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EX-32.2 - 906 CERTIFICATION CFO - INDEPENDENT BANK CORPindb0331201710-qexx322.htm
EX-32.1 - 906 CERTIFICATION CEO - INDEPENDENT BANK CORPindb0331201710-qexx321.htm
EX-31.2 - 302 CERTIFICATION CFO - INDEPENDENT BANK CORPindb0331201710-qexx312.htm
EX-31.1 - 302 CERTIFICATION CEO - INDEPENDENT BANK CORPindb0331201710-qexx311.htm
EX-10.1 - INDEPENDENT BANK CORP. 2017 EXECUTIVE INCENTIVE PLAN - INDEPENDENT BANK CORPindb0331201710-qex101.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________ 
FORM 10-Q
___________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
Commission File Number: 1-9047
___________________________________________________
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
 ___________________________________________________
Massachusetts
04-2870273
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Office Address: 2036 Washington Street, Hanover Massachusetts 02339
Mailing Address: 288 Union Street, Rockland, Massachusetts 02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer
x
Accelerated Filer
o
 
 
 
 
Non-accelerated Filer
o
Smaller Reporting Company
o
 
 
 
 
 
 
Emerging Growth Company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Acts. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
As of May 1, 2017, there were 27,051,479 shares of the issuer’s common stock outstanding, par value $0.01 per share.
 






 
Table of Contents
 
PAGE
 
 
 
 
 
 
 
 
 




3


PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited—Dollars in thousands)
 
 
March 31,
2017
 
December 31, 2016
Assets
Cash and due from banks
$
94,662

 
$
97,196

Interest-earning deposits with banks
125,411

 
191,899

Securities
 
 
 
Securities - trading
1,289

 
804

Securities - available for sale
401,837

 
363,644

Securities - held to maturity (fair value $500,917 and $485,650)
502,123

 
487,076

Total securities
905,249

 
851,524

Loans held for sale (at fair value)
3,398

 
6,139

Loans
 
 
 
Commercial and industrial
881,329

 
902,053

Commercial real estate
3,027,305

 
3,010,798

Commercial construction
356,173

 
320,391

Small business
126,374

 
122,726

Residential real estate
653,999

 
644,426

Home equity - first position
595,828

 
577,006

Home equity - subordinate positions
412,943

 
411,141

Other consumer
10,415

 
11,064

   Total loans
6,064,366

 
5,999,605

Less: allowance for loan losses
(62,318
)
 
(61,566
)
Net loans
6,002,048

 
5,938,039

Federal Home Loan Bank stock
11,497

 
11,497

Bank premises and equipment, net
82,027

 
78,480

Goodwill
221,526

 
221,526

Other intangible assets
9,087

 
9,848

Cash surrender value of life insurance policies
145,560

 
144,503

Other real estate owned and other foreclosed assets
3,404

 
4,173

Other assets
134,245

 
154,551

Total assets
$
7,738,114

 
$
7,709,375

Liabilities and Stockholders' Equity
Deposits
 
 
 
Demand deposits
$
2,043,359

 
$
2,057,086

Savings and interest checking accounts
2,542,667

 
2,469,237

Money market
1,268,796

 
1,236,778

Time certificates of deposit of $100,000 and over
242,562

 
266,190

Other time certificates of deposits
373,290

 
382,962

Total deposits
6,470,674

 
6,412,253

Borrowings
 
 
 
Federal Home Loan Bank borrowings
50,811

 
50,819


4


Customer repurchase agreements
145,772

 
176,913

Junior subordinated debentures (less unamortized debt issuance costs of $131 and $136)
73,067

 
73,107

Subordinated debentures (less unamortized debt issuance costs of $353 and $365)
34,647

 
34,635

Total borrowings
304,297

 
335,474

Other liabilities
85,663

 
96,958

Total liabilities
6,860,634

 
6,844,685

Commitments and contingencies

 

Stockholders' equity
 
 
 
Preferred stock, $.01 par value, authorized: 1,000,000 shares, outstanding: none

 

Common stock, $.01 par value, authorized: 75,000,000 shares,
issued and outstanding: 27,046,768 shares at March 31, 2017 and 27,005,813 shares at December 31, 2016 (includes 191,181 and 212,698 shares of unvested participating restricted stock awards, respectively)
269

 
268

Value of shares held in rabbi trust at cost: 161,156 shares at March 31, 2017 and 170,036 shares at December 31, 2016
(4,330
)
 
(4,277
)
Deferred compensation and other retirement benefit obligations
4,330

 
4,277

Additional paid in capital
452,048

 
451,664

Retained earnings
425,802

 
414,095

Accumulated other comprehensive loss, net of tax
(639
)
 
(1,337
)
Total stockholders’ equity
877,480

 
864,690

Total liabilities and stockholders' equity
$
7,738,114

 
$
7,709,375

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.


5


INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited—Dollars in thousands, except per share data)
 
Three Months Ended
 
March 31
 
2017
 
2016
Interest income
 
 
 
Interest and fees on loans
$
58,793

 
$
54,269

Taxable interest and dividends on securities
5,367

 
5,197

Nontaxable interest and dividends on securities
26

 
32

Interest on loans held for sale
14

 
32

Interest on federal funds sold and short-term investments
207

 
211

Total interest and dividend income
64,407

 
59,741

Interest expense
 
 
 
Interest on deposits
2,767

 
2,868

Interest on borrowings
1,440

 
1,982

Total interest expense
4,207

 
4,850

Net interest income
60,200

 
54,891

Provision for loan losses
600

 
525

Net interest income after provision for loan losses
59,600

 
54,366

Noninterest income
 
 
 
Deposit account fees
4,544

 
4,595

Interchange and ATM fees
3,922

 
3,724

Investment management
5,614

 
5,003

Mortgage banking income
957

 
1,132

Gain on sale of equity securities
4

 

Increase in cash surrender value of life insurance policies
964

 
1,014

Loan level derivative income
606

 
1,722

Other noninterest income
2,301

 
1,965

Total noninterest income
18,912

 
19,155

Noninterest expenses
 
 
 
Salaries and employee benefits
28,324

 
27,189

Occupancy and equipment expenses
6,158

 
5,827

Data processing and facilities management
1,272

 
1,206

FDIC assessment
783

 
1,010

Advertising expense
1,294

 
1,257

Loss on extinguishment of debt

 
437

Loss on sale of equity securities
3

 
29

Merger and acquisition expense
484

 
334

Software maintenance
930

 
754

Other noninterest expenses
9,525

 
8,439

Total noninterest expenses
48,773

 
46,482

Income before income taxes
29,739

 
27,039

Provision for income taxes
9,014

 
8,428

Net income
$
20,725

 
$
18,611

Basic earnings per share
$
0.77

 
$
0.71

Diluted earnings per share
$
0.76

 
$
0.71

Weighted average common shares (basic)
27,029,640

 
26,275,323

Common share equivalents
81,283

 
43,409

Weighted average common shares (diluted)
27,110,923

 
26,318,732

Cash dividends declared per common share
$
0.32

 
$
0.29

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.


6


INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited—Dollars in thousands)
 
 
Three Months Ended
 
 
March 31
 
 
2017
 
2016
 
Net income
$
20,725

 
$
18,611

 
Other comprehensive income, net of tax
 
 
 
 
Net change in fair value of securities available for sale
531

 
4,081

 
Net change in fair value of cash flow hedges
89

 
123

 
Net change in other comprehensive income for defined benefit postretirement plans
78

 
60

 
Total other comprehensive income
698

 
4,264

 
Total comprehensive income
$
21,423

 
$
22,875

 
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.


7



INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited—Dollars in thousands, except per share data)

 
Common Stock Outstanding
 
Common Stock
 
Value of Shares Held in Rabbi Trust at Cost
 
Deferred Compensation and Other Retirement Benefit Obligations
 
Additional Paid in Capital
 
Retained Earnings
 
Accumulated Other
Comprehensive Income (Loss)
 
Total
Balance December 31, 2016
27,005,813

 
$
268

 
$
(4,277
)
 
$
4,277

 
$
451,664

 
$
414,095

 
$
(1,337
)
 
$
864,690

Cumulative effect accounting adjustment (1)

 

 

 

 
542

 
(365
)
 

 
177

Net income

 

 

 

 

 
20,725

 

 
20,725

Other comprehensive income

 

 

 

 

 

 
698

 
698

Common dividend declared ($0.32 per share)

 

 

 

 

 
(8,653
)
 

 
(8,653
)
Proceeds from exercise of stock options, net of cash paid
7,688

 

 

 

 
143

 

 

 
143

Stock based compensation

 

 

 

 
643

 

 

 
643

Restricted stock awards issued, net of awards surrendered
27,534

 
1

 

 

 
(1,337
)
 

 

 
(1,336
)
Shares issued under direct stock purchase plan
5,733

 

 

 

 
393

 

 

 
393

Deferred compensation and other retirement benefit obligations

 

 
(53
)
 
53

 

 

 

 

Balance March 31, 2017
27,046,768

 
$
269

 
$
(4,330
)
 
$
4,330

 
$
452,048

 
$
425,802

 
$
(639
)
 
$
877,480

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2015
26,236,352

 
$
260

 
$
(3,958
)
 
$
3,958

 
$
405,486

 
$
368,169

 
$
(2,452
)
 
$
771,463

Net income

 

 

 

 

 
18,611

 

 
18,611

Other comprehensive income

 

 

 

 

 

 
4,264

 
4,264

Common dividend declared ($0.29 per share)

 

 

 

 

 
(7,627
)
 

 
(7,627
)
Proceeds from exercise of stock options, net of cash paid
5,000

 

 

 

 
149

 

 

 
149

Tax benefit related to equity award activity

 

 

 

 
235

 

 

 
235

Stock based compensation

 

 

 

 
865

 

 

 
865

Restricted stock awards issued, net of awards surrendered
36,887

 
1

 

 

 
(672
)
 

 

 
(671
)
Shares issued under direct stock purchase plan
15,326

 

 

 

 
679

 

 

 
679

Deferred compensation and other retirement benefit obligations

 

 
(73
)
 
73

 

 

 

 

Tax benefit related to deferred compensation distributions

 

 

 

 
179

 

 

 
179

Balance March 31, 2016
26,293,565

 
$
261

 
$
(4,031
)
 
$
4,031

 
$
406,921

 
$
379,153

 
$
1,812

 
$
788,147

(1)
Represents adjustment needed to reflect the cumulative impact on retained earnings for previously recognized stock based compensation, which included an adjustment for estimated forfeitures. Pursuant to the Company's adoption of Accounting Standards Update 2016-09, the Company has elected to recognize stock based compensation without inclusion of a forfeiture estimate, and as such has recognized this adjustment to present retained earnings consistent with this election.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

8


INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited—Dollars in thousands)
 
 
Three Months Ended
 
March 31
 
2017
 
2016
Cash flow from operating activities
 
 
 
Net income
$
20,725

 
$
18,611

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
3,557

 
2,905

Provision for loan losses
600

 
525

Deferred income tax expense
709

 
462

Net (gain) loss on sale of securities
(1
)
 
29

Net loss on bank premises and equipment
4

 

Loss on extinguishment of debt

 
437

Net gain on other real estate owned and foreclosed assets
(29
)
 
(86
)
Realized gain on sale leaseback transaction
(258
)
 
(258
)
Stock based compensation
643

 
865

Excess tax benefit related to equity award activity

 
(235
)
Increase in cash surrender value of life insurance policies
(964
)
 
(1,014
)
Change in fair value on loans held for sale
147

 
(54
)
Net change in:
 
 
 
Trading assets
(485
)
 
(407
)
Loans held for sale
2,594

 
(1,544
)
Other assets
18,384

 
(30,455
)
Other liabilities
(8,192
)
 
11,762

Total adjustments
16,709

 
(17,068
)
Net cash provided by operating activities
37,434

 
1,543

Cash flows used in investing activities
 
 
 
Proceeds from sales of securities available for sale
16

 
266

Proceeds from maturities and principal repayments of securities available for sale
12,107

 
11,575

Purchases of securities available for sale
(49,617
)
 
(16,469
)
Proceeds from maturities and principal repayments of securities held to maturity
19,101

 
19,942

Purchases of securities held to maturity
(34,090
)
 

Redemption of Federal Home Loan Bank stock

 
2,624

Investments in low income housing projects
(3,437
)
 
(2,648
)
Purchases of life insurance policies
(93
)
 
(93
)
Net increase in loans
(64,997
)
 
(40,895
)
Purchases of bank premises and equipment
(5,457
)
 
(2,750
)
Proceeds from the sale of bank premises and equipment
27

 

Proceeds from the sale of other real estate owned and foreclosed assets
1,255

 
724

Net payments relating to other real estate owned and foreclosed assets

 
(113
)
Net cash used in investing activities
(125,185
)
 
(27,837
)
Cash flows provided by (used in) financing activities
 
 
 
Net decrease in time deposits
(33,219
)
 
(27,633
)
Net increase in other deposits
91,721

 
32,177


9


Repayments of long-term Federal Home Loan Bank borrowings

 
(51,641
)
Net increase (decrease) in customer repurchase agreements
(31,141
)
 
610

Net proceeds from exercise of stock options
143

 
149

Restricted stock awards issued, net of awards surrendered
(1,336
)
 
(671
)
Excess tax benefit from stock based compensation

 
235

Tax benefit from deferred compensation distribution

 
179

Proceeds from shares issued under direct stock purchase plan
393

 
679

Common dividends paid
(7,832
)
 
(6,823
)
Net cash provided by (used in) financing activities
18,729

 
(52,739
)
Net decrease in cash and cash equivalents
(69,022
)
 
(79,033
)
Cash and cash equivalents at beginning of year
289,095

 
275,765

Cash and cash equivalents at end of period
$
220,073

 
$
196,732

Supplemental schedule of noncash investing and financing activities
 
 
 
Transfer of loans to other real estate owned & foreclosed assets
$
457

 
$
86

Net increase in capital commitments relating to low income housing project investments
$
60

 
$
37

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

10


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION
Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.
All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts may have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the quarter ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any other interim period.
For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718 "Compensation - Stock Compensation" Update No. 2016-09. Update No. 2016-09 was issued in March 2016 and affects all entities that issue share-based awards to their employees. This update was issued as part of the FASB’s simplification initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this standard effective January 1, 2017. Upon adoption, the Company elected to no longer estimate forfeitures on stock compensation and instead recognize forfeitures when they occur. The election required a cumulative effect adjustment to retained earnings which did not materially impact the Company's consolidated financial position. Additionally, the disclosure requirements of this standard will be applied on a prospective basis.
FASB ASC Topic 310-20 "Receivables - Nonrefundable fees and Other Costs" Update No. 2017-08. Update No. 2017-08 was issued in March 2017 to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company early adopted this standard effective January 1, 2017 and the impact on the Company's consolidated financial position was immaterial.
FASB ASC Topic 715 "Compensation - Retirement Benefits" Update No. 2017-07. Update No. 2017-07 was issued in March 2017 to improve the presentation of net periodic pension cost and net periodic postretirement benefit costs. This update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The amendments in this update are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which the financial statements (interim or annual) have not been issued or made available for issuance. That is, early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.

11


FASB ASC Subtopic 610-20 "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets" Update No. 2017-05. Update No. 2017-05 was issued in February 2017 to clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term in substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. The amendments in this update also clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. For purposes of that evaluation, the amendments require an entity to evaluate the underlying assets in consolidated subsidiaries to determine whether those assets are within the scope of Subtopic 610-20. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The guidance may be applied earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods in that reporting period. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.
FASB ASC Topic 350 "Intangibles - Goodwill and Other " Update No. 2017-04. Update No. 2017-04 was issued in January 2017 to simplify the subsequent measurement of goodwill, by eliminating Step 2 for the goodwill impairment test. The amendments in this update modify the concept of impairment from the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity is no longer required to determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit has been acquired in a business combination. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.
FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2014-09. Update No. 2014-09 was issued in May 2014 to address the previous revenue recognition requirements in GAAP that differ from those in International Financial Reporting Standards (IFRS).  Accordingly, the FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. The largely converged revenue recognition standards will supersede virtually all revenue recognition guidance in GAAP and IFRS. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since the issuance of Update 2014-09, the FASB has finalized various amendments to the standard as summarized below:
FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-20
FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-12
FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-10
FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-08.
FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2015-14.

The amendments in Update 2016-20 make minor corrections or minor improvements to the codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.

Through Updates 2016-12, 2016-10 and 2016-08, the FASB amended its new revenue guidance on licenses of intellectual property, identification of performance obligations, collectability, noncash consideration and the presentation of sales and other similar taxes. The FASB also clarified the definition of a completed contract at transition and added a practical expedient to ease transition for contracts that were modified prior to adoption. The FASB also amended the new revenue recognition guidance on determining whether an entity is a principal or an agent in an arrangement which affects whether revenue should be reported gross or net.
Following the issuance of Update 2015-14, Update 2014-09, as amended, is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. A full or modified retrospective transition method is required. The Company's revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new guidance, and noninterest income.

12


The Company plans to adopt the revenue recognition guidance in the first quarter of 2018 and is currently evaluating the potential impact on noninterest income on the Company's consolidated financial position, other presentation and disclosure issues. Additionally, the Company anticipates using the modified retrospective transition method upon adoption.


13


NOTE 3 - SECURITIES
Trading Securities

The Company had trading securities of $1.3 million and $804,000 as of March 31, 2017 and December 31, 2016, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s non-qualified
401(k) Restoration Plan and Non-Qualified Deferred Compensation Plan.
Available for Sale and Held to Maturity Securities
The following table presents a summary of the amortized cost, gross unrealized gains and losses and fair value of securities available for sale and securities held to maturity for the periods indicated:
 
March 31, 2017
 
December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
(Dollars in thousands)
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency securities
$
24,007

 
$
262

 
$

 
$
24,269

 
$
24,006

 
$
238

 
$

 
$
24,244

Agency mortgage-backed securities
186,103

 
2,729

 
(498
)
 
188,334

 
173,268

 
2,852

 
(736
)
 
175,384

Agency collateralized mortgage obligations
126,017

 
182

 
(1,331
)
 
124,868

 
101,094

 
106

 
(1,332
)
 
99,868

State, county, and municipal securities
3,733

 
54

 

 
3,787

 
3,743

 
50

 

 
3,793

Single issuer trust preferred securities issued by banks
2,298

 
22

 

 
2,320

 
2,311

 
3

 
(3
)
 
2,311

Pooled trust preferred securities issued by banks and insurers
2,201

 

 
(605
)
 
1,596

 
2,200

 

 
(616
)
 
1,584

Small business administration pooled securities
37,140

 
28

 
(166
)
 
37,002

 
37,561

 

 
(372
)
 
37,189

Equity securities
19,166

 
964

 
(469
)
 
19,661

 
19,183

 
641

 
(553
)
 
19,271

Total available for sale securities
$
400,665

 
$
4,241

 
$
(3,069
)
 
$
401,837

 
$
363,366

 
$
3,890

 
$
(3,612
)
 
$
363,644

Held to maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1,007

 
$
45

 
$

 
$
1,052

 
$
1,007

 
$
47

 
$

 
$
1,054

Agency mortgage-backed securities
184,317

 
2,283

 
(1,024
)
 
185,576

 
156,088

 
2,274

 
(858
)
 
157,504

Agency collateralized mortgage obligations
284,716

 
1,065

 
(3,657
)
 
282,124

 
297,445

 
1,002

 
(3,797
)
 
294,650

Single issuer trust preferred securities issued by banks
1,500

 
38

 

 
1,538

 
1,500

 
44

 

 
1,544

Small business administration pooled securities
30,583

 
228

 
(184
)
 
30,627

 
31,036

 
189

 
(327
)
 
30,898

Total held to maturity securities
$
502,123

 
$
3,659

 
$
(4,865
)
 
$
500,917

 
$
487,076

 
$
3,556

 
$
(4,982
)
 
$
485,650

Total
$
902,788

 
$
7,900

 
$
(7,934
)
 
$
902,754

 
$
850,442

 
$
7,446

 
$
(8,594
)
 
$
849,294

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.
 
The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity as of March 31, 2017 is presented below:

 
Available for Sale
 
Held to Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(Dollars in thousands)
Due in one year or less
$
1,232

 
$
1,239

 
$

 
$

Due after one year to five years
38,912

 
39,410

 
15,915

 
16,092

Due after five to ten years
87,856

 
88,207

 
21,090

 
21,643

Due after ten years
253,499

 
253,320

 
465,118

 
463,182

Total debt securities
$
381,499

 
$
382,176

 
$
502,123

 
$
500,917

Equity securities
$
19,166

 
$
19,661

 
$

 
$

Total
$
400,665

 
$
401,837

 
$
502,123

 
$
500,917


14


Inclusive in the table above is $10.9 million of callable securities in the Company’s investment portfolio at March 31, 2017.
The carrying value of securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law, was $498.6 million and $482.1 million at March 31, 2017 and December 31, 2016, respectively.
At March 31, 2017 and December 31, 2016, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity.
Other-Than-Temporary Impairment ("OTTI")
The Company continually reviews investment securities for the existence of OTTI, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness of the obligor of the security, volatility of earnings, current analysts’ evaluations, the Company’s intent to sell the security, whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.
The following tables show the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
March 31, 2017
 
 
 
Less than 12 months
 
12 months or longer
 
Total
 
# of holdings
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(Dollars in thousands)
Agency mortgage-backed securities
42

 
$
145,227

 
$
(1,522
)
 
$

 
$

 
$
145,227

 
$
(1,522
)
Agency collateralized mortgage obligations
33

 
247,688

 
(3,003
)
 
45,458

 
(1,985
)
 
293,146

 
(4,988
)
Pooled trust preferred securities issued by banks and insurers
1

 

 

 
1,596

 
(605
)
 
1,596

 
(605
)
Small business administration pooled securities
4

 
46,217

 
(350
)
 

 

 
46,217

 
(350
)
Equity securities
22

 
1,706

 
(53
)
 
5,928

 
(416
)
 
7,634

 
(469
)
Total temporarily impaired securities
102

 
$
440,838

 
$
(4,928
)
 
$
52,982

 
$
(3,006
)
 
$
493,820

 
$
(7,934
)

 
December 31, 2016
 
 
 
Less than 12 months
 
12 months or longer
 
Total
 
# of holdings
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(Dollars in thousands)
Agency mortgage-backed securities
57

 
$
137,949

 
$
(1,594
)
 
$

 
$

 
$
137,949

 
$
(1,594
)
Agency collateralized mortgage obligations
32

 
243,051

 
(3,140
)
 
47,403

 
(1,989
)
 
290,454

 
(5,129
)
Single issuer trust preferred securities issued by banks and insurers
1

 

 

 
1,036

 
(3
)
 
1,036

 
(3
)
Pooled trust preferred securities issued by banks and insurers
1

 

 

 
1,583

 
(616
)
 
1,583

 
(616
)
Small business administration pooled securities
5

 
59,846

 
(699
)
 

 

 
59,846

 
(699
)
Equity securities
25

 
3,625

 
(77
)
 
6,334

 
(476
)
 
9,959

 
(553
)
Total temporarily impaired securities
121

 
$
444,471

 
$
(5,510
)
 
$
56,356

 
$
(3,084
)
 
$
500,827

 
$
(8,594
)
The Company does not intend to sell these investments and has determined based upon available evidence that it is more likely than not that the Company will not be required to sell the security before the recovery of its amortized cost basis. As a result, the Company does not consider these investments to be OTTI. The Company made this determination by reviewing various

15


qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.
As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at March 31, 2017:
Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are either implicitly or explicitly guaranteed by the U.S. Government or one of its agencies.
Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.
Equity Securities: This portfolio consists of mutual funds and other equity investments. During some periods, the mutual funds in the Company’s investment portfolio may have unrealized losses resulting from market fluctuations, as well as the risk premium associated with that particular asset class. For example, emerging market equities tend to trade at a higher risk premium than U.S. government bonds and thus, will fluctuate to a greater degree on both the upside and the downside. In the context of a well-diversified portfolio, however, the correlation amongst the various asset classes represented by the funds serves to minimize downside risk. The Company evaluates each mutual fund in the portfolio regularly and measures performance on both an absolute and relative basis. A reasonable recovery period for positions with an unrealized loss is based on management’s assessment of general economic data, trends within a particular asset class, valuations, earnings forecasts and bond durations. The Company has the ability and intent to hold these equity securities until a recovery of fair value.
For the three months ended March 31, 2017 and 2016 there was no OTTI recorded and no cumulative credit related component of OTTI.



16


NOTE 4 - LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
The following tables bifurcate the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated:
 
March 31, 2017
 
 
(Dollars in thousands)
 
 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 
Other Consumer
 
Total
 
Financing receivables ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
842,891

 
$
3,002,407

 
$
356,173

 
$
125,628

 
$
632,634

 
$
1,002,898

 
$
10,057

 
$
5,972,688

  
Individually evaluated for impairment
$
38,438

 
$
14,766

 
$

 
$
746

 
$
13,674

 
$
5,685

 
$
358

 
$
73,667

  
Purchased credit impaired loans
$

 
$
10,132

 
$

 
$

 
$
7,691

 
$
188

 
$

 
$
18,011

 
Total loans by group
$
881,329

 
$
3,027,305

 
$
356,173

 
$
126,374

 
$
653,999

 
$
1,008,771

 
$
10,415

 
$
6,064,366

(1
)
 
December 31, 2016
 
 
(Dollars in thousands)
 
 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 
Other Consumer
 
Total
 
Financing receivables ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
862,875

 
$
2,983,642

 
$
320,391

 
$
121,855

 
$
622,392

 
$
982,095

 
$
10,666

 
$
5,903,916

 
Individually evaluated for impairment
$
39,178

 
$
16,813

 
$

 
$
871

 
$
14,175

 
$
5,863

 
$
397

 
$
77,297

  
Purchased credit impaired loans
$

 
$
10,343

 
$

 
$

 
$
7,859

 
$
189

 
$
1

 
$
18,392

 
Total loans by group
$
902,053

 
$
3,010,798

 
$
320,391

 
$
122,726

 
$
644,426

 
$
988,147

 
$
11,064

 
$
5,999,605

(1
)
 
(1)
The amount of net deferred costs on originated loans included in the ending balance was $5.5 million and $5.1 million at March 31, 2017 and December 31, 2016 respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $8.3 million and $8.6 million at March 31, 2017 and December 31, 2016, respectively.
    













17


The following tables summarize changes in allowance for loan losses by loan category for the periods indicated:


 
Three Months Ended March 31, 2017
 
(Dollars in thousands)
 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 
Other Consumer
 
Total
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
16,921

 
$
30,369

 
$
4,522

 
$
1,502

 
$
2,621

 
$
5,238

 
$
393

 
$
61,566

Charge-offs

 

 

 
(70
)
 
(23
)
 
(14
)
 
(401
)
 
(508
)
Recoveries
187

 
31

 

 
66

 
12

 
76

 
288

 
660

Provision (benefit)
(590
)
 
343

 
501

 
35

 
106

 
45

 
160

 
600

Ending balance
$
16,518

 
$
30,743

 
$
5,023

 
$
1,533

 
$
2,716

 
$
5,345

 
$
440

 
$
62,318

Ending balance: collectively evaluated for impairment
$
12,960

 
$
30,570

 
$
5,023

 
$
1,531

 
$
1,650

 
$
5,110

 
$
419

 
$
57,263

Ending balance: individually evaluated for impairment
$
3,558

 
$
173

 
$

 
$
2

 
$
1,066

 
$
235

 
$
21

 
$
5,055

 
Three Months Ended March 31, 2016
 
(Dollars in thousands)
 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 
Other Consumer
 
Total
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
13,802

 
$
27,327

 
$
5,366

 
$
1,264

 
$
2,590

 
$
4,889

 
$
587

 
$
55,825

Charge-offs
(2
)
 

 

 
(63
)
 
(19
)
 
(147
)
 
(306
)
 
(537
)
Recoveries
138

 
189

 

 
21

 

 
27

 
244

 
619

Provision (benefit)
(453
)
 
1,079

 
(266
)
 
119

 
(4
)
 
146

 
(96
)
 
525

Ending balance
$
13,485

 
$
28,595

 
$
5,100

 
$
1,341

 
$
2,567

 
$
4,915

 
$
429

 
$
56,432

Ending balance: individually evaluated for impairment
$
222

 
$
802

 
$

 
$
3

 
$
1,223

 
$
231

 
$
26

 
$
2,507

Ending balance: collectively evaluated for impairment
$
13,263

 
$
27,793

 
$
5,100

 
$
1,338

 
$
1,344

 
$
4,684

 
$
403

 
$
53,925

For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the above tables.  Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment.  Some of the risk characteristics unique to each loan category include:
Commercial Portfolio
Commercial and Industrial: Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant and equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets.
Commercial Real Estate: Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans are typically written with amortizing payment structures.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets.
Commercial Construction: Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.  Project types include residential 1-4 family, condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory

18


guidelines.  Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.
Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable.  Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.
For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests of the borrowing entities.
Consumer Portfolio
Residential Real Estate: Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral.  Collateral consists of mortgage liens on 1-4 family residential properties.  The Company does not originate or purchase sub-prime loans.
Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. Each home equity line of credit has a variable rate and is billed in interest-only payments during the draw period. At the end of the draw period, each home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Additionally, the Company has the option of renewing each line of credit for additional draw periods.  Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.
Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, debt consolidation, personal expenses or overdraft protection.  Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.  These loans may be secured or unsecured.
Credit Quality
The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”).
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories are defined as follows:
1- 6 Rating — Pass: Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective.
7 Rating — Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
8 Rating — Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loan may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

19


9 Rating — Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
10 Rating — Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.
The Company utilizes a comprehensive strategy for monitoring commercial credit quality. Borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit analysis group. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.
The following table details the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:
 
 
 
March 31, 2017
Category
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small Business
 
Total
 
 
 
(Dollars in thousands)
Pass
1 - 6
 
$
782,142

 
$
2,900,222

 
$
354,245

 
$
123,998

 
$
4,160,607

Potential weakness
7
 
36,868

 
89,588

 
1,096

 
1,542

 
129,094

Definite weakness-loss unlikely
8
 
62,219

 
35,079

 
832

 
828

 
98,958

Partial loss probable
9
 
100

 
2,416

 

 
6

 
2,522

Definite loss
10
 

 

 

 

 

Total
 
 
$
881,329

 
$
3,027,305

 
$
356,173

 
$
126,374

 
$
4,391,181


 
 
 
December 31, 2016
Category
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small Business
 
Total
 
 
 
(Dollars in thousands)
Pass
1 - 6
 
$
783,825

 
$
2,876,570

 
$
317,099

 
$
120,304

 
$
4,097,798

Potential weakness
7
 
46,176

 
84,641

 
1,363

 
1,859

 
134,039

Definite weakness-loss unlikely
8
 
71,991

 
47,164

 
1,929

 
556

 
121,640

Partial loss probable
9
 
61

 
2,423

 

 
7

 
2,491

Definite loss
10
 

 

 

 

 

Total
 
 
$
902,053

 
$
3,010,798

 
$
320,391

 
$
122,726

 
$
4,355,968


20


For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios as of the periods indicated below:
 
March 31,
2017
 
December 31,
2016
Residential portfolio
 
 
 
FICO score (re-scored)(1)
744

 
743

LTV (re-valued)(2)
63.4
%
 
63.2
%
Home equity portfolio
 
 
 
FICO score (re-scored)(1)
767

 
767

LTV (re-valued)(2)
54.9
%
 
55.9
%
 
(1)
The average FICO scores for March 31, 2017 and December 31, 2016 are based upon rescores available from November 30, 2016 and origination score data for loans booked between December 1, 2016 and the dates indicated.
(2)
The combined LTV ratios for March 31, 2017 and December 31, 2016 are based upon updated automated valuations as of March 31, 2015 and origination value data for loans booked between April 1, 2015 and through the dates indicated. For home equity loans and lines in a subordinate lien position, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines.
Asset Quality
The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of seasoned collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and/or in process of collection.

21



The following table shows information regarding nonaccrual loans at the dates indicated:

 
March 31, 2017
 
December 31, 2016
 
(Dollars in thousands)
Commercial and industrial
$
36,877

 
$
37,455

Commercial real estate
4,792

 
6,266

Small business
207

 
302

Residential real estate
7,139

 
7,782

Home equity
5,987

 
5,553

Other consumer
48

 
47

Total nonaccrual loans (1)
$
55,050

 
$
57,405


(1)
Included in these amounts were $5.4 million and $5.2 million of nonaccruing TDRs at March 31, 2017 and December 31, 2016, respectively.
The following table shows information regarding foreclosed residential real estate property at the dates indicated:
 
March 31, 2017
 
December 31, 2016
 
(Dollars in thousands)
Foreclosed residential real estate property held by the creditor
$
3,006