ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
|
|
|
|
|
|
|
|
|
|
(In Thousands, Except Number of Shares)
|
|
September 30,
2016
|
|
December 31, 2015
|
ASSETS
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
99,458
|
|
|
$
|
79,488
|
|
Securities:
|
|
|
|
|
|
|
Available-for-sale securities, at fair value
|
|
788,880
|
|
|
750,338
|
|
Held-to-maturity securities, at amortized cost
|
|
94,205
|
|
|
84,144
|
|
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
|
|
23,201
|
|
|
21,513
|
|
Total securities
|
|
906,286
|
|
|
855,995
|
|
Loans held for sale
|
|
24,644
|
|
|
10,958
|
|
Loans
|
|
2,592,009
|
|
|
2,490,206
|
|
Less: allowance for loan losses
|
|
(23,290
|
)
|
|
(21,166
|
)
|
Net loans
|
|
2,568,719
|
|
|
2,469,040
|
|
Goodwill
|
|
94,697
|
|
|
95,657
|
|
Other intangible assets
|
|
7,240
|
|
|
8,667
|
|
Bank-owned life insurance
|
|
77,937
|
|
|
59,917
|
|
Premises and equipment, net
|
|
43,934
|
|
|
45,959
|
|
Deferred tax assets
|
|
34,632
|
|
|
39,716
|
|
Interest receivable
|
|
8,364
|
|
|
7,985
|
|
Other real estate owned
|
|
811
|
|
|
1,304
|
|
Other assets
|
|
37,244
|
|
|
34,658
|
|
Total assets
|
|
$
|
3,903,966
|
|
|
$
|
3,709,344
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
Demand
|
|
$
|
427,349
|
|
|
$
|
357,673
|
|
Interest checking
|
|
763,710
|
|
|
740,084
|
|
Savings and money market
|
|
979,085
|
|
|
912,668
|
|
Certificates of deposit
|
|
489,856
|
|
|
516,867
|
|
Brokered deposits
|
|
229,225
|
|
|
199,087
|
|
Total deposits
|
|
2,889,225
|
|
|
2,726,379
|
|
Short-term borrowings
|
|
489,749
|
|
|
477,852
|
|
Long-term borrowings
|
|
10,808
|
|
|
35,911
|
|
Subordinated debentures
|
|
58,716
|
|
|
58,599
|
|
Accrued interest and other liabilities
|
|
62,287
|
|
|
47,413
|
|
Total liabilities
|
|
3,510,785
|
|
|
3,346,154
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
Common stock, no par value; authorized 20,000,000 shares, issued and outstanding 15,434,856 and 15,330,717 shares as of September 30, 2016 and December 31, 2015, respectively
|
|
155,264
|
|
|
153,083
|
|
Retained earnings
|
|
242,092
|
|
|
222,329
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
Net unrealized gains (losses) on available-for-sale securities, net of tax
|
|
6,595
|
|
|
(3,801
|
)
|
Net unrealized losses on cash flow hedging derivative instruments, net of tax
|
|
(8,838
|
)
|
|
(6,374
|
)
|
Net unrecognized losses on postretirement plans, net of tax
|
|
(1,932
|
)
|
|
(2,047
|
)
|
Total accumulated other comprehensive loss
|
|
(4,175
|
)
|
|
(12,222
|
)
|
Total shareholders’ equity
|
|
393,181
|
|
|
363,190
|
|
Total liabilities and shareholders’ equity
|
|
$
|
3,903,966
|
|
|
$
|
3,709,344
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In Thousands, Except Number of Shares and Per Share Data)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
27,395
|
|
|
$
|
18,651
|
|
|
$
|
82,117
|
|
|
$
|
56,077
|
|
Interest on U.S. government and sponsored enterprise obligations
|
|
4,049
|
|
|
3,598
|
|
|
12,055
|
|
|
11,187
|
|
Interest on state and political subdivision obligations
|
|
702
|
|
|
624
|
|
|
2,127
|
|
|
1,504
|
|
Interest on federal funds sold and other investments
|
|
448
|
|
|
183
|
|
|
1,051
|
|
|
393
|
|
Total interest income
|
|
32,594
|
|
|
23,056
|
|
|
97,350
|
|
|
69,161
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
2,204
|
|
|
1,557
|
|
|
6,355
|
|
|
4,630
|
|
Interest on borrowings
|
|
1,161
|
|
|
849
|
|
|
3,610
|
|
|
2,556
|
|
Interest on subordinated debentures
|
|
857
|
|
|
638
|
|
|
2,557
|
|
|
1,894
|
|
Total interest expense
|
|
4,222
|
|
|
3,044
|
|
|
12,522
|
|
|
9,080
|
|
Net interest income
|
|
28,372
|
|
|
20,012
|
|
|
84,828
|
|
|
60,081
|
|
Provision for credit losses
|
|
1,279
|
|
|
279
|
|
|
5,003
|
|
|
979
|
|
Net interest income after provision for credit losses
|
|
27,093
|
|
|
19,733
|
|
|
79,825
|
|
|
59,102
|
|
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Debit card income
|
|
1,894
|
|
|
1,266
|
|
|
5,650
|
|
|
3,652
|
|
Service charges on deposit accounts
|
|
1,799
|
|
|
1,554
|
|
|
5,356
|
|
|
4,634
|
|
Other service charges and fees
|
|
591
|
|
|
416
|
|
|
1,494
|
|
|
1,124
|
|
Mortgage banking income, net
|
|
2,407
|
|
|
390
|
|
|
4,921
|
|
|
975
|
|
Income from fiduciary services
|
|
1,225
|
|
|
1,177
|
|
|
3,736
|
|
|
3,725
|
|
Bank-owned life insurance
|
|
585
|
|
|
443
|
|
|
1,899
|
|
|
1,267
|
|
Brokerage and insurance commissions
|
|
594
|
|
|
411
|
|
|
1,569
|
|
|
1,362
|
|
Net gain on sale of securities
|
|
—
|
|
|
4
|
|
|
4
|
|
|
4
|
|
Other income
|
|
1,906
|
|
|
900
|
|
|
4,841
|
|
|
2,275
|
|
Total non-interest income
|
|
11,001
|
|
|
6,561
|
|
|
29,470
|
|
|
19,018
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
12,044
|
|
|
8,691
|
|
|
35,634
|
|
|
25,550
|
|
Furniture, equipment and data processing
|
|
2,349
|
|
|
1,705
|
|
|
7,157
|
|
|
5,530
|
|
Net occupancy costs
|
|
1,685
|
|
|
1,194
|
|
|
5,352
|
|
|
3,905
|
|
Consulting and professional fees
|
|
742
|
|
|
470
|
|
|
2,609
|
|
|
1,734
|
|
Regulatory assessments
|
|
667
|
|
|
513
|
|
|
2,162
|
|
|
1,534
|
|
Debit card expense
|
|
669
|
|
|
431
|
|
|
2,107
|
|
|
1,299
|
|
Other real estate owned and collection costs
|
|
877
|
|
|
543
|
|
|
2,029
|
|
|
1,554
|
|
Amortization of intangible assets
|
|
475
|
|
|
288
|
|
|
1,427
|
|
|
862
|
|
Merger and acquisition costs
|
|
45
|
|
|
766
|
|
|
866
|
|
|
1,629
|
|
Other expenses
|
|
2,596
|
|
|
2,110
|
|
|
8,045
|
|
|
6,072
|
|
Total non-interest expense
|
|
22,149
|
|
|
16,711
|
|
|
67,388
|
|
|
49,669
|
|
Income before income taxes
|
|
15,945
|
|
|
9,583
|
|
|
41,907
|
|
|
28,451
|
|
Income Taxes
|
|
5,042
|
|
|
3,127
|
|
|
12,742
|
|
|
9,191
|
|
Net Income
|
|
$
|
10,903
|
|
|
$
|
6,456
|
|
|
$
|
29,165
|
|
|
$
|
19,260
|
|
|
|
|
|
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.70
|
|
|
$
|
0.58
|
|
|
$
|
1.88
|
|
|
$
|
1.72
|
|
Diluted earnings per share
|
|
$
|
0.70
|
|
|
$
|
0.57
|
|
|
$
|
1.88
|
|
|
$
|
1.71
|
|
Weighted average number of common shares outstanding
|
|
15,425,452
|
|
|
11,179,821
|
|
|
15,410,310
|
|
|
11,165,297
|
|
Diluted weighted average number of common shares outstanding
|
|
15,507,561
|
|
|
11,215,844
|
|
|
15,483,320
|
|
|
11,196,749
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In Thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Income
|
|
$
|
10,903
|
|
|
$
|
6,456
|
|
|
$
|
29,165
|
|
|
$
|
19,260
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale securities, net of tax of $405, ($1,649), ($5,599) and ($1,723), respectively
|
|
(752
|
)
|
|
3,064
|
|
|
10,399
|
|
|
3,202
|
|
Net reclassification adjustment for gains included in net income, net of tax of $0, $1, $1 and $1, respectively
(1)
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
Net change in unrealized gains (losses) on available-for-sale securities, net of tax
|
|
(752
|
)
|
|
3,061
|
|
|
10,396
|
|
|
3,199
|
|
Net change in unrealized gains (losses) on cash flow hedging derivatives:
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax of ($107), $1,221, $1,859, and $1,115, respectively
|
|
199
|
|
|
(2,267
|
)
|
|
(3,453
|
)
|
|
(2,070
|
)
|
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, net of tax of ($187), ($271), ($532) and ($447), respectively
(2)
|
|
347
|
|
|
504
|
|
|
989
|
|
|
829
|
|
Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax
|
|
546
|
|
|
(1,763
|
)
|
|
(2,464
|
)
|
|
(1,241
|
)
|
Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($20), ($20), ($62) and ($61), respectively
(3)
|
|
39
|
|
|
39
|
|
|
115
|
|
|
116
|
|
Other comprehensive income (loss)
|
|
(167
|
)
|
|
1,337
|
|
|
8,047
|
|
|
2,074
|
|
Comprehensive Income
|
|
$
|
10,736
|
|
|
$
|
7,793
|
|
|
$
|
37,212
|
|
|
$
|
21,334
|
|
(1) Reclassified into the consolidated statements of income in net gain on sale of securities.
(2) Reclassified into the consolidated statements of income in interest on subordinated debentures.
(3) Reclassified into the consolidated statements of income in salaries and employee benefits.
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Accumulated
Other Comprehensive
Loss
|
|
Total Shareholders’
Equity
|
(In Thousands, Except Number of Shares and Per Share Data)
|
|
Shares
Outstanding
1
|
|
Amount
|
|
Retained
Earnings
|
|
|
Balance at December 31, 2014
|
|
11,139,333
|
|
|
$
|
41,555
|
|
|
$
|
211,979
|
|
|
$
|
(8,425
|
)
|
|
$
|
245,109
|
|
Net income
|
|
—
|
|
|
—
|
|
|
19,260
|
|
|
—
|
|
|
19,260
|
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,074
|
|
|
2,074
|
|
Stock-based compensation expense
|
|
—
|
|
|
542
|
|
|
—
|
|
|
—
|
|
|
542
|
|
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit
|
|
41,734
|
|
|
512
|
|
|
—
|
|
|
—
|
|
|
512
|
|
Equity issuance costs
|
|
—
|
|
|
(537
|
)
|
|
—
|
|
|
—
|
|
|
(537
|
)
|
Cash dividends declared ($0.60 per share)
(1)
|
|
—
|
|
|
—
|
|
|
(7,557
|
)
|
|
—
|
|
|
(7,557
|
)
|
Balance at September 30, 2015
|
|
11,181,067
|
|
|
$
|
42,072
|
|
|
$
|
223,682
|
|
|
$
|
(6,351
|
)
|
|
$
|
259,403
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
15,330,717
|
|
|
$
|
153,083
|
|
|
$
|
222,329
|
|
|
$
|
(12,222
|
)
|
|
$
|
363,190
|
|
Cumulative effect adjustment (Note 16)
|
|
—
|
|
|
72
|
|
|
(72
|
)
|
|
—
|
|
|
—
|
|
Cash in-lieu, stock split (Note 2)
|
|
(173
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
29,165
|
|
|
—
|
|
|
29,165
|
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,047
|
|
|
8,047
|
|
Stock-based compensation expense
|
|
—
|
|
|
1,521
|
|
|
—
|
|
|
—
|
|
|
1,521
|
|
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit
|
|
104,312
|
|
|
593
|
|
|
—
|
|
|
—
|
|
|
593
|
|
Cash dividends declared ($0.60 per share)
(1)
|
|
—
|
|
|
—
|
|
|
(9,330
|
)
|
|
—
|
|
|
(9,330
|
)
|
Balance at September 30, 2016
|
|
15,434,856
|
|
|
$
|
155,264
|
|
|
$
|
242,092
|
|
|
$
|
(4,175
|
)
|
|
$
|
393,181
|
|
(1) Share and per share amounts have been adjusted to reflect the three-for-two stock split effective September 30, 2016, for all periods presented. Refer to Note 2.
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
(In Thousands)
|
|
2016
|
|
2015
|
Operating Activities
|
|
|
|
|
|
|
Net Income
|
|
$
|
29,165
|
|
|
$
|
19,260
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Provision for credit losses
|
|
5,003
|
|
|
979
|
|
Depreciation expense
|
|
3,498
|
|
|
2,130
|
|
Purchase accounting accretion, net
|
|
(3,792
|
)
|
|
(295
|
)
|
Investment securities amortization, net
|
|
2,234
|
|
|
1,638
|
|
Stock-based compensation expense
|
|
1,521
|
|
|
542
|
|
Amortization of intangible assets
|
|
1,427
|
|
|
862
|
|
Net (decrease) increase in other real estate owned valuation allowance and (gain) loss on disposition
|
|
(147
|
)
|
|
348
|
|
Originations of mortgage loans held for sale
|
|
(180,182
|
)
|
|
(25,341
|
)
|
Proceeds from the sale of mortgage loans
|
|
170,765
|
|
|
24,985
|
|
Gain on sale of mortgage loans
|
|
(4,171
|
)
|
|
(530
|
)
|
Decrease (increase) in other assets
|
|
7,529
|
|
|
(2,944
|
)
|
Increase in other liabilities
|
|
154
|
|
|
117
|
|
Net cash provided by operating activities
|
|
33,004
|
|
|
21,751
|
|
Investing Activities
|
|
|
|
|
|
|
Proceeds from sales and maturities of available-for-sale securities
|
|
105,863
|
|
|
123,650
|
|
Purchase of available-for-sale securities
|
|
(130,254
|
)
|
|
(81,262
|
)
|
Purchase of held-to-maturity securities
|
|
(10,448
|
)
|
|
(55,462
|
)
|
Net increase in loans
|
|
(101,732
|
)
|
|
(60,601
|
)
|
Purchase of bank-owned life insurance, net of death benefit proceeds
|
|
(16,122
|
)
|
|
—
|
|
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock
|
|
(7,341
|
)
|
|
(56
|
)
|
Proceeds from sale of Federal Home Loan Bank stock
|
|
5,652
|
|
|
—
|
|
Proceeds from the sale of other real estate owned
|
|
672
|
|
|
2,760
|
|
Recoveries of previously charged-off loans
|
|
381
|
|
|
554
|
|
Purchase of premises and equipment
|
|
(1,507
|
)
|
|
(1,797
|
)
|
Proceeds from the sale of premises and equipment
|
|
90
|
|
|
—
|
|
Net cash used by investing activities
|
|
(154,746
|
)
|
|
(72,214
|
)
|
Financing Activities
|
|
|
|
|
|
Net increase in deposits
|
|
163,563
|
|
|
76,155
|
|
Net proceeds from (repayments of) borrowings less than 90 days
|
|
36,846
|
|
|
(12,081
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
—
|
|
|
10,000
|
|
Repayments of Federal Home Loan Bank advances
|
|
(25,000
|
)
|
|
(11,039
|
)
|
Repayments of wholesale repurchase agreements
|
|
(25,000
|
)
|
|
—
|
|
Equity issuance costs
|
|
—
|
|
|
(537
|
)
|
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings and tax benefit
|
|
593
|
|
|
512
|
|
Cash dividends paid on common stock and cash in-lieu paid for fractional shares due to stock split
|
|
(9,290
|
)
|
|
(6,716
|
)
|
Net cash provided by financing activities
|
|
141,712
|
|
|
56,294
|
|
Net increase in cash and cash equivalents
|
|
19,970
|
|
|
5,831
|
|
Cash and cash equivalents at beginning of period
|
|
79,488
|
|
|
60,813
|
|
Cash and cash equivalents at end of period
|
|
$
|
99,458
|
|
|
$
|
66,644
|
|
Supplemental information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
12,673
|
|
|
$
|
9,104
|
|
Income taxes paid
|
|
4,844
|
|
|
8,345
|
|
Transfer from loans to other real estate owned
|
|
32
|
|
|
1,725
|
|
Measurement-period adjustments
|
|
960
|
|
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation as of
September 30, 2016
and
December 31, 2015
, the consolidated statements of income for the
three and nine
months ended
September 30, 2016
and
2015
, the consolidated statements of comprehensive income for the
three and nine
months ended
September 30, 2016
and
2015
, the consolidated statements of changes in shareholders' equity for the
nine months ended
September 30, 2016
and
2015
, and the consolidated statements of cash flows for the
nine months ended
September 30, 2016
and
2015
. All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior period were reclassified to conform to the current period presentation. The income reported for the
three and nine
months ended
September 30, 2016
is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the year ended
December 31, 2015
Annual Report on Form 10-K.
The defined terms, acronyms and abbreviations identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information." The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
|
|
|
|
|
|
Acadia Trust:
|
Acadia Trust, N.A., a wholly-owned subsidiary of Camden National Corporation
|
|
IRS:
|
Internal Revenue Service
|
AFS:
|
Available-for-sale
|
|
LIBOR:
|
London Interbank Offered Rate
|
ALCO:
|
Asset/Liability Committee
|
|
LTIP:
|
Long-Term Performance Share Plan
|
ALL:
|
Allowance for loan losses
|
|
Management ALCO:
|
Management Asset/Liability Committee
|
AOCI:
|
Accumulated other comprehensive income (loss)
|
|
MBS:
|
Mortgage-backed security
|
ASC:
|
Accounting Standards Codification
|
|
Merger:
|
On October 16, 2015, the two-step merger of Camden National Corporation, SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-owned subsidiary of Camden National Corporation, was completed
|
ASU:
|
Accounting Standards Update
|
|
Merger Agreement:
|
Plan of Merger, dated as of March 29, 2015, by and among Camden National Corporation, SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-owned subsidiary of the Company
|
Bank:
|
Camden National Bank, a wholly-owned subsidiary of Camden National Corporation
|
|
MSHA:
|
Maine State Housing Authority
|
Board ALCO:
|
Board of Directors' Asset/Liability Committee
|
|
MSRs:
|
Mortgage servicing rights
|
BOLI:
|
Bank-owned life insurance
|
|
MSPP:
|
Management Stock Purchase Plan
|
BSA:
|
Bank Secrecy Act
|
|
OTTI:
|
Other-than-temporary impairment
|
CCTA:
|
Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation
|
|
NIM:
|
Net interest margin on a fully-taxable basis (non-GAAP)
|
CDARS:
|
Certificate of Deposit Account Registry System
|
|
N.M.:
|
Not meaningful
|
CDs:
|
Certificate of deposits
|
|
NRV:
|
Net realizable value
|
CMO:
|
Collateralized mortgage obligation
|
|
OCC:
|
Office of the Comptroller of the Currency
|
Company:
|
Camden National Corporation
|
|
OCI:
|
Other comprehensive income (loss)
|
CSV:
|
Cash surrender value
|
|
OFAC:
|
Office of Foreign Assets Control
|
DCRP:
|
Defined Contribution Retirement Plan
|
|
OREO:
|
Other real estate owned
|
EPS:
|
Earnings per share
|
|
SBM:
|
SBM Financial, Inc., the parent company of The Bank of Maine
|
FASB:
|
Financial Accounting Standards Board
|
|
SERP:
|
Supplemental executive retirement plans
|
FDIC:
|
Federal Deposit Insurance Corporation
|
|
TDR:
|
Troubled-debt restructured loan
|
FHLB:
|
Federal Home Loan Bank
|
|
UBCT:
|
Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
|
FHLBB:
|
Federal Home Loan Bank of Boston
|
|
U.S.:
|
United States of America
|
FRB:
|
Federal Reserve Bank
|
|
USD:
|
United States Dollar
|
Freddie Mac:
|
Federal Home Loan Mortgage Corporation
|
|
2003 Plan:
|
2003 Stock Option and Incentive Plan
|
GAAP:
|
Generally accepted accounting principles in the United States
|
|
2012 Plan:
|
2012 Equity and Incentive Plan
|
HPFC:
|
Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
|
|
2013 Repurchase Program:
|
2013 Common Stock Repurchase Program, approved by the Company's Board of Directors
|
HTM:
|
Held-to-maturity
|
|
|
|
NOTE 2 - COMMON STOCK SPLIT
On August 30, 2016, the Company's board of directors declared a three-for-two stock split, effected in the form of a stock dividend, on the Company's common stock. Each shareholder of record on September 15, 2016, received
one
additional share of common stock for every
two
shares of common stock owned. The stock was issued September 30, 2016. All references in the financial statements to the number of shares outstanding, dividends declared and per share amounts of the Company's common stock have been restated to reflect the effect of the stock split for all periods presented.
The Company paid shareholders cash in-lieu of fractional shares of common stock in connection with the split, at a price of
$31.75
per share, the closing price of the Company’s common stock on September 14, 2016. The total cash in-lieu paid out for fractional shares was
$5,000
, and was accounted for as a reduction of capital stock.
NOTE 3 – EPS
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income
|
|
$
|
10,903
|
|
|
$
|
6,456
|
|
|
$
|
29,165
|
|
|
$
|
19,260
|
|
Dividends and undistributed earnings allocated to participating securities
(1)
|
|
(54
|
)
|
|
(21
|
)
|
|
(134
|
)
|
|
(61
|
)
|
Net income available to common shareholders
|
|
$
|
10,849
|
|
|
$
|
6,435
|
|
|
$
|
29,031
|
|
|
$
|
19,199
|
|
Weighted-average common shares outstanding for basic EPS
(2)
|
|
15,425,452
|
|
|
11,179,821
|
|
|
15,410,310
|
|
|
11,165,297
|
|
Dilutive effect of stock-based awards
(2)(3)
|
|
82,109
|
|
|
36,023
|
|
|
73,010
|
|
|
31,452
|
|
Weighted-average common and potential common shares for diluted EPS
(2)
|
|
15,507,561
|
|
|
11,215,844
|
|
|
15,483,320
|
|
|
11,196,749
|
|
Earnings per common share
(2)
:
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.70
|
|
|
$
|
0.58
|
|
|
$
|
1.88
|
|
|
$
|
1.72
|
|
Diluted EPS
|
|
$
|
0.70
|
|
|
$
|
0.57
|
|
|
$
|
1.88
|
|
|
$
|
1.71
|
|
Awards excluded from the calculation of diluted EPS
(2)(4)
:
|
|
|
|
|
|
|
|
|
Stock options
|
|
—
|
|
|
20,625
|
|
|
18,375
|
|
|
24,375
|
|
(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Share and per share amounts have been adjusted to reflect the three-for-two stock split effective September 30, 2016, for all periods presented. Refer to Note 2.
(3) Represents the effect of the assumed exercise of stock options, vesting of restricted shares, vesting of restricted stock units, and vesting of LTIP awards that have met the performance criteria, as applicable, utilizing the treasury stock method.
(4) Represents stock-based awards not included in the computation of potential common shares for purposes of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock and are considered anti-dilutive.
Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities.
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards.
Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.
NOTE 4 – SECURITIES
The following tables summarize the amortized cost and estimated fair values of AFS and HTM securities, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities:
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
$
|
15,721
|
|
|
$
|
134
|
|
|
$
|
—
|
|
|
$
|
15,855
|
|
Obligations of states and political subdivisions
|
9,763
|
|
|
238
|
|
|
—
|
|
|
10,001
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
442,099
|
|
|
8,366
|
|
|
(157
|
)
|
|
450,308
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
305,039
|
|
|
2,222
|
|
|
(899
|
)
|
|
306,362
|
|
Subordinated corporate bonds
|
5,481
|
|
|
223
|
|
|
—
|
|
|
5,704
|
|
Total AFS debt securities
|
778,103
|
|
|
11,183
|
|
|
(1,056
|
)
|
|
788,230
|
|
Equity securities
|
632
|
|
|
18
|
|
|
—
|
|
|
650
|
|
Total AFS securities
|
$
|
778,735
|
|
|
$
|
11,201
|
|
|
$
|
(1,056
|
)
|
|
$
|
788,880
|
|
HTM Securities:
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
94,205
|
|
|
$
|
3,898
|
|
|
$
|
(7
|
)
|
|
$
|
98,096
|
|
Total HTM securities
|
$
|
94,205
|
|
|
$
|
3,898
|
|
|
$
|
(7
|
)
|
|
$
|
98,096
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities:
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
$
|
4,971
|
|
|
$
|
69
|
|
|
$
|
—
|
|
|
$
|
5,040
|
|
Obligations of states and political subdivisions
|
17,355
|
|
|
339
|
|
|
—
|
|
|
17,694
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
419,429
|
|
|
3,474
|
|
|
(3,857
|
)
|
|
419,046
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
312,719
|
|
|
409
|
|
|
(6,271
|
)
|
|
306,857
|
|
Subordinated corporate bonds
|
1,000
|
|
|
—
|
|
|
(4
|
)
|
|
996
|
|
Total AFS debt securities
|
755,474
|
|
|
4,291
|
|
|
(10,132
|
)
|
|
749,633
|
|
Equity securities
|
712
|
|
|
2
|
|
|
(9
|
)
|
|
705
|
|
Total AFS securities
|
$
|
756,186
|
|
|
$
|
4,293
|
|
|
$
|
(10,141
|
)
|
|
$
|
750,338
|
|
HTM Securities:
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
84,144
|
|
|
$
|
1,564
|
|
|
$
|
(61
|
)
|
|
$
|
85,647
|
|
Total HTM securities
|
$
|
84,144
|
|
|
$
|
1,564
|
|
|
$
|
(61
|
)
|
|
$
|
85,647
|
|
Net unrealized gains on AFS securities at
September 30, 2016
included in AOCI amounted to
$6.6 million
, net of a deferred tax liability of
$3.6 million
. Net unrealized losses on AFS securities at December 31, 2015 included in AOCI amounted to
$3.8 million
, net of a deferred tax benefit of
$2.0 million
.
During the first
nine
months of 2016, the Company purchased investment securities totaling
$140.7 million
. The Company designated
$130.3 million
as AFS securities and
$10.4 million
as HTM securities.
During the first nine months of 2015, the Company purchased investment securities totaling
$136.7 million
. The Company designated
$81.3 million
as AFS securities and
$55.4 million
as HTM securities.
Impaired Securities
Management periodically reviews the Company’s investment portfolio to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, and recoverability of invested amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in determining OTTI. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is permanently reduced and a corresponding charge to earnings is recognized.
The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at
September 30, 2016
and
December 31, 2015
, by length of time that individual securities in each category have been in a continuous loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
$
|
3,071
|
|
|
$
|
(5
|
)
|
|
$
|
32,128
|
|
|
$
|
(152
|
)
|
|
$
|
35,199
|
|
|
$
|
(157
|
)
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
33,636
|
|
|
(85
|
)
|
|
79,213
|
|
|
(814
|
)
|
|
112,849
|
|
|
(899
|
)
|
Total AFS securities
|
$
|
36,707
|
|
|
$
|
(90
|
)
|
|
$
|
111,341
|
|
|
$
|
(966
|
)
|
|
$
|
148,048
|
|
|
$
|
(1,056
|
)
|
HTM Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
1,382
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,382
|
|
|
$
|
(7
|
)
|
Total HTM securities
|
$
|
1,382
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,382
|
|
|
$
|
(7
|
)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
$
|
234,897
|
|
|
$
|
(2,351
|
)
|
|
$
|
45,629
|
|
|
$
|
(1,506
|
)
|
|
$
|
280,526
|
|
|
$
|
(3,857
|
)
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
111,143
|
|
|
(1,068
|
)
|
|
147,180
|
|
|
(5,203
|
)
|
|
258,323
|
|
|
(6,271
|
)
|
Subordinated corporate bonds
|
996
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
996
|
|
|
(4
|
)
|
Equity Securities
|
615
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
615
|
|
|
(9
|
)
|
Total AFS securities
|
$
|
347,651
|
|
|
$
|
(3,432
|
)
|
|
$
|
192,809
|
|
|
$
|
(6,709
|
)
|
|
$
|
540,460
|
|
|
$
|
(10,141
|
)
|
HTM Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
$
|
5,507
|
|
|
$
|
(61
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,507
|
|
|
$
|
(61
|
)
|
Total HTM securities
|
$
|
5,507
|
|
|
$
|
(61
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,507
|
|
|
$
|
(61
|
)
|
At
September 30, 2016
and
December 31, 2015
, the Company held
32
and
109
investment securities with a fair value of
$149.4 million
and
$546.0 million
with unrealized losses totaling $
1.1 million
and
$10.2 million
, respectively, that were considered temporary. Of these, the Company had
30
MBS and CMO investments with a fair value of $
111.3 million
that were in an unrealized loss position totaling
$966,000
at
September 30, 2016
and
28
MBS and CMO investments with a fair value of
$192.8 million
that were in an unrealized loss position totaling
$6.7 million
at December 31, 2015 for 12 months or more. The unrealized loss was reflective of current interest rates in excess of the yield received on investments and is not indicative of an overall change in credit quality or other factors with the Company's investment portfolio. At
September 30, 2016
and
December 31, 2015
, gross unrealized losses on the Company's AFS and HTM securities were
1%
and
2%
, respectively, of the respective investment securities fair value.
The Company has the intent and ability to retain its investment securities in an unrealized loss position at
September 30, 2016
until the decline in value has recovered.
Sale of Securities
The following table details the Company’s sales of AFS securities for the period indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Proceeds from sales of securities
|
$
|
—
|
|
|
$
|
12,426
|
|
|
$
|
84
|
|
|
$
|
12,426
|
|
Gross realized gains
|
—
|
|
|
221
|
|
|
4
|
|
|
221
|
|
Gross realized losses
|
—
|
|
|
(217
|
)
|
|
—
|
|
|
(217
|
)
|
For the three months ended September 30, 2016, the Company did
no
t sell any securities. For the three months ended September 30, 2015, the Company sold certain AFS securities with total carrying value of
$12.4 million
and recorded net gains on the sale of AFS securities of
$4,000
within non-interest income in the consolidated statements of income. As part of the Company’s securities portfolio restructuring due to its pending merger with SBM as of September 30, 2015 (which subsequently was completed on October 16, 2015) it sold all of its Non-Agency guaranteed CMO investments in the quarter ended September 30, 2015, along with
$7.3 million
of MBS investments experiencing high prepayment speeds. The Company recorded a net gain of
$4,000
from the sale of its Non-Agency guaranteed CMO and MBS investments. The Company had previously recorded OTTI on its Non-Agency guaranteed CMO investments of
$204,000
.
For the nine months ended
September 30, 2016
, the Company sold certain AFS securities with a total carrying value of
$84,000
and recorded net gains on the sale of AFS securities of
$4,000
within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold. For the nine months ended September 30, 2015, the Company sold certain AFS securities with total carrying value of
$12.4 million
and recorded net gains on sale of AFS securities of
$4,000
within non-interest income in the consolidated statements of income.
The cost basis of securities sold is measured on a specific identification basis.
FHLBB and FRB Stock
As of
September 30, 2016
and
December 31, 2015
, the Company's investment in FHLBB stock was
$17.8 million
and
$20.6 million
, respectively. As of
September 30, 2016
and
December 31, 2015
, the Company's investment in FRB stock was
$5.4 million
and $
908,000
, respectively.
Securities Pledged
At
September 30, 2016
and
December 31, 2015
, securities with an amortized cost of
$594.9 million
and
$577.6 million
and estimated fair values of
$602.2 million
and
$570.9 million
, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
Contractual Maturities
The amortized cost and estimated fair values of debt securities by contractual maturity at
September 30, 2016
, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
AFS Securities
|
|
|
|
Due in one year or less
|
$
|
1,440
|
|
|
$
|
1,442
|
|
Due after one year through five years
|
105,688
|
|
|
107,064
|
|
Due after five years through ten years
|
101,074
|
|
|
104,023
|
|
Due after ten years
|
569,901
|
|
|
575,701
|
|
|
$
|
778,103
|
|
|
$
|
788,230
|
|
HTM Securities
|
|
|
|
Due after one year through five years
|
$
|
2,943
|
|
|
$
|
3,002
|
|
Due after five years through ten years
|
5,435
|
|
|
5,624
|
|
Due after ten years
|
85,827
|
|
|
89,470
|
|
|
$
|
94,205
|
|
|
$
|
98,096
|
|
NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the Company’s loan portfolio, excluding residential loans held for sale, at
September 30, 2016
and
December 31, 2015
was as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Residential real estate
(1)
|
$
|
798,306
|
|
|
$
|
821,074
|
|
Commercial real estate
(1)
|
1,055,043
|
|
|
927,951
|
|
Commercial
(1)
|
324,322
|
|
|
297,721
|
|
Home equity
(1)
|
331,728
|
|
|
348,634
|
|
Consumer
(1)
|
17,333
|
|
|
17,953
|
|
HPFC
(1)
|
65,619
|
|
|
77,243
|
|
Deferred loan fees, net
|
(342
|
)
|
|
(370
|
)
|
Total loans
|
$
|
2,592,009
|
|
|
$
|
2,490,206
|
|
(1) The loan balances are presented net of the unamortized fair value mark discount associated with the purchase accounting for acquired loans of
$9.6 million
and
$13.1 million
at
September 30, 2016
and
December 31, 2015
, respectively.
The Bank’s lending activities are primarily conducted in Maine, and its footprint continues to expand into other New England states, including New Hampshire and Massachusetts. The Company originates single family and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.
The HPFC loan portfolio consists of niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. Unlike the Bank's loan portfolio, there is, generally, little to no indication of credit quality issues and/or concerns of borrowers honoring their commitments until a payment is delinquent. Generally, once a payment is delinquent, if the payment is not received shortly thereafter to bring the loan current, the loan is deemed impaired (typically within
45
days). Effective February 19, 2016, the Company closed HPFC's operations and is no longer originating loans.
The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.
There were no significant changes in the Company's ALL methodology during the
nine months
ended
September 30, 2016
.
The Board of Directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, concentration levels, and the ALL methodology. The Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the Board of Directors. The Company's practice is to proactively manage the portfolio such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For
purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include:
Residential Real Estate
.
Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties.
Commercial Real Estate.
Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.
Commercial.
Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.
Home Equity.
Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer.
Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.
HPFC.
HPFC is a niche lender that provides commercial lending to dentists, optometrists and veterinarians, many of which are start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral may consist of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the terms range from
seven
to
ten
years.
The following tables present the activity in the ALL and select loan information by portfolio segment for the three and
nine months ended September 30, 2016
and 2015, and for the year ended
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Commercial
|
|
Home
Equity
|
|
Consumer
|
|
HPFC
|
|
Unallocated
|
|
Total
|
For The Three and Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
4,431
|
|
|
$
|
11,559
|
|
|
$
|
4,558
|
|
|
$
|
2,946
|
|
|
$
|
193
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
23,717
|
|
Loans charged off
|
—
|
|
|
(32
|
)
|
|
(1,541
|
)
|
|
(44
|
)
|
|
(19
|
)
|
|
(205
|
)
|
|
—
|
|
|
(1,841
|
)
|
Recoveries
|
1
|
|
|
7
|
|
|
118
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
127
|
|
Provision (credit)
(1)
|
163
|
|
|
1,046
|
|
|
148
|
|
|
(335
|
)
|
|
(13
|
)
|
|
278
|
|
|
—
|
|
|
1,287
|
|
Ending balance
|
$
|
4,595
|
|
|
$
|
12,580
|
|
|
$
|
3,283
|
|
|
$
|
2,567
|
|
|
$
|
162
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
23,290
|
|
ALL for the nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
4,545
|
|
|
$
|
10,432
|
|
|
$
|
3,241
|
|
|
$
|
2,731
|
|
|
$
|
193
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
21,166
|
|
Loans charged off
|
(229
|
)
|
|
(273
|
)
|
|
(1,970
|
)
|
|
(229
|
)
|
|
(60
|
)
|
|
(507
|
)
|
|
—
|
|
|
(3,268
|
)
|
Recoveries
|
72
|
|
|
50
|
|
|
252
|
|
|
2
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
381
|
|
Provision
(1)
|
207
|
|
|
2,371
|
|
|
1,760
|
|
|
63
|
|
|
24
|
|
|
586
|
|
|
—
|
|
|
5,011
|
|
Ending balance
|
$
|
4,595
|
|
|
$
|
12,580
|
|
|
$
|
3,283
|
|
|
$
|
2,567
|
|
|
$
|
162
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
23,290
|
|
ALL balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
511
|
|
|
$
|
1,284
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
1,957
|
|
Collectively evaluated for impairment
|
4,084
|
|
|
11,296
|
|
|
3,283
|
|
|
2,479
|
|
|
162
|
|
|
29
|
|
|
—
|
|
|
21,333
|
|
Total ending ALL
|
$
|
4,595
|
|
|
$
|
12,580
|
|
|
$
|
3,283
|
|
|
$
|
2,567
|
|
|
$
|
162
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
23,290
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
4,551
|
|
|
$
|
13,286
|
|
|
$
|
2,243
|
|
|
$
|
489
|
|
|
$
|
7
|
|
|
$
|
106
|
|
|
$
|
—
|
|
|
$
|
20,682
|
|
Collectively evaluated for impairment
|
792,485
|
|
|
1,041,021
|
|
|
322,179
|
|
|
332,606
|
|
|
17,409
|
|
|
65,627
|
|
|
—
|
|
|
2,571,327
|
|
Total ending loans balance
|
$
|
797,036
|
|
|
$
|
1,054,307
|
|
|
$
|
324,422
|
|
|
$
|
333,095
|
|
|
$
|
17,416
|
|
|
$
|
65,733
|
|
|
$
|
—
|
|
|
$
|
2,592,009
|
|
For The Three and Nine Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
4,689
|
|
|
$
|
8,160
|
|
|
$
|
3,315
|
|
|
$
|
2,144
|
|
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
2,618
|
|
|
$
|
21,194
|
|
Loans charged off
|
(176
|
)
|
|
(71
|
)
|
|
(144
|
)
|
|
(198
|
)
|
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
(612
|
)
|
Recoveries
|
15
|
|
|
4
|
|
|
115
|
|
|
132
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
269
|
|
Provision (credit)
(1)
|
4
|
|
|
884
|
|
|
(138
|
)
|
|
(6
|
)
|
|
13
|
|
|
—
|
|
|
(476
|
)
|
|
281
|
|
Ending balance
|
$
|
4,532
|
|
|
$
|
8,977
|
|
|
$
|
3,148
|
|
|
$
|
2,072
|
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
2,142
|
|
|
$
|
21,132
|
|
ALL for the nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
4,899
|
|
|
$
|
7,951
|
|
|
$
|
3,354
|
|
|
$
|
2,247
|
|
|
$
|
281
|
|
|
$
|
—
|
|
|
$
|
2,384
|
|
|
$
|
21,116
|
|
Loans charged off
|
(468
|
)
|
|
(174
|
)
|
|
(387
|
)
|
|
(439
|
)
|
|
(42
|
)
|
|
—
|
|
|
—
|
|
|
(1,510
|
)
|
Recoveries
|
35
|
|
|
68
|
|
|
297
|
|
|
137
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
554
|
|
Provision (credit)
(1)
|
66
|
|
|
1,132
|
|
|
(116
|
)
|
|
127
|
|
|
5
|
|
|
—
|
|
|
(242
|
)
|
|
972
|
|
Ending balance
|
$
|
4,532
|
|
|
$
|
8,977
|
|
|
$
|
3,148
|
|
|
$
|
2,072
|
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
2,142
|
|
|
$
|
21,132
|
|
ALL balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
645
|
|
|
$
|
280
|
|
|
$
|
92
|
|
|
$
|
89
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,184
|
|
Collectively evaluated for impairment
|
3,887
|
|
|
8,697
|
|
|
3,056
|
|
|
1,983
|
|
|
183
|
|
|
—
|
|
|
2,142
|
|
|
19,948
|
|
Total ending ALL
|
$
|
4,532
|
|
|
$
|
8,977
|
|
|
$
|
3,148
|
|
|
$
|
2,072
|
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
2,142
|
|
|
$
|
21,132
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
5,200
|
|
|
$
|
3,737
|
|
|
$
|
950
|
|
|
$
|
506
|
|
|
$
|
157
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,550
|
|
Collectively evaluated for impairment
|
577,876
|
|
|
687,198
|
|
|
257,155
|
|
|
280,986
|
|
|
16,378
|
|
|
—
|
|
|
—
|
|
|
1,819,593
|
|
Total ending loans balance
|
$
|
583,076
|
|
|
$
|
690,935
|
|
|
$
|
258,105
|
|
|
$
|
281,492
|
|
|
$
|
16,535
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,830,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Commercial
|
|
Home
Equity
|
|
Consumer
|
|
HPFC
|
|
Unallocated
|
|
Total
|
For The Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
4,899
|
|
|
$
|
7,951
|
|
|
$
|
3,354
|
|
|
$
|
2,247
|
|
|
$
|
281
|
|
|
$
|
—
|
|
|
$
|
2,384
|
|
|
$
|
21,116
|
|
Loans charged off
|
(801
|
)
|
|
(481
|
)
|
|
(655
|
)
|
|
(525
|
)
|
|
(154
|
)
|
|
—
|
|
|
—
|
|
|
(2,616
|
)
|
Recoveries
|
55
|
|
|
74
|
|
|
389
|
|
|
188
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
728
|
|
Provision (credit)
(1)
|
392
|
|
|
2,888
|
|
|
153
|
|
|
821
|
|
|
44
|
|
|
24
|
|
|
(2,384
|
)
|
|
1,938
|
|
Ending balance
|
$
|
4,545
|
|
|
$
|
10,432
|
|
|
$
|
3,241
|
|
|
$
|
2,731
|
|
|
$
|
193
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
21,166
|
|
ALL balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
544
|
|
|
$
|
644
|
|
|
$
|
92
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,369
|
|
Collectively evaluated for impairment
|
4,001
|
|
|
9,788
|
|
|
3,149
|
|
|
2,642
|
|
|
193
|
|
|
24
|
|
|
—
|
|
|
19,797
|
|
Total ending ALL
|
$
|
4,545
|
|
|
$
|
10,432
|
|
|
$
|
3,241
|
|
|
$
|
2,731
|
|
|
$
|
193
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
21,166
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
6,026
|
|
|
$
|
4,610
|
|
|
$
|
3,937
|
|
|
$
|
588
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,235
|
|
Collectively evaluated for impairment
|
814,591
|
|
|
923,341
|
|
|
293,784
|
|
|
348,046
|
|
|
17,879
|
|
|
77,330
|
|
|
—
|
|
|
2,474,971
|
|
Total ending loans balance
|
$
|
820,617
|
|
|
$
|
927,951
|
|
|
$
|
297,721
|
|
|
$
|
348,634
|
|
|
$
|
17,953
|
|
|
$
|
77,330
|
|
|
$
|
—
|
|
|
$
|
2,490,206
|
|
|
|
(1)
|
The provision (credit) for loan losses excludes any impact for the change in the reserve for unfunded commitments, which represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and other liabilities on the consolidated statements of condition. At
September 30, 2016
and 2015, and
December 31, 2015
, the reserve for unfunded commitments was
$14,000
,
$24,000
and
$22,000
, respectively.
|
The following table reconciles the
three and nine
months ended
September 30, 2016
and 2015, and year ended
December 31, 2015
provision for loan losses to the provision for credit losses as presented on the consolidated statement of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2015
|
Provision for loan losses
|
|
$
|
1,287
|
|
|
$
|
281
|
|
|
$
|
5,011
|
|
|
$
|
972
|
|
|
$
|
1,938
|
|
Change in reserve for unfunded commitments
|
|
(8
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
7
|
|
|
(2
|
)
|
Provision for credit losses
|
|
$
|
1,279
|
|
|
$
|
279
|
|
|
$
|
5,003
|
|
|
$
|
979
|
|
|
$
|
1,936
|
|
The provision for loan losses for the
three and nine
months ended
September 30, 2016
increased
$1.0 million
and
$4.0 million
, respectively, compared to the
three and nine
months ended
September 30, 2015
. The increase was driven by (i) the increase in loans (excluding loans held for sale) of
$761.9 million
since
September 30, 2015
, of which
$615.4 million
the Company acquired as part of the SBM acquisition in the fourth quarter of 2015, as well as (ii) the deterioration of
one
commercial real estate and
one
commercial credit in the second quarter of 2016 accounting for
$2.3 million
of the provision for loan losses for the
nine
months ended
September 30, 2016
. The Company placed the commercial real estate loan on non-accrual status in the second quarter of 2016, and the commercial loan was previously on non-accrual status. The recorded investment balance of the commercial real estate loan at September 30, 2016 was
$11.3 million
and the recorded investment balance of the commercial loan at September 30, 2016 was
$1.6 million
. The Company believes that the credit deterioration of these
two
credits were driven by specific facts and circumstances of the borrowers and does not represent a systemic issue across its commercial real estate or commercial loan portfolios. In the third quarter of 2016, the Company partially charged-off
$1.4 million
of the aforementioned commercial loan, which was previously reserved for in the second quarter of 2016.
The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored by Credit Risk Administration. As of
September 30, 2016
, the non-residential building operators industry exposure was
13%
of the Company's total loan portfolio and
33%
of the total commercial real estate portfolio. There were
no
other industry exposures exceeding
10%
of the Company's total loan portfolio as of
September 30, 2016
.
To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial, commercial real estate, residential real estate, and HPFC loans are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ALL:
|
|
•
|
Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.
|
|
|
•
|
Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.
|
|
|
•
|
Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.
|
|
|
•
|
Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
|
|
|
•
|
Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.
|
Asset quality indicators are periodically reassessed to appropriately reflect the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.
The following table summarizes credit risk exposure indicators by portfolio segment as of the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Commercial
|
|
Home
Equity
|
|
Consumer
|
|
HPFC
|
|
Total
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
$
|
783,938
|
|
|
$
|
994,867
|
|
|
$
|
311,974
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
64,234
|
|
|
$
|
2,155,013
|
|
Performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
331,449
|
|
|
17,412
|
|
|
—
|
|
|
348,861
|
|
Special Mention (Grade 7)
|
|
2,530
|
|
|
17,869
|
|
|
7,826
|
|
|
—
|
|
|
—
|
|
|
269
|
|
|
28,494
|
|
Substandard (Grade 8)
|
|
10,568
|
|
|
41,571
|
|
|
4,622
|
|
|
—
|
|
|
—
|
|
|
1,230
|
|
|
57,991
|
|
Non-performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,646
|
|
|
4
|
|
|
—
|
|
|
1,650
|
|
Total
|
|
$
|
797,036
|
|
|
$
|
1,054,307
|
|
|
$
|
324,422
|
|
|
$
|
333,095
|
|
|
$
|
17,416
|
|
|
$
|
65,733
|
|
|
$
|
2,592,009
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Grades 1-6)
|
|
$
|
802,873
|
|
|
$
|
868,664
|
|
|
$
|
281,553
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70,173
|
|
|
$
|
2,023,263
|
|
Performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
346,701
|
|
|
17,835
|
|
|
—
|
|
|
364,536
|
|
Special Mention (Grade 7)
|
|
3,282
|
|
|
20,732
|
|
|
7,527
|
|
|
—
|
|
|
—
|
|
|
3,179
|
|
|
34,720
|
|
Substandard (Grade 8)
|
|
14,462
|
|
|
38,555
|
|
|
8,641
|
|
|
—
|
|
|
—
|
|
|
3,978
|
|
|
65,636
|
|
Non-performing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,933
|
|
|
118
|
|
|
—
|
|
|
2,051
|
|
Total
|
|
$
|
820,617
|
|
|
$
|
927,951
|
|
|
$
|
297,721
|
|
|
$
|
348,634
|
|
|
$
|
17,953
|
|
|
$
|
77,330
|
|
|
$
|
2,490,206
|
|
The Company closely monitors the performance of its loan portfolio for both the Bank and HPFC. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is well-secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan may return to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally placed on non-accrual status because they are charged-off once their collectability is in doubt.
The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and a summary of non-accrual loans, which include TDRs, and loans past due over 90 days and accruing as of the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater
than
90 Days
|
|
Total
Past Due
|
|
Current
|
|
Total Loans
Outstanding
|
|
Loans > 90
Days Past
Due and
Accruing
|
|
Non-Accrual
Loans
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
$
|
1,460
|
|
|
$
|
942
|
|
|
$
|
2,818
|
|
|
$
|
5,220
|
|
|
$
|
791,816
|
|
|
$
|
797,036
|
|
|
$
|
—
|
|
|
$
|
3,986
|
|
Commercial real estate
|
557
|
|
|
151
|
|
|
12,710
|
|
|
13,418
|
|
|
1,040,889
|
|
|
1,054,307
|
|
|
—
|
|
|
12,917
|
|
Commercial
|
1,568
|
|
|
117
|
|
|
565
|
|
|
2,250
|
|
|
322,172
|
|
|
324,422
|
|
|
—
|
|
|
2,259
|
|
Home equity
|
394
|
|
|
178
|
|
|
1,314
|
|
|
1,886
|
|
|
331,209
|
|
|
333,095
|
|
|
—
|
|
|
1,646
|
|
Consumer
|
41
|
|
|
2
|
|
|
4
|
|
|
47
|
|
|
17,369
|
|
|
17,416
|
|
|
—
|
|
|
4
|
|
HPFC
|
492
|
|
|
—
|
|
|
216
|
|
|
708
|
|
|
65,025
|
|
|
65,733
|
|
|
—
|
|
|
216
|
|
Total
|
$
|
4,512
|
|
|
$
|
1,390
|
|
|
$
|
17,627
|
|
|
$
|
23,529
|
|
|
$
|
2,568,480
|
|
|
$
|
2,592,009
|
|
|
$
|
—
|
|
|
$
|
21,028
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
$
|
3,325
|
|
|
$
|
571
|
|
|
$
|
6,077
|
|
|
$
|
9,973
|
|
|
$
|
810,644
|
|
|
$
|
820,617
|
|
|
$
|
—
|
|
|
$
|
7,253
|
|
Commercial real estate
|
4,219
|
|
|
2,427
|
|
|
1,584
|
|
|
8,230
|
|
|
919,721
|
|
|
927,951
|
|
|
—
|
|
|
4,529
|
|
Commercial
|
267
|
|
|
550
|
|
|
1,002
|
|
|
1,819
|
|
|
295,902
|
|
|
297,721
|
|
|
—
|
|
|
4,489
|
|
Home equity
|
643
|
|
|
640
|
|
|
1,505
|
|
|
2,788
|
|
|
345,846
|
|
|
348,634
|
|
|
—
|
|
|
1,933
|
|
Consumer
|
112
|
|
|
7
|
|
|
118
|
|
|
237
|
|
|
17,716
|
|
|
17,953
|
|
|
—
|
|
|
118
|
|
HPFC
|
165
|
|
|
—
|
|
|
—
|
|
|
165
|
|
|
77,165
|
|
|
77,330
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
8,731
|
|
|
$
|
4,195
|
|
|
$
|
10,286
|
|
|
$
|
23,212
|
|
|
$
|
2,466,994
|
|
|
$
|
2,490,206
|
|
|
$
|
—
|
|
|
$
|
18,322
|
|
Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was
$251,000
,
$675,000
,
$103,000
and
$375,000
for the three and nine months ended
September 30, 2016
and
2015
, respectively.
TDRs:
The Company takes a conservative approach with credit risk management and remains focused on community lending and reinvesting. The Company works closely with borrowers experiencing credit problems to assist in loan repayment or term modifications. TDR loans consist of loans where the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that it would not otherwise consider. TDRs, typically, involve term modifications or a reduction of either interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or until the loan is again restructured at current market rates and no concessions are granted.
The specific reserve allowance was determined by discounting the total expected future cash flows from the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using the NRV, which was obtained through independent appraisals and internal evaluations. The following is a summary of TDRs, by portfolio segment, and the associated specific reserve included within the ALL as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Recorded Investment
|
|
Specific Reserve
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
September 30, 2016
|
|
December 31, 2015
|
|
September 30, 2016
|
|
December 31, 2015
|
Residential real estate
|
|
21
|
|
|
22
|
|
|
$
|
3,245
|
|
|
$
|
3,398
|
|
|
$
|
511
|
|
|
$
|
544
|
|
Commercial real estate
|
|
3
|
|
|
6
|
|
|
1,017
|
|
|
1,459
|
|
|
—
|
|
|
48
|
|
Commercial
|
|
13
|
|
|
9
|
|
|
1,711
|
|
|
399
|
|
|
—
|
|
|
11
|
|
Home equity
|
|
1
|
|
|
1
|
|
|
17
|
|
|
21
|
|
|
—
|
|
|
—
|
|
Total
|
|
38
|
|
|
38
|
|
|
$
|
5,990
|
|
|
$
|
5,277
|
|
|
$
|
511
|
|
|
$
|
603
|
|
At
September 30, 2016
, the Company had performing and non-performing TDRs with a recorded investment balance of
$4.4 million
and
$1.6 million
, respectively. At December 31, 2015, the Company had performing and non-performing TDRs with a recorded investment balance of
$4.8 million
and
$446,000
, respectively.
The following represents loan modifications that occurred for the three and nine months ended September 30, 2016 and 2015 that qualify as TDRs and the type of loan modification made by portfolio segment at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Pre-Modification
Outstanding
Recorded Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Specific Reserve
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Court ordered
|
|
—
|
|
|
1
|
|
|
$
|
—
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity concession
|
|
6
|
|
|
—
|
|
|
1,344
|
|
|
—
|
|
|
1,652
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
6
|
|
|
1
|
|
|
$
|
1,344
|
|
|
$
|
74
|
|
|
$
|
1,652
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For the nine months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Court ordered
|
|
—
|
|
|
1
|
|
|
$
|
—
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity concession
|
|
6
|
|
|
—
|
|
|
1,344
|
|
|
—
|
|
|
1,652
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
6
|
|
|
1
|
|
|
$
|
1,344
|
|
|
$
|
74
|
|
|
$
|
1,652
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
During the third quarter of 2016, the Company completed the restructure of
one
commercial relationship, which resulted in
six
TDRs. As part of the restructure the Company committed to lend additional funds of up to
$280,000
. The Company did
no
t have any other commitments to lend additional funds to borrowers with loans classified as TDRs as of
September 30, 2016
.
For the
nine months ended
September 30, 2016
and 2015,
no
loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.
Impaired Loans:
Impaired loans consist of non-accrual and TDR loans that are individually evaluated for impairment in accordance with the Company's policy. The following is a summary of impaired loan balances and the associated allowance by portfolio segment as of and for three and nine months ended September 30, 2016 and 2015, and as of and for the year-ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
(1)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
September 30
,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
$
|
3,041
|
|
|
$
|
3,041
|
|
|
$
|
511
|
|
|
$
|
3,050
|
|
|
$
|
56
|
|
|
$
|
3,108
|
|
|
$
|
81
|
|
Commercial real estate
|
11,354
|
|
|
11,354
|
|
|
1,284
|
|
|
7,582
|
|
|
—
|
|
|
3,092
|
|
|
—
|
|
Commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
1,782
|
|
|
—
|
|
|
1,016
|
|
|
—
|
|
Home equity
|
302
|
|
|
302
|
|
|
88
|
|
|
303
|
|
|
—
|
|
|
307
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
HPFC
|
106
|
|
|
106
|
|
|
74
|
|
|
35
|
|
|
—
|
|
|
97
|
|
|
—
|
|
Ending balance
|
14,803
|
|
|
14,803
|
|
|
1,957
|
|
|
12,752
|
|
|
56
|
|
|
7,620
|
|
|
81
|
|
Without an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
1,510
|
|
|
1,996
|
|
|
—
|
|
|
1,731
|
|
|
7
|
|
|
2,275
|
|
|
7
|
|
Commercial real estate
|
1,932
|
|
|
2,427
|
|
|
—
|
|
|
2,015
|
|
|
33
|
|
|
2,322
|
|
|
37
|
|
Commercial
|
2,243
|
|
|
4,667
|
|
|
—
|
|
|
1,354
|
|
|
(11
|
)
|
|
2,639
|
|
|
12
|
|
Home equity
|
187
|
|
|
374
|
|
|
—
|
|
|
188
|
|
|
3
|
|
|
181
|
|
|
—
|
|
Consumer
|
7
|
|
|
10
|
|
|
—
|
|
|
7
|
|
|
4
|
|
|
7
|
|
|
—
|
|
HPFC
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
5,879
|
|
|
9,474
|
|
|
—
|
|
|
5,295
|
|
|
36
|
|
|
7,424
|
|
|
56
|
|
Total impaired loans
|
$
|
20,682
|
|
|
$
|
24,277
|
|
|
$
|
1,957
|
|
|
$
|
18,047
|
|
|
$
|
92
|
|
|
$
|
15,044
|
|
|
$
|
137
|
|
September 30
,
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
$
|
3,581
|
|
|
$
|
3,581
|
|
|
$
|
645
|
|
|
$
|
4,409
|
|
|
$
|
55
|
|
|
$
|
4,168
|
|
|
$
|
82
|
|
Commercial real estate
|
468
|
|
|
501
|
|
|
280
|
|
|
86
|
|
|
—
|
|
|
259
|
|
|
—
|
|
Commercial
|
247
|
|
|
247
|
|
|
92
|
|
|
199
|
|
|
5
|
|
|
218
|
|
|
6
|
|
Home equity
|
303
|
|
|
303
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
135
|
|
|
—
|
|
Consumer
|
140
|
|
|
140
|
|
|
78
|
|
|
140
|
|
|
—
|
|
|
140
|
|
|
—
|
|
HPFC
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
4,739
|
|
|
4,772
|
|
|
1,184
|
|
|
4,834
|
|
|
60
|
|
|
4,920
|
|
|
88
|
|
Without an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
1,619
|
|
|
2,118
|
|
|
—
|
|
|
1,774
|
|
|
4
|
|
|
1,607
|
|
|
6
|
|
Commercial real estate
|
3,269
|
|
|
3,430
|
|
|
—
|
|
|
3,102
|
|
|
18
|
|
|
2,735
|
|
|
45
|
|
Commercial
|
703
|
|
|
876
|
|
|
—
|
|
|
503
|
|
|
4
|
|
|
567
|
|
|
8
|
|
Home equity
|
203
|
|
|
454
|
|
|
—
|
|
|
303
|
|
|
—
|
|
|
390
|
|
|
—
|
|
Consumer
|
17
|
|
|
37
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
|
—
|
|
HPFC
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
5,811
|
|
|
6,915
|
|
|
—
|
|
|
5,699
|
|
|
26
|
|
|
5,316
|
|
|
59
|
|
Total impaired loans
|
$
|
10,550
|
|
|
$
|
11,687
|
|
|
$
|
1,184
|
|
|
$
|
10,533
|
|
|
$
|
86
|
|
|
$
|
10,236
|
|
|
$
|
147
|
|
(1) Negative interest income represents the re-allocation of income between "with an allowance recorded" and "without an allowance recorded" (or vice versa) during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
$
|
3,191
|
|
|
$
|
3,191
|
|
|
$
|
544
|
|
|
$
|
6,064
|
|
|
$
|
112
|
|
Commercial real estate
|
1,825
|
|
|
1,857
|
|
|
644
|
|
|
1,753
|
|
|
—
|
|
Commercial
|
156
|
|
|
156
|
|
|
92
|
|
|
945
|
|
|
2
|
|
Home equity
|
303
|
|
|
303
|
|
|
89
|
|
|
900
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
195
|
|
|
—
|
|
HPFC
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
5,475
|
|
|
5,507
|
|
|
1,369
|
|
|
9,857
|
|
|
114
|
|
Without an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
2,835
|
|
|
4,353
|
|
|
—
|
|
|
2,175
|
|
|
8
|
|
Commercial real estate
|
2,785
|
|
|
3,426
|
|
|
—
|
|
|
2,719
|
|
|
65
|
|
Commercial
|
3,781
|
|
|
4,325
|
|
|
—
|
|
|
1,412
|
|
|
17
|
|
Home equity
|
285
|
|
|
688
|
|
|
—
|
|
|
369
|
|
|
—
|
|
Consumer
|
74
|
|
|
150
|
|
|
—
|
|
|
20
|
|
|
—
|
|
HPFC
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
9,760
|
|
|
12,942
|
|
|
—
|
|
|
6,695
|
|
|
90
|
|
Total impaired loans
|
$
|
15,235
|
|
|
$
|
18,449
|
|
|
$
|
1,369
|
|
|
$
|
16,552
|
|
|
$
|
204
|
|
The impaired loan information presented for the
three and nine
months ended
September 30, 2015
and year ended
December 31, 2015
was revised to disclose only those impaired loans that are individually evaluated for impairment in accordance with the Company's policy, which includes (i) loans with a principal balance greater than
$250,000
or more and are classified as substandard or doubtful and are on non-accrual status and (ii) all TDRs. Previously, the Company's impaired loan disclosures included certain non-accrual loans which were collectively evaluated under ASC 450-20. The revision of prior period information had no impact on the Company's ALL, provision for loan losses, or its asset quality ratios as of
September 30, 2016
, and for the
three and nine
months ended
September 30, 2015
and year ended
December 31, 2015
.
Loan Sales:
For the
three and nine
months ended
September 30, 2016
and 2015, the Company sold
$71.4 million
,
$166.6 million
,
$11.9 million
and
$24.5 million
, respectively, of fixed rate residential mortgage loans on the secondary market that resulted in gains on the sale of loans (net of costs) of
$2.0 million
,
$4.2 million
,
$243,000
and
$530,000
, respectively.
At
September 30, 2016
and
December 31, 2015
, the Company had certain residential mortgage loans with a principal balance of
$24.4 million
and
$10.8 million
, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale and for the three and
nine months ended
September 30, 2016
and
2015
, the Company recorded within non-interest income on its consolidated statements of income the net change in unrealized gains (losses) of
$(55,000)
,
$99,000
,
$(15,000)
and
$4,000
, respectively.
OREO:
The Company records its properties obtained through foreclosure or deed-in-lieu of foreclosure as OREO properties on the consolidated statements of condition at NRV.
At September 30, 2016
, the Company had
two
residential and
three
commercial real estate properties with a carrying value of
$75,000
and
$736,000
, respectively, within OREO. At
December 31, 2015
, the Company had
two
residential real estate properties and
seven
commercial properties with a carrying value of
$241,000
and
$1.0 million
, respectively, within OREO.
In-Process Foreclosure Proceedings:
At
September 30, 2016
and
December 31, 2015
, the Company had
$1.5 million
and
$2.9 million
, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process, representing
27%
and
32%
, respectively, of non-accrual loans within the Company's residential, consumer and home equity portfolios. The Company continues to be focused on working these consumer mortgage loans through the foreclosure process to resolution; however, the foreclosure process, typically, will take
18
to
24
months due to the State of Maine foreclosure laws.
FHLB Advances:
FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying value of residential real estate and commercial loans pledged as collateral was
$1.1 billion
at
September 30, 2016
and
December 31, 2015
.
Refer to Notes 4 and 13 of the consolidated financial statements for discussion of securities pledged as collateral.
NOTE 6 – SBM ACQUISITION
On October 16, 2015, the Company completed its acquisition of SBM, as previously reported. For the nine months ended September 30, 2016, the Company made certain measurement-period adjustments to its initial purchase accounting that decreased goodwill reported at December 31, 2015 by
$960,000
. These measurement-period adjustments increased the previously reported loan balance by
$137,000
, increased acquired interest receivable and other assets by
$157,000
, and increased acquired deferred tax assets
$666,000
. The measurement-period adjustments will
no
t have a material effect on current or future years' net income and were presented and disclosed prospectively in accordance with ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
.
The Company completed its purchase accounting for the SBM acquisition in the second quarter of 2016. The following table summarizes the fair value of the assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Acquired
|
|
Fair Value Adjustments (Previously Reported)
|
|
Measurement-Period Adjustments
|
|
As Recorded at Acquisition
|
Consideration Paid:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
$
|
26,125
|
|
Company common stock (4,124,643 shares at $26.32 per share)
(1)
|
|
|
|
|
|
|
|
108,561
|
|
Non-qualified stock options
|
|
|
|
|
|
|
|
1,990
|
|
Total consideration paid
|
|
|
|
|
|
|
|
136,676
|
|
Recognized identifiable assets acquired and liabilities assumed, at fair value:
|
|
|
|
|
|
|
|
|
Loans and loans held for sale
|
|
$
|
639,390
|
|
|
$
|
(11,497
|
)
|
|
$
|
137
|
|
|
628,030
|
|
Cash and due from banks
|
|
86,042
|
|
|
—
|
|
|
—
|
|
|
86,042
|
|
Investments
|
|
39,716
|
|
|
26
|
|
|
—
|
|
|
39,742
|
|
Deferred tax assets
|
|
26,293
|
|
|
(1,177
|
)
|
|
666
|
|
|
25,782
|
|
Premises and equipment
|
|
16,851
|
|
|
7,093
|
|
|
—
|
|
|
23,944
|
|
OREO
|
|
2,530
|
|
|
(1,801
|
)
|
|
—
|
|
|
729
|
|
Core deposit intangible assets
|
|
—
|
|
|
6,608
|
|
|
—
|
|
|
6,608
|
|
Other assets
|
|
5,421
|
|
|
(170
|
)
|
|
157
|
|
|
5,408
|
|
Deposits and borrowings
|
|
719,640
|
|
|
1,546
|
|
|
—
|
|
|
721,186
|
|
Other liabilities
|
|
8,512
|
|
|
(198
|
)
|
|
—
|
|
|
8,314
|
|
Total identified assets acquired and liabilities assumed, at fair value
|
|
$
|
88,091
|
|
|
$
|
(2,266
|
)
|
|
$
|
960
|
|
|
86,785
|
|
Goodwill
|
|
|
|
|
|
|
|
$
|
49,891
|
|
(1) The number of shares and price per share have been adjusted to reflect the three-for-two stock split effective September 30, 2016.
NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has recognized goodwill and certain identifiable intangible assets in connection with certain business combinations in prior years.
Goodwill as of
September 30, 2016
and
December 31, 2015
for each reporting unit is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Banking
|
|
Financial
Services
|
|
Total
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
Goodwill, gross
|
$
|
91,753
|
|
|
$
|
7,474
|
|
|
$
|
99,227
|
|
Accumulated impairment losses
|
—
|
|
|
(3,570
|
)
|
|
(3,570
|
)
|
Reported goodwill at December 31, 2015
|
91,753
|
|
|
3,904
|
|
|
95,657
|
|
2016 measurement-period adjustments
|
(960
|
)
|
|
—
|
|
|
(960
|
)
|
Reported goodwill at September 30, 2016
|
$
|
90,793
|
|
|
$
|
3,904
|
|
|
$
|
94,697
|
|
Refer to Note 6 of the consolidated financial statements for further detail and discussion of the measurement-period adjustments recorded pertaining to the SBM acquisition. The Company finalized its accounting for the SBM acquisition in the second quarter of 2016.
The changes in core deposit and trust relationship intangible assets for the
nine months ended September 30, 2016
are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposit Intangible
|
|
Trust Relationship Intangible
|
|
Total
|
|
Accumulated Amortization
|
|
Net
|
|
Total
|
|
Accumulated Amortization
|
|
Net
|
Balance at December 31, 2015
|
$
|
23,908
|
|
|
$
|
(15,392
|
)
|
|
$
|
8,516
|
|
|
$
|
753
|
|
|
$
|
(602
|
)
|
|
$
|
151
|
|
2016 amortization
|
—
|
|
|
(1,371
|
)
|
|
(1,371
|
)
|
|
—
|
|
|
(56
|
)
|
|
(56
|
)
|
Balance at September 30, 2016
|
$
|
23,908
|
|
|
$
|
(16,763
|
)
|
|
$
|
7,145
|
|
|
$
|
753
|
|
|
$
|
(658
|
)
|
|
$
|
95
|
|
Total carrying value of other intangible assets at December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
$
|
8,667
|
|
Total carrying value of other intangible assets at September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
$
|
7,240
|
|
The following table reflects the expected amortization schedule for intangible assets over the period of estimated economic benefit (assuming no additional intangible assets are created or impaired):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposit
Intangible
|
|
Trust
Relationship
Intangible
|
|
Total
|
2016
|
$
|
457
|
|
|
$
|
19
|
|
|
$
|
476
|
|
2017
|
1,735
|
|
|
76
|
|
|
1,811
|
|
2018
|
725
|
|
|
—
|
|
|
725
|
|
2019
|
705
|
|
|
—
|
|
|
705
|
|
2020
|
682
|
|
|
—
|
|
|
682
|
|
Thereafter
|
2,841
|
|
|
—
|
|
|
2,841
|
|
Total
|
$
|
7,145
|
|
|
$
|
95
|
|
|
$
|
7,240
|
|
NOTE 8 – REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements administered by the FRB and the OCC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.
The Company and the Bank are required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and the Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. The quantitative measures established to ensure capital adequacy require us to maintain minimum amounts and ratios of total, Tier I capital, and common equity Tier I to risk-weighted assets, and of Tier I capital to average assets, or leverage ratio. These guidelines apply to the Company on a consolidated basis.
Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of
8.0%
, a minimum Tier I risk-based capital ratio of
6.0%
, a minimum common equity Tier I risk-based capital ratio of
4.5%
, and a minimum leverage ratio of
4.0%
in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a
2.5%
capital conservation buffer consisting of common Tier I equity, subject to a transition schedule with a full phase-in by 2019. Effective January 1, 2016, the Company and the Bank were required to establish a capital conservation buffer of
0.625%
, increasing the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.
The Company and the Bank's risk-based capital ratios exceeded regulatory guidelines at
September 30, 2016
and
December 31, 2015
. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer
|
|
Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions
|
|
December 31,
2015
|
|
Minimum Regulatory Capital Required for Capital Adequacy
|
|
Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions
|
|
|
Amount
|
|
Ratio
|
|
|
|
Amount
|
|
Ratio
|
|
|
Camden National Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
$
|
360,340
|
|
|
13.60
|
%
|
|
8.63
|
%
|
|
N/A
|
|
|
$
|
335,740
|
|
|
12.98
|
%
|
|
8.00
|
%
|
|
N/A
|
|
Tier I risk-based capital ratio
|
|
322,037
|
|
|
12.16
|
%
|
|
6.63
|
%
|
|
N/A
|
|
|
299,552
|
|
|
11.58
|
%
|
|
6.00
|
%
|
|
N/A
|
|
Common equity Tier I risk-based capital ratio
|
|
287,562
|
|
|
10.86
|
%
|
|
5.13
|
%
|
|
N/A
|
|
|
269,350
|
|
|
10.42
|
%
|
|
4.50
|
%
|
|
N/A
|
|
Tier I leverage capital ratio
|
|
322,037
|
|
|
8.48
|
%
|
|
4.00
|
%
|
|
N/A
|
|
|
299,552
|
|
|
8.74
|
%
|
|
4.00
|
%
|
|
N/A
|
|
Camden National Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
$
|
327,403
|
|
|
12.34
|
%
|
|
8.63
|
%
|
|
10.00
|
%
|
|
$
|
304,847
|
|
|
11.75
|
%
|
|
8.00
|
%
|
|
10.00
|
%
|
Tier I risk-based capital ratio
|
|
304,100
|
|
|
11.46
|
%
|
|
6.63
|
%
|
|
8.00
|
%
|
|
283,659
|
|
|
10.93
|
%
|
|
6.00
|
%
|
|
8.00
|
%
|
Common equity Tier I risk-based capital ratio
|
|
304,100
|
|
|
11.46
|
%
|
|
5.13
|
%
|
|
6.50
|
%
|
|
283,659
|
|
|
10.93
|
%
|
|
4.50
|
%
|
|
6.50
|
%
|
Tier I leverage capital ratio
|
|
304,100
|
|
|
8.06
|
%
|
|
4.00
|
%
|
|
5.00
|
%
|
|
283,659
|
|
|
8.33
|
%
|
|
4.00
|
%
|
|
5.00
|
%
|
In addition, the OCC requires a minimum level of
$2.5 million
of Tier I capital to be maintained at Acadia Trust. As of
September 30, 2016
and
December 31, 2015
, Acadia Trust met all of its capital requirements.
On October 8, 2015, the Company issued
$15.0 million
of
10
year subordinated debentures bearing interest at an annual rate of
5.50%
. In addition,
$43.0 million
of junior subordinated debentures were issued in connection with the issuance of trust preferred securities in 2006 and 2008. Although the subordinated debentures and the junior subordinated debentures are recorded as liabilities on the Company's consolidated statements of condition, the Company is permitted, in accordance with regulatory guidelines, to include, subject to certain limits, each within its calculation of risk-based capital. At
September 30, 2016
and
December 31, 2015
,
$15.0 million
of subordinated debentures were included as Tier II capital and were included in the calculation of the Company's total risk-based capital, and, at
September 30, 2016
and
December 31, 2015
,
$43.0 million
of the junior subordinated debentures were included in Tier I and total risk-based capital for the Company.
NOTE 9 – INCOME TAXES
The Company's effective income tax rate for the
three and nine
months ended
September 30, 2016
and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Income tax expense
|
|
$
|
5,042
|
|
|
$
|
3,127
|
|
|
$
|
12,742
|
|
|
$
|
9,191
|
|
Income before income taxes
|
|
$
|
15,945
|
|
|
$
|
9,583
|
|
|
$
|
41,907
|
|
|
$
|
28,451
|
|
Effective tax rate
|
|
31.6
|
%
|
|
32.6
|
%
|
|
30.4
|
%
|
|
32.3
|
%
|
For the
three and nine
months ended
September 30, 2016
, the Company had the following discrete period items impacting its effective tax rate:
|
|
•
|
In the second quarter of 2016, the Company adopted ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). ASU 2016-09 was adopted effective as of January 1, 2016. Prior to the adoption of ASU 2016-09, the Company accounted for its windfall tax benefits or shortfalls generated upon exercise of a non-qualified stock option or a disqualifying incentive stock option, or upon vesting of its restricted shares through shareholders' equity (or as income tax expense to the extent the Company did not have a windfall tax benefit surplus). Upon adoption, the Company has accounted for its windfall tax benefits and shortfalls generated within income tax expense on the consolidated statements of income as a discrete period item in the quarter generated. For the three and nine months ended September 30, 2016, the Company recorded net windfall tax benefits of
$63,000
and
$427,000
, respectively, reducing the Company's effective tax rate and increasing net income for the respective periods.
|
|
|
•
|
In the second quarter of 2016, the Company received death benefits from its BOLI policy from one of its insureds totaling
$578,000
, of which
$394,000
was recognized as income on the consolidated statements of income within bank-owned life insurance. The income recognized was non-taxable reducing the Company's effective tax rate for the nine months ended September 30, 2016.
|
In conjunction with the SBM acquisition, the Company incurred
$537,000
of equity issuance costs for the nine months ended September 30, 2015 related to the registration of additional shares of the Company's common stock. These costs were non-deductible for tax purposes and increased the Company's effective tax rate for the nine months ended September 30, 2015. The Company did
no
t incur any equity issuance costs for the three months ended September 30, 2015.
NOTE 10 – EMPLOYEE BENEFIT PLANS
The Company sponsors unfunded, non-qualified SERPs for certain officers and provides medical and life insurance to certain eligible retired employees. The components of net period benefit cost for the periods ended
September 30, 2016
and
2015
were as follows:
Supplemental Executive Retirement Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended September 30,
|
Net periodic benefit cost
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
77
|
|
|
$
|
77
|
|
|
$
|
231
|
|
|
$
|
231
|
|
Interest cost
|
|
108
|
|
|
106
|
|
|
324
|
|
|
318
|
|
Recognized net actuarial loss
|
|
55
|
|
|
54
|
|
|
165
|
|
|
162
|
|
Recognized prior service cost
|
|
2
|
|
|
5
|
|
|
6
|
|
|
15
|
|
Net period benefit cost
(1)
|
|
$
|
242
|
|
|
$
|
242
|
|
|
$
|
726
|
|
|
$
|
726
|
|
(1) Presented within the consolidated statements of income within salaries and employee benefits.
Other Postretirement Benefit Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Net periodic benefit cost
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
45
|
|
|
$
|
45
|
|
Interest cost
|
|
38
|
|
|
29
|
|
|
114
|
|
|
87
|
|
Recognized net actuarial loss
|
|
8
|
|
|
6
|
|
|
24
|
|
|
18
|
|
Amortization of prior service credit
|
|
(6
|
)
|
|
(6
|
)
|
|
(18
|
)
|
|
(18
|
)
|
Net period benefit cost
(1)
|
|
$
|
55
|
|
|
$
|
44
|
|
|
$
|
165
|
|
|
$
|
132
|
|
(1) Presented within the consolidated statements of income within salaries and employee benefits.
NOTE 11 – STOCK-BASED COMPENSATION PLANS
For the
nine months ended September 30, 2016
, the Company granted share-based awards, subject to certain terms and conditions, to certain officers, executive officers, and directors of the Company, Bank and Acadia Trust. All share-based awards granted were issued under the 2012 Plan. The following outlines the details, and terms and conditions of the material awards granted during the
nine months ended September 30, 2016
, adjusted for the three-for-two stock split effective as of September 30, 2016:
|
|
•
|
8,688
restricted stock awards were granted to executive officers under the 2016-2018 LTIP, at a fair value of
$28.87
per share, based on the closing market price of the Company's common stock on January 4, 2016. The restricted stock awards vest pro-rata over a
three
year period. The holders of the restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights.
|
|
|
•
|
10,734
restricted stock awards and restricted stock units were granted at a fair value of
$27.20
per share, based on the closing market price of the Company’s common stock on the March 17, 2016 grant date. The restricted stock awards vest pro-rata over a
five
-year period, while the restricted stock units vest pro-rata over a
three
-year period subject to the achievement of certain performance measures. The holders of the restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights.
|
|
|
•
|
16,000
shares of the Company's common stock were purchased under the MSPP at a one-third discount, based on the closing market price of the Company's common stock on the February 23, 2016 grant date of
$25.41
(
10,428
shares) and the March 17, 2016 grant date of
$27.20
(
5,572
shares), in lieu of the officers and executive officers annual incentive bonus. The shares fully vest after
two
years of service from the grant date.
|
|
|
•
|
4,094
deferred stock awards were issued to certain executive officers under the DCRP. Of the
4,094
awards granted,
1,741
vested immediately on the grant date, the remainder will vest pro-rata until the recipient reaches age
65
. The stock awards have been determined to have a fair value of
$27.03
per unit, based on the closing market price of the Company's common stock on the March 15, 2016 grant date.
|
|
|
•
|
7,308
unrestricted stock awards were issued to the directors of the Company and the Bank under the Independent Directors' Equity Compensation Program. The unrestricted stock awards fully vested immediately on the May 1, 2016 grant date. The fair value of the share awards issued was determined using the closing price of the Company's stock on April 29, 2016 of
$29.01
per share.
|
NOTE 12 – BORROWINGS
The following table summarizes other borrowed funds as presented on the consolidated statements of condition at:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
Short-Term Borrowings (mature within one year):
|
|
|
|
|
|
FHLBB advances
|
$
|
240,000
|
|
|
$
|
255,000
|
|
Customer repurchase agreements
|
228,464
|
|
|
184,989
|
|
FHLBB and correspondent bank overnight borrowings
|
16,200
|
|
|
12,800
|
|
Wholesale repurchase agreements
|
5,019
|
|
|
25,000
|
|
Capital lease obligation
|
66
|
|
|
63
|
|
Total short-term borrowings
|
$
|
489,749
|
|
|
$
|
477,852
|
|
|
|
|
|
Long-Term Borrowings (maturity greater than one year):
|
|
|
|
|
|
FHLBB advances
|
$
|
10,000
|
|
|
$
|
30,000
|
|
Capital lease obligation
|
808
|
|
|
859
|
|
Wholesale repurchase agreements
|
—
|
|
|
5,052
|
|
Total long-term borrowings
|
$
|
10,808
|
|
|
$
|
35,911
|
|
NOTE 13 – REPURCHASE AGREEMENTS
The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase either the same or substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded as interest expense on the consolidated statement of income. The securities underlying the agreements are delivered to counterparties as security for the repurchase obligations. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions does not meet the criteria to be classified as a sale, and is therefore considered a secured borrowing transaction for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement, the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company either deals with established firms when entering into these transactions or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.
The table below sets forth information regarding the Company’s repurchase agreements accounted for as secured borrowings and types of collateral as of
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Contractual Maturity of the Agreements
|
|
|
Overnight and Continuous
|
|
Up to 30 Days
|
|
30 - 90 Days
|
|
Greater than 90 Days
|
|
Total
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Customer Repurchase Agreements:
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
613
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
613
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
155,336
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155,336
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
72,515
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
72,515
|
|
Total Customer Repurchase Agreements
|
|
228,464
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
228,464
|
|
Wholesale Repurchase Agreements:
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
—
|
|
|
—
|
|
|
|
|
3,642
|
|
|
3,642
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
—
|
|
|
—
|
|
|
|
|
1,377
|
|
|
1,377
|
|
Total Wholesale Repurchase Agreements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,019
|
|
|
5,019
|
|
Total Repurchase Agreements
|
|
$
|
228,464
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,019
|
|
|
$
|
233,483
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
Customer Repurchase Agreements:
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
556
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
95,967
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95,967
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
88,466
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88,466
|
|
Total Customer Repurchase Agreements
|
|
184,989
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
184,989
|
|
Wholesale Repurchase Agreements:
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,016
|
|
|
22,016
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,036
|
|
|
8,036
|
|
Total Wholesale Repurchase Agreements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,052
|
|
|
30,052
|
|
Total Repurchase Agreements
|
|
$
|
184,989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,052
|
|
|
$
|
215,041
|
|
Certain customers held CDs totaling
$916,000
and
$914,000
with the Bank at
September 30, 2016
and
December 31, 2015
, respectively, that were collateralized by CMO and MBS securities that were overnight repurchase agreements.
Certain counterparties monitor collateral, and may request additional collateral to be posted from time to time.
NOTE 14 – FAIR VALUE MEASUREMENT AND DISCLOSURE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using various valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. GAAP 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.
GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has elected the fair value option for its loans held for sale. Electing the fair value option for loans held for sale enables the Company’s financial position to more clearly align with the economic value of the actively traded asset.
The fair value hierarchy for valuation of an asset or liability is as follows:
Level 1:
Valuation is based upon unadjusted quoted prices in active markets for identical assets and liabilities that the entity has the ability to access as of the measurement date.
Level 2:
Valuation is determined from quoted prices for similar assets or liabilities in active markets, from quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
Level 3:
Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.
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 model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Loans Held For Sale:
The fair value of loans held for sale is determined using quoted secondary market prices or executed sales agreements and is classified as Level 2.
AFS Securities
: The fair value of debt AFS securities is reported utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value of debt securities are classified as Level 2.
The fair value of equity AFS securities is reported utilizing market prices based on recent trading activity. The equity securities are traded on inactive markets and are classified as Level 2.
Derivatives
: The fair value of interest rate swaps is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of
September 30, 2016
and
December 31, 2015
, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.
The fair value of interest rate lock commitments is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of
September 30, 2016
and
December 31, 2015
, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Data
(Level 2)
|
|
Company
Determined
Fair Value
(Level 3)
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
$
|
24,644
|
|
|
$
|
—
|
|
|
$
|
24,644
|
|
|
$
|
—
|
|
AFS securities:
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
15,855
|
|
|
—
|
|
|
15,855
|
|
|
—
|
|
Obligations of states and political subdivisions
|
10,001
|
|
|
—
|
|
|
10,001
|
|
|
—
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
450,308
|
|
|
—
|
|
|
450,308
|
|
|
—
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
306,362
|
|
|
—
|
|
|
306,362
|
|
|
—
|
|
Subordinated corporate bonds
|
5,704
|
|
|
—
|
|
|
5,704
|
|
|
—
|
|
Equity securities
|
650
|
|
|
—
|
|
|
650
|
|
|
—
|
|
Customer loan swaps
|
14,212
|
|
|
—
|
|
|
14,212
|
|
|
—
|
|
Interest rate lock commitments
|
749
|
|
|
—
|
|
|
749
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt interest rate swaps
|
12,678
|
|
|
—
|
|
|
12,678
|
|
|
—
|
|
FHLBB advance interest rate swaps
|
847
|
|
|
—
|
|
|
847
|
|
|
—
|
|
Customer loan swaps
|
14,212
|
|
|
—
|
|
|
14,212
|
|
|
—
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
$
|
10,958
|
|
|
$
|
—
|
|
|
$
|
10,958
|
|
|
$
|
—
|
|
AFS securities:
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
5,040
|
|
|
—
|
|
|
5,040
|
|
|
—
|
|
Obligations of states and political subdivisions
|
17,694
|
|
|
—
|
|
|
17,694
|
|
|
—
|
|
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
|
419,046
|
|
|
—
|
|
|
419,046
|
|
|
—
|
|
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
|
306,857
|
|
|
—
|
|
|
306,857
|
|
|
—
|
|
Subordinated corporate bonds
|
996
|
|
|
—
|
|
|
996
|
|
|
—
|
|
Equity securities
|
705
|
|
|
—
|
|
|
705
|
|
|
—
|
|
Customer loan swaps
|
3,166
|
|
|
—
|
|
|
3,166
|
|
|
—
|
|
Interest rate lock commitments
|
139
|
|
|
—
|
|
|
139
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt interest rate swaps
|
9,229
|
|
|
—
|
|
|
9,229
|
|
|
—
|
|
FHLBB advance interest rate swaps
|
576
|
|
|
—
|
|
|
576
|
|
|
—
|
|
Customer loan swaps
|
3,166
|
|
|
—
|
|
|
3,166
|
|
|
—
|
|
The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the
nine months ended September 30, 2016
. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.
Collateral-Dependent Impaired Loans
: Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The Company's policy is to individually evaluate for impairment loans with a principal balance greater than
$250,000
or more and are classified as substandard or doubtful and are on non-accrual status. Once the population of loans is identified for individual impairment assessment, the Company measures these loans for impairment by comparing NRV, which is the fair value of the collateral, less estimated costs to sell, to the carrying value of the loan. If the NRV of the loan is less than the carrying value of the loan, then a loss is recognized as part of the ALL to adjust the loan's carrying value to NRV. Accordingly, certain collateral-dependent impaired loans are subject to measurement at fair value on a non-recurring basis. Management has estimated the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party market approach appraisals for collateral-dependent loans, and Level 3 inputs where circumstances warrant an adjustment to the appraised value based on the age of the appraisal and/or comparable sales, condition of the collateral, and market conditions.
MSRs
: The Company accounts for mortgage servicing assets at cost, subject to impairment testing. When the carrying value of a tranche exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The Company obtains a third-party valuation based upon loan level data including note rate, type and term of the underlying loans. The model utilizes a variety of observable inputs for its assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to discount future cash flows. Other assumptions include delinquency rates, servicing cost inflation and annual unit loan cost. MSRs are classified within Level 2 of the fair value hierarchy.
Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis consist of OREO and goodwill and other intangible assets.
OREO
:
OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at NRV, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded investment in the related loan is charged to the ALL upon transfer to OREO. Upon acquisition of a property, a current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are recorded through a valuation allowance and a provision for losses charged to other non-interest expense within the consolidated statements of income. As management considers appropriate, adjustments are made to the appraisal obtained for the OREO property to account for recent sales activity of comparable properties, changes in the condition of the property, and changes in market conditions. These adjustments are not observable in an active market and are classified as Level 3.
Goodwill and Other Intangible Assets
: Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of the impact of business conditions and investor activities on the long-term value of the goodwill. Should an impairment of either reporting unit's goodwill occur, the associated goodwill is written-down to fair value and the impairment charge is recorded within non-interest expense in the consolidated statements of income. The Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently as necessary. There have been no indications or triggering events during for the
nine
months ended
September 30, 2016
for which management believes that it is more likely than not that goodwill is impaired.
The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized on a straight-line basis over the estimated life of those relationships. Core deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If necessary, management will test the core deposit intangibles for impairment by comparing its carrying value to the expected undiscounted cash flows of the assets. If the undiscounted cash flows of the intangible assets exceed its carrying value then the intangible assets are deemed to be fully recoverable and not impaired. However, if the undiscounted cash flows of the intangible assets are less than its carrying value, then an impairment charge is recorded to mark the carrying value of the intangible assets to fair value. There were no events or changes in circumstances for the
nine
months ended
September 30, 2016
that indicated the carrying amount may not be recoverable.
The table below highlights financial and non-financial assets measured and recorded at fair value on a non-recurring basis as of
September 30, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Data
(Level 2)
|
|
Company
Determined
Fair Value
(Level 3)
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans
|
$
|
10,563
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,563
|
|
MSRs
(1)
|
1,328
|
|
|
—
|
|
|
1,328
|
|
|
—
|
|
Non-financial assets:
|
|
|
|
|
|
|
|
OREO
|
811
|
|
|
—
|
|
|
—
|
|
|
811
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans
|
$
|
1,971
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,971
|
|
MSRs
(1)
|
440
|
|
|
—
|
|
|
440
|
|
|
—
|
|
Non-financial assets:
|
|
|
|
|
|
|
|
|
|
|
OREO
|
1,304
|
|
|
—
|
|
|
—
|
|
|
1,304
|
|
(1) Represents MSRs deemed to be impaired and a valuation allowance established to carry at fair value.
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Valuation Methodology
|
|
Unobservable input
|
|
Discount Range
(Weighted-Average)
|
September 30, 2016
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans:
|
|
|
|
|
|
|
|
|
|
Partially charged-off
|
$
|
109
|
|
|
Market approach appraisal of collateral
|
|
Management adjustment of appraisal
|
|
0%
|
(0%)
|
|
|
|
|
|
Estimated selling costs
|
|
0 - 10%
|
(8%)
|
Specifically reserved
|
10,454
|
|
|
Market approach appraisal of collateral
|
|
Management adjustment of appraisal
|
|
0 - 60%
|
(58%)
|
|
|
|
|
|
Estimated selling costs
|
|
0 - 28%
|
(1%)
|
OREO
|
811
|
|
|
Market approach appraisal of collateral
|
|
Management adjustment of appraisal
|
|
0 - 73%
|
(11%)
|
|
|
|
|
|
Estimated selling cost
|
|
10%
|
(10%)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans:
|
|
|
|
|
|
|
|
|
|
Partially charged-off
|
$
|
399
|
|
|
Market approach appraisal of collateral
|
|
Management adjustment
of appraisal
|
|
0%
|
(0%)
|
|
|
|
|
|
Estimated selling costs
|
|
0 - 10%
|
(7%)
|
Specifically reserved
|
1,572
|
|
|
Market approach appraisal of collateral
|
|
Management adjustment
of appraisal
|
|
0 - 57%
|
(45%)
|
|
|
|
|
|
Estimated selling costs
|
|
10%
|
(10%)
|
OREO
|
1,304
|
|
|
Market approach appraisal of collateral
|
|
Management adjustment
of appraisal
|
|
0 - 43%
|
(18%)
|
|
|
|
|
|
Estimated selling costs
|
|
10%
|
(10%)
|
GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used by the Company in estimating the fair values of its other financial instruments.
Cash and Due from Banks
: The carrying amounts reported in the consolidated statements of condition approximate fair value.
HTM securities
: The fair value is estimated utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value is classified as Level 2.
Loans
: For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of other loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Interest Receivable and Payable
: The carrying amounts reported in the consolidated statements of condition approximate fair value.
Deposits
: The fair value of demand, interest checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.
Borrowings
: The carrying amounts of short-term borrowings from the FHLB, securities sold under repurchase agreements, notes payable and other short-term borrowings approximate fair value. The fair values of long-term borrowings and commercial repurchase agreements are based on the discounted cash flows using current rates for advances of similar remaining maturities.
Subordinated Debentures
: The fair values of are based on quoted prices from similar instruments in inactive markets.
The following table presents the carrying amounts and estimated fair value for financial instrument assets and liabilities measured at
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Prices
(Level 2)
|
|
Company
Determined
Market
Prices
(Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
99,458
|
|
|
$
|
99,458
|
|
|
$
|
99,458
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AFS securities
|
788,880
|
|
|
788,880
|
|
|
—
|
|
|
788,880
|
|
|
—
|
|
HTM securities
|
94,205
|
|
|
98,096
|
|
|
—
|
|
|
98,096
|
|
|
—
|
|
Loans held for sale
|
24,644
|
|
|
24,644
|
|
|
—
|
|
|
24,644
|
|
|
—
|
|
Residential real estate loans
(1)
|
792,441
|
|
|
787,857
|
|
|
—
|
|
|
—
|
|
|
787,857
|
|
Commercial real estate loans
(1)
|
1,041,727
|
|
|
1,024,750
|
|
|
—
|
|
|
—
|
|
|
1,024,750
|
|
Commercial loans
(1)(2)
|
386,769
|
|
|
390,021
|
|
|
—
|
|
|
—
|
|
|
390,021
|
|
Home equity loans
(1)
|
330,528
|
|
|
331,821
|
|
|
—
|
|
|
—
|
|
|
331,821
|
|
Consumer loans
(1)
|
17,254
|
|
|
18,221
|
|
|
—
|
|
|
—
|
|
|
18,221
|
|
MSRs
(3)
|
1,363
|
|
|
1,328
|
|
|
—
|
|
|
1,328
|
|
|
—
|
|
Interest receivable
|
8,364
|
|
|
8,364
|
|
|
—
|
|
|
8,364
|
|
|
—
|
|
Customer loan swaps
|
14,212
|
|
|
14,212
|
|
|
—
|
|
|
14,212
|
|
|
—
|
|
Interest rate lock commitments
|
749
|
|
|
749
|
|
|
—
|
|
|
749
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
2,889,225
|
|
|
$
|
2,892,196
|
|
|
$
|
—
|
|
|
$
|
2,892,196
|
|
|
$
|
—
|
|
Short-term borrowings
|
489,749
|
|
|
490,654
|
|
|
—
|
|
|
490,654
|
|
|
—
|
|
Long-term borrowings
|
10,808
|
|
|
11,002
|
|
|
—
|
|
|
11,002
|
|
|
—
|
|
Subordinated debentures
|
58,716
|
|
|
40,800
|
|
|
—
|
|
|
40,800
|
|
|
—
|
|
Interest payable
|
490
|
|
|
490
|
|
|
—
|
|
|
490
|
|
|
—
|
|
Junior subordinated debt interest rate swaps
|
12,678
|
|
|
12,678
|
|
|
—
|
|
|
12,678
|
|
|
—
|
|
FHLBB advance interest rate swaps
|
847
|
|
|
847
|
|
|
—
|
|
|
847
|
|
|
—
|
|
Customer loan swaps
|
14,212
|
|
|
14,212
|
|
|
—
|
|
|
14,212
|
|
|
—
|
|
|
|
(1)
|
The presented carrying amount is net of the allocated ALL.
|
|
|
(2)
|
Includes the HPFC loan portfolio.
|
|
|
(3)
|
Reported fair value represents all MSRs currently being serviced by the Company, regardless of carrying amount.
|
The following table presents the carrying amounts and estimated fair value for financial instrument assets and liabilities measured at
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Readily
Available
Market
Prices
(Level 1)
|
|
Observable
Market
Prices
(Level 2)
|
|
Company
Determined
Market
Prices
(Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
79,488
|
|
|
$
|
79,488
|
|
|
$
|
79,488
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AFS securities
|
750,338
|
|
|
750,338
|
|
|
—
|
|
|
750,338
|
|
|
—
|
|
HTM securities
|
84,144
|
|
|
85,647
|
|
|
—
|
|
|
85,647
|
|
|
—
|
|
Loans held for sale
|
10,958
|
|
|
10,958
|
|
|
—
|
|
|
10,958
|
|
|
—
|
|
Residential real estate loans
(1)
|
808,180
|
|
|
820,774
|
|
|
—
|
|
|
—
|
|
|
820,774
|
|
Commercial real estate loans
(1)
|
922,257
|
|
|
911,316
|
|
|
—
|
|
|
—
|
|
|
911,316
|
|
Commercial loans
(1)(2)
|
371,684
|
|
|
371,854
|
|
|
—
|
|
|
—
|
|
|
371,854
|
|
Home equity loans
(1)
|
349,215
|
|
|
348,963
|
|
|
—
|
|
|
—
|
|
|
348,963
|
|
Consumer loans
(1)
|
17,704
|
|
|
18,163
|
|
|
—
|
|
|
—
|
|
|
18,163
|
|
MSRs
(3)
|
2,161
|
|
|
2,947
|
|
|
—
|
|
|
2,947
|
|
|
—
|
|
Interest receivable
|
7,985
|
|
|
7,985
|
|
|
—
|
|
|
7,985
|
|
|
—
|
|
Customer loan swaps
|
3,166
|
|
|
3,166
|
|
|
—
|
|
|
3,166
|
|
|
—
|
|
Interest rate lock commitments
|
139
|
|
|
139
|
|
|
—
|
|
|
139
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
2,726,379
|
|
|
$
|
2,726,300
|
|
|
$
|
—
|
|
|
$
|
2,726,300
|
|
|
$
|
—
|
|
Short-term borrowings
|
477,852
|
|
|
479,403
|
|
|
—
|
|
|
479,403
|
|
|
—
|
|
Long-term borrowings
|
35,911
|
|
|
36,307
|
|
|
—
|
|
|
36,307
|
|
|
—
|
|
Subordinated debentures
|
58,599
|
|
|
42,950
|
|
|
—
|
|
|
42,950
|
|
|
—
|
|
Interest payable
|
641
|
|
|
641
|
|
|
—
|
|
|
641
|
|
|
—
|
|
Junior subordinated debt interest rate swaps
|
9,229
|
|
|
9,229
|
|
|
—
|
|
|
9,229
|
|
|
—
|
|
FHLBB advance interest rate swaps
|
576
|
|
|
576
|
|
|
—
|
|
|
576
|
|
|
—
|
|
Customer loan swaps
|
3,166
|
|
|
3,166
|
|
|
—
|
|
|
3,166
|
|
|
—
|
|
|
|
(1)
|
The presented carrying amount is net of the allocated ALL.
|
|
|
(2)
|
Includes the HPFC loan portfolio.
|
|
|
(3)
|
Reported fair value represents all MSRs currently being serviced by the Company, regardless of carrying amount.
|
NOTE 15 – COMMITMENTS, CONTINGENCIES
AND DERIVATIVES
Legal Contingencies
In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position as a whole.
Reserves are established for legal claims only when losses associated with the claims are judged to be probable and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.
As of
September 30, 2016
and
December 31, 2015
, the Company did
no
t have any material loss contingencies for which accruals were provided for and/or disclosure was deemed necessary.
In the third quarter of 2016, the Company, as claimant, received legal proceeds from the settlement of a legal matter of
$638,000
. The proceeds have been recorded within other income on the Company's consolidated statements of income for three and nine months ended September 30, 2016.
Financial Instruments
In the normal course of business, the Company is a party to both on- and off-balance sheet financial instruments involving, to varying degrees, elements of credit risk and interest rate risk in addition to the amounts recognized in the consolidated statements of condition.
The following is a summary of the contractual and notional amounts of the Company’s financial instruments:
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Lending-Related Instruments:
|
|
|
|
|
|
Loan origination commitments and unadvanced lines of credit:
|
|
|
|
|
|
Home equity
|
$
|
469,849
|
|
|
$
|
464,701
|
|
Commercial and commercial real estate
|
55,663
|
|
|
94,791
|
|
Residential
|
23,341
|
|
|
16,256
|
|
Letters of credit
|
2,905
|
|
|
4,468
|
|
Other commitments
|
451
|
|
|
433
|
|
Derivative Financial Instruments:
|
|
|
|
|
Customer loan swaps
|
$
|
537,904
|
|
|
$
|
285,888
|
|
FHLBB advance interest rate swaps
|
50,000
|
|
|
50,000
|
|
Junior subordinated debt interest rate swaps
|
43,000
|
|
|
43,000
|
|
Interest rate lock commitments
|
55,221
|
|
|
20,735
|
|
Lending-Related Instruments
The contractual amounts of the Company’s lending-related financial instruments do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. These instruments are subject to the Company’s credit approval process, including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments generally have fixed expiration dates or other termination clauses.
Derivative Financial Instruments
The Company uses derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. The Company controls the credit risk of these instruments through collateral, credit approvals and monitoring procedures. Additionally, as part of Company's normal mortgage origination process, it provides the borrower with the option to lock their interest rate based on current market prices. During the period from commitment date to the loan closing date, the Company is subject to the risk of interest rate change. In an effort to mitigate such risk the Company may enter into forward delivery sales commitments, typically on a "best-efforts" basis, with certain approved investors.
Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.
The Company has designated its interest rate swaps on its junior subordinated debentures and its interest rate swaps on forecasted 30-day FHLBB borrowings as cash flow hedges. The change in the fair value of the Company's cash flow hedges is accounted for within OCI, net of tax. Quarterly, in conjunction with financial reporting, the Company assesses each cash flow hedge for ineffectiveness. To the extent any significant ineffectiveness is identified, this amount is recorded within the consolidated statements of income. Furthermore, the Company will reclassify the gain or loss on the effective portion of the cash flow hedge from OCI into interest within the consolidated statements of income in the period the hedged transaction affects earnings.
The change in fair value of the Company's other derivative instruments, not designated and qualifying as hedges, are accounted for within the consolidated statements of income.
Junior Subordinated Debt Interest Rate Swaps:
The Company, from time to time, will enter into an interest rate swap agreement with a counterparty to manage interest rate risk associated with its variable rate borrowings. The Company’s interest rate swap arrangements contain provisions that require the Company to post cash collateral with the counterparty for contracts that are in a net liability position based on their fair values and the Company’s credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty is required to post collateral to the Company. The collateral posted by the Company (or counterparty) is not readily available and has been presented within cash and due from banks on the consolidated statements of condition. At
September 30, 2016
and
December 31, 2015
, the Company had a notional amount of
$43.0 million
in variable-for-fixed interest rate swap agreements on its junior subordinated debentures and
$13.5 million
of cash as collateral to the counterparty at
September 30, 2016
.
The details of the interest rate swap agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31, 2015
|
Notional
Amount
|
|
Trade
Date
|
|
Maturity Date
|
|
Variable Index
Received
|
|
Fixed Rate
Paid
|
|
Fair Value
(1)
|
|
Fair Value
(1)
|
$
|
10,000
|
|
|
3/18/2009
|
|
6/30/2021
|
|
3-Month USD LIBOR
|
|
5.09%
|
|
$
|
(1,193
|
)
|
|
$
|
(1,038
|
)
|
10,000
|
|
|
7/8/2009
|
|
6/30/2029
|
|
3-Month USD LIBOR
|
|
5.84%
|
|
(3,438
|
)
|
|
(2,537
|
)
|
10,000
|
|
|
5/6/2010
|
|
6/30/2030
|
|
3-Month USD LIBOR
|
|
5.71%
|
|
(3,473
|
)
|
|
(2,477
|
)
|
5,000
|
|
|
3/14/2011
|
|
3/30/2031
|
|
3-Month USD LIBOR
|
|
4.35%
|
|
(1,832
|
)
|
|
(1,301
|
)
|
8,000
|
|
|
5/4/2011
|
|
7/7/2031
|
|
3-Month USD LIBOR
|
|
4.14%
|
|
(2,742
|
)
|
|
(1,876
|
)
|
$
|
43,000
|
|
|
|
|
|
|
|
|
|
|
$
|
(12,678
|
)
|
|
$
|
(9,229
|
)
|
(1) Presented within accrued interest and other liabilities on the consolidated statements of condition.
|
For the three and
nine months ended
September 30, 2016
or 2015, the Company did
no
t record any ineffectiveness on these cash flow hedges within the consolidated statements of income.
Net payments to the counterparty for the
nine months ended
September 30, 2016
and
2015
were
$1.2 million
and
$1.3 million
and have been classified as cash flows from operating activities in the consolidated statements of cash flows.
FHLBB Advance Interest Rate Swaps:
The Bank has
two
interest rate swap arrangements with a counterparty on
two
tranches of 30-day FHLBB advances with a total notional amount of
$50.0 million
. Each derivative arrangement commenced on February 25, 2016, with
one
contract set to expire on February 25, 2018 and the other on February 25, 2019. The Bank entered into these interest rate swaps to mitigate its interest rate exposure on borrowings in a rising interest rate environment. The Bank has designated each arrangement as a cash flow hedge in accordance with GAAP, and, therefore, the change in unrealized gains or losses on the derivative instruments is recorded within AOCI, net of tax. Also, quarterly, in conjunction with financial reporting, the Company assesses each derivative instrument for ineffectiveness. To the extent any significant ineffectiveness is identified this amount would be recorded within the consolidated statements of income. For the three and
nine months ended
September 30, 2016
, the Company did
no
t record any ineffectiveness within the consolidated statements of income.
The Bank's arrangement with the counterparty requires it to post cash collateral for contracts in a net liability position based on their fair values and the Bank's credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty is required to post collateral to the Company. The collateral posted by the Company (or counterparty) is not readily available and is presented within cash and due from banks on the consolidated statements of condition. At
September 30, 2016
, the Bank posted cash collateral to the counterparty of
$898,000
.
The details of the interest rate swap agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31, 2015
|
Notional
Amount
|
|
Trade
Date
|
|
Maturity Date
|
|
Variable Index
Received
|
|
Fixed Rate
Paid
|
|
Fair Value
(1)
|
|
Fair Value
(1)
|
$
|
25,000
|
|
|
2/25/2015
|
|
2/25/2018
|
|
1-Month
USD LIBOR
|
|
1.54%
|
|
$
|
(288
|
)
|
|
$
|
(230
|
)
|
25,000
|
|
|
2/25/2015
|
|
2/25/2019
|
|
1-Month
USD LIBOR
|
|
1.74%
|
|
(559
|
)
|
|
(346
|
)
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
$
|
(847
|
)
|
|
$
|
(576
|
)
|
(1) Presented within accrued interest and other liabilities on the consolidated statements of condition.
|
|
|
Net payments to the counterparty for the
nine months ended
September 30, 2016
were
$351,000
and have been classified as cash flows from operating activities in the consolidated statements of cash flows.
Customer Loan Swaps:
The Company will enter into interest rate swaps with its commercial customers, from time to time, to provide them with a means to lock into a long-term fixed rate, while simultaneously the Company enters into an arrangement with a counterparty to swap the fixed rate to a variable rate to allow it to effectively manage its interest rate exposure.
The Company's customer loan level derivative program is not designated as a hedge for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not materially change the Company’s interest rate risk or present any material exposure to the Company's consolidated statements of income. The Company records its customer loan swaps at fair value and presents such on a gross basis within other assets and accrued interest and other liabilities on the consolidated statements of condition.
The following table presents the total positions, notional and fair value of the Company's customer loans swaps with its commercial customers and the corresponding interest rate swap agreements with counterparty for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Number of Positions
|
|
Notional
|
|
Fair Value
|
|
Number of Positions
|
|
Notional
|
|
Fair Value
|
Receive fixed, pay variable
(1)
|
|
50
|
|
|
$
|
268,952
|
|
|
$
|
14,212
|
|
|
28
|
|
|
$
|
142,944
|
|
|
$
|
3,166
|
|
Pay fixed, received variable
(2)
|
|
50
|
|
|
268,952
|
|
|
(14,212
|
)
|
|
28
|
|
|
142,944
|
|
|
(3,166
|
)
|
(1) Presented within other assets on the consolidated statements of condition.
|
(2) Presented within accrued interest and other liabilities on the consolidated statements of condition.
|
The Company seeks to mitigate its customer counterparty credit risk exposure through its loan policy and underwriting process, which includes credit approval limits, monitoring procedures, and obtaining collateral, where appropriate. The Company seeks to mitigate its institutional counterparty credit risk exposure by limiting the institutions for which it will enter into interest swap arrangements through an approved listing by the Company's board of directors. The Company's arrangement with an institutional counterparty requires it to post collateral for contracts in a net liability position based on their fair values and the Bank's credit rating or receive collateral for contracts in a net asset position. At
September 30, 2016
, the Company posted cash collateral with the counterparty of
$15.1 million
. The collateral posted by the Company (or counterparty) is not readily available and is presented within cash and due from banks on the consolidated statements of condition.
Interest Rate Locks Commitments:
As part of originating residential and commercial loans, the Company may enter into rate lock agreements with customers and may issue commitment letters to customers, which are considered interest rate lock commitments. At
September 30, 2016
and
December 31, 2015
, our pipeline of mortgage loans with interest rate lock commitments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Notional
|
|
Fair Value
|
|
Notional
|
|
Fair Value
|
Mortgage interest rate locks
(1)
|
|
$
|
55,221
|
|
|
$
|
749
|
|
|
$
|
20,735
|
|
|
$
|
139
|
|
(1) Presented within other assets on the consolidated statements of condition.
|
For the three months ended
September 30, 2016
and 2015, the unrealized gains from the change in fair value on the Company's mortgage interest rate locks reported within mortgage banking income, net, on the consolidated statements of income were
$226,000
and
$14,000
, respectively. For the
nine months ended
September 30, 2016
and 2015, the unrealized gains from the change in fair value on the Company's mortgage interest rate locks were
$610,000
and
$33,000
, respectively.
The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The
Three Months Ended
September 30,
|
|
For The
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax (effective portion)
|
|
$
|
546
|
|
|
$
|
(1,763
|
)
|
|
$
|
(2,464
|
)
|
|
$
|
(1,241
|
)
|
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, gross
|
|
$
|
534
|
|
|
$
|
775
|
|
|
$
|
1,521
|
|
|
$
|
1,276
|
|
The Company expects approximately
$1.9 million
(pre-tax) to be reclassified to interest expense from OCI, related to the Company’s cash flow hedges, in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of
September 30, 2016
.
NOTE 16 – RECENT ACCOUNTING PRONOUNCEMENTS
In August 2016, the FASB issued ASU No. 2016-15, S
tatement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments
(a consensus of the Emerging Issues Task Force). The ASU was issued to provide guidance on eight specific cash flow issues with the objective of reducing diversity in practice. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within that fiscal year. The Company does not expect the ASU to have a material effect on its consolidated financial statements.
In the second quarter of 2016, the Company elected to early adopt ASU No. 2016-09,
Compensation - Stock Compensation
(Topic 718):
Improvements to Employee Share-Based Payment Accounting
, issued by the FASB in March 2016
.
The Company applied the provisions of the ASU effective as of January 1, 2016, and, as such, previously reported balances on the Company's consolidated statements of income for the three months ended March 31, 2016 were updated to account for the ASU adoption as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2016
|
|
|
As Previously Reported
|
|
As Adjusted
|
|
Change
|
Net income
|
|
$
|
8,334
|
|
|
$
|
8,646
|
|
|
$
|
312
|
|
Basic EPS
(1)
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
$
|
0.02
|
|
Diluted EPS
(1)
|
|
$
|
0.54
|
|
|
$
|
0.56
|
|
|
$
|
0.02
|
|
(1) Period presented adjusted for three-for-two stock split on September 30, 2016. Refer to Note 2.
Two
of the more significant provisions of the ASU that impacted the Company's consolidated financial statements were (i) the accounting for windfall tax benefits or shortfalls within income tax expense as a discrete period item in the quarter the event occurred and (ii) a policy election to not estimate the forfeiture rate on unvested share-based compensation awards. As a result of the ASU adoption in the second quarter of 2016, net income for the three and nine months ended September 30, 2016 increased
$63,000
and
$425,000
, respectively. Basic and diluted EPS both increased $
0.02
per share for the nine months ended September 30, 2016 upon adoption of the ASU, while for the three months ended September 30, 2016 there was
no
change to basic or diluted EPS.
In accordance with the ASU, the Company applied the provisions to account for windfall tax benefits or shortfalls within income tax expense on a prospective basis as of January 1, 2016. In accordance with the ASU, the Company applied its policy election to not estimate the forfeiture rate on unvested share-based compensation awards on a modified-retrospective basis. The impact of such resulted in a reclassification of
$72,000
from retained earnings to common stock shown as a cumulative effect adjustment on the consolidated statements of changes in shareholders' equity. The other provisions of the ASU did
no
t have a material effect on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses
(Topic 326):
Measurement of Credit Losses on Financial Instruments.
The ASU was issued to require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, for public companies. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that fiscal year. The Company is evaluating the potential impact of the ASU; however, anticipates that it will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). The ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Current lease accounting does not require the inclusion of operating leases in the balance sheet. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, early application is permitted. The Company expects the ASU will have a material effect on its consolidated financial statements and is currently evaluating the impact.
In January 2016, the FASB issued ASU No. 2016-01,
Income Statement - Financial Instruments - Overall
(Subtopic 825-10):
Recognition and Measurement of Financial Assets and Liabilities.
The ASU was issued to enhance the reporting
model for financial instruments to provide the users of financial statements with more useful information for decisions. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for only one of the six amendments, otherwise it is not permitted. The Company is evaluating the potential impact of the ASU on its consolidated financial statements.
In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers
(Topic 606):
Deferral of the Effective Date.
The ASU was issued to defer the effective date of Update 2014-09,
Revenue from Contracts with Customers
(Topic 606), for all entities by one year. ASU 2014-09 was issued to clarify the principles for recognizing revenue and to develop a common revenue standard. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company continues to evaluate the potential impact of ASU 2014-09, as updated by ASU 2015-14, but currently does not expect the ASU to have a material effect on its consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
FORWARD-LOOKING STATEMENTS
The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, including certain plans, exceptions, goals, projections, and statements, which are subject to numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “plan,” “target,” or “goal” or future or conditional verbs such as “will,” “may,” “might,” “should,” “could” and other expressions which predict or indicate future events or trends and which do not relate to historical matters. Forward-looking statements should not be relied on, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.
The following factors, among others, could cause the Company’s financial performance to differ materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking statements:
|
|
•
|
weakness in the United States economy in general and the regional and local economies within the New England region and Maine, which could result in a deterioration of credit quality, an increase in the allowance for loan losses or a reduced demand for the Company’s credit or fee-based products and services;
|
|
|
•
|
changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
|
|
|
•
|
inflation, interest rate, market and monetary fluctuations;
|
|
|
•
|
competitive pressures, including continued industry consolidation and the increased financial services provided by non-banks;
|
|
|
•
|
volatility in the securities markets that could adversely affect the value or credit quality of the Company’s assets, impairment of goodwill, the availability and terms of funding necessary to meet the Company’s liquidity needs, and could lead to impairment in the value of securities in the Company's investment portfolio;
|
|
|
•
|
changes in information technology that require increased capital spending;
|
|
|
•
|
changes in consumer spending and savings habits;
|
|
|
•
|
changes in tax, banking, securities and insurance laws and regulations;
|
|
|
•
|
changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the FASB and other accounting standard setters; and
|
|
|
•
|
the ability of the Company to achieve cost savings as a result of the merger or in achieving such cost savings within the projected timeframe.
|
You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in Part II, Item 1A. “Risk Factors” of this Form 10-Q and in our Annual Report on Form 10-K for the year ended
December 31, 2015
, as updated by the Company's quarterly reports on Form 10-Q, including this report, and other filings with the Securities and Exchange Commission. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.
These forward-looking statements were based on information, plans and estimates at the date of this report, and we undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except to the extent required by applicable law or regulation.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues and expenses reported. Actual results could materially differ from our current estimates as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including: (i) the allowance for credit losses; (ii) accounting for acquisitions and the subsequent review of goodwill and other identifiable intangible assets generated in an acquisition for impairment; (iii) OTTI of investments; (iv) accounting for postretirement plans; and (v) income taxes. There have been no material changes to our critical accounting policies as disclosed within our Annual Report on Form 10-K for the year ended
December 31, 2015
. Refer to the Annual Report on Form 10-K for the year ended
December 31, 2015
for discussion of the Company's critical accounting policies.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP
In addition to evaluating our results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures. We believe these non-GAAP financial measures help investors to understand our operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of certain items that may obscure trends in our underlying performance. These disclosures should not be viewed as a substitute for GAAP financial results, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other financial institutions.
Efficiency Ratio.
The efficiency ratio, which represents an approximate measure of the cost required for the Company to generate a dollar of revenue, is the ratio of (i) total non-interest expense, excluding merger and acquisition costs (the numerator) to (ii) net interest income on a fully taxable equivalent basis (assumed 35% tax rate) plus total non-interest income, adjusted for net gain on sale of securities, BOLI death benefits and legal settlement proceeds (the denominator). Certain revenues are excluded from reported non-interest income and certain expenses are excluded from reported non-interest expense to remove the effect of certain transactions as we do not believe these depict our normal run-rate operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Non-interest expense, as presented
|
|
$
|
22,149
|
|
|
$
|
16,711
|
|
|
$
|
67,388
|
|
|
$
|
49,669
|
|
Less: merger and acquisition costs
|
|
(45
|
)
|
|
(766
|
)
|
|
(866
|
)
|
|
(1,629
|
)
|
Adjusted non-interest expense
|
|
$
|
22,104
|
|
|
$
|
15,945
|
|
|
$
|
66,522
|
|
|
$
|
48,040
|
|
Net interest income, as presented
|
|
$
|
28,372
|
|
|
$
|
20,012
|
|
|
$
|
84,828
|
|
|
$
|
60,081
|
|
Add: effect of tax-exempt income
|
|
533
|
|
|
483
|
|
|
1,588
|
|
|
1,239
|
|
Non-interest income, as presented
|
|
11,001
|
|
|
6,561
|
|
|
29,470
|
|
|
19,018
|
|
Less: net gain on sale of securities
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(4
|
)
|
Less: BOLI death benefits
|
|
—
|
|
|
—
|
|
|
(394
|
)
|
|
—
|
|
Less: legal settlement proceeds
|
|
(638
|
)
|
|
—
|
|
|
(638
|
)
|
|
—
|
|
Adjusted net interest income plus non-interest income
|
|
$
|
39,268
|
|
|
$
|
27,052
|
|
|
$
|
114,850
|
|
|
$
|
80,334
|
|
Non-GAAP efficiency ratio
|
|
56.29
|
%
|
|
58.94
|
%
|
|
57.92
|
%
|
|
59.80
|
%
|
GAAP efficiency ratio
|
|
56.25
|
%
|
|
62.89
|
%
|
|
58.96
|
%
|
|
62.79
|
%
|
Tax Equivalent Net Interest Income
. Tax-equivalent net interest income is net interest income plus the taxes that would have been paid (assumed 35% tax rate) had tax-exempt securities been taxable. This number attempts to enhance the comparability of the performance of assets that have different tax implications.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net interest income, as presented
|
|
$
|
28,372
|
|
|
$
|
20,012
|
|
|
$
|
84,828
|
|
|
$
|
60,081
|
|
Add: effect of tax-exempt income
|
|
533
|
|
|
483
|
|
|
1,588
|
|
|
1,239
|
|
Net interest income, tax equivalent
|
|
$
|
28,905
|
|
|
$
|
20,495
|
|
|
$
|
86,416
|
|
|
$
|
61,320
|
|
Tangible Book Value Per Share and Tangible Common Equity Ratio
. Tangible book value per share is the ratio of (i) shareholders’ equity less goodwill and other intangibles (the numerator) to (ii) total common shares outstanding at period end (the denominator). We believe this is a meaningful measure as it provides information to assess capital adequacy and is a common measure within our industry.
The tangible common equity ratio is the ratio of (i) shareholders' equity less goodwill and other intangibles (the numerator) to (ii) total assets less goodwill and other intangibles (the denominator). This ratio is a measure used within our industry to assess whether or not a company is highly leveraged.
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31, 2015
|
Tangible Book Value Per Share
|
|
|
|
|
Shareholders’ equity
|
|
$
|
393,181
|
|
|
$
|
363,190
|
|
Less: goodwill and other intangibles
|
|
(101,937
|
)
|
|
(104,324
|
)
|
Tangible shareholders’ equity
|
|
$
|
291,244
|
|
|
$
|
258,866
|
|
Shares outstanding at period end
|
|
15,434,856
|
|
|
15,330,717
|
|
Tangible book value per share
|
|
$
|
18.87
|
|
|
$
|
16.89
|
|
Book value per share
|
|
$
|
25.47
|
|
|
$
|
23.69
|
|
Tangible Common Equity Ratio
|
|
|
|
|
Total assets
|
|
$
|
3,903,966
|
|
|
$
|
3,709,344
|
|
Less: goodwill and other intangibles
|
|
(101,937
|
)
|
|
(104,324
|
)
|
Tangible assets
|
|
$
|
3,802,029
|
|
|
$
|
3,605,020
|
|
Tangible common equity ratio
|
|
7.66
|
%
|
|
7.18
|
%
|
Shareholders' equity to assets
|
|
10.07
|
%
|
|
9.79
|
%
|
Return On Average Tangible Equity.
Return on average tangible equity is the ratio of (i) net income, adjusted for tax effected amortization of intangible assets, net of tax (the numerator) to (ii) average shareholders' equity, less average goodwill and other intangible assets (the denominator). We believe this is a meaningful measure of our financial performance as it reflects our return on tangible equity in our business, excluding amortization of intangible assets. The return on average tangible equity is a common measure of operating performance within our industry.
Core Return On Average Tangible Equity.
Core return on average tangible equity is the ratio of (i) net income, adjusted for (a) tax effected amortization of intangible assets, net of tax and (b) merger and acquisition costs, net of tax (the numerator) to (ii) average shareholders' equity, adjusted for average goodwill and other intangible assets. We believe this is a meaningful measure of our financial performance as it reflects our return on tangible equity in our business, excluding the financial impact of transactions that management does not believe are reflective of its core operating activities and the amortization of intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income, as presented
|
|
$
|
10,903
|
|
|
$
|
6,456
|
|
|
$
|
29,165
|
|
|
$
|
19,260
|
|
Amortization of intangible assets, net of tax
(1)
|
|
309
|
|
|
187
|
|
|
928
|
|
|
560
|
|
Net income, adjusted
|
|
$
|
11,212
|
|
|
$
|
6,643
|
|
|
$
|
30,093
|
|
|
$
|
19,820
|
|
Merger and acquisition costs, net of tax
(2)
|
|
30
|
|
|
498
|
|
|
562
|
|
|
1,266
|
|
Core tangible operating earnings
|
|
$
|
11,242
|
|
|
$
|
7,141
|
|
|
$
|
30,655
|
|
|
$
|
21,086
|
|
Average shareholders' equity
|
|
$
|
387,972
|
|
|
$
|
256,326
|
|
|
$
|
378,647
|
|
|
$
|
252,802
|
|
Less: average goodwill and other intangible assets
|
|
(102,168
|
)
|
|
(47,446
|
)
|
|
(103,054
|
)
|
|
(47,730
|
)
|
Average tangible equity
|
|
$
|
285,804
|
|
|
$
|
208,880
|
|
|
$
|
275,593
|
|
|
$
|
205,072
|
|
Return on average equity
|
|
11.18
|
%
|
|
9.99
|
%
|
|
10.29
|
%
|
|
10.19
|
%
|
Return on average tangible equity
|
|
15.61
|
%
|
|
12.62
|
%
|
|
14.59
|
%
|
|
12.92
|
%
|
Core return on average tangible equity
|
|
15.65
|
%
|
|
13.56
|
%
|
|
14.86
|
%
|
|
13.75
|
%
|
(1) Assumed a 35% tax rate.
(2) Assumed a 35% tax rate for deductible expenses.
Core Operating Earnings and Core Diluted EPS.
The following tables provide a reconciliation of GAAP net income and GAAP diluted EPS for the three and nine months ended
September 30, 2016
and 2015 to exclude the financial impact of certain transactions for which management does not believe are representative of its core operations. Management utilizes core operating earnings and core diluted EPS to compare and assess financial results period-over-period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Core Operating Earnings:
|
|
|
|
|
|
|
|
|
Net income, as presented
|
|
$
|
10,903
|
|
|
$
|
6,456
|
|
|
$
|
29,165
|
|
|
$
|
19,260
|
|
Merger and acquisition costs, net of tax
(1)
|
|
30
|
|
|
498
|
|
|
562
|
|
|
1,266
|
|
Core operating earnings
|
|
$
|
10,933
|
|
|
$
|
6,954
|
|
|
$
|
29,727
|
|
|
$
|
20,526
|
|
Core Diluted EPS:
|
|
|
|
|
|
|
|
|
Diluted EPS, as presented
|
|
$
|
0.70
|
|
|
$
|
0.57
|
|
|
$
|
1.88
|
|
|
$
|
1.71
|
|
Non-core transactions impact
|
|
—
|
|
|
0.05
|
|
|
0.03
|
|
|
0.12
|
|
Core diluted EPS
|
|
$
|
0.70
|
|
|
$
|
0.62
|
|
|
$
|
1.91
|
|
|
$
|
1.83
|
|
(1) Assumed a 35% tax rate for deductible expenses.
Normalized Net Interest Margin.
Normalized net interest margin represents our net interest margin for the three and nine months ended, adjusted to exclude the effects of (a) fair value mark accretion from purchase accounting and (b) the collection of previously charged-off acquired loans (numerator) over average total interest-earning assets (denominator). Management believes this is a meaning financial measure as it excludes the financial impact of certain transactions that we do not believe are representative of our core operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net interest income, tax equivalent, as presented
|
|
$
|
28,905
|
|
|
$
|
20,495
|
|
|
$
|
86,416
|
|
|
$
|
61,320
|
|
Less: fair value mark accretion from purchase accounting
|
|
(1,030
|
)
|
|
(23
|
)
|
|
(4,170
|
)
|
|
(75
|
)
|
Less: collection of previously charged-off acquired loans
|
|
(208
|
)
|
|
—
|
|
|
(984
|
)
|
|
—
|
|
Normalized net interest income, tax equivalent
|
|
$
|
27,667
|
|
|
$
|
20,472
|
|
|
$
|
81,262
|
|
|
$
|
61,245
|
|
Average total interest-earnings assets
|
|
$
|
3,526,353
|
|
|
$
|
2,634,481
|
|
|
$
|
3,457,434
|
|
|
$
|
2,607,816
|
|
Net interest margin (fully-taxable equivalent)
(1)
|
|
3.24
|
%
|
|
3.08
|
%
|
|
3.31
|
%
|
|
3.12
|
%
|
Normalized net interest margin (fully-taxable equivalent)
(1)
|
|
3.10
|
%
|
|
3.08
|
%
|
|
3.11
|
%
|
|
3.12
|
%
|
(1) Annualized.
EXECUTIVE OVERVIEW
In the third quarter of 2016, we announced two major strategic initiatives, including a three-for-two split of the Company's common stock effective September 30, 2016 and the proposed merger of of Acadia Trust into the Bank and creating Camden National Wealth Management. The proposed merger of Acadia Trust into the Bank will align all of our brands, including our brokerage group, Camden Financial Consultants, to provide a comprehensive offering of banking, wealth management and brokerage products and services. Subject to regulatory approval, we expect that the merger of Acadia Trust into the Bank will occur in the fourth quarter of 2016.
Net income for the three and nine months ended
September 30, 2016
was $10.9 million and $29.2 million, respectively, compared to $6.5 million and $19.3 million for the same periods last year. Diluted EPS for the three and nine months ended September 30, 2016 was $0.70 per share and $1.88 per share, respectively, representing an increase of 23% and 10% compared to the same periods last year. Our strong performance reflects the growth from our traditional markets and those acquired through our merger in October 2015, as well as our continued focus on operating efficiencies. For the nine months ended September 30, 2016, our return on average assets increased 11 basis points to 1.02% and our return on average shareholders' equity increased 10 basis points to 10.29% compared to the same period last year.
Loan growth (excluding loans held for sale) of $101.8 million for the nine months ended September 30, 2016, or 5% annualized, was driven by our commercial loan portfolio, which increased $141.5 million since year-end. The growth within our commercial loan portfolio was centered in commercial real estate, which increased $126.4 million since year-end. Our retail loan portfolio decreased $39.7 million since year-end with a decline in our residential and consumer loan portfolio of 3% and 4%, respectively, since year-end. For the nine months ended September 30, 2016, the Company originated $291.6 million of residential mortgages and sold approximately 70% of this production.
Total deposits at September 30, 2016 were $2.9 billion, representing an increase of $162.8 million since year-end. Core deposits (demand, interest checking, savings and money market) at September 30, 2016 totaled $2.2 billion, representing an increase of $159.7 million, or 11% annualized, since year-end. Total borrowings at September 30, 2016 were $559.3 million, representing $13.1 million decrease since year-end.
Tangible book value per share
1
increased 12% to $18.87 at
September 30, 2016
since year-end. The Company declared cash dividends of $0.60 per share for the nine months ended September 30, 2016, representing a dividend payout ratio of 31.99%.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the interest earned on loans, securities, and other interest-earning assets, plus net loan fees, origination costs, and accretion or amortization of fair value marks on loans and/or CDs created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income, which is our largest source of revenue and accounts for 74% and 76% of total revenues (net interest income and non-interest income) for the
nine months ended September 30, 2016
and
2015
, respectively, is affected by factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, the volume and mix of interest-earning assets and liabilities, and the level of non-performing assets.
Net Interest Income -
Three months ended September 30, 2016
and
2015
.
Net interest income was $28.9 million on a fully-taxable equivalent basis for the
third quarter
of
2016
compared to $20.5 million for the same period last year, representing an increase of $8.4 million, or 41%. The increase was driven by higher average interest-earning assets of $891.9 million, or 34%, due to the acquisition of $628.0 million of loans and $39.7 million of investments in the fourth quarter of 2015 as part of the SBM acquisition, combined with strong organic loan growth period-over-period. Our average loan balance for the
third quarter
of
2016
totaled $2.6 billion, representing an increase of $788.4 million, or 43%, over the
third quarter
of
2015
. Our NIM (fully-taxable equivalent) for the
third quarter
of
2016
increased 16 basis points to 3.24% over the
third quarter
of
2015
. Our
third quarter
2016
NIM (fully-taxable equivalent) benefited from HPFC's higher yielding commercial loans, which will continue to decrease through normal amortization and payoffs of the existing portfolio as we are no longer originating these loans; from accretion of the loan and CD fair value marks created in purchase accounting totaling $1.0 million for the third quarter of 2016; and collection of previously charged-off acquired SBM loans of $208,000 for the third quarter of 2016. Excluding these transactions, our normalized NIM on a fully-taxable equivalent basis for the third quarter of 2016 was 3.10%, compared to 3.08% for the third quarter of 2015.
For the
three months ended September 30, 2016
, our interest expense associated with deposits and borrowings totaled $4.2 million compared to $3.0 million for the same period of
2015
, representing an increase of $1.2 million, or 39%. Our average deposit base increased 46% due to $687.0 million of deposits acquired as part of the SBM acquisition in the fourth quarter of 2015 and strong organic deposit growth, highlighted by annualized core deposit growth of 11% since year-end.
The SBM acquisition in the fourth quarter of 2015 improved our interest rate risk position in a rising rate environment due to the level of floating rate loans within the acquired loan portfolio as well as total deposits acquired of $687.0 million. Additionally, we continue to utilize customer loans swaps within our commercial real estate loan portfolio to improve our interest rate risk position in a rising rate environment by swapping fixed rate for variable rate. At
September 30, 2016
, our total notional on customer loan swaps with our borrowers totaled $269.0 million compared to $142.9 million at December 31, 2015 and $85.7 million at
September 30, 2015
(we have matching notional agreements with a counterparty).
The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and NIM (fully-taxable equivalent) for the
three months ended September 30, 2016
and
2015
:
Quarterly Average Balance, Interest and Yield/Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
Average Balance
|
|
Interest
|
|
Yield/Rate
|
|
Average Balance
|
|
Interest
|
|
Yield/Rate
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities - taxable
|
|
$
|
810,747
|
|
|
$
|
4,497
|
|
|
2.22
|
%
|
|
$
|
723,549
|
|
|
$
|
3,781
|
|
|
2.09
|
%
|
Securities - nontaxable
(1)
|
|
103,657
|
|
|
1,081
|
|
|
4.17
|
%
|
|
87,390
|
|
|
959
|
|
|
4.39
|
%
|
Loans
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
824,985
|
|
|
8,664
|
|
|
4.20
|
%
|
|
586,631
|
|
|
6,019
|
|
|
4.10
|
%
|
Commercial real estate
|
|
1,031,674
|
|
|
10,394
|
|
|
3.94
|
%
|
|
677,329
|
|
|
7,326
|
|
|
4.23
|
%
|
Commercial
(1)
|
|
307,184
|
|
|
3,052
|
|
|
3.89
|
%
|
|
245,482
|
|
|
2,427
|
|
|
3.87
|
%
|
Municipal
(1)
|
|
24,628
|
|
|
165
|
|
|
2.66
|
%
|
|
16,379
|
|
|
131
|
|
|
3.16
|
%
|
Consumer
|
|
355,144
|
|
|
3,854
|
|
|
4.32
|
%
|
|
297,721
|
|
|
2,896
|
|
|
3.86
|
%
|
HPFC
|
|
68,334
|
|
|
1,420
|
|
|
8.13
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Total loans
|
|
2,611,949
|
|
|
27,549
|
|
|
4.17
|
%
|
|
1,823,542
|
|
|
18,799
|
|
|
4.07
|
%
|
Total interest-earning assets
|
|
3,526,353
|
|
|
33,127
|
|
|
3.72
|
%
|
|
2,634,481
|
|
|
23,539
|
|
|
3.54
|
%
|
Cash and due from banks
|
|
97,755
|
|
|
|
|
|
|
54,497
|
|
|
|
|
|
Other assets
|
|
314,062
|
|
|
|
|
|
|
178,119
|
|
|
|
|
|
Less: ALL
|
|
(23,984
|
)
|
|
|
|
|
|
(21,279
|
)
|
|
|
|
|
Total assets
|
|
$
|
3,914,186
|
|
|
|
|
|
|
$
|
2,845,818
|
|
|
|
|
|
Liabilities & Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
415,558
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
299,506
|
|
|
$
|
—
|
|
|
—
|
%
|
Interest checking
|
|
721,459
|
|
|
255
|
|
|
0.14
|
%
|
|
503,417
|
|
|
104
|
|
|
0.08
|
%
|
Savings
|
|
466,113
|
|
|
71
|
|
|
0.06
|
%
|
|
281,556
|
|
|
42
|
|
|
0.06
|
%
|
Money market
|
|
488,793
|
|
|
528
|
|
|
0.43
|
%
|
|
369,983
|
|
|
310
|
|
|
0.33
|
%
|
Certificates of deposit
|
|
486,698
|
|
|
971
|
|
|
0.79
|
%
|
|
315,390
|
|
|
732
|
|
|
0.92
|
%
|
Total deposits
|
|
2,578,621
|
|
|
1,825
|
|
|
0.28
|
%
|
|
1,769,852
|
|
|
1,188
|
|
|
0.27
|
%
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered deposits
|
|
239,975
|
|
|
379
|
|
|
0.63
|
%
|
|
237,308
|
|
|
369
|
|
|
0.62
|
%
|
Subordinated debentures
|
|
58,697
|
|
|
857
|
|
|
5.81
|
%
|
|
44,088
|
|
|
638
|
|
|
5.74
|
%
|
Other borrowings
|
|
586,367
|
|
|
1,161
|
|
|
0.79
|
%
|
|
503,542
|
|
|
849
|
|
|
0.67
|
%
|
Total borrowings
|
|
885,039
|
|
|
2,397
|
|
|
1.08
|
%
|
|
784,938
|
|
|
1,856
|
|
|
0.94
|
%
|
Total funding liabilities
|
|
3,463,660
|
|
|
4,222
|
|
|
0.49
|
%
|
|
2,554,790
|
|
|
3,044
|
|
|
0.47
|
%
|
Other liabilities
|
|
62,554
|
|
|
|
|
|
|
34,702
|
|
|
|
|
|
Shareholders' equity
|
|
387,972
|
|
|
|
|
|
|
256,326
|
|
|
|
|
|
Total liabilities & shareholders' equity
|
|
$
|
3,914,186
|
|
|
|
|
|
|
$
|
2,845,818
|
|
|
|
|
|
Net interest income (fully-taxable equivalent)
|
|
|
|
28,905
|
|
|
|
|
|
|
20,495
|
|
|
|
Less: fully-taxable equivalent adjustment
|
|
|
|
(533
|
)
|
|
|
|
|
|
(483
|
)
|
|
|
Net interest income
|
|
|
|
$
|
28,372
|
|
|
|
|
|
|
$
|
20,012
|
|
|
|
Net interest rate spread (fully-taxable equivalent)
|
|
|
|
|
|
3.23
|
%
|
|
|
|
|
|
3.07
|
%
|
Net interest margin (fully-taxable equivalent)
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
3.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Reported on tax-equivalent basis calculated using a tax rate of 35%, including certain commercial loans.
|
(2) Non-accrual loans and loans held for sale are included in total average loans.
|
Net Interest Income -
Nine Months Ended September 30, 2016
and 2015.
Net interest income for the nine months ended September 30, 2016 was $86.4 million on a fully-taxable equivalent basis, compared to $61.3 million for the same period last year, representing an increase of $25.1 million, or 41%. The increase was driven by higher average interest-earning assets of $849.6 million, or 33%, due to the acquisition of $628.0 million of loans and $39.7 million of investments in the fourth quarter of 2015 as part of the SBM acquisition, combined with strong organic loan growth period-over-period. Our average loan balance for the nine months ended September 30, 2016 totaled $2.6 billion, representing an increase of $754.0 million, or 42%, over the same period of
2015
. Our NIM (fully-taxable equivalent) for the nine months ended September 30, 2016 was 3.31% compared to 3.12% for the same period last year. Our nine months ended September 30, 2016 NIM (fully-taxable equivalent) benefited from HPFC's higher yielding commercial loans, which will continue to decrease through normal amortization and payoffs of the existing portfolio as we are no longer originating these loans; from accretion of the loan and CD fair value marks created in purchase accounting totaling $4.2 million for the nine months ended September 30, 2016; and collection of previously charged-off acquired SBM loans of $984,000 for the nine months ended September 30, 2016. Excluding these transactions, our normalized NIM on a fully-taxable equivalent basis for the nine months ended September 30, 2016 was 3.11%, compared to 3.12% for the same period last year. Additionally, in the second quarter of 2015, we received a one-time income pick-up of $734,000 from the settlement and full pay-off of one significant commercial real estate loan that was on non-accrual status. This contributed to a one-time yield and NIM increase of 4 basis points for the nine months ended September 30, 2015. Excluding this one-time income pick-up, our NIM for the nine months ended September 30, 2015 was 3.08%.
For the nine months ended September 30, 2016, our interest expense associated with deposits and borrowings totaled $12.5 million compared to $9.1 million for the same period of
2015
, representing an increase of $3.4 million, or 38%. Our average deposit base increased 46% due to $687.0 million of deposits and borrowings acquired as part of the SBM acquisition in the fourth quarter of 2015 and strong organic deposit growth, highlighted by annualized core deposit growth of 11% since year-end.
The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and NIM for the nine months ended September 30, 2016 and 2015:
Year-To-Date Average Balance, Interest and Yield/Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
(In Thousands)
|
|
Average Balance
|
|
Interest
|
|
Yield/Rate
|
|
Average Balance
|
|
Interest
|
|
Yield/Rate
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities - taxable
|
|
$
|
798,054
|
|
|
$
|
13,106
|
|
|
2.19
|
%
|
|
$
|
736,077
|
|
|
$
|
11,580
|
|
|
2.10
|
%
|
Securities - nontaxable
(1)
|
|
102,812
|
|
|
3,273
|
|
|
4.24
|
%
|
|
69,195
|
|
|
2,313
|
|
|
4.46
|
%
|
Loans
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
825,660
|
|
|
25,915
|
|
|
4.18
|
%
|
|
585,655
|
|
|
18,087
|
|
|
4.12
|
%
|
Commercial real estate
(3)
|
|
988,329
|
|
|
30,690
|
|
|
4.08
|
%
|
|
663,032
|
|
|
22,319
|
|
|
4.44
|
%
|
Commercial
(1)
|
|
290,459
|
|
|
9,318
|
|
|
4.21
|
%
|
|
246,128
|
|
|
7,200
|
|
|
3.86
|
%
|
Municipal
(1)
|
|
18,655
|
|
|
419
|
|
|
3.00
|
%
|
|
13,641
|
|
|
349
|
|
|
3.42
|
%
|
Consumer
|
|
361,085
|
|
|
11,399
|
|
|
4.22
|
%
|
|
294,088
|
|
|
8,552
|
|
|
3.89
|
%
|
HPFC
|
|
72,380
|
|
|
4,818
|
|
|
8.75
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Total loans
|
|
2,556,568
|
|
|
82,559
|
|
|
4.27
|
%
|
|
1,802,544
|
|
|
56,507
|
|
|
4.16
|
%
|
Total interest-earning assets
|
|
3,457,434
|
|
|
98,938
|
|
|
3.79
|
%
|
|
2,607,816
|
|
|
70,400
|
|
|
3.58
|
%
|
Cash and due from banks
|
|
87,248
|
|
|
|
|
|
|
49,415
|
|
|
|
|
|
Other assets
|
|
305,890
|
|
|
|
|
|
|
179,408
|
|
|
|
|
|
Less: ALL
|
|
(22,446
|
)
|
|
|
|
|
|
(21,303
|
)
|
|
|
|
|
Total assets
|
|
$
|
3,828,126
|
|
|
|
|
|
|
$
|
2,815,336
|
|
|
|
|
|
Liabilities & Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
372,131
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
271,665
|
|
|
$
|
—
|
|
|
—
|
%
|
Interest checking
|
|
722,764
|
|
|
649
|
|
|
0.12
|
%
|
|
493,501
|
|
|
291
|
|
|
0.08
|
%
|
Savings
|
|
455,134
|
|
|
204
|
|
|
0.06
|
%
|
|
272,773
|
|
|
119
|
|
|
0.06
|
%
|
Money market
|
|
485,611
|
|
|
1,532
|
|
|
0.42
|
%
|
|
378,507
|
|
|
895
|
|
|
0.32
|
%
|
Certificates of deposit
|
|
492,892
|
|
|
2,835
|
|
|
0.77
|
%
|
|
313,705
|
|
|
2,172
|
|
|
0.93
|
%
|
Total deposits
|
|
2,528,532
|
|
|
5,220
|
|
|
0.28
|
%
|
|
1,730,151
|
|
|
3,477
|
|
|
0.27
|
%
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered deposits
|
|
216,589
|
|
|
1,135
|
|
|
0.70
|
%
|
|
237,852
|
|
|
1,153
|
|
|
0.65
|
%
|
Subordinated debentures
|
|
58,712
|
|
|
2,557
|
|
|
5.82
|
%
|
|
44,063
|
|
|
1,894
|
|
|
5.75
|
%
|
Other borrowings
|
|
590,245
|
|
|
3,610
|
|
|
0.82
|
%
|
|
514,336
|
|
|
2,556
|
|
|
0.66
|
%
|
Total borrowings
|
|
865,546
|
|
|
7,302
|
|
|
1.13
|
%
|
|
796,251
|
|
|
5,603
|
|
|
0.94
|
%
|
Total funding liabilities
|
|
3,394,078
|
|
|
12,522
|
|
|
0.49
|
%
|
|
2,526,402
|
|
|
9,080
|
|
|
0.48
|
%
|
Other liabilities
|
|
55,401
|
|
|
|
|
|
|
36,132
|
|
|
|
|
|
Shareholders' equity
|
|
378,647
|
|
|
|
|
|
|
252,802
|
|
|
|
|
|
Total liabilities & shareholders' equity
|
|
$
|
3,828,126
|
|
|
|
|
|
|
$
|
2,815,336
|
|
|
|
|
|
Net interest income (fully-taxable equivalent)
|
|
|
|
86,416
|
|
|
|
|
|
|
61,320
|
|
|
|
Less: fully-taxable equivalent adjustment
|
|
|
|
(1,588
|
)
|
|
|
|
|
|
(1,239
|
)
|
|
|
Net interest income
|
|
|
|
$
|
84,828
|
|
|
|
|
|
|
$
|
60,081
|
|
|
|
Net interest rate spread (fully-taxable equivalent)
|
|
|
|
|
|
3.30
|
%
|
|
|
|
|
|
3.10
|
%
|
Net interest margin (fully-taxable equivalent)
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Reported on tax-equivalent basis calculated using a tax rate of 35%, including certain commercial loans.
|
(2) Non-accrual loans and loans held for sale are included in total average loans.
|
(3) Includes $734,000 of income recognized in the second quarter of 2015 upon payoff of one loan that was on non-accrual status.
|
Provision for Credit Losses
The provision for credit losses is made up of the provision for loan losses and the provision for unfunded commitments.
The provision for loan losses, which makes up the vast majority of the provision for credit losses, is a recorded expense determined by management that adjusts the ALL to a level that, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses reflects loan quality trends, including, among other factors, the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans, net charge-offs or recoveries and growth in the loan portfolio. Accordingly, the amount of the provision for loan losses reflects both the necessary increases in the ALL related to newly identified criticized loans, as well as the actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.
The provision for unfunded commitments represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and other liabilities on the consolidated statement of condition.
The following table outlines the components making up the provision for credit losses as recorded on consolidated statements of income for the
three and nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Provision for loan losses
|
|
$
|
1,287
|
|
|
$
|
281
|
|
|
$
|
5,011
|
|
|
$
|
972
|
|
Change in reserve for unfunded commitments
|
|
(8
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
7
|
|
Provision for credit losses
|
|
$
|
1,279
|
|
|
$
|
279
|
|
|
$
|
5,003
|
|
|
$
|
979
|
|
Please refer to “—Financial Condition—Asset Quality” below for additional discussion regarding the ALL and overall asset quality.
Non-Interest Income
The following table presents the components of non-interest income for the
three and nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Change
|
|
Nine Months Ended
September 30,
|
|
Change
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
2016
|
|
2015
|
|
$
|
|
%
|
Debit card income
|
|
$
|
1,894
|
|
|
$
|
1,266
|
|
|
$
|
628
|
|
|
50
|
%
|
|
$
|
5,650
|
|
|
$
|
3,652
|
|
|
$
|
1,998
|
|
|
55
|
%
|
Service charges on deposit accounts
|
|
1,799
|
|
|
1,554
|
|
|
245
|
|
|
16
|
%
|
|
5,356
|
|
|
4,634
|
|
|
722
|
|
|
16
|
%
|
Other service charges and fees
|
|
591
|
|
|
416
|
|
|
175
|
|
|
42
|
%
|
|
1,494
|
|
|
1,124
|
|
|
370
|
|
|
33
|
%
|
Mortgage banking income, net
|
|
2,407
|
|
|
390
|
|
|
2,017
|
|
|
517
|
%
|
|
4,921
|
|
|
975
|
|
|
3,946
|
|
|
405
|
%
|
Income from fiduciary services
|
|
1,225
|
|
|
1,177
|
|
|
48
|
|
|
4
|
%
|
|
3,736
|
|
|
3,725
|
|
|
11
|
|
|
—
|
%
|
Bank-owned life insurance
|
|
585
|
|
|
443
|
|
|
142
|
|
|
32
|
%
|
|
1,899
|
|
|
1,267
|
|
|
632
|
|
|
50
|
%
|
Brokerage and insurance commissions
|
|
594
|
|
|
411
|
|
|
183
|
|
|
45
|
%
|
|
1,569
|
|
|
1,362
|
|
|
207
|
|
|
15
|
%
|
Net gain on sale of securities
|
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
(100
|
)%
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
%
|
Other income
|
|
1,906
|
|
|
900
|
|
|
1,006
|
|
|
112
|
%
|
|
4,841
|
|
|
2,275
|
|
|
2,566
|
|
|
113
|
%
|
Total non-interest income
|
|
$
|
11,001
|
|
|
$
|
6,561
|
|
|
$
|
4,440
|
|
|
68
|
%
|
|
$
|
29,470
|
|
|
$
|
19,018
|
|
|
$
|
10,452
|
|
|
55
|
%
|
Non-interest income as a percentage of total revenues
(1)
|
|
28
|
%
|
|
25
|
%
|
|
|
|
|
|
26
|
%
|
|
24
|
%
|
|
|
|
|
(1) Revenue is defined as the sum of net interest income and non-interest income.
Non-Interest Income - Three Months Ended September 30, 2016 and
2015
.
The significant changes in non-interest income for the
three months ended September 30, 2016
compared to the
three months ended September 30, 2015
were primarily due to the SBM acquisition completed in the fourth quarter of 2015 and include:
|
|
•
|
An increase in debit card income of $628,000, service charges on deposit accounts of $245,000 and other service charges and fees of $175,000 primarily due to the SBM acquisition and the addition of approximately 30,000 customer checking accounts driving higher service fees along with the addition of 29 ATM's driving higher ATM fees.
|
|
|
•
|
An increase in mortgage banking income of $2.0 million driven by the sale of $71.4 million of mortgages in the third quarter of 2016, which generated gains on sale (net of costs) of $2.0 million, compared to $11.9 million of mortgage sales and gains (net of costs) of $243,000 for the third quarter of 2015.
|
|
|
•
|
An increase in other income of $1.0 million primarily driven by the receipt of legal settlement proceeds of $638,000 related to a previously charged-off acquired loan.
|
Non-Interest Income - Nine Months Ended September 30, 2016 and 2015.
The significant changes in non-interest income for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 were primarily due to the SBM acquisition completed in the fourth quarter of 2015 and include:
|
|
•
|
An increase in debit card income of $2.0 million, service charges on deposit accounts of $722,000 and other service charges and fees of $370,000 primarily due to the SBM acquisition and the addition of approximately 30,000 customer checking accounts driving higher service fees along with the addition of 29 ATM's driving higher ATM fees.
|
|
|
•
|
An increase in mortgage banking income of $3.9 million driven by the sale of $166.6 million of mortgages for the nine months ended September 30, 2016, which generated gains (net of costs) on sale of $4.2 million, compared to $24.5 million of mortgage sales and gains (net of costs) of $530,000 for the same period last year.
|
|
|
•
|
An increase in BOLI income of $632,000 due to the recognition of $394,000 in death benefit income in the second quarter of 2016, as well as higher income as a result of additional BOLI investments of $16.7 million in the second quarter of 2016.
|
|
|
•
|
An increase in other income of $2.6 million primarily driven by higher income on customer loans swaps of $1.2 million, the receipt of legal settlement proceeds of $638,000 related to a previously charged-off acquired loan in the third quarter of 2016, and higher other fees due to a larger customer-base from the SBM acquisition and organic growth year-over-year.
|
Non-Interest Expense
The following table presents the components of non-interest expense for the
three and nine
months ended
September 30, 2016
and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Change
|
|
Nine Months Ended
September 30,
|
|
Change
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
2016
|
|
2015
|
|
$
|
|
%
|
Salaries and employee benefits
|
|
$
|
12,044
|
|
|
$
|
8,691
|
|
|
$
|
3,353
|
|
|
39
|
%
|
|
$
|
35,634
|
|
|
$
|
25,550
|
|
|
$
|
10,084
|
|
|
39
|
%
|
Furniture, equipment and data processing
|
|
2,349
|
|
|
1,705
|
|
|
644
|
|
|
38
|
%
|
|
7,157
|
|
|
5,530
|
|
|
1,627
|
|
|
29
|
%
|
Net occupancy costs
|
|
1,685
|
|
|
1,194
|
|
|
491
|
|
|
41
|
%
|
|
5,352
|
|
|
3,905
|
|
|
1,447
|
|
|
37
|
%
|
Consulting and professional fees
|
|
742
|
|
|
470
|
|
|
272
|
|
|
58
|
%
|
|
2,609
|
|
|
1,734
|
|
|
875
|
|
|
50
|
%
|
Regulatory assessments
|
|
667
|
|
|
513
|
|
|
154
|
|
|
30
|
%
|
|
2,162
|
|
|
1,534
|
|
|
628
|
|
|
41
|
%
|
Debit card expense
|
|
669
|
|
|
431
|
|
|
238
|
|
|
55
|
%
|
|
2,107
|
|
|
1,299
|
|
|
808
|
|
|
62
|
%
|
Other real estate owned and collection costs
|
|
877
|
|
|
543
|
|
|
334
|
|
|
62
|
%
|
|
2,029
|
|
|
1,554
|
|
|
475
|
|
|
31
|
%
|
Amortization of intangible assets
|
|
475
|
|
|
288
|
|
|
187
|
|
|
65
|
%
|
|
1,427
|
|
|
862
|
|
|
565
|
|
|
66
|
%
|
Other expenses
|
|
2,596
|
|
|
2,110
|
|
|
486
|
|
|
23
|
%
|
|
8,045
|
|
|
6,072
|
|
|
1,973
|
|
|
32
|
%
|
Merger and acquisition costs
|
|
45
|
|
|
766
|
|
|
(721
|
)
|
|
(94
|
)%
|
|
866
|
|
|
1,629
|
|
|
(763
|
)
|
|
(47
|
)%
|
Total non-interest expense
|
|
$
|
22,149
|
|
|
$
|
16,711
|
|
|
$
|
5,438
|
|
|
33
|
%
|
|
$
|
67,388
|
|
|
$
|
49,669
|
|
|
$
|
17,719
|
|
|
36
|
%
|
Efficiency ratio
(1)
|
|
56.29
|
%
|
|
58.94
|
%
|
|
|
|
|
|
57.92
|
%
|
|
59.80
|
%
|
|
|
|
|
|
|
(1)
|
This is a non-GAAP measure. Refer to "—Non-GAAP Financial Measures and Reconciliation to GAAP" for further details.
|
Non-Interest Expense - Three Months Ended September 30, 2016 and
2015
.
The significant changes in non-interest expense for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 were primarily due to the SBM acquisition completed in the fourth quarter of 2015 and include:
|
|
•
|
An increase in salaries and employee benefits of $3.4 million driven by higher wages, commissions, bonus and incentive costs and related taxes and benefits due to the increase in the number of employees as a result of the SBM acquisition.
|
|
|
•
|
An increase in furniture, equipment and data processing of $644,000 driven by higher data processing charges and depreciation expense across our key systems as our number of customer accounts increased due to the SBM acquisition.
|
|
|
•
|
An increase in net occupancy of $491,000 due to the addition of 24 banking centers in connection with the SBM acquisition.
|
|
|
•
|
An increase in other real estate owned and collection costs of $334,000 primarily due to an increase in sub-servicing costs.
|
|
|
•
|
An increase in other expenses of $486,000 driven by the incremental costs associated with operating a larger organization due to the SBM acquisition. These incremental costs included: (i) higher customer mailing costs, courier costs, ATM surcharge rebates, telephone and communication costs, and travel and entertainment costs due to an increase in customers, locations and employees; (ii) higher donation costs (iii) hiring costs and (iv) cash back rewards program that began in the fourth quarter of 2015 in conjunction with the SBM acquisition.
|
Non-Interest Expense -
Nine Months Ended September 30, 2016
and
2015
.
The significant changes in non-interest expense for the
nine months ended September 30, 2016
compared to the
nine months ended September 30, 2015
were primarily due to the SBM acquisition completed in the fourth quarter of 2015 and include:
|
|
•
|
An increase in salaries and employee benefits of $10.1 million driven by higher wages, commissions, bonus and incentive costs and related taxes and benefits due to the increase in the number of employees as a result of the SBM acquisition.
|
|
|
•
|
An increase in furniture, equipment and data processing of $1.6 million driven by higher data processing charges and depreciation expense across our key systems as our number of customer accounts increased due to the SBM acquisition.
|
|
|
•
|
An increase in net occupancy of $1.4 million due to the addition of 24 banking centers in connection with the SBM acquisition.
|
|
|
•
|
An increase in other expenses of $2.0 million driven by the incremental costs associated with operating a larger organization due to the SBM acquisition. These incremental costs included: (i) higher customer mailing costs, courier costs, ATM surcharge rebates, telephone and communication costs, and travel and entertainment costs due to an increase in customers, locations and employees; (ii) higher donation costs (iii) cash back rewards program that began in the fourth quarter of 2015 in conjunction with the SBM acquisition.
|
Income Tax Expense
Our effective income tax rate for the three and nine months ended September 30, 2016 was 31.6% and 30.4%, respectively, and for the three and nine months ended September 30, 2015 was 32.6% and 32.3%, respectively. Please refer to Note 9 of the consolidated financial statements for discussion and details of the discrete period items that are driving the reduction in our effective tax rate for the three and nine months ended September 30, 2016 compared to the same periods last year.
FINANCIAL CONDITION
Overview
Total assets at
September 30, 2016
were $3.9 billion compared to $3.7 billion at
December 31, 2015
, representing an increase of $194.6 million, or 7% annualized. The increase in assets was primarily driven by an increase in loan balances (excluding loans held for sale) of $101.8 million, or 5% annualized, and investments of $50.3 million, or 6%.
Total deposits at
September 30, 2016
were $2.9 billion, representing an increase of $162.8 million since year-end. Core deposits (demand, interest checking, savings and money market) at
September 30, 2016
totaled $2.2 billion, representing an increase of $159.7 million, or 11% annualized, since year-end. Total borrowings at
September 30, 2016
totaled $559.3 million, representing an increase of $13.1 million since year-end.
Total shareholders’ equity at
September 30, 2016
was
$393.2 million
, an increase of $30.0 million, or 8% since year-end.
Investment Securities
We purchase and hold investment securities including municipal bonds, MBS (pass through securities and CMOs), subordinated corporate bonds and FHLB and FRB stock to diversify our revenues, interest rate and credit risk, and to provide for liquidity and funding needs. At
September 30, 2016
, our total investment securities holdings were
$906.3 million
, an
increase
of $50.3 million since
December 31, 2015
. For the
nine months ended
September 30, 2016
, we purchased $140.7 million of debt securities and received proceeds from the sale and maturity of debt securities totaling $105.9 million.
During the
nine months ended September 30, 2016
, we classified all municipal bonds purchased as HTM securities. In total, we purchased $10.4 million of municipal bonds year-to-date. We have the intent and ability, evidenced by our strong capital and liquidity ratios, to hold these investments to maturity. The remaining $130.3 million of securities purchased were a combination of MBS, CMO and subordinated corporate debt securities. All of these investments have been categorized as AFS securities and are carried at fair value on the consolidated statements of condition with the associated unrealized gains or losses recorded in AOCI, net of tax. At
September 30, 2016
, we had a $
6.6 million
net unrealized gain on our AFS securities, net of tax, compared to a
$3.8 million
net unrealized loss, net of tax, at
December 31, 2015
. The fluctuation in the fair value of our MBS and CMO investment securities is highly dependent on interest rates as of the end of the reporting period and is not reflective of an overall credit deterioration within our portfolio.
We started purchasing subordinated corporate bonds in December 2015 and continued through 2016. Subordinated corporate bonds are subordinated notes issued by U.S. banks and bank holding companies that meet certain underwriting criteria with coupons ranging from 5.00% to 6.25% and 10 year maturities with call options that can be exercised by the issuer after five years. At
September 30, 2016
and
December 31, 2015
, the fair value of our subordinated corporate bonds was $5.7 million and $996,000, respectively. We have designated our subordinated corporate bond investments as AFS.
The duration of our investment securities portfolio decreased slightly to 3.9 years at
September 30, 2016
from 4.0 years at
December 31, 2015
. This decrease was due to a higher mix of MBS and CMO investments purchased in 2016, making up 82% of our total investment purchases. MBS and CMO investments have a shorter weighted-average life than the municipal bonds. We generally purchase MBS and CMO investments with an average life of no longer than six years to limit prepayment risk compared to fifteen years for a municipal bond.
We completed our quarterly OTTI assessment for our investment portfolio as of
September 30, 2016
and concluded that no OTTI existed across our investment portfolio. Our process and methodology for analyzing our investments portfolio for OTTI
has not changed since last disclosed within our Annual Report on Form 10-K for the year ended
December 31, 2015
. Refer to the Annual Report on Form 10-K for the year ended
December 31, 2015
for further discussion of the Company's process and methodology.
FHLBB and FRB Bank Stock
We are required to maintain a level of investment in FHLBB stock based on the Bank's level of our FHLBB advances. In the first nine months of 2016, the Bank purchased $2.9 million of additional FHLBB stock, and in the third quarter sold $5.7 million to bring its investment in line with its borrowings. Our investment balance at September 30, 2016 and December 31, 2015 was $17.8 million and $20.6 million, respectively. No market exists for shares of FHLBB stock.
We are required to maintain a level of investment in FRB stock based on the Company and Acadia Trust's shareholders' equity position. In the second quarter, the Company and Acadia Trust purchased $4.5 million of additional FRB stock. Our investment balance at September 30, 2016 and December 31, 2015 was $5.4 million and $908,000, respectively. No market exists for shares of FRB stock.
Loans
We provide loans primarily to customers located within our geographic market area. Our primary market continues to be in Maine, making up 85% of our loan portfolio at
September 30, 2016
; however, our loan production outside of Maine and through New England has increased with our expanded presence in Southern Maine and New Hampshire. The commercial loan portfolio increased $141.5 million, or 11%, since
December 31, 2015
, while the retail loan portfolio decreased $39.7 million over the same period. The decrease in our retail loan portfolio since year-end was primarily driven by a decrease in residential mortgage loans of $23.6 million. The Company has sold approximately 70% of its originated residential mortgages for the nine months ended September 30, 2016 to generate fee income and enhance its interest rate sensitivity. For the three and nine months ended September 30,
2016
, the Company sold $71.4 million and $166.6 million of residential mortgage loans and recognized net gains of $2.0 million and $4.2 million, respectively, compared to residential mortgage sales of $11.9 million and $24.5 million and net gains of $243,000 and $530,000 for the three and nine months ended September 30, 2015.
At
September 30, 2016
, loans held for sale totaled $24.6 million, representing an increase of $13.7 million since
December 31, 2015
.
The following table sets forth the composition of our loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
Change
|
|
|
|
|
($)
|
|
(%)
|
Residential real estate
|
|
$
|
797,036
|
|
|
$
|
820,617
|
|
|
$
|
(23,581
|
)
|
|
(3
|
)%
|
Commercial real estate
|
|
1,054,307
|
|
|
927,951
|
|
|
126,356
|
|
|
14
|
%
|
Commercial
|
|
324,422
|
|
|
297,721
|
|
|
26,701
|
|
|
9
|
%
|
Consumer and home equity
|
|
350,511
|
|
|
366,587
|
|
|
(16,076
|
)
|
|
(4
|
)%
|
HPFC
|
|
65,733
|
|
|
77,330
|
|
|
(11,597
|
)
|
|
(15
|
)%
|
Total loans
|
|
$
|
2,592,009
|
|
|
$
|
2,490,206
|
|
|
$
|
101,803
|
|
|
4
|
%
|
Commercial Loan Portfolio
|
|
$
|
1,444,462
|
|
|
$
|
1,303,002
|
|
|
$
|
141,460
|
|
|
11
|
%
|
Retail Loan Portfolio
|
|
$
|
1,147,547
|
|
|
$
|
1,187,204
|
|
|
$
|
(39,657
|
)
|
|
(3
|
)%
|
Commercial Portfolio Mix
|
|
56
|
%
|
|
52
|
%
|
|
|
|
|
Retail Portfolio Mix
|
|
44
|
%
|
|
48
|
%
|
|
|
|
|
BOLI
In the second quarter of 2016, the Company made an additional BOLI investment of $16.7 million. Additionally, in the second quarter of 2016, we received proceeds of $578,000 on the passing of one of the insureds under our policy. Of this amount, we recognized $394,000 as income for the nine months ended September 30, 2016 as a result of the death benefits received, which was non-taxable. Our BOLI investment at September 30, 2016 and December 31, 2015 was $77.9 million and $59.9 million, respectively.
Asset Quality
Non-Performing Assets
. Non-performing assets include non-accrual loans, accruing loans 90 days or more past due, accruing TDRs, and property acquired through foreclosure or repossession. The following table sets forth the make-up and amount of our non-performing assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31, 2015
|
Non-accrual loans:
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
3,986
|
|
|
$
|
7,253
|
|
Commercial real estate
|
|
12,917
|
|
|
4,529
|
|
Commercial
|
|
2,259
|
|
|
4,489
|
|
Consumer and home equity loans
|
|
1,650
|
|
|
2,051
|
|
HPFC
|
|
216
|
|
|
—
|
|
Total non-accrual loans
|
|
21,028
|
|
|
18,322
|
|
Accruing loans past due 90 days
|
|
—
|
|
|
—
|
|
Accruing TDRs not included above
|
|
4,468
|
|
|
4,861
|
|
Total non-performing loans
|
|
25,496
|
|
|
23,183
|
|
Other real estate owned
|
|
811
|
|
|
1,304
|
|
Total non-performing assets
|
|
$
|
26,307
|
|
|
$
|
24,487
|
|
Non-accrual loans to total loans
|
|
0.81
|
%
|
|
0.74
|
%
|
Non-performing loans to total loans
|
|
0.98
|
%
|
|
0.93
|
%
|
ALL to non-performing loans
|
|
91.35
|
%
|
|
91.30
|
%
|
Non-performing assets to total assets
|
|
0.67
|
%
|
|
0.66
|
%
|
ALL to non-performing assets
|
|
88.53
|
%
|
|
86.44
|
%
|
Our non-performing assets to total assets ratio at
September 30, 2016
was 0.67%, representing an increase of 1 basis point since year-end. The increase in non-performing assets period-over-period was driven by the increase in non-accrual loans of $2.7 million, which was driven by placing one commercial loan with a recorded investment balance of $11.3 million at September 30, 2016 on non-accrual status in the second quarter of 2016. Excluding this one commercial real estate loan, non-accrual loans decreased $9.0 million, which reflects the general financial condition improvement across our borrowers, as well as our continued foreclosure and auction activity within our retail loan portfolio.
Potential Problem Loans
. Potential problem loans consist of classified accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At
September 30, 2016
, potential problem loans amounted to $885,000, or 0.03% of total loans and 0.06% of our commercial loan portfolio, compared to $649,000, or 0.03% of total loans and 0.05% of our commercial loan portfolio, at
December 31, 2015
.
Past Due Loans
. Past due loans consist of accruing loans that were between 30 and 89 days past due. The following table sets forth information concerning the past due loans at the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Accruing loans 30-89 days past due:
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
2,228
|
|
|
$
|
3,590
|
|
Commercial real estate
|
|
599
|
|
|
4,295
|
|
Commercial
|
|
463
|
|
|
637
|
|
Consumer and home equity loans
|
|
552
|
|
|
1,255
|
|
HPFC
|
|
492
|
|
|
165
|
|
Total accruing loans 30-89 days past due
|
|
$
|
4,334
|
|
|
$
|
9,942
|
|
Accruing loans 30-89 days past due to total loans
|
|
0.17
|
%
|
|
0.40
|
%
|
Allowance for Loan Losses
. We use a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient ALL. The ALL is management’s best estimate of the probable loan losses as of the balance sheet date. The ALL is increased by provisions charged to earnings and by recoveries of amounts previously charged-off, and is reduced by charge-offs on loans.
The following table sets forth information concerning the activity in our ALL during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For The
Three Months Ended
September 30,
|
|
At or For The
Nine Months Ended
September 30,
|
|
At or For The
Year Ended
December 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2015
|
ALL at the beginning of the period
|
|
$
|
23,717
|
|
|
$
|
21,194
|
|
|
$
|
21,166
|
|
|
$
|
21,116
|
|
|
$
|
21,116
|
|
Provision for loan losses
|
|
1,287
|
|
|
281
|
|
|
5,011
|
|
|
972
|
|
|
1,938
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate loans
|
|
—
|
|
|
176
|
|
|
229
|
|
|
468
|
|
|
801
|
|
Commercial real estate
|
|
32
|
|
|
71
|
|
|
273
|
|
|
174
|
|
|
481
|
|
Commercial loans
|
|
1,541
|
|
|
144
|
|
|
1,970
|
|
|
387
|
|
|
655
|
|
Consumer and home equity loans
|
|
63
|
|
|
221
|
|
|
289
|
|
|
481
|
|
|
679
|
|
HPFC
|
|
205
|
|
|
—
|
|
|
507
|
|
|
—
|
|
|
—
|
|
Total loan charge-offs
|
|
1,841
|
|
|
612
|
|
|
3,268
|
|
|
1,510
|
|
|
2,616
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate loans
|
|
1
|
|
|
15
|
|
|
72
|
|
|
35
|
|
|
55
|
|
Commercial real estate loans
|
|
7
|
|
|
4
|
|
|
50
|
|
|
68
|
|
|
74
|
|
Commercial loans
|
|
118
|
|
|
115
|
|
|
252
|
|
|
297
|
|
|
389
|
|
Consumer and home equity loans
|
|
1
|
|
|
135
|
|
|
7
|
|
|
154
|
|
|
210
|
|
HPFC
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loan recoveries
|
|
127
|
|
|
269
|
|
|
381
|
|
|
554
|
|
|
728
|
|
Net charge-offs
|
|
1,714
|
|
|
343
|
|
|
2,887
|
|
|
956
|
|
|
1,888
|
|
ALL at the end of the period
|
|
$
|
23,290
|
|
|
$
|
21,132
|
|
|
$
|
23,290
|
|
|
$
|
21,132
|
|
|
$
|
21,166
|
|
Components of allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
23,290
|
|
|
$
|
21,132
|
|
|
$
|
23,290
|
|
|
$
|
21,132
|
|
|
$
|
21,166
|
|
Liability for unfunded credit commitments
|
|
14
|
|
|
24
|
|
|
14
|
|
|
24
|
|
|
22
|
|
Balance of allowance for credit losses at end of the period
|
|
$
|
23,304
|
|
|
$
|
21,156
|
|
|
$
|
23,304
|
|
|
$
|
21,156
|
|
|
$
|
21,188
|
|
Total loans, excluding loans held for sale
|
|
$
|
2,592,009
|
|
|
$
|
1,830,143
|
|
|
$
|
2,592,009
|
|
|
$
|
1,830,143
|
|
|
$
|
2,490,206
|
|
Average loans
|
|
$
|
2,611,949
|
|
|
$
|
1,823,542
|
|
|
$
|
2,556,568
|
|
|
$
|
1,802,544
|
|
|
$
|
1,948,621
|
|
Net charge-offs (annualized) to average loans
|
|
0.26
|
%
|
|
0.08
|
%
|
|
0.15
|
%
|
|
0.07
|
%
|
|
0.10
|
%
|
Provision for loan losses (annualized) to average loans
|
|
0.20
|
%
|
|
0.06
|
%
|
|
0.26
|
%
|
|
0.07
|
%
|
|
0.10
|
%
|
ALL to total loans
|
|
0.90
|
%
|
|
1.15
|
%
|
|
0.90
|
%
|
|
1.25
|
%
|
|
0.85
|
%
|
ALL to net charge-offs (annualized)
|
|
339.70
|
%
|
|
1,540.23
|
%
|
|
605.04
|
%
|
|
1,657.85
|
%
|
|
1,122.25
|
%
|
The determination of an appropriate level of ALL, and subsequent provision for loan losses which affects earnings, is based on our analysis of various economic factors and review of the loan portfolio. During our analysis and review, many factors are considered including, but not limited to, loan growth, payoffs of lower quality loans, recoveries on previously charged-off loans, improvement in the financial condition of the borrowers, risk rating downgrades/upgrades and charge-offs. We utilize a comprehensive approach toward determining the ALL, which includes an expanded risk rating system to assist us in identifying the risks being undertaken.
For the three and
nine months ended
September 30, 2016
, we provided $1.3 million and $5.0 million of provision for loan loss expense to the ALL compared to $281,000 and $972,000 for the same period for
2015
, respectively. The increase in the provision for loan losses for the third quarter of 2016 compared to the same period of 2015 was driven by the higher concentration of commercial real estate and commercial loans as a percentage of our total loans at September 30, 2016 of 56% compared to 52% at September 30, 2015, as well as higher net charge-offs for HPFC in the third quarter of 2016 of $205,000. For the nine months ended September 30, 2016, the increase in our provision for loan losses over the same period last year was also driven by the
change in our loan mix with a higher concentration of commercial real estate and commercial loans as a percentage of total loans, but also due to 5% annualized loan growth for the nine months ended September 30, 2016 and deterioration of one commercial real estate and one commercial credit accounting for $2.3 million of provision expense recorded in the second quarter of 2016. The commercial credit was an acquired relationship that was previously designated as a non-accrual loan upon acquisition in October 2015. The fair value mark on the acquired relationship estimated within our purchase accounting for the loan was not sufficient, and, thus required incremental provision for loan loss to record the relationship at its estimated value. In the third quarter of 2016, we charged-off the $1.4 million reserve previously established for the aforementioned commercial loan, which drove the 18 basis points increase in our annualized quarter-to-date net charge-off to average loans ratio compared to the third quarter of 2015.
Overall, our asset quality remains strong with non-performing assets to total assets of 0.67%, and loans 30-89 days past due to total loans of 0.17%.
We believe the ALL of $23.3 million, or 0.90% of total loans and 91.35% of total non-performing loans, at
September 30, 2016
was appropriate given the current economic conditions in our service area and the condition of the loan portfolio. However, if conditions deteriorate the provision will likely increase.
Liabilities and Shareholders’ Equity
Deposits and Borrowings.
Total deposits at
September 30, 2016
were $2.9 billion, representing an increase of $162.8 million, or 6%, since year-end. Core deposits (demand, interest checking, savings and money market) at
September 30, 2016
totaled $2.2 billion, representing an increase of $159.7 million, or 11% annualized since year-end. The increase in core deposits was due to the combination of growth and seasonality of our core deposits across our markets throughout Maine (consistent with last year). Brokered deposits at September 30, 2016 of $229.2 million increased $30.1 million since year-end to supplement the decrease in CDs of $27.0 million since year-end.
Shareholders' Equity.
Total shareholders' equity at
September 30, 2016
was
$393.2 million
, representing an increase of $30.0 million, or 8%, since
December 31, 2015
. The increase was largely due to net income of $29.2 million for the nine months ended September 30, 2016 and an increase in the net change on unrealized gains on AFS securities, net of tax, of $10.4 million due to the decrease in interest rates since year-end, partially offset by dividends declared of $0.60 per share for the nine months ended September 30, 2016 of $9.3 million and an increase in the net change on unrealized losses, net of tax, on our interest rate swaps arrangements designated as hedges of $2.5 million due to the decrease in interest rates since year-end.
On August 30, 2016, the Company's Board of Directors approved a three-for-two stock split to be effected in the form of a stock dividend on the Company's common stock. The three-for-two stock split was payable September 30, 2016, to the Company's common shareholders of record on September 15, 2016. As a result of the three-for-two stock split, the Company's historical per share financial information and ratios throughout have been retrospectively adjusted to restate prior period financial information.
The following table presents certain information regarding shareholders’ equity as of or for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Year Ended
December 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2015
|
Return on average assets
|
1.11
|
%
|
|
0.90
|
%
|
|
1.02
|
%
|
|
0.91
|
%
|
|
0.70
|
%
|
Return on average equity
|
11.18
|
%
|
|
9.99
|
%
|
|
10.29
|
%
|
|
10.19
|
%
|
|
7.54
|
%
|
Return on average tangible equity
(1)
|
15.61
|
%
|
|
12.62
|
%
|
|
14.59
|
%
|
|
12.92
|
%
|
|
9.91
|
%
|
Average equity to average assets
|
9.91
|
%
|
|
9.01
|
%
|
|
9.89
|
%
|
|
8.98
|
%
|
|
9.26
|
%
|
Dividend payout ratio
|
28.44
|
%
|
|
47.65
|
%
|
|
31.99
|
%
|
|
39.15
|
%
|
|
50.60
|
%
|
Book value per share
(2)
|
$
|
25.47
|
|
|
$
|
23.20
|
|
|
$
|
25.47
|
|
|
$
|
23.20
|
|
|
$
|
23.69
|
|
Tangible book value per share
(1)(2)
|
$
|
18.87
|
|
|
$
|
18.97
|
|
|
$
|
18.87
|
|
|
$
|
18.97
|
|
|
$
|
16.89
|
|
Dividends declared per share
(2)
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
$
|
0.80
|
|
(1) This is a non-GAAP measure. Refer to "—Non-GAAP Financial Measures and Reconciliation to GAAP" for further details.
(2) Prior periods adjusted to reflect three-for-two stock split effective September 30, 2016.
Refer to "Capital Resources" and Note 8 of the consolidated financial statements further discussion of the Company and Bank's capital resources and regulatory capital requirements.
LIQUIDITY
Our liquidity needs require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet customer needs, as well as to support our asset base. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets in excess of regulatory guidelines in order to satisfy their varied liquidity demands. We monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. As of
September 30, 2016
and
December 31, 2015
, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity available to respond to liquidity demands. Sources of funds that we utilize consist of deposits; borrowings from the FHLBB and other sources; cash flows from operations; prepayments and maturities of outstanding loans; investments and mortgage-backed securities, of which the fair value at
September 30, 2016
of investment securities designated as AFS, were in an unrealized gain position and were not pledged as collateral totaled $207.4 million; and the sale of mortgage loans.
Deposits continue to represent our primary source of funds. For the
nine months
ended
September 30, 2016
, average deposits (excluding brokered deposits) of $2.5 billion increased $798.4 million, or 46%, compared to the same period last year. Average core deposits of $2.0 billion for the
nine
months ended
September 30, 2016
increased $619.2 million, or 44%, compared to the same period a year ago due to the core deposits acquired in connection with the SBM acquisition of $497.4 million on October 16, 2015, as well as organic growth. Included within our money market deposit category are deposits from our wealth management subsidiary, Acadia Trust, which represent client funds. The deposits in the Acadia Trust client accounts, totaled $64.0 million at
September 30, 2016
. These deposits fluctuate with changes in the portfolios of the clients of Acadia Trust.
Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings and advances from the FHLBB, we utilize brokered deposits, purchase federal funds, and sell securities under agreements to repurchase. For the
nine
months ended
September 30, 2016
average total borrowings (including brokered deposits) increased $69.3 million to $865.5 million compared to the same period last year. We secure borrowings from the FHLBB, whose advances remain the largest non-deposit-related funding source, with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with PNC Bank of $50.0 million, and with the FRB Discount Window of $74.6 million as of
September 30, 2016
. We had no outstanding balances on these lines of credit at
September 30, 2016
. Long-term borrowings represent securities sold under repurchase agreements with major brokerage firms. Both wholesale and customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. The Company also has a $10.0 million line of credit with a maturity date of December 20, 2016. We had no outstanding balance on these lines of credit at
September 30, 2016
.
We believe the investment portfolio and residential loan portfolio provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. We also believe that we have additional untapped access to the brokered deposit market, wholesale reverse repurchase transaction market and the FRB discount window. These sources are considered as liquidity alternatives in our contingent liquidity plan. We believe that the level of liquidity is sufficient to meet current and future funding requirements; however, changes in economic conditions, including consumer saving habits and the availability or access to the national brokered deposit and wholesale repurchase markets, could significantly impact our liquidity position.
CAPITAL RESOURCES
As part of our goal to operate a safe, sound and profitable financial organization, we are committed to maintaining a strong capital base. Shareholders’ equity totaled $393.2 million, $363.2 million and $259.4 million at
September 30, 2016
, December 31, 2015 and
September 30, 2015
, respectively, which amounted to 10%, 10% and 9%, respectively, of total assets as of the respective dates. Refer to "— Financial Condition — Liabilities and Shareholders' Equity" for discussion regarding changes in shareholders' equity since
December 31, 2015
.
Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Board of Directors. We declared dividends to shareholders in the aggregate amount of $9.3 million, $7.6 million and $6.0 million for the
nine
months ended
September 30, 2016
,
2015
and 2014, respectively. The increase in dividends declared in the first nine months of
2016
of $1.7 million compared to the first nine months of
2015
was primarily due to the increase in common shares outstanding in connection with the SBM acquisition for which 4.1 million shares were issued, as adjusted for the three-for-two stock split effective September 30, 2016. Our Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company have been and will be in compliance with applicable state corporate law and regulatory requirements.
We are primarily dependent upon the payment of cash dividends by our subsidiaries to service our commitments. We, as the sole shareholder of our subsidiaries, are entitled to dividends, when and as declared by each subsidiary’s Board of Directors from legally available funds. The Bank declared dividends to the Company in the aggregate amount of $10.9 million, $39.2 million, which includes a $30.0 million special dividend related to the acquisition of SBM, and $9.5 million for the
nine
months ended
September 30, 2016
,
2015
and 2014, respectively. Under regulations prescribed by the OCC, without prior OCC approval, the Bank may not declare dividends in any year in excess of the Bank’s (i) net income for the current year, (ii) plus its retained net income for the prior two years. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.
Please refer to Note 8 of the consolidated financial statements for discussion and details of the Company and Bank's capital regulatory requirements. At
September 30, 2016
and
December 31, 2015
, the Company and Bank met all regulatory capital requirements and the Bank continues to be classified as "well capitalized" under the prompt correction action provisions.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
In the normal course of business, we are a party to credit-related financial instruments with off-balance sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments include lending commitments and letters of credit. Those instruments involve varying degrees of credit risk in excess of the amount recognized in the consolidated statements of condition. We follow the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments, including requiring similar collateral or other security to support financial instruments with credit risk. Our exposure to credit loss in the event of nonperformance by the customer is represented by the contractual amount of those instruments. Since many of the commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. At
September 30, 2016
, we had the following levels of commitments to extend credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount
|
|
Commitment Expires in:
|
|
|
Committed
|
|
<1 Year
|
|
1 – 3 Years
|
|
4 – 5 Years
|
|
>5 Years
|
Home equity line of credit commitments
|
|
$
|
469,849
|
|
|
$
|
187,843
|
|
|
$
|
19,778
|
|
|
$
|
9,185
|
|
|
$
|
253,043
|
|
Commercial commitment letters
|
|
55,663
|
|
|
55,663
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential loan origination
|
|
23,341
|
|
|
23,341
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Letters of credit
|
|
2,905
|
|
|
2,905
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other commitments to extend credit
|
|
451
|
|
|
451
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
552,209
|
|
|
$
|
270,203
|
|
|
$
|
19,778
|
|
|
$
|
9,185
|
|
|
$
|
253,043
|
|
We are a party to several on- and off-balance sheet contractual obligations through various borrowing agreements and lease agreements on a number of branch facilities. We have an obligation and commitment to make future payments under these contracts. At
September 30, 2016
, we had the following levels of contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount
|
|
Payments Due per Period
|
(Dollars in Thousands)
|
|
of Obligations
|
|
<1 Year
|
|
1 – 3 Years
|
|
4 – 5 Years
|
|
>5 Years
|
Operating leases
|
|
$
|
7,031
|
|
|
$
|
1,492
|
|
|
$
|
2,389
|
|
|
$
|
1,260
|
|
|
$
|
1,890
|
|
Capital leases
|
|
1,222
|
|
|
126
|
|
|
253
|
|
|
255
|
|
|
588
|
|
FHLBB borrowings - overnight
|
|
16,200
|
|
|
16,200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
FHLBB borrowings - advances
|
|
250,000
|
|
|
240,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
Retail repurchase agreements
|
|
228,464
|
|
|
228,464
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial repurchase agreements
|
|
5,019
|
|
|
5,019
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Subordinated debentures
|
|
58,716
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58,716
|
|
Other contractual obligations
|
|
2,398
|
|
|
2,398
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
569,050
|
|
|
$
|
493,699
|
|
|
$
|
2,642
|
|
|
$
|
11,515
|
|
|
$
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61,194
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Borrowings from the FHLBB consist of short- and long-term fixed- and variable-rate borrowings and are collateralized by all stock in the FHLBB and a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain pledged investment securities and other qualified assets. We have an obligation and commitment to repay all borrowings and debentures. These commitments, borrowings, subordinated debentures and the related payments are made during the normal course of business.
Derivatives
Hedge Instruments:
From time to time, we may enter into derivative instruments as partial hedges against large fluctuations in interest rates. We may also enter into fixed-rate interest rate swaps and floor instruments to partially hedge against potentially lower yields on the variable prime rate loan category in a declining rate environment. If interest rates were to decline, resulting in reduced income on the adjustable rate loans, there would be an increased income flow from the interest rate swap and floor instrument. We may also enter into variable rate interest rate swaps and cap instruments to partially hedge against increases in short-term borrowing rates. If interest rates were to rise, resulting in an increased interest cost, there would be an increased income flow from the interest rate swaps and cap instruments. These financial instruments are factored into our overall interest rate risk position. We regularly review the credit quality of the counterparty from which the instruments have been purchased.
At
September 30, 2016
and December 31, 2015, we had $43.0 million of notional in interest rate swaps on our junior subordinated debentures. The arrangement allowed us to fix our floating rate debentures and mitigate our interest exposure in a rising rate environment. At
September 30, 2016
and December 31, 2015, the interest rate swaps were in a loss position of $12.7 million and $9.2 million, respectively, and were recorded as a liability within our consolidated statements of condition.
At
September 30, 2016
and December 31, 2015, we had $50.0 million of notional on two tranches of 30-day FHLBB advances. Each derivative arrangement commenced on February 25, 2016, with one contract set to expire on February 25, 2018 and the other on February 25, 2019. We entered into these interest rate swaps to mitigate our interest rate exposure on borrowings in a rising interest rate environment. At
September 30, 2016
and December 31, 2015, the interest rate swaps were in a loss position of $847,000 and $576,000 and were recorded as a liability within our consolidated statements of condition.
Refer to Note 15 of the consolidated financial statements for further details.
Customer Loan Swaps:
In our normal course lending with commercial real estate customers, we will enter into interest rate swaps with qualifying commercial customers, from time to time, to provide them with a means to lock into a long-term fixed rate, while simultaneously entering into an arrangement with a counterparty to swap the long-term fixed rate loan to variable rate to allow us to effectively manage our interest rate exposure. Unlike the aforementioned cash flow hedges above, these arrangements are not designated as hedges and provide little risk to us as the interest rate swap agreements have substantially equivalent and offsetting terms. We mitigate our commercial customer counterparty credit risk exposure through our loan policy and underwriting process, which includes credit approval limits, monitoring procedures, and obtaining collateral, where appropriate. We mitigate our institutional counterparty credit risk exposure by limiting the institutions for which we will enter into interest swap arrangements through an approved listing by the Company's board of directors.
At
September 30, 2016
and December 31, 2015, we had a notional amount of $269.0 million and $142.9 million, respectively, in interest rate swap agreements with commercial customers and an equal notional amount with a dealer bank related to our commercial loan swap program. At
September 30, 2016
and December 31, 2015, the fair value of these arrangements were $14.2 million and $3.2 million, respectively, and were recorded gross on our consolidated statements of condition as assets and liabilities. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not materially change our interest rate risk or present any material exposure to our consolidated statements of income.
Refer to Note 15 of the consolidated financial statements for further details.
Interest Rate Locks:
As part of our normal mortgage origination process, we provide potential borrowers with the option to lock their interest rate based on current market prices. During the period from commitment date to the loan closing date, we are subject to interest rate risk as market rates fluctuate. In an effort to mitigate such risk, we may enter into forward delivery sales commitments, typically on a "best-efforts" basis, with certain approved investors.
At
September 30, 2016
and December 31, 2015, we had a notional amount of $55.2 million and $20.7 million, respectively, of interest rate lock commitments on mortgages within our loan pipeline. At
September 30, 2016
and December 31, 2015, the fair value of our interest rate locks was $749,000 and $139,000, respectively, and was recorded as assets on our consolidated statements of condition. For the
three and nine
months ended
September 30,
2016 and 2015, we recorded the change in unrealized gains on these interest rate lock commitments of $226,000, $610,000, $14,000 and $33,000, respectively, within mortgage banking income (net) on the consolidated statements of income.
Refer to Note 15 of the consolidated financial statements for further details.