NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements (the “financial statements”) of Berkshire Hills Bancorp, Inc. and its subsidiaries (the “Company” or “Berkshire”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is a Delaware corporation and the holding company for Berkshire Bank (the “Bank”), a Massachusetts-chartered trust company headquartered in Boston, Massachusetts, and Berkshire Insurance Group, Inc. These financial statements include the accounts of the Company, its wholly-owned subsidiaries and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. All material wholly-owned and majority-owned subsidiaries are consolidated unless GAAP requires otherwise.
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.
These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures Berkshire Hills Bancorp, Inc. previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In management’s opinion, all adjustment’s necessary for a fair statement are reflected in the interim periods presented.
Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation.
Prior Period Acquisition
T
he Company completed the acquisition of Commerce Bancshares Corp. (“Commerce”), the parent company of Commerce Bank & Trust Company (“Commerce Bank”), at the close of business on October 13, 2017. With this acquisition, the Company established a market position in Worcester, New England’s second largest city. Additionally, this acquisition was a catalyst for the Company’s decision to relocate its corporate headquarters to Boston and to expand its Greater Boston market initiatives. This acquisition also increased the Company’s total assets over the $10 billion Dodd Frank Act threshold for additional regulatory requirements.
The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Due to the complexity in valuing the acquired loans and the significant amount of data inputs required, the valuation of the loans is not yet final. Fair value estimates are based on the information available, and are subject to change up to one year after the closing date of the acquisition as additional information relative to the closing date fair values become available. In the first quarter of 2018 the Company did not recognize a material measurement period adjustment. Management continues to review initial estimates on certain areas such as loan valuations and the deferred tax asset.
Recently Adopted Accounting Principles
Effective January 1, 2018, the following new accounting guidance was adopted by the Company:
|
|
•
|
ASU No. 2014-09, Revenue from Contracts with Customers (additional information is disclosed in Note 14 - Revenue of the Consolidated Financial Statements);
|
|
|
•
|
ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities
|
The adoption of these accounting standards did not have a material impact on the Company's financial statements.
In February 2018, the FASB issued ASU No. 2018-02, “Income statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” which will allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
resulting from the Tax Cuts and Jobs Act of 2017. These amendments are effective for all entities for fiscal years beginning after December 15, 2018. For interim periods within those fiscal years, early adoption of the amendment is permitted including public business entities for reporting periods for which financial statements have not yet been issued. The Company elected to early adopt ASU 2018-02 during the first quarter of 2018, and elected to reclassify the income tax effects of the Tax Cuts and Jobs Act of 2017 from AOCI to retained earnings. The reclassification increased AOCI and decreased retained earnings by
$896 thousand
, with no net effect on total shareholders’ equity.
Future Application of Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The new pronouncement improves the transparency and comparability of financial reporting around leasing transactions and more closely aligns accounting for leases with the recently issued International Financial Reporting Standard. The pronouncement affects all entities that are participants to leasing agreements. From a lessee accounting perspective, the ASU requires a lessee to recognize assets and liabilities on the balance sheet for operating leases and changes many key definitions, including the definition of a lease. The ASU includes a short-term lease exception for leases with a term of twelve months or less, in which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases, using classification criteria that are substantially similar to the previous guidance. For lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. From a lessor accounting perspective, the guidance is largely unchanged, except for targeted improvements to align with new terminology under lessee accounting and with the updated revenue recognition guidance in Topic 606. For sale-leaseback transactions, for a sale to occur the transfer must meet the sale criteria under the new revenue standard, ASC 606. Entities will not be required to reassess transactions previously accounted under then existing guidance.
Additionally, the ASU includes additional quantitative and qualitative disclosures required by lessees and lessors to help users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years beginning after December 31, 2018, and interim periods within those fiscal years. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply as well as transition guidance specific to nonstandard leasing transactions. The Company is currently evaluating the provisions of ASU No. 2016-02 to determine the potential impact the new standard will have on the Company's consolidated financial statements. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, this is not expected to be material to the Company's results of operations or financial position. The Company continues to identify a complete inventory of arrangements containing a lease and accumulating the lease data necessary to apply the guidance. We will continue to review contracts up through the effective date and may identify additional leases or leases embedded in arrangements that will be within the scope of the new guidance.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. The ASU requires companies to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Forward-looking information will now be used in credit loss estimates. The ASU requires enhanced disclosures to provide better understanding surrounding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of a company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Most debt instruments will require a cumulative-effect adjustment to retained earnings on the statement of financial position as of the beginning of the first reporting period in which the guidance is adopted (modified retrospective approach). However, there is instrument-specific transition guidance. ASU No. 2016-13 is effective for interim and annual periods beginning after December 15, 2019. Early application will be permitted for interim and annual periods beginning after December 15, 2018. The Company is evaluating the provisions of ASU No. 2016-13, and will closely monitor developments and additional
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
guidance to determine the potential impact on the Company's consolidated financial statements. The Company expects the primary changes to be the application of the expected credit loss model to the financial statements. In addition, the Company expects the guidance to change the presentation of credit losses within the available-for-sale fixed maturities portfolio through an allowance method rather than as a direct write-down. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. The allowance method for available-for-sale debt securities will allow the Company to record reversals of credit losses if the estimate of credit losses declines. The Company is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment.” The ASU simplifies the test for goodwill impairment by eliminating the second step of the current two-step method. Under the new accounting guidance, entities will compare the fair value of a reporting unit with its carrying amount. If the carrying amount exceeds the reporting unit’s fair value, the entity is required to recognize an impairment charge for this amount. Current guidance requires an entity to proceed to a second step, whereby the entity would determine the fair value of its assets and liabilities. The new method applies to all reporting units. The performance of a qualitative assessment is still allowable. This accounting guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect adoption to have a material effect on our consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.” The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU No. 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption. While the Company continues to assess all potential impacts of the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. TRADING SECURITY
The Company holds a tax advantaged economic development bond accounted for at fair value. The security had an amortized cost of
$10.6 million
and
$10.8 million
, and a fair value of
$11.8 million
and
$12.3 million
, at
March 31, 2018
and
December 31, 2017
, respectively. As discussed further in Note 11 - Derivative Financial Instruments and Hedging Activities, the Company entered into a swap contract to swap-out the fixed rate of the security in exchange for a variable rate. The Company does not purchase securities with the intent of selling them in the near term, and there were
no
other securities in the trading portfolio at
March 31, 2018
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES AVAILABLE FOR SALE, HELD TO MATURITY, AND OTHER
As the Company adopted ASU-2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" during the current period, all changes in the fair value of marketable equity securities, including other-than-temporary impairment, are immediately recognized in earnings.
The following is a summary of securities available for sale, held to maturity, and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
112,857
|
|
|
$
|
2,784
|
|
|
$
|
(721
|
)
|
|
$
|
114,920
|
|
Agency collateralized mortgage obligations
|
|
932,723
|
|
|
29
|
|
|
(19,816
|
)
|
|
912,936
|
|
Agency mortgage-backed securities
|
|
195,526
|
|
|
95
|
|
|
(5,523
|
)
|
|
190,098
|
|
Agency commercial mortgage-backed securities
|
|
63,561
|
|
|
—
|
|
|
(3,003
|
)
|
|
60,558
|
|
Corporate bonds
|
|
100,963
|
|
|
861
|
|
|
(32
|
)
|
|
101,792
|
|
Trust preferred securities
|
|
11,297
|
|
|
266
|
|
|
—
|
|
|
11,563
|
|
Other bonds and obligations
|
|
9,473
|
|
|
104
|
|
|
(45
|
)
|
|
9,532
|
|
Total debt securities
|
|
1,426,400
|
|
|
4,139
|
|
|
(29,140
|
)
|
|
1,401,399
|
|
Other securities:
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
59,261
|
|
|
—
|
|
|
—
|
|
|
59,261
|
|
Total securities available for sale and other
|
|
1,485,661
|
|
|
4,139
|
|
|
(29,140
|
)
|
|
1,460,660
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
269,636
|
|
|
4,251
|
|
|
(2,980
|
)
|
|
270,907
|
|
Agency collateralized mortgage obligations
|
|
73,207
|
|
|
433
|
|
|
(1,078
|
)
|
|
72,562
|
|
Agency mortgage-backed securities
|
|
7,712
|
|
|
—
|
|
|
(316
|
)
|
|
7,396
|
|
Agency commercial mortgage-backed securities
|
|
10,465
|
|
|
—
|
|
|
(509
|
)
|
|
9,956
|
|
Tax advantaged economic development bonds
|
|
33,996
|
|
|
361
|
|
|
(1,203
|
)
|
|
33,154
|
|
Other bonds and obligations
|
|
321
|
|
|
—
|
|
|
—
|
|
|
321
|
|
Total securities held to maturity
|
|
395,337
|
|
|
5,045
|
|
|
(6,086
|
)
|
|
394,296
|
|
Total
|
|
$
|
1,880,998
|
|
|
$
|
9,184
|
|
|
$
|
(35,226
|
)
|
|
$
|
1,854,956
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
113,427
|
|
|
$
|
5,012
|
|
|
$
|
(206
|
)
|
|
$
|
118,233
|
|
Agency collateralized mortgage obligations
|
|
859,705
|
|
|
397
|
|
|
(8,944
|
)
|
|
851,158
|
|
Agency mortgage-backed securities
|
|
218,926
|
|
|
279
|
|
|
(2,265
|
)
|
|
216,940
|
|
Agency commercial mortgage-backed securities
|
|
64,025
|
|
|
41
|
|
|
(1,761
|
)
|
|
62,305
|
|
Corporate bonds
|
|
110,076
|
|
|
882
|
|
|
(237
|
)
|
|
110,721
|
|
Trust preferred securities
|
|
11,334
|
|
|
343
|
|
|
—
|
|
|
11,677
|
|
Other bonds and obligations
|
|
9,757
|
|
|
154
|
|
|
(31
|
)
|
|
9,880
|
|
Total debt securities
|
|
1,387,250
|
|
|
7,108
|
|
|
(13,444
|
)
|
|
1,380,914
|
|
Other securities:
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
36,483
|
|
|
9,211
|
|
|
(509
|
)
|
|
45,185
|
|
Total securities available for sale and other
|
|
1,423,733
|
|
|
16,319
|
|
|
(13,953
|
)
|
|
1,426,099
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
270,310
|
|
|
8,675
|
|
|
(90
|
)
|
|
278,895
|
|
Agency collateralized mortgage obligations
|
|
73,742
|
|
|
1,045
|
|
|
(486
|
)
|
|
74,301
|
|
Agency mortgage-backed securities
|
|
7,892
|
|
|
—
|
|
|
(164
|
)
|
|
7,728
|
|
Agency commercial mortgage-backed securities
|
|
10,481
|
|
|
—
|
|
|
(268
|
)
|
|
10,213
|
|
Tax advantaged economic development bonds
|
|
34,357
|
|
|
596
|
|
|
(1,135
|
)
|
|
33,818
|
|
Other bonds and obligations
|
|
321
|
|
|
—
|
|
|
—
|
|
|
321
|
|
Total securities held to maturity
|
|
397,103
|
|
|
10,316
|
|
|
(2,143
|
)
|
|
405,276
|
|
Total
|
|
$
|
1,820,836
|
|
|
$
|
26,635
|
|
|
$
|
(16,096
|
)
|
|
$
|
1,831,375
|
|
The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at
March 31, 2018
are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
Held to maturity
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
Within 1 year
|
|
$
|
387
|
|
|
$
|
388
|
|
|
$
|
15,013
|
|
|
$
|
15,336
|
|
Over 1 year to 5 years
|
|
33,130
|
|
|
33,297
|
|
|
13,189
|
|
|
13,174
|
|
Over 5 years to 10 years
|
|
75,568
|
|
|
76,746
|
|
|
7,999
|
|
|
8,079
|
|
Over 10 years
|
|
125,505
|
|
|
127,376
|
|
|
267,752
|
|
|
267,793
|
|
Total bonds and obligations
|
|
234,590
|
|
|
237,807
|
|
|
303,953
|
|
|
304,382
|
|
Mortgage-backed securities
|
|
1,191,810
|
|
|
1,163,592
|
|
|
91,384
|
|
|
89,914
|
|
Total
|
|
$
|
1,426,400
|
|
|
$
|
1,401,399
|
|
|
$
|
395,337
|
|
|
$
|
394,296
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months
|
|
Over Twelve Months
|
|
Total
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
128
|
|
|
$
|
4,399
|
|
|
$
|
593
|
|
|
$
|
8,582
|
|
|
$
|
721
|
|
|
$
|
12,981
|
|
Agency collateralized mortgage obligations
|
|
16,667
|
|
|
816,169
|
|
|
3,149
|
|
|
78,858
|
|
|
19,816
|
|
|
895,027
|
|
Agency mortgage-backed securities
|
|
2,715
|
|
|
123,776
|
|
|
2,808
|
|
|
62,093
|
|
|
5,523
|
|
|
185,869
|
|
Agency commercial mortgage-backed securities
|
|
268
|
|
|
13,647
|
|
|
2,735
|
|
|
46,911
|
|
|
3,003
|
|
|
60,558
|
|
Corporate bonds
|
|
32
|
|
|
7,544
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
7,544
|
|
Other bonds and obligations
|
|
18
|
|
|
1,084
|
|
|
27
|
|
|
1,997
|
|
|
45
|
|
|
3,081
|
|
Total securities available for sale
|
|
19,828
|
|
|
966,619
|
|
|
9,312
|
|
|
198,441
|
|
|
29,140
|
|
|
1,165,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
2,779
|
|
|
112,585
|
|
|
201
|
|
|
1,915
|
|
|
2,980
|
|
|
114,500
|
|
Agency collateralized mortgage obligations
|
|
444
|
|
|
32,112
|
|
|
634
|
|
|
12,317
|
|
|
1,078
|
|
|
44,429
|
|
Agency mortgage-backed securities
|
|
—
|
|
|
—
|
|
|
316
|
|
|
7,397
|
|
|
316
|
|
|
7,397
|
|
Agency commercial mortgage-backed securities
|
|
—
|
|
|
—
|
|
|
509
|
|
|
9,956
|
|
|
509
|
|
|
9,956
|
|
Tax advantaged economic development bonds
|
|
1,203
|
|
|
15,712
|
|
|
—
|
|
|
—
|
|
|
1,203
|
|
|
15,712
|
|
Total securities held to maturity
|
|
4,426
|
|
|
160,409
|
|
|
1,660
|
|
|
31,585
|
|
|
6,086
|
|
|
191,994
|
|
Total
|
|
$
|
24,254
|
|
|
$
|
1,127,028
|
|
|
$
|
10,972
|
|
|
$
|
230,026
|
|
|
$
|
35,226
|
|
|
$
|
1,357,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
206
|
|
|
$
|
8,985
|
|
|
$
|
206
|
|
|
$
|
8,985
|
|
Agency collateralized mortgage obligations
|
|
6,849
|
|
|
655,479
|
|
|
2,095
|
|
|
80,401
|
|
|
8,944
|
|
|
735,880
|
|
Agency mortgage-backed securities
|
|
765
|
|
|
95,800
|
|
|
1,500
|
|
|
65,323
|
|
|
2,265
|
|
|
161,123
|
|
Agency commercial mortgage-backed securities
|
|
334
|
|
|
17,379
|
|
|
1,427
|
|
|
39,268
|
|
|
1,761
|
|
|
56,647
|
|
Corporate bonds
|
|
1
|
|
|
328
|
|
|
236
|
|
|
15,769
|
|
|
237
|
|
|
16,097
|
|
Trust preferred securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other bonds and obligations
|
|
11
|
|
|
1,096
|
|
|
20
|
|
|
2,004
|
|
|
31
|
|
|
3,100
|
|
Total securities available for sale
|
|
7,960
|
|
|
770,082
|
|
|
5,484
|
|
|
211,750
|
|
|
13,444
|
|
|
981,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
|
35
|
|
|
10,213
|
|
|
55
|
|
|
2,059
|
|
|
90
|
|
|
12,272
|
|
Agency collateralized mortgage obligations
|
|
—
|
|
|
—
|
|
|
486
|
|
|
12,946
|
|
|
486
|
|
|
12,946
|
|
Agency mortgage-backed securities
|
|
—
|
|
|
—
|
|
|
164
|
|
|
7,728
|
|
|
164
|
|
|
7,728
|
|
Agency commercial mortgage-backed securities
|
|
—
|
|
|
—
|
|
|
268
|
|
|
10,213
|
|
|
268
|
|
|
10,213
|
|
Tax advantaged economic development bonds
|
|
1,135
|
|
|
7,305
|
|
|
—
|
|
|
—
|
|
|
1,135
|
|
|
7,305
|
|
Total securities held to maturity
|
|
1,170
|
|
|
17,518
|
|
|
973
|
|
|
32,946
|
|
|
2,143
|
|
|
50,464
|
|
Total
|
|
$
|
9,130
|
|
|
$
|
787,600
|
|
|
$
|
6,457
|
|
|
$
|
244,696
|
|
|
$
|
15,587
|
|
|
$
|
1,032,296
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of
March 31, 2018
, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.
The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at
March 31, 2018
:
AFS municipal bonds and obligations
At March 31, 2018,
13
of the total
258
securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented
5.3%
of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
AFS collateralized mortgage obligations
At
March 31, 2018
,
229
out of the total
243
securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented
2.2%
of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s collateralized mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
AFS commercial and residential mortgage-backed securities
At
March 31, 2018
,
73
out of the total
101
securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented
3.3%
of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
AFS corporate bonds
At
March 31, 2018
,
4
out of the total
20
securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents
0.2%
of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities.
AFS other bonds and obligations
At
March 31, 2018
,
6
out of the total
9
securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented
1.5%
of the amortized cost of securities in unrealized loss positions. The securities are all investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM Municipal bonds and obligations
At
March 31, 2018
,
73
of the
227
securities in the Company’s portfolio of municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented
2.5%
of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
HTM collateralized mortgage obligations
At
March 31, 2018
,
4
of the
9
securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented
4.1%
of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.
HTM commercial and residential mortgage-backed securities
At
March 31, 2018
,
2
out of a total of
2
securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented
4.5%
of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s residential mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
HTM tax-advantaged economic development bonds
At March 31, 2018,
3
out of the total
7
securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented
7.1%
of the amortized cost of the security in an unrealized loss position. One of the above mentioned tax advantaged economic bond was downgraded to special mention during 2017. The Company believes that more likely than not all the principal outstanding will be collected. All securities are performing.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS
The Company’s loan portfolio is segregated into the following segments: commercial real estate, commercial and industrial, residential mortgage, and consumer. Commercial real estate loans include construction, single and multi-family, and other commercial real estate classes. Residential mortgage loans include classes for 1-4 family owner occupied and construction loans. Consumer loans include home equity, direct and indirect auto, and other. These portfolio segments each have unique risk characteristics that are considered when determining the appropriate level for the allowance for loan losses. A substantial portion of the loan portfolio is secured by real estate in Massachusetts, southern Vermont, northeastern New York, New Jersey and in the Bank’s other New England lending areas. The ability of many of the Bank’s borrowers to honor their contracts is dependent, among other things, on the specific economy and real estate markets of these areas.
Total loans include business activity loans and acquired loans. Acquired loans are those loans acquired from Commerce Bank and Trust Company, First Choice Bank, Parke Bank, Firestone Financial Corp., Hampden Bancorp, Inc., the New York branch acquisition, Beacon Federal Bancorp, Inc., The Connecticut Bank and Trust Company, Legacy Bancorp, Inc., and Rome Bancorp, Inc. Acquired loans that are refinanced are transferred to business activity loans. Business activity and acquired loans are serviced, managed, and accounted for under the Company's same control environment. The following is a summary of total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
(In thousands)
|
Business
Activities Loans
|
Acquired
Loans
|
Total
|
|
Business
Activities Loans
|
Acquired
Loans
|
Total
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
255,835
|
|
$
|
91,468
|
|
$
|
347,303
|
|
|
$
|
269,206
|
|
$
|
84,965
|
|
$
|
354,171
|
|
Single and multi-family
|
345,180
|
|
197,040
|
|
542,220
|
|
|
217,083
|
|
206,082
|
|
423,165
|
|
Other commercial real estate
|
1,680,488
|
|
696,726
|
|
2,377,214
|
|
|
1,731,418
|
|
755,988
|
|
2,487,406
|
|
Total commercial real estate
|
2,281,503
|
|
985,234
|
|
3,266,737
|
|
|
2,217,707
|
|
1,047,035
|
|
3,264,742
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans:
|
1,195,642
|
|
623,332
|
|
1,818,974
|
|
|
1,182,569
|
|
621,370
|
|
1,803,939
|
|
|
|
|
|
|
|
|
|
Total commercial loans
|
3,477,145
|
|
1,608,566
|
|
5,085,711
|
|
|
3,400,276
|
|
1,668,405
|
|
5,068,681
|
|
|
|
|
|
|
|
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
1,900,592
|
|
274,890
|
|
2,175,482
|
|
|
1,808,024
|
|
289,373
|
|
2,097,397
|
|
Construction
|
6,121
|
|
204
|
|
6,325
|
|
|
5,177
|
|
233
|
|
5,410
|
|
Total residential mortgages
|
1,906,713
|
|
275,094
|
|
2,181,807
|
|
|
1,813,201
|
|
289,606
|
|
2,102,807
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
291,094
|
|
109,019
|
|
400,113
|
|
|
294,954
|
|
115,227
|
|
410,181
|
|
Auto and other
|
607,726
|
|
101,060
|
|
708,786
|
|
|
603,767
|
|
113,902
|
|
717,669
|
|
Total consumer loans
|
898,820
|
|
210,079
|
|
1,108,899
|
|
|
898,721
|
|
229,129
|
|
1,127,850
|
|
|
|
|
|
|
|
|
|
Total loans
|
$
|
6,282,678
|
|
$
|
2,093,739
|
|
$
|
8,376,417
|
|
|
$
|
6,112,198
|
|
$
|
2,187,140
|
|
$
|
8,299,338
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amount of the acquired loans at
March 31, 2018
totaled
$2.1 billion
. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of
$93.6 million
(and a note balance of
$202.8 million
). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Loans considered not credit-impaired at acquisition date had a carrying amount of
$2.0 billion
.
At December 31, 2017, acquired loans maintained a carrying value of
$2.2 billion
and purchased credit-impaired loans totaled
$97.3 million
(note balance of
$208.7
million). Loans considered not credit-impaired at acquisition date had a carrying amount of
$2.1 billion
.
The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2018
|
|
2017
|
Balance at beginning of period
|
|
$
|
11,561
|
|
|
$
|
8,738
|
|
Reclassification from nonaccretable difference for loans with improved cash flows
|
|
1,742
|
|
|
418
|
|
Change in cash flows that do not affect nonaccretable difference
|
|
(188
|
)
|
|
(747
|
)
|
Accretion
|
|
(2,723
|
)
|
|
(1,046
|
)
|
Balance at end of period
|
|
$
|
10,392
|
|
|
$
|
7,363
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of past due loans at
March 31, 2018
and December 31, 2017:
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90
Days or Greater Past
Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
|
|
Past Due >
90 days and
Accruing
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
255,835
|
|
|
$
|
255,835
|
|
|
$
|
—
|
|
Single and multi-family
|
|
—
|
|
|
—
|
|
|
443
|
|
|
443
|
|
|
344,737
|
|
|
345,180
|
|
|
10
|
|
Other commercial real estate
|
|
1,673
|
|
|
15,305
|
|
|
5,580
|
|
|
22,558
|
|
|
1,657,930
|
|
|
1,680,488
|
|
|
64
|
|
Total
|
|
1,673
|
|
|
15,305
|
|
|
6,023
|
|
|
23,001
|
|
|
2,258,502
|
|
|
2,281,503
|
|
|
74
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,492
|
|
|
1,275
|
|
|
5,876
|
|
|
8,643
|
|
|
1,186,999
|
|
|
1,195,642
|
|
|
4
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
861
|
|
|
543
|
|
|
2,465
|
|
|
3,869
|
|
|
1,896,723
|
|
|
1,900,592
|
|
|
425
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,121
|
|
|
6,121
|
|
|
—
|
|
Total
|
|
861
|
|
|
543
|
|
|
2,465
|
|
|
3,869
|
|
|
1,902,844
|
|
|
1,906,713
|
|
|
425
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
161
|
|
|
99
|
|
|
2,695
|
|
|
2,955
|
|
|
288,139
|
|
|
291,094
|
|
|
97
|
|
Auto and other
|
|
2,174
|
|
|
695
|
|
|
1,774
|
|
|
4,643
|
|
|
603,083
|
|
|
607,726
|
|
|
112
|
|
Total
|
|
2,335
|
|
|
794
|
|
|
4,469
|
|
|
7,598
|
|
|
891,222
|
|
|
898,820
|
|
|
209
|
|
Total
|
|
$
|
6,361
|
|
|
$
|
17,917
|
|
|
$
|
18,833
|
|
|
$
|
43,111
|
|
|
$
|
6,239,567
|
|
|
$
|
6,282,678
|
|
|
$
|
712
|
|
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90
Days or Greater Past
Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
|
|
Past Due >
90 days and
Accruing
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
269,206
|
|
|
$
|
269,206
|
|
|
$
|
—
|
|
Single and multi-family
|
|
—
|
|
|
—
|
|
|
451
|
|
|
451
|
|
|
216,632
|
|
|
217,083
|
|
|
—
|
|
Other commercial real estate
|
|
1,925
|
|
|
48
|
|
|
5,023
|
|
|
6,996
|
|
|
1,724,422
|
|
|
1,731,418
|
|
|
457
|
|
Total
|
|
1,925
|
|
|
48
|
|
|
5,474
|
|
|
7,447
|
|
|
2,210,260
|
|
|
2,217,707
|
|
|
457
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
4,031
|
|
|
1,912
|
|
|
6,023
|
|
|
11,966
|
|
|
1,170,603
|
|
|
1,182,569
|
|
|
128
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
2,412
|
|
|
242
|
|
|
2,186
|
|
|
4,840
|
|
|
1,803,184
|
|
|
1,808,024
|
|
|
520
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,177
|
|
|
5,177
|
|
|
—
|
|
Total
|
|
2,412
|
|
|
242
|
|
|
2,186
|
|
|
4,840
|
|
|
1,808,361
|
|
|
1,813,201
|
|
|
520
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
444
|
|
|
1,235
|
|
|
1,747
|
|
|
3,426
|
|
|
291,528
|
|
|
294,954
|
|
|
120
|
|
Auto and other
|
|
3,389
|
|
|
599
|
|
|
1,597
|
|
|
5,585
|
|
|
598,182
|
|
|
603,767
|
|
|
143
|
|
Total
|
|
3,833
|
|
|
1,834
|
|
|
3,344
|
|
|
9,011
|
|
|
889,710
|
|
|
898,721
|
|
|
263
|
|
Total
|
|
$
|
12,201
|
|
|
$
|
4,036
|
|
|
$
|
17,027
|
|
|
$
|
33,264
|
|
|
$
|
6,078,934
|
|
|
$
|
6,112,198
|
|
|
$
|
1,368
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90
Days or Greater Past
Due
|
|
Total Past
Due
|
|
Acquired
Credit
Impaired
|
|
Total Loans
|
|
Past Due >
90 days and
Accruing
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,651
|
|
|
$
|
91,468
|
|
|
$
|
—
|
|
Single and multi-family
|
|
185
|
|
|
—
|
|
|
228
|
|
|
413
|
|
|
2,530
|
|
|
197,040
|
|
|
—
|
|
Other commercial real estate
|
|
225
|
|
|
—
|
|
|
4,958
|
|
|
5,183
|
|
|
37,704
|
|
|
696,726
|
|
|
1,050
|
|
Total
|
|
410
|
|
|
—
|
|
|
5,186
|
|
|
5,596
|
|
|
47,885
|
|
|
985,234
|
|
|
1,050
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
822
|
|
|
107
|
|
|
1,906
|
|
|
2,835
|
|
|
36,461
|
|
|
623,332
|
|
|
348
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
434
|
|
|
396
|
|
|
3,736
|
|
|
4,566
|
|
|
6,903
|
|
|
274,890
|
|
|
—
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
204
|
|
|
—
|
|
Total
|
|
434
|
|
|
396
|
|
|
3,736
|
|
|
4,566
|
|
|
6,903
|
|
|
275,094
|
|
|
—
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
216
|
|
|
81
|
|
|
1,251
|
|
|
1,548
|
|
|
1,965
|
|
|
109,019
|
|
|
—
|
|
Auto and other
|
|
277
|
|
|
57
|
|
|
500
|
|
|
834
|
|
|
431
|
|
|
101,060
|
|
|
15
|
|
Total
|
|
493
|
|
|
138
|
|
|
1,751
|
|
|
2,382
|
|
|
2,396
|
|
|
210,079
|
|
|
15
|
|
Total
|
|
$
|
2,159
|
|
|
$
|
641
|
|
|
$
|
12,579
|
|
|
$
|
15,379
|
|
|
$
|
93,645
|
|
|
$
|
2,093,739
|
|
|
$
|
1,413
|
|
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90
Days or Greater Past
Due
|
|
Total Past
Due
|
|
Acquired
Credit
Impaired
|
|
Total Loans
|
|
Past Due >
90 days and
Accruing
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,655
|
|
|
$
|
84,965
|
|
|
$
|
—
|
|
Single and multi-family
|
|
671
|
|
|
—
|
|
|
203
|
|
|
874
|
|
|
2,846
|
|
|
206,082
|
|
|
—
|
|
Other commercial real estate
|
|
816
|
|
|
1,875
|
|
|
2,156
|
|
|
4,847
|
|
|
42,801
|
|
|
755,988
|
|
|
109
|
|
Total
|
|
1,487
|
|
|
1,875
|
|
|
2,359
|
|
|
5,721
|
|
|
53,302
|
|
|
1,047,035
|
|
|
109
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,252
|
|
|
268
|
|
|
1,439
|
|
|
2,959
|
|
|
34,629
|
|
|
621,370
|
|
|
23
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
957
|
|
|
2,581
|
|
|
1,247
|
|
|
4,785
|
|
|
6,974
|
|
|
289,373
|
|
|
30
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
233
|
|
|
—
|
|
Total
|
|
957
|
|
|
2,581
|
|
|
1,247
|
|
|
4,785
|
|
|
6,974
|
|
|
289,606
|
|
|
30
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
286
|
|
|
40
|
|
|
1,965
|
|
|
2,291
|
|
|
1,956
|
|
|
115,227
|
|
|
—
|
|
Auto and other
|
|
346
|
|
|
135
|
|
|
430
|
|
|
911
|
|
|
483
|
|
|
113,902
|
|
|
38
|
|
Total
|
|
632
|
|
|
175
|
|
|
2,395
|
|
|
3,202
|
|
|
2,439
|
|
|
229,129
|
|
|
38
|
|
Total
|
|
$
|
4,328
|
|
|
$
|
4,899
|
|
|
$
|
7,440
|
|
|
$
|
16,667
|
|
|
$
|
97,344
|
|
|
$
|
2,187,140
|
|
|
$
|
200
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is summary information pertaining to non-accrual loans at
March 31, 2018
and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
(In thousands)
|
|
Business
Activities Loans
|
|
Acquired
Loans (1)
|
|
Total
|
|
Business
Activities Loans
|
|
Acquired
Loans (2)
|
|
Total
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Single and multi-family
|
|
433
|
|
|
228
|
|
|
661
|
|
|
451
|
|
|
203
|
|
|
654
|
|
Other commercial real estate
|
|
5,516
|
|
|
3,908
|
|
|
9,424
|
|
|
4,566
|
|
|
2,047
|
|
|
6,613
|
|
Total
|
|
5,949
|
|
|
4,136
|
|
|
10,085
|
|
|
5,017
|
|
|
2,250
|
|
|
7,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
5,872
|
|
|
1,558
|
|
|
7,430
|
|
|
5,895
|
|
|
1,333
|
|
|
7,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
2,040
|
|
|
3,736
|
|
|
5,776
|
|
|
1,666
|
|
|
1,217
|
|
|
2,883
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
2,040
|
|
|
3,736
|
|
|
5,776
|
|
|
1,666
|
|
|
1,217
|
|
|
2,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
2,598
|
|
|
1,251
|
|
|
3,849
|
|
|
1,627
|
|
|
1,965
|
|
|
3,592
|
|
Auto and other
|
|
1,662
|
|
|
485
|
|
|
2,147
|
|
|
1,454
|
|
|
392
|
|
|
1,846
|
|
Total
|
|
4,260
|
|
|
1,736
|
|
|
5,996
|
|
|
3,081
|
|
|
2,357
|
|
|
5,438
|
|
Total non-accrual loans
|
|
$
|
18,121
|
|
|
$
|
11,166
|
|
|
$
|
29,287
|
|
|
$
|
15,659
|
|
|
$
|
7,157
|
|
|
$
|
22,816
|
|
_______________________________________
(1) At quarter end
March 31, 2018
, there were no acquired credit impaired loans greater than 90 days past due.
(2) At December 31, 2017, acquired credit impaired loans accounted for
$83 thousand
of loans greater than 90 days past due that are not presented in the above table.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans evaluated for impairment as of
March 31, 2018
and December 31, 2017 were as follows:
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
33,094
|
|
|
$
|
6,913
|
|
|
$
|
2,466
|
|
|
$
|
1,845
|
|
|
$
|
44,318
|
|
Collectively evaluated for impairment
|
|
2,248,409
|
|
|
1,188,729
|
|
|
1,904,247
|
|
|
896,975
|
|
|
6,238,360
|
|
Total
|
|
$
|
2,281,503
|
|
|
$
|
1,195,642
|
|
|
$
|
1,906,713
|
|
|
$
|
898,820
|
|
|
$
|
6,282,678
|
|
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
33,732
|
|
|
$
|
5,761
|
|
|
$
|
3,872
|
|
|
$
|
—
|
|
|
$
|
43,365
|
|
Collectively evaluated for impairment
|
|
2,183,975
|
|
|
1,176,808
|
|
|
1,809,329
|
|
|
898,721
|
|
|
6,068,833
|
|
Total
|
|
$
|
2,217,707
|
|
|
$
|
1,182,569
|
|
|
$
|
1,813,201
|
|
|
$
|
898,721
|
|
|
$
|
6,112,198
|
|
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
5,424
|
|
|
$
|
745
|
|
|
$
|
2,695
|
|
|
$
|
1,094
|
|
|
$
|
9,958
|
|
Purchased credit-impaired loans
|
|
47,885
|
|
|
36,461
|
|
|
6,903
|
|
|
2,396
|
|
|
93,645
|
|
Collectively evaluated for impairment
|
|
931,925
|
|
|
586,126
|
|
|
265,496
|
|
|
206,589
|
|
|
1,990,136
|
|
Total
|
|
$
|
985,234
|
|
|
$
|
623,332
|
|
|
$
|
275,094
|
|
|
$
|
210,079
|
|
|
$
|
2,093,739
|
|
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
4,244
|
|
|
$
|
421
|
|
|
$
|
2,617
|
|
|
$
|
27
|
|
|
$
|
7,309
|
|
Purchased credit-impaired loans
|
|
53,302
|
|
|
34,629
|
|
|
6,974
|
|
|
2,439
|
|
|
97,344
|
|
Collectively evaluated for impairment
|
|
989,489
|
|
|
586,320
|
|
|
280,015
|
|
|
226,663
|
|
|
2,082,487
|
|
Total
|
|
$
|
1,047,035
|
|
|
$
|
621,370
|
|
|
$
|
289,606
|
|
|
$
|
229,129
|
|
|
$
|
2,187,140
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of impaired loans at
March 31, 2018
and December 31, 2017:
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
(In thousands)
|
|
Recorded Investment (1)
|
|
Unpaid Principal
Balance (2)
|
|
Related Allowance
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other commercial real estate loans
|
|
20,286
|
|
|
23,042
|
|
|
—
|
|
Commercial and industrial loans
|
|
3,091
|
|
|
3,846
|
|
|
—
|
|
Residential mortgages - 1-4 family
|
|
1,011
|
|
|
1,433
|
|
|
—
|
|
Consumer - home equity
|
|
1,784
|
|
|
2,415
|
|
|
—
|
|
Consumer - other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
309
|
|
|
$
|
323
|
|
|
$
|
1
|
|
Other commercial real estate loans
|
|
12,835
|
|
|
15,762
|
|
|
173
|
|
Commercial and industrial loans
|
|
3,915
|
|
|
4,494
|
|
|
296
|
|
Residential mortgages - 1-4 family
|
|
1,478
|
|
|
1,580
|
|
|
137
|
|
Consumer - home equity
|
|
45
|
|
|
53
|
|
|
1
|
|
Consumer - other
|
|
16
|
|
|
16
|
|
|
1
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
33,430
|
|
|
$
|
39,127
|
|
|
$
|
174
|
|
Commercial and industrial loans
|
|
7,006
|
|
|
8,340
|
|
|
296
|
|
Residential mortgages
|
|
2,489
|
|
|
3,013
|
|
|
137
|
|
Consumer
|
|
1,845
|
|
|
2,484
|
|
|
2
|
|
Total impaired loans
|
|
$
|
44,770
|
|
|
$
|
52,964
|
|
|
$
|
609
|
|
(1) The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on the Consolidated Balance Sheet.
(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
(In thousands)
|
|
Recorded Investment (1)
|
|
Unpaid Principal
Balance (2)
|
|
Related Allowance
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
1,077
|
|
|
$
|
3,607
|
|
|
$
|
—
|
|
Other commercial real estate loans
|
|
18,285
|
|
|
18,611
|
|
|
—
|
|
Commercial and industrial loans
|
|
2,060
|
|
|
2,629
|
|
|
—
|
|
Residential mortgages - 1-4 family
|
|
660
|
|
|
1,075
|
|
|
—
|
|
Consumer - home equity
|
|
867
|
|
|
1,504
|
|
|
—
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - construction
|
|
$
|
159
|
|
|
$
|
159
|
|
|
$
|
1
|
|
Commercial real estate - single and multifamily
|
|
159
|
|
|
171
|
|
|
1
|
|
Other commercial real estate loans
|
|
14,321
|
|
|
15,235
|
|
|
227
|
|
Commercial and industrial loans
|
|
3,716
|
|
|
4,249
|
|
|
66
|
|
Residential mortgages - 1-4 family
|
|
1,344
|
|
|
1,446
|
|
|
130
|
|
Consumer - home equity
|
|
1,014
|
|
|
999
|
|
|
34
|
|
Consumer - other
|
|
17
|
|
|
17
|
|
|
1
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
34,001
|
|
|
$
|
37,783
|
|
|
$
|
229
|
|
Commercial and industrial loans
|
|
5,776
|
|
|
6,878
|
|
|
66
|
|
Residential mortgages
|
|
2,004
|
|
|
2,521
|
|
|
130
|
|
Consumer
|
|
1,898
|
|
|
2,520
|
|
|
35
|
|
Total impaired loans
|
|
$
|
43,679
|
|
|
$
|
49,702
|
|
|
$
|
460
|
|
(1) The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on the Consolidated Balance Sheet.
(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
(In thousands)
|
|
Recorded Investment (1)
|
|
Unpaid Principal
Balance (2)
|
|
Related Allowance
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
185
|
|
|
$
|
276
|
|
|
$
|
—
|
|
Other commercial real estate loans
|
|
2,400
|
|
|
5,192
|
|
|
—
|
|
Commercial and industrial loans
|
|
574
|
|
|
1,618
|
|
|
—
|
|
Residential mortgages - 1-4 family
|
|
697
|
|
|
709
|
|
|
—
|
|
Consumer - home equity
|
|
754
|
|
|
1,303
|
|
|
—
|
|
Consumer - other
|
|
17
|
|
|
18
|
|
|
—
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
766
|
|
|
$
|
763
|
|
|
$
|
12
|
|
Other commercial real estate loans
|
|
2,082
|
|
|
2,093
|
|
|
29
|
|
Commercial and industrial loans
|
|
178
|
|
|
176
|
|
|
3
|
|
Residential mortgages - 1-4 family
|
|
2,004
|
|
|
2,385
|
|
|
506
|
|
Consumer - home equity
|
|
323
|
|
|
362
|
|
|
30
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
x
|
|
Commercial real estate
|
|
$
|
5,433
|
|
|
$
|
8,324
|
|
|
$
|
41
|
|
Commercial and industrial loans
|
|
752
|
|
|
1,794
|
|
|
3
|
|
Residential mortgages
|
|
2,701
|
|
|
3,094
|
|
|
506
|
|
Consumer
|
|
1,094
|
|
|
1,683
|
|
|
30
|
|
Total impaired loans
|
|
$
|
9,980
|
|
|
$
|
14,895
|
|
|
$
|
580
|
|
(1) The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on the Consolidated Balance Sheet.
(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
(In thousands)
|
|
Recorded Investment (1)
|
|
Unpaid Principal
Balance (2)
|
|
Related Allowance
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
204
|
|
|
$
|
290
|
|
|
$
|
—
|
|
Other commercial real estate loans
|
|
1,123
|
|
|
2,794
|
|
|
—
|
|
Other commercial and industrial loans
|
|
255
|
|
|
310
|
|
|
—
|
|
Residential mortgages - 1-4 family
|
|
658
|
|
|
671
|
|
|
—
|
|
Consumer - home equity
|
|
1,374
|
|
|
1,654
|
|
|
—
|
|
Consumer - other
|
|
27
|
|
|
27
|
|
|
—
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
887
|
|
|
$
|
880
|
|
|
$
|
18
|
|
Other commercial real estate loans
|
|
2,043
|
|
|
1,661
|
|
|
38
|
|
Commercial and industrial loans
|
|
165
|
|
|
166
|
|
|
1
|
|
Residential mortgages - 1-4 family
|
|
166
|
|
|
185
|
|
|
9
|
|
Consumer - home equity
|
|
433
|
|
|
540
|
|
|
45
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,257
|
|
|
$
|
5,625
|
|
|
$
|
56
|
|
Commercial and industrial loans
|
|
420
|
|
|
476
|
|
|
1
|
|
Residential mortgages
|
|
824
|
|
|
856
|
|
|
9
|
|
Consumer
|
|
1,834
|
|
|
2,221
|
|
|
45
|
|
Total impaired loans
|
|
$
|
7,335
|
|
|
$
|
9,178
|
|
|
$
|
111
|
|
(1) The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on the Consolidated Balance Sheet.
(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the average recorded investment and interest income recognized on impaired loans as of
March 31, 2018
and 2017:
Business Activities Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2018
|
|
Three Months Ended
March 31, 2017
|
(In thousands)
|
|
Average
Recorded
Investment
|
|
Cash Basis
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Cash Basis
Interest
Income
Recognized
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
153
|
|
|
$
|
—
|
|
Other commercial real estate loans
|
|
20,272
|
|
|
91
|
|
|
20,756
|
|
|
217
|
|
Commercial and industrial loans
|
|
2,625
|
|
|
62
|
|
|
1,350
|
|
|
5
|
|
Residential mortgages - 1-4 family
|
|
807
|
|
|
14
|
|
|
2,025
|
|
|
18
|
|
Consumer - home equity
|
|
1,730
|
|
|
2
|
|
|
1,574
|
|
|
19
|
|
Consumer - other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
311
|
|
|
$
|
2
|
|
|
$
|
181
|
|
|
$
|
—
|
|
Other commercial real estate loans
|
|
12,887
|
|
|
167
|
|
|
7,011
|
|
|
71
|
|
Commercial and industrial loans
|
|
3,933
|
|
|
64
|
|
|
5,876
|
|
|
143
|
|
Residential mortgages - 1-4 family
|
|
1,484
|
|
|
17
|
|
|
939
|
|
|
14
|
|
Consumer - home equity
|
|
46
|
|
|
1
|
|
|
1,149
|
|
|
8
|
|
Consumer - other
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
33,470
|
|
|
$
|
260
|
|
|
$
|
28,101
|
|
|
$
|
288
|
|
Commercial and industrial loans
|
|
6,558
|
|
|
126
|
|
|
7,226
|
|
|
148
|
|
Residential mortgages
|
|
2,291
|
|
|
31
|
|
|
2,964
|
|
|
32
|
|
Consumer loans
|
|
1,793
|
|
|
3
|
|
|
2,723
|
|
|
27
|
|
Total impaired loans
|
|
$
|
44,112
|
|
|
$
|
420
|
|
|
$
|
41,014
|
|
|
$
|
495
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended March 31, 2017
|
(In thousands)
|
|
Average
Recorded
Investment
|
|
Cash Basis
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Cash Basis
Interest
Income
Recognized
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
191
|
|
|
$
|
5
|
|
|
$
|
721
|
|
|
$
|
31
|
|
Other commercial real estate loans
|
|
2,157
|
|
|
41
|
|
|
1,272
|
|
|
21
|
|
Commercial and industrial loans
|
|
425
|
|
|
9
|
|
|
403
|
|
|
—
|
|
Residential mortgages - 1-4 family
|
|
700
|
|
|
4
|
|
|
409
|
|
|
6
|
|
Consumer - home equity
|
|
953
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer - other
|
|
19
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - single and multifamily
|
|
$
|
769
|
|
|
$
|
10
|
|
|
$
|
915
|
|
|
$
|
12
|
|
Other commercial real estate loans
|
|
2,107
|
|
|
27
|
|
|
1,494
|
|
|
19
|
|
Commercial and industrial loans
|
|
61
|
|
|
2
|
|
|
362
|
|
|
13
|
|
Residential mortgages - 1-4 family
|
|
1,520
|
|
|
1
|
|
|
98
|
|
|
1
|
|
Consumer - home equity
|
|
324
|
|
|
4
|
|
|
743
|
|
|
4
|
|
Consumer - other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial real estate loans
|
|
$
|
5,224
|
|
|
$
|
83
|
|
|
$
|
4,402
|
|
|
$
|
83
|
|
Commercial and industrial loans
|
|
486
|
|
|
11
|
|
|
765
|
|
|
13
|
|
Residential mortgages
|
|
2,220
|
|
|
5
|
|
|
507
|
|
|
7
|
|
Consumer loans
|
|
1,296
|
|
|
5
|
|
|
743
|
|
|
4
|
|
Total impaired loans
|
|
$
|
9,226
|
|
|
$
|
104
|
|
|
$
|
6,417
|
|
|
$
|
107
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally
six months
. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.
The following tables include the recorded investment and number of modifications identified during the
three
months ended
March 31, 2018
and March 31, 2017. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modifications for the
three
months ended
March 31, 2018
and 2017 were attributable to interest rate concessions, principal concessions, maturity date extensions, modified payment terms, reamortization, and accelerated maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
(Dollars in thousands)
|
|
Number of
Modifications
|
|
Pre-Modification
Outstanding Recorded
Investment
|
|
Post-Modification
Outstanding Recorded
Investment
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
4
|
|
|
$
|
1,995
|
|
|
$
|
1,924
|
|
Residential - 1-4 Family
|
|
1
|
|
|
118
|
|
|
118
|
|
Consumer - Home Equity
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
5
|
|
|
$
|
2,113
|
|
|
$
|
2,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
(Dollars in thousands)
|
|
Number of
Modifications
|
|
Pre-Modification
Outstanding Recorded
Investment
|
|
Post-Modification
Outstanding Recorded
Investment
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
Commercial - Other
|
|
6
|
|
|
$
|
2,832
|
|
|
$
|
2,333
|
|
Commercial and industrial - Other
|
|
1
|
|
|
24
|
|
|
24
|
|
Residential - 1-4 Family
|
|
2
|
|
|
205
|
|
|
188
|
|
Consumer Home Equity
|
|
1
|
|
|
53
|
|
|
53
|
|
Total
|
|
10
|
|
|
$
|
3,114
|
|
|
$
|
2,598
|
|
The following table discloses the recorded investments and numbers of modifications for TDRs where a concession has been made within the previous 12 months, that then defaulted in the respective reporting period. For the three months ended March 31, 2018, there were
no
loans that were restructured that had subsequently defaulted during the period. For the three months ended March 31, 2017, there were
two
loans that were restructured that had subsequently defaulted during the period.
|
|
|
|
|
|
|
|
|
Modifications that Subsequently Defaulted
|
|
Three Months Ended March 31, 2017
|
(Dollars in thousands)
|
Number of Contracts
|
|
Recorded Investment
|
Troubled Debt Restructurings
|
|
|
|
|
|
Commercial - Other
|
1
|
|
|
$
|
113
|
|
Commercial and industrial
|
1
|
|
|
$
|
101
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s TDR activity for the
three
months ended
March 31, 2018
and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2018
|
|
2017
|
Balance at beginning of the period
|
|
$
|
41,990
|
|
|
$
|
33,829
|
|
Principal payments
|
|
(639
|
)
|
|
(888
|
)
|
TDR status change (1)
|
|
—
|
|
|
—
|
|
Other reductions/increases (2)
|
|
(288
|
)
|
|
(840
|
)
|
Newly identified TDRs
|
|
2,042
|
|
|
2,598
|
|
Balance at end of the period
|
|
$
|
43,105
|
|
|
$
|
34,699
|
|
_________________________________
(1) TDR status change classification represents TDR loans with a specified interest rate equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan was on current payment status and not impaired based on the terms specified by the restructuring agreement.
(2) Other reductions classification consists of transfer to other real estate owned and charge-offs and advances to loans.
The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.
As of
March 31, 2018
, the Company maintained no foreclosed residential real estate property. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of
March 31, 2018
and December 31, 2017 totaled
$7.2 million
and
$4.9 million
, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LOAN LOSS ALLOWANCE
Activity in the allowance for loan losses for the
three
months ended
March 31, 2018
and 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended March 31, 2018
|
Business Activities Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Balance at beginning of period
|
|
$
|
16,843
|
|
|
$
|
13,850
|
|
|
$
|
9,420
|
|
|
$
|
5,807
|
|
|
$
|
45,920
|
|
Charged-off loans
|
|
106
|
|
|
890
|
|
|
—
|
|
|
940
|
|
|
1,936
|
|
Recoveries on charged-off loans
|
|
23
|
|
|
44
|
|
|
—
|
|
|
74
|
|
|
141
|
|
Provision/(releases) for loan losses
|
|
1,081
|
|
|
225
|
|
|
(822
|
)
|
|
2,668
|
|
|
3,152
|
|
Balance at end of period
|
|
$
|
17,841
|
|
|
$
|
13,229
|
|
|
$
|
8,598
|
|
|
$
|
7,609
|
|
|
$
|
47,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended March 31, 2017
|
Business Activities Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Balance at beginning of period
|
|
$
|
16,498
|
|
|
$
|
9,447
|
|
|
$
|
7,805
|
|
|
$
|
5,479
|
|
|
$
|
39,229
|
|
Charged-off loans
|
|
124
|
|
|
1,270
|
|
|
235
|
|
|
687
|
|
|
2,316
|
|
Recoveries on charged-off loans
|
|
58
|
|
|
16
|
|
|
15
|
|
|
86
|
|
|
175
|
|
Provision/(releases) for loan losses
|
|
(152
|
)
|
|
3,657
|
|
|
278
|
|
|
592
|
|
|
4,375
|
|
Balance at end of period
|
|
$
|
16,280
|
|
|
$
|
11,850
|
|
|
$
|
7,863
|
|
|
$
|
5,470
|
|
|
$
|
41,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended March 31, 2018
|
Acquired Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Balance at beginning of period
|
|
$
|
3,856
|
|
|
$
|
1,125
|
|
|
$
|
598
|
|
|
$
|
335
|
|
|
$
|
5,914
|
|
Charged-off loans
|
|
740
|
|
|
155
|
|
|
431
|
|
|
529
|
|
|
1,855
|
|
Recoveries on charged-off loans
|
|
6
|
|
|
29
|
|
|
25
|
|
|
40
|
|
|
100
|
|
Provision for loan losses
|
|
873
|
|
|
244
|
|
|
854
|
|
|
452
|
|
|
2,423
|
|
Balance at end of period
|
|
$
|
3,995
|
|
|
$
|
1,243
|
|
|
$
|
1,046
|
|
|
$
|
298
|
|
|
$
|
6,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the three months ended March 31, 2017
|
Acquired Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Balance at beginning of period
|
|
$
|
2,303
|
|
|
$
|
1,164
|
|
|
$
|
766
|
|
|
$
|
536
|
|
|
$
|
4,769
|
|
Charged-off loans
|
|
577
|
|
|
436
|
|
|
143
|
|
|
151
|
|
|
1,307
|
|
Recoveries on charged-off loans
|
|
10
|
|
|
55
|
|
|
39
|
|
|
55
|
|
|
159
|
|
Provision for loan losses
|
|
392
|
|
|
271
|
|
|
44
|
|
|
13
|
|
|
720
|
|
Balance at end of period
|
|
$
|
2,128
|
|
|
$
|
1,054
|
|
|
$
|
706
|
|
|
$
|
453
|
|
|
$
|
4,341
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present a summary of the allowance for loan losses as of March 31, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
Business Activities Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Individually evaluated for impairment
|
|
174
|
|
|
296
|
|
|
137
|
|
|
2
|
|
|
609
|
|
Collectively evaluated for impairment
|
|
17,667
|
|
|
12,933
|
|
|
8,461
|
|
|
7,607
|
|
|
46,668
|
|
Total
|
|
$
|
17,841
|
|
|
$
|
13,229
|
|
|
$
|
8,598
|
|
|
$
|
7,609
|
|
|
$
|
47,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
Business Activities Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Individually evaluated for impairment
|
|
229
|
|
|
66
|
|
|
130
|
|
|
35
|
|
|
460
|
|
Collectively evaluated for impairment
|
|
16,614
|
|
|
13,784
|
|
|
9,290
|
|
|
5,772
|
|
|
45,460
|
|
Total
|
|
16,843
|
|
|
13,850
|
|
|
9,420
|
|
|
5,807
|
|
|
45,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018
|
Acquired Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Individually evaluated for impairment
|
|
41
|
|
|
3
|
|
|
506
|
|
|
30
|
|
|
580
|
|
Collectively evaluated for impairment
|
|
3,954
|
|
|
1,240
|
|
|
540
|
|
|
268
|
|
|
6,002
|
|
Total
|
|
$
|
3,995
|
|
|
$
|
1,243
|
|
|
$
|
1,046
|
|
|
$
|
298
|
|
|
$
|
6,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
Acquired Loans
(In thousands)
|
|
Commercial
real estate
|
|
Commercial and
industrial loans
|
|
Residential
mortgages
|
|
Consumer
|
|
Total
|
Individually evaluated for impairment
|
|
56
|
|
|
1
|
|
|
9
|
|
|
45
|
|
|
111
|
|
Collectively evaluated for impairment
|
|
3,800
|
|
|
1,124
|
|
|
589
|
|
|
290
|
|
|
5,803
|
|
Total
|
|
3,856
|
|
|
1,125
|
|
|
598
|
|
|
335
|
|
|
5,914
|
|
Credit Quality Information
Business Activities Loans Credit Quality Analysis
The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential credit problems and are evaluated closely by management. Substandard and non-accruing loans are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annually, semiannually or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations.
The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a
three
rating system: Pass, Special Mention and Substandard. Loans that are current within
59
days are rated Pass. Residential mortgages that are
60
-
89
days delinquent are rated Special Mention. Loans delinquent for
90
days or greater are rated Substandard and generally placed on non-accrual status. Home equity loans are risk rated based on the same rating system as the Company’s residential mortgages.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ratings for other consumer loans, including auto loans, are based on a
two
rating system. Loans that are current within
119
days are rated Performing while loans delinquent for
120
days or more are rated Non-performing. Other consumer loans are placed on non-accrual at such time as they become Non-performing.
Acquired Loans Credit Quality Analysis
Upon acquiring a loan portfolio, the Company's internal loan review function assigns risk ratings to the acquired loans, utilizing the same methodology as it does with business activities loans. This may differ from the risk rating policy of the predecessor bank. Loans which are rated Substandard or worse according to the rating process outlined below are deemed to be credit impaired loans accounted for under ASC 310-30, regardless of whether they are classified as performing or non-performing.
The Bank utilizes an
eleven
grade internal loan rating system for each of its acquired commercial real estate, construction and commercial loans as outlined in the Credit Quality Information section of this Note. The ratings system is similar to loans originated through business activities.
The Company subjects loans that do not meet the ASC 310-30 criteria to ASC 450-20 (
Loss Contingencies
) by collectively evaluating these loans for an allowance for loan loss. The Company applies a methodology similar to the methodology prescribed for business activities loans, which includes the application of environmental factors to each category of loans. The methodology to collectively evaluate the acquired loans outside the scope of ASC 310-30 includes the application of a number of environmental factors that reflect management’s best estimate of the level of incremental credit losses that might be recognized given current conditions. This is reviewed as part of the allowance for loan loss adequacy analysis. As the loan portfolio matures and environmental factors change, the loan portfolio will be reassessed each quarter to determine an appropriate reserve allowance.
Additionally, the Company considers the need for a reserve for acquired loans accounted for outside of the scope of ASC 310-30 under ASC 310-20. At acquisition date, the Bank determined a fair value mark with credit and interest rate components. Under the Company’s model, the impairment evaluation process involves comparing the carrying value of acquired loans, including the entire unamortized premium or discount, to the calculated reserve allowance. If necessary, the Company books a reserve to account for shortfalls identified through this calculation. Fair value marks are not bifurcated when evaluating for impairment.
A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans. At
March 31, 2018
, the allowance for loan losses related to acquired loans under ASC 310-30 and ASC 310-20 was
$6.6 million
using the above mentioned criteria.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the Company’s loans by risk rating at
March 31, 2018
and December 31, 2017:
Business Activities Loans
Commercial Real Estate
Credit Risk Profile by Creditworthiness Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
Single and multi-family
|
|
Real Estate
|
|
Total commercial real estate
|
(In thousands)
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
255,835
|
|
|
$
|
269,206
|
|
|
$
|
342,683
|
|
|
$
|
214,289
|
|
|
$
|
1,627,063
|
|
|
$
|
1,687,256
|
|
|
$
|
2,225,581
|
|
|
$
|
2,170,751
|
|
Special mention
|
|
—
|
|
|
—
|
|
|
2,064
|
|
|
504
|
|
|
47,909
|
|
|
12,999
|
|
|
49,973
|
|
|
13,503
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
433
|
|
|
2,290
|
|
|
5,516
|
|
|
31,163
|
|
|
5,949
|
|
|
33,453
|
|
Total
|
|
$
|
255,835
|
|
|
$
|
269,206
|
|
|
$
|
345,180
|
|
|
$
|
217,083
|
|
|
$
|
1,680,488
|
|
|
$
|
1,731,418
|
|
|
$
|
2,281,503
|
|
|
$
|
2,217,707
|
|
Commercial and Industrial Loans
Credit Risk Profile by Creditworthiness Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comm. and industrial loans
|
(In thousands)
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Grade:
|
|
|
|
|
|
|
|
Pass
|
|
|
$
|
1,168,102
|
|
|
$
|
1,156,240
|
|
Special mention
|
|
|
21,668
|
|
|
12,806
|
|
Substandard
|
|
|
3,517
|
|
|
11,123
|
|
Doubtful
|
|
|
2,355
|
|
|
2,400
|
|
Total
|
|
|
$
|
1,195,642
|
|
|
$
|
1,182,569
|
|
Residential Mortgages
Credit Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
Construction
|
|
Total residential mortgages
|
(In thousands)
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,897,584
|
|
|
$
|
1,805,596
|
|
|
$
|
6,121
|
|
|
$
|
5,177
|
|
|
$
|
1,903,705
|
|
|
$
|
1,810,773
|
|
Special mention
|
|
968
|
|
|
242
|
|
|
—
|
|
|
—
|
|
|
968
|
|
|
242
|
|
Substandard
|
|
2,040
|
|
|
2,186
|
|
|
—
|
|
|
—
|
|
|
2,040
|
|
|
2,186
|
|
Total
|
|
$
|
1,900,592
|
|
|
$
|
1,808,024
|
|
|
$
|
6,121
|
|
|
$
|
5,177
|
|
|
$
|
1,906,713
|
|
|
$
|
1,813,201
|
|
Consumer Loans
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
Auto and other
|
|
Total consumer loans
|
(In thousands)
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Performing
|
|
$
|
288,496
|
|
|
$
|
293,327
|
|
|
$
|
606,064
|
|
|
$
|
602,313
|
|
|
$
|
894,560
|
|
|
$
|
895,640
|
|
Nonperforming
|
|
2,598
|
|
|
1,627
|
|
|
1,662
|
|
|
1,454
|
|
|
4,260
|
|
|
3,081
|
|
Total
|
|
$
|
291,094
|
|
|
$
|
294,954
|
|
|
$
|
607,726
|
|
|
$
|
603,767
|
|
|
$
|
898,820
|
|
|
$
|
898,721
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired Loans
Commercial Real Estate
Credit Risk Profile by Creditworthiness Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
Single and multi-family
|
|
Real Estate
|
|
Total commercial real estate
|
(In thousands)
|
|
March 31,2018
|
|
December 31, 2017
|
|
March 31,2018
|
|
December 31, 2017
|
|
March 31,2018
|
|
December 31, 2017
|
|
March 31,2018
|
|
December 31, 2017
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
83,117
|
|
|
$
|
76,611
|
|
|
$
|
191,691
|
|
|
$
|
203,624
|
|
|
$
|
628,186
|
|
|
$
|
684,846
|
|
|
$
|
902,994
|
|
|
$
|
965,081
|
|
Special mention
|
|
8,351
|
|
|
—
|
|
|
5,121
|
|
|
603
|
|
|
64,632
|
|
|
22,070
|
|
|
78,104
|
|
|
22,673
|
|
Substandard
|
|
—
|
|
|
8,354
|
|
|
228
|
|
|
1,855
|
|
|
3,908
|
|
|
49,072
|
|
|
4,136
|
|
|
59,281
|
|
Total
|
|
$
|
91,468
|
|
|
$
|
84,965
|
|
|
$
|
197,040
|
|
|
$
|
206,082
|
|
|
$
|
696,726
|
|
|
$
|
755,988
|
|
|
$
|
985,234
|
|
|
$
|
1,047,035
|
|
Commercial and Industrial Loans
Credit Risk Profile by Creditworthiness Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comm. and industrial loans
|
(In thousands)
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Grade:
|
|
|
|
|
|
|
|
Pass
|
|
|
$
|
604,890
|
|
|
$
|
606,922
|
|
Special mention
|
|
|
16,884
|
|
|
1,241
|
|
Substandard
|
|
|
1,558
|
|
|
13,207
|
|
Total
|
|
|
$
|
623,332
|
|
|
$
|
621,370
|
|
Residential Mortgages
Credit Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
Construction
|
|
Total residential mortgages
|
(In thousands)
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
266,514
|
|
|
$
|
281,160
|
|
|
$
|
204
|
|
|
$
|
233
|
|
|
$
|
266,718
|
|
|
$
|
281,393
|
|
Special mention
|
|
4,640
|
|
|
2,704
|
|
|
—
|
|
|
—
|
|
|
4,640
|
|
|
2,704
|
|
Substandard
|
|
3,736
|
|
|
5,509
|
|
|
—
|
|
|
—
|
|
|
3,736
|
|
|
5,509
|
|
Total
|
|
$
|
274,890
|
|
|
$
|
289,373
|
|
|
$
|
204
|
|
|
$
|
233
|
|
|
$
|
275,094
|
|
|
$
|
289,606
|
|
Consumer Loans
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
Auto and other
|
|
Total consumer loans
|
(In thousands)
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Performing
|
|
$
|
107,768
|
|
|
$
|
113,262
|
|
|
$
|
100,575
|
|
|
$
|
113,510
|
|
|
$
|
208,343
|
|
|
$
|
226,772
|
|
Nonperforming
|
|
1,251
|
|
|
1,965
|
|
|
485
|
|
|
392
|
|
|
1,736
|
|
|
2,357
|
|
Total
|
|
$
|
109,019
|
|
|
$
|
115,227
|
|
|
$
|
101,060
|
|
|
$
|
113,902
|
|
|
$
|
210,079
|
|
|
$
|
229,129
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about total loans rated Special Mention or lower as of
March 31, 2018
and December 31, 2017. The table below includes consumer loans that are special mention and substandard accruing that are classified in the above table as performing based on payment activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
(In thousands)
|
|
Business
Activities Loans
|
|
Acquired Loans
|
|
Total
|
|
Business
Activities Loans
|
|
Acquired Loans
|
|
Total
|
Non-Accrual
|
|
$
|
18,121
|
|
|
$
|
11,166
|
|
|
$
|
29,287
|
|
|
$
|
15,659
|
|
|
$
|
7,240
|
|
|
$
|
22,899
|
|
Substandard Accruing
|
|
39,344
|
|
|
81,849
|
|
|
121,193
|
|
|
36,846
|
|
|
73,412
|
|
|
110,258
|
|
Total Classified
|
|
57,465
|
|
|
93,015
|
|
|
150,480
|
|
|
52,505
|
|
|
80,652
|
|
|
133,157
|
|
Special Mention
|
|
34,267
|
|
|
18,210
|
|
|
52,477
|
|
|
28,387
|
|
|
26,802
|
|
|
55,189
|
|
Total Criticized
|
|
$
|
91,732
|
|
|
$
|
111,225
|
|
|
$
|
202,957
|
|
|
$
|
80,892
|
|
|
$
|
107,454
|
|
|
$
|
188,346
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. DEPOSITS
A summary of time deposits is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2018
|
|
December 31,
2017
|
Time less than $100,000
|
|
$
|
718,470
|
|
|
$
|
733,785
|
|
Time $100,000 through $250,000
|
|
1,734,402
|
|
|
1,717,050
|
|
Time more than $250,000
|
|
433,097
|
|
|
439,370
|
|
Total time deposits
|
|
$
|
2,885,969
|
|
|
$
|
2,890,205
|
|
Included in total deposits are brokered deposits of
$1.3 billion
and
$1.2 billion
at
March 31, 2018
and
December 31, 2017
, respectively. Included in total brokered deposits are reciprocal deposits of
$102.7 million
and
$99.8 million
at
March 31, 2018
and
December 31, 2017
, respectively.
NOTE 7. BORROWED FUNDS
Borrowed funds at
March 31, 2018
and
December 31, 2017
are summarized, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
(Dollars in thousands)
|
|
Principal
|
|
Rate
|
|
Principal
|
|
Rate
|
Short-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the FHLB
|
|
$
|
835,891
|
|
|
1.93
|
%
|
|
$
|
667,300
|
|
|
1.48
|
%
|
Total short-term borrowings:
|
|
835,891
|
|
|
1.93
|
|
|
667,300
|
|
|
1.48
|
|
Long-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the FHLB and other borrowings
|
|
289,969
|
|
|
1.66
|
|
|
380,436
|
|
|
1.54
|
|
Subordinated borrowings
|
|
73,920
|
|
|
7.00
|
|
|
73,875
|
|
|
7.00
|
|
Junior subordinated borrowings
|
|
15,464
|
|
|
3.77
|
|
|
15,464
|
|
|
3.30
|
|
Total long-term borrowings:
|
|
379,353
|
|
|
2.79
|
|
|
469,775
|
|
|
2.46
|
|
Total
|
|
$
|
1,215,244
|
|
|
2.19
|
%
|
|
$
|
1,137,075
|
|
|
1.88
|
%
|
Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year and a short-term line-of-credit drawdown through a correspondent bank. The Bank also maintains a
$3.0 million
secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was
no
outstanding balance on the FHLB line of credit for the periods ended
March 31, 2018
and
December 31, 2017
.
The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement.
No
borrowings with the Federal Reserve Bank took place for the periods ended
March 31, 2018
and
December 31, 2017
.
Long-term FHLB advances consist of advances with an original maturity of more than one year. The advances outstanding at
March 31, 2018
include no callable advances and amortizing advances totaling
$1.4 million
. The advances outstanding at
December 31, 2017
include no callable advances and amortizing advances totaling
$1.4 million
. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of maturities of FHLB advances as of
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
Weighted Average
|
(In thousands, except rates)
|
|
Principal
|
|
Rate
|
Fixed rate advances maturing:
|
|
|
|
|
|
|
2018
|
|
$
|
914,874
|
|
|
1.88
|
%
|
2019
|
|
150,080
|
|
|
1.64
|
|
2020
|
|
53,737
|
|
|
2.04
|
|
2021
|
|
216
|
|
|
2.96
|
|
2022 and beyond
|
|
6,953
|
|
|
2.64
|
|
Total FHLB advances
|
|
$
|
1,125,860
|
|
|
1.86
|
%
|
The Company did not have variable-rate FHLB advances for the periods ended
March 31, 2018
and
December 31, 2017
.
In September 2012, the Company issued
fifteen
year subordinated notes in the amount of
$75.0 million
at a discount of
1.15%
. The interest rate is fixed at
6.875%
for the first ten years. After
ten years
, the notes become callable and convert to an interest rate of three-month LIBOR rate plus
5.113%
. The subordinated note includes reduction to the note principal balance of
$553 thousand
and
$583 thousand
for unamortized debt issuance costs as of
March 31, 2018
and December 31 2017, respectively.
The Company holds
100%
of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of
$0.5 million
. The sole asset of Trust I is
$15.5 million
of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus
1.85%
and had a rate of
3.77%
and
3.30%
at
March 31, 2018
and
December 31, 2017
, respectively. The Company has the right to defer payments of interest for up to
five years
on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
Regulatory
Minimum to be
Well Capitalized
|
|
December 31,
2017
|
|
Regulatory
Minimum to be
Well Capitalized
|
Company (consolidated)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
12.8
|
%
|
|
N/A
|
|
|
12.4
|
%
|
|
N/A
|
|
Common equity tier 1 capital to risk weighted assets
|
|
11.3
|
|
|
N/A
|
|
|
11.0
|
|
|
N/A
|
|
Tier 1 capital to risk weighted assets
|
|
11.5
|
|
|
N/A
|
|
|
11.2
|
|
|
N/A
|
|
Tier 1 capital to average assets
|
|
9.0
|
|
|
N/A
|
|
|
9.0
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
12.0
|
%
|
|
8.0
|
%
|
|
11.2
|
%
|
|
8.0
|
%
|
Common equity tier 1 capital to risk weighted assets
|
|
11.1
|
|
|
4.5
|
|
|
10.3
|
|
|
4.5
|
|
Tier 1 capital to risk weighted assets
|
|
11.1
|
|
|
6.0
|
|
|
10.3
|
|
|
6.0
|
|
Tier 1 capital to average assets
|
|
8.7
|
|
|
4.0
|
|
|
8.3
|
|
|
4.0
|
|
At each date shown, the Bank met the conditions to be classified as “well capitalized” under the relevant regulatory framework. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.
Effective January 1, 2015, the Company and the Bank became subject to the Basel III rule that requires the Company and the Bank to assess their Common equity Tier 1 capital to risk weighted assets. The Bank's Common equity Tier 1 capital to risk weighted assets exceeds the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of Common equity Tier 1 capital, of
2.5%
of risk-weighted assets, to be phased in over
three
years and applied to the Common equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio, and the Total risk-based capital ratio. Accordingly, banking organizations, on a fully phased in basis no later than January 1, 2019, must maintain a minimum Common equity Tier 1 risk-based capital ratio of
7.0%
, a minimum Tier 1 risk-based capital ratio of
8.5%
, and a minimum Total risk-based capital ratio of
10.5%
.
The required minimum conservation buffer began to be phased in incrementally, starting at
0.625%
on January 1, 2016, increased to
1.25%
on January 1, 2017, increased to
1.875%
on January 1, 2018 and will increase to
2.5%
on January 1, 2019. The final capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum capital conservation buffer is not met.
At
March 31, 2018
, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at
March 31, 2018
also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of
1.875%
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive income (loss)
Components of accumulated other comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2018
|
|
December 31,
2017
|
Other accumulated comprehensive income, before tax:
|
|
|
|
|
|
|
Net unrealized holding loss on AFS securities
|
|
$
|
(17,507
|
)
|
|
$
|
10,034
|
|
Net unrealized holding loss on pension plans
|
|
(3,048
|
)
|
|
(3,048
|
)
|
|
|
|
|
|
Income taxes related to items of accumulated other comprehensive income:
|
|
|
|
|
|
|
Net unrealized holding gain on AFS securities
|
|
4,325
|
|
|
(4,026
|
)
|
Net unrealized holding loss on pension plans
|
|
803
|
|
|
1,201
|
|
Accumulated other comprehensive (loss)/income
|
|
$
|
(15,427
|
)
|
|
$
|
4,161
|
|
The following table presents the components of other comprehensive income for the
three
months ended
March 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
Net unrealized holding (loss) on AFS securities:
|
|
x
|
|
|
|
|
|
|
Net unrealized (losses) arising during the period
|
|
$
|
(19,162
|
)
|
|
$
|
4,931
|
|
|
$
|
(14,231
|
)
|
Less: reclassification adjustment for losses realized in net income
|
|
—
|
|
|
—
|
|
|
—
|
|
Net unrealized holding (loss) on AFS securities
|
|
(19,162
|
)
|
|
4,931
|
|
|
(14,231
|
)
|
Other comprehensive (loss)
|
|
$
|
(19,162
|
)
|
|
$
|
4,931
|
|
|
$
|
(14,231
|
)
|
Less: reclassification related to adoption of ASU 2016-01
|
|
8,379
|
|
|
(2,126
|
)
|
|
6,253
|
|
Less: reclassification related to adoption of ASU 2018-02
|
|
—
|
|
|
(896
|
)
|
|
(896
|
)
|
Total change to accumulated other comprehensive (loss)
|
|
(27,541
|
)
|
|
7,953
|
|
|
(19,588
|
)
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gain on AFS securities:
|
|
|
|
|
|
|
|
|
Net unrealized gains arising during the period
|
|
$
|
3,137
|
|
|
$
|
(1,173
|
)
|
|
$
|
1,964
|
|
Less: reclassification adjustment for gains realized in net income
|
|
12,570
|
|
|
(4,713
|
)
|
|
7,857
|
|
Net unrealized holding (loss) on AFS securities
|
|
(9,433
|
)
|
|
3,540
|
|
|
(5,893
|
)
|
|
|
|
|
|
|
|
Net unrealized loss on cash flow hedging derivatives:
|
|
|
|
|
|
|
|
|
Net unrealized (loss) arising during the period
|
|
(449
|
)
|
|
180
|
|
|
(269
|
)
|
Less: reclassification adjustment for (losses) realized in net income
|
|
(7,022
|
)
|
|
2,768
|
|
|
(4,254
|
)
|
Net unrealized gain on cash flow hedging derivatives
|
|
6,573
|
|
|
(2,588
|
)
|
|
3,985
|
|
Other comprehensive (loss)
|
|
$
|
(2,860
|
)
|
|
$
|
952
|
|
|
$
|
(1,908
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive income (loss), for the
three
months ended
March 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net unrealized
holding gain
on AFS Securities
|
|
Net loss on
effective cash
flow hedging derivatives
|
|
Net unrealized
holding loss
on pension plans
|
|
Total
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
6,008
|
|
|
$
|
—
|
|
|
$
|
(1,847
|
)
|
|
$
|
4,161
|
|
Other comprehensive loss before reclassifications
|
|
(14,231
|
)
|
|
—
|
|
|
—
|
|
|
(14,231
|
)
|
Less: amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total other comprehensive loss
|
|
(14,231
|
)
|
|
—
|
|
|
—
|
|
|
(14,231
|
)
|
Less: amounts reclassified from accumulated other comprehensive income (loss) related to adoption of ASU 2016-01 and ASU 2018-02
|
|
$
|
4,959
|
|
|
$
|
—
|
|
|
$
|
398
|
|
|
$
|
5,357
|
|
Balance at End of Period
|
|
$
|
(13,182
|
)
|
|
$
|
—
|
|
|
$
|
(2,245
|
)
|
|
$
|
(15,427
|
)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
15,541
|
|
|
$
|
(3,985
|
)
|
|
$
|
(1,790
|
)
|
|
$
|
9,766
|
|
Other comprehensive (loss) gain before reclassifications
|
|
1,964
|
|
|
(269
|
)
|
|
—
|
|
|
1,695
|
|
Less: amounts reclassified from accumulated other comprehensive income (loss)
|
|
7,857
|
|
|
(4,254
|
)
|
|
—
|
|
|
3,603
|
|
Total other comprehensive (loss) income
|
|
(5,893
|
)
|
|
3,985
|
|
|
—
|
|
|
(1,908
|
)
|
Balance at End of Period
|
|
$
|
9,648
|
|
|
$
|
—
|
|
|
$
|
(1,790
|
)
|
|
$
|
7,858
|
|
The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the
three
months ended
March 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affected Line Item in the
|
|
|
Three Months Ended March 31,
|
|
Statement where Net Income
|
(In thousands)
|
|
2018
|
|
2017
|
|
is Presented
|
Realized gains on AFS securities:
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
12,570
|
|
|
Non-interest income
|
|
|
—
|
|
|
(4,713
|
)
|
|
Tax expense
|
|
|
—
|
|
|
7,857
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Realized (losses) on cash flow hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(393
|
)
|
|
Interest expense
|
|
|
—
|
|
|
(6,629
|
)
|
|
Non-interest expense
|
|
|
—
|
|
|
2,768
|
|
|
Tax benefit
|
|
|
—
|
|
|
(4,254
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
Realized gains on pension plans:
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Non-interest income
|
|
|
—
|
|
|
—
|
|
|
Tax expense
|
|
|
—
|
|
|
—
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
—
|
|
|
$
|
3,603
|
|
|
Net of tax
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. EARNINGS PER SHARE
Earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In thousands, except per share data)
|
2018
|
|
2017
|
Net income
|
$
|
25,248
|
|
|
$
|
15,460
|
|
|
|
|
|
Average number of common shares issued
|
46,212
|
|
|
36,732
|
|
Less: average number of treasury shares
|
869
|
|
|
1,020
|
|
Less: average number of unvested stock award shares
|
420
|
|
|
432
|
|
Plus: average participating preferred shares
|
1,043
|
|
|
—
|
|
Average number of basic shares outstanding
|
45,966
|
|
|
35,280
|
|
Plus: dilutive effect of unvested stock award shares
|
202
|
|
|
126
|
|
Plus: dilutive effect of stock options outstanding
|
32
|
|
|
46
|
|
Average number of diluted shares outstanding
|
46,200
|
|
|
35,452
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
0.55
|
|
|
$
|
0.44
|
|
Diluted
|
$
|
0.55
|
|
|
$
|
0.44
|
|
For the
three
months ended
March 31, 2018
,
219 thousand
shares of restricted stock and
36 thousand
options were anti-dilutive and therefore excluded from the earnings per share calculations. For the
three
months ended
March 31, 2017
,
306 thousand
shares of restricted stock and
55 thousand
options were anti-dilutive and therefore excluded from the earnings per share calculations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK-BASED COMPENSATION PLANS
A combined summary of activity in the Company’s stock award and stock option plans for the
three
months ended
March 31, 2018
is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested Stock Awards Outstanding
|
|
Stock Options Outstanding
|
(Shares in thousands)
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
December 31, 2017
|
|
|
418
|
|
|
$
|
29.68
|
|
|
76
|
|
|
$
|
13.59
|
|
Granted
|
|
|
92
|
|
|
37.67
|
|
|
—
|
|
|
—
|
|
Stock options exercised
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
14.27
|
|
Stock awards vested
|
|
|
(87
|
)
|
|
27.92
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
|
(4
|
)
|
|
30.50
|
|
|
—
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
22.61
|
|
March 31, 2018
|
|
|
419
|
|
|
$
|
32.41
|
|
|
60
|
|
|
$
|
10.56
|
|
Exercisable options at March 31, 2018
|
|
60
|
|
|
$
|
10.56
|
|
During the
three
months ended
March 31, 2018
and
2017
, proceeds from stock option exercises totaled
$76 thousand
and
$81 thousand
, respectively. During the
three
months ended
March 31, 2018
, there were
87 thousand
shares issued in connection with vested stock awards. During the
three
months ended
March 31, 2017
, there were
101 thousand
shares issued in connection with vested stock awards. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled
$1.4 million
and
$1.2 million
during the
three
months ended
March 31, 2018
and
2017
, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As of
March 31, 2018
, the Company held derivatives with a total notional amount of
$2.8 billion
. The Company had economic hedges and non-hedging derivatives totaling
$2.5 billion
and
$0.3 billion
, respectively, which are not designated as hedges for accounting purposes with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling
$2.0 billion
, risk participation agreements with dealer banks of
$0.2 billion
, and
$0.3 billion
in forward commitment contracts.
As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management/Capital Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at
March 31, 2018
.
The Company pledged collateral to derivative counterparties in the form of cash totaling
$2.6 million
and securities with an amortized cost of
$14.5 million
and a fair value of
$14.5 million
as of
March 31, 2018
. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.
Information about derivative assets and liabilities at
March 31, 2018
, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted Average Rate
|
|
Estimated
|
|
Notional
|
|
Average
|
|
|
|
Contract
|
|
Fair Value
|
|
Amount
|
|
Maturity
|
|
Received
|
|
pay rate
|
|
Asset (Liability)
|
|
(In thousands)
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on FHLB borrowings
|
$
|
—
|
|
|
0
|
|
—
|
%
|
|
—
|
%
|
|
$
|
—
|
|
Total cash flow hedges
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Economic hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap on tax advantaged economic development bond
|
10,590
|
|
|
11.7
|
|
2.03
|
%
|
|
5.09
|
%
|
|
(1,338
|
)
|
Interest rate swaps on loans with commercial loan customers
|
1,006,921
|
|
|
5.8
|
|
3.54
|
%
|
|
4.33
|
%
|
|
11,474
|
|
Reverse interest rate swaps on loans with commercial loan customers
|
1,006,921
|
|
|
5.8
|
|
4.33
|
%
|
|
3.54
|
%
|
|
(11,228
|
)
|
Risk participation agreements with dealer banks
|
167,795
|
|
|
7.0
|
|
|
|
|
|
|
|
(10
|
)
|
Forward sale commitments
|
309,493
|
|
|
0.2
|
|
|
|
|
|
|
|
(909
|
)
|
Total economic hedges
|
2,501,720
|
|
|
|
|
|
|
|
|
|
|
(2,011
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to lend
|
296,247
|
|
|
0.2
|
|
|
|
|
|
|
|
6,531
|
|
Total non-hedging derivatives
|
296,247
|
|
|
|
|
|
|
|
|
|
|
6,531
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,797,967
|
|
|
|
|
|
|
|
|
|
|
$
|
4,520
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at
December 31, 2017
, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted Average Rate
|
|
Estimated
|
|
Notional
|
|
Average
|
|
|
|
Contract
|
|
Fair Value
|
|
Amount
|
|
Maturity
|
|
Received
|
|
pay rate
|
|
Asset (Liability)
|
|
(In thousands)
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on FHLB borrowings
|
$
|
—
|
|
|
0
|
|
—
|
%
|
|
—
|
%
|
|
$
|
—
|
|
Total cash flow hedges
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Economic hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap on tax advantaged economic development bond
|
10,755
|
|
|
11.9
|
|
1.73
|
%
|
|
5.09
|
%
|
|
(1,649
|
)
|
Interest rate swaps on loans with commercial loan customers
|
943,795
|
|
|
5.9
|
|
3.26
|
%
|
|
4.25
|
%
|
|
(3,195
|
)
|
Reverse interest rate swaps on loans with commercial loan customers
|
943,795
|
|
|
5.9
|
|
4.25
|
%
|
|
3.26
|
%
|
|
3,204
|
|
Risk participation agreements with dealer banks
|
142,054
|
|
|
8.4
|
|
|
|
|
|
|
|
(26
|
)
|
Forward sale commitments
|
276,572
|
|
|
0.2
|
|
|
|
|
|
|
|
(123
|
)
|
Total economic hedges
|
2,316,971
|
|
|
|
|
|
|
|
|
|
|
(1,789
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to lend
|
193,966
|
|
|
0.2
|
|
|
|
|
|
|
|
5,259
|
|
Total non-hedging derivatives
|
193,966
|
|
|
|
|
|
|
|
|
|
|
5,259
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,510,937
|
|
|
|
|
|
|
|
|
|
|
$
|
3,470
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flow hedges
In the first quarter of 2017, the Company maintained
six
interest rate swap contracts with an aggregate notional value of
$300 million
with original durations of
three
years. This hedge strategy converted one month rolling FHLB borrowings based on the FHLB’s one month fixed interest rate to fixed interest rates, thereby protecting the Company from floating interest rate variability.
On February 7, 2017, the Company initiated and subsequently terminated all of its interest rate swaps associated with FHLB advances with 1-month LIBOR based floating interest rates of an aggregate notional amount of
$300
million. As of March 31, 2017, the Company no longer held the FHLB advances associated with the interest rate swaps. As a result, the Company reclassified
$6.6 million
of losses from the effective portion of the unrealized changes in the fair value of the terminated derivatives from other comprehensive income to non-interest income as the forecasted transactions to the related FHLB advances will not occur.
For the periods presented prior to the termination, the effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges was reported in other comprehensive income. Each quarter, the Company assessed the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. Hedge ineffectiveness on interest rate swaps designated as cash flow hedges was immaterial to the Company’s financial statements during the
three
months ended March 31,
2017
.
Amounts included in the Consolidated Statements of Income and in the other comprehensive income section of the Consolidated Statements of Comprehensive Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Interest rate swaps on FHLB borrowings:
|
|
|
|
|
|
Unrealized (loss) recognized in accumulated other comprehensive loss
|
$
|
—
|
|
|
$
|
(449
|
)
|
Less: reclassification of unrealized (loss) from accumulated other comprehensive income to interest expense
|
—
|
|
|
(393
|
)
|
Less: reclassification of unrealized (loss) from accumulated other comprehensive income to other non-interest expense
|
—
|
|
|
(6,629
|
)
|
Net tax (expense) benefit on items recognized in accumulated other comprehensive income
|
—
|
|
|
(2,589
|
)
|
Other comprehensive gain (loss) recorded in accumulated other comprehensive income, net of reclassification adjustments and tax effects
|
$
|
—
|
|
|
$
|
3,984
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of
March 31, 2018
, the Company has an interest rate swap with a
$10.6 million
notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of
5.09%
, currently within the Company’s trading portfolio under the fair value option, in exchange for a LIBOR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the
21
-year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.
The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. Credit valuation adjustments arising from the difference in credit worthiness of the commercial loan and financial institution counterparties totaled
$237 thousand
as of
March 31, 2018
. The interest income and expense on these mirror image swaps exactly offset each other.
The Company has risk participation agreements with dealer banks. Risk participation agreements occur when the Company participates on a loan and a swap where another bank is the lead. The Company gets paid a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default. Changes in fair value are recorded in current period earnings.
The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings.
The Company uses the following types of forward sale commitments contracts:
|
|
•
|
Best efforts loan sales,
|
|
|
•
|
Mandatory delivery loan sales, and
|
|
|
•
|
To Be Announced (“TBA”) mortgage-backed securities sales.
|
A best efforts contract refers to a loan sale agreement where the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. The Company may enter into a best efforts contract once the price is known, which is shortly after the potential borrower’s interest rate is locked.
A mandatory delivery contract is a loan sale agreement where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.
The Company may sell TBA mortgage-backed securities to hedge the changes in fair value of interest rate lock commitments and held for sale loans, which do not have corresponding best efforts or mandatory delivery contracts. These security sales transactions are closed once mandatory contracts are written. On the closing date the price of the security is locked-in, and the sale is paired-off with a purchase of the same security. Settlement of the security purchase/sale transaction is done with cash on a net-basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-hedging derivatives
The Company enters into interest rate lock commitments (“IRLCs”) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in noninterest income in the Company’s consolidated statements of income. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In thousands)
|
2018
|
|
2017
|
Economic hedges
|
|
|
|
|
|
Interest rate swap on industrial revenue bond:
|
|
|
|
|
|
Unrealized gain recognized in other non-interest income
|
$
|
311
|
|
|
$
|
122
|
|
|
|
|
|
Interest rate swaps on loans with commercial loan customers:
|
|
|
|
|
|
Unrealized gain recognized in other non-interest income
|
14,669
|
|
|
1,098
|
|
|
|
|
|
Reverse interest rate swaps on loans with commercial loan customers:
|
|
|
|
|
|
Unrealized gain recognized in other non-interest income
|
(14,669
|
)
|
|
(1,098
|
)
|
(Unfavorable) Favorable change in credit valuation adjustment recognized in other non-interest income
|
237
|
|
|
(162
|
)
|
|
|
|
|
Risk participation agreements:
|
|
|
|
|
|
Unrealized gain recognized in other non-interest income
|
16
|
|
|
(18
|
)
|
|
|
|
|
Forward commitments:
|
|
|
|
|
|
Unrealized gain (loss) recognized in other non-interest income
|
(909
|
)
|
|
(1,251
|
)
|
Realized gain (loss) in other non-interest income
|
3,922
|
|
|
(2,906
|
)
|
|
|
|
|
Non-hedging derivatives
|
|
|
|
|
|
Commitments to lend
|
|
|
|
|
|
Unrealized gain recognized in other non-interest income
|
$
|
6,531
|
|
|
$
|
8,061
|
|
Realized gain in other non-interest income
|
603
|
|
|
8,774
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Subject to Enforceable Master Netting Arrangements
Interest Rate Swap Agreements (“Swap Agreements”)
The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.
The Company had net asset positions with its financial institution counterparties totaling
$12.2 million
and
$1.1 million
as of
March 31, 2018
and
December 31, 2017
, respectively. The Company had net asset positions with its commercial banking counterparties totaling
$4.1 million
and
$8.6 million
as of
March 31, 2018
and
December 31, 2017
, respectively. The Company had net liability positions with its financial institution counterparties totaling
$2.1 million
and
$5.9 million
as of
March 31, 2018
and
December 31, 2017
, respectively. The Company had net liability positions with its commercial banking counterparties totaling
$15.3 million
and
$5.4 million
as of
March 31, 2018
and
December 31, 2017
. The collateral posted by the Company that covered liability positions was
$2.1 million
and
$5.9 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of
March 31, 2018
and
December 31, 2017
:
Offsetting of Financial Assets and Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Assets
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Assets
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Received
|
|
Net Amount
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
14,510
|
|
|
$
|
(2,286
|
)
|
|
$
|
12,224
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,224
|
|
Commercial counterparties
|
|
4,067
|
|
|
—
|
|
|
4,067
|
|
|
—
|
|
|
—
|
|
|
4,067
|
|
Total
|
|
$
|
18,577
|
|
|
$
|
(2,286
|
)
|
|
$
|
16,291
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,291
|
|
Offsetting of Financial Liabilities and Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Liabilities
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Liabilities
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Pledged
|
|
Net Amount
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
(3,359
|
)
|
|
$
|
1,262
|
|
|
$
|
(2,097
|
)
|
|
$
|
—
|
|
|
$
|
2,097
|
|
|
$
|
—
|
|
Commercial counterparties
|
|
(15,453
|
)
|
|
157
|
|
|
(15,296
|
)
|
|
—
|
|
|
—
|
|
|
(15,296
|
)
|
Total
|
|
$
|
(18,812
|
)
|
|
$
|
1,419
|
|
|
$
|
(17,393
|
)
|
|
$
|
—
|
|
|
$
|
2,097
|
|
|
$
|
(15,296
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Offsetting of Financial Assets and Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Assets
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Assets
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Received
|
|
Net Amount
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
2,692
|
|
|
$
|
(1,622
|
)
|
|
$
|
1,070
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,070
|
|
Commercial counterparties
|
|
8,577
|
|
|
—
|
|
|
8,577
|
|
|
—
|
|
|
—
|
|
|
8,577
|
|
Total
|
|
$
|
11,269
|
|
|
$
|
(1,622
|
)
|
|
$
|
9,647
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,647
|
|
Offsetting of Financial Liabilities and Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts of
|
|
Gross Amounts
Offset in the
|
|
Net Amounts
of Liabilities
Presented in the
|
|
Gross Amounts Not Offset in
the Statements of Condition
|
|
|
|
|
Recognized
|
|
Statements of
|
|
Statements of
|
|
Financial
|
|
Cash
|
|
|
(In thousands)
|
|
Liabilities
|
|
Condition
|
|
Condition
|
|
Instruments
|
|
Collateral Pledged
|
|
Net Amount
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional counterparties
|
|
$
|
(8,777
|
)
|
|
$
|
2,835
|
|
|
$
|
(5,942
|
)
|
|
$
|
3,982
|
|
|
$
|
1,960
|
|
|
$
|
—
|
|
Commercial counterparties
|
|
(5,375
|
)
|
|
2
|
|
|
(5,373
|
)
|
|
—
|
|
|
—
|
|
|
(5,373
|
)
|
Total
|
|
$
|
(14,152
|
)
|
|
$
|
2,837
|
|
|
$
|
(11,315
|
)
|
|
$
|
3,982
|
|
|
$
|
1,960
|
|
|
$
|
(5,373
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. FAIR VALUE MEASUREMENTS
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of
March 31, 2018
and
December 31, 2017
, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(In thousands)
|
Inputs
|
|
Inputs
|
|
Inputs
|
|
Fair Value
|
Trading security
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,795
|
|
|
$
|
11,795
|
|
Securities available for sale and other:
|
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
—
|
|
|
114,920
|
|
|
—
|
|
|
114,920
|
|
Agency collateralized mortgage obligations
|
—
|
|
|
912,936
|
|
|
—
|
|
|
912,936
|
|
Agency residential mortgage-backed securities
|
—
|
|
|
190,098
|
|
|
—
|
|
|
190,098
|
|
Agency commercial mortgage-backed securities
|
—
|
|
|
60,558
|
|
|
—
|
|
|
60,558
|
|
Corporate bonds
|
—
|
|
|
101,792
|
|
|
—
|
|
|
101,792
|
|
Trust preferred securities
|
—
|
|
|
11,563
|
|
|
—
|
|
|
11,563
|
|
Other bonds and obligations
|
—
|
|
|
9,532
|
|
|
—
|
|
|
9,532
|
|
Marketable equity securities
|
58,630
|
|
|
631
|
|
|
—
|
|
|
59,261
|
|
Loans held for sale
|
—
|
|
|
98,440
|
|
|
—
|
|
|
98,440
|
|
Derivative assets
|
—
|
|
|
19,949
|
|
|
6,531
|
|
|
26,480
|
|
Capitalized servicing rights
|
—
|
|
|
—
|
|
|
5,705
|
|
|
5,705
|
|
Derivative liabilities
|
909
|
|
|
21,051
|
|
|
—
|
|
|
21,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(In thousands)
|
Inputs
|
|
Inputs
|
|
Inputs
|
|
Fair Value
|
Trading security
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,277
|
|
|
$
|
12,277
|
|
Securities available for sale and other:
|
|
|
|
|
|
|
|
Municipal bonds and obligations
|
—
|
|
|
118,233
|
|
|
—
|
|
|
118,233
|
|
Agency collateralized mortgage obligations
|
—
|
|
|
851,158
|
|
|
—
|
|
|
851,158
|
|
Agency residential mortgage-backed securities
|
—
|
|
|
216,940
|
|
|
—
|
|
|
216,940
|
|
Agency commercial mortgage-backed securities
|
—
|
|
|
62,305
|
|
|
—
|
|
|
62,305
|
|
Corporate bonds
|
—
|
|
|
110,721
|
|
|
—
|
|
|
110,721
|
|
Trust preferred securities
|
—
|
|
|
11,677
|
|
|
—
|
|
|
11,677
|
|
Other bonds and obligations
|
—
|
|
|
9,880
|
|
|
—
|
|
|
9,880
|
|
Marketable equity securities
|
44,851
|
|
|
334
|
|
|
—
|
|
|
45,185
|
|
Loans held for sale
|
—
|
|
|
153,620
|
|
|
—
|
|
|
153,620
|
|
Derivative assets
|
—
|
|
|
14,049
|
|
|
5,259
|
|
|
19,308
|
|
Capitalized servicing rights
|
—
|
|
|
—
|
|
|
3,834
|
|
|
3,834
|
|
Derivative liabilities
|
104
|
|
|
15,715
|
|
|
19
|
|
|
15,838
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no transfers between levels during the three months ended
March 31, 2018
.
Trading Security at Fair Value.
The Company holds
one
security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.
Securities Available for Sale and Other
.
AFS and other securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. AFS and other securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
(In thousands)
|
|
Fair Value
|
|
Amortized Cost
|
|
Gains
|
Marketable equity securities
|
|
$
|
59,261
|
|
|
$
|
55,719
|
|
|
$
|
3,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
(In thousands)
|
|
Fair Value
|
|
Amortized Cost
|
|
Gains
|
Marketable equity securities
|
|
$
|
45,185
|
|
|
$
|
36,483
|
|
|
$
|
8,702
|
|
Loans Held for Sale.
The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair Value
|
March 31, 2018
|
|
Aggregate
|
|
Aggregate
|
|
Less Aggregate
|
(In thousands)
|
|
Fair Value
|
|
Unpaid Principal
|
|
Unpaid Principal
|
Loans Held for Sale
|
|
$
|
98,440
|
|
|
$
|
96,300
|
|
|
$
|
2,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Fair Value
|
December 31, 2017
|
|
Aggregate
|
|
Aggregate
|
|
Less Aggregate
|
(In thousands)
|
|
Fair Value
|
|
Unpaid Principal
|
|
Unpaid Principal
|
Loans Held for Sale
|
|
$
|
153,620
|
|
|
$
|
149,022
|
|
|
$
|
4,598
|
|
The changes in fair value of loans held for sale for the
three
months ended
March 31, 2018
and March 31, 2017, were losses of
$2.5 million
and
$593 thousand
, respectively. The changes in fair value are included in mortgage banking originations in the Consolidated Statements of Income.
Interest Rate Swaps.
The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of
March 31, 2018
, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Commitments to Lend.
The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments are classified as Level 3 measurements.
Forward Sale Commitments
.
The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To Be Announced (“TBA”) mortgage-backed securities forward commitment sales are used as the hedging instrument, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.
Capitalized Servicing Rights.
The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. These capitalized servicing rights are included in other assets on the consolidated balance sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the
three
months ended
March 31, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
Capitalized
|
|
Trading
|
|
Commitments
|
|
Forward
|
|
Servicing
|
(In thousands)
|
Security
|
|
to Lend
|
|
Commitments
|
|
Rights
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
$
|
12,277
|
|
|
$
|
5,259
|
|
|
$
|
19
|
|
|
$
|
3,834
|
|
Unrealized (loss) gain, net recognized in other non-interest income
|
(317
|
)
|
|
12,213
|
|
|
(19
|
)
|
|
465
|
|
Paydown of trading security
|
(165
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers to held for sale loans
|
—
|
|
|
(10,941
|
)
|
|
—
|
|
|
—
|
|
Additions to servicing rights
|
—
|
|
|
—
|
|
|
—
|
|
|
1,406
|
|
March 31, 2018
|
$
|
11,795
|
|
|
$
|
6,531
|
|
|
$
|
—
|
|
|
$
|
5,705
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) relating to instruments still held at March 31, 2018
|
$
|
1,205
|
|
|
$
|
6,531
|
|
|
$
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
$
|
13,229
|
|
|
$
|
4,738
|
|
|
$
|
100
|
|
|
$
|
798
|
|
Unrealized gain, net recognized in other non-interest income
|
(106
|
)
|
|
17,302
|
|
|
(122
|
)
|
|
(2
|
)
|
Paydown of trading security
|
(157
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers to held for sale loans
|
—
|
|
|
(13,979
|
)
|
|
—
|
|
|
—
|
|
Additions to servicing rights
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
180
|
|
March 31, 2017
|
$
|
12,966
|
|
|
$
|
8,061
|
|
|
$
|
(22
|
)
|
|
$
|
976
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) relating to instruments still held at March 31, 2017
|
$
|
1,736
|
|
|
$
|
8,061
|
|
|
$
|
(22
|
)
|
|
$
|
—
|
|
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Significant
Unobservable Input
|
(In thousands)
|
|
March 31, 2018
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Value
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
Trading Security
|
|
$
|
11,795
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
3.15
|
%
|
|
|
|
|
|
|
|
|
|
Commitments to Lend
|
|
6,531
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
80.65
|
%
|
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3,063
|
|
Forward Commitments
|
|
—
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
80.65
|
%
|
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3,063
|
|
Capitalized Servicing Rights
|
|
5,705
|
|
|
Discounted cash flow
|
|
Constant Prepayment Rate (CPR)
|
|
8.30
|
%
|
|
|
|
|
|
|
Discount Rate
|
|
9.96
|
%
|
Total
|
|
$
|
24,031
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Significant
Unobservable Input
|
(In thousands)
|
|
December 31, 2017
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Value
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
Trading Security
|
|
$
|
12,277
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
2.74
|
%
|
|
|
|
|
|
|
|
|
|
Commitments to Lend
|
|
5,259
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
81.53
|
%
|
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3,692
|
|
Forward Commitments
|
|
19
|
|
|
Historical Trend
|
|
Closing Ratio
|
|
81.53
|
%
|
|
|
|
|
|
Pricing Model
|
|
Origination Costs, per loan
|
|
$
|
3,692
|
|
Capitalized Servicing Rights
|
|
3,834
|
|
|
Discounted Cash Flow
|
|
Constant Prepayment Rate (CPR)
|
|
10.00
|
%
|
|
|
|
|
|
|
Discount Rate
|
|
10.95
|
%
|
Total
|
|
$
|
21,389
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Fair Value Measurement Date as of March 31, 2018
|
|
|
Level 3
|
|
Level 3
|
|
Level 3
|
(In thousands)
|
|
Inputs
|
|
Inputs
|
|
Inputs
|
Assets
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
22,766
|
|
|
$
|
23,853
|
|
|
March 2018
|
Capitalized servicing rights
|
|
12,400
|
|
|
12,527
|
|
|
March 2018
|
Total
|
|
$
|
35,166
|
|
|
$
|
36,380
|
|
|
|
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2018
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Range (Weighted Average) (a)
|
Assets
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
22,766
|
|
|
Fair Value of Collateral
|
|
Discounted Cash Flow - Loss Severity
|
|
38.43% to 0.08% (2.41%)
|
|
|
|
|
|
|
|
Appraised Value
|
|
$10.6 to $5,944 ($2,143)
|
Capitalized Servicing Rights
|
|
12,400
|
|
|
Discounted Cash Flow
|
|
Constant Prepayment Rate (CPR)
|
|
7.51% to 11.22% (9.65%)
|
|
|
|
|
|
|
|
Discount Rate
|
|
10.00% to 13.12% (11.64%)
|
Total
|
|
$
|
35,166
|
|
|
|
|
|
|
|
|
|
(a)
|
Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2017
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Range (Weighted Average) (a)
|
Assets
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
23,853
|
|
|
Fair Value of Collateral
|
|
Discounted Cash Flow - loss severity
|
|
38.72% to 0.21% (3.40%)
|
|
|
|
|
|
|
|
Appraised Value
|
|
$10.9 to $5,967 ($2,197)
|
Capitalized Servicing Rights
|
|
12,527
|
|
|
Discounted Cash Flow
|
|
Constant Prepayment Rate (CPR)
|
|
7.78% to 12.78% (10.38%)
|
|
|
|
|
|
|
|
Discount Rate
|
|
10.00% to 13.28% (11.72%)
|
Total
|
|
$
|
36,380
|
|
|
|
|
|
|
|
|
|
(a)
|
Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
|
There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended
March 31, 2018
and
December 31, 2017
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired loans.
Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights
.
A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Other real estate owned (“OREO”).
OREO results from the foreclosure process on residential or commercial loans issued by the Bank. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including comparable sales and appraisals.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values, and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
Carrying
|
|
Fair
|
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
123,887
|
|
|
$
|
123,887
|
|
|
$
|
123,887
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Trading security
|
|
11,795
|
|
|
11,795
|
|
|
—
|
|
|
—
|
|
|
11,795
|
|
Securities available for sale and other
|
|
1,460,660
|
|
|
1,460,660
|
|
|
58,630
|
|
|
1,402,030
|
|
|
—
|
|
Securities held to maturity
|
|
395,337
|
|
|
394,296
|
|
|
—
|
|
|
361,142
|
|
|
33,154
|
|
FHLB bank stock and restricted securities
|
|
64,038
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Net loans
|
|
8,322,558
|
|
|
8,451,273
|
|
|
—
|
|
|
—
|
|
|
8,451,273
|
|
Loans held for sale
|
|
98,440
|
|
|
98,440
|
|
|
—
|
|
|
98,440
|
|
|
—
|
|
Accrued interest receivable
|
|
30,585
|
|
|
30,585
|
|
|
—
|
|
|
30,585
|
|
|
—
|
|
Cash surrender value of bank-owned life insurance policies
|
|
192,379
|
|
|
192,379
|
|
|
—
|
|
|
192,379
|
|
|
—
|
|
Derivative assets
|
|
26,480
|
|
|
26,480
|
|
|
—
|
|
|
19,949
|
|
|
6,531
|
|
Assets held for sale
|
|
1,392
|
|
|
1,392
|
|
|
—
|
|
|
1,392
|
|
|
—
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
8,683,267
|
|
|
$
|
8,652,801
|
|
|
$
|
—
|
|
|
$
|
8,652,801
|
|
|
$
|
—
|
|
Short-term debt
|
|
835,892
|
|
|
836,095
|
|
|
—
|
|
|
836,095
|
|
|
—
|
|
Long-term Federal Home Loan Bank advances
|
|
289,969
|
|
|
285,102
|
|
|
—
|
|
|
285,102
|
|
|
—
|
|
Subordinated borrowings
|
|
89,384
|
|
|
96,794
|
|
|
—
|
|
|
96,794
|
|
|
—
|
|
Derivative liabilities
|
|
21,960
|
|
|
21,960
|
|
|
909
|
|
|
21,051
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Carrying
|
|
Fair
|
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
248,763
|
|
|
$
|
248,763
|
|
|
$
|
248,763
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Trading security
|
|
12,277
|
|
|
12,277
|
|
|
—
|
|
|
—
|
|
|
12,277
|
|
Securities available for sale and other
|
|
1,426,099
|
|
|
1,426,099
|
|
|
44,850
|
|
|
1,381,249
|
|
|
—
|
|
Securities held to maturity
|
|
397,103
|
|
|
405,276
|
|
|
—
|
|
|
371,458
|
|
|
33,818
|
|
FHLB bank stock and restricted securities
|
|
63,085
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Net loans
|
|
8,247,504
|
|
|
8,422,034
|
|
|
—
|
|
|
—
|
|
|
8,422,034
|
|
Loans held for sale
|
|
153,620
|
|
|
153,620
|
|
|
—
|
|
|
153,620
|
|
|
—
|
|
Accrued interest receivable
|
|
33,739
|
|
|
33,739
|
|
|
—
|
|
|
33,739
|
|
|
—
|
|
Derivative assets
|
|
19,308
|
|
|
19,308
|
|
|
|
|
|
14,049
|
|
|
5,259
|
|
Assets held for sale
|
|
1,392
|
|
|
1,392
|
|
|
—
|
|
|
1,392
|
|
|
—
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
8,749,530
|
|
|
$
|
8,731,527
|
|
|
$
|
—
|
|
|
$
|
8,731,527
|
|
|
$
|
—
|
|
Short-term debt
|
|
667,300
|
|
|
667,246
|
|
|
—
|
|
|
667,246
|
|
|
—
|
|
Long-term Federal Home Loan Bank advances
|
|
380,436
|
|
|
378,766
|
|
|
—
|
|
|
378,766
|
|
|
—
|
|
Subordinated borrowings
|
|
89,339
|
|
|
97,414
|
|
|
—
|
|
|
97,414
|
|
|
—
|
|
Derivative liabilities
|
|
15,838
|
|
|
15,838
|
|
|
104
|
|
|
15,715
|
|
|
19
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other than as discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value.
Cash and cash equivalents.
Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety days or less.
FHLB bank stock and restricted securities.
It is not practical to determine fair value due to the restricted nature of the security.
Cash surrender value of life insurance policies.
Carrying value approximates fair value.
Loans, net.
In accordance with recent accounting guidance, the fair value of loans as of March 31, 2018 was measured using the exit price valuation method, determined primarily 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 or cash flows, while incorporating liquidity and credit assumptions.
Accrued interest receivable.
Carrying value approximates fair value.
Deposits.
The fair value of demand, non-interest bearing 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.
Borrowed funds.
The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings. Such funds include all categories of debt and debentures in the table above.
Subordinated borrowings.
The Company utilizes a pricing service along with internal models to estimate the valuation of its junior subordinated debentures. The junior subordinated debentures re-price every
ninety
days.
Off-balance-sheet financial instruments.
Off-balance-sheet financial instruments include standby letters of credit and other financial guarantees and commitments considered immaterial to the Company’s financial statements.
NOTE 13. NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
Presented below is net interest income after provision for loan losses for the
three
months ended
March 31, 2018
and 2017, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2018
|
|
2017
|
Net interest income
|
|
$
|
85,470
|
|
|
$
|
66,886
|
|
Provision for loan losses
|
|
5,575
|
|
|
5,095
|
|
Net interest income after provision for loan losses
|
|
$
|
79,895
|
|
|
$
|
61,791
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REVENUE
The Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers,” and all subsequent ASU’s that modified Topic 606 on January 1, 2018. A cumulative effect adjustment to opening retained earnings was not deemed necessary as the implementation of the new standard did not have a material impact on the measurement or recognition of revenue.
Topic 606 requires the Company to follow a five step process: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Revenue recognition under Topic 606 depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.
The Company does not have any material significant payment terms as payment is received at or shortly after the satisfaction of the performance obligation. The value of unsatisfied performance obligations for contracts with an original expected length of one year or less are not disclosed. The Company recognizes incremental costs of obtaining contracts as an expense when incurred for contracts with a term of one year or less.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new standard. Topic 606 is applicable to non-interest revenue streams such as wealth management fees, insurance commissions and fees, administrative services for customer deposit accounts, interchange fees, and sale of owned real estate properties.
Non-interest income streams in-scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts.
Service charges on deposit accounts consist of monthly service fees (i.e. business analysis fees and consumer service charges) and other deposit account related fees. The Company's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. The Company may, from time to time, waive certain fees (e.g., NSF fee) for customers but generally do not reduce the transaction price to reflect variability for future reversals due to the insignificance of the amounts. Waiver of fees reduces the revenue in the period the waiver is granted to the customer.
Insurance Commissions and Fees.
Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later, net of return commissions related to policy cancellations. Policy cancellation is a variable consideration that is not deemed significant and thus, does not impact the amount of revenue recognized.
In addition, the Company may receive additional performance commissions based on achieving certain sales and loss experience measures. Such commissions are recognized when determinable, which is generally when such commissions are received or when the Company receives data from the insurance companies that allows the reasonable estimation of these amounts.
Wealth Management Fees.
Wealth management fees is primarily comprised of fees earned from consultative investment management, trust administration, tax return preparation, and financial planning. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based on the daily accrual of the market value of the investment accounts and the applicable fee rate.
Interchange Fees.
Interchange fees are transaction fees paid to the card-issuing bank to cover handling costs, fraud and bad debt costs, and the risk involved in approving the payment. Due to the day to day nature of these fees they are settled on a daily basis and are accounted for as they are received.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gains/Losses on Sales of OREO.
The sale of OREO and other nonfinancial assets are accounted for with the derecognition of the asset in question once a contract exists and control of the asset has been transferred to the buyer. The gain or loss on the sale is calculated as the difference between the carrying value of the asset and the transaction price.
The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(In thousands)
|
|
2018
|
|
2017
|
Non-interest income
|
|
|
|
|
In-scope of Topic 606:
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
5,415
|
|
|
$
|
4,040
|
|
Insurance revenue
|
|
3,025
|
|
|
3,136
|
|
Wealth management fees
|
|
2,597
|
|
|
2,526
|
|
Interchange income
|
|
152
|
|
|
129
|
|
Non-interest income (in-scope of Topic 606)
|
|
11,189
|
|
|
9,831
|
|
Non-interest income (out-of-scope of Topic 606)
|
|
18,331
|
|
|
24,926
|
|
Total non-interest income
|
|
$
|
29,520
|
|
|
$
|
34,757
|
|