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EX-32.2 - SECTION 906 CERTIFICATION CFO - INDEPENDENT BANK CORPindb06-30x201810xqexx322.htm
EX-32.1 - SECTION 906 CERTIFICATION CEO - INDEPENDENT BANK CORPindb06-30x201810xqexx321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - INDEPENDENT BANK CORPindb06-30x201810xqexx312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - INDEPENDENT BANK CORPindb06-30x201810xqexx311.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 June 30, 2018
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 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 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 August 1, 2018, there were 27,538,339 shares of the issuer’s common stock outstanding, par value $0.01 per share.
 






 
Table of Contents
 
PAGE
 
 
 
 
Condensed Notes to Consolidated Financial Statements - June 30, 2018
 
 
 




3


PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited—Dollars in thousands)
 
 
June 30,
2018
 
December 31
2017
Assets
Cash and due from banks
$
113,930

 
$
103,485

Interest-earning deposits with banks
209,176

 
109,631

Securities
 
 
 
Trading
1,598

 
1,324

Equities
20,133

 

Available for sale
442,929

 
447,498

Held to maturity (fair value $523,288 and $494,194)
538,261

 
497,688

Total securities
1,002,921

 
946,510

Loans held for sale (at fair value)
9,614

 
4,768

Loans
 
 
 
Commercial and industrial
976,264

 
888,528

Commercial real estate
3,131,337

 
3,116,561

Commercial construction
364,225

 
401,797

Small business
147,137

 
132,370

Residential real estate
779,421

 
754,329

Home equity - first position
646,626

 
612,990

Home equity - subordinate positions
422,671

 
439,098

Other consumer
11,590

 
9,880

   Total loans
6,479,271

 
6,355,553

Less: allowance for loan losses
(62,557
)
 
(60,643
)
Net loans
6,416,714

 
6,294,910

Federal Home Loan Bank stock
13,107

 
11,597

Bank premises and equipment, net
95,838

 
94,722

Goodwill
231,806

 
231,806

Other intangible assets
7,918

 
9,341

Cash surrender value of life insurance policies
153,574

 
151,528

Other real estate owned and other foreclosed assets
245

 
612

Other assets
126,159

 
123,119

Total assets
$
8,381,002

 
$
8,082,029

Liabilities and Stockholders' Equity
Deposits
 
 
 
Demand deposits
$
2,262,871

 
$
2,159,396

Savings and interest checking accounts
2,739,228

 
2,599,922

Money market
1,351,623

 
1,325,634

Time certificates of deposit of $100,000 and over
302,219

 
278,531

Other time certificates of deposits
357,549

 
365,770

Total deposits
7,013,490

 
6,729,253

Borrowings
 
 
 

4


Federal Home Loan Bank borrowings
50,775

 
53,264

Customer repurchase agreements
142,235

 
162,679

Junior subordinated debentures (less unamortized debt issuance costs of $121 and $125)
73,077

 
73,073

Subordinated debentures (less unamortized debt issuance costs of $295 and $318)
34,705

 
34,682

Total borrowings
300,792

 
323,698

Other liabilities
89,655

 
85,269

Total liabilities
7,403,937

 
7,138,220

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: 27,532,524 shares at June 30, 2018 and 27,450,190 shares at December 31, 2017 (includes 159,969 and 177,191 shares of unvested participating restricted stock awards, respectively)
274

 
273

Value of shares held in rabbi trust at cost: 156,714 shares at June 30, 2018 and 164,438 shares at December 31, 2017
(4,653
)
 
(4,590
)
Deferred compensation and other retirement benefit obligations
4,653

 
4,590

Additional paid in capital
481,979

 
479,430

Retained earnings
504,926

 
465,937

Accumulated other comprehensive loss, net of tax
(10,114
)
 
(1,831
)
Total stockholders’ equity
977,065

 
943,809

Total liabilities and stockholders' equity
$
8,381,002

 
$
8,082,029

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
 
Six Months Ended
 
June 30
 
June 30
 
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
Interest and fees on loans
$
72,082

 
$
62,287

 
$
139,266

 
$
121,080

Taxable interest and dividends on securities
6,498

 
5,609

 
12,717

 
10,976

Nontaxable interest and dividends on securities
16

 
26

 
32

 
52

Interest on loans held for sale
30

 
21

 
49

 
35

Interest on federal funds sold and short-term investments
541

 
190

 
852

 
397

Total interest and dividend income
79,167

 
68,133

 
152,916

 
132,540

Interest expense
 
 
 
 
 
 
 
Interest on deposits
4,587

 
2,912

 
8,522

 
5,679

Interest on borrowings
1,412

 
1,466

 
2,755

 
2,906

Total interest expense
5,999

 
4,378

 
11,277

 
8,585

Net interest income
73,168

 
63,755

 
141,639

 
123,955

Provision for loan losses
2,000

 
1,050

 
2,500

 
1,650

Net interest income after provision for loan losses
71,168

 
62,705

 
139,139

 
122,305

Noninterest income
 
 
 
 
 
 
 
Deposit account fees
4,551

 
4,392

 
8,982

 
8,936

Interchange and ATM fees
4,769

 
4,434

 
8,942

 
8,356

Investment management
6,822

 
5,995

 
12,964

 
11,609

Mortgage banking income
1,038

 
1,314

 
1,908

 
2,271

Gain on sale of equity securities
2

 
3

 
2

 
7

Increase in cash surrender value of life insurance policies
998

 
1,017

 
1,945

 
1,981

Loan level derivative income
708

 
1,337

 
1,155

 
1,943

Other noninterest income
2,999

 
2,906

 
5,852

 
5,207

Total noninterest income
21,887

 
21,398

 
41,750

 
40,310

Noninterest expenses
 
 
 
 
 
 
 
Salaries and employee benefits
30,288

 
28,654

 
61,388

 
56,978

Occupancy and equipment expenses
6,497

 
6,059

 
13,905

 
12,217

Data processing and facilities management
1,264

 
1,188

 
2,550

 
2,460

FDIC assessment
691

 
778

 
1,489

 
1,561

Advertising expense
1,166

 
1,365

 
2,289

 
2,659

Consulting expense
1,089

 
1,262

 
1,845

 
1,816

Debit card expense
841

 
852

 
1,650

 
1,624

Loss on sale of equity securities

 
2

 

 
5

Merger and acquisition expense
434

 
2,909

 
434

 
3,393

Software maintenance
997

 
896

 
1,969

 
1,826

Other noninterest expenses
9,421

 
8,844

 
18,620

 
17,043

Total noninterest expenses
52,688

 
52,809

 
106,139

 
101,582

Income before income taxes
40,367

 
31,294

 
74,750

 
61,033

Provision for income taxes
9,249

 
10,731

 
16,077

 
19,745

Net income
$
31,118

 
$
20,563

 
$
58,673

 
$
41,288

Basic earnings per share
$
1.13

 
$
0.75

 
$
2.13

 
$
1.52

Diluted earnings per share
$
1.13

 
$
0.75

 
$
2.13

 
$
1.52

Weighted average common shares (basic)
27,526,653

 
27,257,799

 
27,506,724

 
27,144,350


6


Common share equivalents
54,525

 
74,497

 
61,480

 
78,757

Weighted average common shares (diluted)
27,581,178

 
27,332,296

 
27,568,204

 
27,223,107

Cash dividends declared per common share
$
0.38

 
$
0.32

 
$
0.76

 
$
0.64

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

7


INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited—Dollars in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2018
 
2017
 
2018
 
2017
Net income
$
31,118

 
$
20,563

 
$
58,673

 
$
41,288

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Net change in fair value of securities available for sale
(1,924
)
 
792

 
(7,392
)
 
1,323

Net change in fair value of cash flow hedges
(112
)
 
(190
)
 
103

 
(101
)
Net change in other comprehensive income for defined benefit postretirement plans
117

 
78

 
234

 
156

Total other comprehensive income (loss)
(1,919
)
 
680

 
(7,055
)
 
1,378

Total comprehensive income
$
29,199

 
$
21,243

 
$
51,618

 
$
42,666

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


8


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, 2017
27,450,190

 
$
273

 
$
(4,590
)
 
$
4,590

 
$
479,430

 
$
465,937

 
$
(1,831
)
 
$
943,809

Opening balance reclassification (1)

 

 

 

 

 
397

 
(397
)
 

Cumulative effect accounting adjustment (2)

 

 

 

 

 
831

 
(831
)
 

Net income

 

 

 

 

 
58,673

 

 
58,673

Other comprehensive loss

 

 

 

 

 

 
(7,055
)
 
(7,055
)
Common dividend declared ($0.76 per share)

 

 

 

 

 
(20,912
)
 

 
(20,912
)
Proceeds from exercise of stock options, net of cash paid
20,756

 

 

 

 
184

 

 

 
184

Stock based compensation

 

 

 

 
2,392

 

 

 
2,392

Restricted stock awards issued, net of awards surrendered
43,217

 
1

 

 

 
(1,339
)
 

 

 
(1,338
)
Shares issued under direct stock purchase plan
18,361

 

 

 

 
1,312

 

 

 
1,312

Deferred compensation and other retirement benefit obligations

 

 
(63
)
 
63

 

 

 

 

Balance June 30, 2018
27,532,524

 
$
274

 
$
(4,653
)
 
$
4,653

 
$
481,979

 
$
504,926

 
$
(10,114
)
 
$
977,065

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2016
27,005,813

 
$
268

 
$
(4,277
)
 
$
4,277

 
$
451,664

 
$
414,095

 
$
(1,337
)
 
$
864,690

Cumulative effect accounting adjustment (3)

 

 

 

 
542

 
(365
)
 

 
177

Net income

 

 

 

 

 
41,288

 

 
41,288

Other comprehensive income

 

 

 

 

 

 
1,378

 
1,378

Common dividend declared ($0.64 per share)

 

 

 

 

 
(17,431
)
 

 
(17,431
)
Common stock issued for acquisition
369,286

 
4

 

 

 
23,464

 

 

 
23,468

Proceeds from exercise of stock options, net of cash paid
11,174

 

 

 

 
8

 

 

 
8

Stock based compensation

 

 

 

 
1,560

 

 

 
1,560

Restricted stock awards issued, net of awards surrendered
32,524

 

 

 

 
(1,361
)
 

 

 
(1,361
)
Shares issued under direct stock purchase plan
12,374

 

 

 

 
807

 

 

 
807

Deferred compensation and other retirement benefit obligations

 

 
(137
)
 
137

 

 

 

 

Balance June 30, 2017
27,431,171

 
$
272

 
$
(4,414
)
 
$
4,414

 
$
476,684

 
$
437,587

 
$
41

 
$
914,584

(1)
Represents adjustment needed to reflect the cumulative impact on retained earnings for reclassification of the income tax effects attributable to accumulated other comprehensive income, as a result of the Tax Cuts and Jobs Act (the "Tax Act"). Pursuant to the Company's adoption of Accounting Standards Update 2018-02, the Company has elected to reclassify amounts stranded in other comprehensive income to retained earnings.
(2)
Represents adjustment needed to reflect the cumulative impact on retained earnings for the classification and measurement of investments in equity securities. Pursuant to the Company's adoption of Accounting Standards Update 2016-01, the Company's investments in equity securities will no longer be classified as available for sale, therefore the Company was required to reclassify the net unrealized gain recognized on the change in fair value of these equity securities from other comprehensive income to retained earnings.
(3)
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.

9


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

10


INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited—Dollars in thousands)
 
 
Six Months Ended
 
June 30
 
2018
 
2017
Cash flow from operating activities
 
 
 
Net income
$
58,673

 
$
41,288

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
8,021

 
7,454

Provision for loan losses
2,500

 
1,650

Deferred income tax expense
283

 
642

Net unrealized loss on equity securities
433

 

Net gain on sale of securities
(2
)
 
(2
)
Net gain on bank premises and equipment
(4
)
 
(92
)
Net loss on other real estate owned and foreclosed assets
1

 
70

Realized gain on sale leaseback transaction
(441
)
 
(517
)
Stock based compensation
2,392

 
1,560

Increase in cash surrender value of life insurance policies
(1,945
)
 
(1,981
)
Change in fair value on loans held for sale
(44
)
 
(6
)
Net change in:
 
 
 
Trading assets
(274
)
 
(489
)
Loans held for sale
(4,802
)
 
(3,236
)
Other assets
(1,591
)
 
8,973

Other liabilities
4,444

 
(6,104
)
Total adjustments
8,971

 
7,922

Net cash provided by operating activities
67,644

 
49,210

Cash flows used in investing activities
 
 
 
Proceeds from sales of equity securities
10

 

Purchases of equity securities
(202
)
 

Proceeds from sales of securities available for sale

 
35

Proceeds from maturities and principal repayments of securities available for sale
27,625

 
24,406

Purchases of securities available for sale
(53,559
)
 
(74,956
)
Proceeds from maturities and principal repayments of securities held to maturity
42,716

 
38,634

Purchases of securities held to maturity
(83,047
)
 
(49,802
)
Net purchases of Federal Home Loan Bank stock
(1,510
)
 
(2,438
)
Investments in low income housing projects
(2,132
)
 
(3,871
)
Purchases of life insurance policies
(101
)
 
(101
)
Net increase in loans
(124,355
)
 
(118,579
)
Cash acquired in business combinations, net of cash paid

 
6,289

Purchases of bank premises and equipment
(5,707
)
 
(14,182
)
Proceeds from the sale of bank premises and equipment
63

 
1,918

Proceeds from the sale of other real estate owned and foreclosed assets
253

 
1,531

Net cash used in investing activities
(199,946
)
 
(191,116
)
Cash flows provided by financing activities
 
 
 
Net increase (decrease) in time deposits
15,522

 
(55,787
)

11


Net increase in other deposits
268,770

 
179,495

Repayments of long-term Federal Home Loan Bank borrowings
(2,475
)
 

Net decrease in customer repurchase agreements
(20,444
)
 
(17,542
)
Net proceeds from exercise of stock options
184

 
8

Restricted stock awards issued, net of awards surrendered
(1,338
)
 
(1,361
)
Proceeds from shares issued under direct stock purchase plan
1,312

 
807

Common dividends paid
(19,239
)
 
(16,487
)
Net cash provided by financing activities
242,292

 
89,133

Net increase (decrease) in cash and cash equivalents
109,990

 
(52,773
)
Cash and cash equivalents at beginning of year
213,116

 
289,095

Cash and cash equivalents at end of period
$
323,106

 
$
236,322

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

 
$
457

Net increase in capital commitments relating to low income housing project investments
$
4

 
$
46

In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows
 
 
 
Common stock issued for acquisition
$

 
$
23,468

Fair value of assets acquired, net of cash acquired
$

 
$
179,252

Fair value of liabilities assumed
$

 
$
162,073

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

12


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 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 June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 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, 2017, filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 326 "Financial Instruments - Credit Losses" Update No. 2016-13. Update No. 2016-13 was issued in June 2016 to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on the Company's consolidated financial position.
FASB ASC Topic 842 "Leases" Update No. 2016-02. Update No. 2016-02 was issued in February 2016 and affects any entity that enters into a lease (as that term is defined in this update), with some specified scope exemptions. The core principle of this update is that a lessee should recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. In addition, the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently in the process of reviewing its current lease agreements to assess the impact of the adoption of this standard.
    

13


NOTE 3 - SECURITIES
Trading Securities
The Company had trading securities of $1.6 million and $1.3 million as of June 30, 2018 and December 31, 2017, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s nonqualified 401(k) Restoration Plan and Nonqualified Deferred Compensation Plan.
Equity Securities
The Company had equity securities of $20.1 million as of June 30, 2018. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans. These securities were previously classified as available for sale and were reclassified as equity securities due to a change in accounting guidance effective January 1, 2018. The equity securities had a fair value of $20.6 million as of December 31, 2017 and are reflected accordingly as available for sale in the table below.
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:
 
June 30, 2018
 
December 31, 2017
 
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
$
33,479

 
$

 
$
(760
)
 
$
32,719

 
$
35,475

 
$
86

 
$
(131
)
 
$
35,430

Agency mortgage-backed securities
219,409

 
1,019

 
(5,439
)
 
214,989

 
214,934

 
1,897

 
(1,067
)
 
215,764

Agency collateralized mortgage obligations
150,122

 
90

 
(5,065
)
 
145,147

 
124,098

 
78

 
(2,164
)
 
122,012

State, county, and municipal securities
1,977

 
19

 

 
1,996

 
2,237

 
37

 

 
2,274

Single issuer trust preferred securities issued by banks
1,320

 
9

 

 
1,329

 
2,012

 
4

 

 
2,016

Pooled trust preferred securities issued by banks and insurers
2,166

 

 
(415
)
 
1,751

 
2,179

 

 
(539
)
 
1,640

Small business administration pooled securities
46,102

 

 
(1,104
)
 
44,998

 
47,852

 
44

 
(118
)
 
47,778

Equity securities

 

 

 

 
19,432

 
1,594

 
(442
)
 
20,584

Total available for sale securities
$
454,575

 
$
1,137

 
$
(12,783
)
 
$
442,929

 
$
448,219

 
$
3,740

 
$
(4,461
)
 
$
447,498

Held to maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1,005

 
$
9

 
$

 
$
1,014

 
$
1,006

 
$
29

 
$

 
$
1,035

Agency mortgage-backed securities
186,299

 
286

 
(4,585
)
 
182,000

 
204,768

 
1,791

 
(736
)
 
205,823

Agency collateralized mortgage obligations
323,746

 
151

 
(10,555
)
 
313,342

 
262,998

 
397

 
(4,987
)
 
258,408

Single issuer trust preferred securities issued by banks
1,500

 
23

 

 
1,523

 
1,500

 
29

 

 
1,529

Small business administration pooled securities
25,711

 
51

 
(353
)
 
25,409

 
27,416

 
183

 
(200
)
 
27,399

Total held to maturity securities
$
538,261

 
$
520

 
$
(15,493
)
 
$
523,288

 
$
497,688

 
$
2,429

 
$
(5,923
)
 
$
494,194

Total
$
992,836

 
$
1,657

 
$
(28,276
)
 
$
966,217

 
$
945,907

 
$
6,169

 
$
(10,384
)
 
$
941,692

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.
 

14


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 June 30, 2018 is presented below:

 
Due in one year or less
 
Due after one year to five years
 
Due after five to ten years
 
Due after ten years
 
Total
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(Dollars in thousands)
Available for sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency securities
$
999

 
$
998

 
$
20,014

 
$
19,781

 
$
12,466

 
$
11,940

 
$

 
$

 
$
33,479

 
$
32,719

Agency mortgage-backed securities
520

 
524

 
43,223

 
42,216

 
95,410

 
93,245

 
80,256

 
79,004

 
219,409

 
214,989

Agency collateralized mortgage obligations

 

 

 

 

 

 
150,122

 
145,147

 
150,122

 
145,147

State, county, and municipal securities

 

 
1,024

 
1,026

 
953

 
970

 

 

 
1,977

 
1,996

Single issuer trust preferred securities issued by banks

 

 

 

 

 

 
1,320

 
1,329

 
1,320

 
1,329

Pooled trust preferred securities issued by banks and insurers

 

 

 

 

 

 
2,166

 
1,751

 
2,166

 
1,751

Small business administration pooled securities

 

 

 

 

 

 
46,102

 
44,998

 
46,102

 
44,998

Total available for sale securities
$
1,519

 
$
1,522

 
$
64,261

 
$
63,023

 
$
108,829

 
$
106,155

 
$
279,966

 
$
272,229

 
$
454,575

 
$
442,929

Held to maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$

 
$
1,005

 
$
1,014

 
$

 
$

 
$

 
$

 
$
1,005

 
$
1,014

Agency mortgage-backed securities

 

 
8,998

 
8,846

 
29,911

 
29,380

 
147,390

 
143,774

 
186,299

 
182,000

Agency collateralized mortgage obligations

 

 

 

 
1,179

 
1,175

 
322,567

 
312,167

 
323,746

 
313,342

Single issuer trust preferred securities issued by banks

 

 

 

 
1,500

 
1,523

 

 

 
1,500

 
1,523

Small business administration pooled securities

 

 

 

 

 

 
25,711

 
25,409

 
25,711

 
25,409

Total held to maturity securities
$

 
$

 
$
10,003

 
$
9,860

 
$
32,590

 
$
32,078

 
$
495,668

 
$
481,350

 
$
538,261

 
$
523,288

Inclusive in the table above is $6.6 million of callable securities at June 30, 2018.
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 $545.4 million and $547.2 million at June 30, 2018 and December 31, 2017, respectively.
At June 30, 2018 and December 31, 2017, 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.

15


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:
 
June 30, 2018
 
 
 
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)
U.S. government agency securities
4

 
$
32,719

 
$
(760
)
 
$

 
$

 
$
32,719

 
$
(760
)
Agency mortgage-backed securities
151

 
341,018

 
(9,349
)
 
14,003

 
(675
)
 
355,021

 
(10,024
)
Agency collateralized mortgage obligations
52

 
274,293

 
(7,235
)
 
137,912

 
(8,385
)
 
412,205

 
(15,620
)
Pooled trust preferred securities issued by banks and insurers
1

 

 

 
1,751

 
(415
)
 
1,751

 
(415
)
Small business administration pooled securities
6

 
54,637

 
(1,264
)
 
8,947

 
(193
)
 
63,584

 
(1,457
)
Total temporarily impaired securities
214

 
$
702,667

 
$
(18,608
)
 
$
162,613

 
$
(9,668
)
 
$
865,280

 
$
(28,276
)

 
December 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)
U.S.government agency securities
4

 
$
24,343

 
$
(131
)
 
$

 
$

 
$
24,343

 
$
(131
)
Agency mortgage-backed securities
84

 
235,411

 
(1,493
)
 
14,886

 
(310
)
 
250,297

 
(1,803
)
Agency collateralized mortgage obligations
42

 
178,142

 
(1,579
)
 
159,506

 
(5,572
)
 
337,648

 
(7,151
)
Pooled trust preferred securities issued by banks and insurers
1

 

 

 
1,640

 
(539
)
 
1,640

 
(539
)
Small business administration pooled securities
4

 
34,553

 
(223
)
 
9,647

 
(95
)
 
44,200

 
(318
)
Equity securities
28

 
3,290

 
(39
)
 
7,619

 
(403
)
 
10,909

 
(442
)
Total temporarily impaired securities
163

 
$
475,739

 
$
(3,465
)
 
$
193,298

 
$
(6,919
)
 
$
669,037

 
$
(10,384
)
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 each security before the recovery of its amortized cost basis. As a result, the Company does not consider these investments to be OTTI and accordingly, there was no OTTI recorded and no cumulative credit related component of OTTI for the three and six months ended June 30, 2018 and 2017.
The Company made this determination by reviewing various 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 June 30, 2018:
U.S. Government Agency Securities, 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 implicitly 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

16


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.



17


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:
 
June 30, 2018
 
 
(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
$
943,722

 
$
3,110,500

 
$
364,225

 
$
146,334

 
$
761,476

 
$
1,062,334

 
$
11,335

 
$
6,399,926

  
Individually evaluated for impairment
$
32,542

 
$
15,016

 
$

 
$
803

 
$
12,705

 
$
6,759

 
$
255

 
$
68,080

  
Purchased credit impaired loans
$

 
$
5,821

 
$

 
$

 
$
5,240

 
$
204

 
$

 
$
11,265

 
Total loans by group
$
976,264

 
$
3,131,337

 
$
364,225

 
$
147,137

 
$
779,421

 
$
1,069,297

 
$
11,590

 
$
6,479,271

(1
)
 
December 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
$
853,885

 
$
3,093,945

 
$
401,797

 
$
131,667

 
$
733,809

 
$
1,045,053

 
$
9,573

 
$
6,269,729

 
Individually evaluated for impairment
$
34,643

 
$
16,638

 
$

 
$
703

 
$
13,684

 
$
6,826

 
$
307

 
$
72,801

  
Purchased credit impaired loans
$

 
$
5,978

 
$

 
$

 
$
6,836

 
$
209

 
$

 
$
13,023

 
Total loans by group
$
888,528

 
$
3,116,561

 
$
401,797

 
$
132,370

 
$
754,329

 
$
1,052,088

 
$
9,880

 
$
6,355,553

(1
)
 
(1)
The amount of net deferred costs on originated loans included in the ending balance was $6.7 million and $6.1 million at June 30, 2018 and December 31, 2017, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $8.8 million and $9.4 million at June 30, 2018 and December 31, 2017, respectively.
    













18


The following tables summarize changes in allowance for loan losses by loan category for the periods indicated:
 
Three Months Ended June 30, 2018
 
(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
$
13,533

 
$
31,459

 
$
5,679

 
$
1,593

 
$
2,837

 
$
5,359

 
$
402

 
$
60,862

Charge-offs
(4
)
 

 

 
(102
)
 
(109
)
 
(95
)
 
(259
)
 
(569
)
Recoveries
59

 
18

 

 
10

 
1

 
23

 
153

 
264

Provision (benefit)
1,200

 
618

 
(463
)
 
208

 
180

 
181

 
76

 
2,000

Ending balance
$
14,788

 
$
32,095

 
$
5,216

 
$
1,709

 
$
2,909

 
$
5,468

 
$
372

 
$
62,557

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 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