NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
The unaudited interim
consolidated financial statements include the accounts of the Company, a Texas corporation and a financial holding company registered under the Bank Holding Company Act of 1956, as amended, or BHCA, and its wholly-owned subsidiaries: First Financial
Bank, National Association, Abilene, Texas; First Technology Services, Inc.; First Financial Trust & Asset Management Company, National Association; First Financial Investments, Inc.; and First Financial Insurance Agency, Inc.
Through our subsidiary bank, we conduct a full-service commercial banking business. Our banking centers are located primarily in Central, North Central,
Southeast and West Texas. As of June 30, 2017, we had 69 financial centers across Texas, with eleven locations in Abilene, three locations in San Angelo and Weatherford, two locations in Cleburne, Conroe, Stephenville and Granbury, and one
location each in Acton, Albany, Aledo, Alvarado, Beaumont, Boyd, Bridgeport, Brock, Burleson, Cisco, Clyde, Cut and Shoot, Decatur, Eastland, Fort Worth, Glen Rose, Grapevine, Hereford, Huntsville, Keller, Magnolia, Mauriceville, Merkel, Midlothian,
Mineral Wells, Montgomery, Moran, New Waverly, Newton, Odessa, Orange, Port Arthur, Ranger, Rising Star, Roby, Southlake, Sweetwater, Tomball, Trent, Trophy Club, Vidor, Waxahachie, Willis and Willow Park, all in Texas. Our trust subsidiary has
seven locations which are located in Abilene, Fort Worth, Odessa, Beaumont, San Angelo, Stephenville and Sweetwater.
In the opinion of management, the
unaudited interim consolidated financial statements reflect all adjustments necessary for a fair presentation of the Companys financial position and unaudited results of operations and should be read in conjunction with the Companys
audited consolidated financial statements, and notes thereto in the Companys Annual Report on Form 10-K, for the year ended December 31, 2016. All adjustments were of a normal recurring nature. However, the results of operations for the
three and six months ended June 30, 2017, are not necessarily indicative of the results to be expected for the year ending December 31, 2017, due to seasonality, changes in economic conditions and loan credit quality, interest rate
fluctuations, regulatory and legislative changes and other factors. The preparation of financial statements in conformity with United States generally accepted accounting principles (GAAP) require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the financial statement date. Actual results could vary. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
GAAP have been condensed or omitted under U.S. Securities and Exchange Commission (SEC) rules and regulations. The Company evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated
financial statements were issued.
Goodwill and other intangible assets are evaluated annually for impairment as of the end of the second quarter. No such
impairment has been noted in connection with the current or any prior evaluations.
9
Note 2 - Stock Repurchase
On July 25, 2017, the Companys Board of Directors authorized the repurchase of up to 2,000,000 common shares through September 30, 2020.
Previously, the Board had authorized the repurchase of up to 1,500,000 common shares through September 30, 2017. The stock buyback plan authorizes management to repurchase the stock at such time as repurchases are considered beneficial to
shareholders. Any repurchase of stock will be made through the open market, block trades or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that
the Company is required to repurchase. Through July 28, 2017, no shares were repurchased under this authorization or the previous authorization.
Note 3 - Earnings Per Share
Basic earnings per common
share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the periods presented. In computing diluted earnings per common share for the three months and six months ended
June 30, 2017 and 2016, the Company assumes that all dilutive outstanding options to purchase common stock have been exercised at the beginning of the period (or the time of issuance, if later). The dilutive effect of the outstanding options
and the restricted stock is reflected by application of the treasury stock method, whereby the proceeds from exercised options and restricted stock are assumed to be used to purchase common stock at the average market price during the respective
periods. The weighted average common shares outstanding used in computing basic earnings per common share for the three months ended June 30, 2017 and 2016 were 66,100,089 and 66,016,562 shares, respectively. The weighted average common shares
outstanding used in computing basic earnings per common share for the six months ended June 30, 2017 and 2016 were 66,086,817 and 65,995,560 shares, respectively. The weighted average common shares outstanding used in computing fully diluted
earnings per common share for the three months ended June 30, 2017 and 2016 were 66,344,943 and 66,138,275 shares, respectively. The weighted average common shares outstanding used in computing fully diluted earnings per common share for the
six months ended June 30, 2017 and 2016 were 66,362,191 and 66,153,579 shares, respectively.
Note 4 - Interest-bearing Time Deposits in Banks and
Securities
Interest-bearing time deposits in banks totaled $1,458,000, $2,427,000 and $1,707,000 at June 30, 2017 and 2016 and December 31,
2016, respectively, and have original maturities generally ranging from one to two years.
Management classifies debt and equity securities as
held-to-maturity, available-for-sale, or trading based on its intent. Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at cost, adjusted for amortization of
premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with all
unrealized gains and unrealized losses judged to be temporary, net of deferred income taxes, excluded from earnings and reported in the consolidated statements of comprehensive earnings. Available-for-sale securities that have unrealized losses that
are judged other-than-temporary are included in gain (loss) on sale of securities and a new cost basis is established. Securities classified as trading are recorded at fair value with unrealized gains and losses included in earnings.
The Company records its available-for-sale and trading securities portfolio at fair value. Fair values of these securities are determined based on
methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves.
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of
fair value estimates in the market place as a result of the illiquid market specific to the type of security.
10
When the fair value of a security is below its amortized cost, and depending on the length of time the condition
exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for
possible other-than-temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity, (ii) whether it is more likely than not that we will have to sell our securities
prior to recovery and/or maturity, (iii) the length of time and extent to which the fair value has been less than amortized cost, and (iv) the financial condition of the issuer. Often, the information available to conduct these assessments
is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which
could have a material effect on the Companys results of operations and financial condition.
The Companys investment portfolio consists of
U.S. Treasury securities, obligations of U.S. government sponsored enterprises and agencies, obligations of states and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds.
Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing
methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates quarterly, on a sample basis, prices supplied by the independent pricing services by comparison to prices obtained from other
third-party sources.
A summary of the Companys available-for-sale securities follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Amortized
Cost Basis
|
|
|
Gross
Unrealized
Holding
Gains
|
|
|
Gross
Unrealized
Holding
Losses
|
|
|
Estimated
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
10,578
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
10,573
|
|
Obligations of U.S. government sponsored enterprises and agencies
|
|
|
73,666
|
|
|
|
60
|
|
|
|
(21
|
)
|
|
|
73,705
|
|
Obligations of states and political subdivisions
|
|
|
1,476,714
|
|
|
|
58,707
|
|
|
|
(3,548
|
)
|
|
|
1,531,873
|
|
Corporate bonds and other
|
|
|
30,079
|
|
|
|
163
|
|
|
|
(2
|
)
|
|
|
30,240
|
|
Residential mortgage-backed securities
|
|
|
971,557
|
|
|
|
8,083
|
|
|
|
(4,558
|
)
|
|
|
975,082
|
|
Commercial mortgage-backed securities
|
|
|
342,651
|
|
|
|
1,202
|
|
|
|
(813
|
)
|
|
|
343,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
2,905,245
|
|
|
$
|
68,215
|
|
|
$
|
(8,947
|
)
|
|
$
|
2,964,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
Amortized
Cost Basis
|
|
|
Gross
Unrealized
Holding
Gains
|
|
|
Gross
Unrealized
Holding
Losses
|
|
|
Estimated
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
10,721
|
|
|
$
|
90
|
|
|
$
|
|
|
|
$
|
10,811
|
|
Obligations of U.S. government sponsored enterprises and agencies
|
|
|
121,174
|
|
|
|
1,178
|
|
|
|
|
|
|
|
122,352
|
|
Obligations of states and political subdivisions
|
|
|
1,418,342
|
|
|
|
97,980
|
|
|
|
(10
|
)
|
|
|
1,516,312
|
|
Corporate bonds and other
|
|
|
71,687
|
|
|
|
1,723
|
|
|
|
|
|
|
|
73,410
|
|
Residential mortgage-backed securities
|
|
|
787,451
|
|
|
|
18,928
|
|
|
|
(606
|
)
|
|
|
805,773
|
|
Commercial mortgage-backed securities
|
|
|
261,662
|
|
|
|
5,068
|
|
|
|
(32
|
)
|
|
|
266,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
2,671,037
|
|
|
$
|
124,967
|
|
|
$
|
(648
|
)
|
|
$
|
2,795,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Amortized
Cost Basis
|
|
|
Gross
Unrealized
Holding
Gains
|
|
|
Gross
Unrealized
Holding
Losses
|
|
|
Estimated
Fair Value
|
|
U.S. Treasury securities
|
|
$
|
10,649
|
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
10,668
|
|
Obligations of U.S. government sponsored enterprises and agencies
|
|
|
113,450
|
|
|
|
253
|
|
|
|
|
|
|
|
113,703
|
|
Obligations of states and political subdivisions
|
|
|
1,534,095
|
|
|
|
40,194
|
|
|
|
(10,013
|
)
|
|
|
1,564,276
|
|
Corporate bonds and other
|
|
|
51,920
|
|
|
|
476
|
|
|
|
(3
|
)
|
|
|
52,393
|
|
Residential mortgage-backed securities
|
|
|
848,614
|
|
|
|
8,260
|
|
|
|
(5,513
|
)
|
|
|
851,361
|
|
Commercial mortgage-backed securities
|
|
|
269,044
|
|
|
|
622
|
|
|
|
(1,230
|
)
|
|
|
268,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
2,827,772
|
|
|
$
|
49,824
|
|
|
$
|
(16,759
|
)
|
|
$
|
2,860,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosures related to the Companys held-to-maturity securities, which totaled $105,000, $137,000 and $121,000 at
June 30, 2017 and 2016, and December 31, 2016, respectively, have not been presented due to insignificance.
The Company invests in
mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities
include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at June 30, 2017 were computed by using scheduled amortization of balances and historical prepayment rates. At
June 30, 2017 and 2016, and December 31, 2016, the Company did not hold CMOs that entail higher risks than standard mortgage-backed securities.
The amortized cost and estimated fair value of available-for-sale securities at June 30, 2017, by contractual and expected maturity, are shown below (in
thousands):
12
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost Basis
|
|
|
Estimated
Fair Value
|
|
Due within one year
|
|
$
|
177,217
|
|
|
$
|
178,504
|
|
Due after one year through five years
|
|
|
671,763
|
|
|
|
700,451
|
|
Due after five years through ten years
|
|
|
740,378
|
|
|
|
765,419
|
|
Due after ten years
|
|
|
1,679
|
|
|
|
2,017
|
|
Mortgage-backed securities
|
|
|
1,314,208
|
|
|
|
1,318,122
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,905,245
|
|
|
$
|
2,964,513
|
|
|
|
|
|
|
|
|
|
|
The following tables disclose, as of June 30, 2017 and 2016, and December 31, 2016, the Companys investment
securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 or more months (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
June 30, 2017
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
U.S. Treasury securities
|
|
$
|
10,321
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,321
|
|
|
$
|
5
|
|
Obligations of U.S. government sponsored enterprises and agencies
|
|
|
30,062
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
30,062
|
|
|
|
21
|
|
Obligations of states and political subdivisions
|
|
|
110,706
|
|
|
|
1,906
|
|
|
|
37,851
|
|
|
|
1,642
|
|
|
|
148,557
|
|
|
|
3,548
|
|
Corporate bonds and other
|
|
|
241
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
2
|
|
Residential mortgage-backed securities
|
|
|
422,087
|
|
|
|
3,387
|
|
|
|
60,410
|
|
|
|
1,171
|
|
|
|
482,497
|
|
|
|
4,558
|
|
Commercial mortgage-backed securities
|
|
|
150,805
|
|
|
|
745
|
|
|
|
20,120
|
|
|
|
68
|
|
|
|
170,925
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
724,222
|
|
|
$
|
6,066
|
|
|
$
|
118,381
|
|
|
$
|
2,881
|
|
|
$
|
842,603
|
|
|
$
|
8,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
June 30, 2016
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
Obligations of states and political subdivisions
|
|
$
|
5,959
|
|
|
$
|
7
|
|
|
$
|
745
|
|
|
$
|
3
|
|
|
$
|
6,704
|
|
|
$
|
10
|
|
Residential mortgage-backed securities
|
|
|
16,085
|
|
|
|
14
|
|
|
|
60,360
|
|
|
|
592
|
|
|
|
76,445
|
|
|
|
606
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
14,152
|
|
|
|
32
|
|
|
|
14,152
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,044
|
|
|
$
|
21
|
|
|
$
|
75,257
|
|
|
$
|
627
|
|
|
$
|
97,301
|
|
|
$
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
December 31, 2016
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
Obligations of state and political subdivisions
|
|
$
|
446,052
|
|
|
$
|
9,997
|
|
|
$
|
1,209
|
|
|
$
|
16
|
|
|
$
|
447,261
|
|
|
$
|
10,013
|
|
Corporate bonds and other
|
|
|
244
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
3
|
|
Residential mortgage-backed securities
|
|
|
372,331
|
|
|
|
4,532
|
|
|
|
33,227
|
|
|
|
981
|
|
|
|
405,558
|
|
|
|
5,513
|
|
Commercial mortgage-backed securities
|
|
|
193,495
|
|
|
|
1,180
|
|
|
|
13,263
|
|
|
|
50
|
|
|
|
206,758
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,012,122
|
|
|
$
|
15,712
|
|
|
$
|
47,699
|
|
|
$
|
1,047
|
|
|
$
|
1,059,821
|
|
|
$
|
16,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
The number of investments in an unrealized loss position totaled 215 at June 30, 2017. We do not believe
these unrealized losses are other-than-temporary as (i) we do not have the intent to sell our securities prior to recovery and/or maturity and (ii) it is more likely than not that we will not have to sell our securities prior
to recovery and/or maturity. In making this determination, we also consider the length of time and extent to which fair value has been less than cost and the financial condition of the issuer. The unrealized losses noted are interest rate related
due to the level of interest rates at June 30, 2017 compared to the time of purchase. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns
on these securities. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At June 30, 2017, 81.61% of our available-for-sale securities that are obligations of states
and political subdivisions were issued within the State of Texas, of which 33.14% are guaranteed by the Texas Permanent School Fund.
At June 30,
2017, $1,865,800,000 of the Companys securities were pledged as collateral for public or trust fund deposits, repurchase agreements and for other purposes required or permitted by law.
During the quarters ended June 30, 2017 and 2016, sales of investment securities that were classified as available-for-sale totaled $30,791,000 and
$12,829,000, respectively. Gross realized gains from security sales during the second quarter of 2017 and 2016 totaled $795,000 and $912,000, respectively. Gross realized losses from security sales during the second quarter of 2017 totaled $48,000.
There were no gross realized losses during the second quarter of 2016. During the six months ended June 30, 2017 and 2016, sale of investment securities were classified as available-for-sale totaled $36,971,000 and $13,382,000, respectively.
Gross realized gains from security sales during the six-month period ended June 30, 2017 and 2016 totaled $800,000 and $919,000, respectively. Gross realized losses from security sales during the six-month periods ended June 30, 2017 and
2016 totaled $50,000 and $5,000, respectively.
The specific identification method was used to determine cost in order to compute the realized gains and
losses.
Note 5 - Loans and Allowance for Loan Losses
Loans held for investment are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. Interest on loans is
calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely.
The Company has certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management
reviews and approves these policies and procedures on an annual basis and makes changes as appropriate. Management receives and reviews monthly reports related to loan originations, quality, concentrations, delinquencies, nonperforming and potential
problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geographic location.
Commercial loans are underwritten after evaluating and understanding the borrowers ability to operate profitably and effectively. Underwriting standards
are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are
primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts
receivable or inventory, and include personal guarantees.
14
Agricultural loans are subject to underwriting standards and processes similar to commercial loans. These
agricultural loans are based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Most agricultural loans are secured by the agriculture related assets being financed, such as
farm land, cattle or equipment, and include personal guarantees.
Real estate loans are also subject to underwriting standards and processes similar to
commercial and agricultural loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. The repayment of real estate loans is generally largely dependent on the successful operation
of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the
Companys real estate portfolio are generally diverse in terms of type and geographic location within Texas. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry. Generally, real estate
loans are owner occupied which further reduces the Companys risk.
Consumer loan underwriting utilizes methodical credit standards and analysis to
supplement the Companys underwriting policies and procedures. The Companys loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual
dollar amounts of consumer loans that are spread over numerous individual borrowers also minimize the Companys risk.
The allowance for loan losses
is an amount which represents managements best estimate of probable losses that are inherent in the Companys loan portfolio as of the balance sheet date. The allowance for loan losses is comprised of three elements: (i) specific
reserves determined based on probable losses on specific classified loans; (ii) a historical valuation reserve component that considers historical loss rates; and (iii) qualitative reserves based upon general economic conditions and other
qualitative risk factors both internal and external to the Company. The allowance for loan losses is increased by charges to income and decreased by
charge-offs
(net of recoveries). Managements periodic
evaluation of the appropriateness of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience, and the results of periodic reviews of
the portfolio. For purposes of determining our historical valuation reserve, the loan portfolio, less cash secured loans, government guaranteed loans and classified loans, is multiplied by the Companys historical loss rate. Specific
allocations are increased or decreased in accordance with deterioration or improvement in credit quality and a corresponding increase or decrease in risk of loss on a particular loan. In addition, we adjust our allowance for qualitative factors such
as current local economic conditions and trends, including, without limitations, unemployment, oil and gas prices, drought conditions, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and
severity of problem loans and changes in trends in volume and terms of loans. This qualitative reserve serves to estimate for additional areas of losses inherent in our portfolio that are not reflected in our historic loss factors.
Although we believe we use the best information available to make loan loss allowance determinations, future adjustments could be necessary if circumstances
or economic conditions differ substantially from the assumptions used in making our initial determinations. A decline in the economy and employment rates could result in increased levels of non-performing assets and charge-offs, increased loan
provisions and reductions in income. Additionally, bank regulatory agencies periodically review our allowance for loan losses and methodology and could require, in accordance with generally accepted accounting principles, additional provisions to
the allowance for loan losses based on their judgment of information available to them at the time of their examination as well as changes to our methodology.
Accrual of interest is discontinued on a loan and payments are applied to principal when management believes, after considering economic and business
conditions and collection efforts, the borrowers financial condition is such that collection of interest is doubtful. Except consumer loans, generally all
15
loans past due greater than 90 days, based on contractual terms, are placed on non-accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured. Consumer loans are generally charged-off when a loan becomes past due 90 days. For other loans in the portfolio, facts and circumstances are evaluated in making charge-off decisions.
Loans are considered impaired when, based on current information and events, management determines that it is probable we will be unable to collect all
amounts due in accordance with the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary. Interest payments on impaired loans are typically applied to
principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectable.
The Companys policy requires measurement of the allowance for an impaired, collateral dependent loan based on the fair value of the collateral. Other
loan impairments for non-collateral dependent loans are measured based on the present value of expected future cash flows or the loans observable market price. At June 30, 2017 and 2016, and December 31, 2016, all significant
impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral.
From time to time, the Company modifies its loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions
are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may
include a lower interest rate, a reduction of principal, or a longer term to maturity. For all impaired loans, including the Companys troubled debt restructurings, the Company performs a periodic, well-documented credit evaluation of the
borrowers financial condition and prospects for repayment to assess the likelihood that all principal and interest payments required under the terms of the agreement will be collected in full. When doubt exists about the ultimate
collectability of principal and interest, the troubled debt restructuring remains on non-accrual status and payments received are applied to reduce principal to the extent necessary to eliminate such doubt. This determination of accrual status is
judgmental and is based on facts and circumstances related to each troubled debt restructuring. Each of these loans is individually evaluated for impairment and a specific reserve is recorded based on probable losses, taking into consideration the
related collateral, modified loan terms and cash flow. As of June 30, 2017 and 2016, and December 31, 2016, substantially all of the Companys troubled debt restructured loans are included in the non-accrual totals.
The Company originates certain mortgage loans for sale in the secondary market. Accordingly, these loans are classified as held-for-sale and are carried at
the lower of cost or fair value on an aggregate basis. The mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first three to nine months, or if documentation is determined not to be in compliance
with regulations. The Companys historic losses as a result of these indemnities have been insignificant.
Loans acquired, including loans acquired
in a business combination, are initially recorded at fair value with no valuation allowance. Acquired loans are segregated between those considered to be credit impaired and those deemed performing. To make this determination, management considers
such factors as past due status, non-accrual status and credit risk ratings. The fair value of acquired performing loans is determined by discounting expected cash flows, both principal and interest, at prevailing market interest rates. The
difference between the fair value and principal balances at acquisition date, the fair value discount, is accreted into interest income over the estimated life of the acquired loan portfolio.
Purchased credit impaired loans are those loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at
acquisition, that the Company will be unable to collect all amounts contractually owed. Their acquisition fair value, which includes a credit component at the acquisition date, was based on the estimate of cash flows, both principal and interest,
expected to be
16
collected or estimated collateral values if cash flows are not estimable, discounted at prevailing market rates of interest. The difference between the discounted cash flows expected at
acquisition and the investment in the loan is recognized as interest income on a level-yield method over the life of the loan, unless management was unable to reasonably forecast cash flows in which case the loans were placed on nonaccrual.
Contractually required payments for interest and principal that exceed the cash flows expected at acquisition are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized
prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows subsequent to acquisition are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred
after the acquisition. The carrying amount of purchased credit impaired loans at June 30, 2017 and 2016, and December 31, 2016, was $889,000, $1,654,000 and $1,256,000, respectively, compared to a contractual balance of $1,174,290,
$2,362,000, and $1,865,000, respectively. Other purchased credit impaired loan disclosures were omitted due to immateriality.
Loans held-for-investment
by class of financing receivables are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Commercial
|
|
$
|
668,049
|
|
|
$
|
661,659
|
|
|
$
|
674,410
|
|
Agricultural
|
|
|
77,342
|
|
|
|
80,812
|
|
|
|
84,021
|
|
Real estate
|
|
|
2,271,100
|
|
|
|
2,154,388
|
|
|
|
2,189,844
|
|
Consumer
|
|
|
422,861
|
|
|
|
386,796
|
|
|
|
409,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held-for-investment
|
|
$
|
3,439,352
|
|
|
$
|
3,283,655
|
|
|
$
|
3,357,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale totaled $18,327,000, $25,733,000 and $26,898,000 at June 30, 2017 and 2016, and December 31,
2016, respectively, which are valued using the lower of cost or fair value.
The Companys non-accrual loans, loans still accruing and past due 90
days or more and restructured loans are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Non-accrual loans*
|
|
$
|
21,489
|
|
|
$
|
38,904
|
|
|
$
|
27,371
|
|
Loans still accruing and past due 90 days or more
|
|
|
314
|
|
|
|
237
|
|
|
|
284
|
|
Troubled debt restructured loans**
|
|
|
672
|
|
|
|
961
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,475
|
|
|
$
|
40,102
|
|
|
$
|
28,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes $889,000, $1,654,000 and $1,256,000 of purchased credit impaired loans as of June 30, 2017 and 2016, and
December 31, 2016, respectively.
**Troubled debt restructured loans of $5,417,000, $7,454,000 and $6,863,000, whose interest collection, after
considering economic and business conditions and collection efforts, is doubtful are included in non-accrual loans at June 30, 2017 and 2016, and December 31, 2016, respectively.
The Companys recorded investment in impaired loans and the related valuation allowance are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
December 31, 2016
|
Recorded
Investment
|
|
Valuation
Allowance
|
|
Recorded
Investment
|
|
Valuation
Allowance
|
|
Recorded
Investment
|
|
Valuation
Allowance
|
$21,489
|
|
$4,543
|
|
$38,904
|
|
$7,102
|
|
$27,371
|
|
$5,012
|
|
|
|
|
|
|
|
|
|
|
|
17
The Company had $24,720,000, $40,387,000 and $29,000,000 in non-accrual, past due 90 days or more and still
accruing, restructured loans and foreclosed assets at June 30, 2017 and 2016, and December 31, 2016, respectively. Non-accrual loans at June 30, 2017 and 2016, and December 31, 2016, consisted of the following by class of
financing receivables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Commercial
|
|
$
|
5,404
|
|
|
$
|
17,254
|
|
|
$
|
7,284
|
|
Agricultural
|
|
|
61
|
|
|
|
20
|
|
|
|
99
|
|
Real estate
|
|
|
14,801
|
|
|
|
20,435
|
|
|
|
18,754
|
|
Consumer
|
|
|
1,223
|
|
|
|
1,195
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,489
|
|
|
$
|
38,904
|
|
|
$
|
27,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No significant additional funds are committed to be advanced in connection with impaired loans as of June 30, 2017.
The Companys impaired loans and related allowance as of June 30, 2017 and 2016, and December 31, 2016, are summarized in the following tables
by class of financing receivables (in thousands). No interest income was recognized on impaired loans subsequent to their classification as impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Recorded
Investment
With No
Allowance*
|
|
|
Recorded
Investment
With
Allowance
|
|
|
Total
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Year-to-
Date
Average
Recorded
Investment
|
|
|
Three-
Month
Average
Recorded
Investment
|
|
Commercial
|
|
$
|
9,362
|
|
|
$
|
708
|
|
|
$
|
4,696
|
|
|
$
|
5,404
|
|
|
$
|
1,683
|
|
|
$
|
13,590
|
|
|
$
|
7,985
|
|
Agricultural
|
|
|
66
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
17
|
|
|
|
69
|
|
|
|
66
|
|
Real Estate
|
|
|
19,071
|
|
|
|
3,755
|
|
|
|
11,046
|
|
|
|
14,801
|
|
|
|
2,369
|
|
|
|
17,769
|
|
|
|
15,473
|
|
Consumer
|
|
|
1,432
|
|
|
|
309
|
|
|
|
914
|
|
|
|
1,223
|
|
|
|
474
|
|
|
|
1,457
|
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,931
|
|
|
$
|
4,772
|
|
|
$
|
16,717
|
|
|
$
|
21,489
|
|
|
$
|
4,543
|
|
|
$
|
32,885
|
|
|
$
|
24,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes $889,000 of purchased credit impaired loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Recorded
Investment
With No
Allowance*
|
|
|
Recorded
Investment
With
Allowance
|
|
|
Total
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Year-to-
Date
Average
Recorded
Investment
|
|
|
Three-
Month
Average
Recorded
Investment
|
|
Commercial
|
|
$
|
19,571
|
|
|
$
|
1,103
|
|
|
$
|
16,151
|
|
|
$
|
17,254
|
|
|
$
|
4,144
|
|
|
$
|
16,970
|
|
|
$
|
17,319
|
|
Agricultural
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
22
|
|
|
|
21
|
|
Real Estate
|
|
|
25,241
|
|
|
|
7,427
|
|
|
|
13,008
|
|
|
|
20,435
|
|
|
|
2,565
|
|
|
|
20,856
|
|
|
|
21,227
|
|
Consumer
|
|
|
1,375
|
|
|
|
254
|
|
|
|
941
|
|
|
|
1,195
|
|
|
|
373
|
|
|
|
1,148
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,207
|
|
|
$
|
8,784
|
|
|
$
|
30,120
|
|
|
$
|
38,904
|
|
|
$
|
7,102
|
|
|
$
|
38,996
|
|
|
$
|
39,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes $1,654,000 of purchased credit impaired loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Recorded
Investment
With No
Allowance*
|
|
|
Recorded
Investment
With
Allowance
|
|
|
Total
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Year
Average
Recorded
Investment
|
|
Commercial
|
|
$
|
13,389
|
|
|
$
|
1,148
|
|
|
$
|
6,136
|
|
|
$
|
7,284
|
|
|
$
|
2,128
|
|
|
$
|
4,921
|
|
Agricultural
|
|
|
103
|
|
|
|
|
|
|
|
99
|
|
|
|
99
|
|
|
|
25
|
|
|
|
50
|
|
Real Estate
|
|
|
23,466
|
|
|
|
6,229
|
|
|
|
12,525
|
|
|
|
18,754
|
|
|
|
2,428
|
|
|
|
16,170
|
|
Consumer
|
|
|
1,421
|
|
|
|
280
|
|
|
|
954
|
|
|
|
1,234
|
|
|
|
431
|
|
|
|
914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,379
|
|
|
$
|
7,657
|
|
|
$
|
19,714
|
|
|
$
|
27,371
|
|
|
$
|
5,012
|
|
|
$
|
22,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes $1,256,000 of purchased credit impaired loans.
18
The Company recognized interest income on impaired loans prior to being recognized as impaired of approximately
$829,000 during the year ended December 31, 2016. Such amounts for the three-month and six-month periods ended June 30, 2017 and 2016 were not significant.
From a credit risk standpoint, the Company rates its loans in one of four categories: (i) pass, (ii) special mention, (iii) substandard or
(iv) doubtful. Loans rated as loss are charged-off.
The ratings of loans reflect a judgment about the risks of default and loss associated with the
loan. The Company reviews the ratings on our credits as part of our on-going monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each
reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit
quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in
credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit
exposure is not as prominent as credits rated more harshly.
Credits rated substandard are those in which the normal repayment of principal and interest
may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility.
Prompt corrective action is therefore required to strengthen the Companys position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a
serious evaluation of the secondary support to the credit is performed.
Credits rated doubtful are those in which full collection of principal appears
highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by
the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.
The following summarizes the
Companys internal ratings of its loans held-for-investment by class of financing receivables and portfolio segments, which are the same, at June 30, 2017 and 2016, and December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial
|
|
$
|
627,812
|
|
|
$
|
5,965
|
|
|
$
|
34,272
|
|
|
$
|
|
|
|
$
|
668,049
|
|
Agricultural
|
|
|
73,727
|
|
|
|
859
|
|
|
|
2,756
|
|
|
|
|
|
|
|
77,342
|
|
Real Estate
|
|
|
2,200,067
|
|
|
|
20,978
|
|
|
|
50,055
|
|
|
|
|
|
|
|
2,271,100
|
|
Consumer
|
|
|
420,138
|
|
|
|
197
|
|
|
|
2,526
|
|
|
|
|
|
|
|
422,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,321,744
|
|
|
$
|
27,999
|
|
|
$
|
89,609
|
|
|
$
|
|
|
|
$
|
3,439,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial
|
|
$
|
608,758
|
|
|
$
|
5,027
|
|
|
$
|
47,874
|
|
|
$
|
|
|
|
$
|
661,659
|
|
Agricultural
|
|
|
77,870
|
|
|
|
|
|
|
|
2,942
|
|
|
|
|
|
|
|
80,812
|
|
Real Estate
|
|
|
2,080,544
|
|
|
|
20,852
|
|
|
|
52,992
|
|
|
|
|
|
|
|
2,154,388
|
|
Consumer
|
|
|
383,818
|
|
|
|
246
|
|
|
|
2,732
|
|
|
|
|
|
|
|
386,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,150,990
|
|
|
$
|
26,125
|
|
|
$
|
106,540
|
|
|
$
|
|
|
|
$
|
3,283,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Commercial
|
|
$
|
629,756
|
|
|
$
|
5,769
|
|
|
$
|
38,885
|
|
|
$
|
|
|
|
$
|
674,410
|
|
Agricultural
|
|
|
81,620
|
|
|
|
715
|
|
|
|
1,686
|
|
|
|
|
|
|
|
84,021
|
|
Real Estate
|
|
|
2,111,947
|
|
|
|
18,091
|
|
|
|
59,806
|
|
|
|
|
|
|
|
2,189,844
|
|
Consumer
|
|
|
406,182
|
|
|
|
212
|
|
|
|
2,638
|
|
|
|
|
|
|
|
409,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,229,505
|
|
|
$
|
24,787
|
|
|
$
|
103,015
|
|
|
$
|
|
|
|
$
|
3,357,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017 and 2016, and December 31, 2016, the Companys past due loans are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
15-59
Days
Past
Due*
|
|
|
60-89
Days
Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
|
|
|
90 Days
Past Due
Still
Accruing
|
|
Commercial
|
|
$
|
3,026
|
|
|
$
|
872
|
|
|
$
|
2,673
|
|
|
$
|
6,571
|
|
|
$
|
661,478
|
|
|
$
|
668,049
|
|
|
$
|
150
|
|
Agricultural
|
|
|
633
|
|
|
|
|
|
|
|
8
|
|
|
|
641
|
|
|
|
76,701
|
|
|
|
77,342
|
|
|
|
8
|
|
Real Estate
|
|
|
12,794
|
|
|
|
1,713
|
|
|
|
4,661
|
|
|
|
19,168
|
|
|
|
2,251,932
|
|
|
|
2,271,100
|
|
|
|
99
|
|
Consumer
|
|
|
1,134
|
|
|
|
414
|
|
|
|
99
|
|
|
|
1,647
|
|
|
|
421,214
|
|
|
|
422,861
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,587
|
|
|
$
|
2,999
|
|
|
$
|
7,441
|
|
|
$
|
28,027
|
|
|
$
|
3,411,325
|
|
|
$
|
3,439,352
|
|
|
$
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
15-59
Days
Past
Due*
|
|
|
60-89
Days
Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
|
|
|
90 Days
Past Due
Still
Accruing
|
|
Commercial
|
|
$
|
13,948
|
|
|
$
|
1,032
|
|
|
$
|
937
|
|
|
$
|
15,917
|
|
|
$
|
645,742
|
|
|
$
|
661,659
|
|
|
$
|
|
|
Agricultural
|
|
|
350
|
|
|
|
2
|
|
|
|
|
|
|
|
352
|
|
|
|
80,460
|
|
|
|
80,812
|
|
|
|
|
|
Real Estate
|
|
|
14,640
|
|
|
|
984
|
|
|
|
3,784
|
|
|
|
19,408
|
|
|
|
2,134,980
|
|
|
|
2,154,388
|
|
|
|
187
|
|
Consumer
|
|
|
1,786
|
|
|
|
262
|
|
|
|
182
|
|
|
|
2,230
|
|
|
|
384,566
|
|
|
|
386,796
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,724
|
|
|
$
|
2,280
|
|
|
$
|
4,903
|
|
|
$
|
37,907
|
|
|
$
|
3,245,748
|
|
|
$
|
3,283,655
|
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
15-59
Days
Past
Due*
|
|
|
60-89
Days
Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Total Current
|
|
|
Total Loans
|
|
|
Total 90
Days
Past Due
Still
Accruing
|
|
Commercial
|
|
$
|
3,908
|
|
|
$
|
1,122
|
|
|
$
|
2,220
|
|
|
$
|
7,250
|
|
|
$
|
667,160
|
|
|
$
|
674,410
|
|
|
$
|
10
|
|
Agricultural
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
185
|
|
|
|
83,836
|
|
|
|
84,021
|
|
|
|
|
|
Real Estate
|
|
|
13,172
|
|
|
|
1,301
|
|
|
|
5,268
|
|
|
|
19,741
|
|
|
|
2,170,103
|
|
|
|
2,189,844
|
|
|
|
272
|
|
Consumer
|
|
|
1,845
|
|
|
|
368
|
|
|
|
122
|
|
|
|
2,335
|
|
|
|
406,697
|
|
|
|
409,032
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,110
|
|
|
$
|
2,791
|
|
|
$
|
7,610
|
|
|
$
|
29,511
|
|
|
$
|
3,327,796
|
|
|
$
|
3,357,307
|
|
|
$
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are
monitored after such loans are 30 days past due.
The following table details the allowance for loan losses at June 30, 2017 and 2016, and
December 31, 2016, by portfolio segment (in thousands). There were no allowances for purchased credit impaired loans at June 30, 2017 and 2016, and December 31, 2016. Allocation of a portion of the allowance to one category of loans
does not preclude its availability to absorb losses in other categories.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
1,683
|
|
|
$
|
17
|
|
|
$
|
2,369
|
|
|
$
|
474
|
|
|
$
|
4,543
|
|
Loans collectively evaluated for impairment
|
|
|
10,252
|
|
|
|
1,110
|
|
|
|
25,654
|
|
|
|
5,851
|
|
|
|
42,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,935
|
|
|
$
|
1,127
|
|
|
$
|
28,023
|
|
|
$
|
6,325
|
|
|
$
|
47,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
4,144
|
|
|
$
|
20
|
|
|
$
|
2,565
|
|
|
$
|
373
|
|
|
$
|
7,102
|
|
Loans collectively evaluated for impairment
|
|
|
9,882
|
|
|
|
1,431
|
|
|
|
23,079
|
|
|
|
3,566
|
|
|
|
37,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,026
|
|
|
$
|
1,451
|
|
|
$
|
25,644
|
|
|
$
|
3,939
|
|
|
$
|
45,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
2,128
|
|
|
$
|
25
|
|
|
$
|
2,428
|
|
|
$
|
431
|
|
|
$
|
5,012
|
|
Loans collectively evaluated for impairment
|
|
|
9,579
|
|
|
|
1,076
|
|
|
|
24,436
|
|
|
|
5,676
|
|
|
|
40,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,707
|
|
|
$
|
1,101
|
|
|
$
|
26,864
|
|
|
$
|
6,107
|
|
|
$
|
45,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses for the three and six months ended June 30, 2017 and 2016, are summarized as
follows by portfolio segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
11,682
|
|
|
$
|
946
|
|
|
$
|
27,279
|
|
|
$
|
6,285
|
|
|
$
|
46,192
|
|
Provision for loan losses
|
|
|
(76
|
)
|
|
|
207
|
|
|
|
1,359
|
|
|
|
235
|
|
|
|
1,725
|
|
Recoveries
|
|
|
522
|
|
|
|
2
|
|
|
|
39
|
|
|
|
104
|
|
|
|
667
|
|
Charge-offs
|
|
|
(193
|
)
|
|
|
(28
|
)
|
|
|
(654
|
)
|
|
|
(299
|
)
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,935
|
|
|
$
|
1,127
|
|
|
$
|
28,023
|
|
|
$
|
6,325
|
|
|
$
|
47,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
12,905
|
|
|
$
|
1,255
|
|
|
$
|
26,099
|
|
|
$
|
3,813
|
|
|
$
|
44,072
|
|
Provision for loan losses
|
|
|
2,142
|
|
|
|
203
|
|
|
|
(760
|
)
|
|
|
473
|
|
|
|
2,058
|
|
Recoveries
|
|
|
255
|
|
|
|
5
|
|
|
|
363
|
|
|
|
195
|
|
|
|
818
|
|
Charge-offs
|
|
|
(1,276
|
)
|
|
|
(12
|
)
|
|
|
(58
|
)
|
|
|
(542
|
)
|
|
|
(1,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,026
|
|
|
$
|
1,451
|
|
|
$
|
25,644
|
|
|
$
|
3,939
|
|
|
$
|
45,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
11,707
|
|
|
$
|
1,101
|
|
|
$
|
26,864
|
|
|
$
|
6,107
|
|
|
$
|
45,779
|
|
Provision for loan losses
|
|
|
927
|
|
|
|
54
|
|
|
|
2,132
|
|
|
|
562
|
|
|
|
3,675
|
|
Recoveries
|
|
|
749
|
|
|
|
8
|
|
|
|
91
|
|
|
|
309
|
|
|
|
1,157
|
|
Charge-offs
|
|
|
(1,448
|
)
|
|
|
(36
|
)
|
|
|
(1,064
|
)
|
|
|
(653
|
)
|
|
|
(3,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,935
|
|
|
$
|
1,127
|
|
|
$
|
28,023
|
|
|
$
|
6,325
|
|
|
$
|
47,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
12,644
|
|
|
$
|
1,191
|
|
|
$
|
24,375
|
|
|
$
|
3,667
|
|
|
$
|
41,877
|
|
Provision for loan losses
|
|
|
2,989
|
|
|
|
400
|
|
|
|
71
|
|
|
|
926
|
|
|
|
4,386
|
|
Recoveries
|
|
|
542
|
|
|
|
15
|
|
|
|
1,590
|
|
|
|
319
|
|
|
|
2,466
|
|
Charge-offs
|
|
|
(2,149
|
)
|
|
|
(155
|
)
|
|
|
(392
|
)
|
|
|
(973
|
)
|
|
|
(3,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,026
|
|
|
$
|
1,451
|
|
|
$
|
25,644
|
|
|
$
|
3,939
|
|
|
$
|
45,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys recorded investment in loans as of June 30, 2017 and 2016, and December 31, 2016 related to the
balance in the allowance for loan losses on the basis of the Companys impairment methodology was as follows (in thousands). Purchased credit impaired loans of $889,000, $1,654,000 and $1,256,000 at June 30, 2017 and 2016, and
December 31, 2016, respectively, are included in loans individually evaluated for impairment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
5,404
|
|
|
$
|
61
|
|
|
$
|
14,801
|
|
|
$
|
1,223
|
|
|
$
|
21,489
|
|
Loans collectively evaluated for impairment
|
|
|
662,645
|
|
|
|
77,281
|
|
|
|
2,256,299
|
|
|
|
421,638
|
|
|
|
3,417,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
668,049
|
|
|
$
|
77,342
|
|
|
$
|
2,271,100
|
|
|
$
|
422,861
|
|
|
$
|
3,439,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
17,254
|
|
|
$
|
20
|
|
|
$
|
20,435
|
|
|
$
|
1,195
|
|
|
$
|
38,904
|
|
Loans collectively evaluated for impairment
|
|
|
644,405
|
|
|
|
80,792
|
|
|
|
2,133,953
|
|
|
|
385,601
|
|
|
|
3,244,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
661,659
|
|
|
$
|
80,812
|
|
|
$
|
2,154,388
|
|
|
$
|
386,796
|
|
|
$
|
3,283,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial
|
|
|
Agricultural
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
7,284
|
|
|
$
|
99
|
|
|
$
|
18,754
|
|
|
$
|
1,234
|
|
|
$
|
27,371
|
|
Loan collectively evaluated for impairment
|
|
|
667,126
|
|
|
|
83,922
|
|
|
|
2,171,090
|
|
|
|
407,798
|
|
|
|
3,329,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
674,410
|
|
|
$
|
84,021
|
|
|
$
|
2,189,844
|
|
|
$
|
409,032
|
|
|
$
|
3,357,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys loans that were modified in the three and six months ended June 30, 2017 and 2016 and considered
troubled debt restructurings are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
Number
|
|
|
Pre-Modification
Recorded
Investment
|
|
|
Post-
Modification
Recorded
Investment
|
|
|
Number
|
|
|
Pre-Modification
Recorded
Investment
|
|
|
Post-
Modification
Recorded
Investment
|
|
Commercial
|
|
|
2
|
|
|
$
|
90
|
|
|
$
|
90
|
|
|
|
6
|
|
|
$
|
324
|
|
|
$
|
324
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
1
|
|
|
|
161
|
|
|
|
161
|
|
|
|
2
|
|
|
|
217
|
|
|
|
217
|
|
Consumer
|
|
|
1
|
|
|
|
25
|
|
|
|
25
|
|
|
|
1
|
|
|
|
25
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4
|
|
|
$
|
276
|
|
|
$
|
276
|
|
|
|
9
|
|
|
$
|
566
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
Six Months Ended June 30, 2016
|
|
|
|
Number
|
|
|
Pre-Modification
Recorded
Investment
|
|
|
Post-
Modification
Recorded
Investment
|
|
|
Number
|
|
|
Pre-Modification
Recorded
Investment
|
|
|
Post-
Modification
Recorded
Investment
|
|
Commercial
|
|
|
4
|
|
|
$
|
286
|
|
|
$
|
286
|
|
|
|
11
|
|
|
$
|
2,926
|
|
|
$
|
2,926
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
463
|
|
|
|
463
|
|
Consumer
|
|
|
2
|
|
|
|
98
|
|
|
|
98
|
|
|
|
4
|
|
|
|
118
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6
|
|
|
$
|
384
|
|
|
$
|
384
|
|
|
|
17
|
|
|
$
|
3,507
|
|
|
$
|
3,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balances below provide information as to how the loans were modified as troubled debt restructured loans during the three
and six months ended June 30, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
Adjusted
Interest
Rate
|
|
|
Extended
Maturity
|
|
|
Combined
Rate and
Maturity
|
|
|
Adjusted
Interest
Rate
|
|
|
Extended
Maturity
|
|
|
Combined
Rate and
Maturity
|
|
Commercial
|
|
$
|
|
|
|
$
|
90
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
180
|
|
|
$
|
144
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
56
|
|
|
|
161
|
|
Consumer
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
115
|
|
|
$
|
161
|
|
|
$
|
|
|
|
$
|
261
|
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
Six Months Ended June 30, 2016
|
|
|
|
Adjusted
Interest
Rate
|
|
|
Extended
Maturity
|
|
|
Combined
Rate and
Maturity
|
|
|
Adjusted
Interest
Rate
|
|
|
Extended
Maturity
|
|
|
Combined
Rate and
Maturity
|
|
Commercial
|
|
$
|
|
|
|
$
|
212
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
2,449
|
|
|
$
|
477
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
350
|
|
Consumer
|
|
|
|
|
|
|
39
|
|
|
|
59
|
|
|
|
|
|
|
|
43
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
251
|
|
|
$
|
133
|
|
|
$
|
|
|
|
$
|
2,605
|
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2016, one loan was modified as troubled debt restructured loan within the previous
12 months and for which there was a payment default. There were no such defaults during the three months ended June 30, 2017. During the six months ended June 30, 2017 and 2016, two and one loans were modified in each six-month period as a
troubled debt restructured loan within the previous 12 months and for which there was a payment default. A default for purposes of this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or more or results in
the foreclosure and repossession of the applicable collateral. The loans with payment default are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2017
|
|
|
|
Number
|
|
|
Balance
|
|
Commercial
|
|
|
1
|
|
|
$
|
53
|
|
Agriculture
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
1
|
|
|
|
63
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2016
|
|
|
Six Months Ended
June 30, 2016
|
|
|
|
Number
|
|
|
Balance
|
|
|
Number
|
|
|
Balance
|
|
Commercial
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
1
|
|
|
|
350
|
|
|
|
1
|
|
|
|
350
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
350
|
|
|
|
1
|
|
|
$
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, the Company has no commitments to lend additional funds to loan customers whose terms have been
modified in troubled debt restructurings.
Our subsidiary bank has established a line of credit with the Federal Home Loan Bank of Dallas (FHLB) to
provide liquidity and meet pledging requirements for those customers eligible to have securities pledged to secure certain uninsured deposits. At June 30, 2017, $2,080,527,000 in loans held by our bank subsidiary were subject to blanket liens
as security for this line of credit. At June 30, 2017, $50,000,000 was outstanding under this line of credit.
Note 6 - Borrowings
Borrowings at June 30, 2017 and 2016, and December 31, 2016 consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Securities sold under agreements with customers to repurchase
|
|
$
|
309,524
|
|
|
$
|
339,799
|
|
|
$
|
360,820
|
|
Federal funds purchased
|
|
|
19,800
|
|
|
|
7,125
|
|
|
|
9,950
|
|
Advances from Federal Home
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Bank of Dallas
|
|
|
50,000
|
|
|
|
210,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
379,324
|
|
|
$
|
556,924
|
|
|
$
|
445,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term
liquidity for their funds for which the Company pledges certain securities that have a fair value equal to at least the amount of the borrowings. The agreements mature daily and therefore the risk arising from a decline in the fair value of the
collateral pledged is minimal. The securities pledged are mortgage-backed securities. These agreements do not include right of set-off provisions and therefore the Company does not offset such agreements for financial reporting purposes.
Note 7 - Income Taxes
Income tax expense was
$8,500,000 for the second quarter of 2017 as compared to $8,366,000 for the same period in 2016. The Companys effective tax rates on pretax income were 23.13% and 23.78% for the second quarters of 2017 and 2016, respectively. Income tax
expense was $16,105,000 for the six months ended June 30, 2017 as compared to $16,105,000 for the same period in 2016. The Companys effective tax rates on pretax income were 22.70% and 23.47% for the six months ended June 2017 and 2016,
respectively. The effective tax rates differ from the statutory federal tax rate of 35% primarily due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock
ownership plan and excess tax benefits related to our directors deferred compensation plan.
Note 8 - Stock Option Plan and Restricted Stock Plan
The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of
grant to employees. In June 2017, the Company granted 452,450 incentive stock options with an exercise price of $42.35 per share. The fair value of the options was $9.99 per option and was estimated using the Black-Scholes options pricing model with
the following weighted average assumptions: risk-free interest rate of 1.89%; expected dividend yield of 1.79%; expected life of 6.40 years; and expected volatility of 26.51%. No options were granted in 2016.
24
The Company recorded stock option expense totaling $217,000 and $220,000 for the three-month periods ended
June 30, 2017 and 2016, respectively. The Company recorded stock option expense totaling $432,000 and $441,000 for the six months ended June 30, 2017 and 2016, respectively. The additional disclosure requirements under authoritative
accounting guidance have been omitted due to the amounts being insignificant.
On July 21, 2015, 7,070 restricted stock shares were granted to the
ten non-employee directors. Total value of these shares totaled $250,000 and was expensed over the period from grant date to April 26, 2016, the annual shareholders meeting at which these directors term expired. On April 26,
2016, upon re-election of existing directors, 7,660 restricted stock shares with a total value of $250,000 were granted to the ten non-employee directors and was expensed over the period from grant day to April 25, 2017, the annual
shareholders meeting at which these directors term expired. On April 25, 2017, upon re-election of existing directors, 14,650 restricted stock shares with a total value of $600,000 were granted to the ten non-employee directors and
is being expensed over the period from the grant date to April 24, 2018, the Companys next shareholders meeting at which the directors term expires.
The Company recorded director expense related to these restricted stock grants of $121,000 and $69,000 for the three-month periods ended June 30, 2017
and 2016, respectively. The Company recorded director expense related to these restricted stock grants of $183,000 and $153,000 for the six-month periods ended June 30, 2017 and 2016, respectively.
On October 27, 2015, the Company granted 31,273 restricted stock shares with a total value of $1,060,000 to certain officers that is being expensed over
the vesting period of three years. On October 25, 2016, the Company granted 15,405 restricted stock shares with a total value of $560,000 to certain officers that is being expensed over the vesting period of three years. The Company recorded
restricted stock expense for officers of $133,000 and $89,000, for the three-month periods ended June 30, 2017 and 2016, respectively. The Company recorded restricted stock expense for officers of $266,000 and $174,000 for the six-month periods
ended June 30, 2017 and 2016, respectively.
Note 9 - Pension Plan
The Companys defined benefit pension plan was frozen effective January 1, 2004, whereby no new participants will be added to the plan and no
additional years of service will accrue to participants, unless the pension plan is reinstated at a future date. The pension plan covered substantially all of the Companys employees at the time. The benefits for each employee were based on
years of service and a percentage of the employees qualifying compensation during the final years of employment. The Companys funding policy was and is to contribute annually the amount necessary to satisfy the Internal Revenue
Services funding standards. Contributions to the pension plan, prior to freezing the plan, were intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. As a result of the
Pension Protection Act of 2006 (the Protection Act), the Company will be required to contribute amounts in future years to fund any shortfalls. The Company has evaluated the provisions of the Protection Act as well as the Internal
Revenue Services funding standards to develop a plan for funding in future years. The Company made a contribution totaling $500,000 in 2016, and has made no contribution through June 30, 2017.
Net periodic benefit costs totaling $84,000 and $82,000 were recorded for the three months ended June 30, 2017 and 2016, respectively. Net periodic
benefit costs totaling $168,000 and $165,000 were recorded for the six months ended June 30, 2017 and 2016, respectively.
25
Note 10 - Fair Value Disclosures
The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly
transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced
transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the
cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as
cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be
consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in
pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing
the asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in
active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
|
|
|
Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
|
|
|
|
Level 2 Inputs Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment
speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
Level 3 Inputs Significant unobservable inputs that reflect an entitys own assumptions that market participants would use in pricing the assets or liabilities.
|
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted
market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair
value. While management believes the Companys valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments
could result in a different estimate of fair value at the reporting date.
Securities classified as available-for-sale and trading are reported at fair
value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing
26
service. The fair value measurements consider observable data that may include market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data,
dealer quotes, market consensus prepayments speeds, credit information and the securitys terms and conditions, among other items.
There were no
transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three and six months ended June 30, 2017 and 2016, and the year ended December 31, 2016.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2017 and 2016, and
December 31, 2016, respectively, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
Available-for-sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
10,573
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,573
|
|
Obligations of U. S. government sponsored enterprises and agencies
|
|
|
|
|
|
|
73,705
|
|
|
|
|
|
|
|
73,705
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
1,531,873
|
|
|
|
|
|
|
|
1,531,873
|
|
Corporate bonds
|
|
|
|
|
|
|
25,788
|
|
|
|
|
|
|
|
25,788
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
975,082
|
|
|
|
|
|
|
|
975,082
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
343,040
|
|
|
|
|
|
|
|
343,040
|
|
Other securities
|
|
|
4,452
|
|
|
|
|
|
|
|
|
|
|
|
4,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,025
|
|
|
$
|
2,949,488
|
|
|
$
|
|
|
|
$
|
2,964,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
Available-for-sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
10,811
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,811
|
|
Obligations of U. S. government sponsored enterprises and agencies
|
|
|
|
|
|
|
122,352
|
|
|
|
|
|
|
|
122,352
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
1,516,312
|
|
|
|
|
|
|
|
1,516,312
|
|
Corporate bonds
|
|
|
|
|
|
|
65,550
|
|
|
|
|
|
|
|
65,550
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
805,773
|
|
|
|
|
|
|
|
805,773
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
266,698
|
|
|
|
|
|
|
|
266,698
|
|
Other securities
|
|
|
7,860
|
|
|
|
|
|
|
|
|
|
|
|
7,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,671
|
|
|
$
|
2,776,685
|
|
|
$
|
|
|
|
$
|
2,795,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
Available-for-sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
10,668
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,668
|
|
Obligations of U. S. government sponsored enterprises and agencies
|
|
|
|
|
|
|
113,703
|
|
|
|
|
|
|
|
113,703
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
1,564,276
|
|
|
|
|
|
|
|
1,564,276
|
|
Corporate bonds
|
|
|
|
|
|
|
47,965
|
|
|
|
|
|
|
|
47,965
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
851,361
|
|
|
|
|
|
|
|
851,361
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
268,436
|
|
|
|
|
|
|
|
268,436
|
|
Other securities
|
|
|
4,428
|
|
|
|
|
|
|
|
|
|
|
|
4,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,096
|
|
|
$
|
2,845,741
|
|
|
$
|
|
|
|
$
|
2,860,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the
instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value
on a non-recurring basis include the following at June 30, 2017:
Impaired Loans Impaired loans are reported at the fair value
of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data. At June 30, 2017, impaired loans with a carrying value of $21,489,000 were
reduced by specific valuation reserves totaling $4,543,000 resulting in a net fair value of $16,946,000.
Loans Held-for-Sale Loans
held-for-sale are reported at the lower of cost or fair value. In determining whether the fair value of loans held-for-sale is less than cost when quoted market prices are not available, the Company considers investor commitments/contracts. These
loans are considered Level 2 of the fair value hierarchy. At June 30, 2017, the Companys mortgage loans held-for-sale were recorded at cost as fair value exceeded cost.
Certain non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis include other real estate owned, goodwill and other
intangible assets and other non-financial long-lived assets. Non-financial assets measured at fair value on a non-recurring basis during the three months and six months ended June 30, 2017 and 2016 include other real estate owned which,
subsequent to their initial transfer to other real estate owned from loans, were re-measured at fair value through a write-down included in gain (loss) on sale of foreclosed assets. During the reported periods, all fair value measurements for
foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due
to the age of the appraisal, lack of comparable sales, expected holding periods of property or special use type of the property. Such discounts vary by appraisal based on the above factors but generally range from 5% to 25% of the appraised value.
Re-evaluation of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. The following table presents other real estate owned that were re-measured subsequent to
their initial transfer to other real estate owned (dollars in thousands):
28
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Carrying value of other real estate owned prior to re-measurement
|
|
$
|
88
|
|
|
$
|
|
|
Write-downs included in gain (loss) on sale of other real estate owned
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
80
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Carrying value of other real estate owned prior to re-measurement
|
|
$
|
88
|
|
|
$
|
|
|
Write-downs included in gain (loss) on sale of other real estate owned
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
80
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017 and 2016, and December 31, 2016, other real estate owned totaled $2,023,000, $124,000, and
$413,000, respectively.
The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial
instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. Many of the
Companys financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous
estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Cash and due from banks, federal funds sold, interest-bearing deposits and time deposits in banks and accrued interest receivable and payable are liquid in
nature and considered Levels 1 or 2 of the fair value hierarchy.
Financial instruments with stated maturities have been valued using a present value
discounted cash flow with a discount rate approximating current market for similar assets and liabilities and are considered Levels 2 and 3 of the fair value hierarchy. Financial instrument liabilities with no stated maturities have an estimated
fair value equal to both the amount payable on demand and the carrying value and are considered Level 1 of the fair value hierarchy.
The carrying value
and the estimated fair value of the Companys contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.
The estimated fair values and carrying values of all financial instruments under current authoritative guidance at June 30, 2017 and 2016, and
December 31, 2016, were as follows (in thousands):
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
Carrying
Value
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Value
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Value
|
|
|
Estimated
Fair Value
|
|
|
Fair Value
Hierarchy
|
Cash and due from banks
|
|
$
|
163,435
|
|
|
$
|
163,435
|
|
|
$
|
135,092
|
|
|
$
|
135,092
|
|
|
$
|
204,782
|
|
|
$
|
204,782
|
|
|
Level 1
|
Federal funds sold
|
|
|
3,740
|
|
|
|
3,740
|
|
|
|
2,960
|
|
|
|
2,960
|
|
|
|
3,130
|
|
|
|
3,130
|
|
|
Level 1
|
Interest-bearing deposits in banks
|
|
|
53,336
|
|
|
|
53,336
|
|
|
|
67,746
|
|
|
|
67,746
|
|
|
|
48,574
|
|
|
|
48,574
|
|
|
Level 1
|
Interest-bearing time deposits in banks
|
|
|
1,458
|
|
|
|
1,458
|
|
|
|
2,427
|
|
|
|
2,429
|
|
|
|
1,707
|
|
|
|
1,709
|
|
|
Level 2
|
Available-for-sale Securities
|
|
|
2,964,513
|
|
|
|
2,964,513
|
|
|
|
2,795,356
|
|
|
|
2,795,356
|
|
|
|
2,860,837
|
|
|
|
2,860,837
|
|
|
Levels 1
and 2
|
Held-to-maturity securities
|
|
|
105
|
|
|
|
107
|
|
|
|
137
|
|
|
|
141
|
|
|
|
121
|
|
|
|
124
|
|
|
Level 2
|
Loans
|
|
|
3,410,269
|
|
|
|
3,466,431
|
|
|
|
3,264,328
|
|
|
|
3,269,221
|
|
|
|
3,338,426
|
|
|
|
3,361,735
|
|
|
Level 3
|
Accrued interest receivable
|
|
|
35,600
|
|
|
|
35,600
|
|
|
|
33,516
|
|
|
|
33,516
|
|
|
|
36,469
|
|
|
|
36,469
|
|
|
Level 2
|
Deposits with stated maturities
|
|
|
477,441
|
|
|
|
478,393
|
|
|
|
554,753
|
|
|
|
556,224
|
|
|
|
508,996
|
|
|
|
510,304
|
|
|
Level 2
|
Deposits with no stated maturities
|
|
|
5,149,168
|
|
|
|
5,149,168
|
|
|
|
4,501,536
|
|
|
|
4,501,536
|
|
|
|
4,969,543
|
|
|
|
4,969,543
|
|
|
Level 1
|
Borrowings
|
|
|
379,324
|
|
|
|
379,324
|
|
|
|
556,924
|
|
|
|
556,924
|
|
|
|
445,770
|
|
|
|
445,770
|
|
|
Level 2
|
Accrued interest Payable
|
|
|
164
|
|
|
|
164
|
|
|
|
283
|
|
|
|
283
|
|
|
|
225
|
|
|
|
225
|
|
|
Level 2
|
Note 11 - Recently Issued Authoritative Accounting Guidance
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers
. ASU 2014-09 implements a comprehensive new
revenue recognition standard that will supersede substantially all existing revenue recognition guidance. The new standards core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a
customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as)
the entity satisfies a performance obligation. ASU 2015-4 Revenue from Contracts with Customers Deferral of the Effective Date deferred the effective date of ASU 2014-09 by one year and as a result, the new standard will be
effective the first quarter of 2018. The Companys revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. The Company
expects that ASU 2014-09 will require a change in how the Company recognizes certain recurring revenue streams within trust management fees; however, these changes are not expected to have a significant impact on the Companys financial
statements. The Company continues to evaluate the impact of ASU 2014-09 on other components of non-interest income and expects to adopt the standard in the first quarter of 2018 with a cumulative effective adjustment to opening retained earnings, if
such adjustment is deemed to be significant.
ASU 2014-15, Presentation of Financial Statements Going Concern
. ASU 2014-15
requires management to evaluate an entitys ability to continue as a going concern within one year after the date that the financial statements are issued. Management must evaluate whether conditions and events raise substantial doubt about an
entitys ability to continue as a going concern and then whether its plans alleviate that doubt. ASU 2014-15 was effective in 2016 and management has performed and continues to perform such required evaluation and has concluded there are no
such conditions or events that raised substantial doubt about the Companys ability to continue as a going concern.
30
ASU 2015-01, Income Statement Extraordinary and Unusual Items
. ASU 2015-01 eliminated
from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to show the item separately in the income statement, net of tax, after income from continuing operations. The new guidance became effective for the
Company beginning January 1, 2016, and did not have a significant impact on the Companys financial statements.
ASU 2015-05,
Intangibles Goodwill and Other Internal-Use Software Customers Accounting for Fees Paid in a Cloud Computing Arrangement
. ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing
arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing
arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses.
If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 became effective on January 1, 2016 and did not have a significant impact on the
Companys financial statements.
ASU 2015-16, Business Combinations Simplifying the Accounting Measurement Period
Adjustments.
ASU 2015-16 amended business combination guidance to require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. The acquirer must record, in the same periods financial statements, the effect of earnings on changes in depreciation, amortization, or other income effects, if any, as a result of the changes to the provisional
amounts, calculated as if the accounting had been completed at the acquisition date. Additionally, the entity is required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in
current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amended guidance became effective for the Company on
January 1, 2016, and did not have a significant impact on the Companys financial statements.
ASU 2016-1, Financial Instruments
Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-1, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value
recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public
business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value
of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate
presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the
need for a valuation allowance on a deferred tax asset related to available-for-sale securities. ASU 2016-1 will be effective for the Company on January 1, 2018 and is not expected to have a significant impact on the Companys financial
statements.
ASU 2016-02, Leases
. ASU 2016-02 will amend current lease accounting to require lessees to recognize (i) a lease
liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of,
a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model.
The amended guidance will be
31
effective in the first quarter of 2019 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements. The Company continues to evaluate the provision of the new lease standard but, due to the small number of lease agreements presently in effect for the Company, has concluded the new guidance will not
have a significant impact on the Companys financial statements.
ASU 2016-09, Compensation Stock Compensation: Improvements to
Employee Share-Based Payment Accounting
. ASU 2016-09 amends current guidance such that all excess tax benefits and tax deficiencies related to share-based payment awards will be recognized as income tax expense or benefit in the income
statement during the period in which they occur. Previously, such amounts were recorded in capital surplus. Additionally, excess tax benefits will be classified along with other income tax cash flows as an operating activity rather than a financing
activity, as was previously the case. ASU 2016-09 also provides that any entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, which is the current requirement, or account for
forfeitures when they occur. ASU 2016-09 became effective January 1, 2017 and did not have a significant impact on the Companys financial statements.
ASU 2016-13, Financial Instruments Credit Losses.
ASU 2016-13 implements a comprehensive change in estimating the allowances for
loan losses from the current model of losses inherent in the loan portfolio to a current expected credit loss model that generally is expected to result in earlier recognition of allowances for losses. Additionally, purchase accounting rules have
been modified as well as credit losses on held-to-maturity debt securities. ASU 2016-13 will be effective in the first quarter of 2020. While the Company generally expects that the implementation of ASU 2016-13 will increase their allowance for loan
losses balance, the Company is continuing to evaluate the potential impact on the Companys financial statements.
ASU 2017-04, Intangibles
Goodwill and Other
. ASU 2017-04 will amend and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing
the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value. An entity still has the option to perform the quantitative
assessment for a reporting unit to determine if a quantitative impairment test is necessary. ASU 2017-04 will be effective for the Company on January 1, 2020 and is not expected to have a significant impact on the Companys financial
statements.
ASU 2017-07, Compensation Retirement Benefits, Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Post-Retirement Benefit Cost.
ASU 2017-17 will require employers that sponsor defined benefit pension plans to present the service cost component of net periodic benefit cost in the same income statement line item as other employee
compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the service cost component. ASU 2017-17 will be effective in 2018 and, as the Company froze its
defined benefit pension plan in 2004, there is no service cost component of its net periodic benefit cost and therefore will not have an impact on the Companys financial statements.
ASU 2017-08, Receivables Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities.
ASU 2017-08
addresses the amortization method for all callable bonds purchased at a premium to par. Under the revised guidance, entities will be required to amortize premiums on callable bonds to the earliest call date. ASU 2017-08 is effective in 2019 although
early adoption is permitted. The Company elected to early adopt ASU 2017-08 in the first quarter of 2017. The adoption of this guidance did not have a material impact on the Companys financial statements.
32