NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
General
Glacier Bancorp, Inc. (“Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individuals and businesses in Montana, Idaho, Wyoming, Colorado, Utah and Washington through its wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including transaction and savings deposits, real estate, commercial, agriculture and consumer loans and mortgage origination services. The Company serves individuals, small to medium-sized businesses, community organizations and public entities.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial condition as of
March 31, 2016
, the results of operations and comprehensive income for the
three
month periods ended
March 31, 2016
and
2015
, and changes in stockholders’ equity and cash flows for the
three
month periods ended
March 31, 2016
and
2015
. The condensed consolidated statement of financial condition of the Company as of
December 31, 2015
has been derived from the audited consolidated statements of the Company as of that date.
The accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. Operating results for the
three
months ended
March 31, 2016
are not necessarily indicative of the results anticipated for the year ending
December 31, 2016
.
The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material affect on the Company’s consolidated financial position, results of operations or liquidity.
Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for loan and lease losses (“ALLL” or “allowance”); 2) the valuation of investment securities; 3) the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ALLL and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investment valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on internal calculations using significant independent party inputs.
Principles of Consolidation
The consolidated financial statements of the Company include the parent holding company, the Bank and all variable interest entities (“VIE”) for which the Company has both the power to direct the VIE’s significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. The Bank consists of
thirteen
bank divisions, a treasury division and an information technology division. The treasury division includes the Bank’s investment portfolio and wholesale borrowings and the information technology division includes the Bank’s internal data processing and information technology expenses. The Bank divisions operate under separate names, management teams and directors. The Company considers the Bank to be its sole operating segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses; 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank; and 3) financial information is available for the Bank. All significant inter-company transactions have been eliminated in consolidation.
In October 2015, the Company completed its acquisition of Cañon Bank Corporation and its wholly-owned subsidiary, Cañon National Bank, a community bank based in Cañon City, Colorado (collectively, “Cañon”). In February 2015, the Company completed its acquisition of Montana Community Banks, Inc. and its wholly-owned subsidiary, Community Bank, Inc., a community bank based in Ronan, Montana (collectively, “CB”). The transactions were accounted for using the acquisition method, and their results of operations have been included in the Company’s consolidated financial statements as of the acquisition dates.
In February 2015, the Financial Accounting Standards Board’s (“FASB”) amended consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and by changing how entities analyze related-party relationships and fee arrangements. As a result of this amendment, the Company determined it was no longer the primary beneficiary of its Low-Income Housing Tax Credit (“LIHTC”) partnerships and deconsolidated its LIHTC investments effective January 1, 2016. There was no material effect on the Company’s financial condition or results of operations upon adoption of this accounting guidance.
Loans Receivable
Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Fees and costs on originated loans and premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan utilizing the interest method. The objective of the interest method is to calculate periodic interest income at a constant effective yield. When a loan is paid off prior to maturity, the remaining fees and costs on originated loans and premiums or discounts on acquired loans are immediately recognized into interest income.
The Company’s loan segments, which are based on the purpose of the loan, include residential real estate, commercial, and consumer loans. The Company’s loan classes, a further disaggregation of segments, include residential real estate loans (residential real estate segment), commercial real estate and other commercial loans (commercial segment), and home equity and other consumer loans (consumer segment).
Loans that are
thirty
days or more past due based on payments received and applied to the loan are considered delinquent. Loans are designated non-accrual and the accrual of interest is discontinued when the collection of the contractual principal or interest is unlikely. A loan is typically placed on non-accrual when principal or interest is due and has remained unpaid for
ninety
days or more. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments on non-accrual loans are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on nonaccrual, interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
The Company considers impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio. Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and, therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans
ninety
days or more past due) and accruing loans under
ninety
days past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). Interest income on accruing impaired loans is recognized using the interest method. The Company measures impairment on a loan-by-loan basis in the same manner for each class within the loan portfolio. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due.
A restructured loan is considered a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company periodically enters into restructure agreements with borrowers whereby the loans were previously identified as TDRs. When such circumstances occur, the Company carefully evaluates the facts of the subsequent restructure to determine the appropriate accounting and under certain circumstances it may be acceptable not to account for the subsequently restructured loan as a TDR. When assessing whether a concession has been granted by the Company, any prior forgiveness on a cumulative basis is considered a continuing concession. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company has made the following types of loan modifications, some of which were considered a TDR:
|
|
•
|
reduction of the stated interest rate for the remaining term of the debt;
|
|
|
•
|
extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having similar risk characteristics; and
|
|
|
•
|
reduction of the face amount of the debt as stated in the debt agreements.
|
The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity for debt repayment. In determining whether non-restructured or unimpaired loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are impaired or are TDRs, the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations. Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including for example:
|
|
•
|
analysis of global, i.e., aggregate debt service for total debt obligations;
|
|
|
•
|
assessment of the value and security protection of collateral pledged using current market conditions and alternative market assumptions across a variety of potential future situations; and
|
|
|
•
|
loan structures and related covenants.
|
For additional information relating to loans, see Note 3.
Allowance for Loan and Lease Losses
Based upon management’s analysis of the Company’s loan portfolio, the balance of the ALLL is an estimate of probable credit losses known and inherent within the Bank’s loan portfolio as of the date of the consolidated financial statements. The ALLL is analyzed at the loan class level and is maintained within a range of estimated losses. Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The determination of the ALLL and the related provision for loan losses is a critical accounting estimate that involves management’s judgments about all known relevant internal and external environmental factors that affect loan losses. The balance of the ALLL is highly dependent upon management’s evaluations of borrowers’ current and prospective performance, appraisals and other variables affecting the quality of the loan portfolio. Individually significant loans and major lending areas are reviewed periodically to determine potential problems at an early date. Changes in management’s estimates and assumptions are reasonably possible and may have a material impact upon the Company’s consolidated financial statements, results of operations or capital.
Risk characteristics considered in the ALLL analysis applicable to each loan class within the Company's loan portfolio are as follows:
Residential Real Estate.
Residential real estate loans are secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan class include a large number of borrowers, geographic dispersion of market areas and the loans are originated for relatively smaller amounts.
Commercial Real Estate
. Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operation of the property securing the loan and/or the business conducted on the property securing the loan. Credit risk in these loans is impacted by the creditworthiness of a borrower, valuation of the property securing the loan and conditions within the local economies in the Company’s diverse, geographic market areas.
Commercial
. Commercial loans consist of loans to commercial customers for use in financing working capital needs, equipment purchases and business expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations across the Company’s diverse, geographic market areas.
Home Equity
. Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and amortizing closed-end) secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes. Mitigating risk factors for this loan class are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from
10
years to
20
years.
Other Consumer
. The other consumer loan portfolio consists of various short-term loans such as automobile loans and loans for other personal purposes. Repayment of these loans is primarily dependent on the personal income of the borrowers. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s diverse, geographic market area) and the creditworthiness of a borrower.
The ALLL consists of a specific valuation allowance component and a general valuation allowance component. The specific component relates to loans that are determined to be impaired and individually evaluated for impairment. The Company measures impairment on a loan-by-loan basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when it is determined that repayment of the loan is expected to be provided solely by the underlying collateral. For impairment based on expected future cash flows, the Company considers all information available as of a measurement date, including past events, current conditions, potential prepayments, and estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the best estimate of expected future cash flows. The effective interest rate for a loan restructured in a TDR is based on the original contractual rate. For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of foreclosure is probable, impairment is measured by the fair value of the collateral, less estimated cost to sell. The fair value of the collateral is determined primarily based upon appraisal or evaluation of the underlying real property value.
The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors. The historical loss experience is based on the previous
twelve
quarters loss experience by loan class adjusted for risk characteristics in the existing loan portfolio. The same trends and conditions are evaluated for each class within the loan portfolio; however, the risk characteristics are weighted separately at the individual class level based on the Company’s judgment and experience.
The changes in trends and conditions evaluated for each class within the loan portfolio include the following:
|
|
•
|
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;
|
|
|
•
|
Changes in global, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;
|
|
|
•
|
Changes in the nature and volume of the portfolio and in the terms of loans;
|
|
|
•
|
Changes in experience, ability, and depth of lending management and other relevant staff;
|
|
|
•
|
Changes in the volume and severity of past due and nonaccrual loans;
|
|
|
•
|
Changes in the quality of the Company’s loan review system;
|
|
|
•
|
Changes in the value of underlying collateral for collateral-dependent loans;
|
|
|
•
|
The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
|
|
|
•
|
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.
|
The ALLL is increased by provisions for loan losses which are charged to expense. The portions of loan balances determined by management to be uncollectible are charged off as a reduction of the ALLL and recoveries of amounts previously charged off are credited as an increase to the ALLL. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged off when the loan becomes over
120
days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold.
At acquisition date, the assets and liabilities of acquired banks are recorded at their estimated fair values which results in no ALLL carried over from acquired banks. Subsequent to acquisition, an allowance will be recorded on the acquired loan portfolios for further credit deterioration, if any.
Reclassifications
Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 presentation.
Impact of Recent Authoritative Accounting Guidance
The Accounting Standards Codification
™
(“ASC”) is FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative. The following paragraphs provide descriptions of recently adopted or newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.
In March 2016, FASB amended FASB ASC Topic 718,
Compensation - Stock Compensation.
The amendments in this Update address certain aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of awards on the statement of cash flows. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.
In February 2016, FASB amended FASB ASC Topic 842,
Leases.
The amendments in this Update address several aspects of lease accounting with the significant change being the recognition of lease assets and lease liabilities for leases previously classified as operating leases. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.
In January 2016, FASB amended FASB ASC Topic 825,
Financial Instruments.
The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted under certain circumstances outlined in the amendments. A reporting entity should apply the amendments by means of a cumulative-effect adjustment to the Company’s statement of financial condition as of the beginning of the reporting year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.
In September 2015, FASB amended FASB ASC Topic 805,
Business Combinations.
The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are necessary. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments should be applied prospectively to all periods presented and are effective for public business entities for annual periods and interim periods within those annual periods, beginning after December 15, 2015. The Company has evaluated the impact of these amendments and determined there was not a material effect on the Company’s financial position or results of operations.
In February 2015, FASB amended FASB ASC Topic 810,
Consolidation.
The amendments in this Update make targeted changes to the current consolidation guidance and end a deferral available for investment companies. The amendments modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. Consolidation conclusions may change for entities that already are VIEs due to changes in how entities would analyze related-party relationships and fee arrangements. The amendments relax existing criteria for determining when fees paid to a decision maker or service provider do not represent a variable interest by focusing on whether those fees are “at market.” The amendments eliminate both the consolidation model specific to limited partnerships and the current presumption that a general partner controls a limited partnership. Application of the new amendments could result in some entities being deconsolidated or considered a VIE and subject to additional disclosures. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period with any adjustments reflected as of the beginning of the reporting year that includes the interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the reporting year of adoption or may apply the amendments retrospectively. The Company has evaluated the impact of these amendments and determined there was not a material effect on the Company’s financial position or results of operations.
In May 2014, FASB amended FASB ASC Topic 606,
Revenue from Contracts with Customers.
The amendments clarify the principals for recognizing revenue and develop a common revenue standard among industries. The new guidance establishes the following core principal: recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services.
Five
steps are provided for a company or organization to follow to achieve such core principle. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The entity should apply the amendments using one of two retrospective methods described in the amendment. Accounting Standards Update No 2015-14,
Revenue from Contracts with Customers
(Topic 606) delayed the effective date for public entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.
Note 2. Investment Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s investment securities:
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|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Amortized Cost
|
|
Gross Unrealized
|
|
Fair Value
|
(Dollars in thousands)
|
|
Gains
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
45,957
|
|
|
18
|
|
|
(288
|
)
|
|
45,687
|
|
U.S. government sponsored enterprises
|
68,100
|
|
|
673
|
|
|
—
|
|
|
68,773
|
|
State and local governments
|
870,239
|
|
|
36,720
|
|
|
(5,826
|
)
|
|
901,133
|
|
Corporate bonds
|
443,632
|
|
|
738
|
|
|
(1,495
|
)
|
|
442,875
|
|
Residential mortgage-backed securities
|
1,140,413
|
|
|
8,434
|
|
|
(2,690
|
)
|
|
1,146,157
|
|
Total available-for-sale
|
2,568,341
|
|
|
46,583
|
|
|
(10,299
|
)
|
|
2,604,625
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
State and local governments
|
691,663
|
|
|
33,081
|
|
|
(4,554
|
)
|
|
720,190
|
|
Total held-to-maturity
|
691,663
|
|
|
33,081
|
|
|
(4,554
|
)
|
|
720,190
|
|
Total investment securities
|
$
|
3,260,004
|
|
|
79,664
|
|
|
(14,853
|
)
|
|
3,324,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Amortized Cost
|
|
Gross Unrealized
|
|
Fair Value
|
(Dollars in thousands)
|
|
Gains
|
|
Losses
|
|
Available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
47,868
|
|
|
15
|
|
|
(432
|
)
|
|
47,451
|
|
U.S. government sponsored enterprises
|
93,230
|
|
|
100
|
|
|
(163
|
)
|
|
93,167
|
|
State and local governments
|
856,738
|
|
|
34,159
|
|
|
(5,878
|
)
|
|
885,019
|
|
Corporate bonds
|
386,629
|
|
|
611
|
|
|
(3,077
|
)
|
|
384,163
|
|
Residential mortgage-backed securities
|
1,203,548
|
|
|
6,180
|
|
|
(8,768
|
)
|
|
1,200,960
|
|
Total available-for-sale
|
2,588,013
|
|
|
41,065
|
|
|
(18,318
|
)
|
|
2,610,760
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
State and local governments
|
702,072
|
|
|
31,863
|
|
|
(4,422
|
)
|
|
729,513
|
|
Total held-to-maturity
|
702,072
|
|
|
31,863
|
|
|
(4,422
|
)
|
|
729,513
|
|
Total investment securities
|
$
|
3,290,085
|
|
|
72,928
|
|
|
(22,740
|
)
|
|
3,340,273
|
|
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity at
March 31, 2016
. Actual maturities may differ from expected or contractual maturities since issuers have the right to prepay obligations with or without prepayment penalties.
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|
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|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
(Dollars in thousands)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Due within one year
|
$
|
150,150
|
|
|
150,764
|
|
|
—
|
|
|
—
|
|
Due after one year through five years
|
503,233
|
|
|
503,879
|
|
|
—
|
|
|
—
|
|
Due after five years through ten years
|
144,750
|
|
|
149,613
|
|
|
28,545
|
|
|
29,370
|
|
Due after ten years
|
629,795
|
|
|
654,212
|
|
|
663,118
|
|
|
690,820
|
|
|
1,427,928
|
|
|
1,458,468
|
|
|
691,663
|
|
|
720,190
|
|
Residential mortgage-backed securities
1
|
1,140,413
|
|
|
1,146,157
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
2,568,341
|
|
|
2,604,625
|
|
|
691,663
|
|
|
720,190
|
|
__________
1
Residential mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.
Proceeds from sales and calls of investment securities and the associated gains and losses that have been included in earnings are listed below:
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|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2016
|
|
March 31,
2015
|
Available-for-sale
|
|
|
|
Proceeds from sales and calls of investment securities
|
$
|
58,623
|
|
|
62,703
|
|
Gross realized gains
1
|
800
|
|
|
39
|
|
Gross realized losses
1
|
(739
|
)
|
|
(35
|
)
|
Held-to-maturity
|
|
|
|
Proceeds from calls of investment securities
|
11,155
|
|
|
460
|
|
Gross realized gains
1
|
47
|
|
|
1
|
|
Gross realized losses
1
|
—
|
|
|
—
|
|
__________
1
The gain or loss on the sale or call of each investment security is determined by the specific identification method.
Investment securities with an unrealized loss position are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars in thousands)
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
2,291
|
|
|
(5
|
)
|
|
39,478
|
|
|
(283
|
)
|
|
41,769
|
|
|
(288
|
)
|
State and local governments
|
50,820
|
|
|
(444
|
)
|
|
145,853
|
|
|
(5,382
|
)
|
|
196,673
|
|
|
(5,826
|
)
|
Corporate bonds
|
208,048
|
|
|
(1,227
|
)
|
|
33,786
|
|
|
(268
|
)
|
|
241,834
|
|
|
(1,495
|
)
|
Residential mortgage-backed securities
|
259,495
|
|
|
(1,655
|
)
|
|
65,081
|
|
|
(1,035
|
)
|
|
324,576
|
|
|
(2,690
|
)
|
Total available-for-sale
|
$
|
520,654
|
|
|
(3,331
|
)
|
|
284,198
|
|
|
(6,968
|
)
|
|
804,852
|
|
|
(10,299
|
)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
16,230
|
|
|
(209
|
)
|
|
108,674
|
|
|
(4,345
|
)
|
|
124,904
|
|
|
(4,554
|
)
|
Total held-to-maturity
|
$
|
16,230
|
|
|
(209
|
)
|
|
108,674
|
|
|
(4,345
|
)
|
|
124,904
|
|
|
(4,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars in thousands)
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
42,493
|
|
|
(432
|
)
|
|
2
|
|
|
—
|
|
|
42,495
|
|
|
(432
|
)
|
U.S. government sponsored enterprises
|
60,010
|
|
|
(163
|
)
|
|
—
|
|
|
—
|
|
|
60,010
|
|
|
(163
|
)
|
State and local governments
|
102,422
|
|
|
(1,629
|
)
|
|
115,943
|
|
|
(4,249
|
)
|
|
218,365
|
|
|
(5,878
|
)
|
Corporate bonds
|
228,258
|
|
|
(1,812
|
)
|
|
13,962
|
|
|
(1,265
|
)
|
|
242,220
|
|
|
(3,077
|
)
|
Residential mortgage-backed securities
|
730,412
|
|
|
(7,226
|
)
|
|
53,021
|
|
|
(1,542
|
)
|
|
783,433
|
|
|
(8,768
|
)
|
Total available-for-sale
|
$
|
1,163,595
|
|
|
(11,262
|
)
|
|
182,928
|
|
|
(7,056
|
)
|
|
1,346,523
|
|
|
(18,318
|
)
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
State and local governments
|
$
|
42,322
|
|
|
(594
|
)
|
|
81,709
|
|
|
(3,828
|
)
|
|
124,031
|
|
|
(4,422
|
)
|
Total held-to-maturity
|
$
|
42,322
|
|
|
(594
|
)
|
|
81,709
|
|
|
(3,828
|
)
|
|
124,031
|
|
|
(4,422
|
)
|
Based on an analysis of its investment securities with unrealized losses as of
March 31, 2016
and
December 31, 2015
, the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the investment securities is expected to recover as payments are received and the securities approach maturity. At
March 31, 2016
, management determined that it did not intend to sell investment securities with unrealized losses, and there was no expected requirement to sell any of its investment securities with unrealized losses before recovery of their amortized cost.
Note 3. Loans Receivable, Net
The Company’s loan portfolio is comprised of
three
segments: residential real estate, commercial, and consumer and other loans. The loan segments are further disaggregated into the following classes: residential real estate, commercial real estate, other commercial, home equity and other consumer loans. The following table presents loans receivable for each portfolio class of loans:
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31,
2016
|
|
December 31,
2015
|
Residential real estate loans
|
$
|
685,026
|
|
|
688,912
|
|
Commercial loans
|
|
|
|
Real estate
|
2,680,691
|
|
|
2,633,953
|
|
Other commercial
|
1,172,956
|
|
|
1,099,564
|
|
Total
|
3,853,647
|
|
|
3,733,517
|
|
Consumer and other loans
|
|
|
|
Home equity
|
423,895
|
|
|
420,901
|
|
Other consumer
|
234,625
|
|
|
235,351
|
|
Total
|
658,520
|
|
|
656,252
|
|
Loans receivable
1
|
5,197,193
|
|
|
5,078,681
|
|
Allowance for loan and lease losses
|
(130,071
|
)
|
|
(129,697
|
)
|
Loans receivable, net
|
$
|
5,067,122
|
|
|
4,948,984
|
|
Weighted-average interest rate on loans (tax-equivalent)
|
4.81
|
%
|
|
4.84
|
%
|
__________
|
|
1
|
Includes net deferred fees, costs, premiums and discounts of
$14,010,000
and
$15,529,000
at
March 31, 2016
and
December 31, 2015
, respectively.
|
The following tables summarize the activity in the ALLL by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2016
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Balance at beginning of period
|
$
|
129,697
|
|
|
14,427
|
|
|
67,877
|
|
|
32,525
|
|
|
8,998
|
|
|
5,870
|
|
Provision for loan losses
|
568
|
|
|
(1,149
|
)
|
|
(873
|
)
|
|
3,720
|
|
|
(793
|
)
|
|
(337
|
)
|
Charge-offs
|
(1,163
|
)
|
|
(100
|
)
|
|
(253
|
)
|
|
(324
|
)
|
|
(229
|
)
|
|
(257
|
)
|
Recoveries
|
969
|
|
|
18
|
|
|
295
|
|
|
133
|
|
|
173
|
|
|
350
|
|
Balance at end of period
|
$
|
130,071
|
|
|
13,196
|
|
|
67,046
|
|
|
36,054
|
|
|
8,149
|
|
|
5,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2015
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Balance at beginning of period
|
$
|
129,753
|
|
|
14,680
|
|
|
67,799
|
|
|
30,891
|
|
|
9,963
|
|
|
6,420
|
|
Provision for loan losses
|
765
|
|
|
440
|
|
|
(286
|
)
|
|
1,112
|
|
|
(459
|
)
|
|
(42
|
)
|
Charge-offs
|
(1,297
|
)
|
|
(14
|
)
|
|
(445
|
)
|
|
(694
|
)
|
|
(31
|
)
|
|
(113
|
)
|
Recoveries
|
635
|
|
|
25
|
|
|
259
|
|
|
206
|
|
|
46
|
|
|
99
|
|
Balance at end of period
|
$
|
129,856
|
|
|
15,131
|
|
|
67,327
|
|
|
31,515
|
|
|
9,519
|
|
|
6,364
|
|
The following tables disclose the balance in the ALLL and the recorded investment in loans by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Allowance for loan and lease losses
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
8,440
|
|
|
597
|
|
|
914
|
|
|
6,442
|
|
|
190
|
|
|
297
|
|
Collectively evaluated for impairment
|
121,631
|
|
|
12,599
|
|
|
66,132
|
|
|
29,612
|
|
|
7,959
|
|
|
5,329
|
|
Total allowance for loan and lease losses
|
$
|
130,071
|
|
|
13,196
|
|
|
67,046
|
|
|
36,054
|
|
|
8,149
|
|
|
5,626
|
|
Loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
140,866
|
|
|
21,041
|
|
|
81,840
|
|
|
27,889
|
|
|
6,557
|
|
|
3,539
|
|
Collectively evaluated for impairment
|
5,056,327
|
|
|
663,985
|
|
|
2,598,851
|
|
|
1,145,067
|
|
|
417,338
|
|
|
231,086
|
|
Total loans receivable
|
$
|
5,197,193
|
|
|
685,026
|
|
|
2,680,691
|
|
|
1,172,956
|
|
|
423,895
|
|
|
234,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Allowance for loan and lease losses
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
8,124
|
|
|
782
|
|
|
1,629
|
|
|
5,277
|
|
|
64
|
|
|
372
|
|
Collectively evaluated for impairment
|
121,573
|
|
|
13,645
|
|
|
66,248
|
|
|
27,248
|
|
|
8,934
|
|
|
5,498
|
|
Total allowance for loan and lease losses
|
$
|
129,697
|
|
|
14,427
|
|
|
67,877
|
|
|
32,525
|
|
|
8,998
|
|
|
5,870
|
|
Loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
140,773
|
|
|
20,767
|
|
|
85,845
|
|
|
23,874
|
|
|
6,493
|
|
|
3,794
|
|
Collectively evaluated for impairment
|
4,937,908
|
|
|
668,145
|
|
|
2,548,108
|
|
|
1,075,690
|
|
|
414,408
|
|
|
231,557
|
|
Total loans receivable
|
$
|
5,078,681
|
|
|
688,912
|
|
|
2,633,953
|
|
|
1,099,564
|
|
|
420,901
|
|
|
235,351
|
|
Substantially all of the Company’s loans receivable are with customers in the Company’s geographic market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their obligations is dependent upon the economic performance in the Company’s market areas.
The following tables disclose information related to impaired loans by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Three Months ended March 31, 2016
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
31,631
|
|
|
7,501
|
|
|
10,077
|
|
|
12,150
|
|
|
456
|
|
|
1,447
|
|
Unpaid principal balance
|
32,794
|
|
|
8,364
|
|
|
10,094
|
|
|
12,266
|
|
|
590
|
|
|
1,480
|
|
Specific valuation allowance
|
8,440
|
|
|
597
|
|
|
914
|
|
|
6,442
|
|
|
190
|
|
|
297
|
|
Average balance
|
33,157
|
|
|
7,877
|
|
|
11,316
|
|
|
12,036
|
|
|
279
|
|
|
1,649
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
109,235
|
|
|
13,540
|
|
|
71,763
|
|
|
15,739
|
|
|
6,101
|
|
|
2,092
|
|
Unpaid principal balance
|
136,388
|
|
|
15,042
|
|
|
92,608
|
|
|
19,657
|
|
|
6,882
|
|
|
2,199
|
|
Average balance
|
107,662
|
|
|
13,027
|
|
|
72,527
|
|
|
13,845
|
|
|
6,246
|
|
|
2,017
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
140,866
|
|
|
21,041
|
|
|
81,840
|
|
|
27,889
|
|
|
6,557
|
|
|
3,539
|
|
Unpaid principal balance
|
169,182
|
|
|
23,406
|
|
|
102,702
|
|
|
31,923
|
|
|
7,472
|
|
|
3,679
|
|
Specific valuation allowance
|
8,440
|
|
|
597
|
|
|
914
|
|
|
6,442
|
|
|
190
|
|
|
297
|
|
Average balance
|
140,819
|
|
|
20,904
|
|
|
83,843
|
|
|
25,881
|
|
|
6,525
|
|
|
3,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year ended December 31, 2015
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
34,683
|
|
|
8,253
|
|
|
12,554
|
|
|
11,923
|
|
|
102
|
|
|
1,851
|
|
Unpaid principal balance
|
36,157
|
|
|
9,198
|
|
|
12,581
|
|
|
12,335
|
|
|
109
|
|
|
1,934
|
|
Specific valuation allowance
|
8,124
|
|
|
782
|
|
|
1,629
|
|
|
5,277
|
|
|
64
|
|
|
372
|
|
Average balance
|
36,176
|
|
|
6,393
|
|
|
15,827
|
|
|
11,768
|
|
|
426
|
|
|
1,762
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
106,090
|
|
|
12,514
|
|
|
73,291
|
|
|
11,951
|
|
|
6,391
|
|
|
1,943
|
|
Unpaid principal balance
|
132,718
|
|
|
13,969
|
|
|
94,028
|
|
|
15,539
|
|
|
7,153
|
|
|
2,029
|
|
Average balance
|
116,356
|
|
|
13,615
|
|
|
78,684
|
|
|
15,479
|
|
|
6,350
|
|
|
2,228
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Recorded balance
|
$
|
140,773
|
|
|
20,767
|
|
|
85,845
|
|
|
23,874
|
|
|
6,493
|
|
|
3,794
|
|
Unpaid principal balance
|
168,875
|
|
|
23,167
|
|
|
106,609
|
|
|
27,874
|
|
|
7,262
|
|
|
3,963
|
|
Specific valuation allowance
|
8,124
|
|
|
782
|
|
|
1,629
|
|
|
5,277
|
|
|
64
|
|
|
372
|
|
Average balance
|
152,532
|
|
|
20,008
|
|
|
94,511
|
|
|
27,247
|
|
|
6,776
|
|
|
3,990
|
|
Interest income recognized on impaired loans for the
three
months ended
March 31, 2016
and
2015
was not significant.
The following tables present an aging analysis of the recorded investment in loans by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Accruing loans 30-59 days past due
|
$
|
20,663
|
|
|
3,365
|
|
|
6,644
|
|
|
7,454
|
|
|
1,930
|
|
|
1,270
|
|
Accruing loans 60-89 days past due
|
3,333
|
|
|
110
|
|
|
1,268
|
|
|
1,106
|
|
|
739
|
|
|
110
|
|
Accruing loans 90 days or more past due
|
4,615
|
|
|
833
|
|
|
1,630
|
|
|
2,007
|
|
|
107
|
|
|
38
|
|
Non-accrual loans
|
53,523
|
|
|
7,319
|
|
|
29,747
|
|
|
9,799
|
|
|
5,998
|
|
|
660
|
|
Total past due and non-accrual loans
|
82,134
|
|
|
11,627
|
|
|
39,289
|
|
|
20,366
|
|
|
8,774
|
|
|
2,078
|
|
Current loans receivable
|
5,115,059
|
|
|
673,399
|
|
|
2,641,402
|
|
|
1,152,590
|
|
|
415,121
|
|
|
232,547
|
|
Total loans receivable
|
$
|
5,197,193
|
|
|
685,026
|
|
|
2,680,691
|
|
|
1,172,956
|
|
|
423,895
|
|
|
234,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
Accruing loans 30-59 days past due
|
$
|
15,801
|
|
|
4,895
|
|
|
4,393
|
|
|
3,564
|
|
|
1,601
|
|
|
1,348
|
|
Accruing loans 60-89 days past due
|
3,612
|
|
|
961
|
|
|
1,841
|
|
|
286
|
|
|
280
|
|
|
244
|
|
Accruing loans 90 days or more past due
|
2,131
|
|
|
—
|
|
|
231
|
|
|
1,820
|
|
|
15
|
|
|
65
|
|
Non-accrual loans
|
51,133
|
|
|
8,073
|
|
|
28,819
|
|
|
7,691
|
|
|
6,022
|
|
|
528
|
|
Total past due and non-accrual loans
|
72,677
|
|
|
13,929
|
|
|
35,284
|
|
|
13,361
|
|
|
7,918
|
|
|
2,185
|
|
Current loans receivable
|
5,006,004
|
|
|
674,983
|
|
|
2,598,669
|
|
|
1,086,203
|
|
|
412,983
|
|
|
233,166
|
|
Total loans receivable
|
$
|
5,078,681
|
|
|
688,912
|
|
|
2,633,953
|
|
|
1,099,564
|
|
|
420,901
|
|
|
235,351
|
|
The following tables present TDRs that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2016
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
3
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
Pre-modification recorded balance
|
$
|
8,959
|
|
|
—
|
|
|
56
|
|
|
8,755
|
|
|
148
|
|
|
—
|
|
Post-modification recorded balance
|
$
|
8,959
|
|
|
—
|
|
|
56
|
|
|
8,755
|
|
|
148
|
|
|
—
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recorded balance
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2015
|
(Dollars in thousands)
|
Total
|
|
Residential
Real Estate
|
|
Commercial
Real Estate
|
|
Other
Commercial
|
|
Home
Equity
|
|
Other
Consumer
|
TDRs that occurred during the period
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
5
|
|
|
—
|
|
|
2
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Pre-modification recorded balance
|
$
|
3,085
|
|
|
—
|
|
|
2,182
|
|
|
903
|
|
|
—
|
|
|
—
|
|
Post-modification recorded balance
|
$
|
3,085
|
|
|
—
|
|
|
2,182
|
|
|
903
|
|
|
—
|
|
|
—
|
|
TDRs that subsequently defaulted
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
6
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
2
|
|
|
1
|
|
Recorded balance
|
$
|
174
|
|
|
—
|
|
|
—
|
|
|
57
|
|
|
116
|
|
|
1
|
|
The modifications for the TDRs that occurred during the
three
months ended
March 31, 2016
and
2015
included one or a combination of the following: an extension of the maturity date, a reduction of the interest rate or a reduction in the principal amount.
In addition to the TDRs that occurred during the period provided in the preceding tables, the Company had TDRs with pre-modification loan balances of
$210,000
and
$3,595,000
for the
three
months ended
March 31, 2016
and
2015
, respectively, for which other real estate owned (“OREO”) was received in full or partial satisfaction of the loans. The majority of such TDRs were in residential real estate and commercial real estate for the
three
months ended
March 31, 2016
and
2015
, respectively. At
March 31, 2016
and
December 31, 2015
, the Company had
$3,531,000
and
$3,253,000
, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At
March 31, 2016
and
December 31, 2015
, the Company had
$1,995,000
and
$1,496,000
, respectively, of OREO secured by residential real estate properties.
Note 4. Goodwill
The following schedule discloses the changes in the carrying value of goodwill:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2016
|
|
March 31,
2015
|
Net carrying value at beginning of period
|
$
|
140,638
|
|
|
129,706
|
|
Acquisitions
|
—
|
|
|
1,137
|
|
Net carrying value at end of period
|
$
|
140,638
|
|
|
130,843
|
|
The gross carrying value of goodwill and the accumulated impairment charge consists of the following:
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31,
2016
|
|
December 31,
2015
|
Gross carrying value
|
$
|
180,797
|
|
|
180,797
|
|
Accumulated impairment charge
1
|
(40,159
|
)
|
|
(40,159
|
)
|
Net carrying value
|
$
|
140,638
|
|
|
140,638
|
|
__________
1
A goodwill impairment charge was recognized in 2011 and was due to high levels of volatility and dislocation in bank stock prices nationwide.
The Company performed its annual goodwill impairment test during the third quarter of 2015 and determined the fair value of the aggregated reporting units exceeded the carrying value, such that the Company’s goodwill was not considered impaired. Changes in the economic environment, operations of the aggregated reporting units, or other factors could result in the decline in the fair value of the aggregated reporting units which could result in a goodwill impairment in the future.
Note 5. Variable Interest Entities
A VIE is a partnership, limited liability company, trust or other legal entity that meets one of the following criteria: 1) the entity’s equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; 2) the holders of the equity investment at risk, as a group, lack the characteristics of a controlling financial interest; and 3) the voting rights of some holders of the equity investment at risk are disproportionate to their obligation to absorb losses or receive returns, and substantially all of the activities are conducted on behalf of the holder of equity investment at risk with disproportionately few voting rights. A VIE must be consolidated by the Company if it is deemed to be the primary beneficiary, which is the party involved with the VIE that has both: 1) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and 2) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company’s VIEs are regularly monitored to determine if any reconsideration events have occurred that could cause the primary beneficiary status to change. A previously unconsolidated VIE is consolidated when the Company becomes the primary beneficiary. A previously consolidated VIE is deconsolidated when the Company ceases to be the primary beneficiary or the entity is no longer a VIE. In February 2015, FASB amended consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and by changing how entities analyze related-party relationships and fee arrangements. As a result of this amendment, the Company determined it was no longer the primary beneficiary of its LIHTC partnerships and deconsolidated its LIHTC investments effective January 1, 2016. Due to this reevaluation event, the Company determined its LIHTC investments would qualify for the proportional amortization method and elected to adopt this accounting method. The proportional amortization method allows for the amortization of LIHTC investments to be presented as a component of income taxes. Once elected, the proportional amortization method is required for all eligible LIHTC investments.
Consolidated Variable Interest Entities
The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax Credits (“NMTC”). The NMTC program provides federal tax incentives to investors to make investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTC is available to investors over a
seven
-year period and is subject to recapture if certain events occur during such period. The maximum exposure to loss in the CDEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each CDE (NMTC) investment and determined the Company does not individually meet the characteristics of a primary beneficiary; however, the related-party group does meet the criteria as a group and substantially all of the activities of the CDEs either involve or are conducted on behalf of the Company. As a result, the Company is the primary beneficiary of the CDEs and their assets, liabilities, and results of operations are included in the Company’s consolidated financial statements. The primary activities of the CDEs are recognized in commercial loans interest income and other borrowed funds interest expense on the Company’s statements of operations and the federal income tax credit allocations from the investments are recognized in the Company’s statements of operations as a component of income tax expense. Such related cash flows are recognized in loans originated, principal collected on loans and change in other borrowed funds.
The following table summarizes the carrying amounts of the consolidated VIEs’ assets and liabilities included in the Company’s statements of financial condition and are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have no recourse to the general credit of the Company.
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31,
2016
|
|
December 31,
2015
|
Assets
|
|
|
|
Loans receivable
|
$
|
57,228
|
|
|
57,126
|
|
Premises and equipment, net
|
—
|
|
|
13,503
|
|
Accrued interest receivable
|
206
|
|
|
117
|
|
Other assets
|
1,029
|
|
|
1,429
|
|
Total assets
|
$
|
58,463
|
|
|
72,175
|
|
Liabilities
|
|
|
|
Other borrowed funds
|
$
|
4,555
|
|
|
6,195
|
|
Accrued interest payable
|
4
|
|
|
9
|
|
Other liabilities
|
145
|
|
|
139
|
|
Total liabilities
|
$
|
4,704
|
|
|
6,343
|
|
Unconsolidated Variable Interest Entities
The Company has equity investments in LIHTC partnerships with carrying values of
$4,579,000
as of
March 31, 2016
. The LIHTCs are indirect federal subsidies to finance low-income housing and are used in connection with both newly constructed and renovated residential rental buildings. Once a project is placed in service, it is generally eligible for the tax credit every year for
ten
years. To continue generating the tax credit and to avoid tax credit recapture, a LIHTC building must satisfy specific low-income housing compliance rules for a full
fifteen
-year period. The maximum exposure to loss in the VIEs is the amount of equity invested and credit extended by the Company. However, the Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. The Company has evaluated the variable interests held by the Company in each LIHTC investment and determined that the Company does not have controlling financial interests in such investments, and is not the primary beneficiary. The Company reports the investments in the unconsolidated LIHTCs as other assets on the Company’s statements of financial condition. Total unfunded contingent commitments related to the Company’s LIHTC investments totaled
$4,536,000
at
March 31, 2016
. The Company expects to fulfill these commitments during
2017
. There were no impairment losses on the Company’s LIHTC investments during the
three
months ended
March 31, 2016
.
The following table summarizes the amortization expense and the amount of tax credits and other tax benefits recognized for qualified affordable housing project investments during the
three
months ended
March 31, 2016
and
2015
. Amortization expense is recognized as a component of income tax expense.
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2016
|
|
March 31,
2015
|
Amortization expense
|
$
|
255
|
|
|
252
|
|
Tax credits and other tax benefits recognized
|
392
|
|
|
391
|
|
The Company also owns the following trust subsidiaries, each of which issued trust preferred securities as Tier 1 capital instruments: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001, and First Company Statutory Trust 2003. The trust subsidiaries have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the securities held by third parties. The trust subsidiaries are not included in the Company’s consolidated financial statements because the sole asset of each trust subsidiary is a receivable from the Company, even though the Company owns all of the voting equity shares of the trust subsidiaries, has fully guaranteed the obligations of the trust subsidiaries and may have the right to redeem the third party securities under certain circumstances. The Company reports the trust preferred securities issued to the trust subsidiaries as subordinated debentures on the Company’s statements of financial condition.
Note 6. Securities Sold Under Agreements to Repurchase
The Company’s securities sold under agreements to repurchase (“repurchase agreements”) totaled
$445,960,000
and
$423,414,000
at
March 31, 2016
and
December 31, 2015
, respectively, and are secured by investment securities with carrying values of
$397,148,000
and
$446,838,000
, respectively. Securities are pledged to customers at the time of the transaction in an amount at least equal to the outstanding balance and are held in custody accounts by third parties. The fair value of collateral is continually monitored and additional collateral is provided as deemed appropriate.
The following tables summarize the carrying value of the Company’s repurchase agreements by remaining contractual maturity and category of collateral:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Remaining Contractual Maturity of the Agreements
|
(Dollars in thousands)
|
Overnight and Continuous
|
|
Up to 30 Days
|
|
Total
|
Residential mortgage-backed securities
|
$
|
443,913
|
|
|
2,047
|
|
|
445,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Remaining Contractual Maturity of the Agreements
|
(Dollars in thousands)
|
Overnight and Continuous
|
|
Up to 30 Days
|
|
Total
|
U.S. government sponsored enterprises
|
$
|
12,507
|
|
|
—
|
|
|
12,507
|
|
Residential mortgage-backed securities
|
408,460
|
|
|
2,447
|
|
|
410,907
|
|
|
$
|
420,967
|
|
|
2,447
|
|
|
423,414
|
|
Note 7. Derivatives and Hedging Activities
As of
March 31, 2016
, the Company’s interest rate swap derivative financial instruments were designated as cash flow hedges and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Forecasted
Notional Amount
|
|
Variable
Interest Rate
1
|
|
Fixed
Interest Rate
1
|
|
Payment Term
|
Interest rate swap
|
$
|
160,000
|
|
|
3 month LIBOR
|
|
3.378
|
%
|
|
Oct. 21, 2014 - Oct. 21, 2021
|
Interest rate swap
|
100,000
|
|
|
3 month LIBOR
|
|
2.498
|
%
|
|
Nov. 30, 2015 - Nov. 30, 2022
|
__________
1
The Company pays the fixed interest rate and the counterparty pays the Company the variable interest rate.
The hedging strategy converts the LIBOR-based variable interest rate on borrowings to a fixed interest rate, thereby protecting the Company from interest rate variability.
The interest rate swaps with the
$160,000,000
and
$100,000,000
notional amounts began their payment terms in October 2014 and November 2015, respectively. The Company designated wholesale deposits as the cash flow hedge and these deposits were determined to be fully effective during the current and prior year. As such, no amount of ineffectiveness has been included in the Company’s statements of operations for the
three
months ended
March 31, 2016
and
2015
. Therefore, the aggregate fair value of the interest rate swaps was recorded in other liabilities with changes recorded in other comprehensive income (“OCI”). The Company expects the hedges to remain highly effective during the remaining terms of the interest rate swaps. Interest expense recorded on the interest rate swaps totaled
$1,998,000
and
$1,351,000
during
2016
and
2015
, respectively, and is reported as a component of interest expense on deposits. Unless the interest rate swaps are terminated during the next year, the Company expects
$7,903,000
of the unrealized loss reported in other comprehensive income at
March 31, 2016
to be reclassified to interest expense during the next twelve months.
The following table presents the pre-tax gains or losses recorded in accumulated other comprehensive income and the Company’s statements of operations relating to the interest rate swap derivative financial instruments:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2016
|
|
March 31,
2015
|
Interest rate swaps
|
|
|
|
Amount of loss recognized in OCI (effective portion)
|
$
|
(9,928
|
)
|
|
(5,993
|
)
|
Amount of loss reclassified from OCI to interest expense
|
(1,829
|
)
|
|
(1,251
|
)
|
Amount of loss recognized in other non-interest expense (ineffective portion)
|
—
|
|
|
—
|
|
The following table discloses the offsetting of financial liabilities and interest rate swap derivative liabilities. There were no interest rate swap derivative assets at the dates presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(Dollars in thousands)
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Statements of Financial Position
|
|
Net Amounts of Liabilities Presented in the Statements of Financial Position
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Statements of Financial Position
|
|
Net Amounts of Liabilities Presented in the Statements of Financial Position
|
Interest rate swaps
|
$
|
27,598
|
|
|
—
|
|
|
27,598
|
|
|
19,499
|
|
|
—
|
|
|
19,499
|
|
Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparty in the form of investment securities totaling
$32,673,000
at
March 31, 2016
. There was
$0
collateral pledged from the counterparty to the Company as of
March 31, 2016
. There is the possibility that the Company may need to pledge additional collateral in the future if there were declines in the fair value of the interest rate swap derivative financial instruments versus the collateral pledged.
Note 8. Other Expenses
Other expenses consists of the following:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands)
|
March 31,
2016
|
|
March 31,
2015
|
Debit card expenses
|
$
|
1,849
|
|
|
1,352
|
|
Consulting and outside services
|
1,014
|
|
|
1,471
|
|
Telephone
|
960
|
|
|
809
|
|
Printing and supplies
|
943
|
|
|
790
|
|
Postage
|
880
|
|
|
914
|
|
Loan expenses
|
783
|
|
|
609
|
|
Checking and operating expenses
|
694
|
|
|
705
|
|
VIE write-downs and other expenses
|
639
|
|
|
607
|
|
Employee expenses
|
579
|
|
|
496
|
|
Accounting and audit fees
|
391
|
|
|
450
|
|
Business development
|
342
|
|
|
308
|
|
ATM expenses
|
255
|
|
|
266
|
|
Legal fees
|
237
|
|
|
265
|
|
Other
|
980
|
|
|
879
|
|
Total other expenses
|
$
|
10,546
|
|
|
9,921
|
|
Note 9. Accumulated Other Comprehensive Income
The following table illustrates the activity within accumulated other comprehensive income by component, net of tax:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Gains on Available-For-Sale Securities
|
|
Losses on Derivatives Used for Cash Flow Hedges
|
|
Total
|
Balance at December 31, 2014
|
$
|
27,945
|
|
|
(10,201
|
)
|
|
17,744
|
|
Other comprehensive income (loss) before reclassification
|
3,201
|
|
|
(3,682
|
)
|
|
(481
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
(3
|
)
|
|
767
|
|
|
764
|
|
Net current period other comprehensive income (loss)
|
3,198
|
|
|
(2,915
|
)
|
|
283
|
|
Balance at March 31, 2015
|
$
|
31,143
|
|
|
(13,116
|
)
|
|
18,027
|
|
Balance at December 31, 2015
|
$
|
13,935
|
|
|
(11,946
|
)
|
|
1,989
|
|
Other comprehensive income (loss) before reclassification
|
8,331
|
|
|
(6,082
|
)
|
|
2,249
|
|
Amounts reclassified from accumulated other comprehensive income
|
(38
|
)
|
|
1,121
|
|
|
1,083
|
|
Net current period other comprehensive income (loss)
|
8,293
|
|
|
(4,961
|
)
|
|
3,332
|
|
Balance at March 31, 2016
|
$
|
22,228
|
|
|
(16,907
|
)
|
|
5,321
|
|
Note 10. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding stock options were exercised and restricted stock awards were vested, using the treasury stock method.
Basic and diluted earnings per share has been computed based on the following:
|
|
|
|
|
|
|
|
|
Three Months ended
|
(Dollars in thousands, except per share data)
|
March 31,
2016
|
|
March 31,
2015
|
Net income available to common stockholders, basic and diluted
|
$
|
28,682
|
|
|
27,670
|
|
Average outstanding shares - basic
|
76,126,251
|
|
|
75,206,348
|
|
Add: dilutive stock options and awards
|
47,166
|
|
|
38,611
|
|
Average outstanding shares - diluted
|
76,173,417
|
|
|
75,244,959
|
|
Basic earnings per share
|
$
|
0.38
|
|
|
0.37
|
|
Diluted earnings per share
|
$
|
0.38
|
|
|
0.37
|
|
There were no stock options or restricted stock awards excluded from the diluted average outstanding share calculation for the
three
months ended
March 31, 2016
and
2015
, because to do so would have been anti-dilutive for those periods. Anti-dilution occurs when the exercise price of a stock option or the unrecognized compensation cost per share of a restricted stock award exceeds the market price of the Company’s stock.
Note 11. Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities
|
|
Level 2
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the
three
month periods ended
March 31, 2016
and
2015
.
Recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended
March 31, 2016
.
Investment securities, available-for-sale: fair value for available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, market spreads, prepayments, defaults, recoveries, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level 3 within the hierarchy.
Fair value determinations of available-for-sale securities are the responsibility of the Company’s corporate accounting and treasury departments. The Company obtains fair value estimates from independent third party vendors on a monthly basis. The vendors’ pricing system methodologies, procedures and system controls are reviewed to ensure they are appropriately designed and operating effectively. The Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value hierarchy. The review includes the extent to which markets for investment securities are determined to have limited or no activity, or are judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are judged to not reflect orderly transactions, or are non-binding indications. In assessing credit risk, the Company reviews payment performance, collateral adequacy, third party research and analyses, credit rating histories and issuers’ financial statements. For those markets determined to be inactive or limited, the valuation techniques used are models for which management has verified that discount rates are appropriately adjusted to reflect illiquidity and credit risk.
Interest rate swap derivative financial instruments: fair values for interest rate swap derivative financial instruments are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The inputs used to determine fair value include the 3 month LIBOR forward curve to estimate variable rate cash inflows and the Fed Funds Effective Swap Rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The Company also obtains and compares the reasonableness of the pricing from an independent third party.
The following tables disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value March 31, 2016
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Investment securities, available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
45,687
|
|
|
—
|
|
|
45,687
|
|
|
—
|
|
U.S. government sponsored enterprises
|
68,773
|
|
|
—
|
|
|
68,773
|
|
|
—
|
|
State and local governments
|
901,133
|
|
|
—
|
|
|
901,133
|
|
|
—
|
|
Corporate bonds
|
442,875
|
|
|
—
|
|
|
442,875
|
|
|
—
|
|
Residential mortgage-backed securities
|
1,146,157
|
|
|
—
|
|
|
1,146,157
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
$
|
2,604,625
|
|
|
—
|
|
|
2,604,625
|
|
|
—
|
|
Interest rate swaps
|
$
|
27,598
|
|
|
—
|
|
|
27,598
|
|
|
—
|
|
Total liabilities measured at fair value on a recurring basis
|
$
|
27,598
|
|
|
—
|
|
|
27,598
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value December 31, 2015
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Investment securities, available-for-sale
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
$
|
47,451
|
|
|
—
|
|
|
47,451
|
|
|
—
|
|
U.S. government sponsored enterprises
|
93,167
|
|
|
—
|
|
|
93,167
|
|
|
—
|
|
State and local governments
|
885,019
|
|
|
—
|
|
|
885,019
|
|
|
—
|
|
Corporate bonds
|
384,163
|
|
|
—
|
|
|
384,163
|
|
|
—
|
|
Residential mortgage-backed securities
|
1,200,960
|
|
|
—
|
|
|
1,200,960
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
$
|
2,610,760
|
|
|
—
|
|
|
2,610,760
|
|
|
—
|
|
Interest rate swaps
|
$
|
19,499
|
|
|
—
|
|
|
19,499
|
|
|
—
|
|
Total liabilities measured at fair value on a recurring basis
|
$
|
19,499
|
|
|
—
|
|
|
19,499
|
|
|
—
|
|
Non-recurring Measurements
The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended
March 31, 2016
.
Other real estate owned: OREO is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the fair value hierarchy.
Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s loan portfolio for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired. Estimated fair value of collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company’s credit departments review appraisals for OREO and collateral-dependent loans, giving consideration to the highest and best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The key inputs used to determine the fair value of the collateral-dependent loans and OREO include selling costs, discounted cash flow rate or capitalization rate, and adjustment to comparables. Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness. The Company also considers other factors and events in the environment that may affect the fair value. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains appraisals or evaluations (new or updated) annually.
The following tables disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value March 31, 2016
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other real estate owned
|
$
|
547
|
|
|
—
|
|
|
—
|
|
|
547
|
|
Collateral-dependent impaired loans, net of ALLL
|
9,691
|
|
|
—
|
|
|
—
|
|
|
9,691
|
|
Total assets measured at fair value on a non-recurring basis
|
$
|
10,238
|
|
|
—
|
|
|
—
|
|
|
10,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Fair Value December 31, 2015
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other real estate owned
|
$
|
7,609
|
|
|
—
|
|
|
—
|
|
|
7,609
|
|
Collateral-dependent impaired loans, net of ALLL
|
12,938
|
|
|
—
|
|
|
—
|
|
|
12,938
|
|
Total assets measured at fair value on a non-recurring basis
|
$
|
20,547
|
|
|
—
|
|
|
—
|
|
|
20,547
|
|
Non-recurring Measurements Using Significant Unobservable Inputs (Level 3)
The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value March 31, 2016
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(Dollars in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted-Average)
1
|
Other real estate owned
|
$
|
547
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 8.0% (8.0%)
|
Collateral-dependent impaired loans, net of ALLL
|
$
|
72
|
|
|
Cost approach
|
|
Selling costs
|
|
5.0% - 20.0% (10.8%)
|
|
5,795
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 10.0% (9.0%)
|
|
3,824
|
|
|
Combined approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
|
|
|
|
Adjustment to comparables
|
|
20.0% - 20.0% (20.0%)
|
|
$
|
9,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value December 31, 2015
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(Dollars in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted-Average)
1
|
Other real estate owned
|
$
|
4,067
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
7.0% - 10.0% (7.9%)
|
|
3,542
|
|
|
Combined approach
|
|
Selling costs
|
|
8.0% - 8.0% (8.0%)
|
|
$
|
7,609
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans, net of ALLL
|
$
|
162
|
|
|
Cost approach
|
|
Selling costs
|
|
0.0% - 20.0% (6.1%)
|
|
9,465
|
|
|
Sales comparison approach
|
|
Selling costs
|
|
8.0% - 20.0% (8.9%)
|
|
|
|
|
|
Adjustment to comparables
|
|
0.0% - 5.0% (0.0%)
|
|
3,311
|
|
|
Combined approach
|
|
Selling costs
|
|
10.0% - 10.0% (10.0%)
|
|
|
|
|
|
Adjustment to comparables
|
|
20.0% - 20.0% (20.0%)
|
|
$
|
12,938
|
|
|
|
|
|
|
|
__________
1
The range for selling costs and adjustments to comparables indicate reductions to the fair value.
Fair Value of Financial Instruments
The following is a description of the methods used to estimate the fair value of all other assets and liabilities recognized at amounts other than fair value.
Cash and cash equivalents: fair value is estimated at book value.
Investment securities, held-to-maturity: fair value for held-to-maturity securities is estimated in the same manner as available-for-sale securities, which is described above.
Loans held for sale: fair value is estimated at book value.
Loans receivable, net of ALLL: fair value is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities. The market rates used are based on current rates the Company would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions. Estimated fair value of impaired loans is based on the fair value of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate). All impaired loans are classified as Level 3 and all other loans are classified as Level 2 within the valuation hierarchy.
Accrued interest receivable: fair value is estimated at book value.
Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.
Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from an independent third party and reviewed by the Company. The rates were the average of current rates offered by the Company’s local competitors. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates and transactions are executed at book value daily. Therefore, such deposits are classified in Level 1 of the valuation hierarchy. Certificate accounts and wholesale deposits are classified as Level 2 within the hierarchy.
Federal Home Loan Bank advances: fair value of non-callable Federal Home Loan Bank (“FHLB”) advances is estimated by discounting the future cash flows using rates of similar advances with similar maturities. Such rates were obtained from current rates offered by FHLB. The estimated fair value of callable FHLB advances was obtained from FHLB and the model was reviewed by the Company.
Securities sold under agreements to repurchase and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value.
Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates. The market rates used were averages of currently traded trust preferred securities with similar characteristics to the Company’s issuances and obtained from an independent third party.
Accrued interest payable: fair value is estimated at book value.
Off-balance sheet financial instruments: commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, such that no adjustment is necessary to reflect these commitments at market value. The Company has an insignificant amount of off-balance sheet financial instruments.
The following tables present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Carrying Amount March 31, 2016
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
150,861
|
|
|
150,861
|
|
|
—
|
|
|
—
|
|
Investment securities, available-for-sale
|
2,604,625
|
|
|
—
|
|
|
2,604,625
|
|
|
—
|
|
Investment securities, held-to-maturity
|
691,663
|
|
|
—
|
|
|
720,190
|
|
|
—
|
|
Loans held for sale
|
40,484
|
|
|
40,484
|
|
|
—
|
|
|
—
|
|
Loans receivable, net of ALLL
|
5,067,122
|
|
|
—
|
|
|
4,897,887
|
|
|
132,426
|
|
Accrued interest receivable
|
47,363
|
|
|
47,363
|
|
|
—
|
|
|
—
|
|
Non-marketable equity securities
|
24,199
|
|
|
—
|
|
|
24,199
|
|
|
—
|
|
Total financial assets
|
$
|
8,626,317
|
|
|
238,708
|
|
|
8,246,901
|
|
|
132,426
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Deposits
|
$
|
7,016,194
|
|
|
5,626,969
|
|
|
1,389,225
|
|
|
—
|
|
FHLB advances
|
313,969
|
|
|
—
|
|
|
324,946
|
|
|
—
|
|
Repurchase agreements and other borrowed funds
|
452,593
|
|
|
—
|
|
|
452,593
|
|
|
—
|
|
Subordinated debentures
|
125,884
|
|
|
—
|
|
|
81,174
|
|
|
—
|
|
Accrued interest payable
|
3,608
|
|
|
3,608
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
27,598
|
|
|
—
|
|
|
27,598
|
|
|
—
|
|
Total financial liabilities
|
$
|
7,939,846
|
|
|
5,630,577
|
|
|
2,275,536
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At the End of the Reporting Period Using
|
(Dollars in thousands)
|
Carrying Amount December 31, 2015
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Financial assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
193,253
|
|
|
193,253
|
|
|
—
|
|
|
—
|
|
Investment securities, available-for-sale
|
2,610,760
|
|
|
—
|
|
|
2,610,760
|
|
|
—
|
|
Investment securities, held-to-maturity
|
702,072
|
|
|
—
|
|
|
729,513
|
|
|
—
|
|
Loans held for sale
|
56,514
|
|
|
56,514
|
|
|
—
|
|
|
—
|
|
Loans receivable, net of ALLL
|
4,948,984
|
|
|
—
|
|
|
4,851,934
|
|
|
132,649
|
|
Accrued interest receivable
|
44,524
|
|
|
44,524
|
|
|
—
|
|
|
—
|
|
Non-marketable equity securities
|
27,495
|
|
|
—
|
|
|
27,495
|
|
|
—
|
|
Total financial assets
|
$
|
8,583,602
|
|
|
294,291
|
|
|
8,219,702
|
|
|
132,649
|
|
Financial liabilities
|
|
|
|
|
|
|
|
Deposits
|
$
|
6,945,008
|
|
|
5,654,638
|
|
|
1,293,506
|
|
|
—
|
|
FHLB advances
|
394,131
|
|
|
—
|
|
|
401,530
|
|
|
—
|
|
Repurchase agreements and other borrowed funds
|
430,016
|
|
|
—
|
|
|
430,016
|
|
|
—
|
|
Subordinated debentures
|
125,848
|
|
|
—
|
|
|
81,840
|
|
|
—
|
|
Accrued interest payable
|
3,517
|
|
|
3,517
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
19,499
|
|
|
—
|
|
|
19,499
|
|
|
—
|
|
Total financial liabilities
|
$
|
7,918,019
|
|
|
5,658,155
|
|
|
2,226,391
|
|
|
—
|
|
Note 12. Subsequent Event
On April 20, 2016,
the Company announced the signing of a definitive agreement to acquire Treasure State Bank, a community bank based in Missoula, Montana
. Treasure State Bank provides banking services to individuals and businesses in the greater Missoula market. As of December 31, 2015, Treasure State Bank had total assets of
$71,000,000
, gross loans of
$53,000,000
and total deposits of
$58,000,000
. Upon closing of the transaction, which is anticipated to take place in the third quarter of 2016, Treasure State Bank will be merged into the Bank and will become part of the First Security Bank of Missoula division.