Quarterly Report (10-q)

Date : 07/20/2017 @ 4:11PM
Source : Edgar (US Regulatory)
Stock : 1ST Source Corp. (MM) (SRCE)
Quote : 48.46  0.03 (0.06%) @ 4:40PM
1ST Source Corp. (MM) share price Chart

Quarterly Report (10-q)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 0-6233
CORPLOGO3A02A07.JPG
(Exact name of registrant as specified in its charter)
INDIANA
 
35-1068133
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
100 North Michigan Street
 
 
South Bend, IN
 
46601
(Address of principal executive offices)
 
(Zip Code)
 
(574) 235-2000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x   Yes   o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x  Yes   o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer o
 
Accelerated filer x
 
 
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes   x  No
Number of shares of common stock outstanding as of July 14, 2017 — 25,935,324 shares
 



TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 
 
 
 
 
 
 
 


2




1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
 
June 30,
2017
 
December 31,
2016
ASSETS
 

 
 

Cash and due from banks
$
63,473

 
$
58,578

Federal funds sold and interest bearing deposits with other banks
12,561

 
49,726

Investment securities available-for-sale
850,314

 
850,467

Other investments
24,238

 
22,458

Mortgages held for sale
16,204

 
15,849

Loans and leases, net of unearned discount:
 

 
 
Commercial and agricultural
876,404

 
812,264

Auto and light truck
512,021

 
411,764

Medium and heavy duty truck
290,687

 
294,790

Aircraft
787,516

 
802,414

Construction equipment
539,097

 
495,925

Commercial real estate
720,078

 
719,170

Residential real estate and home equity
526,592

 
521,931

Consumer
128,919

 
129,813

Total loans and leases
4,381,314

 
4,188,071

Reserve for loan and lease losses
(91,914
)
 
(88,543
)
Net loans and leases
4,289,400

 
4,099,528

Equipment owned under operating leases, net
144,509

 
118,793

Net premises and equipment
54,783

 
56,708

Goodwill and intangible assets
83,848

 
84,102

Accrued income and other assets
147,900

 
130,059

Total assets
$
5,687,230

 
$
5,486,268

 
 
 
 
LIABILITIES
 

 
 

Deposits:
 

 
 

Noninterest-bearing demand
$
979,801

 
$
991,256

Interest-bearing deposits:
 
 
 
Interest-bearing demand
1,519,419

 
1,471,526

Savings
832,341

 
814,326

Time
1,150,475

 
1,056,652

Total interest-bearing deposits
3,502,235

 
3,342,504

Total deposits
4,482,036

 
4,333,760

Short-term borrowings:
 

 
 

Federal funds purchased and securities sold under agreements to repurchase
148,109

 
162,913

Other short-term borrowings
158,474

 
129,030

Total short-term borrowings
306,583

 
291,943

Long-term debt and mandatorily redeemable securities
70,438

 
74,308

Subordinated notes
58,764

 
58,764

Accrued expenses and other liabilities
70,207

 
54,843

Total liabilities
4,988,028

 
4,813,618

 
 
 
 
SHAREHOLDERS’ EQUITY
 

 
 

Preferred stock; no par value
 

 
 

Authorized 10,000,000 shares; none issued or outstanding

 

Common stock; no par value
 

 
 
Authorized 40,000,000 shares; issued 28,205,674 at June 30, 2017 and December 31, 2016
436,538

 
436,538

Retained earnings
314,889

 
290,824

Cost of common stock in treasury (2,270,350 shares at June 30, 2017 and 2,329,909 shares at December 31, 2016)
(54,662
)
 
(56,056
)
Accumulated other comprehensive income
2,437

 
1,344

Total shareholders’ equity
699,202

 
672,650

Total liabilities and shareholders’ equity
$
5,687,230

 
$
5,486,268

The accompanying notes are a part of the consolidated financial statements.

3


1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands, except per share amounts)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 

 
 

 
 

 
 

Loans and leases
$
48,032

 
$
43,891

 
$
92,916

 
$
86,627

Investment securities, taxable
3,370

 
3,040

 
6,884

 
6,120

Investment securities, tax-exempt
677

 
697

 
1,360

 
1,389

Other
319

 
309

 
610

 
600

Total interest income
52,398

 
47,937

 
101,770

 
94,736

Interest expense:
 

 
 

 
 

 
 

Deposits
4,511

 
3,790

 
8,245

 
7,561

Short-term borrowings
272

 
119

 
499

 
280

Subordinated notes
1,055

 
1,055

 
2,110

 
2,110

Long-term debt and mandatorily redeemable securities
699

 
680

 
1,328

 
1,203

Total interest expense
6,537

 
5,644

 
12,182

 
11,154

Net interest income
45,861

 
42,293

 
89,588

 
83,582

Provision for loan and lease losses
2,738

 
2,049

 
3,738

 
3,024

Net interest income after provision for loan and lease losses
43,123

 
40,244

 
85,850

 
80,558

Noninterest income:
 

 
 

 
 

 
 

Trust and wealth advisory
5,627

 
5,108

 
10,628

 
9,731

Service charges on deposit accounts
2,464

 
2,276

 
4,703

 
4,383

Debit card
2,986

 
2,816

 
5,736

 
5,415

Mortgage banking
1,304

 
1,115

 
2,251

 
2,161

Insurance commissions
1,310

 
1,233

 
3,077

 
2,796

Equipment rental
7,586

 
6,517

 
14,418

 
12,590

Gains (losses) on investment securities available-for-sale
465

 
(209
)
 
1,750

 
(199
)
Other
2,394

 
3,441

 
4,880

 
7,047

Total noninterest income
24,136

 
22,297

 
47,443

 
43,924

Noninterest expense:
 

 
 

 
 

 
 

Salaries and employee benefits
20,712

 
21,194

 
42,057

 
42,545

Net occupancy
2,368

 
2,307

 
4,962

 
4,808

Furniture and equipment
5,108

 
4,811

 
9,901

 
9,601

Depreciation – leased equipment
6,296

 
5,444

 
11,976

 
10,545

Professional fees
1,672

 
1,190

 
2,749

 
2,409

Supplies and communication
1,345

 
1,374

 
2,595

 
2,882

FDIC and other insurance
573

 
911

 
1,196

 
1,790

Business development and marketing
1,501

 
1,025

 
3,153

 
2,005

Loan and lease collection and repossession
329

 
385

 
965

 
812

Other
1,201

 
1,393

 
2,670

 
3,342

Total noninterest expense
41,105

 
40,034

 
82,224

 
80,739

Income before income taxes
26,154

 
22,507

 
51,069

 
43,743

Income tax expense
9,485

 
8,028

 
18,194

 
15,446

Net income
$
16,669

 
$
14,479

 
$
32,875

 
$
28,297

Per common share:
 

 
 

 
 

 
 

Basic net income per common share
$
0.64

 
$
0.56

 
$
1.26

 
$
1.08

Diluted net income per common share
$
0.64

 
$
0.56

 
$
1.26

 
$
1.08

Cash dividends
$
0.19

 
$
0.18

 
$
0.37

 
$
0.36

Basic weighted average common shares outstanding
25,927,032

 
25,853,537

 
25,915,280

 
25,888,534

Diluted weighted average common shares outstanding
25,927,032

 
25,853,537

 
25,915,280

 
25,888,534

The accompanying notes are a part of the consolidated financial statements.

4


1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - Dollars in thousands)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
16,669

 
$
14,479

 
$
32,875

 
$
28,297

Other comprehensive income:
 

 
 

 
 

 
 

Change in unrealized appreciation of available-for-sale securities
2,242

 
2,244

 
3,500

 
6,647

Reclassification adjustment for realized (gains) losses included in net income
(465
)
 
209

 
(1,750
)
 
199

Income tax effect
(667
)
 
(921
)
 
(657
)
 
(2,570
)
Other comprehensive income, net of tax
1,110

 
1,532

 
1,093

 
4,276

Comprehensive income
$
17,779

 
$
16,011

 
$
33,968

 
$
32,573

The accompanying notes are a part of the consolidated financial statements.

1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - Dollars in thousands, except per share amounts)
 
Preferred
Stock
 
Common
Stock
 
Retained
Earnings
 
Cost of
Common
Stock
in Treasury
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Total
Balance at January 1, 2016
$

 
$
436,538

 
$
251,812

 
$
(50,852
)
 
$
6,555

 
$
644,053

Net income

 

 
28,297

 

 

 
28,297

Other comprehensive income

 

 

 

 
4,276

 
4,276

Issuance of 104,853 common shares under stock based compensation awards, including related tax effects

 

 
4

 
2,500

 

 
2,504

Cost of 269,667 shares of common stock acquired for treasury

 

 

 
(8,005
)
 

 
(8,005
)
Common stock cash dividend ($0.36 per share)

 

 
(9,369
)
 

 

 
(9,369
)
Balance at June 30, 2016
$

 
$
436,538

 
$
270,744

 
$
(56,357
)
 
$
10,831

 
$
661,756

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
$

 
$
436,538

 
$
290,824

 
$
(56,056
)
 
$
1,344

 
$
672,650

Cumulative-effect adjustment

 

 
(65
)
 

 

 
(65
)
Balance at January 1, 2017, adjusted

 
436,538

 
290,759

 
(56,056
)
 
1,344

 
672,585

Net income

 

 
32,875

 

 

 
32,875

Other comprehensive income

 

 

 

 
1,093

 
1,093

Issuance of 60,459 common shares under stock based compensation awards

 

 
870

 
1,435

 

 
2,305

Cost of 900 shares of common stock acquired for treasury

 

 

 
(41
)
 

 
(41
)
Common stock cash dividend ($0.37 per share)

 

 
(9,615
)
 

 

 
(9,615
)
Balance at June 30, 2017
$

 
$
436,538

 
$
314,889

 
$
(54,662
)
 
$
2,437

 
$
699,202

The accompanying notes are a part of the consolidated financial statements.


5


1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Dollars in thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Operating activities:
 

 
 

Net income
$
32,875

 
$
28,297

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Provision for loan and lease losses
3,738

 
3,024

Depreciation of premises and equipment
2,758

 
2,596

Depreciation of equipment owned and leased to others
11,976

 
10,545

Stock-based compensation
720

 
1,399

Amortization of investment securities premiums and accretion of discounts, net
2,402

 
2,553

Amortization of mortgage servicing rights
551

 
716

Deferred income taxes
(1,222
)
 
(742
)
(Gains) losses on investment securities available-for-sale
(1,750
)
 
199

Originations of loans held for sale, net of principal collected
(44,472
)
 
(50,830
)
Proceeds from the sales of loans held for sale
45,420

 
46,151

Net gain on sale of loans held for sale
(1,303
)
 
(1,420
)
Net loss (gain) on sale of other real estate and repossessions
75

 
(135
)
Change in interest receivable
(224
)
 
(173
)
Change in interest payable
357

 
907

Change in other assets
(579
)
 
(4,127
)
Change in other liabilities
4,712

 
8,177

Other
1,695

 
(857
)
Net change in operating activities
57,729

 
46,280

Investing activities:
 

 
 

Proceeds from sales of investment securities available-for-sale
1,766

 
3,956

Proceeds from maturities and paydowns of investment securities available-for-sale
93,098

 
108,215

Purchases of investment securities available-for-sale
(94,117
)
 
(130,607
)
Proceeds from liquidation of partnership investment

 
1,472

Net change in other investments
(1,780
)
 

Loans sold or participated to others
6,579

 

Net change in loans and leases
(206,166
)
 
(159,218
)
Net change in equipment owned under operating leases
(37,692
)
 
(19,486
)
Purchases of premises and equipment
(1,017
)
 
(3,991
)
Proceeds from sales of other real estate and repossessions
2,042

 
714

Net change in investing activities
(237,287
)
 
(198,945
)
Financing activities:
 

 
 

Net change in demand deposits and savings accounts
54,453

 
117,906

Net change in time deposits
93,823

 
67,992

Net change in short-term borrowings
14,640

 
(27,253
)
Proceeds from issuance of long-term debt
19,999

 
10,832

Payments on long-term debt
(25,790
)
 
(5,703
)
Stock issued under stock purchase plans
153

 
116

Acquisition of treasury stock
(41
)
 
(8,005
)
Cash dividends paid on common stock
(9,949
)
 
(9,700
)
Net change in financing activities
147,288

 
146,185

 
 
 
 
Net change in cash and cash equivalents
(32,270
)
 
(6,480
)
Cash and cash equivalents, beginning of year
108,304

 
79,721

Cash and cash equivalents, end of period
$
76,034

 
$
73,241

Supplemental Information:
 

 
 

Non-cash transactions:
 

 
 

Loans transferred to other real estate and repossessed assets
$
5,977

 
$
1,469

Common stock matching contribution to Employee Stock Ownership and Profit Sharing Plan
1,426

 
800

The accompanying notes are a part of the consolidated financial statements.

6


1ST SOURCE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.       Accounting Policies
1st Source Corporation is a bank holding company headquartered in South Bend, Indiana that provides, through its subsidiaries (collectively referred to as “1st Source” or “the Company”), a broad array of financial products and services.
Basis of Presentation – The accompanying unaudited consolidated financial statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income, changes in shareholders’ equity, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.
The Notes to the Consolidated Financial Statements appearing in 1st Source Corporation’s Annual Report on Form 10-K (2016 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Statement of Financial Condition at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current year presentation.
Use of Estimates in the Preparation of Financial Statements – Financial statements prepared in accordance with GAAP require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
Loans and Leases – Loans are stated at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. Interest income is accrued as earned based on unpaid principal balances. Origination fees and direct loan and lease origination costs are deferred and the net amount amortized to interest income over the estimated life of the related loan or lease. Loan commitment fees are deferred and amortized into other income over the commitment period.
Direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, net of unamortized deferred lease origination fees and costs and unearned income. Interest income on direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment.
The accrual of interest on loans and leases is discontinued when a loan or lease becomes contractually delinquent for 90 days, or when an individual analysis of a borrower’s credit worthiness indicates a credit should be placed on nonperforming status, except for residential mortgage loans and consumer loans that are well secured and in the process of collection. Residential mortgage loans are placed on nonaccrual at the time the loan is placed in foreclosure. When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the reserve for loan and lease losses. However, in some cases, the Company may elect to continue the accrual of interest when the net realizable value of collateral is sufficient to cover the principal and accrued interest. When a loan or lease is classified as nonaccrual and the future collectibility of the recorded loan or lease balance is doubtful, collections on interest and principal are applied as a reduction to principal outstanding. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured, which is typically evidenced by a sustained repayment performance of at least six months .
A loan or lease is considered impaired, based on current information and events, if 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 or lease agreement. Interest on impaired loans and leases, which are not classified as nonaccrual, is recognized on the accrual basis. The Company evaluates loans and leases exceeding $100,000 for impairment and establishes a specific reserve as a component of the reserve for loan and lease losses when it is probable all amounts due will not be collected pursuant to the contractual terms of the loan or lease and the recorded investment in the loan or lease exceeds its fair value.
Loans and leases that have been modified and economic concessions have been granted to borrowers who have experienced financial difficulties are considered a troubled debt restructuring (TDR) and, by definition, are deemed an impaired loan. These concessions typically result from the Company’s loss mitigation activities and may 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 restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

7


When the Company modifies loans and leases in a TDR, it evaluates any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, or uses the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through a reserve for loan and lease losses estimate or a charge-off to the reserve for loan and lease losses. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the reserve for loan and lease losses.
Note 2 — Recent Accounting Pronouncements
Share Based Payment Awards: In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-09 “ Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting.” These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a prospective basis to an award modified on or after the adoption date. The Company is assessing the impact of ASU 2017-09 and does not expect it to have a material impact on its accounting and disclosures.
Premium Amortization: In March 2017, the FASB issued ASU No. 2017-08 “ Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is assessing the impact of ASU 2017-08 on its accounting and disclosures.
Sale of Nonfinancial Assets: In February 2017, the FASB issued ASU No. 2017-05 “ Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” 'The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The guidance is effective for public business entities for annual periods beginning after December 15, 2017 and interim periods therein. Entities may use either a full or modified approach to adopt the ASU. The Company is assessing ASU 2017-05 and does not expect it to have a material impact on its accounting and disclosures.
Simplifying the Test for Goodwill Impairment: In January 2017, the FASB issued ASU No. 2017-04 “ Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” These amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company has assessed ASU 2017-04 and does not expect it to have a material impact on its accounting and disclosures.
Business Combinations: In January 2017, the FASB issued ASU No. 2017-01 “ Business Combinations (Topic 805) - Clarifying the Definition of a Business.” ASU 2017-01 provides amendments to clarify the definition of a business and affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied prospectively as of the beginning of the period of adoption. Early adoption is permitted under certain circumstances. The Company has assessed ASU 2017-01 and does not expect it to have a material impact on its accounting and disclosures.

8


Restricted Cash: In November 2016, the FASB issued ASU No. 2016-18 “ Statement of Cash Flows (Topic 230) - Restricted Cash.” ASU 2016-18 provides amendments to cash flow statement classification and presentation to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. The Company has assessed ASU 2016-18 and does not expect a material impact on its accounting and disclosures.
Intra-Entity Transfers of Assets Other Than Inventory: In October 2016, the FASB issued ASU No. 2016-16 “ Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory.” The amendments in ASU 2016-16 require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments do not include new disclosure requirements; however existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company has assessed ASU 2016-16 and does not expect a material impact on its accounting and disclosures.
Classification of Certain Cash Receipts and Cash Payments: In August 2016, the FASB issued ASU No. 2016-15 “ Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides cash flow statement classification guidance for certain transactions including how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company has assessed ASU 2016-15 and does not expect a material impact on its accounting and disclosures.
Measurement of Credit Losses on Financial Instruments: In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” The provisions of ASU 2016-13 were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the financial assets.
For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense.
Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security.
ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has an implementation team working through the provisions of ASU 2016-13 including assessing the impact on its accounting and disclosures.
Share Based Payment Accounting: In March 2016, the FASB issued ASU No. 2016-09 “ Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. The Company adopted ASU 2016-09 on January 1, 2017 on a modified retrospective method through a cumulative adjustment to retained earnings related to the policy election to account for forfeitures as they occur. The adoption of ASU 2016-09 did not have a material impact on its accounting and disclosures.

9


Leases: In February 2016, the FASB issued ASU No. 2016-02 “ Leases (Topic 842).” ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company has an implementation team working through the provisions of ASU 2016-02 including reviewing all leases to assess the impact on its accounting and disclosures. The Company does not anticipate a significant increase in lessee activity between now and the date of adoption. It is expected that the Company will recognize discounted right of use assets and lease liabilities (estimated between $12 and $15 million ).
Recognition and Measurement of Financial Instruments: In January 2016, the FASB issued ASU No. 2016-01 “ Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is continuing to assess the impact of ASU 2016-01 on its accounting for equity investments, fair value disclosures and other disclosure requirements.
Revenue from Contracts with Customers: In May 2014, the FASB issued ASU No. 2014-09 “ Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance is that an entity should 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 those goods and services. On July 9, 2015, the FASB approved amendments deferring the effective date by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted but not before the original public entity effective date, i.e ., annual periods beginning after December 15, 2016. In March 2016, the FASB issued final amendments (ASU No. 2016-08 and ASU No. 2016-10) to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. In May 2016, the FASB issued final amendments (ASU No. 2016-12 and ASU 2016-11) to address narrow-scope improvements to the guidance on collectibility, non-cash consideration, completed contracts at transition and to provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. Additionally, the amendments included a rescission of SEC guidance because of ASU 2014-09 related to revenue and expense recognition for freight services in process, accounting for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer. In December 2016, the FASB issued final guidance (ASU 2016-20) that allows entities not to make quantitative disclosures about performance obligations in certain cases and requires entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. It also makes 12 additional technical corrections and improvements to the new revenue standard. These amendments are effective upon the adoption of ASU 2014-09. The Company’s revenue is comprised of net interest income, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. ASU 2014-09 may require the Company to change how it recognizes certain recurring revenue streams related to noninterest income; however it is not expected to have a material impact on its accounting and disclosures. The Company continues to follow the guidance from the FASB and the Transition Resource Group for Revenue Recognition in determining the impact of ASU 2014-09 on other areas of noninterest income and expects to adopt ASU 2014-09 on January 1, 2018.

10


Note 3.       Investment Securities Available-For-Sale
The following table shows investment securities available-for-sale.
(Dollars in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
June 30, 2017
 
 

 
 

 
 

 
 

U.S. Treasury and Federal agencies securities
 
$
430,782

 
$
725

 
$
(2,610
)
 
$
428,897

U.S. States and political subdivisions securities
 
127,214

 
1,559

 
(489
)
 
128,284

Mortgage-backed securities — Federal agencies
 
255,747

 
2,110

 
(2,159
)
 
255,698

Corporate debt securities
 
31,621

 
64

 
(159
)
 
31,526

Foreign government and other securities
 
300

 
2

 

 
302

Total debt securities
 
845,664

 
4,460

 
(5,417
)
 
844,707

Marketable equity securities
 
749

 
4,859

 
(1
)
 
5,607

Total investment securities available-for-sale
 
$
846,413

 
$
9,319

 
$
(5,418
)
 
$
850,314

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

 
 

U.S. Treasury and Federal agencies securities
 
$
424,495

 
$
809

 
$
(4,471
)
 
$
420,833

U.S. States and political subdivisions securities
 
133,509

 
1,036

 
(1,570
)
 
132,975

Mortgage-backed securities — Federal agencies
 
252,981

 
2,175

 
(2,582
)
 
252,574

Corporate debt securities
 
35,266

 
111

 
(301
)
 
35,076

Foreign government and other securities
 
800

 
7

 

 
807

Total debt securities
 
847,051

 
4,138

 
(8,924
)
 
842,265

Marketable equity securities
 
1,265

 
7,007

 
(70
)
 
8,202

Total investment securities available-for-sale
 
$
848,316

 
$
11,145

 
$
(8,994
)
 
$
850,467

At June 30, 2017 and December 31, 2016 , the residential mortgage-backed securities held by the Company consisted primarily of GNMA, FNMA and FHLMC pass-through certificates which are guaranteed by those respective agencies of the United States government (Government Sponsored Enterprise, GSEs).
The following table shows the contractual maturities of investments in debt securities available-for-sale at June 30, 2017 . Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands)
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
113,082

 
$
113,466

Due after one year through five years
 
423,816

 
422,703

Due after five years through ten years
 
53,019

 
52,840

Due after ten years
 

 

Mortgage-backed securities
 
255,747

 
255,698

Total debt securities available-for-sale
 
$
845,664

 
$
844,707


11


The following table summarizes gross unrealized losses and fair value by investment category and age.
 
 
Less than 12 Months
 
12 months or Longer
 
Total
(Dollars in thousands) 
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
June 30, 2017
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury and Federal agencies securities
 
$
267,261

 
$
(2,229
)
 
$
22,015

 
$
(381
)
 
$
289,276

 
$
(2,610
)
U.S. States and political subdivisions securities
 
35,592

 
(323
)
 
7,493

 
(166
)
 
43,085

 
(489
)
Mortgage-backed securities - Federal agencies
 
125,053

 
(1,656
)
 
30,536

 
(503
)
 
155,589

 
(2,159
)
Corporate debt securities
 
11,910

 
(159
)
 

 

 
11,910

 
(159
)
Foreign government and other securities
 

 

 

 

 

 

Total debt securities
 
439,816

 
(4,367
)
 
60,044

 
(1,050
)
 
499,860

 
(5,417
)
Marketable equity securities
 

 

 
3

 
(1
)
 
3

 
(1
)
Total investment securities available-for-sale
 
$
439,816

 
$
(4,367
)
 
$
60,047

 
$
(1,051
)
 
$
499,863

 
$
(5,418
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury and Federal agencies securities
 
$
263,680

 
$
(4,471
)
 
$

 
$

 
$
263,680

 
$
(4,471
)
U.S. States and political subdivisions securities
 
74,129

 
(1,515
)
 
3,337

 
(55
)
 
77,466

 
(1,570
)
Mortgage-backed securities - Federal agencies
 
168,554

 
(2,341
)
 
5,102

 
(241
)
 
173,656

 
(2,582
)
Corporate debt securities
 
13,312

 
(301
)
 

 

 
13,312

 
(301
)
Foreign government and other securities
 

 

 

 

 

 

Total debt securities
 
519,675

 
(8,628
)
 
8,439

 
(296
)
 
528,114

 
(8,924
)
Marketable equity securities
 
280

 
(70
)
 
4

 

 
284

 
(70
)
Total investment securities available-for-sale
 
$
519,955

 
$
(8,698
)
 
$
8,443

 
$
(296
)
 
$
528,398

 
$
(8,994
)
The initial indication of potential other-than-temporary-impairment (OTTI) for both debt and equity securities is a decline in fair value below amortized cost. Quarterly, the impaired securities are analyzed on a qualitative and quantitative basis in determining OTTI. Declines in the fair value of available-for-sale debt securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of impairment related to other factors is recognized in other comprehensive income. In estimating OTTI losses, the Company considers among other things, (i) the length of time and the extent to which fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) whether it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.
At June 30, 2017 , the Company does not have the intent to sell any of the available-for-sale securities in the table above and believes that it is more likely than not, that it will not have to sell any such securities before an anticipated recovery of cost. Primarily the unrealized losses on debt securities are due to increases in market rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover on all debt securities as they approach their maturity date or re-pricing date or if market yields for such investments decline. The Company does not believe any of the securities are impaired due to reasons of credit quality.
The following table shows the gross realized gains and losses from the securities available-for-sale portfolio, including marketable equity securities. Realized gains and losses of all securities are computed using the specific identification cost basis.
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in thousands)
 
2017
 
2016
 
2017
 
2016
Gross realized gains
 
$
655

 
$
85

 
$
1,940

 
$
95

Gross realized losses
 

 

 

 

OTTI losses
 
(190
)
 
(294
)
 
(190
)
 
(294
)
Net realized gains (losses)
 
$
465

 
$
(209
)
 
$
1,750

 
$
(199
)
At June 30, 2017 and December 31, 2016 , investment securities available-for-sale with carrying values of $277.31 million and $276.29 million , respectively, were pledged as collateral for security repurchase agreements and for other purposes.

12


Note 4.       Loan and Lease Financings
The Company evaluates loans and leases for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law.
All loans and leases, except residential real estate and home equity loans and consumer loans, are assigned credit quality grades on a scale from 1 to 12 with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $100,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the reserve for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12).
The following table shows the credit quality grades of the recorded investment in loans and leases, segregated by class.
 
 
Credit Quality Grades
(Dollars in thousands) 
 
1-6
 
7-12
 
Total
June 30, 2017
 
 

 
 

 
 

Commercial and agricultural
 
$
850,371

 
$
26,033

 
$
876,404

Auto and light truck
 
494,001

 
18,020

 
512,021

Medium and heavy duty truck
 
285,768

 
4,919

 
290,687

Aircraft
 
766,054

 
21,462

 
787,516

Construction equipment
 
525,618

 
13,479

 
539,097

Commercial real estate
 
711,755

 
8,323

 
720,078

Total
 
$
3,633,567

 
$
92,236

 
$
3,725,803

 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

Commercial and agricultural
 
$
784,811

 
$
27,453

 
$
812,264

Auto and light truck
 
407,931

 
3,833

 
411,764

Medium and heavy duty truck
 
291,558

 
3,232

 
294,790

Aircraft
 
772,802

 
29,612

 
802,414

Construction equipment
 
486,923

 
9,002

 
495,925

Commercial real estate
 
707,252

 
11,918

 
719,170

Total
 
$
3,451,277

 
$
85,050

 
$
3,536,327

For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. The following table shows the recorded investment in residential real estate and home equity and consumer loans by performing or nonperforming status. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due.
(Dollars in thousands) 
 
Performing
 
Nonperforming
 
Total
June 30, 2017
 
 

 
 

 
 

Residential real estate and home equity
 
$
523,380

 
$
3,212

 
$
526,592

Consumer
 
128,677

 
242

 
128,919

Total
 
$
652,057

 
$
3,454

 
$
655,511

 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

Residential real estate and home equity
 
$
518,896

 
$
3,035

 
$
521,931

Consumer
 
129,585

 
228

 
129,813

Total
 
$
648,481

 
$
3,263

 
$
651,744


13


The following table shows the recorded investment of loans and leases, segregated by class, with delinquency aging and nonaccrual status.
(Dollars in thousands) 
 
Current
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due and Accruing
 
Total
Accruing 
Loans
 
Nonaccrual
 
Total
Financing
Receivables
June 30, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial and agricultural
 
$
869,663

 
$
422

 
$

 
$

 
$
870,085

 
$
6,319

 
$
876,404

Auto and light truck
 
511,506

 
106

 

 

 
511,612

 
409

 
512,021

Medium and heavy duty truck
 
289,719

 
670

 
298

 

 
290,687

 

 
290,687

Aircraft
 
782,213

 
2,014

 
1,305

 

 
785,532

 
1,984

 
787,516

Construction equipment
 
537,610

 
281

 

 

 
537,891

 
1,206

 
539,097

Commercial real estate
 
717,312

 
37

 

 

 
717,349

 
2,729

 
720,078

Residential real estate and home equity
 
522,035

 
762

 
583

 
155

 
523,535

 
3,057

 
526,592

Consumer
 
128,230

 
365

 
82

 
23

 
128,700

 
219

 
128,919

Total
 
$
4,358,288

 
$
4,657

 
$
2,268

 
$
178

 
$
4,365,391

 
$
15,923

 
$
4,381,314

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial and agricultural
 
$
808,283

 
$

 
$

 
$

 
$
808,283

 
$
3,981

 
$
812,264

Auto and light truck
 
411,300

 
298

 

 

 
411,598

 
166

 
411,764

Medium and heavy duty truck
 
294,790

 

 

 

 
294,790

 

 
294,790

Aircraft
 
791,559

 
1,429

 
3,316

 

 
796,304

 
6,110

 
802,414

Construction equipment
 
493,131

 
1,546

 

 

 
494,677

 
1,248

 
495,925

Commercial real estate
 
713,482

 
133

 

 

 
713,615

 
5,555

 
719,170

Residential real estate and home equity
 
517,212

 
1,310

 
374

 
394

 
519,290

 
2,641

 
521,931

Consumer
 
129,000

 
453

 
132

 
22

 
129,607

 
206

 
129,813

Total
 
$
4,158,757

 
$
5,169

 
$
3,822

 
$
416

 
$
4,168,164

 
$
19,907

 
$
4,188,071


14


The following table shows impaired loans and leases, segregated by class, and the corresponding reserve for impaired loan and lease losses.
(Dollars in thousands) 
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Reserve
June 30, 2017
 
 

 
 

 
 

With no related reserve recorded:
 
 

 
 

 
 

Commercial and agricultural
 
$
196

 
$
196

 
$

Auto and light truck
 

 

 

Medium and heavy duty truck
 

 

 

Aircraft
 
1,768

 
1,768

 

Construction equipment
 
1,132

 
1,132

 

Commercial real estate
 
588

 
588

 

Residential real estate and home equity
 

 

 

Consumer
 

 

 

Total with no related reserve recorded
 
3,684

 
3,684

 

With a reserve recorded:
 
 

 
 

 
 

Commercial and agricultural
 
5,862

 
5,862

 
1,240

Auto and light truck
 
204

 
204

 
21

Medium and heavy duty truck
 

 

 

Aircraft
 
120

 
120

 
120

Construction equipment
 

 

 

Commercial real estate
 
2,089

 
2,089

 
126

Residential real estate and home equity
 
355

 
357

 
137

Consumer
 

 

 

Total with a reserve recorded
 
8,630

 
8,632

 
1,644

Total impaired loans
 
$
12,314

 
$
12,316

 
$
1,644

 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

With no related reserve recorded:
 
 

 
 

 
 

Commercial and agricultural
 
$
1,700

 
$
1,700

 
$

Auto and light truck
 
115

 
115

 

Medium and heavy duty truck
 

 

 

Aircraft
 
2,918

 
2,918

 

Construction equipment
 
605

 
605

 

Commercial real estate
 
2,607

 
2,607

 

Residential real estate and home equity
 

 

 

Consumer
 

 

 

Total with no related reserve recorded
 
7,945

 
7,945

 

With a reserve recorded:
 
 

 
 

 
 

Commercial and agricultural
 
1,890

 
1,890

 
297

Auto and light truck
 

 

 

Medium and heavy duty truck
 

 

 

Aircraft
 
3,192

 
3,192

 
1,076

Construction equipment
 
562

 
562

 
35

Commercial real estate
 
2,765

 
2,765

 
322

Residential real estate and home equity
 
674

 
676

 
148

Consumer
 

 

 

Total with a reserve recorded
 
9,083

 
9,085

 
1,878

Total impaired loans
 
$
17,028

 
$
17,030

 
$
1,878


15


The following table shows average recorded investment and interest income recognized on impaired loans and leases, segregated by class.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
(Dollars in thousands) 
 
Average
Recorded
Investment
 
Interest
Income
 
Average
Recorded
Investment
 
Interest
Income
 
Average
Recorded
Investment
 
Interest
Income
 
Average
Recorded
Investment
 
Interest
Income
Commercial and agricultural
 
$
7,067

 
$

 
$
3,449

 
$