NOTE 1. BASIS OF PRESENTATION
We, Summit Financial Group, Inc. and subsidiaries, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.
The results of operations for the quarter ended
March 31, 2017
are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our
2016
audited financial statements and Annual Report on Form 10-K.
NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE
ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our financial statements.
ASU 2016-02,
Leases (Topic 842)
will, among other things, require lessees to recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and 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. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606,
Revenue from Contracts with Customers
. ASU 2016-02 will be effective for us on January 1, 2019 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on our financial statements.
ASU 2016-05,
Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,
clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 was effective for us on January 1, 2017 and did not have a significant impact on our financial statements.
ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,
requires that all excess tax benefits and tax deficiencies related to share-based payment awards be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest
(current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was effective on January 1, 2017 and did not have a significant impact on our financial statements.
ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements.
ASU 2016-15,
Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments
provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. ASU 2016-15 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our financial statements.
ASU 2016‑16,
Intra-Entity Transfers of Assets Other Than Inventory
requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time that the transfer occurs. Current guidance does not require recognition of tax consequences until the asset is eventually sold to a third party. ASU 2016-16 is effective for fiscal years, and interim periods within, beginning after December 15, 2017, with early adoption permitted as of the first interim period presented in a year. We are evaluating the impact of the adoption of ASU 2016‑16 on January 1, 2018 to our consolidated financial statements.
ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. We do not expect the adoption of ASU 2017-01 to have a material impact on our consolidated financial statements.
ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements.
ASU 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
requires an employer that offers defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 to report the service cost component of net periodic benefit cost in the same line item(s) as other compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. If the other components of net periodic benefit cost are not presented on a separate line or lines, the line item(s) used in the income statement must be disclosed. In addition, only the service cost component will be eligible for capitalization as part of an asset,
when applicable. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. We do not expect the adoption of ASU 2017-07 to have a material impact on our consolidated financial statements.
ASU 2017‐08,
Receivables-Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities
shortens the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. We are currently assessing the impact that ASU 2017‐08 will have on our consolidated financial statements.
NOTE 3. FAIR VALUE MEASUREMENTS
Fair value is based upon the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is utilized to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:
Level 1
: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2
: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.
Level 3
: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Accordingly, securities available-for-sale and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, impaired loans held for investment and property held for sale. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Available-for-Sale Securities
: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities.
Derivative Financial Instruments
: Derivative financial instruments are recorded at fair value on a recurring basis. Fair value measurement is based on pricing models run by a third-party, utilizing observable market-based inputs. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date. As a result, we classify interest rate swaps as Level 2.
Loans Held for Sale
:
Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, we classify loans subject to nonrecurring fair value adjustments as Level 2.
Loans
:
We do not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value,
liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the discounted cash flows or collateral value exceeds the recorded investments in such loans. These loans are carried at recorded loan investment and therefore are not included in the following tables of loans measured at fair value. Impaired loans internally graded as substandard, doubtful, or loss are evaluated using the fair value of collateral method. All other impaired loans are measured for impairment using the discounted cash flows method. Impaired loans where an allowance is established based on the fair value of collateral are included in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the impaired loan as nonrecurring Level 2. When a current appraised value is not available and there is no observable market price, we record the impaired loan as nonrecurring Level 3.
When impaired loans are deemed required to be included in the fair value hierarchy, management immediately begins the process of evaluating the estimated fair value of the underlying collateral to determine if a related specific allowance for loan losses or charge-off is necessary. Current appraisals are ordered once a loan is deemed impaired if the existing appraisal is more than
twelve
months old, or more frequently if there is known deterioration in value. For recently identified impaired loans, a current appraisal may not be available at the financial statement date. Until the current appraisal is obtained, the original appraised value is discounted, as appropriate, to compensate for the estimated depreciation in the value of the loan’s underlying collateral since the date of the original appraisal. Such discounts are generally estimated based upon management’s knowledge of sales of similar collateral within the applicable market area and its knowledge of other real estate market-related data as well as general economic trends. When a new appraisal is received (which is generally within
3
months of a loan being identified as impaired), management then re-evaluates the fair value of the collateral and adjusts any specific allocated allowance for loan losses, as appropriate. In addition, management also assigns a discount of
7–10%
for the estimated costs to sell the collateral.
Property Held for Sale:
Property held for sale consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the real estate or its fair value less estimated selling costs. The fair value of foreclosed properties is determined on a nonrecurring basis generally utilizing current appraisals performed by an independent, licensed appraiser applying an income or market value approach using observable market data (Level 2). Updated appraisals of foreclosed properties are generally obtained if the existing appraisal is more than
18
months old or more frequently if there is a known deterioration in value. However, if a current appraisal is not available, the original appraised value is discounted, as appropriate, to compensate for the estimated depreciation in the value of the real estate since the date of its original appraisal. Such discounts are generally estimated based upon management’s knowledge of sales of similar property within the applicable market area and its knowledge of other real estate market-related data as well as general economic trends (Level 3). Upon foreclosure, any fair value adjustment is charged against the allowance for loan losses. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense in the consolidated statements of income.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
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|
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Balance at
|
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Fair Value Measurements Using:
|
Dollars in thousands
|
March 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Available for sale securities
|
|
|
|
|
|
|
|
U.S. Government sponsored agencies
|
$
|
14,564
|
|
|
$
|
—
|
|
|
$
|
14,564
|
|
|
$
|
—
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored agencies
|
132,975
|
|
|
—
|
|
|
132,975
|
|
|
—
|
|
Nongovernment sponsored entities
|
3,998
|
|
|
—
|
|
|
3,998
|
|
|
—
|
|
State and political subdivisions
|
5,020
|
|
|
—
|
|
|
5,020
|
|
|
—
|
|
Corporate debt securities
|
18,309
|
|
|
—
|
|
|
18,309
|
|
|
—
|
|
Other equity securities
|
137
|
|
|
—
|
|
|
137
|
|
|
—
|
|
Tax-exempt state and political subdivisions
|
107,025
|
|
|
—
|
|
|
107,025
|
|
|
—
|
|
Total available for sale securities
|
$
|
282,028
|
|
|
$
|
—
|
|
|
$
|
282,028
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
257
|
|
|
$
|
—
|
|
|
$
|
257
|
|
|
$
|
—
|
|
|
|
|
|
|
|
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|
Derivative financial liabilities
|
|
|
|
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|
|
|
|
|
|
|
Interest rate swaps
|
$
|
3,823
|
|
|
$
|
—
|
|
|
$
|
3,823
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Available for sale securities
|
|
|
|
|
|
|
|
U.S. Government sponsored agencies
|
$
|
15,174
|
|
|
$
|
—
|
|
|
$
|
15,174
|
|
|
$
|
—
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored agencies
|
138,846
|
|
|
—
|
|
|
138,846
|
|
|
—
|
|
Nongovernment sponsored entities
|
4,653
|
|
|
—
|
|
|
4,653
|
|
|
—
|
|
Corporate debt securities
|
18,170
|
|
|
—
|
|
|
18,170
|
|
|
—
|
|
Other equity securities
|
137
|
|
|
—
|
|
|
137
|
|
|
—
|
|
Tax-exempt state and political subdivisions
|
89,562
|
|
|
—
|
|
|
89,562
|
|
|
—
|
|
Total available for sale securities
|
$
|
266,542
|
|
|
$
|
—
|
|
|
$
|
266,542
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
—
|
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|
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|
|
|
|
|
|
Derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
4,611
|
|
|
$
|
—
|
|
|
$
|
4,611
|
|
|
$
|
—
|
|
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.
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|
Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
March 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Residential mortgage loans held for sale
|
$
|
172
|
|
|
$
|
—
|
|
|
$
|
172
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans
|
|
|
|
|
|
|
|
|
|
|
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Construction and development
|
$
|
945
|
|
|
$
|
—
|
|
|
$
|
945
|
|
|
$
|
—
|
|
Residential real estate
|
296
|
|
|
—
|
|
|
130
|
|
|
166
|
|
Total collateral-dependent impaired loans
|
$
|
1,241
|
|
|
$
|
—
|
|
|
$
|
1,075
|
|
|
$
|
166
|
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Property held for sale
|
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Commercial real estate
|
$
|
976
|
|
|
$
|
—
|
|
|
$
|
976
|
|
|
$
|
—
|
|
Construction and development
|
18,407
|
|
|
—
|
|
|
18,407
|
|
|
—
|
|
Residential real estate
|
518
|
|
|
—
|
|
|
518
|
|
|
—
|
|
Total property held for sale
|
$
|
19,901
|
|
|
$
|
—
|
|
|
$
|
19,901
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|
|
$
|
—
|
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|
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|
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|
|
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Balance at
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Residential mortgage loans held for sale
|
$
|
176
|
|
|
$
|
—
|
|
|
$
|
176
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
$
|
945
|
|
|
$
|
—
|
|
|
$
|
945
|
|
|
$
|
—
|
|
Residential real estate
|
130
|
|
|
—
|
|
|
130
|
|
|
—
|
|
Total collateral-dependent impaired loans
|
$
|
1,075
|
|
|
$
|
—
|
|
|
$
|
1,075
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Property held for sale
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
976
|
|
|
$
|
—
|
|
|
$
|
976
|
|
|
$
|
—
|
|
Construction and development
|
19,327
|
|
|
—
|
|
|
19,327
|
|
|
—
|
|
Residential real estate
|
279
|
|
|
—
|
|
|
279
|
|
|
—
|
|
Total property held for sale
|
$
|
20,582
|
|
|
$
|
—
|
|
|
$
|
20,582
|
|
|
$
|
—
|
|
The following summarizes the methods and significant assumptions we used in estimating our fair value disclosures for financial instruments, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.
Cash and cash equivalents:
The carrying values of cash and cash equivalents approximate their estimated fair value.
Securities:
Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.
Other investments:
Other investments consists of FHLB stock, which does not have readily determinable fair values and is carried at cost and an investment in a limited partnership which owns interests in a diversified portfolio of qualified affordable housing projects which is reflected at its carrying value.
Loans held for sale:
The carrying values of loans held for sale approximate their estimated fair values.
Loans:
The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. No prepayments of principal are assumed.
Accrued interest receivable and payable:
The carrying values of accrued interest receivable and payable approximate their estimated fair values.
Deposits:
The estimated fair values of demand deposits (i.e. non-interest bearing checking, NOW, money market and savings accounts) and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.
Short-term borrowings:
The carrying values of short-term borrowings approximate their estimated fair values.
Long-term borrowings:
The fair values of long-term borrowings are estimated by discounting scheduled future payments of principal and interest at current rates available on borrowings with similar terms.
Subordinated debentures owed to unconsolidated subsidiary trusts:
The carrying values of subordinated debentures owed to unconsolidated subsidiary trusts approximate their estimated fair values.
Derivative financial instruments:
The fair value of the interest rate swaps is valued using independent pricing models.
Off-balance sheet instruments:
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counter parties. The amounts of fees currently charged on commitments and standby letters of credit are deemed insignificant and therefore, the estimated fair values and carrying values are not shown below.
The carrying values and estimated fair values of our financial instruments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
Level 1
|
Level 2
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58,221
|
|
|
$
|
58,221
|
|
|
$
|
—
|
|
$
|
58,221
|
|
$
|
—
|
|
Securities available for sale
|
|
282,028
|
|
|
282,028
|
|
|
—
|
|
282,028
|
|
—
|
|
Other investments
|
|
13,328
|
|
|
13,328
|
|
|
—
|
|
13,328
|
|
—
|
|
Loans held for sale, net
|
|
172
|
|
|
172
|
|
|
—
|
|
172
|
|
—
|
|
Loans, net
|
|
1,292,915
|
|
|
1,301,676
|
|
|
—
|
|
1,075
|
|
1,300,601
|
|
Accrued interest receivable
|
|
6,024
|
|
|
6,024
|
|
|
—
|
|
6,024
|
|
—
|
|
Derivative financial assets
|
|
257
|
|
|
257
|
|
|
—
|
|
257
|
|
—
|
|
|
|
$
|
1,652,945
|
|
|
$
|
1,661,706
|
|
|
$
|
—
|
|
$
|
361,105
|
|
$
|
1,300,601
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,301,241
|
|
|
$
|
1,315,973
|
|
|
$
|
—
|
|
$
|
1,315,973
|
|
$
|
—
|
|
Short-term borrowings
|
|
228,868
|
|
|
228,868
|
|
|
—
|
|
228,868
|
|
—
|
|
Long-term borrowings
|
|
46,215
|
|
|
48,128
|
|
|
—
|
|
48,128
|
|
—
|
|
Subordinated debentures owed to unconsolidated subsidiary trusts
|
|
19,589
|
|
|
19,589
|
|
|
—
|
|
19,589
|
|
—
|
|
Accrued interest payable
|
|
733
|
|
|
733
|
|
|
—
|
|
733
|
|
—
|
|
Derivative financial liabilities
|
|
3,823
|
|
|
3,823
|
|
|
—
|
|
3,823
|
|
—
|
|
|
|
$
|
1,600,469
|
|
|
$
|
1,617,114
|
|
|
$
|
—
|
|
$
|
1,617,114
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value Measurements Using:
|
Dollars in thousands
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
Level 1
|
Level 2
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46,616
|
|
|
$
|
46,616
|
|
|
$
|
—
|
|
$
|
46,616
|
|
$
|
—
|
|
Securities available for sale
|
|
266,542
|
|
|
266,542
|
|
|
—
|
|
266,542
|
|
—
|
|
Other investments
|
|
12,942
|
|
|
12,942
|
|
|
—
|
|
12,942
|
|
—
|
|
Loans held for sale, net
|
|
176
|
|
|
176
|
|
|
—
|
|
176
|
|
—
|
|
Loans, net
|
|
1,307,862
|
|
|
1,321,235
|
|
|
—
|
|
1,075
|
|
1,320,160
|
|
Accrued interest receivable
|
|
6,167
|
|
|
6,167
|
|
|
—
|
|
6,167
|
|
—
|
|
Derivative financial assets
|
|
200
|
|
|
200
|
|
|
—
|
|
200
|
|
—
|
|
|
|
$
|
1,640,505
|
|
|
$
|
1,653,878
|
|
|
$
|
—
|
|
$
|
333,718
|
|
$
|
1,320,160
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,295,519
|
|
|
$
|
1,309,820
|
|
|
$
|
—
|
|
$
|
1,309,820
|
|
$
|
—
|
|
Short-term borrowings
|
|
224,461
|
|
|
224,461
|
|
|
—
|
|
224,461
|
|
—
|
|
Long-term borrowings
|
|
46,670
|
|
|
49,013
|
|
|
—
|
|
49,013
|
|
—
|
|
Subordinated debentures owed to unconsolidated subsidiary trusts
|
|
19,589
|
|
|
19,589
|
|
|
—
|
|
19,589
|
|
—
|
|
Accrued interest payable
|
|
736
|
|
|
736
|
|
|
—
|
|
736
|
|
—
|
|
Derivative financial liabilities
|
|
4,611
|
|
|
4,611
|
|
|
—
|
|
4,611
|
|
—
|
|
|
|
$
|
1,591,586
|
|
|
$
|
1,608,230
|
|
|
$
|
—
|
|
$
|
1,608,230
|
|
$
|
—
|
|
NOTE 4. (LOSS)/EARNINGS PER SHARE
The computations of basic and diluted (loss)/earnings per share follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
Dollars in thousands,
except per share amounts
|
|
Income
(Numerator)
|
|
Common
Shares
(Denominator)
|
|
Per
Share
|
|
Income
(Numerator)
|
|
Common
Shares
(Denominator)
|
|
Per
Share
|
Net income (loss)
|
|
$
|
(1,616
|
)
|
|
|
|
|
|
$
|
4,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss)/earnings per share
|
|
$
|
(1,616
|
)
|
|
10,738,365
|
|
|
$
|
(0.15
|
)
|
|
$
|
4,062
|
|
|
10,671,856
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
—
|
|
|
|
|
|
|
|
7,445
|
|
|
|
|
Stock appreciation rights (SARs)
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss)/earnings per share
|
|
$
|
(1,616
|
)
|
|
10,738,365
|
|
|
$
|
(0.15
|
)
|
|
$
|
4,062
|
|
|
10,679,301
|
|
|
$
|
0.38
|
|
Stock option and stock appreciation right (SAR) grants are disregarded in this computation if they are determined to be anti-dilutive. Our anti-dilutive stock options for the quarters ended
March 31,
2017
and
March 31, 2016
were
49,140
shares and
57,000
shares respectively. Our anti-dilutive SARs for quarters ended
March 31,
2017
and
March 31, 2016
were
254,332
and
166,717
, respectively.
NOTE 5. SECURITIES
The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at
March 31, 2017
,
December 31, 2016
, and
March 31, 2016
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available for Sale
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
U.S. Government and agencies and corporations
|
$
|
14,001
|
|
|
$
|
618
|
|
|
$
|
55
|
|
|
$
|
14,564
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
132,920
|
|
|
1,332
|
|
|
1,277
|
|
|
132,975
|
|
Nongovernment-sponsored entities
|
3,972
|
|
|
42
|
|
|
16
|
|
|
3,998
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
785
|
|
|
—
|
|
|
6
|
|
|
779
|
|
Other revenues
|
4,217
|
|
|
31
|
|
|
7
|
|
|
4,241
|
|
Corporate debt securities
|
18,363
|
|
|
39
|
|
|
93
|
|
|
18,309
|
|
Total taxable debt securities
|
174,258
|
|
|
2,062
|
|
|
1,454
|
|
|
174,866
|
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
57,545
|
|
|
689
|
|
|
1,174
|
|
|
57,060
|
|
Water and sewer revenues
|
12,074
|
|
|
101
|
|
|
88
|
|
|
12,087
|
|
Lease revenues
|
9,011
|
|
|
20
|
|
|
167
|
|
|
8,864
|
|
Electric revenues
|
3,236
|
|
|
15
|
|
|
74
|
|
|
3,177
|
|
Transit revenues
|
3,404
|
|
|
29
|
|
|
41
|
|
|
3,392
|
|
Other revenues
|
22,624
|
|
|
154
|
|
|
333
|
|
|
22,445
|
|
Total tax-exempt debt securities
|
107,894
|
|
|
1,008
|
|
|
1,877
|
|
|
107,025
|
|
Equity securities
|
137
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Total available for sale securities
|
$
|
282,289
|
|
|
$
|
3,070
|
|
|
$
|
3,331
|
|
|
$
|
282,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available for Sale
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
U.S. Government and agencies and corporations
|
$
|
14,580
|
|
|
$
|
642
|
|
|
$
|
48
|
|
|
$
|
15,174
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
138,451
|
|
|
1,554
|
|
|
1,159
|
|
|
138,846
|
|
Nongovernment-sponsored entities
|
4,631
|
|
|
44
|
|
|
22
|
|
|
4,653
|
|
Corporate debt securities
|
18,295
|
|
|
23
|
|
|
148
|
|
|
18,170
|
|
Total taxable debt securities
|
175,957
|
|
|
2,263
|
|
|
1,377
|
|
|
176,843
|
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
49,449
|
|
|
569
|
|
|
1,388
|
|
|
48,630
|
|
Water and sewer revenues
|
9,087
|
|
|
63
|
|
|
149
|
|
|
9,001
|
|
Lease revenues
|
9,037
|
|
|
7
|
|
|
201
|
|
|
8,843
|
|
Electric revenues
|
3,247
|
|
|
10
|
|
|
48
|
|
|
3,209
|
|
Sales tax revenues
|
2,870
|
|
|
—
|
|
|
34
|
|
|
2,836
|
|
Other revenues
|
17,321
|
|
|
93
|
|
|
371
|
|
|
17,043
|
|
Total tax-exempt debt securities
|
91,011
|
|
|
742
|
|
|
2,191
|
|
|
89,562
|
|
Equity securities
|
137
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Total available for sale securities
|
$
|
267,105
|
|
|
$
|
3,005
|
|
|
$
|
3,568
|
|
|
$
|
266,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available for Sale
|
|
|
|
|
|
|
|
Taxable debt securities:
|
|
|
|
|
|
|
|
U.S. Government and agencies and corporations
|
$
|
19,757
|
|
|
$
|
1,231
|
|
|
$
|
49
|
|
|
$
|
20,939
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
151,895
|
|
|
2,594
|
|
|
596
|
|
|
153,893
|
|
Nongovernment-sponsored agencies
|
7,162
|
|
|
58
|
|
|
56
|
|
|
7,164
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
Water and sewer revenues
|
250
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Corporate debt securities
|
14,539
|
|
|
38
|
|
|
662
|
|
|
13,915
|
|
Total taxable debt securities
|
193,603
|
|
|
3,921
|
|
|
1,363
|
|
|
196,161
|
|
Tax-exempt debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
40,103
|
|
|
1,926
|
|
|
45
|
|
|
41,984
|
|
Water and sewer revenues
|
7,547
|
|
|
216
|
|
|
—
|
|
|
7,763
|
|
Lease revenues
|
6,284
|
|
|
223
|
|
|
—
|
|
|
6,507
|
|
Special tax revenues
|
3,022
|
|
|
64
|
|
|
—
|
|
|
3,086
|
|
Sales tax revenues
|
2,899
|
|
|
72
|
|
|
—
|
|
|
2,971
|
|
Other revenues
|
12,588
|
|
|
381
|
|
|
3
|
|
|
12,966
|
|
Total tax-exempt debt securities
|
72,443
|
|
|
2,882
|
|
|
48
|
|
|
75,277
|
|
Equity securities
|
77
|
|
|
—
|
|
|
—
|
|
|
77
|
|
Total available for sale securities
|
$
|
266,123
|
|
|
$
|
6,803
|
|
|
$
|
1,411
|
|
|
$
|
271,515
|
|
The below information is relative to the
five
states where issuers with the highest volume of state and political subdivision securities held in our portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
Dollars in thousands
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Michigan
|
$
|
15,807
|
|
|
$
|
33
|
|
|
$
|
492
|
|
|
$
|
15,348
|
|
Texas
|
11,981
|
|
|
73
|
|
|
169
|
|
|
11,885
|
|
California
|
11,741
|
|
|
111
|
|
|
251
|
|
|
11,601
|
|
Illinois
|
10,073
|
|
|
231
|
|
|
97
|
|
|
10,207
|
|
West Virginia
|
8,352
|
|
|
27
|
|
|
52
|
|
|
8,327
|
|
Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards. Prior to July 1, 2013, we principally used credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”) to support analyses of our portfolio of securities issued by state and political subdivisions, as we generally do not purchase securities that are rated below the six highest NRSRO rating categories. Beginning July 1, 2013, in addition to considering a security’s NRSRO rating, we now also assess or confirm through an internal review of an issuer’s financial information and other applicable information that: 1) the issuer’s risk of default is low; 2) the characteristics of the issuer’s demographics and economic environment are satisfactory; and 3) the issuer’s budgetary position and stability of tax or other revenue sources are sound.
The maturities, amortized cost and estimated fair values of securities at
March 31, 2017
, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
Due in one year or less
|
|
$
|
50,098
|
|
|
$
|
50,397
|
|
Due from one to five years
|
|
89,853
|
|
|
90,143
|
|
Due from five to ten years
|
|
23,326
|
|
|
23,263
|
|
Due after ten years
|
|
118,875
|
|
|
118,088
|
|
Equity securities
|
|
137
|
|
|
137
|
|
|
|
$
|
282,289
|
|
|
$
|
282,028
|
|
The proceeds from sales, calls and maturities of available for sale securities, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the
three
months ended
March 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
|
|
Gross realized
|
Dollars in thousands
|
Sales
|
|
Calls and
Maturities
|
|
Principal
Payments
|
|
Gains
|
|
Losses
|
For the Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
$
|
3,154
|
|
|
$
|
600
|
|
|
$
|
7,686
|
|
|
$
|
61
|
|
|
$
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
$
|
33,787
|
|
|
$
|
55
|
|
|
$
|
8,170
|
|
|
$
|
562
|
|
|
$
|
169
|
|
We held
121
available for sale securities having an unrealized loss at
March 31, 2017
. We do not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to the lack of market liquidity and to changes in market interest rates and not due to credit quality. Accordingly, no other-than-temporary impairment charge to earnings is warranted at this time.
Provided below is a summary of securities available for sale which were in an unrealized loss position at
March 31, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
Dollars in thousands
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
Temporarily impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,091
|
|
|
$
|
(55
|
)
|
|
$
|
3,091
|
|
|
$
|
(55
|
)
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
59,339
|
|
|
(1,073
|
)
|
|
9,015
|
|
|
(204
|
)
|
|
68,354
|
|
|
(1,277
|
)
|
Nongovernment-sponsored entities
|
—
|
|
|
—
|
|
|
1,636
|
|
|
(16
|
)
|
|
1,636
|
|
|
(16
|
)
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
779
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
779
|
|
|
(6
|
)
|
Other revenues
|
2,196
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
2,196
|
|
|
(7
|
)
|
Corporate debt securities
|
955
|
|
|
(45
|
)
|
|
1,563
|
|
|
(48
|
)
|
|
2,518
|
|
|
(93
|
)
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
33,618
|
|
|
(1,174
|
)
|
|
—
|
|
|
—
|
|
|
33,618
|
|
|
(1,174
|
)
|
Water and sewer revenues
|
5,376
|
|
|
(88
|
)
|
|
—
|
|
|
—
|
|
|
5,376
|
|
|
(88
|
)
|
Lease revenues
|
4,390
|
|
|
(167
|
)
|
|
—
|
|
|
—
|
|
|
4,390
|
|
|
(167
|
)
|
Electric revenues
|
1,939
|
|
|
(74
|
)
|
|
—
|
|
|
—
|
|
|
1,939
|
|
|
(74
|
)
|
Transit revenues
|
1,118
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
1,118
|
|
|
(41
|
)
|
Other revenues
|
11,394
|
|
|
(333
|
)
|
|
—
|
|
|
—
|
|
|
11,394
|
|
|
(333
|
)
|
Total temporarily impaired securities
|
121,104
|
|
|
(3,008
|
)
|
|
15,305
|
|
|
(323
|
)
|
|
136,409
|
|
|
(3,331
|
)
|
Total
|
$
|
121,104
|
|
|
$
|
(3,008
|
)
|
|
$
|
15,305
|
|
|
$
|
(323
|
)
|
|
$
|
136,409
|
|
|
$
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
Dollars in thousands
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
Temporarily impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
Taxable debt securities
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
$
|
763
|
|
|
$
|
(5
|
)
|
|
$
|
2,575
|
|
|
$
|
(43
|
)
|
|
$
|
3,338
|
|
|
$
|
(48
|
)
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agencies
|
55,388
|
|
|
(985
|
)
|
|
8,389
|
|
|
(174
|
)
|
|
63,777
|
|
|
(1,159
|
)
|
Nongovernment-sponsored entities
|
97
|
|
|
—
|
|
|
3,013
|
|
|
(22
|
)
|
|
3,110
|
|
|
(22
|
)
|
Corporate debt securities
|
968
|
|
|
(31
|
)
|
|
3,136
|
|
|
(117
|
)
|
|
4,104
|
|
|
(148
|
)
|
Tax-exempt debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General obligations
|
33,115
|
|
|
(1,388
|
)
|
|
—
|
|
|
—
|
|
|
33,115
|
|
|
(1,388
|
)
|
Water and sewer revenues
|
4,761
|
|
|
(149
|
)
|
|
—
|
|
|
—
|
|
|
4,761
|
|
|
(149
|
)
|
Lease revenues
|
7,011
|
|
|
(201
|
)
|
|
—
|
|
|
—
|
|
|
7,011
|
|
|
(201
|
)
|
Electric revenues
|
1,973
|
|
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
1,973
|
|
|
(48
|
)
|
Sales tax revenues
|
2,836
|
|
|
(34
|
)
|
|
—
|
|
|
—
|
|
|
2,836
|
|
|
(34
|
)
|
Other revenues
|
8,445
|
|
|
(371
|
)
|
|
—
|
|
|
—
|
|
|
8,445
|
|
|
(371
|
)
|
Total temporarily impaired securities
|
115,357
|
|
|
(3,212
|
)
|
|
17,113
|
|
|
(356
|
)
|
|
132,470
|
|
|
(3,568
|
)
|
Total
|
$
|
115,357
|
|
|
$
|
(3,212
|
)
|
|
$
|
17,113
|
|
|
$
|
(356
|
)
|
|
$
|
132,470
|
|
|
$
|
(3,568
|
)
|
NOTE 6. LOANS
Loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
March 31,
2017
|
|
December 31,
2016
|
|
March 31,
2016
|
Commercial
|
|
$
|
134,808
|
|
|
$
|
119,088
|
|
|
$
|
101,742
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
217,733
|
|
|
203,047
|
|
|
202,680
|
|
Non-owner occupied
|
|
401,795
|
|
|
381,921
|
|
|
353,351
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
Land and land development
|
|
68,079
|
|
|
72,042
|
|
|
66,483
|
|
Construction
|
|
16,511
|
|
|
16,584
|
|
|
7,997
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
|
266,140
|
|
|
265,641
|
|
|
221,368
|
|
Jumbo
|
|
60,780
|
|
|
65,628
|
|
|
50,057
|
|
Home equity
|
|
75,299
|
|
|
74,596
|
|
|
74,097
|
|
Mortgage warehouse lines
|
|
30,217
|
|
|
85,966
|
|
|
—
|
|
Consumer
|
|
24,440
|
|
|
25,534
|
|
|
19,095
|
|
Other
|
|
8,831
|
|
|
9,489
|
|
|
11,235
|
|
Total loans, net of unearned fees
|
|
1,304,633
|
|
|
1,319,536
|
|
|
1,108,105
|
|
Less allowance for loan losses
|
|
11,718
|
|
|
11,674
|
|
|
11,315
|
|
Loans, net
|
|
$
|
1,292,915
|
|
|
$
|
1,307,862
|
|
|
$
|
1,096,790
|
|
The outstanding balance and the recorded investment of acquired loans included in the consolidated balance sheet at
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Loans
|
Dollars in thousands
|
|
Purchased Credit Impaired
|
|
Purchased Performing
|
|
Total
|
Outstanding balance
|
|
$
|
2,456
|
|
|
$
|
49,173
|
|
|
$
|
51,629
|
|
|
|
|
|
|
|
|
Recorded investment
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
3,095
|
|
|
$
|
3,095
|
|
Commercial real estate
|
|
|
|
|
|
|
Owner-occupied
|
|
—
|
|
|
3,054
|
|
|
3,054
|
|
Non-owner occupied
|
|
—
|
|
|
1,118
|
|
|
1,118
|
|
Construction and development
|
|
|
|
|
|
|
Land and land development
|
|
—
|
|
|
3,608
|
|
|
3,608
|
|
Residential real estate
|
|
|
|
|
|
|
Non-jumbo
|
|
998
|
|
|
31,037
|
|
|
32,035
|
|
Jumbo
|
|
1,014
|
|
|
3,247
|
|
|
4,261
|
|
Consumer
|
|
—
|
|
|
3,708
|
|
|
3,708
|
|
Total recorded investment
|
|
$
|
2,012
|
|
|
$
|
48,867
|
|
|
$
|
50,879
|
|
The following table presents a summary of the change in the accretable yield of the PCI loan portfolio for the period from January 1, 2017 to March 31, 2017:
|
|
|
|
|
|
Dollars in thousands
|
|
|
Accretable yield, January 1, 2017
|
|
$
|
290
|
|
Accretion
|
|
(31
|
)
|
Reclassification of nonaccretable difference due to improvement in expected cash flows
|
|
—
|
|
Other changes, net
|
|
(14
|
)
|
Accretable yield, March 31, 2017
|
|
$
|
245
|
|
The following table presents the contractual aging of the recorded investment in past due loans by class as of
March 31, 2017
and
2016
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017
|
|
Past Due
|
|
|
|
> 90 days and Accruing
|
Dollars in thousands
|
30-59 days
|
|
60-89 days
|
|
> 90 days
|
|
Total
|
|
Current
|
|
Commercial
|
$
|
5
|
|
|
$
|
157
|
|
|
$
|
55
|
|
|
$
|
217
|
|
|
$
|
134,591
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
162
|
|
|
2,298
|
|
|
577
|
|
|
3,037
|
|
|
214,696
|
|
|
—
|
|
Non-owner occupied
|
298
|
|
|
—
|
|
|
—
|
|
|
298
|
|
|
401,497
|
|
|
—
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
252
|
|
|
38
|
|
|
3,741
|
|
|
4,031
|
|
|
64,048
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,511
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,554
|
|
|
926
|
|
|
3,140
|
|
|
6,620
|
|
|
259,520
|
|
|
—
|
|
Jumbo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,780
|
|
|
—
|
|
Home equity
|
108
|
|
|
—
|
|
|
379
|
|
|
487
|
|
|
74,812
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,217
|
|
|
—
|
|
Consumer
|
158
|
|
|
14
|
|
|
161
|
|
|
333
|
|
|
24,107
|
|
|
68
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,831
|
|
|
—
|
|
Total
|
$
|
3,537
|
|
|
$
|
3,433
|
|
|
$
|
8,053
|
|
|
$
|
15,023
|
|
|
$
|
1,289,610
|
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Past Due
|
|
|
|
> 90 days and Accruing
|
Dollars in thousands
|
30-59 days
|
|
60-89 days
|
|
> 90 days
|
|
Total
|
|
Current
|
|
Commercial
|
$
|
90
|
|
|
$
|
86
|
|
|
$
|
165
|
|
|
$
|
341
|
|
|
$
|
118,747
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
93
|
|
|
—
|
|
|
509
|
|
|
602
|
|
|
202,445
|
|
|
—
|
|
Non-owner occupied
|
340
|
|
|
—
|
|
|
65
|
|
|
405
|
|
|
381,516
|
|
|
—
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
423
|
|
|
129
|
|
|
3,852
|
|
|
4,404
|
|
|
67,638
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,584
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4,297
|
|
|
1,889
|
|
|
3,287
|
|
|
9,473
|
|
|
256,168
|
|
|
—
|
|
Jumbo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,628
|
|
|
—
|
|
Home equity
|
—
|
|
|
302
|
|
|
57
|
|
|
359
|
|
|
74,237
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85,966
|
|
|
—
|
|
Consumer
|
308
|
|
|
84
|
|
|
150
|
|
|
542
|
|
|
24,992
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,489
|
|
|
—
|
|
Total
|
$
|
5,551
|
|
|
$
|
2,490
|
|
|
$
|
8,085
|
|
|
$
|
16,126
|
|
|
$
|
1,303,410
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2016
|
|
Past Due
|
|
|
|
> 90 days and Accruing
|
Dollars in thousands
|
30-59 days
|
|
60-89 days
|
|
> 90 days
|
|
Total
|
|
Current
|
|
Commercial
|
$
|
39
|
|
|
$
|
468
|
|
|
$
|
179
|
|
|
$
|
686
|
|
|
$
|
101,056
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
272
|
|
|
497
|
|
|
822
|
|
|
1,591
|
|
|
201,089
|
|
|
—
|
|
Non-owner occupied
|
153
|
|
|
—
|
|
|
749
|
|
|
902
|
|
|
352,449
|
|
|
—
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
178
|
|
|
41
|
|
|
4,739
|
|
|
4,958
|
|
|
61,525
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,997
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,555
|
|
|
832
|
|
|
1,906
|
|
|
5,293
|
|
|
216,075
|
|
|
—
|
|
Jumbo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,057
|
|
|
—
|
|
Home equity
|
—
|
|
|
453
|
|
|
71
|
|
|
524
|
|
|
73,573
|
|
|
—
|
|
Consumer
|
70
|
|
|
21
|
|
|
117
|
|
|
208
|
|
|
18,887
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,235
|
|
|
—
|
|
Total
|
$
|
3,267
|
|
|
$
|
2,312
|
|
|
$
|
8,583
|
|
|
$
|
14,162
|
|
|
$
|
1,093,943
|
|
|
$
|
—
|
|
Nonaccrual loans:
The following table presents the nonaccrual loans included in the net balance of loans at
March 31, 2017
,
December 31, 2016
and
March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Dollars in thousands
|
|
2017
|
|
2016
|
|
2016
|
Commercial
|
|
$
|
226
|
|
|
$
|
430
|
|
|
$
|
298
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
577
|
|
|
822
|
|
|
509
|
|
Non-owner occupied
|
|
4,157
|
|
|
5,318
|
|
|
4,336
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
Land & land development
|
|
3,936
|
|
|
5,467
|
|
|
4,465
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
|
5,343
|
|
|
3,023
|
|
|
4,621
|
|
Jumbo
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity
|
|
542
|
|
|
225
|
|
|
194
|
|
Mortgage warehouse lines
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
94
|
|
|
121
|
|
|
151
|
|
Total
|
|
$
|
14,875
|
|
|
$
|
15,406
|
|
|
$
|
14,574
|
|
Impaired loans:
Impaired loans include the following:
|
|
▪
|
Loans which we risk-rate (consisting of loan relationships having aggregate balances in excess of $
2.5 million
, or loans exceeding $
500,000
and exhibiting credit weakness) through our normal loan review procedures and which, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Risk-rated loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired.
|
|
|
▪
|
Loans that have been modified in a troubled debt restructuring.
|
Both commercial and consumer loans are deemed impaired upon being contractually modified in a troubled debt restructuring. Troubled debt restructurings typically result from our loss mitigation activities and occur when we grant a concession to a borrower who is experiencing financial difficulty in order to minimize our economic loss and to avoid foreclosure or repossession of collateral. Once restructured, a loan is generally considered impaired until its maturity, regardless of whether the borrower performs under the modified terms. Although such a loan may be returned to accrual status if the criteria set forth in our accounting policy are met, the loan would continue to be evaluated for an asset-specific allowance for loan losses and we would continue to report the loan in the impaired loan table below.
The following tables present loans individually evaluated for impairment at
March 31, 2017
,
December 31, 2016
and
March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
Dollars in thousands
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
|
Average
Impaired
Balance
|
|
Interest Income
Recognized
while impaired
|
|
|
|
|
|
|
|
|
|
|
Without a related allowance
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
275
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
275
|
|
|
$
|
9
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
806
|
|
|
806
|
|
|
—
|
|
|
806
|
|
|
44
|
|
Non-owner occupied
|
9,678
|
|
|
9,679
|
|
|
—
|
|
|
9,679
|
|
|
271
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
4,884
|
|
|
4,885
|
|
|
—
|
|
|
4,885
|
|
|
81
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4,173
|
|
|
4,183
|
|
|
—
|
|
|
4,049
|
|
|
157
|
|
Jumbo
|
3,626
|
|
|
3,625
|
|
|
—
|
|
|
3,625
|
|
|
172
|
|
Home equity
|
524
|
|
|
523
|
|
|
—
|
|
|
523
|
|
|
24
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
39
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
4
|
|
Total without a related allowance
|
$
|
24,005
|
|
|
$
|
24,015
|
|
|
$
|
—
|
|
|
$
|
23,881
|
|
|
$
|
762
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
6,847
|
|
|
6,847
|
|
|
375
|
|
|
6,847
|
|
|
268
|
|
Non-owner occupied
|
1,300
|
|
|
1,300
|
|
|
200
|
|
|
1,300
|
|
|
42
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
2,065
|
|
|
2,066
|
|
|
589
|
|
|
2,066
|
|
|
79
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,298
|
|
|
2,300
|
|
|
337
|
|
|
2,041
|
|
|
96
|
|
Jumbo
|
852
|
|
|
852
|
|
|
25
|
|
|
852
|
|
|
43
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with a related allowance
|
$
|
13,362
|
|
|
$
|
13,365
|
|
|
$
|
1,526
|
|
|
$
|
13,106
|
|
|
$
|
528
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
25,855
|
|
|
$
|
25,858
|
|
|
$
|
1,164
|
|
|
$
|
25,858
|
|
|
$
|
794
|
|
Residential real estate
|
11,473
|
|
|
11,483
|
|
|
362
|
|
|
11,090
|
|
|
492
|
|
Consumer
|
39
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
4
|
|
Total
|
$
|
37,367
|
|
|
$
|
37,380
|
|
|
$
|
1,526
|
|
|
$
|
36,987
|
|
|
$
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Dollars in thousands
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
|
Average
Impaired
Balance
|
|
Interest Income
Recognized
while impaired
|
|
|
|
|
|
|
|
|
|
|
Without a related allowance
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
285
|
|
|
$
|
285
|
|
|
$
|
—
|
|
|
$
|
247
|
|
|
$
|
10
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
520
|
|
|
520
|
|
|
—
|
|
|
534
|
|
|
31
|
|
Non-owner occupied
|
10,203
|
|
|
10,205
|
|
|
—
|
|
|
10,675
|
|
|
294
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
5,227
|
|
|
5,227
|
|
|
—
|
|
|
5,270
|
|
|
80
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4,055
|
|
|
4,065
|
|
|
—
|
|
|
3,910
|
|
|
193
|
|
Jumbo
|
3,640
|
|
|
3,639
|
|
|
—
|
|
|
3,693
|
|
|
175
|
|
Home equity
|
524
|
|
|
523
|
|
|
—
|
|
|
523
|
|
|
22
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
44
|
|
|
44
|
|
|
—
|
|
|
50
|
|
|
5
|
|
Total without a related allowance
|
$
|
24,498
|
|
|
$
|
24,508
|
|
|
$
|
—
|
|
|
$
|
24,902
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
6,864
|
|
|
6,864
|
|
|
347
|
|
|
6,879
|
|
|
269
|
|
Non-owner occupied
|
1,311
|
|
|
1,311
|
|
|
197
|
|
|
1,327
|
|
|
43
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
2,066
|
|
|
2,066
|
|
|
585
|
|
|
2,074
|
|
|
80
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,055
|
|
|
2,057
|
|
|
251
|
|
|
1,851
|
|
|
78
|
|
Jumbo
|
853
|
|
|
853
|
|
|
24
|
|
|
862
|
|
|
44
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with a related allowance
|
$
|
13,149
|
|
|
$
|
13,151
|
|
|
$
|
1,404
|
|
|
$
|
12,993
|
|
|
$
|
514
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
26,476
|
|
|
$
|
26,478
|
|
|
$
|
1,129
|
|
|
$
|
27,006
|
|
|
$
|
807
|
|
Residential real estate
|
11,127
|
|
|
11,137
|
|
|
275
|
|
|
10,839
|
|
|
512
|
|
Consumer
|
44
|
|
|
44
|
|
|
—
|
|
|
50
|
|
|
5
|
|
Total
|
$
|
37,647
|
|
|
$
|
37,659
|
|
|
$
|
1,404
|
|
|
$
|
37,895
|
|
|
$
|
1,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
Dollars in thousands
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
|
Average
Impaired
Balance
|
|
Interest Income
Recognized
while impaired
|
|
|
|
|
|
|
|
|
|
|
Without a related allowance
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
200
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
9
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
5,446
|
|
|
5,446
|
|
|
—
|
|
|
5,446
|
|
|
211
|
|
Non-owner occupied
|
11,352
|
|
|
11,353
|
|
|
—
|
|
|
11,353
|
|
|
299
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
7,451
|
|
|
7,452
|
|
|
—
|
|
|
7,452
|
|
|
163
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4,060
|
|
|
4,071
|
|
|
—
|
|
|
3,824
|
|
|
169
|
|
Jumbo
|
3,740
|
|
|
3,739
|
|
|
—
|
|
|
3,739
|
|
|
178
|
|
Home equity
|
710
|
|
|
709
|
|
|
—
|
|
|
709
|
|
|
32
|
|
Consumer
|
62
|
|
|
62
|
|
|
—
|
|
|
62
|
|
|
5
|
|
Total without a related allowance
|
$
|
33,021
|
|
|
$
|
33,032
|
|
|
$
|
—
|
|
|
$
|
32,785
|
|
|
$
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
2,929
|
|
|
2,929
|
|
|
89
|
|
|
2,929
|
|
|
112
|
|
Non-owner occupied
|
1,841
|
|
|
1,841
|
|
|
151
|
|
|
1,841
|
|
|
71
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
1,152
|
|
|
1,152
|
|
|
139
|
|
|
1,152
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,337
|
|
|
2,337
|
|
|
187
|
|
|
2,337
|
|
|
112
|
|
Jumbo
|
867
|
|
|
868
|
|
|
31
|
|
|
868
|
|
|
43
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total with a related allowance
|
$
|
9,126
|
|
|
$
|
9,127
|
|
|
$
|
597
|
|
|
$
|
9,127
|
|
|
$
|
338
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
30,371
|
|
|
$
|
30,373
|
|
|
$
|
379
|
|
|
$
|
30,373
|
|
|
$
|
865
|
|
Residential real estate
|
11,714
|
|
|
11,724
|
|
|
218
|
|
|
11,477
|
|
|
534
|
|
Consumer
|
62
|
|
|
62
|
|
|
—
|
|
|
62
|
|
|
5
|
|
Total
|
$
|
42,147
|
|
|
$
|
42,159
|
|
|
$
|
597
|
|
|
$
|
41,912
|
|
|
$
|
1,404
|
|
Included in impaired loans are TDRs of
$28.9 million
, of which
$28.2 million
were current with respect to restructured contractual payments at
March 31, 2017
, and
$28.6 million
, of which
$28.1 million
were current with respect to restructured contractual payments at
December 31, 2016
. There were no commitments to lend additional funds under these restructurings at either balance sheet date.
The following table presents by class the TDRs that were restructured during the
three
months ended
March 31, 2017
and
March 31, 2016
. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. All TDRs are evaluated individually for allowance for loan loss purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, 2017
|
|
For the Three Months Ended
March 31, 2016
|
Dollars in thousands
|
Number of
Modifications
|
|
Pre-modification
Recorded
Investment
|
|
Post-modification
Recorded
Investment
|
|
Number of
Modifications
|
|
Pre-modification
Recorded
Investment
|
|
Post-modification
Recorded
Investment
|
Commercial
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
Land & land development
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
4
|
|
|
880
|
|
|
880
|
|
|
1
|
|
|
250
|
|
|
250
|
|
Jumbo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
4
|
|
|
$
|
880
|
|
|
$
|
880
|
|
|
1
|
|
|
$
|
250
|
|
|
$
|
250
|
|
The following table presents defaults during the stated period of TDRs that were restructured during the past twelve months. For purposes of these tables, a default is considered as either the loan was past due
30
days or more at any time during the period, or the loan was fully or partially charged off during the period.
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, 2017
|
Dollars in thousands
|
Number
of
Defaults
|
|
Recorded
Investment
at Default Date
|
Commercial
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
|
|
|
Owner-occupied
|
—
|
|
|
—
|
|
Non-owner occupied
|
—
|
|
|
—
|
|
Construction and development
|
|
|
|
|
Land & land development
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
Residential real estate
|
|
|
|
|
|
Non-jumbo
|
1
|
|
|
319
|
|
Jumbo
|
—
|
|
|
—
|
|
Home equity
|
—
|
|
|
—
|
|
Mortgage warehouse lines
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
Total
|
1
|
|
|
$
|
319
|
|
The following table details the activity regarding TDRs by loan type for the three months and
three
months ended
March 31, 2017
, and the related allowance on TDRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
|
Construction & Land Development
|
|
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Land &
Land
Develop-
ment
|
|
Construc-
tion
|
|
Commer-
cial
|
|
Owner
Occupied
|
|
Non-
Owner
Occupied
|
|
Non-
jumbo
|
|
Jumbo
|
|
Home
Equity
|
|
Mortgage Warehouse Lines
|
|
Con-
sumer
|
|
Other
|
|
Total
|
Troubled debt restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2017
|
$
|
3,866
|
|
|
$
|
—
|
|
|
$
|
183
|
|
|
$
|
7,383
|
|
|
$
|
6,714
|
|
|
$
|
5,417
|
|
|
$
|
4,493
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
28,623
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
880
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
880
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Net (paydowns) advances
|
(352
|
)
|
|
—
|
|
|
(5
|
)
|
|
(28
|
)
|
|
(58
|
)
|
|
(83
|
)
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(545
|
)
|
Transfer into foreclosed properties
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Refinance out of TDR status
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance, March 31, 2017
|
$
|
3,514
|
|
|
$
|
—
|
|
|
$
|
178
|
|
|
$
|
7,355
|
|
|
$
|
6,591
|
|
|
$
|
6,214
|
|
|
$
|
4,478
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
28,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance related to troubled debt restructurings
|
$
|
526
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
375
|
|
|
$
|
200
|
|
|
$
|
337
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,463
|
|
The following table presents the recorded investment in construction and development, commercial, and commercial real estate loans which are generally evaluated based upon our internal risk ratings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Risk Profile by Internal Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Development
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
Land and Land Development
|
|
Construction
|
|
Commercial
|
|
Owner Occupied
|
|
Non-Owner Occupied
|
|
Mortgage Warehouse Lines
|
Dollars in thousands
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2017
|
12/31/2016
|
Pass
|
$
|
60,870
|
|
|
$
|
64,144
|
|
|
$
|
16,511
|
|
|
$
|
16,584
|
|
|
$
|
133,106
|
|
|
$
|
117,214
|
|
|
$
|
212,724
|
|
|
$
|
201,113
|
|
|
$
|
396,073
|
|
|
$
|
375,181
|
|
|
$
|
30,217
|
|
$
|
85,966
|
|
OLEM (Special Mention)
|
2,002
|
|
|
2,097
|
|
|
—
|
|
|
—
|
|
|
1,341
|
|
|
1,471
|
|
|
3,152
|
|
|
567
|
|
|
1,199
|
|
|
1,381
|
|
|
—
|
|
—
|
|
Substandard
|
5,207
|
|
|
5,801
|
|
|
—
|
|
|
—
|
|
|
361
|
|
|
403
|
|
|
1,857
|
|
|
1,367
|
|
|
4,523
|
|
|
5,359
|
|
|
—
|
|
—
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
Total
|
$
|
68,079
|
|
|
$
|
72,042
|
|
|
$
|
16,511
|
|
|
$
|
16,584
|
|
|
$
|
134,808
|
|
|
$
|
119,088
|
|
|
$
|
217,733
|
|
|
$
|
203,047
|
|
|
$
|
401,795
|
|
|
$
|
381,921
|
|
|
$
|
30,217
|
|
$
|
85,966
|
|
The following table presents the recorded investment in consumer, residential real estate, and home equity loans, which are generally evaluated based on the aging status of the loans, which was previously presented, and payment activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
Nonperforming
|
Dollars in thousands
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2016
|
|
3/31/2017
|
|
12/31/2016
|
|
3/31/2016
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
$
|
260,690
|
|
|
$
|
261,020
|
|
|
$
|
218,345
|
|
|
$
|
5,450
|
|
|
$
|
4,621
|
|
|
$
|
3,023
|
|
Jumbo
|
60,780
|
|
|
65,628
|
|
|
50,057
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home Equity
|
74,757
|
|
|
74,402
|
|
|
73,872
|
|
|
542
|
|
|
194
|
|
|
225
|
|
Consumer
|
24,262
|
|
|
25,368
|
|
|
18,960
|
|
|
178
|
|
|
166
|
|
|
135
|
|
Other
|
8,831
|
|
|
9,489
|
|
|
11,235
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
429,320
|
|
|
$
|
435,907
|
|
|
$
|
372,469
|
|
|
$
|
6,170
|
|
|
$
|
4,981
|
|
|
$
|
3,383
|
|
Loan commitments:
ASC Topic 815,
Derivatives and Hedging,
requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 7. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses for the
three
month periods ended
March 31, 2017
and
2016
, and for the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Year Ended
December 31,
|
Dollars in thousands
|
|
2017
|
|
2016
|
|
2016
|
Balance, beginning of year
|
|
$
|
11,674
|
|
|
$
|
11,472
|
|
|
$
|
11,472
|
|
Charge-offs:
|
|
|
|
|
|
|
Commercial
|
|
2
|
|
|
260
|
|
|
489
|
|
Commercial real estate
|
|
|
|
|
|
|
Owner occupied
|
|
3
|
|
|
—
|
|
|
179
|
|
Non-owner occupied
|
|
65
|
|
|
101
|
|
|
124
|
|
Construction and development
|
|
|
|
|
|
|
Land and land development
|
|
3
|
|
|
—
|
|
|
127
|
|
Construction
|
|
—
|
|
|
—
|
|
|
9
|
|
Residential real estate
|
|
|
|
|
|
|
Non-jumbo
|
|
160
|
|
|
120
|
|
|
169
|
|
Jumbo
|
|
1
|
|
|
—
|
|
|
—
|
|
Home equity
|
|
—
|
|
|
11
|
|
|
175
|
|
Mortgage warehouse lines
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
30
|
|
|
15
|
|
|
98
|
|
Other
|
|
50
|
|
|
53
|
|
|
185
|
|
Total
|
|
314
|
|
|
560
|
|
|
1,555
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
3
|
|
|
59
|
|
|
73
|
|
Commercial real estate
|
|
|
|
|
|
|
Owner occupied
|
|
8
|
|
|
8
|
|
|
31
|
|
Non-owner occupied
|
|
2
|
|
|
3
|
|
|
17
|
|
Construction and development
|
|
|
|
|
|
|
Land and land development
|
|
15
|
|
|
5
|
|
|
840
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate - mortgage
|
|
|
|
|
|
|
Non-jumbo
|
|
22
|
|
|
36
|
|
|
136
|
|
Jumbo
|
|
—
|
|
|
—
|
|
|
6
|
|
Home equity
|
|
—
|
|
|
1
|
|
|
3
|
|
Mortgage warehouse lines
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
18
|
|
|
15
|
|
|
76
|
|
Other
|
|
40
|
|
|
26
|
|
|
75
|
|
Total
|
|
108
|
|
|
153
|
|
|
1,257
|
|
Net charge-offs
|
|
206
|
|
|
407
|
|
|
298
|
|
Provision for loan losses
|
|
250
|
|
|
250
|
|
|
500
|
|
Balance, end of period
|
|
$
|
11,718
|
|
|
$
|
11,315
|
|
|
$
|
11,674
|
|
Activity in the allowance for loan losses by loan class during the first
three
months of
2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
Allowance related to:
|
|
Loans
|
|
Beginning
Balance
|
Charge-
offs
|
Recoveries
|
Provision
|
Ending
Balance
|
|
Loans
individua-
lly
evaluated
for
impairm-
ent
|
Loans
collective-
ly
evaluated
for
impairm-
ent
|
Loans
acquired
with
deteriora-
ted credit
quality
|
Total
|
|
Loans
individua-
lly
evaluated
for
impairm-
ent
|
Loans
collectively
evaluated
for
impairment
|
Loans
acquired
with
deteriora-
ted credit
quality
|
Total
|
Commercial
|
$
|
934
|
|
$
|
(2
|
)
|
$
|
3
|
|
$
|
(117
|
)
|
$
|
818
|
|
|
$
|
—
|
|
$
|
818
|
|
$
|
—
|
|
$
|
818
|
|
|
$
|
275
|
|
$
|
134,533
|
|
$
|
—
|
|
$
|
134,808
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
2,109
|
|
(3
|
)
|
8
|
|
565
|
|
2,679
|
|
|
375
|
|
2,304
|
|
—
|
|
2,679
|
|
|
7,653
|
|
210,080
|
|
—
|
|
217,733
|
|
Non-owner occupied
|
3,438
|
|
(65
|
)
|
2
|
|
1,026
|
|
4,401
|
|
|
200
|
|
4,201
|
|
—
|
|
4,401
|
|
|
10,978
|
|
390,817
|
|
—
|
|
401,795
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land development
|
2,263
|
|
(3
|
)
|
15
|
|
(1,567
|
)
|
708
|
|
|
589
|
|
119
|
|
—
|
|
708
|
|
|
6,949
|
|
61,130
|
|
—
|
|
68,079
|
|
Construction
|
24
|
|
—
|
|
—
|
|
(4
|
)
|
20
|
|
|
—
|
|
20
|
|
—
|
|
20
|
|
|
—
|
|
16,511
|
|
—
|
|
16,511
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-jumbo
|
2,174
|
|
(160
|
)
|
22
|
|
207
|
|
2,243
|
|
|
337
|
|
1,906
|
|
—
|
|
2,243
|
|
|
6,471
|
|
258,671
|
|
—
|
|
265,142
|
|
Jumbo
|
95
|
|
(1
|
)
|
—
|
|
76
|
|
170
|
|
|
25
|
|
145
|
|
—
|
|
170
|
|
|
4,478
|
|
55,288
|
|
—
|
|
59,766
|
|
Home equity
|
413
|
|
—
|
|
—
|
|
78
|
|
491
|
|
|
—
|
|
491
|
|
—
|
|
491
|
|
|
524
|
|
74,775
|
|
—
|
|
75,299
|
|
Mortgage warehouse lines
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
30,217
|
|
—
|
|
30,217
|
|
Consumer
|
121
|
|
(30
|
)
|
18
|
|
(29
|
)
|
80
|
|
|
—
|
|
80
|
|
—
|
|
80
|
|
|
39
|
|
24,401
|
|
—
|
|
24,440
|
|
Other
|
103
|
|
(50
|
)
|
40
|
|
15
|
|
108
|
|
|
—
|
|
108
|
|
—
|
|
108
|
|
|
—
|
|
8,831
|
|
—
|
|
8,831
|
|
PCI
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
2,012
|
|
2,012
|
|
Total
|
$
|
11,674
|
|
$
|
(314
|
)
|
$
|
108
|
|
$
|
250
|
|
$
|
11,718
|
|
|
$
|
1,526
|
|
$
|
10,192
|
|
$
|
—
|
|
$
|
11,718
|
|
|
$
|
37,367
|
|
$
|
1,265,254
|
|
$
|
2,012
|
|
$
|
1,304,633
|
|
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The following tables present our goodwill by reporting unit at
March 31, 2017
and other intangible assets by reporting unit at
March 31, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Activity
|
Dollars in thousands
|
|
Community Banking
|
|
Insurance Services
|
|
Total
|
Balance, January 1, 2017
|
|
$
|
6,280
|
|
|
$
|
4,710
|
|
|
$
|
10,990
|
|
Reclassifications to goodwill
|
|
30
|
|
|
—
|
|
|
30
|
|
Balance, March 31, 2017
|
|
$
|
6,310
|
|
|
$
|
4,710
|
|
|
$
|
11,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Dollars in thousands
|
|
Community
Banking
|
|
Insurance
Services
|
|
Total
|
|
Community
Banking
|
|
Insurances
Services
|
|
Total
|
Identifiable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
1,612
|
|
|
$
|
3,000
|
|
|
$
|
4,612
|
|
|
$
|
1,610
|
|
|
$
|
3,000
|
|
|
$
|
4,610
|
|
Less: accumulated amortization
|
|
95
|
|
|
1,950
|
|
|
2,045
|
|
|
47
|
|
|
1,900
|
|
|
1,947
|
|
Net carrying amount
|
|
$
|
1,517
|
|
|
$
|
1,050
|
|
|
$
|
2,567
|
|
|
$
|
1,563
|
|
|
$
|
1,100
|
|
|
$
|
2,663
|
|
We recorded amortization expense of approximately
$97,000
for the
three
months ended
March 31, 2017
relative to our identifiable intangible assets.
Amortization relative to our identifiable intangible assets is expected to approximate the following:
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposit
|
|
Customer
|
Dollars in thousands
|
|
Intangible
|
|
Intangible
|
2017
|
|
$
|
186
|
|
|
$
|
200
|
|
2018
|
|
175
|
|
|
200
|
|
2019
|
|
163
|
|
|
200
|
|
2020
|
|
151
|
|
|
200
|
|
2021
|
|
139
|
|
|
200
|
|
NOTE 9. DEPOSITS
The following is a summary of interest bearing deposits by type as of
March 31, 2017
and
2016
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
March 31,
2017
|
|
December 31,
2016
|
|
March 31,
2016
|
Demand deposits, interest bearing
|
|
$
|
275,678
|
|
|
$
|
262,591
|
|
|
$
|
210,878
|
|
Savings deposits
|
|
342,548
|
|
|
337,348
|
|
|
286,695
|
|
Time deposits
|
|
530,929
|
|
|
545,843
|
|
|
474,593
|
|
Total
|
|
$
|
1,149,155
|
|
|
$
|
1,145,782
|
|
|
$
|
972,166
|
|
Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling
$200.3 million
,
$205.7 million
and
$138.8 million
at
March 31, 2017
,
December 31, 2016
, and
March 31, 2016
, respectively.
A summary of the scheduled maturities for all time deposits as of
March 31, 2017
is as follows:
|
|
|
|
|
Dollars in thousands
|
|
Nine month period ending December 31, 2017
|
$
|
211,129
|
|
Year ending December 31, 2018
|
129,067
|
|
Year ending December 31, 2019
|
73,182
|
|
Year ending December 31, 2020
|
47,752
|
|
Year ending December 31, 2021
|
37,456
|
|
Thereafter
|
32,343
|
|
Total
|
$
|
530,929
|
|
The following is a summary of the maturity distribution of all certificates of deposit in denominations of $100,000 or more as of
March 31, 2017
:
|
|
|
|
|
|
|
|
Dollars in thousands
|
Amount
|
|
Percent
|
Three months or less
|
$
|
76,654
|
|
|
19.1
|
%
|
Three through six months
|
42,176
|
|
|
10.5
|
%
|
Six through twelve months
|
90,662
|
|
|
22.6
|
%
|
Over twelve months
|
191,595
|
|
|
47.8
|
%
|
Total
|
$
|
401,087
|
|
|
100.00
|
%
|
NOTE 10. BORROWED FUNDS
Short-term borrowings:
A summary of short-term borrowings is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Dollars in thousands
|
Short-term
FHLB
Advances
|
|
Federal Funds
Purchased
and Lines
of Credit
|
|
Short-term
FHLB
Advances
|
|
Federal Funds
Purchased
and Lines
of Credit
|
Balance at March 31
|
$
|
225,400
|
|
|
$
|
3,468
|
|
|
$
|
150,000
|
|
|
$
|
3,448
|
|
Average balance outstanding for the period
|
193,481
|
|
|
3,465
|
|
|
165,102
|
|
|
3,446
|
|
Maximum balance outstanding at any month end during period
|
225,400
|
|
|
3,468
|
|
|
188,450
|
|
|
3,448
|
|
Weighted average interest rate for the period
|
1.02
|
%
|
|
1.00
|
%
|
|
0.58
|
%
|
|
0.50
|
%
|
Weighted average interest rate for balances
|
|
|
|
|
|
|
|
|
|
|
|
outstanding at March 31
|
0.84
|
%
|
|
0.78
|
%
|
|
0.57
|
%
|
|
0.50
|
%
|
Long-term borrowings:
Our long-term borrowings of
$46.2 million
,
$46.7 million
and
$75.1 million
at
March 31, 2017
,
December 31, 2016
, and
March 31, 2016
respectively, consisted primarily of advances from the Federal Home Loan Bank (“FHLB”) and structured repurchase agreements with unaffiliated institutions. All FHLB advances are collateralized primarily by similar amounts of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U. S. Government agencies and corporations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
|
|
Balance at
December 31,
|
Dollars in thousands
|
2017
|
|
2016
|
|
2016
|
Long-term FHLB advances
|
$
|
764
|
|
|
$
|
846
|
|
|
$
|
767
|
|
Long-term repurchase agreements
|
45,000
|
|
|
72,000
|
|
|
45,000
|
|
Term loan
|
451
|
|
|
2,257
|
|
|
903
|
|
Total
|
$
|
46,215
|
|
|
$
|
75,103
|
|
|
$
|
46,670
|
|
The term loan at
March 31, 2017
is secured by the common stock of our subsidiary bank and bears a variable interest rate of prime minus 50 basis points with a final maturity of 2017. Our long term FHLB borrowings and repurchase agreements bear both fixed and variable rates and mature in varying amounts through the year 2026.
The average interest rate paid on long-term borrowings for the
three
month period ended
March 31, 2017
was
4.26%
compared to
4.41%
for the first
three
months of
2016
.
Subordinated debentures owed to unconsolidated subsidiary trusts:
We have
three
statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. Our subordinated debentures totaled $
19.6 million
at
March 31, 2017
,
December 31, 2016
, and
March 31, 2016
.
In October 2002, we sponsored SFG Capital Trust I, in March 2004, we sponsored SFG Capital Trust II, and in December 2005, we sponsored SFG Capital Trust III, of which
100%
of the common equity of each trust is owned by us. SFG Capital Trust I issued $
3.5 million
in capital securities and $
109,000
in common securities and invested the proceeds in $
3.61 million
of debentures. SFG Capital Trust II issued $
7.5 million
in capital securities and $
232,000
in common securities and invested the proceeds in $
7.73 million
of debentures. SFG Capital Trust III issued $
8.0 million
in capital securities and $
248,000
in common securities and invested the proceeds in $
8.25 million
of debentures. Distributions on the capital securities issued by the trusts are payable quarterly at a variable interest rate equal to 3 month LIBOR plus 345basis points for SFG Capital Trust I, 3 month LIBOR plus 280basis points for SFG Capital Trust II, and 3 month LIBOR plus 145basis points for SFG Capital Trust III, and equals the interest rate earned on the debentures held by the trusts, and is recorded as interest expense by us. The capital securities are subject to mandatory redemption in whole or in part, upon repayment of the debentures. We have entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of the guarantee. The debentures of each Capital Trust are redeemable by us quarterly.
The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to
25%
of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Long-term
borrowings
|
|
Subordinated
debentures owed
to unconsolidated
subsidiary trusts
|
Year Ending December 31,
|
2017
|
|
$
|
463
|
|
|
$
|
—
|
|
|
2018
|
|
45,017
|
|
|
—
|
|
|
2019
|
|
18
|
|
|
—
|
|
|
2020
|
|
19
|
|
|
—
|
|
|
2021
|
|
20
|
|
|
—
|
|
|
Thereafter
|
|
678
|
|
|
19,589
|
|
|
|
|
$
|
46,215
|
|
|
$
|
19,589
|
|
NOTE 11. SHARE-BASED COMPENSATION
The 2014 Long-Term Incentive Plan (“2014 LTIP”) was adopted by our shareholders in May 2014 to enhance the ability of the Company to attract and retain exceptionally qualified individuals to serve as key employees. The LTIP provides for the issuance of up to
500,000
shares of common stock, in the form of equity awards including stock options, restricted stock, restricted stock units, stock appreciation rights ("SARs"), performance units, other stock-based awards or any combination thereof, to our key employees.
Stock options awarded under the 2009 Officer Stock Option Plan and the 1998 Officer Stock Option Plan (collectively, the “Plans”) were not altered by the 2014 LTIP, and remain subject to the terms of the Plans. However, under the terms of the 2014 LTIP, all shares of common stock remaining issuable under the Plans at the time the 2014 LTIP was adopted ceased to be available for future issuance.
Under the 2014 LTIP and the Plans, stock options and SARs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees. During first quarter 2017, we granted
53,309
SARs that become exercisable ratably over
five
years (
20%
per year) and expire
ten
years after the grant date. We granted
34,306
SARS that become exercisable ratably over
seven
years (
14.29%
per year) and expire
ten
years after the grant date. There were
no
grants of stock options or SARs during the first quarter 2016.
The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. The assumptions used to value SARs issued during 2017 were as follows:
|
|
|
|
|
|
|
5-year vesting SARs
|
7-year vesting SARs
|
Risk-free interest rate
|
2.16
|
%
|
2.24
|
%
|
Expected dividend yield
|
1.45
|
%
|
1.45
|
%
|
Expected common stock volatility
|
60.05
|
%
|
59.60
|
%
|
Expected life
|
6.5 years
|
|
7 years
|
|
We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first
three
months of
2017
and
2016
, our stock compensation expense was
$84,000
and
$50,000
and the related deferred taxes were approximately
$31,000
and
$19,000
.
A summary of activity in our Plans during the first
three
months of
2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Options/SARs
|
|
Weighted-Average
Exercise Price
|
|
Options/SARs
|
|
Weighted-Average
Exercise Price
|
Outstanding, January 1
|
217,857
|
|
|
$
|
13.56
|
|
|
244,147
|
|
|
$
|
14.05
|
|
Granted
|
87,615
|
|
|
26.01
|
|
|
—
|
|
|
—
|
|
Exercised
|
(2,000
|
)
|
|
6.21
|
|
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding, March 31
|
303,472
|
|
|
$
|
17.20
|
|
|
244,147
|
|
|
$
|
14.05
|
|
Other information regarding awards outstanding and exercisable at
March 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/SARs Outstanding
|
|
Options/SARs Exercisable
|
Range of
exercise price
|
# of
awards
|
|
WAEP
|
|
Wted. Avg.
Remaining
Contractual
Life (yrs)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
# of
awards
|
|
WAEP
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
$2.54 - $6.00
|
5,000
|
|
|
$
|
2.54
|
|
|
6.33
|
|
$
|
95
|
|
|
5,000
|
|
|
$
|
2.54
|
|
|
$
|
95
|
|
6.01 - 10.00
|
5,640
|
|
|
8.91
|
|
|
1.79
|
|
71
|
|
|
5,640
|
|
|
8.91
|
|
|
71
|
|
10.01 - 17.50
|
166,717
|
|
|
12.01
|
|
|
8.07
|
|
1,589
|
|
|
33,343
|
|
|
12.01
|
|
|
318
|
|
17.51 - 20.00
|
15,100
|
|
|
17.81
|
|
|
1.28
|
|
57
|
|
|
15,100
|
|
|
17.81
|
|
|
57
|
|
20.01 - 25.93
|
111,015
|
|
|
25.99
|
|
|
8.14
|
|
—
|
|
|
23,400
|
|
|
25.93
|
|
|
—
|
|
|
303,472
|
|
|
17.20
|
|
|
|
|
$
|
1,812
|
|
|
82,483
|
|
|
16.23
|
|
|
$
|
541
|
|
NOTE 12. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
|
|
|
|
|
|
Dollars in thousands
|
|
March 31,
2017
|
Commitments to extend credit:
|
|
|
Revolving home equity and credit card lines
|
|
$
|
64,262
|
|
Construction loans
|
|
46,643
|
|
Other loans
|
|
113,035
|
|
Standby letters of credit
|
|
3,301
|
|
Total
|
|
$
|
227,241
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
Litigation
On May 13, 2014, the ResCap Liquidating Trust (“ResCap”), as successor to Residential Funding Company, LLC f/k/a Residential Funding Corporation (“RFC”), filed a complaint against Summit Financial Mortgage, LLC (“Summit Mortgage”), a former residential mortgage subsidiary of Summit whose operations were discontinued in 2007, in the United States Bankruptcy Court for the Southern District of New York and subsequently amended its complaint on July 25, 2014.
Furthermore, on January 23, 2017, ResCap, as successor to RFC (together with RFC, the "RFC Parties"), filed a complaint against Summit Community Bank, Inc., as successor to Shenandoah Valley Community Bank (“Summit”), in the United States District Court for the District of Minnesota (collectively, the “ResCap Litigation”). Additional information regarding the ResCap Litigation is included under the caption “Legal Contingencies” in Note 17 of our consolidated financial statements beginning on page 92 of our Form 10-K for the year ended December 31, 2016.
On April 24, 2017, Summit Community Bank, Inc. entered into a Settlement and Release Agreement (the “Settlement Agreement”) with the RFC parties with respect to the Rescap Litigation. Under the Settlement Agreement, Summit Community Bank agreed to pay
$9.9 million
to fully resolve all claims by the RFC Parties, and to avoid the further costs, disruption, and distraction of defending the Rescap Litigation. Summit recorded a charge to noninterest expense in its consolidated statement of income for the three months ended March 31, 2017 to recognize this settlement.
We are not a party to any other litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability with respect to these contingent matters, in the opinion of management, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 13. REGULATORY MATTERS
We and our subsidiaries are subject to various regulatory capital requirements administered by the banking regulatory agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and each of our subsidiaries must meet specific capital guidelines that involve quantitative measures of our and our subsidiaries’ assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. We and each of our subsidiaries’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us and each of our subsidiaries to maintain minimum amounts and ratios of Common Equity Tier ("CET1") 1, Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of
March 31, 2017
, that we and each of our subsidiaries met all capital adequacy requirements to which they were subject.
The most recent notifications from the banking regulatory agencies categorized us and each of our subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, we and each of our subsidiaries must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
The Basel III Capital Rules became effective for us on January 1, 2015, with full compliance with all of the final rule's requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of
March 31, 2017
, our capital levels remained characterized as "well-capitalized" under the new rules. See the Capital Requirements section included in Part I Item 1 Business of our 2015 Annual Report on Form 10-K for further discussion of Basel III.
The following table presents Summit's, as well as our subsidiary, Summit Community Bank's ("Summit Community"), actual and required minimum capital amounts and ratios as of
March 31, 2017
and
December 31, 2016
under the Basel III Capital Rules. The minimum required capital levels presented below reflect the minimum required capital levels (inclusive of the full capital conservation buffers) that will be effective as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required Capital - Basel III Fully Phased-in
|
|
Minimum Required To Be Well Capitalized
|
Dollars in thousands
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
As of March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
$
|
143,684
|
|
|
10.3
|
%
|
|
$
|
97,649
|
|
|
7.0
|
%
|
|
$
|
90,674
|
|
|
6.5
|
%
|
Summit Community
|
|
161,572
|
|
|
11.6
|
%
|
|
97,500
|
|
|
7.0
|
%
|
|
90,536
|
|
|
6.5
|
%
|
Tier I Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
160,888
|
|
|
11.5
|
%
|
|
118,917
|
|
|
8.5
|
%
|
|
111,922
|
|
|
8.0
|
%
|
Summit Community
|
|
161,572
|
|
|
11.6
|
%
|
|
118,393
|
|
|
8.5
|
%
|
|
111,429
|
|
|
8.0
|
%
|
Total Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
172,606
|
|
|
12.3
|
%
|
|
147,347
|
|
|
10.5
|
%
|
|
140,330
|
|
|
10.0
|
%
|
Summit Community
|
|
173,290
|
|
|
12.4
|
%
|
|
146,738
|
|
|
10.5
|
%
|
|
139,750
|
|
|
10.0
|
%
|
Tier I Capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
160,888
|
|
|
9.4
|
%
|
|
68,463
|
|
|
4.0
|
%
|
|
85,579
|
|
|
5.0
|
%
|
Summit Community
|
|
161,572
|
|
|
9.4
|
%
|
|
68,754
|
|
|
4.0
|
%
|
|
85,943
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required Capital - Basel III Fully Phased-in
|
|
Minimum Required To Be Well Capitalized
|
Dollars in thousands
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
146,494
|
|
|
10.5
|
%
|
|
97,663
|
|
|
7.0
|
%
|
|
90,687
|
|
|
6.5
|
%
|
Summit Community
|
|
165,747
|
|
|
11.9
|
%
|
|
97,498
|
|
|
7.0
|
%
|
|
90,534
|
|
|
6.5
|
%
|
Tier I Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
164,357
|
|
|
11.8
|
%
|
|
118,393
|
|
|
8.5
|
%
|
|
111,428
|
|
|
8.0
|
%
|
Summit Community
|
|
165,747
|
|
|
11.9
|
%
|
|
118,391
|
|
|
8.5
|
%
|
|
111,427
|
|
|
8.0
|
%
|
Total Capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
176,031
|
|
|
12.6
|
%
|
|
122,734
|
|
|
10.5
|
%
|
|
139,707
|
|
|
10.0
|
%
|
Summit Community
|
|
177,421
|
|
|
12.7
|
%
|
|
146,687
|
|
|
10.5
|
%
|
|
139,702
|
|
|
10.0
|
%
|
Tier I Capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
164,357
|
|
|
9.4
|
%
|
|
69,939
|
|
|
4.0
|
%
|
|
87,424
|
|
|
5.0
|
%
|
Summit Community
|
|
165,747
|
|
|
9.5
|
%
|
|
69,788
|
|
|
4.0
|
%
|
|
87,235
|
|
|
5.0
|
%
|
NOTE 14. SEGMENT INFORMATION
We operate
two
business segments: community banking and insurance & financial services. These segments are primarily identified by the products or services offered. The community banking segment consists of our full service banks which offer customers traditional banking products and services through various delivery channels. The insurance & financial services segment includes
three
insurance agency offices that sell insurance products. The accounting policies discussed throughout the notes to the consolidated financial statements apply to each of our business segments.
Inter-segment revenue and expense consists of management fees allocated to the community banking and the insurance & financial services segments for all centralized functions that are performed by the parent, including overall direction in the areas of strategic planning, investment portfolio management, asset/liability management, financial reporting and other financial and administrative services. Information for each of our segments is included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
Dollars in thousands
|
|
Community
Banking
|
|
Insurance &
Financial
Services
|
|
Parent
|
|
Eliminations
|
|
Total
|
Net interest income
|
|
$
|
13,795
|
|
|
$
|
—
|
|
|
$
|
(165
|
)
|
|
$
|
—
|
|
|
$
|
13,630
|
|
Provision for loan losses
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Net interest income after provision for loan losses
|
|
13,545
|
|
|
—
|
|
|
(165
|
)
|
|
—
|
|
|
13,380
|
|
Other income
|
|
1,507
|
|
|
1,072
|
|
|
491
|
|
|
(491
|
)
|
|
2,579
|
|
Other expenses
|
|
18,104
|
|
|
981
|
|
|
422
|
|
|
(491
|
)
|
|
19,016
|
|
Income (loss) before income taxes
|
|
(3,052
|
)
|
|
91
|
|
|
(96
|
)
|
|
—
|
|
|
(3,057
|
)
|
Income tax expense (benefit)
|
|
(1,450
|
)
|
|
41
|
|
|
(32
|
)
|
|
—
|
|
|
(1,441
|
)
|
Net income (loss)
|
|
$
|
(1,602
|
)
|
|
$
|
50
|
|
|
$
|
(64
|
)
|
|
$
|
—
|
|
|
$
|
(1,616
|
)
|
Inter-segment revenue (expense)
|
|
$
|
(451
|
)
|
|
$
|
(40
|
)
|
|
$
|
491
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Average assets
|
|
$
|
1,750,059
|
|
|
$
|
6,174
|
|
|
$
|
180,393
|
|
|
$
|
(206,991
|
)
|
|
$
|
1,729,635
|
|
Capital expenditures
|
|
$
|
2,992
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
Dollars in thousands
|
|
Community
Banking
|
|
Insurance &
Financial
Services
|
|
Parent
|
|
Eliminations
|
|
Total
|
Net interest income
|
|
$
|
11,938
|
|
|
$
|
—
|
|
|
$
|
(159
|
)
|
|
$
|
—
|
|
|
$
|
11,779
|
|
Provision for loan losses
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Net interest income after provision for loan losses
|
|
11,688
|
|
|
—
|
|
|
(159
|
)
|
|
—
|
|
|
11,529
|
|
Other income
|
|
1,757
|
|
|
1,049
|
|
|
389
|
|
|
(389
|
)
|
|
2,806
|
|
Other expenses
|
|
7,274
|
|
|
1,055
|
|
|
614
|
|
|
(389
|
)
|
|
8,554
|
|
Income (loss) before income taxes
|
|
6,171
|
|
|
(6
|
)
|
|
(384
|
)
|
|
—
|
|
|
5,781
|
|
Income tax expense (benefit)
|
|
1,843
|
|
|
(2
|
)
|
|
(122
|
)
|
|
—
|
|
|
1,719
|
|
Net income (loss)
|
|
$
|
4,328
|
|
|
$
|
(4
|
)
|
|
$
|
(262
|
)
|
|
$
|
—
|
|
|
$
|
4,062
|
|
Inter-segment revenue (expense)
|
|
$
|
(361
|
)
|
|
$
|
(28
|
)
|
|
$
|
389
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Average assets
|
|
$
|
1,526,926
|
|
|
$
|
5,866
|
|
|
$
|
171,028
|
|
|
$
|
(198,706
|
)
|
|
$
|
1,505,114
|
|
Capital expenditures
|
|
$
|
221
|
|
|
$
|
—
|
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
312
|
|
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS
We have entered into
three
forward-starting, pay-fixed/receive LIBOR interest rate swaps. $
40 million
notional with an effective date of July 18, 2016, was designated as a cash flow hedge of $
40 million
of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of
2.98%
for a
3
year period. $
30 million
notional with an effective date of April 18, 2016, was designated as a cash flow hedge of $
30 million
of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of
2.89%
for a
4.5
year period. $
40 million
notional with an effective date of October 18, 2016, was designated as a cash flow hedge of $
40 million
of forecasted variable rate Federal Home Loan Bank advances. Under the terms of the swap we will pay a fixed rate of
2.84%
for a
3
year period.
We have entered into
two
pay fixed/receive variable interest rate swaps to hedge fair value variability of two commercial fixed rate loans with the same principal, amortization, and maturity terms of the underlying loans, which are designated as fair value hedges. Under the terms of a
$9.95 million
original notional swap with an effective date of January 15, 2015, we will pay a fixed rate of
4.33%
for a
10
year period. Under the terms of a
$11.3 million
original notional swap with an effective date of December 18, 2015, we will pay a fixed rate of
4.30%
for a
10
year period.
A summary of our derivative financial instruments as of
March 31, 2017
and
December 31, 2016
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Derivative Fair Value
|
|
Net Ineffective
|
Dollars in thousands
|
Notional
Amount
|
|
Asset
|
|
Liability
|
|
Hedge Gains/(Losses)
|
CASH FLOW HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
|
Short term borrowings
|
$
|
110,000
|
|
|
$
|
—
|
|
|
$
|
3,823
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
FAIR VALUE HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
|
Commercial real estate loans
|
$
|
20,374
|
|
|
$
|
257
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Derivative Fair Value
|
|
Net Ineffective
|
Dollars in thousands
|
Notional
Amount
|
|
Asset
|
|
Liability
|
|
Hedge Gains/(Losses)
|
CASH FLOW HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
Short term borrowings
|
$
|
110,000
|
|
|
$
|
—
|
|
|
$
|
4,611
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
FAIR VALUE HEDGES
|
|
|
|
|
|
|
|
Pay-fixed/receive-variable interest rate swaps
|
|
|
|
|
|
|
|
Commercial real estate loans
|
$
|
20,507
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loan commitments:
ASC Topic 815,
Derivatives and Hedging,
requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 16. ACQUISITIONS
On October 1, 2016, Summit Community Bank, Inc. ("SCB"), a wholly-owned subsidiary of Summit, acquired
100%
of the ownership of Highland County Bankshares, Inc. ("HCB") and its subsidiary First and Citizens Bank, headquartered in Monterey, Virginia for cash consideration of
$21.8 million
. HCB's assets and liabilities approximated
$123 million
and
$107 million
, respectively, at September 30, 2016.
On April 1, 2017, SCB acquired First Century Bankshares, Inc. ("FCB") and its subsidiary First Century Bank, headquartered in Bluefield, West Virginia, for consideration of
1,537,912
shares of Summit common stock and
$15.0 million
cash. FCB's assets and liabilities approximated
$405 million
and
$361 million
, respectively, at March 31, 2017.
The following table estimates the pro forma revenue, net income and diluted earnings per share of the combined entities of Summit, HCB and FCB as if the acquisitions had taken place on January 1, 2016.
The pro forma revenue, net income and diluted earnings per share for the three months ended March 31, 2017 combines the historical results of FCB with Summit's consolidated statements of income and while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2016. Acquisition related expenses of
$109,000
were included in our actual consolidated statement of income for the three months ended March 31, 2017, but were excluded from the pro forma information listed below. Additionally, FCB incurred acquisition related expenses of
$661,000
in the first three months of 2017 which were also excluded. We expect to achieve operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the pro forma amounts below.
The pro forma revenue, net income and diluted earnings per share for the three months ended March 31, 2016 combines the historical results of HCB and FCB with Summit's consolidated statements of income and while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2016. Acquisition related expenses of
$112,000
were included in our actual consolidated statement of income for the three months ended March 31, 2016, but were excluded from the pro forma information listed below. We expect to achieve operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the pro forma amounts below.
|
|
|
|
|
|
|
|
|
|
|
|
Summit, HCB & FCB Pro Forma
|
|
|
For the Three Ended March 31,
|
Dollars in thousands, except per share amounts
|
|
2017
|
|
2016
|
Total revenues, net of interest expense
|
|
$
|
21,546
|
|
|
$
|
20,505
|
|
Net (loss) income
|
|
$
|
(693
|
)
|
|
$
|
5,254
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.06
|
)
|
|
$
|
0.43
|
|
NOTE 17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following is changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ending March 31,
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
Dollars in thousands
|
|
Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Total
|
Beginning balance
|
|
$
|
(2,906
|
)
|
|
$
|
(356
|
)
|
|
$
|
(3,262
|
)
|
Other comprehensive income before reclassification
|
|
497
|
|
|
153
|
|
|
650
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
37
|
|
|
37
|
|
Net current period other comprehensive income
|
|
497
|
|
|
190
|
|
|
687
|
|
Ending balance
|
|
$
|
(2,409
|
)
|
|
$
|
(166
|
)
|
|
$
|
(2,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
Dollars in thousands
|
|
Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Total
|
Beginning balance
|
|
$
|
(3,195
|
)
|
|
$
|
2,739
|
|
|
$
|
(456
|
)
|
Other comprehensive income (loss) before reclassification
|
|
(1,462
|
)
|
|
905
|
|
|
(557
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
(248
|
)
|
|
(248
|
)
|
Net current period other comprehensive income (loss)
|
|
(1,462
|
)
|
|
657
|
|
|
(805
|
)
|
Ending balance
|
|
$
|
(4,657
|
)
|
|
$
|
3,396
|
|
|
$
|
(1,261
|
)
|