 |
| | — |
|
Consumer | | — |
| | — |
| | — |
| | — |
|
Total impaired loans | | $ | 1,435 |
| | $ | — |
| | $ | 709 |
| | $ | 2 |
|
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperformingnon-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.
The following tables include the recorded investment and number of modifications identified during the three and ninesix months ended SeptemberJune 30, 20172019 and for the three and nine months ended September 30, 2016,2018, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modifications for the three and nine months ended September 30, 2017 were attributableModifications may include adjustments to interest raterates, payment amounts, extensions of maturity, court ordered concessions maturity date extensions, reamortization or a combinationother actions intended to minimize economic loss and avoid foreclosure or repossession of two concessions. The modifications for the three and nine months ending September 30, 2016 were attributable to interest rate concessions, maturity date extensions or a combination of both.collateral.
|
| | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
(Dollars in thousands) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | |
| | |
| | |
|
Commercial installment | | 5 |
| | $ | 483 |
| | $ | 483 |
|
Agricultural and other loans to farmers | | — |
| | — |
| | — |
|
Commercial real estate | | 4 |
| | 144 |
| | 144 |
|
Residential real estate | | — |
| | — |
| | — |
|
Home equity | | — |
| | — |
| | — |
|
Consumer other | | — |
| | — |
| | — |
|
Total | | 9 |
| | $ | 627 |
| | $ | 627 |
|
|
| | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
(Dollars in thousands) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | | | | | |
|
Commercial installment | | 2 |
| | $ | 51 |
| | $ | 51 |
|
Commercial real estate | | 2 |
| | 936 |
| | 915 |
|
Consumer other | | 1 |
| | 9 |
| | 9 |
|
Total | | 5 |
| | $ | 996 |
| | $ | 975 |
|
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
(Dollars in thousands) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | |
| | |
| | |
|
Commercial installment | | 6 |
| | $ | 563 |
| | $ | 549 |
|
Agricultural and other loans to farmers | | 1 |
| | 19 |
| | 18 |
|
Commercial real estate | | 6 |
| | 388 |
| | 333 |
|
Residential real estate | | 3 |
| | 692 |
| | 675 |
|
Home equity | | 1 |
| | 13 |
| | 13 |
|
Consumer other | | 1 |
| | 38 |
| | 37 |
|
Total | | 18 |
| | $ | 1,713 |
| | $ | 1,625 |
|
|
| | | | | | | | | | | |
| | Three Months Ended June 30, 2019 |
(in thousands, except modifications) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | |
| | |
| | |
|
Other commercial real estate | | 2 |
| | $ | 186 |
| | $ | 177 |
|
Commercial | | 1 |
| | 12 |
| | 12 |
|
Residential mortgages | | 2 |
| | 152 |
| | 116 |
|
Total | | 5 |
| | $ | 350 |
| | $ | 305 |
|
| | | | | | |
| | | | | | |
| | Three Months Ended June 30, 2018 |
(in thousands, except modifications) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | |
| | |
| | |
|
Other commercial real estate | | 5 |
| | $ | 1,641 |
| | $ | 1,390 |
|
Residential mortgages | | 7 |
| | 1,091 |
| | 1,060 |
|
Home equity | | 1 |
| | 100 |
| | 100 |
|
Other consumer | | 1 |
| | 4 |
| | 4 |
|
Total | | 14 |
| | $ | 2,836 |
| | $ | 2,554 |
|
| | | | | | |
| | | | | | |
| | Six Months Ended June 30, 2019 |
(in thousands) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | |
| | |
| | |
|
Other commercial real estate | | 5 |
| | $ | 299 |
| | $ | 290 |
|
Other commercial | | 3 |
| | 43 |
| | 43 |
|
Residential mortgages | | 8 |
| | 682 |
| | 644 |
|
Total | | 16 |
| | $ | 1,024 |
| | $ | 977 |
|
| | | | | | |
| | | | | | |
| | Six Months Ended June 30, 2018 |
(in thousands) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | |
| | |
| | |
|
Other commercial real estate | | 7 |
| | $ | 1,674 |
| | $ | 1,409 |
|
Other commercial | | 2 |
| | 452 |
| | 437 |
|
Agricultural | | 1 |
| | 167 |
| | — |
|
Residential mortgages | | 12 |
| | 2,196 |
| | 1,646 |
|
Home equity | | 1 |
| | 100 |
| | 100 |
|
Other consumer | | 2 |
| | 5 |
| | 5 |
|
Total | | 25 |
| | $ | 4,594 |
| | $ | 3,597 |
|
The following tables summarize the types of loan concessions made for the periods presented:
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
(Dollars in thousands) | | Number of Modifications | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Troubled Debt Restructurings | | | | | | |
|
Commercial installment | | 2 |
| | $ | 51 |
| | $ | 51 |
|
Agricultural and other loans to farmers | | 2 |
| | 30 |
| | 24 |
|
Commercial real estate | | 5 |
| | 1,361 |
| | 1,326 |
|
Consumer Other | | 1 |
| | 9 |
| | 9 |
|
Total | | 10 |
| | $ | 1,451 |
| | $ | 1,410 |
|
|
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2019 | | 2018 |
(in thousands, except modifications) | | Number of Modifications | | Post-Modification Outstanding Recorded Investment | | Number of Modifications | | Post-Modification Outstanding Recorded Investment |
Interest only payments and maturity concession | | 1 |
| | $ | 70 |
| | — |
| | $ | — |
|
Forbearance | | — |
| | — |
| | 2 |
| | 158 |
|
Forbearance and interest only payments | | 2 |
| | 131 |
| | — |
| | — |
|
Forbearance and maturity concession | | 1 |
| | 46 |
| | 7 |
| | 779 |
|
Restructure with maturity concession | | — |
| | — |
| | 4 |
| | 1,334 |
|
Other | | 1 |
| | 58 |
| | 1 |
| | 283 |
|
Total | | 5 |
| | $ | 305 |
| | 14 |
| | $ | 2,554 |
|
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
(in thousands, except modifications) | | Number of Modifications | | Post-Modification Outstanding Recorded Investment | | Number of Modifications | | Post-Modification Outstanding Recorded Investment |
Interest rate and maturity concession | | — |
| | $ | — |
| | 1 |
| | $ | 17 |
|
Interest only payments and maturity concession | | 2 |
| | 75 |
| | — |
| | — |
|
Amortization and maturity concession | | 4 |
| | 275 |
| | — |
| | — |
|
Forbearance | | 1 |
| | 77 |
| | 2 |
| | 158 |
|
Forbearance and interest only payments | | 4 |
| | 243 |
| | 3 |
| | 51 |
|
Forbearance and maturity concession | | 4 |
| | 249 |
| | 12 |
| | 1,331 |
|
Maturity concession | | — |
| | — |
| | 1 |
| | 423 |
|
Restructure with maturity concession | | — |
| | — |
| | 4 |
| | 1,334 |
|
Other | | 1 |
| | 58 |
| | 2 |
| | 283 |
|
Total | | 16 |
| | $ | 977 |
| | 25 |
| | $ | 3,597 |
|
For the three and ninesix months ended SeptemberJune 30, 2017,2019, there were no loans that were restructured that had subsequently defaulted during the period.
The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.
Foreclosure
As of SeptemberJune 30, 2017,2019 and December 31, 2018, the Company maintained foreclosedbank-owned residential real estate property with a fair value of $122 thousand.$2.4 million. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of SeptemberJune 30, 20172019 and December 31, 20162018 totaled $772$886 thousand and $2.4$1.5 million, respectively. As
Mortgage Banking
Total residential loans included held for sale loans of $3.5 million and $168 thousand at June 30, 2019 and December 31, 2016, foreclosed2018, respectively.
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate to provide for an estimate of probable credit losses inherent in the loan portfolio. The allowance is increased by the provision charged to operating expense and reduced by net charge-offs. Loans are charged against the allowance for loan losses when the Company believes collectability has declined to a point where there is a distinct possibility of some loss of principal and interest. While the Company uses the best information available to make the evaluation, future adjustments may be necessary if there are significant changes in conditions.
The allowance is comprised of four distinct reserve components: (1) specific reserves related to loans individually evaluated; (2) quantitative reserves related to loans collectively evaluated; (3) qualitative reserves related to loans collectively evaluated; and (4) a temporal estimate is made for incurred loss emergence period for each loan category within the collectively evaluated pools.
A summary of the methodology employed on a quarterly basis with respect to each of these components in order to evaluate the overall adequacy of the Company's allowance for loan losses is as follows:
Specific Reserve for Loans Individually Evaluated
First, the Company identifies loan relationships having aggregate balances in excess of $150 thousand with potential credit weaknesses. Such loan relationships are identified primarily through the Company's analysis of internal loan evaluations, past due loan reports, TDRs and loans adversely classified. Each loan so identified is then individually evaluated for impairment. Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Substantially all impaired loans have historically been collateral dependent, meaning repayment of the loan is expected or is considered to be provided solely from the sale of the loan's underlying collateral. For such loans, the Company measures impairment based on the fair value of the loan's collateral, which is generally determined utilizing current appraisals. A specific reserve is established in an amount equal to the excess, if any, of the recorded investment in each impaired loan over the fair value of its underlying collateral, less estimated costs to sell. The Company's policy is to re-evaluate the fair value of collateral dependent loans at least every twelve months unless there is a known deterioration in the collateral's value, in which case a new appraisal is obtained.
Purchase credit impaired (“PCI”) loans are collectively evaluated, but are not included in the general reserve as described below. The evaluation of the PCI loans requires continued quarterly assessment of key assumptions and estimates similar to the initial fair value estimate, including changes in the severity of loss, timing and speed of payments, collateral value changes, expected cash flows and other relevant factors. The quarterly assessment is compared to the initial fair value estimate and a determination is made if an adjustment to the allowance for loan loss is deemed necessary.
Quantitative Reserve for Loans Collectively Evaluated
Second, the Company stratifies the loan portfolio into two general business loan pools: substandard (7 risk-rated) and pass-rated (0 to 6 risk-rated) by loan type. Substandard rated loans are subject to higher credit loss rates in the allowance for loan loss calculation. The Company utilizes historical loss rates for commercial real estate and commercial and industrial loans assessed by internal risk rating. Historical loss rates on residential real estate property totaled $90 thousand.and consumer loans are not risk graded. Residential real estate and consumer loans are considered as part of the pass-rated portfolio unless removed due to specific reserve evaluation based on past due status and/or other indications of credit deterioration. Quantitative reserves relative to each loan pool are established as follows: for all loan segments an allocation equaling 100% of the respective pool's average 3-year historical net loan charge-off rate (determined based upon the most recent 12 quarters) is applied to the aggregate recorded investment in the pool of loans. Purchased performing loans are collectively evaluated as their own separate category within each loan pool.
Qualitative Reserve for Loans Collectively Evaluated NOTE 5. LOAN LOSS ALLOWANCEThird, the Company considers the necessity to adjust the average historical net loan charge-off rates relative to each of the above two loan pools for potential risks factors that could result in actual losses deviating from prior loss experience. Such qualitative risk factors considered are: (1) lending policies and procedures, (2) business conditions, (3) volume and nature of the loan portfolio, (4) experience, ability and depth of lending management, (5) problem loan trends, (6) quality of the Company’s loan review system, (7) concentrations in the loan portfolio, (8) competition, legal, and regulatory environment and (9) collateral coverage and loan-to-value.
Loss Emergence Period for Loans Collectively Evaluated
Fourth, the general allowance related to loans collectively evaluated includes an estimate of incurred losses over an estimated loss emergence period ("LEP"). The LEP is generated utilizing a charge-off look-back analysis, which evaluates the time from the first indication of elevated risk of repayment (or other early event indicating a problem) to eventual charge-off to support the LEP considered in the allowance calculation. This reserving methodology establishes the approximate number of months of LEP that represents incurred losses for each loan portfolio within each portfolio segment in addition to the qualitative reserves.
Activity in the allowance for loan losses for the ninethree and six months ended SeptemberJune 30, 20172019 and 2016 was2018 are, as follows:
| | Business Activities Loans | | At or for the Nine Months Ended September 30, 2017 | | At or for the Three Months Ended June 30, 2019 |
(In thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total | |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | $ | 5,145 |
| | $ | 1,952 |
| | $ | 2,721 |
| | $ | 601 |
| | $ | 10,419 |
| | $ | 6,575 |
| | $ | 2,778 |
| | $ | 3,953 |
| | $ | 396 |
| | $ | 13,702 |
|
Charged-off loans | | (124 | ) | | (189 | ) | | (226 | ) | | (87 | ) | | (626 | ) | | — |
| | (13 | ) | | — |
| | (22 | ) | | (35 | ) |
Recoveries on charged-off loans | | 9 |
| | 7 |
| | 65 |
| | 7 |
| | 88 |
| | 114 |
| | 1 |
| | — |
| | 2 |
| | 117 |
|
Provision/(releases) for loan losses | | 310 |
| | 405 |
| | 941 |
| | 40 |
| | 1,696 |
| |
(Releases) provision for loan losses | | | 517 |
| | (18 | ) | | (11 | ) | | 18 |
| | 506 |
|
Balance at end of period | | $ | 5,340 |
| | $ | 2,175 |
| | $ | 3,501 |
| | $ | 561 |
| | $ | 11,577 |
| | $ | 7,206 |
| | $ | 2,748 |
| | $ | 3,942 |
| | $ | 394 |
| | $ | 14,290 |
|
Individually evaluated for impairment | | 391 |
| | 2 |
| | 44 |
| | 55 |
| | 492 |
| | 449 |
| | 39 |
| | 75 |
| | 1 |
| | 564 |
|
Collectively evaluated | | 4,949 |
| | 2,173 |
| | 3,457 |
| | 506 |
| | 11,085 |
| | 6,757 |
| | 2,709 |
| | 3,867 |
| | 393 |
| | 13,726 |
|
Total | | $ | 5,340 |
| | $ | 2,175 |
| | $ | 3,501 |
| | $ | 561 |
| | $ | 11,577 |
| | $ | 7,206 |
| | $ | 2,748 |
| | $ | 3,942 |
| | $ | 394 |
| | $ | 14,290 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
Business Activities Loans | | | At or for the Six Months Ended June 30, 2019 |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | | $ | 6,811 |
| | $ | 2,380 |
| | $ | 3,982 |
| | $ | 408 |
| | $ | 13,581 |
|
Charged-off loans | | | (57 | ) | | (13 | ) | | — |
| | (75 | ) | | (145 | ) |
Recoveries on charged-off loans | | | 130 |
| | 1 |
| | 18 |
| | 6 |
| | 155 |
|
(Releases) provision for loan losses | | | 322 |
| | 380 |
| | (58 | ) | | 55 |
| | 699 |
|
Balance at end of period | | | $ | 7,206 |
| | $ | 2,748 |
| | $ | 3,942 |
| | $ | 394 |
| | $ | 14,290 |
|
Individually evaluated for impairment | | | 449 |
| | 39 |
| | 75 |
| | 1 |
| | 564 |
|
Collectively evaluated | | | 6,757 |
| | 2,709 |
| | 3,867 |
| | 393 |
| | 13,726 |
|
Total | | | $ | 7,206 |
| | $ | 2,748 |
| | $ | 3,942 |
| | $ | 394 |
| | $ | 14,290 |
|
| | Business Activities Loans | | At or for the Nine Months Ended September 30, 2016 | |
(In thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total | |
Acquired Loans | | | At or for the Three Months Ended June 30, 2019 |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | $ | 4,430 |
| | $ | 1,590 |
| | $ | 2,747 |
| | $ | 672 |
| | $ | 9,439 |
| | $ | 161 |
| | $ | 29 |
| | $ | 105 |
| | $ | — |
| | $ | 295 |
|
Charged-off loans | | (133 | ) | | (90 | ) | | (141 | ) | | (19 | ) | | (383 | ) | | — |
| | — |
| | (65 | ) | | (4 | ) | | (69 | ) |
Recoveries on charged-off loans | | 35 |
| | 200 |
| | 36 |
| | 22 |
| | 293 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Provision/(releases) for loan losses | | 719 |
| | 39 |
| | 38 |
| | (42 | ) | | 754 |
| |
(Releases) provision for loan losses | | | (2 | ) | | (7 | ) | | 61 |
| | 4 |
| | 56 |
|
Balance at end of period | | $ | 5,051 |
| | $ | 1,739 |
| | $ | 2,680 |
| | $ | 633 |
| | $ | 10,103 |
| | $ | 159 |
| | $ | 22 |
| | $ | 101 |
| | $ | — |
| | $ | 282 |
|
Individually evaluated for impairment | | 100 |
| | 174 |
| | 87 |
| | 10 |
| | 371 |
| | 12 |
| | — |
| | 35 |
| | — |
| | 47 |
|
Collectively evaluated | | 4,951 |
| | 1,565 |
| | 2,593 |
| | 623 |
| | 9,732 |
| | 147 |
| | 22 |
| | 66 |
| | — |
| | 235 |
|
Total | | $ | 5,051 |
| | $ | 1,739 |
| | $ | 2,680 |
| | $ | 633 |
| | $ | 10,103 |
| | $ | 159 |
| | $ | 22 |
| | $ | 101 |
| | $ | — |
| | $ | 282 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
Acquired Loans | | | At or for the Six Months Ended June 30, 2019 |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | | $ | 173 |
| | $ | 35 |
| | $ | 77 |
| | $ | — |
| | $ | 285 |
|
Charged-off loans | | | — |
| | (15 | ) | | (170 | ) | | (5 | ) | | (190 | ) |
Recoveries on charged-off loans | | | — |
| | — |
| | — |
| | — |
| | — |
|
(Releases) provision for loan losses | | | (14 | ) | | 2 |
| | 194 |
| | 5 |
| | 187 |
|
Balance at end of period | | | $ | 159 |
| | $ | 22 |
| | $ | 101 |
| | $ | — |
| | $ | 282 |
|
Individually evaluated for impairment | | | 12 |
| | — |
| | 35 |
| | — |
| | 47 |
|
Collectively evaluated | | | 147 |
| | 22 |
| | 66 |
| | — |
| | 235 |
|
Total | | | $ | 159 |
| | $ | 22 |
| | $ | 101 |
| | $ | — |
| | $ | 282 |
|
| | Acquired Loans | | At or for the Nine Months Ended September 30, 2017 | |
(In thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total | |
Business Activities Loans | | | At or for the Three Months Ended June 30, 2018 |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,998 |
| | $ | 2,612 |
| | $ | 3,304 |
| | $ | 500 |
| | $ | 12,414 |
|
Charged-off loans | | (54 | ) | | (18 | ) | | (31 | ) | | (19 | ) | | (122 | ) | | (156 | ) | | (27 | ) | | — |
| | (216 | ) | | (399 | ) |
Recoveries on charged-off loans | | — |
| | — |
| | — |
| | — |
| | — |
| | 46 |
| | 4 |
| | — |
| | 2 |
| | 52 |
|
Provision/(releases) for loan losses | | 360 |
| | 49 |
| | 67 |
| | 19 |
| | 495 |
| |
Provision (releases) for loan losses | | | 479 |
| | (80 | ) | | 150 |
| | 107 |
| | 656 |
|
Balance at end of period | | $ | 306 |
| | $ | 31 |
| | $ | 36 |
| | $ | — |
| | $ | 373 |
| | $ | 6,367 |
| | $ | 2,509 |
| | $ | 3,454 |
| | $ | 393 |
| | $ | 12,723 |
|
Individually evaluated for impairment | | 168 |
| | — |
| | — |
| | — |
| | 168 |
| | 682 |
| | 34 |
| | 80 |
| | — |
| | 796 |
|
Collectively evaluated | | 138 |
| | 31 |
| | 36 |
| | — |
| | 205 |
| | 5,685 |
| | 2,475 |
| | 3,374 |
| | 393 |
| | 11,927 |
|
Total | | $ | 306 |
| | $ | 31 |
| | $ | 36 |
| | $ | — |
| | $ | 373 |
| | $ | 6,367 |
| | $ | 2,509 |
| | $ | 3,454 |
| | $ | 393 |
| | $ | 12,723 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
Business Activities Loans | | | At or for the Six Months Ended June 30, 2018 |
(in thousands) | | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | | $ | 6,037 |
| | $ | 2,373 |
| | $ | 3,357 |
| | $ | 386 |
| | $ | 12,153 |
|
Charged-off loans | | | (156 | ) | | (111 | ) | | — |
| | (386 | ) | | (653 | ) |
Recoveries on charged-off loans | | | 61 |
| | 6 |
| | 1 |
| | 4 |
| | 72 |
|
Provision for loan losses | | | 425 |
| | 241 |
| | 96 |
| | 389 |
| | 1,151 |
|
Balance at end of period | | | $ | 6,367 |
| | $ | 2,509 |
| | $ | 3,454 |
| | $ | 393 |
| | $ | 12,723 |
|
Individually evaluated for impairment | | | 682 |
| | 34 |
| | 80 |
| | — |
| | 796 |
|
Collectively evaluated | | | 5,685 |
| | 2,475 |
| | 3,374 |
| | 393 |
| | 11,927 |
|
Total | | | $ | 6,367 |
| | $ | 2,509 |
| | $ | 3,454 |
| | $ | 393 |
| | $ | 12,723 |
|
There were no loans meeting the definition of acquired for the nine month period ending September 30, 2016. |
| | | | | | | | | | | | | | | | | | | | |
Acquired Loans | | At or for the Three Months Ended June 30, 2018 |
(in thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | $ | 83 |
| | $ | 124 |
| | $ | 58 |
| | $ | — |
| | $ | 265 |
|
Charged-off loans | | — |
| | (37 | ) | | (64 | ) | | (17 | ) | | (118 | ) |
Recoveries on charged-off loans | | 18 |
| | 6 |
| | — |
| | 82 |
| | 106 |
|
Provision (releases) for loan losses | | 99 |
| | (11 | ) | | 91 |
| | (65 | ) | | 114 |
|
Balance at end of period | | $ | 200 |
| | $ | 82 |
| | $ | 85 |
| | $ | — |
| | $ | 367 |
|
Individually evaluated for impairment | | — |
| | 77 |
| | — |
| | — |
| | 77 |
|
Collectively evaluated | | 200 |
| | 5 |
| | 85 |
| | — |
| | 290 |
|
Total | | $ | 200 |
| | $ | 82 |
| | $ | 85 |
| | $ | — |
| | $ | 367 |
|
| | | | | | | | | | |
| | | | | | | | | | |
Acquired Loans | | At or for the Six Months Ended June 30, 2018 |
(in thousands) | | Commercial real estate | | Commercial and industrial | | Residential real estate | | Consumer | | Total |
Balance at beginning of period | | $ | 97 |
| | $ | 16 |
| | $ | 59 |
| | $ | — |
| | $ | 172 |
|
Charged-off loans | | (106 | ) | | (95 | ) | | (64 | ) | | (60 | ) | | (325 | ) |
Recoveries on charged-off loans | | 18 |
| | 6 |
| | — |
| | 82 |
| | 106 |
|
Provision (releases) for loan losses | | 191 |
| | 155 |
| | 90 |
| | (22 | ) | | 414 |
|
Balance at end of period | | $ | 200 |
| | $ | 82 |
| | $ | 85 |
| | $ | — |
| | $ | 367 |
|
Individually evaluated for impairment | | — |
| | 77 |
| | — |
| | — |
| | 77 |
|
Collectively evaluated | | 200 |
| | 5 |
| | 85 |
| | — |
| | 290 |
|
Total | | $ | 200 |
| | $ | 82 |
| | $ | 85 |
| | $ | — |
| | $ | 367 |
|
Loan Origination/Risk Management: The BankCompany has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Bank’s boardCompany’s Board of directorsDirectors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Bank's boardCompany's Board of directorsDirectors with frequent reports related to loan production, loan quality, concentrationsconcentration of credit, loan delinquencies, and non-performing loans and potential problem loans. The BankCompany seeks to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.
Credit Quality Indicators/Classified Loans: In monitoring the credit quality of the portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. These ratings are used as inputs to the calculation of the allowance for loan losses. Consistent with regulatory guidelines, the BankCompany provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk ratedrisk-rated 6, 7, 8 and 9, respectively).
The following are the definitions of the Bank’sCompany’s credit quality indicators:
Pass: Loans within all classes ofthe Company considers in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low risk of loss related to these loans that are considered pass.pass-rated.
Special mention:Mention: Loans that dothe Company considers having some potential weaknesses, but are deemed to not expose the Bank tocarry levels of risk sufficient to warrant classificationinherent in one of the subsequent categories, but which possess some weaknesses, are designated as special mention. A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. This might include loans which the lending officer may be unable to supervise properlyrequire a higher level of supervision or internal reporting because of: (i) lackdeclining industry trends; (ii) increasing reliance on secondary sources of expertise, inadequate loan agreement; (ii)repayment; (iii) the poor condition of or lack of control
over collateral; or (iii)(iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose the BankCompany to sufficient risks to warrant classification.
Substandard: The BankLoans theCompany considers a loanas substandard if it isare inadequately protected by the current net worth and paying
capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.
Doubtful: Loans that the Bank classifiesCompany considers as doubtful have all of the weaknesses inherent in those loans that are classified as substandard but alsosubstandard. These loans have the added characteristic thatof a well-defined weakness which is inadequately protected by the weaknesses present make collectioncurrent sound worth and paying capacity of borrower or liquidation inof the collateral pledged, if any, and calls into question the collectability of the full onbalance of the basis of currently existing facts, conditions, and values, highly questionable and improbable.loan. The possibility of loss is high but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).
Loss: Loans that the Bank classifiesCompany considers as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be affected in the future. Losses are taken in the period in which they are determined to be uncollectible.
The following tables present the Company’s loans by risk rating at SeptemberJune 30, 20172019 and December 31, 2016:2018:
Business Activities Loans
Commercial Real Estate
Credit Risk Profile by Creditworthiness Category
| | | | Construction and land development | | Commercial real estate other | | Total commercial real estate | | Construction and land development | | Commercial real estate other | | Total commercial real estate |
(In thousands) | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | |
(in thousands) | | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 |
Grade: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Pass | | $ | 33,008 |
| | $ | 14,695 |
| | $ | 433,934 |
| | $ | 376,968 |
| | $ | 466,942 |
| | $ | 391,663 |
| | $ | 33,450 |
| | $ | 23,680 |
| | $ | 589,926 |
| | $ | 532,386 |
| | $ | 623,376 |
| | $ | 556,066 |
|
Special mention | | 47 |
| | — |
| | 6,820 |
| | 5,868 |
| | 6,867 |
| | 5,868 |
| | 73 |
| | 73 |
| | 11,959 |
| | 8,319 |
| | 12,032 |
| | 8,392 |
|
Substandard | | 637 |
| | — |
| | 15,093 |
| | 20,588 |
| | 15,730 |
| | 20,588 |
| | — |
| | — |
| | 12,337 |
| | 13,914 |
| | 12,337 |
| | 13,914 |
|
Doubtful | | | 1 |
| | 1 |
| | 1,521 |
| | 1,361 |
| | 1,522 |
| | 1,362 |
|
Total | | $ | 33,692 |
| | $ | 14,695 |
| | $ | 455,847 |
| | $ | 403,424 |
| | $ | 489,539 |
| | $ | 418,119 |
| | $ | 33,524 |
| | $ | 23,754 |
| | $ | 615,743 |
| | $ | 555,980 |
| | $ | 649,267 |
| | $ | 579,734 |
|
Commercial and Industrial
Credit Risk Profile by Creditworthiness Category
| | | | Commercial other | | Agricultural and other loans to farmers | | Tax exempt loans | | Total commercial and industrial | | Commercial | | Agricultural | | Tax exempt loans | | Total commercial and industrial |
(In thousands) | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | |
(in thousands) | | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 |
Grade: | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | |
Pass | | $ | 168,608 |
| | $ | 98,968 |
| | $ | 30,075 |
| | $ | 31,279 |
| | $ | 40,610 |
| | $ | 15,679 |
| | $ | 239,293 |
| | $ | 145,926 |
| | $ | 225,251 |
| | $ | 226,353 |
| | $ | 20,905 |
| | $ | 21,680 |
| | $ | 67,374 |
| | $ | 56,588 |
| | $ | 313,530 |
| | $ | 304,621 |
|
Special mention | | 1,757 |
| | 2,384 |
| | 91 |
| | 251 |
| | 166 |
| | 167 |
| | 2,014 |
| | 2,802 |
| | 13,512 |
| | 6,730 |
| | 358 |
| | 215 |
| | — |
| | — |
| | 13,870 |
| | 6,945 |
|
Substandard | | 1,821 |
| | 2,234 |
| | 317 |
| | 278 |
| | — |
| | — |
| | 2,138 |
| | 2,512 |
| | 5,037 |
| | 924 |
| | 384 |
| | 422 |
| | — |
| | — |
| | 5,421 |
| | 1,346 |
|
Doubtful | | | 715 |
| | 750 |
| | — |
| | — |
| | — |
| | — |
| | 715 |
| | 750 |
|
Total | | $ | 172,186 |
| | $ | 103,586 |
| | $ | 30,483 |
| | $ | 31,808 |
| | $ | 40,776 |
| | $ | 15,846 |
| | $ | 243,445 |
| | $ | 151,240 |
| | $ | 244,515 |
| | $ | 234,757 |
| | $ | 21,647 |
| | $ | 22,317 |
| | $ | 67,374 |
| | $ | 56,588 |
| | $ | 333,536 |
| | $ | 313,662 |
|
Residential Real Estate and Consumer Loans
Credit Risk Profile Based on Payment Activity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Residential real estate | | Home equity | | Other consumer | | Total residential real estate and consumer |
(in thousands) | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 |
Performing | | $ | 727,420 |
| | $ | 665,976 |
| | $ | 59,738 |
| | $ | 57,652 |
| | $ | 10,596 |
| | $ | 9,324 |
| | $ | 797,754 |
| | $ | 732,952 |
|
Nonperforming | | 4,023 |
| | 4,213 |
| | 585 |
| | 246 |
| | 82 |
| | 90 |
| | 4,690 |
| | 4,549 |
|
Total | | $ | 731,443 |
| | $ | 670,189 |
| | $ | 60,323 |
| | $ | 57,898 |
| | $ | 10,678 |
| | $ | 9,414 |
| | $ | 802,444 |
| | $ | 737,501 |
|
Acquired Loans
Commercial Real Estate
Credit Risk Profile by Creditworthiness Category
| | | | Commercial construction and land development | | Commercial real estate other | | Total commercial real estate | | Commercial construction and land development | | Commercial real estate other | | Total commercial real estate |
(In thousands) | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | |
(in thousands) | | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 |
Grade: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Pass | | $ | 15,336 |
| | $ | — |
| | $ | 278,134 |
| | $ | — |
| | $ | 293,470 |
| | $ | — |
| | $ | 2,579 |
| | $ | 2,626 |
| | $ | 220,959 |
| | $ | 236,393 |
| | $ | 223,538 |
| | $ | 239,019 |
|
Special mention | | 233 |
| | — |
| | 2,475 |
| | — |
| | 2,708 |
| | — |
| | — |
| | — |
| | 1,964 |
| | 1,574 |
| | 1,964 |
| | 1,574 |
|
Substandard | | 24 |
| | — |
| | 7,831 |
| | — |
| | 7,855 |
| | — |
| | 279 |
| | 264 |
| | 6,263 |
| | 6,009 |
| | 6,542 |
| | 6,273 |
|
Doubtful | | | — |
| | — |
| | 168 |
| | 99 |
| | 168 |
| | 99 |
|
Total | | $ | 15,593 |
| | $ | — |
| | $ | 288,440 |
| | $ | — |
| | $ | 304,033 |
| | $ | — |
| | $ | 2,858 |
| | $ | 2,890 |
| | $ | 229,354 |
| | $ | 244,075 |
| | $ | 232,212 |
| | $ | 246,965 |
|
Commercial and Industrial
Credit Risk Profile by Creditworthiness Category
| | | | Commercial other | | Agricultural and other loans to farmers | | Tax exempt loans | | Total commercial and industrial | | Commercial | | Agricultural | | Tax exempt loans | | Total commercial and industrial |
(In thousands) | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | |
(in thousands) | | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 |
Grade: | | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| | |
|
Pass | | $ | 63,941 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 45,537 |
| | $ | — |
| | $ | 109,478 |
| | $ | — |
| | $ | 38,554 |
| | $ | 46,120 |
| | $ | — |
| | $ | — |
| | $ | 37,322 |
| | $ | 38,738 |
| | $ | 75,876 |
| | $ | 84,858 |
|
Special mention | | 2,053 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,053 |
| | — |
| | 5,819 |
| | 4,825 |
| | — |
| | — |
| | — |
| | — |
| | 5,819 |
| | 4,825 |
|
Substandard | | 2,096 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,096 |
| | — |
| | 1,153 |
| | 1,222 |
| | — |
| | — |
| | — |
| | — |
| | 1,153 |
| | 1,222 |
|
Doubtful | | | 341 |
| | 303 |
| | — |
| | — |
| | — |
| | — |
| | 341 |
| | 303 |
|
Total | | $ | 68,090 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 45,537 |
| | $ | — |
| | $ | 113,627 |
| | $ | — |
| | $ | 45,867 |
| | $ | 52,470 |
| | $ | — |
| | $ | — |
| | $ | 37,322 |
| | $ | 38,738 |
| | $ | 83,189 |
| | $ | 91,208 |
|
Residential Real Estate and Consumer Loans
Credit Risk Profile Based on Payment Activity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Residential real estate | | Home equity | | Other consumer | | Total residential real estate and consumer |
(in thousands) | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 | | Jun 30, 2019 | | Dec 31, 2018 |
Performing | | $ | 433,244 |
| | $ | 470,497 |
| | $ | 39,941 |
| | $ | 45,090 |
| | $ | 1,139 |
| | $ | 1,356 |
| | $ | 474,324 |
| | $ | 516,943 |
|
Nonperforming | | 3,072 |
| | 4,012 |
| | 194 |
| | 201 |
| | — |
| | 1 |
| | 3,266 |
| | 4,214 |
|
Total | | $ | 436,316 |
| | $ | 474,509 |
| | $ | 40,135 |
| | $ | 45,291 |
| | $ | 1,139 |
| | $ | 1,357 |
| | $ | 477,590 |
| | $ | 521,157 |
|
The following table summarizes information about total classified and criticized loans rated Special Mention or higher as of SeptemberJune 30, 20172019 and December 31, 2016. The table below includes consumer loans that are special mention and substandard accruing that are classified in the above table as performing based on payment activity.2018:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2019 | | December 31, 2018 |
(In thousands) | | Business Activities Loans | | Acquired Loans | | Total | | Business Activities Loans | | Acquired Loans | | Total | |
(in thousands) | | | Business Activities Loans | | Acquired Loans | | Total | | Business Activities Loans | | Acquired Loans | | Total |
Non-accrual | | $ | 5,116 |
| | $ | 3,452 |
| | $ | 8,568 |
| | $ | 2,733 |
| | $ | — |
| | $ | 2,733 |
| | $ | 12,886 |
| | $ | 3,069 |
| | $ | 15,955 |
| | $ | 14,111 |
| | $ | 4,124 |
| | $ | 18,235 |
|
Substandard accruing | | 15,774 |
| | 9,627 |
| | 25,401 |
| | 20,368 |
| | — |
| | 20,368 |
| | 11,799 |
| | 8,401 |
| | 20,200 |
| | 7,810 |
| | 7,987 |
| | 15,797 |
|
Doubtful accruing | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total classified | | 20,890 |
| | 13,079 |
| | 33,969 |
| | 23,101 |
| | — |
| | 23,101 |
| | 24,685 |
| | 11,470 |
| | 36,155 |
| | 21,921 |
| | 12,111 |
| | 34,032 |
|
Special mention | | 8,864 |
| | 4,762 |
| | 13,626 |
| | 8,669 |
| | — |
| | 8,669 |
| | 25,902 |
| | 7,783 |
| | 33,685 |
| | 15,337 |
| | 6,399 |
| | 21,736 |
|
Total Criticized | | $ | 29,754 |
| | $ | 17,841 |
| | $ | 47,595 |
| | $ | 31,770 |
| | $ | — |
| | $ | 31,770 |
| | $ | 50,587 |
| | $ | 19,253 |
| | $ | 69,840 |
| | $ | 37,258 |
| | $ | 18,510 |
| | $ | 55,768 |
|
NOTE 6.5. BORROWED FUNDS
Borrowed funds at SeptemberJune 30, 20172019 and December 31, 20162018 are summarized, as follows:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2019 | | December 31, 2018 |
(dollars in thousands) | | Carrying Value | | Weighted Average Rate | | Carrying Value | | Weighted Average Rate | | Carrying Value | | Weighted Average Rate | | Carrying Value | | Weighted Average Rate |
Short-term borrowings | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Advances from the FHLBB | | $ | 506,000 |
| | 1.36 | % | | $ | 372,700 |
| | 0.97 | % | |
Advances from the FHLB | | | $ | 549,168 |
| | 2.42 | % | | $ | 611,683 |
| | 2.47 | % |
Other borrowings | | 41,600 |
| | 0.56 |
| | 21,780 |
| | 0.29 |
| | 36,940 |
| | 1.48 |
| | 36,211 |
| | 1.09 |
|
Total short-term borrowings | | 547,600 |
| | 1.30 |
| | 394,480 |
| | 0.93 |
| | 586,108 |
| | 2.37 |
| | 647,894 |
| | 2.39 |
|
Long-term borrowings | | | | | | | | | | | | | | | | |
Advances from the FHLBB | | 227,982 |
| | 1.50 |
| | 137,116 |
| | 1.59 |
| |
Advances from the FHLB | | | 146,976 |
| | 2.32 |
| | 32,929 |
| | 1.86 |
|
Subordinated borrowings | | 38,048 |
| | 5.46 |
| | — |
| | — |
| | 37,943 |
| | 5.84 |
| | 37,973 |
| | 5.58 |
|
Junior subordinated borrowings | | 5,000 |
| | 4.81 |
| | 5,000 |
| | 4.41 |
| | 5,000 |
| | 5.99 |
| | 5,000 |
| | 5.96 |
|
Total long-term borrowings | | 271,030 |
| | 2.11 |
| | 142,116 |
| | 1.69 |
| | 189,919 |
| | 3.12 |
| | 75,902 |
| | 3.99 |
|
Total | | $ | 818,630 |
| | 1.57 | % | | $ | 536,596 |
| | 1.13 | % | | $ | 776,027 |
| | 2.55 | % | | $ | 723,796 |
| | 2.56 | % |
Short termShort-term debt includes Federal Home Loan Bank of Boston (“FHLBB”FHLB”) advances with an originala maturity of less than one year. The BankCompany also maintains a $1.0$1.0 million secured line of credit with the FHLBBFHLB that bears a daily adjustable rate calculated by the FHLBB.FHLB. There was no outstanding balance on the FHLBBFHLB line of credit for the periods ended SeptemberJune 30, 20172019 and December 31, 2016.2018.
The Bank also hadCompany has the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”). At SeptemberJune 30, 2017,2019, the Bank’sCompany’s available secured line of credit at the FRB was $114.6$112.9 million. The BankCompany has pledged certain loans and securities to the FRB to support this arrangement. There were no borrowings with the FRB for the periods ended SeptemberJune 30, 20172019 and December 31, 2016.2018.
The Company maintains, with a correspondent bank, an unused unsecured federal funds line of credit that has an aggregate overnight borrowing capacity of $50 million as of June 30, 2019 and December 31, 2018. There was no outstanding balance on the line of credit as of June 30, 2019 and December 31, 2018.
Long-term FHLBBFHLB advances consist of advances with a maturity of more than one year. The advances outstanding at SeptemberJune 30, 20172019 and December 31, 2018 include no callable advances totaling $27.0 million, and amortizing advances totaling $689 thousand. The advances outstanding at December 31, 2016 include callable advances totaling $17.0 million, and no$330 thousand of amortizing advances. All FHLBBFHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
A summary of maturities of FHLBBFHLB advances as of SeptemberJune 30, 20172019 is, as follows:
| | | | September 30, 2017 | | June 30, 2019 |
(in thousands, except rates) | | Carrying Value | | Weighted Average Rate | | Carrying Value | | Weighted Average Rate |
Fixed rate advances maturing: | | |
| | |
| | |
| | |
|
2017 | | $ | 416,000 |
| | 1.32 | % | |
2018 | | 165,805 |
| | 1.49 |
| |
2019 | | 104,947 |
| | 1.63 |
| | $ | 524,195 |
| | 2.46 | % |
2020 | | 29,911 |
| | 1.76 |
| | 54,973 |
| | 2.12 |
|
2021 | | 1,630 |
| | 1.49 |
| | 1,655 |
| | 1.90 |
|
2022 and thereafter | | 15,689 |
| | 0.36 |
| |
Total FHLBB advances | | $ | 733,982 |
| | 1.40 | % | |
2022 | | | 114,000 |
| | 2.31 |
|
2023 | | | 1,000 |
| | — |
|
2024 and thereafter | | | 321 |
| | 2.52 |
|
Total FHLB advances | | | $ | 696,144 |
| | 2.40 | % |
In April 2008, the BankCompany issued fifteen year junior subordinated notes in the amount of $5.0 million. These debt securities qualify as Tier 2 capital for the Company and the Bank. The subordinated debt securities are callable by the Bank
after five years without penalty. The interest rate is three-month LIBOR plus 3.45%. At SeptemberJune 30, 20172019 and December 31, 20162018 the interest rate was 4.77%5.86% and 4.41%6.24%, respectively.
On January 13, 2017, theThe Company acquiredhas $17.0 million of subordinated debt in connection with the Lake Sunapee acquisition. The original subordinated debt was issued on October 29, 2014, in connection with the execution of a Subordinated Note Purchase Agreement between and among Lake Sunapee Bank Group and certain accredited investors pursuant to which Lake Sunapee Bank Group issuedwith an aggregate of $17.0 million of subordinated notes (the “Notes”) to the accredited investors. The Notes have a maturity date of November 1, 2024, and will bear interest at a fixed rate of 6.75% per annum. The Company may, at its option, beginning with the interest payment date of November 1, 2019, and on any interest payment date thereafter, redeem the Notes, in whole or in part, at par plus accrued and unpaid interest to the date of redemption. Any partial redemption will be made pro rata among all of the noteholders. The Notes are not subject to repayment at the option of the noteholders. The Notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s senior indebtedness and to the Company’s obligations to its general creditors.
AlsoThe Company also has $20.6 million in connection with the Lake Sunapee acquisition, the Company acquired 100% of the common securities totaling $600 thousand and $20.0 million offloating Junior Subordinated Deferrable Interest Debentures ("Debentures") issued by NHTB Capital Trust II ("Trust II") and NHTB Capital Trust III ("Trust III"), which are both Connecticut statutory trusts. The Debentures were originally issued on March 30, 2014, carry a variable interest rate of 3-month LIBOR plus 2.79%, and mature in 2034. The debt is callable by the Company at the time when any interest payment is made. NHTB Trust II and Trust III are considered variable interest entities for which the Company is not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into the Company’s financial statements.
NOTE 7.6. DEPOSITS
A summary of time deposits is, as follows:
| | (In thousands) | | September 30, 2017 | | December 31, 2016 | |
(in thousands) | | | June 30, 2019 | | December 31, 2018 |
Time less than $100,000 | | $ | 541,585 |
| | $ | 304,393 |
| | $ | 694,523 |
| | $ | 622,478 |
|
Time $100,000 or more | | 260,525 |
| | 112,044 |
| |
Time $100,000 through $250,000 | | | 166,211 |
| | 193,535 |
|
Time $250,000 or more | | | 135,778 |
| | 116,780 |
|
Total time deposits | | $ | 802,110 |
| | $ | 416,437 |
| | $ | 996,512 |
| | $ | 932,793 |
|
At June 30, 2019 and December 31, 2018, the scheduled maturities by year for time deposits are, as follows:
|
| | | | | | | | |
(in thousands) | | June 30, 2019 | | December 31, 2018 |
Within 1 year | | $ | 557,749 |
| | $ | 505,313 |
|
Over 1 year to 2 years | | 332,976 |
| | 258,176 |
|
Over 2 years to 3 years | | 62,246 |
| | 123,337 |
|
Over 3 years to 4 years | | 20,508 |
| | 14,494 |
|
Over 4 years to 5 years | | 22,773 |
| | 31,353 |
|
Over 5 years | | 260 |
| | 120 |
|
Total | | $ | 996,512 |
| | $ | 932,793 |
|
Included in time deposits are brokered deposits of $362.7$599.0 million and $237.9$466.9 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. IncludedAlso included in the deposit balances contained on the balance sheettime deposits are reciprocal deposits of $49.3$56.3 million and $43.1$52.4 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
NOTE 8.7. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios wereare, as follows:
|
| | | | | | | | | | | | |
| | September 30, 2017 | | Regulatory Minimum to be Well Capitalized | | December 31, 2016 | | Regulatory Minimum to be Well Capitalized |
Company (consolidated) | | |
| | |
| | |
| | |
|
Total capital to risk weighted assets | | 13.8 | % | | 10.0 | % | | 16.5 | % | | 10.0 | % |
Common equity tier 1 capital to risk weighted assets | | 11.3 |
| | 6.5 |
| | 15.0 |
| | 6.5 |
|
Tier 1 capital to risk weighted assets | | 12.7 |
| | 8.0 |
| | 15.0 |
| | 8.0 |
|
Tier 1 capital to average assets | | 8.0 |
| | 5.0 |
| | 8.9 |
| | 5.0 |
|
| | | | | | | | |
Bank | | | | | | | | |
Total capital to risk weighted assets | | 13.8 | % | | 10.0 | % | | 16.7 | % | | 10.0 | % |
Common equity tier 1 capital to risk weighted assets | | 13.0 |
| | 6.5 |
| | 15.2 |
| | 6.5 |
|
Tier 1 capital to risk weighted assets | | 13.0 |
| | 8.0 |
| | 15.2 |
| | 8.0 |
|
Tier 1 capital to average assets | | 8.5 |
| | 5.0 |
| | 9.1 |
| | 5.0 |
|
|
| | | | | | | | | | | | |
| | June 30, 2019 | | Regulatory Minimum to be "Well Capitalized" | | December 31, 2018 | | Regulatory Minimum to be "Well Capitalized" |
Company (consolidated) | | |
| | |
| | |
| | |
|
Total capital to risk-weighted assets | | 13.93 | % | | N/A |
| | 14.23 | % | | N/A |
|
Common equity tier 1 capital to risk-weighted assets | | 11.57 |
| | N/A |
| | 11.80 |
| | N/A |
|
Tier 1 capital to risk-weighted assets | | 12.42 |
| | N/A |
| | 12.68 |
| | N/A |
|
Tier 1 capital to average assets | | 8.57 |
| | N/A |
| | 8.53 |
| | N/A |
|
| | | | | | | | |
Bank | | | | | | | | |
Total capital to risk-weighted assets | | 13.42 | % | | 10.00 | % | | 13.82 | % | | 10.00 | % |
Common equity tier 1 capital to risk-weighted assets | | 12.60 |
| | 6.50 |
| | 12.99 |
| | 6.50 |
|
Tier 1 capital to risk-weighted assets | | 12.60 |
| | 8.00 |
| | 12.99 |
| | 8.00 |
|
Tier 1 capital to average assets | | 8.69 |
| | 5.00 |
| | 8.74 |
| | 5.00 |
|
At each date shown, the Company and the Bank met the conditions to be classified as “well capitalized”“well-capitalized” under the relevant regulatory framework. To be categorized as well capitalized,"well-capitalized," an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.
Effective January 1, 2015, theThe Company and the Bank becameare subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk weightedrisk-weighted assets and the Company and the Bank each exceed the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of common equity tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the common equity tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio. Accordingly, banking organizations, on a fully phased in basis no later than"well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%.
The required minimum conservation buffer began to be phased in incrementally, starting at 0.625% on January 1, 2016 and increasing to 1.25% on January 1, 2017. The buffer will increase to 1.875% on January 1, 2018 and 2.5% on January 1, 2019. The final capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum capital conservation buffer is not met.
At SeptemberJune 30, 2017,2019, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered well capitalized"well-capitalized" for regulatory purposes. The capital levels of both the Company and the Bank at September 30, 2017 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 0.625%.
Accumulated other comprehensive lossincome (loss)
Components of accumulated other comprehensive income (loss) is, as follows:
|
| | | | | | | | |
(In thousands) | | September 30, 2017 | | December 31, 2016 |
Other accumulated comprehensive income (loss), before tax: | | |
| | |
|
Net unrealized holding gain/(loss) on AFS securities | | $ | 1,849 |
| | $ | (3,269 | ) |
Net unrealized loss on effective cash flow hedging derivatives | | (3,570 | ) | | (2,766 | ) |
Net unrealized holding loss on post-retirement plans | | (577 | ) | | (622 | ) |
| | | | |
Income taxes related to items of accumulated other comprehensive loss: | | | | |
Net unrealized holding (loss)/gain on AFS securities | | (695 | ) | | 1,144 |
|
Net unrealized loss on effective cash flow hedging derivatives | | 1,341 |
| | 968 |
|
Net unrealized holding loss on post-retirement plans | | 217 |
| | 219 |
|
Accumulated other comprehensive loss | | $ | (1,435 | ) | | $ | (4,326 | ) |
|
| | | | | | | | |
(in thousands) | | June 30, 2019 | | December 31, 2018 |
Other accumulated comprehensive income (loss), before tax: | | |
| | |
|
Net unrealized gain (loss) on AFS securities | | $ | 7,242 |
| | $ | (11,304 | ) |
Net unrealized loss on effective cash flow hedging derivatives | | (4,936 | ) | | (2,934 | ) |
Net unrealized loss on post-retirement plans | | (1,162 | ) | | (1,162 | ) |
| | | | |
Income taxes related to items of accumulated other comprehensive (income) loss: | | | | |
Net unrealized (gain) loss on AFS securities | | (1,693 | ) | | 2,641 |
|
Net unrealized loss on effective cash flow hedging derivatives | | 1,154 |
| | 685 |
|
Net unrealized loss on post-retirement plans | | 272 |
| | 272 |
|
Accumulated other comprehensive income (loss) | | $ | 877 |
| | $ | (11,802 | ) |
The following tablestable presents the components of other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018: |
| | | | | | | | | | | | |
(In thousands) | | Before Tax | | Tax Effect | | Net of Tax |
Three Months Ended September 30, 2017 | | |
| | |
| | |
|
Net unrealized holding gain on AFS securities: | | x |
| | | | |
|
Net unrealized gain arising during the period | | $ | 531 |
| | $ | (199 | ) | | $ | 332 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | 19 |
| | (7 | ) | | 12 |
|
Net unrealized holding gain on AFS securities | | 512 |
| | (192 | ) | | 320 |
|
| | | | | | |
Net unrealized loss on cash flow hedging derivatives: | | | | | | |
Net unrealized loss arising during the period | | (84 | ) | | 31 |
| | (53 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on cash flow hedging derivatives | | (84 | ) | | 31 |
| | (53 | ) |
| | | | | | |
Net unrealized holding loss on post-retirement plans: | | | | | | |
Net unrealized gain/(loss) arising during the period | | 5 |
| | (2 | ) | | 3 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized holding gain/(loss) on post-retirement plans | | 5 |
| | (2 | ) | | 3 |
|
Other comprehensive income | | $ | 433 |
| | $ | (163 | ) | | $ | 270 |
|
| | | | | | |
Three Months Ended September 30, 2016 | | |
| | |
| | |
|
Net unrealized holding gains on AFS securities: | | | | |
| | |
|
Net unrealized gains arising during the period | | $ | (4,223 | ) | | $ | 1,478 |
| | $ | (2,745 | ) |
Less: reclassification adjustment for gains realized in net income | | 1,354 |
| | (474 | ) | | 880 |
|
Net unrealized holding gains on AFS securities | | (5,577 | ) | | 1,952 |
| | (3,625 | ) |
| | | | | | |
Net unrealized (loss) on cash flow hedging derivatives: | | |
| | | | |
|
Net unrealized (loss) arising during the period | | (92 | ) | | 32 |
| | (60 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized (loss) on cash flow hedging derivatives | | (92 | ) | | 32 |
| | (60 | ) |
| | | | | | |
Net unrealized holding gain on post-retirement plans: | | |
| | |
| | |
|
Net unrealized gain arising during the period | | 8 |
| | (3 | ) | | 5 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized holding gain on post-retirement plans | | 8 |
| | (3 | ) | | 5 |
|
Other comprehensive income | | $ | (5,661 | ) | | $ | 1,981 |
| | $ | (3,680 | ) |
|
| | | | | | | | | | | | |
(in thousands) | | Before Tax | | Tax Effect | | Net of Tax |
Three Months Ended June 30, 2019 | | |
| | |
| | |
|
Net unrealized gain on AFS securities: | | | | | | |
|
Net unrealized gain arising during the period | | $ | 9,646 |
| | $ | (2,255 | ) | | $ | 7,391 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on AFS securities | | 9,646 |
| | (2,255 | ) | | 7,391 |
|
| | | | | | |
Net unrealized loss on cash flow hedging derivatives: | | | | | | |
Net unrealized loss arising during the period | | (1,157 | ) | | 271 |
| | (886 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized loss on cash flow hedging derivatives | | (1,157 | ) | | 271 |
| | (886 | ) |
| | | | | | |
Net unrealized gain on post-retirement plans: | | | | | | |
Net unrealized gain arising during the period | | — |
| | — |
| | — |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on post-retirement plans | | — |
| | — |
| | — |
|
Other comprehensive income | | $ | 8,489 |
| | $ | (1,984 | ) | | $ | 6,505 |
|
| | | | | | |
Three Months Ended June 30, 2018 | | |
| | |
| | |
|
Net unrealized loss on AFS securities: | | | | |
| | |
|
Net unrealized loss arising during the period | | $ | (3,087 | ) | | $ | 731 |
| | $ | (2,356 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized loss on AFS securities | | (3,087 | ) | | 731 |
| | (2,356 | ) |
| | | | | | |
Net unrealized gain on cash flow hedging derivatives: | | |
| | | | |
|
Net unrealized gain arising during the period | | 226 |
| | (54 | ) | | 172 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on cash flow hedging derivatives | | 226 |
| | (54 | ) | | 172 |
|
| | | | | | |
Net unrealized gain on post-retirement plans: | | |
| | |
| | |
|
Net unrealized gain arising during the period | | — |
| | — |
| | — |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on post-retirement plans | | — |
| | — |
| | — |
|
Other comprehensive loss | | $ | (2,861 | ) | | $ | 677 |
| | $ | (2,184 | ) |
| | | | | | |
|
| | | | | | | | | | | | |
(In thousands) | | Before Tax | | Tax Effect | | Net of Tax |
Nine Months Ended September 30, 2017 | | |
| | |
| | |
|
Net unrealized holding gain on AFS securities: | | x |
| | | | |
|
Net unrealized gain arising during the period | | $ | 5,138 |
| | $ | (1,846 | ) | | $ | 3,292 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | 19 |
| | (7 | ) | | 12 |
|
Net unrealized holding gain on AFS securities | | 5,119 |
| | (1,839 | ) | | 3,280 |
|
| | | | | | |
Net unrealized loss on cash flow hedging derivatives: | | |
| | |
| | |
|
Net unrealized loss arising during the period | | (805 | ) | | 373 |
| | (432 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on cash flow hedging derivatives | | (805 | ) | | 373 |
| | (432 | ) |
| | | | | | |
Net unrealized holding loss on post-retirement plans: | | |
| | |
| | |
|
Net unrealized gain arising during the period | | 45 |
| | (2 | ) | | 43 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized holding gain on post-retirement plans | | 45 |
| | (2 | ) | | 43 |
|
Other comprehensive income | | $ | 4,359 |
| | $ | (1,468 | ) | | $ | 2,891 |
|
| | | | | | |
Nine Months Ended September 30, 2016 | | |
| | |
| | |
|
Net unrealized holding gains on AFS securities: | | | | |
| | |
|
Net unrealized gains arising during the period | | $ | 7,530 |
| | $ | (2,635 | ) | | $ | 4,895 |
|
Less: reclassification adjustment for gains realized in net income | | 4,489 |
| | (1,571 | ) | | 2,918 |
|
Net unrealized holding gains on AFS securities | | 3,041 |
| | (1,064 | ) | | 1,977 |
|
| | | | | | |
Net unrealized (loss) on cash flow hedging derivatives: | | |
| | | | |
|
Net unrealized (loss) arising during the period | | (1,309 | ) | | 458 |
| | (851 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized (loss) on cash flow hedging derivatives | | (1,309 | ) | | 458 |
| | (851 | ) |
| | | | | | |
Net unrealized holding gain on post-retirement plans: | | |
| | |
| | |
|
Net unrealized gain arising during the period | | 86 |
| | (30 | ) | | 56 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized holding gain on post-retirement plans | | 86 |
| | (30 | ) | | 56 |
|
Other comprehensive income | | $ | 1,818 |
| | $ | (636 | ) | | $ | 1,182 |
|
|
| | | | | | | | | | | | |
(in thousands) | | Before Tax | | Tax Effect | | Net of Tax |
Six Months Ended June 30, 2019 | | |
| | |
| | |
|
Net unrealized gain on AFS securities: | | | | | | |
|
Net unrealized gain arising during the period | | $ | 18,546 |
| | $ | (4,334 | ) | | $ | 14,212 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on AFS securities | | 18,546 |
| | (4,334 | ) | | 14,212 |
|
| | | | | | |
Net unrealized loss on derivative hedges: | | |
| | |
| | |
|
Net unrealized loss arising during the period | | (2,002 | ) | | 469 |
| | (1,533 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized loss on derivative hedges | | (2,002 | ) | | 469 |
| | (1,533 | ) |
| | | | | | |
Net unrealized gain on post-retirement plans: | | |
| | |
| | |
|
Net unrealized gain arising during the period | | — |
| | — |
| | — |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on post-retirement plans | | — |
| | — |
| | — |
|
Other comprehensive income | | $ | 16,544 |
| | $ | (3,865 | ) | | $ | 12,679 |
|
| | | | | | |
Six Months Ended June 30, 2018 | | |
| | |
| | |
|
Net unrealized loss on AFS securities: | | | | |
| | |
|
Net unrealized loss arising during the period | | $ | (13,789 | ) | | $ | 3,274 |
| | $ | (10,515 | ) |
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized loss on AFS securities | | (13,789 | ) | | 3,274 |
| | (10,515 | ) |
| | | | | | |
Net unrealized gain on cash flow hedging derivatives: | | |
| | | | |
|
Net unrealized gain arising during the period | | 880 |
| | (209 | ) | | 671 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on cash flow hedging derivatives | | 880 |
| | (209 | ) | | 671 |
|
| | | | | | |
Net unrealized gain on post-retirement plans: | | |
| | |
| | |
|
Net unrealized gain arising during the period | | 41 |
| | (10 | ) | | 31 |
|
Less: reclassification adjustment for gains (losses) realized in net income | | — |
| | — |
| | — |
|
Net unrealized gain on post-retirement plans | | 41 |
| | (10 | ) | | 31 |
|
Other comprehensive loss | | $ | (12,868 | ) | | $ | 3,055 |
| | $ | (9,813 | ) |
The following table presents the changes in each component of accumulated other comprehensive income (loss), for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
| | (in thousands) | | Net unrealized holding gain on AFS Securities | | Net loss on effective cash flow hedging derivatives | | Net unrealized holding loss on pension plans | | Total | | Net unrealized (loss) gain on AFS Securities | | Net loss on effective cash flow hedging derivatives | | Net unrealized loss on pension plans | | Total |
Three Months Ended September 30, 2017 | | |
| | |
| | |
| | |
| |
Three Months Ended June 30, 2019 | | | |
| | |
| | |
| | |
|
Balance at beginning of period | | $ | 836 |
| | $ | (2,177 | ) | | $ | (364 | ) | | $ | (1,705 | ) | | $ | (1,844 | ) | | $ | (2,896 | ) | | $ | (888 | ) | | $ | (5,628 | ) |
Other comprehensive gain(loss) before reclassifications | | 332 |
| | (53 | ) | | 3 |
| | 282 |
| |
Other comprehensive gain (loss) before reclassifications | | | 7,391 |
| | (886 | ) | | — |
| | 6,505 |
|
Less: amounts reclassified from accumulated other comprehensive income | | 12 |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | — |
|
Total other comprehensive income | | 320 |
| | (53 | ) | | 3 |
| | 270 |
| |
Total other comprehensive income (loss) | | | 7,391 |
| | (886 | ) | | — |
| | 6,505 |
|
Balance at end of period | | $ | 1,156 |
| | $ | (2,230 | ) | | $ | (361 | ) | | $ | (1,435 | ) | | $ | 5,547 |
| | $ | (3,782 | ) | | $ | (888 | ) | | $ | 877 |
|
| | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2016 | | | | | | | | | |
Three Months Ended June 30, 2018 | | | | | | | | | |
Balance at beginning of period | | $ | 11,315 |
| | $ | (2,412 | ) | | $ | (412 | ) | | $ | 8,491 |
| | $ | (10,239 | ) | | $ | (2,236 | ) | | $ | (688 | ) | | $ | (13,163 | ) |
Other comprehensive gain before reclassifications | | (2,745 | ) | | (60 | ) | | 5 |
| | (2,800 | ) | |
Other comprehensive (loss) gain before reclassifications | | | (2,356 | ) | | 172 |
| | — |
| | (2,184 | ) |
Less: amounts reclassified from accumulated other comprehensive income | | 880 |
| | — |
| | — |
| | 880 |
| | — |
| | — |
| | — |
| | — |
|
Total other comprehensive income | | (3,625 | ) | | (60 | ) | | 5 |
| | (3,680 | ) | |
Total other comprehensive (loss) income | | | (2,356 | ) | | 172 |
| | — |
| | (2,184 | ) |
Balance at end of period | | $ | 7,690 |
| | $ | (2,472 | ) | | $ | (407 | ) | | $ | 4,811 |
| | $ | (12,595 | ) | | $ | (2,064 | ) | | $ | (688 | ) | | $ | (15,347 | ) |
| | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2017 | | | | | | | | | |
Six Months Ended June 30, 2019 | | | | | | | | | |
Balance at beginning of period | | $ | (2,124 | ) | | $ | (1,798 | ) | | $ | (404 | ) | | $ | (4,326 | ) | | $ | (8,665 | ) | | $ | (2,249 | ) | | $ | (888 | ) | | $ | (11,802 | ) |
Other comprehensive gain(loss) before reclassifications | | 3,292 |
| | (432 | ) | | 43 |
| | 2,903 |
| |
Other comprehensive gain (loss) before reclassifications | | | 14,212 |
| | (1,533 | ) | | — |
| | 12,679 |
|
Less: amounts reclassified from accumulated other comprehensive income | | 12 |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | — |
|
Total other comprehensive income | | 3,280 |
| | (432 | ) | | 43 |
| | 2,891 |
| |
Total other comprehensive income (loss) | | | 14,212 |
| | (1,533 | ) | | — |
| | 12,679 |
|
Balance at end of period | | $ | 1,156 |
| | $ | (2,230 | ) | | $ | (361 | ) | | $ | (1,435 | ) | | $ | 5,547 |
| | $ | (3,782 | ) | | $ | (888 | ) | | $ | 877 |
|
| | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2016 | | |
| | |
| | |
| | |
| |
Six Months Ended June 30, 2018 | | | |
| | |
| | |
| | |
|
Balance at beginning of period | | $ | 5,713 |
| | $ | (1,621 | ) | | $ | (463 | ) | | $ | 3,629 |
| | $ | (1,713 | ) | | $ | (2,250 | ) | | $ | (591 | ) | | $ | (4,554 | ) |
Other comprehensive gain before reclassifications | | 4,895 |
| | (851 | ) | | 56 |
| | 4,100 |
| |
Other comprehensive (loss) gain before reclassifications | | | (10,515 | ) | | 671 |
| | 31 |
| | (9,813 | ) |
Less: amounts reclassified from accumulated other comprehensive income | | 2,918 |
| | — |
| | — |
| | 2,918 |
| | — |
| | — |
| | — |
| | — |
|
Total other comprehensive income | | 1,977 |
| | (851 | ) | | 56 |
| | 1,182 |
| |
Total other comprehensive (loss) income | | | (10,515 | ) | | 671 |
| | 31 |
| | (9,813 | ) |
Less: amounts reclassified from accumulated other comprehensive income for ASU 2018-02 | | | (367 | ) | | (485 | ) | | (128 | ) | | (980 | ) |
Balance at end of period | | $ | 7,690 |
| | $ | (2,472 | ) | | $ | (407 | ) | | $ | 4,811 |
| | $ | (12,595 | ) | | $ | (2,064 | ) | | $ | (688 | ) | | $ | (15,347 | ) |
The following tables presents the amounts reclassified out of eachCompany did not have any reclassifications from any component of accumulated other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:
|
| | | | | | | | | | |
| | | | | | |
| | Three Months Ended September 30, | | Affected Line Item in the Statement where Net Income is Presented |
(in thousands) | | 2017 | | 2016 | |
Realized gains on AFS securities: | | |
| | |
| | |
| | $ | 19 |
| | $ | 1,354 |
| | Non-interest income |
| | (7 | ) | | (474 | ) | | Tax expense |
Total reclassifications for the period | | $ | 12 |
| | $ | 880 |
| | Net of tax |
|
| | | | | | | | | | |
| | | | | | |
| | Nine Months Ended September 30, | | Affected Line Item in the Statement where Net Income is Presented |
(in thousands) | | 2017 | | 2016 | |
Realized gains on AFS securities: | | |
| | |
| | |
| | $ | 19 |
| | $ | 4,489 |
| | Non-interest income |
| | (7 | ) | | (1,571 | ) | | Tax expense |
Total reclassifications for the period | | $ | 12 |
| | $ | 2,918 |
| | Net of tax |
2018.
NOTE 9.8. EARNINGS PER SHARE
EarningsThe following table presents the calculation of earnings per share have been computed based on the following (averageshare:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share and share data) | | 2019 | | 2018 | | 2019 | | 2018 |
Net income | | $ | 6,117 |
| | $ | 8,535 |
| | $ | 13,398 |
| | $ | 16,347 |
|
| | | | | | | | |
Average number of basic common shares outstanding | | 15,538,282 |
| | 15,482,188 |
| | 15,530,893 |
| | 15,465,357 |
|
Plus: dilutive effect of stock options and awards outstanding (1) | | 47,299 |
| | 89,263 |
| | 51,340 |
| | 94,614 |
|
Average number of diluted common shares outstanding (1) | | 15,585,581 |
| | 15,571,451 |
| | 15,582,233 |
| | 15,559,971 |
|
| | | | | | | | |
Anti-dilutive options excluded from earnings calculation | | — |
| | 3,173 |
| | — |
| | 19,488 |
|
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 0.39 |
| | $ | 0.55 |
| | $ | 0.86 |
| | $ | 1.06 |
|
Diluted | | $ | 0.39 |
| | $ | 0.55 |
| | $ | 0.86 |
| | $ | 1.05 |
|
(1) Average diluted shares outstanding are calculatedcomputed using the treasury stock method):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands, except per share and share data) | | 2017 | | 2016 | | 2017 | | 2016 |
Net income | | $ | 8,617 |
| | $ | 3,632 |
| | $ | 19,386 |
| | $ | 12,349 |
|
| | | | | | | | |
Average number of basic common shares outstanding | | 15,420,499 |
| | 9,063,576 |
| | 15,098,377 |
| | 9,036,548 |
|
Plus: dilutive effect of stock options and awards outstanding | | 90,026 |
| | 98,112 |
| | 105,661 |
| | 101,009 |
|
Average number of diluted common shares outstanding | | 15,510,525 |
| | 9,161,688 |
| | 15,204,038 |
| | 9,137,557 |
|
| | | | | | | | |
Anti-dilutive options excluded from earnings calculation | | — |
| | 101,826 |
| | 8,247 |
| | 107,535 |
|
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 0.56 |
| | $ | 0.40 |
| | $ | 1.27 |
| | $ | 1.37 |
|
Diluted | | $ | 0.56 |
| | $ | 0.40 |
| | $ | 1.27 |
| | $ | 1.35 |
|
NOTE 10.9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As part of its overall asset and liability management strategy, the BankCompany periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’sCompany’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so thatthe changes in interest rates do not have a significant effect on net interest income.
The Company recognizes its derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, the BankCompany designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The BankCompany formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The BankCompany also assesses,
both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items.
Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in other comprehensive income or loss. Any ineffective portion is recorded in earnings. The BankCompany discontinues hedge accounting when it is determined that the derivative is no longer effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.
InformationThe following tables present information about derivative assets and liabilities at SeptemberJune 30, 2017, follows:2019 and December 31, 2018:
|
| | | | | | | | | | |
| | June 30, 2019 |
| | Notional Amount | | Weighted Average Maturity | | Estimated Fair Value Asset (Liability) |
| | (in thousands) | | (in years) | | (in thousands) |
Cash flow hedges: | | |
| | | | |
|
Interest rate cap agreements | | $ | 90,000 |
| | 3.6 | | $ | 174 |
|
Interest rate swap on deposits | | 50,000 |
| | 4.8 | | (1,710 | ) |
Total cash flow hedges | | 140,000 |
| | | | (1,536 | ) |
| | | | | | |
Economic hedges: | | |
| | | | |
|
Forward sale commitments | | 3,561 |
| | 0.1 | | (30 | ) |
Total economic hedges | | 3,561 |
| | | | (30 | ) |
| | | | | | |
Non-hedging derivatives: | | |
| | | | |
|
Interest rate lock commitments | | 8,082 |
| | 0.1 | | 71 |
|
Customer loan derivative liability | | 130,245 |
| | 9.2 | | (6,887 | ) |
Customer loan derivative asset | | 130,245 |
| | 9.2 | | 6,887 |
|
Total non-hedging derivatives | | 268,572 |
| |
| | 71 |
|
| | | | | | |
Total | | $ | 412,133 |
| | | | $ | (1,495 | ) |
|
| | | | | | | | | | |
| | | | Weighted Average Maturity | | Estimated Fair Value Asset (Liability) |
| | Notional Amount | | |
| | (In thousands) | | (In years) | | (In thousands) |
Cash flow hedges: | | |
| | | | |
|
Interest rate caps agreements | | $ | 90,000 |
| | 5.4 | | $ | 793 |
|
Total cash flow hedges | | 90,000 |
| | 5.4 | | 793 |
|
| | | | | | |
Economic hedges: | | |
| | | | |
|
Forward sale commitments | | 16,547 |
| | 0.2 | | (173 | ) |
Total economic hedges | | 16,547 |
| | 0.2 | | (173 | ) |
| | | | | | |
Non-hedging derivatives: | | |
| | | | |
|
Interest rate lock commitments | | 16,742 |
| | 0.2 | | 16 |
|
Total non-hedging derivatives | | 16,742 |
| | 0.2 | | 16 |
|
| | | | | | |
Total | | $ | 123,289 |
| | | | $ | 636 |
|
As of December 31, 2016, the Company had interest rate cap agreements totaling $90 million (notional amount), with a weighted average maturity of 6.1 years, and an estimated fair value of $1,748.
|
| | | | | | | | | | |
| | December 31, 2018 |
| | Notional Amount | | Weighted Average Maturity | | Estimated Fair Value Asset (Liability) |
| | (in thousands) | | (in years) | | (in thousands) |
Cash flow hedges: | | |
| | | | |
|
Interest rate cap agreements | | $ | 90,000 |
| | 4.1 | | $ | 803 |
|
Total cash flow hedges | | 90,000 |
| |
| | 803 |
|
| | | | | | |
Non-hedging derivatives: | | |
| | | | |
|
Interest rate lock commitments | | 957 |
| | 0.1 | | 8 |
|
Customer loan derivative liability | | 45,641 |
| | 9.9 | | (1,353 | ) |
Customer loan derivative asset | | 45,641 |
| | 9.9 | | 1,353 |
|
Total non-hedging derivatives | | 92,239 |
| | | | 8 |
|
| | | | | | |
Total | | $ | 182,239 |
| | | | $ | 811 |
|
Information about derivative assets and liabilities for the three and ninesix months ended SeptemberJune 30, 20172019 and September 30, 2016,2018 is, as follows:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In thousands) | | 2017 | | 2016 | | 2017 | | 2016 | |
(in thousands) | | | 2019 | | 2018 | | 2019 | | 2018 |
Cash flow hedges: | | | | | | | | | | | | | | | | |
Interest rate cap agreements | | | | | | | | | | | | | | | | |
Realized in interest expense | | $ | 74 |
| | $ | 14 |
| | $ | 168 |
| | $ | 24 |
| |
Realized gain (loss) in interest expense | | | $ | (174 | ) | | $ | (122 | ) | | $ | (337 | ) | | $ | (230 | ) |
| | | | | | | | | | | | | | | | |
Economic hedges: | | |
| | |
| | | | | | |
| | |
| | | | |
Forward commitments | | |
| | |
| | | | | | |
| | |
| | | | |
Realized loss in other non-interest income | | 58 |
| | — |
| | (29 | ) | | — |
| |
Realized (loss) gain in other non-interest income | | | 35 |
| | (23 | ) | | (30 | ) | | 147 |
|
| | | | | | | | | | | | | | | | |
Non-hedging derivatives: | | |
| | |
| | | | | | |
| | |
| | | | |
Interest rate lock commitments | | |
| | |
| | | | | | |
| | |
| | | | |
Realized loss in other non-interest income | | 19 |
| | — |
| | (5 | ) | | — |
| |
Realized gain in other non-interest income | | | 57 |
| | 1 |
| | 63 |
| | 9 |
|
Cash flow hedges
Interest rate cap agreements
In 2014, interest rate cap agreements were purchased to limit the Bank’sCompany’s exposure to rising interest rates on four rolling, three-month borrowings indexed to three monththree-month LIBOR. Under the terms of the agreements, the BankCompany paid total premiums of $4,566$4.6 million for the right to receive cash flow payments if 3-monththree-month LIBOR rises above the caps of 3.00%, thus effectively ensuring interest expense on the borrowings at maximum rates of 3.00% for the duration of the agreements. The interest rate cap agreements were designated as cash flow hedges. The fair values of the interest rate cap agreements are included in other assets on the Company’s consolidated balance sheets. Changes in the fair value, representing unrealized gains or losses, are recorded in accumulated other comprehensive income, net of tax. The premiums paid on the interest rate cap agreements are being recognized as increases in interest expense over the duration of the agreements using the caplet method.
Interest rate swap on deposits
In March 2019, the Company entered into an interest rate swap on brokered deposits (the "SWAP") to limit its exposure to rising interest rates over a five year term. Under the terms of the agreement, the Company pays a fixed rate of 2.461% for a notional amount of $50.0 million, and the financial institution counterparty pays interest on the three-
month LIBOR rate. The Company designated the SWAP as a cash flow hedge and the fair value is included in other liabilities on the Company's consolidated balance sheets. Changes in the fair value, representing unrealized gains or losses, are recorded in accumulated other comprehensive income, net of tax.
Economic hedges
The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings. The Company typically uses mandatory delivery contracts, which are loan sale agreements where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.
Non-hedging derivatives
Interest rate lock commitments
The Company enters into interest rate lock commitments (“IRLCs”) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of residential mortgage loans that will be held for sale are considered as derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the market price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in noninterestnon-interest income in the Company’s consolidated statements of income. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability thatwhen the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
Customer loan derivatives
The Company enters into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free-standing derivatives and are recorded at fair value in the Company's consolidated balance sheet. The Company is party to master netting arrangements with its financial institutional counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. Currently, the Company has posted cash of $5.7 million with the counterparty.
NOTE 11.10. FAIR VALUE MEASUREMENTS
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20172019 and December 31, 2016,2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.value:
|
| | | | | | | | | | | | | | | | |
| | June 30, 2019 |
(in thousands) | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Total Fair Value |
Available for sale securities: | | | | | | | | |
Mortgage-backed securities: | | | | | | | | |
US Government-sponsored enterprises | | $ | — |
| | $ | 403,528 |
| | $ | — |
| | $ | 403,528 |
|
US Government agency | | — |
| | 119,985 |
| | — |
| | 119,985 |
|
Private label | | — |
| | 20,161 |
| | — |
| | 20,161 |
|
Obligations of states and political subdivisions thereof | | — |
| | 127,078 |
| | — |
| | 127,078 |
|
Corporate bonds | | — |
| | 77,808 |
| | — |
| | 77,808 |
|
Derivative assets | | — |
| | 7,061 |
| | 71 |
| | 7,132 |
|
Derivative liabilities | | — |
| | (8,597 | ) | | (30 | ) | | (8,627 | ) |
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
(In thousands) | | Inputs | | Inputs | | Inputs | | Fair Value |
Available for sale securities: | | | | | | | | |
Obligations of US Government sponsored enterprises | | $ | — |
| | $ | 6,979 |
| | $ | — |
| | $ | 6,979 |
|
Mortgage-backed securities: | | | | | | | | |
US Government-sponsored enterprises | | — |
| | 437,957 |
| | — |
| | 437,957 |
|
US Government agency | | — |
| | 102,138 |
| | — |
| | 102,138 |
|
Private label | | — |
| | 719 |
| | — |
| | 719 |
|
Obligations of states and political subdivisions thereof | | — |
| | 141,982 |
| | — |
| | 141,982 |
|
Corporate bonds | | — |
| | 28,684 |
| | — |
| | 28,684 |
|
Derivative assets | | — |
| | 793 |
| | 16 |
| | 809 |
|
Derivative liabilities | | — |
| | — |
| | (173 | ) | | (173 | ) |
| | | | December 31, 2016 | | December 31, 2018 |
| | Level 1 | | Level 2 | | Level 3 | | Total | |
(In thousands) | | Inputs | | Inputs | | Inputs | | Fair Value | |
(in thousands) | | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Total Fair Value |
Available for sale securities: | | | | | | | | | | | | | | | | |
Obligations of US Government sponsored enterprises | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | |
US Government-sponsored enterprises | | — |
| | 328,452 |
| | — |
| | 328,452 |
| | $ | — |
| | $ | 404,952 |
| | $ | — |
| | $ | 404,952 |
|
US Government agency | | — |
| | 76,906 |
| | — |
| | 76,906 |
| | — |
| | 110,512 |
| | — |
| | 110,512 |
|
Private label | | — |
| | 1,132 |
| | — |
| | 1,132 |
| | — |
| | 20,382 |
| | — |
| | 20,382 |
|
Obligations of states and political subdivisions thereof | | — |
| | 122,366 |
| | — |
| | 122,366 |
| | — |
| | 132,265 |
| | — |
| | 132,265 |
|
Corporate bonds | | — |
| | — |
| | — |
| | — |
| | — |
| | 57,726 |
| | — |
| | 57,726 |
|
Derivative assets | | — |
| | 1,748 |
| | — |
| | 1,748 |
| | — |
| | 2,156 |
| | 8 |
| | 2,164 |
|
Derivative liabilities | | | — |
| | (1,353 | ) | | — |
| | (1,353 | ) |
Securities Available for Sale: All securities and major categories of securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from independent pricing providers. The fair value measurements used by the pricing providers consider observable data that may include dealer quotes, market maker quotes and live trading systems. If quoted prices are not readily available, fair values are determined using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as market pricing spreads, credit information, callable features, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, default rates, and the securities’ terms and conditions, among other things.
Derivative Assets and Liabilities
Cash Flow Hedges. The valuation of the Company's cash flow hedges are obtained from a third party. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The inputs used to value the Company's cash flow hedges are all classified as Level 2 measurements.
Interest Rate Lock Commitments. The Company enters into IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that theof a loan in a lock position will ultimately close. The closing ratio is derived from the Bank’sCompany’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.
Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the IRLCs and loans originated for sale. The fair values of the Company’s mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the market place that are observable. However, closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are not considered factors that are not observable.observable factors. As such, mandatory delivery forward commitments are classified as Level 3 measurements.
Customer Loan Derivatives. The valuation of the Company’s customer loan derivatives is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of master netting arrangements and any applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the inputs used to value its customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and ninesix months ended SeptemberJune 30, 2017.2019:
|
| | | | | | | | |
| | Assets (Liabilities) |
| | Interest Rate Lock | | Forward |
(In thousands) | | Commitments | | Commitments |
Three Months Ended September 30, 2017 | | |
| | |
|
June 30, 2017 | | $ | (3 | ) | | $ | (231 | ) |
Realized gain recognized in non-interest income | | 19 |
| | 58 |
|
September 30, 2017 | | $ | 16 |
| | $ | (173 | ) |
| | | | |
Nine Months Ended September 30, 2017 | | |
| | |
|
December 31, 2016 | | $ | — |
| | $ | — |
|
Acquisition of Lake Sunapee Bank, January 13, 2017 | | 96 |
| | 23 |
|
Goodwill adjustment Lake Sunapee Bank Merger | | (75 | ) | | (167 | ) |
Realized (loss) recognized in non-interest income | | (5 | ) | | (29 | ) |
September 30, 2017 | | $ | 16 |
| | $ | (173 | ) |
|
| | | | | | | | |
| | Assets (Liabilities) |
(in thousands) | | Interest Rate Lock Commitments | | Forward Commitments |
Three Months Ended June 30, 2019 | | |
| | |
|
Balance at beginning of period | | $ | 14 |
| | $ | (65 | ) |
Realized gain recognized in non-interest income | | 57 |
| | 35 |
|
June 30, 2019 Balance | | $ | 71 |
| | $ | (30 | ) |
| | | | |
Six Months Ended June 30, 2019 | | |
| | |
|
Balance at beginning of period | | $ | 8 |
| | $ | — |
|
Realized gain (loss) recognized in non-interest income | | 63 |
| | (30 | ) |
June 30, 2019 Balance | | $ | 71 |
| | $ | (30 | ) |
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is, as follows:
| | (In thousands, except ratios) | | Fair Value September 30, 2017 | | Valuation Techniques | | Unobservable Inputs | | Significant Unobservable Input Value | |
(in thousands, except ratios) | | | Fair Value June 30, 2019 | | Valuation Techniques | | Unobservable Inputs | | Unobservable Input Value |
Assets (Liabilities) | | |
| | | | | | |
| | |
| | | | | | |
|
Interest Rate Lock Commitment | | $ | 16 |
| | Historical trend | | Closing Ratio | | 90 | % | | $ | 71 |
| | Historical trend | | Closing Ratio | | 90 | % |
| | | | Pricing Model | | Origination Costs, per loan | | $ | 1.7 |
| | | | Pricing Model | | Origination Costs, per loan | | $ | 1.7 |
|
| | | | | | | | |
Forward Commitments | | (173 | ) | | Quoted prices for similar loans in active markets. | | Freddie Mac pricing system | | Pair-off contract price |
| | (30 | ) | | Quoted prices for similar loans in active markets. | | Freddie Mac pricing system | | Pair-off contract price |
Total | | $ | (157 | ) | | | | | | |
| | $ | 41 |
| | | | | | |
|
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with U.S. GAAP. The following is a summary of applicable non-recurring fair value measurements. measurements:
|
| | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 | | Fair Value Measurement Date as of June 30, 2019 |
(in thousands) | | Level 3 Inputs | | Level 3 Inputs | | Total Gains (Losses) | | Total Gains (Losses) | | Level 3 Inputs |
Assets | | |
| | |
| | | | | | |
Impaired loans | | $ | 14,200 |
| | $ | 15,213 |
| | $ | 395 |
| | $ | 1,013 |
| | June 2019 |
Capitalized servicing rights | | 4,261 |
| | 4,882 |
| | — |
| | — |
| | June 2019 |
Other real estate owned | | 2,351 |
| | 2,351 |
| | — |
| | — |
| | June 2018 |
Total | | $ | 20,812 |
| | $ | 22,446 |
| | $ | 395 |
| | $ | 1,013 |
| | |
There are no liabilities measured at fair value on a non-recurring basis.
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 | | Fair Value Measurement Date as of September 30, 2017 |
(In thousands) | | Level 3 Inputs | | Level 3 Inputs | | Total Gains (Losses) | | Total Gains (Losses) | | Level 3 Inputs |
Assets | | |
| | |
| | | | | | |
Impaired loans | | $ | 10,251 |
| | $ | 6,709 |
| | (43 | ) | | (139 | ) | | September 2017 |
Capitalized servicing rights | | 3,871 |
| | 5 |
| | — |
| | — |
| | September 2017 |
Other real estate owned | | 122 |
| | 90 |
| | — |
| | — |
| | Jan 2017 - March 2017 |
Total | | $ | 14,244 |
| | $ | 6,804 |
| | (43 | ) | | (139 | ) | | |
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is, as follows:
| | | | Fair Value | | | | Fair Value | | Range |
(in thousands, except ratios) | | September 30, 2017 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Average) (a) | | June 30, 2019 | | Valuation Techniques | | Unobservable Inputs | | (Weighted Average)(a) |
Assets | | |
| | | | | | |
| | |
| | | | | | |
|
Impaired loans | | $ | 3,489 |
| | Fair value of collateral - appraised value | | Loss severity | | 0% to 63% |
| | $ | 10,818 |
| | Fair value of collateral -appraised value | | Loss severity | | 0% to 65% |
|
| | | | | | Appraised value | | $0 to $1,170 |
| | | | | | Appraised value | | $0 to $6,915 |
|
| | | | | | | | |
Impaired loans | | 6,762 |
| | Discount cash flow | | Discount rate | | 0% to 18% |
| | 3,382 |
| | Discount cash flow | | Discount rate | | 2.88% to 7.50% |
|
| | | | Cash flows | | $0 to $1,046 |
| | | | Cash flows | | $22 to $1,071 |
|
| | | | | | | | |
Capitalized servicing rights | | 3,871 |
| | Discounted cash flow | | Constant prepayment rate (CPR) | | 12.42 | % | | 4,261 |
| | Discounted cash flow | | Constant prepayment rate (CPR) | | 9.64 | % |
| | | | | | Discount rate | | 10.11 | % | | | | | | Discount rate | | 10.08 | % |
| | | | | | | | |
Other real estate owned | | 122 |
| | Fair value of collateral | | Appraised value | |
| $122 |
| | 2,351 |
| | Fair value of collateral less selling costs | | Appraised value | |
| $2,700 |
|
| | | | | Selling Costs | | 12.93 | % |
Total | | $ | 14,244 |
| | | | $ | 20,812 |
| | |
| |
(a) | Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties. |
| | | | Fair Value | | | | Fair Value | | Range |
(in thousands) | | December 31, 2016 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Average) (a) | |
(in thousands, except ratios) | | | December 31, 2018 | | Valuation Techniques | | Unobservable Inputs | | (Weighted Average)(a) |
Assets | | |
| | | | | | |
| | |
| | | | | | |
|
Impaired loans | | $ | 3,268 |
| | Fair value of collateral - appraised value | | Loss severity | | 0% to 51% |
| | $ | 11,676 |
| | Fair value of collateral -appraised value | | Loss severity | | 0% to 55.00% |
|
| | | | | | Appraised value | | $0 to $1,732 |
| | | | | | Appraised value | | $0 to $6,915 |
|
| | | | | | | | |
Impaired loans | | 3,441 |
| | Discount cash flow | | Discount rate | | 3.25% to 18.25% |
| | 3,537 |
| | Discount cash flow | | Discount rate | | 2.88% to 9.50% |
|
| | | | Cash flows | | $6 to $861 |
| | | | Cash flows | | $22 to $1,072 |
|
| | | | | | | | |
Capitalized servicing rights | | 5 |
| | Discounted cash flow | | Constant prepayment rate (CPR) | | 17.09 | % | | 4,882 |
| | Discounted cash flow | | Constant prepayment rate (CPR) | | 8.19 | % |
| | | | | | Discount rate | | 7.55 | % | | | | | | Discount rate | | 10.08 | % |
| | | | | | | | |
Other real estate owned | | 90 |
| | Fair value of collateral | | Appraised value | | 120 |
| | 2,351 |
| | Fair value of collateral less selling costs | | Appraised value | |
| $2,700 |
|
| | | | | Selling Costs | | 12.93 | % |
Total | | $ | 6,804 |
| | | | | | | | $ | 22,446 |
| | | | | | |
| |
(a) | Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties. |
There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended SeptemberJune 30, 20172019 and December 31, 2016.2018.
Impaired Loans.loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurringnon-recurring fair value measurement adjustments that relaterelating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supportssupporting commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of loan servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Other real estate owned (“OREO”). OREO results from the foreclosure process on residential or commercial loans issued by the Bank.Company. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.
Summary of Estimated Fair Values of Financial Instruments. Instruments
The estimated fair values, and related carrying amounts, of the Company’s financial instruments follow.are included in the table below. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.
| | | | September 30, 2017 | | June 30, 2019 |
(In thousands) | | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | |
(in thousands) | | | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 48,724 |
| | $ | 48,724 |
| | $ | 48,724 |
| | $ | — |
| | $ | — |
| | $ | 59,860 |
| | $ | 59,860 |
| | $ | 59,860 |
| | $ | — |
| | $ | — |
|
Securities available for sale | | 718,459 |
| | 718,459 |
| | — |
| | 718,459 |
| | — |
| | 748,560 |
| | 748,560 |
| | — |
| | 748,560 |
| | — |
|
FHLBB bank stock | | 37,107 |
| | 37,107 |
| | — |
| | 37,107 |
| | — |
| |
FHLB stock | | | 35,220 |
| | 35,220 |
| | — |
| | 35,220 |
| | — |
|
Net loans | | 2,416,912 |
| | 2,392,284 |
| | — |
| | — |
| | 2,392,284 |
| | 2,563,666 |
| | 2,552,387 |
| | — |
| | — |
| | 2,552,387 |
|
Accrued interest receivable | | 3,194 |
| | 3,194 |
| | — |
| | 3,194 |
| | — |
| | 3,586 |
| | 3,586 |
| | — |
| | 3,586 |
| | — |
|
Cash surrender value of bank-owned life insurance policies | | 57,613 |
| | 57,613 |
| | — |
| | 57,613 |
| | — |
| | 74,871 |
| | 74,871 |
| | — |
| | 74,871 |
| | — |
|
Derivative assets | | 809 |
| | 809 |
| | — |
| | 793 |
| | 16 |
| | 7,132 |
| | 7,132 |
| | — |
| | 7,061 |
| | 71 |
|
| | | | | | | | | | | | | | | | | | | | |
Financial Liabilities | | | | | | | | | | | | | | | | | | | | |
Total deposits | | $ | 2,275,109 |
| | $ | 2,250,483 |
| | $ | — |
| | $ | 2,250,483 |
| | $ | — |
| | $ | 2,481,376 |
| | $ | 2,457,385 |
| | $ | — |
| | $ | 2,457,385 |
| | $ | — |
|
Securities sold under agreements to repurchase | | 41,600 |
| | 41,578 |
| | — |
| | 41,578 |
| | — |
| | 36,940 |
| | 36,939 |
| | — |
| | 36,939 |
| | — |
|
Federal Home Loan Bank advances | | 733,982 |
| | 733,632 |
| | — |
| | 733,632 |
| | — |
| |
FHLB advances | | | 696,144 |
| | 696,273 |
| | — |
| | 696,273 |
| | — |
|
Subordinated borrowings | | 38,048 |
| | 38,048 |
| | — |
| | 38,048 |
| | — |
| | 37,943 |
| | 37,943 |
| | — |
| | 37,943 |
| | — |
|
Junior subordinated borrowings | | 5,000 |
| | 3,564 |
| | — |
| | 3,564 |
| | — |
| | 5,000 |
| | 4,537 |
| | — |
| | 4,537 |
| | — |
|
Derivative liabilities | | (173 | ) | | (173 | ) | | — |
| | — |
| | (173 | ) | | (8,627 | ) | | (8,627 | ) | | — |
| | (8,597 | ) | | (30 | ) |
| | | | December 31, 2016 | | December 31, 2018 |
(In thousands) | | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | |
(in thousands) | | | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 8,439 |
| | $ | 8,439 |
| | $ | 8,439 |
| | $ | — |
| | $ | — |
| | $ | 98,754 |
| | $ | 98,754 |
| | $ | 98,754 |
| | $ | — |
| | $ | — |
|
Securities available for sale | | 528,856 |
| | 528,856 |
| | — |
| | 528,856 |
| | — |
| | 725,837 |
| | 725,837 |
| | — |
| | 725,837 |
| | — |
|
FHLBB bank stock | | 25,331 |
| | 25,331 |
| | — |
| | 25,331 |
| | — |
| |
FHLB stock | | | 35,659 |
| | 35,659 |
| | — |
| | 35,659 |
| | — |
|
Net loans | | 1,118,645 |
| | 1,100,601 |
| | — |
| | — |
| | 1,100,601 |
| | 2,476,361 |
| | 2,415,863 |
| | — |
| | — |
| | 2,415,863 |
|
Accrued interest receivable | | 6,051 |
| | 6,051 |
| | — |
| | 6,051 |
| | — |
| | 3,533 |
| | 3,533 |
| | — |
| | 3,533 |
| | — |
|
Cash surrender value of bank-owned life insurance policies | | 24,450 |
| | 24,450 |
| | — |
| | 24,450 |
| | — |
| | 73,810 |
| | 73,810 |
| | — |
| | 73,810 |
| | — |
|
Derivative assets | | 1,748 |
| | 1,748 |
| | — |
| | 1,748 |
| | — |
| | 2,164 |
| | 2,164 |
| | — |
| | 2,156 |
| | 8 |
|
| | | | | | | | | | | | | | | | | | | | |
Financial Liabilities | | | | | | | | | | | | | | | | | | | | |
Total deposits | | $ | 1,050,300 |
| | $ | 1,048,932 |
| | $ | — |
| | $ | 1,048,932 |
| | $ | — |
| | $ | 2,483,238 |
| | $ | 2,404,250 |
| | $ | — |
| | $ | 2,404,250 |
| | $ | — |
|
Securities sold under agreements to repurchase | | 21,780 |
| | 21,773 |
| | — |
| | 21,773 |
| | — |
| | 36,211 |
| | 36,171 |
| | — |
| | 36,171 |
| | — |
|
Federal Home Loan Bank advances | | 509,816 |
| | 509,793 |
| | — |
| | 509,793 |
| | — |
| |
FHLB advances | | | 644,611 |
| | 643,065 |
| | — |
| | 643,065 |
| | — |
|
Subordinated borrowings | | — |
| | — |
| | — |
| | — |
| | — |
| | 37,973 |
| | 37,973 |
| | — |
| | 37,973 |
| | — |
|
Junior subordinated borrowings | | — |
| | 3,560 |
| | — |
| | 3,560 |
| | — |
| | 5,000 |
| | 3,923 |
| | — |
| | 3,923 |
| | — |
|
Derivative liabilities | | | (1,353 | ) | | (1,353 | ) | | — |
| | — |
| | (1,353 | ) |
Other than as discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value.
Cash and cash equivalents. Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety90 days or less.
FHLBB bankFHLB stock and restricted securities. Carrying value approximates fair value based on the redemption provisions of the issuers.
Cash surrender value of life insurance policies. Carrying value approximates fair value.
Loans, net.The carryingfair value of loans are calculated on an individual basis with consideration given to the loans inloans' underlying characteristics, including account types, remaining terms, annual interest rates or coupons, interest types, timing of principal and interest payments, current market rates, risk ratings, credit ratings and remaining balances. A discounted cash flow model is used to estimate the loan portfolio is based on the cash flows of the loans discounted over their respective loan origination rates. The origination rates are adjusted for substandard and special mention loans to factor the impact of declines in the loan’s credit standing. The fair value of the loans is estimated by discounting future cash flows using assumptions for the current interestcoupon rates, at which similar loans with similar terms would be made to borrowersremaining maturities, prepayment speeds, liquidity premiums, projected default probabilities, loss given defaults, and estimates of similar credit quality.prevailing discount rates.
Accrued interest receivable. Carrying value approximates fair value.
Deposits. The fair value of demand, non-interest bearing checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.
Borrowed funds. The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings. Such funds include all categories of debt and debentures in the table above.
Subordinated borrowings. The Company utilizes a pricing service along with internal models to estimate the valuation of its junior subordinated debentures. The junior subordinated debentures re-price every ninety90 days.
Off-balance-sheet financial instruments. Off-balance-sheet financial instruments includeincluding standby letters of credit and other financial guarantees and commitments are considered immaterial to the Company’s financial statements.
NOTE 11. NON-INTEREST INCOME
The Company has accounted for the various non-interest revenue streams and related contracts under ASC 606.
Disaggregation of Revenue
The following tables present disaggregation of the Company’s non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Major Products/Service Lines | | | | | | | | |
Trust management fees | | $ | 2,794 |
| | $ | 2,807 |
| | $ | 5,319 |
| | $ | 5,547 |
|
Financial services fees | | 272 |
| | 315 |
| | 505 |
| | 536 |
|
Interchange fees | | 1,213 |
| | 1,107 |
| | 2,244 |
| | 2,131 |
|
Customer deposit fees | | 1,026 |
| | 1,019 |
| | 1,933 |
| | 1,998 |
|
Other customer service fees | | 379 |
| | 221 |
| | 605 |
| | 443 |
|
Total | | $ | 5,684 |
| | $ | 5,469 |
| | $ | 10,606 |
| | $ | 10,655 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Timing of Revenue Recognition | | | | | | | | |
Products and services transferred at a point in time | | $ | 2,767 |
| | $ | 2,643 |
| | $ | 5,034 |
| | $ | 4,994 |
|
Products and services transferred over time | | 2,917 |
| | 2,826 |
| | 5,572 |
| | 5,661 |
|
Total | | $ | 5,684 |
| | $ | 5,469 |
| | $ | 10,606 |
| | $ | 10,655 |
|
Trust Management Fees.
The trust management business generates revenue through a range of fiduciary services including trust and estate administration, wealth advisory, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. Revenue from these services are generally recognized over time and is typically based on a time elapsed measure of progress. Certain fees, such as bill paying fees, distribution fees, real estate sale fees, and supplemental tax service fees, are recorded as revenue at a point in time upon the completion of the service.
Financial Services Fees.
Bar Harbor Financial Services is a branch office of Infinex, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. The Company has a revenue sharing agreement with Infinex for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of monthly service requirements.
Interchange Fees.
The Company earns interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the risk involved in approving the payment. Interchange fees are generally recognized as revenue at a point in time upon the completion of a debit card transaction.
Customer Deposit Fees.
The Customer Deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management services which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized by the Company at a point in time upon the completion of the service.
Other Customer Service Fees.
The Company has certain incentive and referral fee arrangements with independent third parties in which fees are earned for new account activity, product sales, or transaction volume generated for the respective third parties. The Company also earns a percentage of the fees generated from third-party credit card plans promoted through the Bank. Revenue from these incentive and referral fee arrangements are recognized over time using the right to invoice measure of progress.
Contract Balances from Contracts with Customers
The following table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers:
|
| | | | | | | | |
(in thousands) | | Balance at June 30, 2019 | | Balance at December 31, 2018 |
Balances from contracts with customers only: | | | | |
Other Assets | | $ | 1,859 |
| | $ | 2,866 |
|
Other Liabilities | | 4,732 |
| | 4,923 |
|
The timing of revenue recognition, billings and cash collections results in contract assets or receivables and contract liabilities or deferred revenue on the consolidated balance sheets. For most customer contracts, fees are deducted directly from customer accounts and, therefore, there is no associated impact on the accounts receivable balance. For certain types of service contracts, the Company has an unconditional right to consideration under the service contract and an accounts receivable balance is recorded for services completed. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.
Costs to Obtain and Fulfill a Contract
The Company currently expenses contract costs for processing and administrative fees for debit card transactions. The Company also expenses custody fees and transactional costs associated with securities transactions as well as third party tax preparation fees. The Company has elected the practical expedient in ASC 340-40-25-4, whereby the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets the Company otherwise would have recognized is one year or less.
NOTE 12. LEASES
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” and all subsequent ASUs modifying ASC 842. For the Company, ASC 842 primarily affects the accounting treatment for operating lease agreements where the Company is the lessee.
Lessee Accounting
Substantially all of the leases pursuant to which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2040. All leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset with a corresponding lease liability using the modified retrospective approach. The total of ROU assets and lease liabilities were $9.0 million as of January 1, 2019.
The Company has elected the following practical expedients in conjunction with implementation of ASC 842 as follows:
Package of practical expedients:
| |
◦ | Lease classification as an operating lease under the prior standards is grandfathered. |
| |
◦ | Re-evaluation of embedded leases evaluated under the prior standards is not required. |
| |
◦ | No re-assessment of previously recorded initial direct lease costs. |
Election to exclude short-term leases (i.e., leases with initial terms of twelve months or less), from capitalization on the consolidated balance sheets.
The following table presents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities as of June 30, 2019:
|
| | | | | | |
(in thousands) | | | | June 30, 2019 |
Lease Right-of-Use Assets | | Classification | | |
Operating lease right-of-use assets | | Other assets | | $ | 8,629 |
|
| | | | |
Lease Liabilities | | | | |
Operating lease liabilities | | Other liabilities | | 8,681 |
|
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the original lease term as of January 1, 2019 was used.
|
| | | |
| | June 30, 2019 |
Weighted-average remaining lease term | | |
Operating leases | | 10 years |
|
| | |
Weighted-average discount rate | | |
Operating leases | | 3.37 | % |
The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes, common area maintenance and utilities.
|
| | | | | | | | |
(in thousands) | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Lease Costs | | | | |
Operating lease cost | | $ | 233 |
| | $ | 464 |
|
Variable lease cost | | 84 |
| | 208 |
|
Total lease cost | | $ | 317 |
| | $ | 672 |
|
Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2019 are, as follows:
|
| | | | |
(in thousands) | | Operating Leases |
Twelve Months Ended: | | |
June 30, 2020 | | $ | 917 |
|
June 30, 2021 | | 898 |
|
June 30, 2022 | | 908 |
|
June 30, 2023 | | 910 |
|
June 30, 2024 | | 913 |
|
Thereafter | | 6,296 |
|
Total future minimum lease payments | | 10,842 |
|
Amounts representing interest | | (2,161 | ) |
Present value of net future minimum lease payments | | $ | 8,681 |
|
NOTE 12.13. SUBSEQUENT EVENTS
On October 11, 2017July 8, 2019, the Company sold its insurance company McCrillis & Eldredge Insurance, Inc.entered into a definitive agreement to Cross Insurance, the sale did not have a significant impactacquire eight branches located in central Maine with approximately $287 million of deposits, $111 million of loans and $284 million of assets under management (as of March 31, 2019) from People’s United Bank, National Association. The eight branches are expected to increase the Company's balance sheet position.branch count to 56 in its footprint and 22 banking offices in the state of Maine. At closing, the Company expects to pay a 6.3% premium on average total deposits plus a premium of 1.2 times annualized wealth management revenue and approximately $4.4 million for the premises.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2018. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the full year 20172019 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable.
Bar Harbor Bankshares(the “Company”) is the parent of Bar Harbor Bank & Trust a true(the “Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire and Vermont. The Bank is a true community bank providing exceptional commercial, retail, and wealth management banking services from over 50 locations. The Company’s corporate goal is to be among the most profitable banks in New England, and its business model is centered on the following:
Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders
Geography, heritage and performance are key while remaining true to a community culture
Strong commitment to risk management while balancing growth and earnings
Service and sales driven culture with a focus on core business growth
Fee income is fundamental to the Company's profitability through trust and treasury management services, customer derivatives and secondary market mortgage banking
Investment in processes, products, technology, training, leadership and infrastructure
Expansion of the Company’s brand and business to deepen market presence
Opportunity and growth for existing employees while adding catalyst recruits across all levels of the Company
|
| |
• Community bank with $3.5 billion in assets
• 53 branches
• Commercial banking, retail banking and wealth management
| |
Shown below is a profile of the Company as of June 30, 2019:
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Risk Factors in Item 1A of this report. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company's past results of operations do not necessarily indicate future results.
Additional factors that could cause results to differ materially from those described in the forward-looking statements relate to the completed acquisition of Lake Sunapee Bank Group. These additional factors that could cause actual results to differ materially from expected results include difficulties in achieving cost savings from the acquisition or in achieving such cost savings within the expected time frame and difficulties in integrating the Company and Lake Sunapee Bank Group, increased competitive pressures, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business in which the Company is engaged, changes in the securities markets and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission.
No undue reliance should be placed on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.
SELECTED FINANCIAL DATA
The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Forms 10-Q10-Q. | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
PER SHARE DATA | | | | | | | | | | | | | | | | |
Net earnings, diluted | | $ | 0.56 |
| | $ | 0.40 |
| | $ | 1.27 |
| | $ | 1.35 |
| | $ | 0.39 |
| | $ | 0.55 |
| | $ | 0.86 |
| | $ | 1.05 |
|
Adjusted earnings, diluted (1) (2) | | 0.57 |
| | 0.34 |
| | 1.52 |
| | 1.11 |
| |
Adjusted earnings, diluted(1) | | | 0.41 |
| | 0.56 |
| | 0.88 |
| | 1.08 |
|
Total book value | | 22.90 |
| | 18.09 |
| | 22.90 |
| | 18.09 |
| | 25.13 |
| | 22.97 |
| | 25.13 |
| | 22.97 |
|
Tangible book value (2)(1) | | 15.84 |
| | 17.51 |
| | 15.84 |
| | 17.51 |
| | 18.23 |
| | 16.00 |
| | 18.23 |
| | 16.00 |
|
Market price at period end | | 31.36 |
| | 24.48 |
| | 31.36 |
| | 24.48 |
| | 26.59 |
| | 30.29 |
| | 26.59 |
| | 30.29 |
|
Dividends | | 0.19 |
| | 0.18 |
| | 0.56 |
| | 0.54 |
| | 0.22 |
| | 0.20 |
| | 0.42 |
| | 0.39 |
|
PERFORMANCE RATIOS | | | | | | | | | |
| | | | | | | | | |
PERFORMANCE RATIOS(2) | | | | | | | | | |
Return on assets | | 0.99 | % | | 0.86 | % | | 0.75 | % | | 1.00 | % | | 0.67 | % | | 0.97 | % | | 0.74 | % | | 0.94 | % |
Adjusted return on assets (1) (2) | | 1.01 |
| | 0.73 |
| | 0.90 |
| | 0.82 |
| |
Adjusted return on assets(1) | | | 0.70 |
| | 1.00 |
| | 0.76 |
| | 0.97 |
|
Return on equity | | 9.67 |
| | 8.78 |
| | 7.43 |
| | 10.20 |
| | 6.33 |
| | 9.65 |
| | 7.07 |
| | 9.34 |
|
Adjusted return on equity (1) (2) | | 9.90 |
| | 7.49 |
| | 8.86 |
| | 8.34 |
| |
Adjusted return on tangible equity (1) (2) | | 14.51 |
| | 7.75 |
| | 12.98 |
| | 8.88 |
| |
Net interest margin, fully taxable equivalent (FTE) (4) | | 3.06 |
| | 2.84 |
| | 3.13 |
| | 2.90 |
| |
Net interest margin (FTE), excluding purchased loan accretion (4) | | 2.93 |
| | 2.84 |
| | 3.00 |
| | 4.86 |
| |
Efficiency ratio (2) | | 53.59 |
| | 61.24 |
| | 56.44 |
| | 59.34 |
| |
GROWTH (Year-to-date) | | | | | | | | | |
Total commercial loans, (organic annualized) (2) | | 22.1 | % | | 3.3 | % | | 20.5 | % | | 5.3 | % | |
Total loans, (organic annualized) (2) | | 8.8 |
| | 15.0 |
| | 12.2 |
| | 9.9 |
| |
Total deposits, (organic annualized) (2) | | 11.2 |
| | 17.7 |
| | 10.6 |
| | 9.6 |
| |
Adjusted return on equity(1) | | | 6.57 |
| | 9.86 |
| | 7.19 |
| | 9.58 |
|
Adjusted return on tangible equity(1) | | | 9.30 |
| | 14.43 |
| | 10.22 |
| | 14.08 |
|
Net interest margin, fully taxable equivalent (FTE)(1) (3) | | | 2.65 |
| | 2.91 |
| | 2.71 |
| | 2.95 |
|
Net interest margin (FTE), excluding purchased loan accretion((3) | | Net interest margin (FTE), excluding purchased loan accretion((3) | 2.56 |
| | 2.80 |
| | 2.61 |
| | 2.84 |
|
Efficiency ratio(1) | | | 68.48 |
| | 58.83 |
| | 66.25 |
| | 59.58 |
|
| | | | | | | | | |
GROWTH (Year-to-date)(1) | | | | | | | | | |
Total commercial loans | | | 10.1 | % | | 5.7 | % | | 10.1 | % | | 5.7 | % |
Total loans | | | 7.1 |
| | — |
| | 7.1 |
| | — |
|
Total deposits | | | (0.1 | ) | | 1.9 |
| | (0.1 | ) | | 1.9 |
|
| | | | | | | | | |
FINANCIAL DATA (In millions) | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,476 |
| | $ | 1,718 |
| | $ | 3,476 |
| | $ | 1,718 |
| | $ | 3,688 |
| | $ | 3,541 |
| | $ | 3,688 |
| | $ | 3,541 |
|
Total earning assets | | 3,184 |
| | 1,649 |
| | 3,184 |
| | 1,649 |
| |
Total earning assets(4) | | | 3,355 |
| | 3,250 |
| | 3,355 |
| | 3,250 |
|
Total investments | | 756 |
| | 561 |
| | 756 |
| | 561 |
| | 784 |
| | 749 |
| | 784 |
| | 749 |
|
Total loans | | 2,429 |
| | 1,088 |
| | 2,429 |
| | 1,088 |
| | 2,578 |
| | 2,485 |
| | 2,578 |
| | 2,485 |
|
Allowance for loan losses | | 12 |
| | 10 |
| | 12 |
| | 10 |
| | 15 |
| | 13 |
| | 15 |
| | 13 |
|
Total goodwill and intangible assets | | 109 |
| | 5 |
| | 109 |
| | 5 |
| | 107 |
| | 108 |
| | 107 |
| | 108 |
|
Total deposits | | 2,275 |
| | 1,034 |
| | 2,275 |
| | 1,034 |
| | 2,481 |
| | 2,375 |
| | 2,481 |
| | 2,375 |
|
Total shareholders' equity | | 353 |
| | 164 |
| | 353 |
| | 164 |
| | 391 |
| | 356 |
| | 391 |
| | 356 |
|
Net income | | 9 |
| | 4 |
| | 19 |
| | 12 |
| | 6 |
| | 9 |
| | 13 |
| | 16 |
|
Adjusted income (4) | | 9 |
| | 3 |
| | 23 |
| | 10 |
| |
Adjusted income(1) | | | 6 |
| | 9 |
| | 14 |
| | 17 |
|
| | | | | | | | | |
ASSET QUALITY AND CONDITION RATIOS | | | | | | | | | | | | | | | | |
Net charge-offs (current quarter annualized)/average loans (5) | | 0.03 | % | | (0.03 | )% | | 0.03 | % | | (0.03 | )% | |
Allowance for loan losses/total loans (5) | | 0.49 |
| | 0.93 |
| | 0.49 |
| | 0.93 |
| |
Net charge-offs (current quarter annualized)/average loans | | | — | % | | 0.06 | % | | 0.02 | % | | 0.06 | % |
Allowance for loan losses/total loans | | | 0.57 |
| | 0.53 |
| | 0.57 |
| | 0.53 |
|
Loans/deposits | | 107 |
| | 105 |
| | 107 |
| | 105 |
| | 104 |
| | 105 |
| | 104 |
| | 105 |
|
Shareholders' equity to total assets | | 10.17 |
| | 9.57 |
| | 10.17 |
| | 9.57 |
| | 10.59 |
| | 10.05 |
| | 10.59 |
| | 10.05 |
|
Tangible shareholders' equity to tangible assets (2) | | 7.26 |
| | 9.29 |
| | 7.26 |
| | 9.29 |
| |
Tangible shareholders' equity to tangible assets(1) | | | 7.92 |
| | 7.22 |
| | 7.92 |
| | 7.22 |
|
_________________________
| |
(1) | Adjusted measurements are non-GAAPNon-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions, and gain on sale of securities.measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of Management's Discussion and Analysis for additional information. |
| |
(2) | Non-GAAP financial measure. |
| |
(3) | All performance ratios are annualized and are based on average balance sheet amounts, where applicable. |
| |
(4)(3) | Fully taxable equivalent considers the impact of tax advantagedtax-advantaged investment securities and loans. |
| |
(5) | Generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost. The fair value of loans acquired in a business combination includes expected loan losses, and there is no loan loss allowance recorded for these loans at the time of acquisition. Accordingly, the ratio of the loan loss allowance to total loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge-offs are normally reduced for loans acquired in a business combination since these loans are recorded net of expected loan losses. Therefore, the ratio of net loan charge-offs to average loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Other institutions may have loans acquired in a business combination, and therefore there may be no direct comparability of these ratios between and among other institutions. |
(4) Earning assets includes non-accruing loans and securities are valued at amortized cost.
CONSOLIDATED LOAN AND DEPOSIT ANALYSIS
The following tables present the quarterly trend in loan and deposit data and accompanying quarterly and year-to-date growth rates as of June 30, 2019 on an annualized basis:
| | BAR HARBOR BANKSHARES | |
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED | |
| | | | | | | | | | | | | | | | |
LOAN ANALYSIS | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Organic Annualized Growth % (1) September 30, 2017 | | | | | | | | | | | | June 30, 2019 Annualized Growth % |
(in thousands) | | Sep 30, 2017 Balance | | Jun 30, 2017 Balance | | Mar 31, 2017 Balance | | Acquired Lake Sunapee Bank Balance (2) | | Dec 31, 2016 Balance | | Quarter End | | Year to Date | |
(in thousands, except ratios) | | | Jun 30, 2019 | | Mar 31, 2019 | | Dec 31, 2018 | | Sep 30, 2018 | | Jun 30, 2018 | | Quarter End | | Year to Date |
Commercial real estate | | $ | 793,572 |
| | $ | 738,584 |
| | $ | 779,635 |
| | $ | 345,586 |
| | $ | 418,119 |
| | 29.8 | % | | 10.7 | % | | $ | 881,479 |
| | $ | 821,567 |
| | $ | 826,699 |
| | $ | 840,018 |
| | $ | 838,546 |
| | 29.2 | % | | 13.3 | % |
Commercial and industrial | | 270,759 |
| | 269,960 |
| | 236,526 |
| | 89,259 |
| | 135,564 |
| | 1.2 |
| | 50.8 |
| | 312,029 |
| | 305,185 |
| | 309,544 |
| | 303,984 |
| | 313,680 |
| | 9.0 |
| | 1.6 |
|
Total commercial loans | | 1,064,331 |
| | 1,008,544 |
| | 1,016,161 |
| | 434,845 |
| | 553,683 |
| | 22.1 |
| | 20.5 |
| | 1,193,508 |
| | 1,126,752 |
| | 1,136,243 |
| | 1,144,002 |
| | 1,152,226 |
| | 23.7 |
| | 10.1 |
|
Residential real estate | | 1,152,628 |
| | 1,160,832 |
| | 1,155,436 |
| | 652,255 |
| | 506,612 |
| | (2.8 | ) | | (1.8 | ) | | 1,167,759 |
| | 1,184,053 |
| | 1,144,698 |
| | 1,140,519 |
| | 1,127,895 |
| | (5.5 | ) | | 4.0 |
|
Consumer | | 125,590 |
| | 127,229 |
| | 127,370 |
| | 76,489 |
| | 53,093 |
| | (5.2 | ) | | (11.3 | ) | | 112,275 |
| | 111,402 |
| | 113,960 |
| | 117,239 |
| | 118,332 |
| | 3.1 |
| | (3.0 | ) |
Tax exempt and other | | 86,313 |
| | 80,042 |
| | 73,469 |
| | 44,611 |
| | 15,676 |
| | 31.3 |
| | 249.0 |
| | 104,696 |
| | 104,752 |
| | 95,326 |
| | 81,830 |
| | 86,613 |
| | (0.2 | ) | | 19.7 |
|
Total loans | | $ | 2,428,862 |
| | $ | 2,376,647 |
| | $ | 2,372,436 |
| | $ | 1,208,200 |
| | $ | 1,129,064 |
| | 8.8 | % | | 12.2 | % | | $ | 2,578,238 |
| | $ | 2,526,959 |
| | $ | 2,490,227 |
| | $ | 2,483,590 |
| | $ | 2,485,066 |
| | 8.1 | % | | 7.1 | % |
| |
(1) | Non-GAAP financial measure. |
| |
(2) | Acquired Lake Sunapee Bank loans are as of January 13, 2017. |
| | DEPOSIT ANALYSIS | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Organic Annualized Growth % (1) September 30, 2017 | | | | | | | | | | | | June 30, 2019 Annualized Growth % |
(in thousands) | | Sep 30, 2017 Balance | | Jun 30, 2017 Balance | | Mar 31, 2017 Balance | | Acquired Lake Sunapee Bank Balance (2) | | Dec 31, 2016 Balance | | Quarter End | | Year to Date | |
(in thousands, except ratios) | | | Jun 30, 2019 | | Mar 31, 2019 | | Dec 31, 2018 | | Sep 30, 2018 | | Jun 30, 2018 | | Quarter End | | Year to Date |
Demand | | $ | 357,398 |
| | $ | 332,339 |
| | $ | 349,896 |
| | $ | 248,051 |
| | $ | 98,856 |
| | 30.2 | % | | 15.9 | % | | $ | 354,125 |
| | $ | 342,030 |
| | $ | 370,889 |
| | $ | 372,358 |
| | $ | 341,773 |
| | 14.1 | % | | (9.0 | )% |
NOW | | 442,085 |
| | 451,171 |
| | 242,876 |
| | 39,999 |
| | 175,150 |
| | (8.1 | ) | | 194.4 |
| | 472,576 |
| | 470,277 |
| | 484,717 |
| | 471,326 |
| | 449,715 |
| | 2.0 |
| | (5.0 | ) |
Savings | | | 352,657 |
| | 346,813 |
| | 358,888 |
| | 354,908 |
| | 350,339 |
| | 6.7 |
| | (3.5 | ) |
Money market | | 300,398 |
| | 285,312 |
| | 349,491 |
| | 103,142 |
| | 282,234 |
| | 21.2 |
| | (45.2 | ) | | 305,506 |
| | 349,833 |
| | 335,951 |
| | 254,142 |
| | 260,642 |
| | (50.7 | ) | | (18.1 | ) |
Savings | | 373,118 |
| | 360,306 |
| | 511,091 |
| | 467,735 |
| | 77,623 |
| | 14.2 |
| | (332.8 | ) | |
Total non-maturity deposits | | 1,472,999 |
| | 1,429,128 |
| | 1,453,354 |
| | 858,927 |
| | 633,863 |
| | 12.3 |
| | (4.7 | ) | | 1,484,864 |
| | 1,508,953 |
| | 1,550,445 |
| | 1,452,734 |
| | 1,402,469 |
| | (6.4 | ) | | (8.5 | ) |
Total time deposits | | 802,110 |
| | 783,876 |
| | 720,899 |
| | 291,684 |
| | 416,437 |
| | 9.3 |
| | 33.9 |
| | 996,512 |
| | 956,818 |
| | 932,793 |
| | 937,615 |
| | 972,252 |
| | 16.6 |
| | 13.7 |
|
Total deposits | | $ | 2,275,109 |
| | $ | 2,213,004 |
| | $ | 2,174,253 |
| | $ | 1,150,611 |
| | $ | 1,050,300 |
| | 11.2 | % | | 10.6 | % | | $ | 2,481,376 |
| | $ | 2,465,771 |
| | $ | 2,483,238 |
| | $ | 2,390,349 |
| | $ | 2,374,721 |
| | 2.5 | % | | (0.1 | )% |
| |
(1) | Non-GAAP financial measure. |
| |
(2) | Acquired Lake Sunapee Bank Deposits are as of January 13, 2017. |
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presentstables present average balances and an analysis of average ratesyields and yieldsrates on an annualized fully taxable equivalent basis for the periods included:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 |
(In thousands) | | Average Balance | Yield/Rate (FTE basis) (3) | | Average Balance | Yield/Rate (FTE basis) (3) | | Average Balance | Yield/Rate (FTE basis) (3) | | Average Balance | Yield/Rate (FTE basis) (3) | |
(in thousands, except ratios) | | | Average Balance | | Interest (3) | | Yield/Rate (3) | | Average Balance | | Interest (3) | | Yield/Rate (3) |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Loans (1) | | $ | 2,402,171 |
| 4.13 | % | | $ | 1,058,253 |
| 3.89 | % | | $ | 2,379,190 |
| 4.10 | % | | $ | 1,033,070 |
| 3.97 | % | |
Commercial real estate | | | $ | 846,921 |
| | $ | 10,009 |
| | 4.74 | % | | $ | 824,356 |
| | $ | 9,216 |
| | 4.48 | % |
Commercial and industrial | | | 416,000 |
| | 4,929 |
| | 4.75 |
| | 396,471 |
| | 4,639 |
| | 4.69 |
|
Residential | | | 1,176,583 |
| | 11,522 |
| | 3.93 |
| | 1,126,714 |
| | 10,896 |
| | 3.88 |
|
Consumer | | | 111,641 |
| | 1,451 |
| | 5.21 |
| | 119,570 |
| | 1,387 |
| | 4.65 |
|
Total loans (1) | | | 2,551,145 |
| | 27,911 |
| | 4.39 |
| | 2,467,111 |
| | 26,138 |
| | 4.25 |
|
Securities and other (2) | | 754,450 |
| 3.13 |
| | 551,456 |
| 3.07 |
| | 758,748 |
| 3.11 |
| | 543,513 |
| 3.07 |
| | 779,072 |
| | 6,388 |
| | 3.29 |
| | 767,886 |
| | 6,082 |
| | 3.18 |
|
Total earning assets | | 3,156,621 |
| 3.89 | % | | 1,609,709 |
| 3.62 | % | | 3,137,938 |
| 3.86 | % | | 1,576,583 |
| 3.66 | % | | 3,330,217 |
| | 34,299 |
| | 4.13 | % | | 3,234,997 |
| | 32,220 |
| | 3.99 | % |
Other non-earning assets | | 295,924 |
| | | 79,826 |
| | | 305,735 |
| | | 76,431 |
| | |
Other assets | | | 315,861 |
| | | | | | 277,402 |
| | | | |
Total assets | | $ | 3,452,545 |
| | | $ | 1,689,535 |
| | | $ | 3,443,673 |
| | | $ | 1,653,014 |
| | | $ | 3,646,078 |
| | | | | | $ | 3,512,399 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing deposits | | $ | 1,901,501 |
| 0.66 | % | | $ | 897,703 |
| 0.78 | % | | $ | 1,863,091 |
| 0.57 | % | | $ | 874,666 |
| 0.75 | % | |
NOW | | | $ | 459,572 |
| | $ | 557 |
| | 0.49 | % | | $ | 441,645 |
| | $ | 409 |
| | 0.37 | % |
Savings | | | 352,733 |
| | 189 |
| | 0.21 |
| | 351,712 |
| | 146 |
| | 0.17 |
|
Money market | | | 338,095 |
| | 1,212 |
| | 1.44 |
| | 288,169 |
| | 566 |
| | 0.79 |
|
Time deposits | | | 935,616 |
| | 4,928 |
| | 2.11 |
| | 872,149 |
| | 3,283 |
| | 1.51 |
|
Total interest bearing deposits | | | 2,086,016 |
| | 6,886 |
| | 1.32 |
| | 1,953,675 |
| | 4,404 |
| | 0.90 |
|
Borrowings | | 812,938 |
| 1.66 |
| | 514,999 |
| 1.06 |
| | 835,274 |
| 1.49 |
| | 520,508 |
| 1.03 |
| | 789,953 |
| | 5,403 |
| | 2.74 |
| | 836,295 |
| | 4,321 |
| | 2.07 |
|
Total interest-bearing liabilities | | 2,714,439 |
| 0.96 | % | | 1,412,702 |
| 0.88 | % | | 2,698,365 |
| 0.85 | % | | 1,395,174 |
| 0.86 | % | |
Non-interest-bearing demand deposits | | 354,470 |
| | | 103,971 |
| | | 327,547 |
| | | 88,652 |
| | |
Other non-earning liabilities | | 30,079 |
| | | 7,376 |
| | | 68,973 |
| | | 7,281 |
| | |
Total interest bearing liabilities | | | 2,875,969 |
| | 12,289 |
| | 1.71 | % | | 2,789,970 |
| | 8,725 |
| | 1.25 | % |
Non-interest bearing demand deposits | | | 349,322 |
| | | | | | 339,374 |
| | | | |
Other liabilities | | | 33,107 |
| | | | | | 28,386 |
| | | | |
Total liabilities | | 3,098,988 |
| | | 1,524,049 |
| | | 3,094,885 |
| | | 1,491,107 |
| | | 3,258,398 |
| | | | | | 3,157,730 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total shareholders' equity | | 353,557 |
| | | 165,486 |
| | | 348,788 |
| | | 161,907 |
| | | 387,680 |
| | | | | | 354,669 |
| | | | |
| | | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 3,452,545 |
| | | $ | 1,689,535 |
| | | $ | 3,443,673 |
| | | $ | 1,653,014 |
| | | $ | 3,646,078 |
| | | | | | $ | 3,512,399 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest spread | | | 2.93 | % | | | 2.74 | % | | | 3.01 | % | | | 2.81 | % | | | | | | 2.42 | % | | | | | | 2.74 | % |
Net interest margin | | | 3.06 |
| | | 2.84 |
| | | 3.13 |
| | | 2.90 |
| | | | | | 2.65 |
| | | | | | 2.91 |
|
| |
(1) | The average balances of loans include nonaccrualnon-accrual loans and unamortized deferred fees and costs. |
| |
(2) | The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment. |
| |
(3) | Fully taxable equivalent considers the impact of tax advantaged investmenttax-advantaged securities and loans. |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
(in thousands, except ratios) | | Average Balance | | Interest (3) | | Yield/Rate (3) | | Average Balance | | Interest (3) | | Yield/Rate (3) |
Assets | | | | | | | | | | | | |
Commercial real estate | | $ | 839,216 |
| | $ | 19,730 |
| | 4.74 | % | | $ | 823,182 |
| | $ | 18,126 |
| | 4.44 | % |
Commercial and industrial | | 410,861 |
| | 9,715 |
| | 4.77 |
| | 389,003 |
| | 8,771 |
| | 4.55 |
|
Residential | | 1,160,733 |
| | 22,648 |
| | 3.93 |
| | 1,135,822 |
| | 21,841 |
| | 3.88 |
|
Consumer | | 112,288 |
| | 2,915 |
| | 5.24 |
| | 120,410 |
| | 2,725 |
| | 4.56 |
|
Total loans (1) | | 2,523,098 |
| | 55,008 |
| | 4.40 |
| | 2,468,417 |
| | 51,463 |
| | 4.20 |
|
Securities and other (2) | | 778,132 |
| | 13,033 |
| | 3.38 |
| | 753,685 |
| | 12,037 |
| | 3.22 |
|
Total earning assets | | 3,301,230 |
| | 68,041 |
| | 4.16 | % | | 3,222,102 |
| | 63,500 |
| | 3.97 | % |
Other assets | | 329,108 |
| | | | | | 282,964 |
| | | | |
Total assets | | $ | 3,630,338 |
| | | | | | $ | 3,505,066 |
| | | | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
NOW | | $ | 464,969 |
| | $ | 1,143 |
| | 0.50 | % | | $ | 445,092 |
| | $ | 784 |
| | 0.36 | % |
Savings | | 349,966 |
| | 352 |
| | 0.20 |
| | 356,731 |
| | 305 |
| | 0.17 |
|
Money market | | 335,421 |
| | 2,353 |
| | 1.41 |
| | 294,534 |
| | 1,080 |
| | 0.74 |
|
Time deposits | | 918,500 |
| | 9,344 |
| | 2.05 |
| | 871,674 |
| | 6,220 |
| | 1.44 |
|
Total interest bearing deposits | | 2,068,856 |
| | 13,192 |
| | 1.29 |
| | 1,968,031 |
| | 8,389 |
| | 0.86 |
|
Borrowings | | 776,551 |
| | 10,558 |
| | 2.74 |
| | 823,506 |
| | 7,955 |
| | 1.95 |
|
Total interest bearing liabilities | | 2,845,407 |
| | 23,750 |
| | 1.68 | % | | 2,791,537 |
| | 16,344 |
| | 1.18 | % |
Non-interest bearing demand deposits | | 372,259 |
| | | | | | 331,561 |
| | | | |
Other liabilities | | 30,266 |
| | | | | | 28,907 |
| | | | |
Total liabilities | | 3,247,932 |
| | | | | | 3,152,005 |
| | | | |
| | | | | | | | | | | | |
Total shareholders' equity | | 382,406 |
| | | | | | 353,061 |
| | | | |
| | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 3,630,338 |
| | | | | | $ | 3,505,066 |
| | | | |
| | | | | | | | | | �� | | |
Net interest spread | | | | | | 2.47 | % | | | | | | 2.79 | % |
Net interest margin | | | | | | 2.71 |
| | | | | | 2.95 |
|
| |
(1) | The average balances of loans include non-accrual loans and unamortized deferred fees and costs. |
| |
(2) | The average balance for securities available for sale is based on amortized cost. |
| |
(3) | Fully taxable equivalent considers the impact of tax-advantaged securities and loans. |
NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with U.S Generally Accepted Accounting Principles (“GAAP”accounting principles generally accepted in the United States of America ("GAAP"). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’sCompany's GAAP financial information. The Company’sA reconciliation of non-GAAP financial measures may not be comparable to similar non-GAAP information which may be presented by other companies.GAAP measures is provided below. In all cases, it should be understood that non-GAAP operating measures do not depict amounts that accrue directly to the benefit of shareholders. An item whichthat management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’sCompany's results and condition for any particular quarter or year. A reconciliation ofThe Company's non-GAAP adjusted earnings information set forth is not necessarily comparable to non- GAAP information that may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial measures todata should be considered in conjunction with the Company's GAAP measures is provided below.financial information.
The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operatingadjusted revenue and expense. These measures exclude amounts whichthat the Company views as unrelated to its normalized operations, including securities gains/losses, acquisition costs, restructuring costs, legal settlements, and systems conversion costs. TheseNon-GAAP adjustments are presented net of an adjustment for related income tax expense. This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to adjusted income.
The Company also calculates several non-GAAP performance measuresadjusted earnings per share based on its measure of adjusted earnings, including adjusted earnings per share, adjusted return on assets, adjusted return on equity, and the efficiency ratio.earnings. The Company views these amounts as important to understanding its performanceoperating trends, particularly due to the impact of accounting standards related to acquisition activity. Several of these measures are used as performance metrics in assessing the achievement of short and long term incentive compensation for management. Analysts also rely on these measures in estimating and evaluating the Company’sCompany's performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community and as components of regulatory capital supervision.community.
Charges related to acquisition activity consist primarily of severance and retention, systems conversion and integration, and professional costs.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items recorded for the time periods and dates indicated
|
| | | | | | | | | | | | | | | | | |
BAR HARBOR BANKSHARES |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA- UNAUDITED |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | | 2017 | | 2016 | | 2017 | | 2016 |
Net income | | | $ | 8,617 |
| | $ | 3,632 |
| | $ | 19,386 |
| | $ | 12,349 |
|
Adj: Security Gains | | | (19 | ) | | (1,354 | ) | | (19 | ) | | (4,489 | ) |
Adj: Loss on sale of fixed assets, net | | | (1 | ) | | 216 |
| | 94 |
| | 216 |
|
Adj: Acquisition expense | | | 346 |
| | 320 |
| | 5,917 |
| | 812 |
|
Adj: Income taxes (37.57% in 2017, 35.0% in 2016) | | | (122 | ) | | 286 |
| | (2,251 | ) | | 1,211 |
|
Total adjusted income (4) | (A) | | $ | 8,821 |
| | $ | 3,100 |
| | $ | 23,127 |
| | $ | 10,099 |
|
| | | | | | | | | |
Net-interest income | (B) | | $ | 23,478 |
| | $ | 10,999 |
| | $ | 68,659 |
| | $ | 33,717 |
|
Plus: Non-interest income | | | 6,960 |
| | 3,372 |
| | 19,465 |
| | 10,314 |
|
Total Revenue | | | 30,438 |
| | 14,371 |
| | 88,124 |
| | 44,031 |
|
Adj: Net security gains | | | (19 | ) | | (1,354 | ) | | (19 | ) | | (4,489 | ) |
Total adjusted revenue (4) | (C) | | $ | 30,419 |
| | $ | 13,017 |
| | $ | 88,105 |
| | $ | 39,542 |
|
| | | | | | | | | |
Total non-interest expense | | | $ | 17,586 |
| | $ | 8,750 |
| | $ | 58,463 |
| | $ | 25,478 |
|
Less: Acquisition expense | | | (346 | ) | | (320 | ) | | (5,917 | ) | | (812 | ) |
Adjusted non-interest expense (4) | (D) | | $ | 17,240 |
| | $ | 8,430 |
| | $ | 52,546 |
| | $ | 24,666 |
|
| | | | | | | | | |
(in millions) | | | | | | | |
| | |
|
Total average earning assets | (E) | | $ | 3,157 |
| | $ | 1,610 |
| | $ | 3,138 |
| | $ | 1,577 |
|
Total average assets | (F) | | 3,453 |
| | 1,690 |
| | 3,444 |
| | 1,653 |
|
Total average shareholders' equity | (G) | | 354 |
| | 165 |
| | 349 |
| | 162 |
|
Total average tangible shareholders' equity | (H) | | 244 |
| | 160 |
| | 242 |
| | 157 |
|
Total tangible shareholders' equity, period-end (1) | (I) | | 244 |
| | 159 |
| | 244 |
| | 159 |
|
Total tangible assets, period-end (1) | (J) | | 3,367 |
| | 1,713 |
| | 3,367 |
| | 1,713 |
|
| | | | | | | | | |
(in thousands) | | | | | | | | | |
Total common shares outstanding, period-end | (K) | | 15,432 |
| | 9,084 |
| | 15,432 |
| | 9,084 |
|
Average diluted shares outstanding | (L) | | 15,511 |
| | 9,162 |
| | 15,204 |
| | 9,138 |
|
| | | | | | | | | |
Adjusted earnings per share, diluted | (A/L) | | $ | 0.57 |
| | $ | 0.34 |
| | $ | 1.52 |
| | $ | 1.11 |
|
Tangible book value per share, period-end | (I/K) | | 15.84 |
| | 17.51 |
| | 15.84 |
| | 17.51 |
|
Total tangible shareholders' equity/total tangible assets | (H/J) | | 7.26 |
| | 9.29 |
| | 7.26 |
| | 9.29 |
|
| | | | | | | | | |
Performance ratios (2) | | | | | | | |
| | |
|
GAAP return on assets | | | 0.99 | % | | 0.86 | % | | 0.75 | % | | 1.00 | % |
Adjusted return on assets (4) | (A/F) | | 1.01 |
| | 0.73 |
| | 0.90 |
| | 0.82 |
|
GAAP return on equity | | | 9.67 |
| | 8.78 |
| | 7.43 |
| | 10.20 |
|
Adjusted return on equity (4) | (A/G) | | 9.90 |
| | 7.49 |
| | 8.86 |
| | 8.34 |
|
Adjusted return on tangible equity (3) (4) | (A/I) | | 14.51 |
| | 7.75 |
| | 12.98 |
| | 8.88 |
|
Efficiency ratio (4)(5) | (D-N-P)/(C+M) | | 53.59 |
| | 61.24 |
| | 56.44 |
| | 59.34 |
|
Net interest margin | (B+O)/E | | 3.06 |
| | 2.84 |
| | 3.13 |
| | 2.90 |
|
|
| | | | | | | | | | | | | | | | | |
| | | At or for the Three Months Ended June 30, | | At or for the Six Months Ended June 30, |
(in thousands) | | | 2019 | | 2018 | | 2019 | | 2018 |
GAAP net income | | | $ | 6,117 |
| | $ | 8,535 |
| | $ | 13,398 |
| | $ | 16,347 |
|
Plus (less): | | | | | | | | | |
Loss on sale of premises and equipment, net | | | 21 |
| | — |
| | 21 |
| | — |
|
Loss on other real estate owned | | | — |
| | 23 |
| | — |
| | 23 |
|
Acquisition, conversion and other expenses | | | 280 |
| | 214 |
| | 280 |
| | 549 |
|
Income tax (expense) benefit(1) | | | (72 | ) | | (57 | ) | | (72 | ) | | (138 | ) |
Total adjusted income(2) | (A) | | $ | 6,346 |
| | $ | 8,715 |
| | $ | 13,627 |
| | $ | 16,781 |
|
| | | | | | | | | |
GAAP net interest income | (B) | | $ | 21,496 |
| | $ | 22,992 |
| | $ | 43,261 |
| | $ | 46,150 |
|
Plus: Non-interest income | | | 7,453 |
| | 7,121 |
| | 13,620 |
| | 13,359 |
|
Total Revenue(2) | | | 28,949 |
| | 30,113 |
| | 56,881 |
| | 59,509 |
|
Plus (less): Loss (gain) on sale of securities, net | | | — |
| | — |
| | — |
| | — |
|
Total adjusted revenue(2) | (C) | | $ | 28,949 |
| | $ | 30,113 |
| | $ | 56,881 |
| | $ | 59,509 |
|
| | | | | | | | | |
GAAP total non-interest expense | | | $ | 20,906 |
| | $ | 18,685 |
| | $ | 39,530 |
| | $ | 37,537 |
|
Less: Loss on sale of premises and equipment, net | | | (21 | ) | | — |
| | (21 | ) | | — |
|
Less: Loss on other real estate owned | | | — |
| | (23 | ) | | — |
| | (23 | ) |
Less: Acquisition, conversion and other expenses | | | (280 | ) | | (214 | ) | | (280 | ) | | (549 | ) |
Adjusted non-interest expense(2) | (D) | | $ | 20,605 |
| | $ | 18,448 |
| | $ | 39,229 |
| | $ | 36,965 |
|
| | | | | | | | | |
(in millions) | | | | | | | |
| | |
|
Total average earning assets | (E) | | $ | 3,330 |
| | $ | 3,235 |
| | $ | 3,301 |
| | $ | 3,222 |
|
Total average assets | (F) | | 3,646 |
| | 3,512 |
| | 3,630 |
| | 3,505 |
|
Total average shareholders' equity | (G) | | 388 |
| | 355 |
| | 382 |
| | 353 |
|
Total average tangible shareholders' equity(2)(3) | (H) | | 280 |
| | 247 |
| | 275 |
| | 245 |
|
Total tangible shareholders' equity, period-end(2)(3) | (I) | | 283 |
| | 248 |
| | 283 |
| | 248 |
|
Total tangible assets, period-end(2)(3) | (J) | | 3,580 |
| | 3,433 |
| | 3,580 |
| | 3,433 |
|
| | | | | | | | | |
(in thousands) | | | | | | | | | |
Total common shares outstanding, period-end | (K) | | 15,544 |
| | 15,496 |
| | 15,544 |
| | 15,496 |
|
Average diluted shares outstanding | (L) | | 15,586 |
| | 15,571 |
| | 15,582 |
| | 15,560 |
|
| | | | | | | | | |
Adjusted earnings per share, diluted | (A/L) | | $ | 0.41 |
| | $ | 0.56 |
| | $ | 0.88 |
| | $ | 1.08 |
|
Tangible book value per share, period-end(2) | (I/K) | | 18.23 |
| | 16.00 |
| | 18.23 |
| | 16.00 |
|
Securities adjustment, net of tax(4) | (M) | | 5,550 |
| | (12,594 | ) | | 5,550 |
| | (12,594 | ) |
Tangible book value per share, excluding securities adjustment(4) | (I+M)/K | | 17.88 |
| | 16.81 |
| | 17.88 |
| | 16.81 |
|
Total tangible shareholders' equity/total tangible assets(2) | (I/J) | | 7.92 |
| | 7.22 |
| | 7.92 |
| | 7.22 |
|
| | | | | | | | | |
| | | | | At or for the Three Months Ended June 30, | | At or for the Six Months Ended June 30, |
| | | | 2019 | | 2018 | | 2019 | | 2018 |
Performance ratios | | | | | | | | |
| | |
|
Return on assets | | | | 0.67 | % | | 0.97 | % | | 0.74 | % | | 0.94 | % |
Adjusted return on assets(2) | | (A/F) | | 0.70 |
| | 1.00 |
| | 0.76 |
| | 0.97 |
|
Return on equity | | | 6.33 |
| | 9.65 |
| | 7.07 |
| | 9.34 |
|
Adjusted return on equity(2) | | (A/G) | | 6.57 |
| | 9.86 |
| | 7.19 |
| | 9.58 |
|
Adjusted return on tangible equity(2)(5) | | (A+Q)/H | | 9.30 |
| | 14.43 |
| | 10.22 |
| | 14.08 |
|
Efficiency ratio(2)(6) | | (D-O-Q)/(C+N) | | 68.48 |
| | 58.83 |
| | 66.25 |
| | 59.58 |
|
Net interest margin(2) | | (B+P)/E | | 2.65 |
| | 2.91 |
| | 2.71 |
| | 2.95 |
|
| | | | | | | | | | | | | | | | | | |
Supplementary data (in thousands) | | | | | | | | | | | | | | | | | | |
Taxable equivalent adjustment for efficiency ratio | (M) | | $ | 1,107 |
| | $ | 434 |
| | $ | 3,269 |
| | $ | 1,061 |
| (N) | | $ | 676 |
| | $ | 622 |
| | $ | 1,360 |
| | $ | 1,267 |
|
Franchise taxes included in non-interest expense | (N) | | 154 |
| | 36 |
| | 438 |
| | 103 |
| (O) | | 111 |
| | 159 |
| | 231 |
| | 340 |
|
Tax equivalent adjustment for net interest margin | (O) | | 878 |
| | 168 |
| | 2,568 |
| | 528 |
| (P) | | 514 |
| | 502 |
| | 1,029 |
| | 1,005 |
|
Intangible amortization | (P) | | 189 |
| | 157 |
| | 534 |
| | 471 |
| (Q) | | 207 |
| | 207 |
| | 414 |
| | 414 |
|
| |
(1) | Total tangibleAssumes a marginal tax rate of 23.78% in 2019. A marginal tax rate of 24.15% was used in the first and second quarter of 2018 and 23.78% was used in the third and fourth quarter of 2018. |
| |
(2) | Non-GAAP financial measure. |
| |
(3) | Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Total tangibleTangible assets is computed by taking total assets less the intangible assets at period-end. |
| |
(2)(4) | Ratios are annualized and basedSecurities adjustment, net of tax represents the total unrealized loss on averageavailable-for-sale securities recorded on the Company's consolidated balance sheet amounts, where applicable. Quarterly data may not sum to year-to-date data due to rounding.sheets within total common shareholders' equity. |
| |
(3)(5) | Adjusted return on tangible equity is computed by dividing the total core income adjusted for the tax-effected amortization of intangible assets, assuming a marginal rate of 37.57%23.78% in 20172019, 24.15% in the first and 35.0%second quarter of 2018 and 23.78% in 2016,the third and fourth quarter of 2018, by tangible equity. |
| |
(4) | Non-GAAP financial measure. |
| |
(5)(6) | Efficiency ratio is computed by dividing total core tangibleadjusted non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total coreadjusted non-interest income. The Company uses this non-GAAP measure to provide important information about its operating efficiency. |
THIRD QUARTER
FINANCIAL SUMMARY
The Company reported thirdsecond quarter 20172019 net income of $8.6$6.1 million or 56 cents$0.39 diluted earnings per share. Net income in the same quarter of 2018 totaled $8.5 million or $0.55 diluted earnings per share. Adjusted earnings (non-GAAP measure) in the second quarter 2019 totaled $8.8$6.3 million or 57 cents$0.41 diluted earnings per share representingand $8.7 million or $0.56 diluted earnings per share in the same period of 2018. Financial highlights for the second quarter 2019 include the following:
8% annualized growth in total loans, led by 24% in commercial loans
14% annualized growth in demand deposits
5% growth in non-interest income, compared to second quarter 2018
0.62% non-accruing loans to total loans
10% annualized increase in book value per share
The Company’s financial performance in the second quarter 2019 was centered on growth in loans, deposits, and non-interest income. Additionally, non-interest bearing demand deposits grew at a 10% increase overdouble-digit rate as the prior quarter.Company’s retail delivery team continues to focus on building long-term customer relationships. Loan growth was led by an expanding commercial loan pipeline across all regions and specifically in the Portland area as the Company’s Loan Production Office is in full operation. The increase reflects the strengthCompany is concentrating on structured opportunities with proven borrowers while maintaining disciplined risk management principles regardless of the Company's now expanded footprint and seasoned team. economic cycle or competitive pressures.
As discussedpreviously announced, the acquisition of eight branches in an earlier section, the Company uses the non-GAAP measure of adjustedcentral Maine is expected to be immediately accretive to earnings and related metrics, to evaluate the results of its operations.
Third quarter financial highlights include the following (comparisons are to prior quarter unless otherwise stated):
1.01% core return on assets (non-GAAP measure)
6% increase in non-interest income
22% annualized commercial loan growth
11% annualized total deposit growth
54% efficiency ratio (non-GAAP measure)
9.90% core return on equity (non-GAAP measure)
Third quarter 2017 results demonstrate the Company’s stability in its business model while now having the platform for even stronger organic growth. The Company’s growth in profitability was reflected in its key performance metrics as return on assets improved to 0.99% and adjusted return on assets achieved 1.01%. Operational improvements and significant positive operating leverage resulted in a 54% efficiency ratio for the third quarter. The Company continues to position its balance sheet to optimize performance, as is evidenced by strong loan growth and superior credit quality. Additionally,reduce the loan to deposit ratio remained flat despite funding significant production duringratio. The transaction is anticipated to close in the quarter.fourth quarter 2019 and is expected to allow for future growth through core deposit funding. Looking forward to the second half of 2019, the Company is focused on revenue growth through relationship profitability as it continues to grow into the infrastructure that has been put into place. In addition, the Company will be executing on expense efficiencies, which will include relationship and product profitability, organizational opportunities and review of the branch network. This review is a function of the Company’s commitment to achieve a balance between growth and earnings while delivering on its long-term goals.
The Company’s commitmentobjectives include an emphasis on fee based income from its Wealth Management businesses, which include Bar Harbor Trust Services, Charter Trust, and Bar Harbor Financial Services. These businesses are critical to creating shareholderthe Company’s objectives and will be further enhanced by the Wealth Management business that was included in the recently announced branch acquisition. In the second quarter 2019, the Company hired a President of Wealth Management who will lead the businesses as one collective organization. Under this new leadership, the Company expects to further enhance its revenue growth opportunities through existing and future prospects, and strive to achieve full potential within this business.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2019 AND DECEMBER 31, 2018
Summary
Total assets were $3.7 billion at the end of the second quarter 2019 compared to $3.6 billion at year end 2018. Asset quality metrics remain strong with an allowance for loan losses to total loans ratio of 0.57% with a coverage ratio to non-accruing loans at 91%, up from 76% as of year-end 2018. The loan to deposit ratio increased to 104% from 100% at year-end 2018 given the robust loan growth in the second quarter. The Company’s book value is reflectedper share increased 11%, on annualized basis, in its return on equitythe first half of 2019 from year-end 2018.
Securities
Securities totaled $783.8 million in the second quarter 2019 and core return on equity ratios.$761.5 million at year-end 2018 representing 21% of total assets for both periods. Those ratios are within the tolerance range of the Company’s investment policy. Securities purchased in the first half of 2019 included $35.8 million of mortgage-backed securities guaranteed by US Government-sponsored enterprises, $21.0 million of corporate bonds, and a net $439 thousand decrease in FHLB stock. The purchases were offset by $50.5 million of maturities, calls and pay-downs of amortizing securities, and an $18.5 million
increase in fair value. The increase in fair value was primarily caused by lower long-term interest rates at the highest levelsend of the second quarter 2019 as compared to year-end 2018. The weighted average yield on the Company’s security profile as of June 30, 2019 was 3.10% for the quarter compared to 3.28% at year-end 2018. At the end of the second quarter 2019, securities held by the Company had a weighted average life of 4.3 years and a duration of 3.1 years compared to 5.2 years and 3.9 years at the end of 2018, respectively.
Loans
Total loans at June 30, 2019 were $2.6 billion, an increase of $88.0 million or 7.1% on an annualized basis, from year-end 2018. Loan balances expanded across all major categories including commercial real estate which grew significantly during the first half of 2019 at a rate of 13.3% due to reasons already noted above. Residential loans grew at a lower 4.0% annualized rate in the past five quartersfirst six months of 2019 primarily due to sales in the secondary market as fee income is central to the Company’s strategic focus. Yields also increased among all product lines as variable rate loans repriced to higher levels benefiting from the Federal Reserve Bank (“FRB”) rate hikes in 2018.
Asset Quality
Asset quality metrics remained favorable in the first half of 2019. The allowance for loan losses increased to $14.6 million from $13.9 million at year-end 2018 due to loan growth offset by lower specific reserves on fewer non-accruing loans. Non-accruing loans decreased $2.3 million in the first six months of 2019 as the 10% thresholdCompany benefited from favorable settlements of several credit relationships that approximated the carrying values of the loans. These improvements decreased the ratio of non-accruing loans to average loans to 0.62% from 0.73% at the end of 2018.
Deposits and Borrowings
Total deposits decreased $1.9 million in the first half of 2019 from year-end 2018. While the Company’s expanding branch model has helped to increase new accounts, non-maturity deposits decreased $65.6 million primarily due to a $50.0 million customer transfer between money market and time deposits. New deposit accounts opened totaled 3,133 in the second quarter and 2,485 in the first quarter 2019 compared to 2,295 in the fourth quarter 2018. Time deposits increased $63.7 million, reflecting the Company’s strategy to target funding durations at lower rates. The average cost of deposits increased to 1.32% from 1.12% in the fourth quarter 2018 reflecting the FRB rate hike in December 2018. Total borrowings increased by $52.2 million supporting loan growth during 2019. Borrowing costs remained flat at 2.74% in 2019, but were up from 2.53% in the fourth quarter 2018 as a result of the December rate hike.
Derivative Financial Instruments
The notional balance of derivative financial instruments increased to $412.1 million at the end of the second quarter 2019 from $182.2 million at year-end 2018. The increase includes a $50.0 million notional amount related to an interest rate swap on brokered certificate of deposits to limit the Company’s exposure to rising interest rates over a five-year term. Additionally, the increase includes $84.6 million related to commercial loan interest rate derivatives with customers and matching hedges with a national bank counterparty. The net fair value of total derivatives was a liability of $1.5 million at the end of the second quarter 2019 compared to asset of $811 thousand at year-end 2018.
Equity
Total equity was $390.6 million, compared with $370.6 million at year-end 2018. The Company’s book value per share increased $1.26 to $25.13 from year-end 2018. The increase was primarily due to a $12.7 million improvement in the Company’s securities fair value adjustment, net of tax, along with strong net income of $13.4 million offset by $6.5 million in dividends. Tangible book value per share (non-GAAP measure) increased to $18.23 per share up from $16.94 per share at year-end 2018. Additionally, tangible book value per share excluding the impact of securities fair value adjustments (non-GAAP measure) increased to $17.88. The Company evaluates changes in tangible book value excluding securities adjustment, a non-GAAP financial measure, which is approached. Tangiblea commonly considered valuation metric used by the investment community and which parallels some regulatory capital measures. The Company and the Bank remained "well capitalized" under regulatory guidelines at period-end. The Company's risk-based capital ratio remains over 14% as tangible book value continues to grow towards pre-acquisition levels and the Company believes that can expand even further by adhering to a disciplined model of balancing growth and profitability.into 2019.
In October 2017, the Company announced the sale of its insurance business, which will be accretive to tangible equity in the fourth quarter of this year. The decision to sell was driven by the Company’s focus on its core banking areas and investments that represent the most efficient use of capital. Transactions like this along with adhering to its business model will ultimately benefit shareholders and remain consistent with the Company’s brand as a true community bank.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172019 AND 20162018
Summary
Results in 2017 include the Lake Sunapee operations acquired on January 13, 2017. As a result, many measures of revenue, expense, income, and average balances increased compared to prior periods.
As previously noted, the Company uses a non-GAAP measure of adjusted net income to supplement its evaluation of its operating results. Adjusted net income excludes certain amounts not viewed as part of normalized operations. These non-operating items consist primarily of acquisition, conversion, and net gains realized from sales of assets from the Company’s security portfolio. The Company views its acquisition related costs as part of the economic investment for its acquisition.
ThirdSecond quarter 2017 GAAP2019 net income was $0.56$6.1 million, or $0.39 per share, compared to $8.5 million, or $0.55 per share, in 2017 compared to $0.40the same quarter of 2018. The decrease in net income includes lower net interest income on a higher cost of funds and an increase in non-interest expenses offset by non-interest income growth. Adjusted earnings in the second quarter 2019 totaled $6.3 million or $0.41 diluted earnings per share and $8.7 million or $0.56 diluted earnings per share in 2016. Adjustedthe same period of 2018.
The Company reported first half 2019 net income increased to $0.57of $13.4 million or $0.86 per share, from $0.34 for these respective periods. Results increased due to expanded operations and improved profitability. GAAP resultscompared with $16.3 million or $1.05 per share in the current year include charges related to the Lake Sunapee Bank Group acquisition, and prior year net income benefited from gains from salessame period of securities.
On a year-to-date basis, GAAP net income per share was $1.27 in 2017 compared to $1.35 in 2016.2018. Adjusted earnings increased to $1.52$13.6 million, or $0.88 per share from $1.11compared with $16.8 million, or $1.08 per share, for these respective periods. These changes largely reflectedreflect the same factors and trends discussed above that drove thirdsecond quarter earnings growth.
net income. The return on assets ratio during the first half of 2019 was 0.74% compared to 0.94% in the prior year due to lower net income and a higher average asset base. Adjusted return on assets (non-GAAP measure) was 0.76% for the first six months of 2019 compared to 0.97% in the prior year. Return on equity in the first half 2019 decreased to 7.07% from 9.34% in the prior year due to lower net income and growth in the average equity balance. Correspondingly, adjusted return on assets improved on a year-over-year basis while respective GAAP basis performance metrics variedequity (non-GAAP measure) was 7.19% for the first six months of 2019 compared to 9.58% in the past five quarters depending upon acquisition related charges and gains on security sales. The Company’s profitability has benefited from both a higher non-interest income as well as improved efficiency. Operational enhancements in 2017 are reflected in the Company’s efficiency ratio trend, which started in the first quarter at 62%, but then improved to 55% in second quarter and 54% in the third quarter. The efficiency ratio is a non-GAAP financial measure that compares adjusted expenses and revenues to assess how well the Company is managing its costs. Higher ratios in prior periods represent gradual investments made in infrastructure and key employees to support operations across a broader footprint and larger revenue producing institution.
The Company continues to focus on non-interest income as the key to higher profitability and is currently in the process of expanding treasury management services for customers. A roll-out of enhanced product offerings is anticipated by the end of 2017. The Company views investments in fee income businesses such as trust, secondary marketing mortgage operations, and treasury management services as vehicles to expand return on assets.year.
Net Interest Income
ThirdSecond quarter net interest income increased year-over-year by $12.5was $33.8 million, to $23.5 million. The increase was driven by a $1.5 billion increase inup 7% from the second quarter of 2018 as average earning assets which includes organic growth and benefit ofgrew $95.2 million. The yield on total loans for the Lake Sunapee Bank Group acquisition in the first quarter 2017. Net interest margin increased to 3.06% in the third quarter compared to 2.84% in the same quarter of 2016. Net interest spread increased 19three months ended expanded fourteen basis points, reflecting higher yields fromdriven by the yield on commercial real estate loans and securities as well as lower cost of interest bearing deposits acquired from Lake Sunapee Bank. Net interest margin in 2017 also benefited from purchasedexpanding 26 basis points. Purchase loan accretion totaling $1.0 million in the third quarter. These improvements were partially offset by higher wholesale funding costs resulting from fed fund rate hikes and the Company’s extension of funding maturities. Increases in overall cost of funds are expectedcontributed 0.09% to have a negative impact on net interest margin in the near-term assecond quarter 2019 compared to 0.11% in the second quarter 2018. Improvement in interest income was offset by a 46 basis point increase in interest expense due to interest bearing liabilities being subject to higher short-term interest rates increase and the Company employs strategies to mitigate the impact.
For the first nine monthsflattening of the year, netyield curve in 2019. Net interest income increased year to year by $34.9was $21.5 million to $68.7 million. The increase primarily reflects the inclusion of Lake Sunapee Bank’s operations, and purchased loan accretion of $2.9 million during 2017.
Non-Interest Income
Third quarter non-interest income increased to $7.0 million from $3.3compared with $23.0 million in the same quarter of 2016. Non-interest2018 and net interest margin was 2.65% and 2.91% for the same respective periods.
For the first six months of the year, interest income excluding gainsfrom earning assets increased to $67.0 million with a yield of 4.16% compared to $62.5 million with a yield of 3.91% in the same period of 2018. The yield on securities, increased $4.9total loans for the six months ended expanded 20 basis points, driven by the yield on commercial real estate loans expanding 30 basis points and the yield on commercial and industrial loans expanding 22 basis points. Improvement in interest income was offset by interest expense increasing to $23.8 million in first half of 2019 from $16.3 million in the first half of 2018. Net interest income decreased year over year to $43.2 million from $46.2 million for the same period in the prior year and net interest margin was 2.71% and 2.95% for the same respective periods. The year-to-date effect, and management’s response, on net interest margin from interest-bearing liabilities is the same as the quarterly discussion.
Non-Interest Income
Second quarter non-interest income grew 5% to $7.5 million from $7.1 million same quarter in 2016. Trust and investment management fee revenue added $2.1 million, which2018. The increase is principallyprimarily due to the addition of Charter Trust Company (now a wholly owned subsidiary of the Bank) as part of the Lake Sunapee Bank Group acquisition. Customerhigher customer service fees increased $1.9 million comparedon higher transaction volume, an increase in customer derivative income due to the prior quarter also as a result of the acquisitioncommercial loan growth and an increase in bank-owned life insurance income given the broader customer deposit base and higher number of ATM transactions.additional investments in July 2018.
Non-interest income for the ninefirst six months of 20172019 increased year-over-yearyear over year by $9.22% to $13.6 million compared to $19.5 million.$13.4 million for the same period of 2018. The increase in trust and customer service feenon-interest income for the nine monthsix-month period is driven by the same reasons as the quarterly period. However, income from security gains totaled $4.5 in 2016.
Loan Loss Provision
The second quarter 2019 provision for loan losses in the third quarter 2017 increaseddecreased to $660$562 thousand from $139$770 thousand forin the same quarter in 2016.2018. On a year-to-date basis, the provision for loan loss provision was $2.2losses decreased to $886 thousand in 2019 compared to $1.6 million in 2017 compared to $754 thousand in 2016. The amount of the provision exceeded net charge-offs in all periods shown, as the amount of the allowance has risen gradually based on loan portfolio growth and offset in part by the ongoing improvement in loan performance and credit quality.2018. The provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses at a level deemed adequate by the Company as an estimate of the probable and estimable loan losses in the portfolio as of period-end.Company. The level of the allowance is a critical accounting estimate, which is subject to uncertainty. The level ofCompany continues to see a positive quarterly trend in both recoveries and charged-off loans. The net charged-off loans to average loans ratio remained low at zero annualized rate for the allowance is included in the discussion of financial condition.
second quarter 2019.
Non-Interest Expense
Third quarter non-interestNon-interest expense increased to $17.6$20.9 million from $8.7 million for the same quarter of 2016. Salary and employee benefit costs increased by $4.8 million compared with the third quarter of 2016 principally due to the Lake Sunapee Bank Group acquisition. Full time equivalent staff totaled 425 in the thirdsecond quarter 20172019 compared to 200$18.7 million in the same quarter of 2016.2018. The increase primarily relates to salaries and occupancy costs. Salary and employee benefit costs decreasedbenefits increased due to several strategic hires along with an increase in full-time equivalents to 474 from 451 in 2018 primarily related to new locations that were previously announced. Occupancy and equipment expense is also higher in 2019 compared to 2018 due to the new locations placed in service during the secondfourth quarter of 2018 and third quartersrenovations to the Newport, New Hampshire branch in the spring of 2017 reflecting a positive trend of disciplined cost control2019. Second quarter acquisition, conversion and realized cost saves withother expenses totaled $280 thousand in 2019 related to the acquisition. Occupancy expenses increased $1.7 million asbranch acquisition due diligence compared to the third quarter of 2016 due$214 thousand in 2018 related to costs of operating additional branches from the acquisition. Acquisition related expenses in the third quarter of 2017 are consistent with the same quarter of 2016. Acquisition costs peaked ina wealth management system conversion.
For the first quartersix months of 20172019 and then curtailed in each subsequent quarter as severance and system conversion costs were finalized.
On a year-to-date basis 20172018 non-interest expense increased to $58.5 million from $25.5$39.5 million in 2016. Acquisition related expenses for the first nine monthshalf of 2017 totaled $5.9 compared to $812 thousand2019 from $37.5 million in the same period of 2016. All other increases2018. The increase in non-interest expense on a year-to-date basis are consistent withfor the six-month period is driven by the same reasons as the quarterly trends.period.
Income Tax Expense
The second quarter effective tax was 29.3%rate decreased to 18.2% in the third quarter 20172019 compared to 33.7%with 19.9% in the same quarter of 2016. The decrease in the quarterly rate is due 2017 tax benefits realized from filing amended tax returns. The rate in 2016 was also2018, reflecting a higher due to having a lower proportion of tax-advantage income to total income resulting from security gains. On a year to date basis, the 2017 rate decreased to 29.4% from 30.6% in the prior year reflecting the same factors as the quarterly comparison.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
Summary
Total assets increased to $3.5 billion as of September 30, 2017 from $1.8 billion at year end 2016. All major categories of assets, liabilities and equity increased due to the acquired balances which as of the acquisition date included $1.2 billion in loans, $155.6 million in securities, $1.2 billion in deposits, and $182 million in equity as a result of the issuance of common shares of the Company to Lake Sunapee shareholders. The loan to deposit ratio improved to 107% from 108% at year-end 2016 as loan growth was funded by seasonally higher deposit balances.
The Company's book value per share increased to $22.90 from $17.19 at the end of 2016 primarily due to the shares issued and net assets acquired in the first quarter 2017 in connection with the acquisition. Conversely, the Company’s tangible book value (non-GAAP measure) decreased to $15.84 from $16.61 at year-end 2016. The dilution is primarily due to the net impact of the additional shares issued with acquisition and goodwill recorded as part of the transaction. However, the Company has a strong quarterly trend in GAAP net income, which added tangible book value per share of $0.57, $0.43, and $0.27 during the third, second, and first quarters, respectively.
Asset quality continues to improve as the ratio of non-accruing loans to total loans decreased to 0.28% in the third quarter from 0.58% at year-end 2016. The ratio of net charge-offs to total loans remain close to zero in past five quarters ending the third quarter at 2 basis points.
Securities
Total securities increased $201.4 million which includes securities acquired from Lake Sunapee Bank Group and $146.2 million in securities purchased during the nine months ended September 30, 2017. Securities purchased included $119.2 million of mortgage-backed securities guaranteed by US Government-sponsored enterprises, $19.6 million of corporate bonds, and $7.4 million of FHLBB stock. The increase was offset by $105.5 million of maturities, calls and pay-downs of amortizing securities. The securities portfolio continues to be a strong source of liquidity for the Company and is comprised primarily of highly rated mortgage-backed securities guaranteed by U.S. Government-sponsored enterprises and U.S. Government agencies, obligations of state and political subdivisions thereof and FHLBB stock. The Company continues to evaluate the securities portfolio in response to established asset/liability management objectives, changing market conditions and the level of interest rate risk to which we are exposed.tax-advantaged income.
Loans
The acquisition of Lake Sunapee Bank Group increased the legal lending limit of the Bank and expanded the lending area across all three of the northern New England states which resulted in organic growth in the loan portfolio. Excluding the impact of the acquired balances, total loans increased during the nine month period of 2017 by 12.2% on an annualized basis with 20.5% annualized growth in commercial loans led mostly by commercial and industrial loans.
Allowance for loan losses
During the nine months ending September 30, 2017, the allowance for loan losses increased $1.5 million to $11.9 million, which is due to the increase in business activity loans and lower charge-off activity reflecting improved asset quality. The determination of the allowance for loan losses is a critical accounting estimate. The Company considers the allowance for loan losses appropriate to cover probable losses which can be reasonably estimated in the loan portfolio as of the balance sheet date. Under accounting standards for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. An allowance for loan loss is recorded by the Company for the emergence of new probable and estimable losses on acquired loans which were not impaired as of the acquisition date. Because of the accounting for acquired loans, some measures of the loan loss allowance are not comparable to periods prior to the acquisition date or to peer measures.
Deposits
Excluding the impact of acquired balances, total deposits increased 10.6% on annualized basis as of September 30, 2017 when compared to December 31, 2016. Core deposits are still the primary funding source for loan growth and the Company took on additional FHLBB borrowings in order to fund additional loan growth in the period. Historically, the Bank's deposit market area has been seasonal, with lower deposits in the winter and spring months and higher deposits in the summer and autumn months; however, this seasonality is less present in the expanded deposit market areas of New Hampshire and Vermont.
Borrowings
Total borrowings increased by $232.0 million during the first nine months of 2017, of which $175.7 million was assumed from the acquisition. Excluding the impact of the acquisition, the increase was mostly in short term FHLBB advances to fund loans and investments during the first half of the year.
Equity
Excluding the $181.9 million of common stock of the Company issued to Lake Sunapee shareholders, total equity increased by $14.8 million, or 9.4% during 2017. Accumulated other comprehensive loss decreased by $2.9 million primarily due to an improvement in net after-tax fair value of available for sale securities. The improvement is related to an overall decrease in market yields since year-end 2016.
The Company evaluates changes in tangible book value, a non-GAAP financial measure which is a commonly considered valuation metric used by the investment community and which parallels some regulatory capital measures. Tangible book value increased to $244.4 million as of September 30, 2017 from $151.0 million at year-end 2016. The increase is due to the share issuance offset by goodwill and other intangible assets recorded for the Lake Sunapee Bank Group acquisition in the first quarter 2017. The Lake Sunapee Bank Group acquisition resulted in a $95.3 million increase in goodwill. The Company’s ratio of tangible equity to tangible assets stood at 7.26% at the end of the third quarter, compared to 8.65% at the end of 2016.
The Company and the Bank remained well capitalized under regulatory guidelines at period-end.
Liquidity and Cash Flows
Liquidity is measured by the Company’s ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiatedcustomer-initiated needs. Many factors affect the Company’s ability to meet liquidity needs,
including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.
The Bank actively manages its liquidity position through target ratios established under its Asset LiabilityAsset-Liability Management Policy. Continual monitoring of these ratios, bothby using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank’s policy is to maintain a liquidity position of at least 4% of total assets. A portion of the Bank’s deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank’s liquidity position tightens.
The Bank uses a basic surplus model to measure its liquidity over 30 and 90-day time horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement are routinely monitored. The Bank’s policy is to maintain a liquidity position of at least 4% of total assets. At September 30, 2017, liquidity, as measured by the basic surplus model, was 6.6% over the 30-day horizon and 10.8% over the 90-day horizon.
The Bank also had capacity to borrow funds on a secured basis utilizing the Borrower in CustodyBorrower-in-Custody program and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”"FRB"). At SeptemberJune 30, 2017,2019, the Bank’s available secured line of credit at the FRB stood at $114.6$112.94 million or 3.3%3.02% of the Bank’s total assets. The Bank also has access to the national brokered deposit market, and has used this funding source to bolster its on balance sheet liquidity position.
The Bank maintains a liquidity contingency plan approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company. Company management believes that the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on the Company’s liquidity position.
Off-Balance Sheet Arrangements
The Company is, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.
The Company’s off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.
The Company’s off-balance sheet arrangements have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2018 or our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND RECENT ACCOUNTING PRONOUNCEMENTS
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent Form 10-K. Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Please see those policies in conjunction with this discussion. Management believes that the following policies would be considered critical under the SEC’s definition:
Allowance for Loan Losses: The allowance for loan losses represents probable credit losses that are inherent in the loan portfolio at the financial statement date and which may be estimated. Management uses historical information, as well as current economic data, to assess the adequacy of the allowance for loan losses as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. Although management believes that it uses appropriate available information to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that may cause actual results to differ from the assumptions used in making the evaluation. Conditions in the local economy and real estate values could require the Company to increase provisions for loan losses, which would negatively impact earnings.
Acquired Loans: Loans that the Company acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for creditloan losses. Determining the fair value of the loans involves estimating the
amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Going forward, the Company continues to evaluate reasonableness of expectations for the timing and the amount of cash to be collected. Subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral dependent loans with deteriorated credit quality, the Company estimates the fair value of the underlying collateral of the loans. These values are discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.
Income Taxes: Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. The Company uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable ordinary income, taxable capital gain income, and the existence of prior years' taxable income, to which carry back refund claims could be made. A valuation allowance would be established for deferred tax assets that management estimates are more likely than not to be unrealizable based on available evidence at the time the estimate is made. There was no valuation allowance as of September 30, 2017.
Goodwill and Identifiable Intangible Assets: Goodwill and identifiable intangible assets are recorded as a result of business acquisitions and combinations. These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and analysis of market pricing multiples. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to
estimate industry economic factors and the profitability of future business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.
Determination of Other-Than-Temporary Impairment of Securities: The Company evaluates debt and equity securities within the Company's available for sale for other-than-temporary impairment (OTTI)("OTTI"), at least quarterly. If the fair value of a debt security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met: (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the loss is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Noncredit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes. In evaluating its marketable equity securities portfolios for OTTI, the Company considers its intent and ability to hold an equity security to recovery of its cost basis in addition to various other factors, including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI on marketable equity securities is recognized immediately through earnings. Should actual factors and conditions differ materially from those expected by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.
Fair Value of Financial Instruments: The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Trading assets, securities available for sale, and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, or to establish a loss allowance or write-down based on the fair value of impaired assets. Further, the notes to financial statements include information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. For financial instruments not recorded at fair value, the notes to financial statements disclose the estimate of their fair value. Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of the Company’s business activities.
The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee (“ALCO”), chaired by the Chief Financial Officer and composed of various members of senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.
Interest Rate Risk: Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank's net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and or cash flow characteristics of assets and liabilities. Management's objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank's balance sheet. The objectives in managing the Bank's balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promote sufficient reward for understood and controlled risk.
The Bank's interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of balance sheet and off-balance sheet instruments as each relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future effect on net interest income, is determined through the use of modeling and other techniques under multiple interest rate scenarios. Interest rate risk is evaluated in depth on a quarterly basis and reviewed by ALCO and the Company’s Board of Directors.
The Bank's Asset Liability Management Policy, approved annually by the Bank’s Board of Directors, establishes interest rate risk limits in terms of variability of net interest income under rising, flat, and decreasing rate scenarios. It is the role of the ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.
Interest Rate Sensitivity Modeling: The Bank utilizes an interest rate risk model widely recognized in the financial industry to monitor and measure interest rate risk. The model simulates the behavior of interest income and expense for all balance sheet and off-balance sheet instruments, under different interest rate scenarios together with a dynamic future balance sheet. Interest rate risk is measured in terms of potential changes in net interest income based upon shifts in the yield curve.
The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product-specific assumptions for deposit accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with call provisions are examined on an individual basis in each rate environment to estimate the likelihood of a call. Prepayment assumptions for mortgage loans and mortgage-backed securities are developed from industry median estimates of prepayment speeds, based upon similar coupon ranges and degree of seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different interest rate scenarios. Interest income and interest expense are then simulated under several hypothetical interest rate conditions including:
A flat interest rate scenario in which current prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption;
A 200 basis point rise or decline in interest rates applied against a parallel shift in the yield curve over a twelve-month horizon together with a dynamic balance sheet anticipated to be consistent with such interest rate changes;
Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes; and
An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products will continue to change the balance sheet profile for each of the interest rate conditions.
Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.
As of SeptemberJune 30, 20172019 interest rate sensitivity modeling results indicate that the Bank’s balance sheet in year 1 was moderatelyslightly liability sensitive over the one- and two-year horizons (i.e., moderately exposed to rising interest rates).in year 2 was slightly asset sensitive.
Assuming short-term and long-term interest rates decline 100200 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will improve slightlydeteriorate over the one year horizon (+.2%(-0.46% versus the base case) while remaining relatively stabledeteriorating further from that level over the two-year horizon (+.3%(-5.30% versus the base case). Should the yield curve steepen as rates fall, the model suggests that accelerated earning asset prepayments will slow, resulting in a more stabilized level of net interest income. Management anticipates that moderate to strong earning asset growth will be needed to meaningfully increase the Bank’s current level of net interest income should both long-term and short-term interest rates decline in parallel.
Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will decline moderatelyremain relatively unchanged over the one and two-year horizons (-3.1%(-1.28% and -6.7%+0.25%, respectively, versus the base case) as increased funding costs outpace increases in earning asset yields. The interest rate sensitivity simulation model suggests that as interest rates rise, the Bank’s funding costs will initially re-price disproportionately with earning asset yields to a moderate degree. As funding costs begin to stabilize early in the third year of the simulation, the model suggests that the earning asset portfolios will continue to re-price at prevailing interest rate levels and cash flows from the Bank’s earning asset portfolios will be reinvested into higher yielding earning assets, resulting in a widening of spreads and a stabilization of net interest income over the three year horizon and beyond. Management believes moderate to strong earning asset growth will be necessary to meaningfully increase the current level of net interest income over the one-year and two-year horizons should short-term and long-term interest rates rise in parallel.respectively).
As compared to June 30, 2017,December 31, 2018, the year-one sensitivity in the down 100 basis points scenario decreasedwas down slightly for the quartersix months ended June 30, 2019 (+.7%1.7% prior, versus +.2%+0.16% current). The year-two sensitivities in the down 100 basis points scenario showed a small changechanged going from +.8%+0.7% to +.3%-0.41%. In the year-one up 200 basis points scenario, results improveddeclined going from the prior quarter (-3.8% prior, versus -3.1% current)-3.7% to -1.28%. Year-two, up 200 basis points shows a slightly more negative result (-6.2%declined (-8.3% prior, versus -6.7%0.25% current), although on balance, the current aggregate position is consistent with the prior quarter’s.
Despite four rate hikes over the last eighteen months, the Federal Reserve continues to maintain short-term interest rates at low levels, threatening net interest income. Net interest income exposure is also significantly affected by the shape and level of the U.S. Government securities and interest rate swap yield curve, and changes in the size and composition of the Bank’s loan, investment and deposit portfolios..
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows, and renegotiated loan terms with borrowers. While assumptions are developed based upon current economic and local
market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.
As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment and refinancing levels deviating from those assumed; the impact of interest rate changes, caps or floors on adjustable rate assets; the potential effect of changing debt service levels on customers with adjustable rate loans; depositor early withdrawals and product preference changes; and other such variables. The sensitivity analysis also does not reflect additional actions that the Bank’s Senior Executive Team and Board of Directors might take in responding to or anticipating changes in interest rates, and the anticipated impact on the Bank’s net interest income.
The Bank engages an independent consultant to periodically review its interest rate risk position and the reasonableness of assumptions used, with periodic reports provided to the Bank’s Board of Directors. At September 30, 2017, there were no significant differences between the views of the independent consultant and management regarding the Bank’s interest rate risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
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a)(a) | Disclosure controls and procedures. |
The
Under the supervision and with the participation of our senior management, consisting of the Company’s principal executive officers, including theofficer and our principal financial officer, based on theirthe Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, (asas defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q, have10-Q. Based on this evaluation, the Company’s management, including its principal executive officer and principal financial officer, concluded that as of June 30, 2019 the Company’s disclosure controls and procedures were effective.effective to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
b)(b) Changes in internal control over financial reporting.
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART IIII. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management based upon currently available information will have no material effect on the Company's consolidated financial statements.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2018. In addition to the other information set forth in this report, you should carefully consider thethose risk factors, discussed below and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition orand future operating results. The risks described in this formThose risk factors are not the only risks that we face.facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affecthave a material adverse effect on our business, financial condition and/orand operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) The following table provides certain information with regard to shares repurchased by the Company in the thirdsecond quarter of 2017:2019:
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| | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as a part of publicly announced plans or programs | | Maximum number of shares that may yet be purchased under the plans or programs (1) |
July 1-31, 2017 | | 6,742 |
| | $ | 29 |
| | 6,742 |
| | 404,706 |
|
August 1-31, 2017 | | — |
| | — |
| | — |
| | 404,706 |
|
September 1-30, 2017 | | — |
| | — |
| | — |
| | 404,706 |
|
Total | | 6,742 |
| | $ | 29 |
| | 6,742 |
| | 404,706 |
|
|
| | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as a part of publicly announced plans or programs | | Maximum number of shares that may yet be purchased under the plans or programs(1) |
April 1-30, 2019 | | 8,010 |
| | $ | 26.25 |
| | 8,010 |
| | 767,990 |
|
May 1-31, 2019 | | — |
| | — |
| | — |
| | 767,990 |
|
June 1-30, 2019 | | — |
| | — |
| | — |
| | 767,990 |
|
Total | | 8,010 |
| | $ | 26.25 |
| | 8,010 |
| | 767,990 |
|
(1) In August 2008,On March 21, 2019 the Company’sCompany's Board of Directors approved a twenty-four month programtwelve-month plan to repurchase up to 450,000 shares5% of the Company’sits outstanding common stock, or approximately 10.2%representing 776,000 shares as of the shares then outstanding.March 15, 2019. The Company’s Board of Directors authorized the continuance of this program for additional twenty-four month periods in August 2010, 2012 and 2014. On August 16, 2016, Bar Harbor Bankshares issued a press release announcing the Company’s Board of Directors has approved the continuation of the Company’s existing stock repurchase plan through August 16, 2018. No other changes were made to the plan. Dependingexpires on market conditions and other factors, stock repurchases may be commenced or suspended at any time, or from time to time, without prior notice and may be made in the open market or through privately negotiated transactions. The Company records repurchased shares as treasury stock.March 20, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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3.1 | | Articles of Incorporation, as amended to date | |
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3.2 | | Bylaws, as amended to date | |
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4.1 | | Certificate of Designations, Fixed Rate Cumulative Perpetual Preferred Stock, Series A | |
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4.2 | | Form of Specimen Stock Certificate for Series A Preferred Sock | |
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4.3 | | Debt Securities Purchase Agreement | |
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4.4 | | Form of Subordinated Debt Security of Bar Harbor Bank & Trust | |
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4.5 | | Description of Company Common Stock | |
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10.1 | | Employment | |
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11.1 | | Statement of re computation of per share earnings | |
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31.1 | | Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a) | |
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31.2 | | Certification of Chief Financial Officer under Rule 13a-14(a)/15d-14(a) | |
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32.1 | | Certification of Chief Executive Officer under 18 U.S.C. Sec. 1350. | |
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32.2 | | Certification of Chief Financial Officer under 18 U.S.C. Sec. 1350. | |
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101 | | The following financial information from the Company’s AnnualQuarterly Report on Form 10-Q for the quarter ended June 30, 20172019 is formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to the Consolidated Condensed Financial Statements |
*Schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of any of the omitted schedules upon request by the Securities and Exchange Commission; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedules so furnished.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| BAR HARBOR BANKSHARES |
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Dated: November 8, 2017August 5, 2019 | By: | /s/ Curtis C. Simard |
| | Curtis C. Simard |
| | President & Chief Executive Officer |
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Dated: November 8, 2017August 5, 2019 | By: | /s/ Josephine Iannelli |
| | Josephine Iannelli |
| | Executive Vice President & Chief Financial Officer, & Principal Accounting Officer |