Notes to Unaudited Consolidated Financial Statements
Note 1 — Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations.
The accounting and reporting practices of First Business Financial Services, Inc. (the “Corporation”), its wholly owned subsidiaries, First Business Bank (“FBB”), First Business Bank – Milwaukee (“FBB – Milwaukee”) and Alterra Bank (“Alterra”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). FBB, FBB – Milwaukee and Alterra are sometimes referred to together as the “Banks.” FBB operates as a commercial banking institution in the Madison, Wisconsin market, consisting primarily of Dane County and the surrounding areas, with loan production offices in Northeast Wisconsin. FBB also offers trust and investment services through First Business Trust & Investments (“FBTI”), a division of FBB. FBB – Milwaukee operates as a commercial banking institution in the Milwaukee, Wisconsin market, consisting primarily of Waukesha County and the surrounding areas, with a loan production office in Kenosha, Wisconsin. Alterra operates as a commercial banking institution in the Kansas City market and the surrounding areas. The Banks provide a full range of financial services to businesses, business owners, executives, professionals and high net worth individuals. The Banks are subject to competition from other financial institutions and service providers and are also subject to state and federal regulations. FBB has the following wholly owned subsidiaries: First Business Capital Corp. (“FBCC”), First Madison Investment Corp. (“FMIC”), First Business Equipment Finance, LLC (“FBEF”), Rimrock Road Investment Fund, LLC (“Rimrock Road”) and BOC Investment, LLC (“BOC”). FMIC is located in and was formed under the laws of the state of Nevada. FBB-Milwaukee has one subsidiary, FBB – Milwaukee Real Estate, LLC (“FBBMRE”).
Basis of Presentation.
The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2015
. The unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.
Management of the Corporation is required 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 as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of foreclosed property, lease residuals, property under operating leases, securities, income taxes and the level of the allowance for loan and lease losses. The results of operations for the
three
-month period ended
March 31, 2016
are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending
December 31, 2015
. Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.
The Corporation has not changed its significant accounting and reporting policies from those disclosed in the Corporation’s Form 10-K for the year ended
December 31, 2015
except as described further below in this
Note 1
.
Recent Accounting Pronouncements
In February 2015, the FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation Analysis.”
The ASU changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (“VIE”), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The new guidance excludes money market funds that are required to comply with Rule 2a-7 of the Investment Company Act of 1940 and similar entities from the U.S. GAAP consolidation requirements. The new consolidation guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. At the effective date, all previous consolidation analysis that the guidance affects must be reconsidered. This includes the consolidation analysis for all VIEs and for all limited partnerships and similar entities that previously were consolidated by the general partner even though the entities were not VIEs. The Corporation adopted the standard during the first quarter of 2016, as required, with no material impact on its results of operations, financial position, or liquidity.
In April 2015, the FASB issued ASU 2015-03, “
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.”
The ASU requires that debt issuance costs related to recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior to this ASU, debt issuance costs were required to be presented as an asset. The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. In August 2015, the FASB expanded this amendment to include SEC staff views related to debt issuance costs associated with line-of-credit arrangements. The SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This amendment is also effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Corporation adopted the standards during the first quarter of 2016, as required, and reclassified $792,000 and $810,000 of debt issuance costs from other assets and presented as a deduction from the debt liability as of March 31, 2016 and December 31, 2015, respectively. The adoption of the standards did not have a material impact on the Corporation’s consolidated results of operations, financial position, or liquidity.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606),”
with an original effective date for annual reporting periods beginning after December 15, 2016. The ASU is a converged standard between the FASB and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU is revenue recognition that represents 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 or services. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 to annual and interim reporting periods in fiscal years beginning after December 15, 2017. Earlier application is permitted only as of annual and interim reporting periods in fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-08, “
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net.”
The ASU intends to improve the operability and understandability of the implementation guidance of ASU 2014-09 on principal versus agent considerations. The Corporation intends to adopt the accounting standards during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.
In September 2015, the FASB issued ASU No. 2015-16,
“Business Combinations (Topic 805).”
The ASU intends to simplify the accounting for measurement adjustments to prior business combinations. The amendment requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer must record, in the same 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 amendment also requires 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. This amendment is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this amendment with earlier application permitted for financial statements that have not been issued. The Corporation adopted the standard during the first quarter of 2016, as required, with no material impact on its results of operations, financial position, or liquidity.
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments (Subtopic 825-10).”
The ASU amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to
equity investments that exist as of the date of adoption. The Corporation intends to adopt the accounting standard during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).”
The ASU intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities and disclosing key information about leasing arrangements. The ASU will require lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessees’ obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Corporation intends to adopt the accounting standard during the first quarter of 2019, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.
Note 2 — Earnings Per Common Share
Earnings per common share are computed using the two-class method. Basic earnings per common share are computed by dividing net income allocated to common shares by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends at the same rate as holders of the Corporation’s common stock. Diluted earnings per share are computed by dividing net income allocated to common shares, adjusted for reallocation of undistributed earnings of unvested restricted shares, by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.
There were
no
anti-dilutive employee share-based awards for the three-month periods ended March 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
Basic earnings per common share
|
|
|
|
|
Net income
|
|
$
|
4,547
|
|
|
$
|
4,192
|
|
Less: earnings allocated to participating securities
|
|
70
|
|
|
73
|
|
Basic earnings allocated to common shareholders
|
|
$
|
4,477
|
|
|
$
|
4,119
|
|
|
|
|
|
|
Weighted-average common shares outstanding, excluding participating securities
|
|
8,565,050
|
|
|
8,525,127
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
|
|
Earnings allocated to common shareholders, diluted
|
|
$
|
4,477
|
|
|
$
|
4,119
|
|
|
|
|
|
|
Weighted-average common shares outstanding, excluding participating securities
|
|
8,565,050
|
|
|
8,525,127
|
|
Dilutive effect of share-based awards
|
|
—
|
|
|
4,531
|
|
Weighted-average diluted common shares outstanding, excluding participating securities
|
|
8,565,050
|
|
|
8,529,658
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
Note 3 — Share-Based Compensation
The Corporation adopted the 2012 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2012. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options (together, “Stock Options”), restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of
March 31, 2016
,
310,584
shares were available for future grants under the Plan. Shares covered by awards that expire, terminate or lapse will again be available for the grant of awards under the Plan. The Corporation may issue new shares and shares from treasury for shares delivered under the Plan.
Stock Options
The Corporation may grant Stock Options to senior executives and other employees under the Plan. Stock Options generally have an exercise price that is equal to the fair value of the common shares on the date the option is awarded. Stock Options granted under the Plan are subject to graded vesting, generally ranging from
4 years
to
8 years
, and have a contractual term of
10 years
. For any new awards issued, compensation expense is recognized over the requisite service period for the entire award on a straight-line basis. No Stock Options have been granted since the Corporation became a reporting company under the Securities Exchange Act of 1934, as amended, and no Stock Options have been modified, repurchased or canceled since such time. For that reason,
no
stock-based compensation expense related to Stock Options was recognized in the Consolidated Financial Statements for the
three
months ended
March 31, 2016
and
2015
. The benefits of tax deductions as a result of disqualifying dispositions upon exercise of stock options are recognized as a financing cash flow.
No
Stock Options remained outstanding as of March 31, 2016 and December 31, 2015.
Restricted Stock
Under the Plan, the Corporation may grant restricted shares to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While the restricted shares are subject to forfeiture, the participant may exercise full voting rights and will receive all dividends and other distributions paid with respect to the
restricted shares. The restricted shares granted under the Plan are typically subject to a vesting period. Compensation expense is recognized over the requisite service period of generally four years for the entire award on a straight-line basis. Upon vesting of restricted share awards, the benefit of tax deductions in excess of recognized compensation expense is recognized as a financing cash flow activity.
Restricted share activity for the year ended
December 31, 2015
and the
three
months ended
March 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Restricted Shares
|
|
Weighted Average
Grant-Date
Fair Value
|
Nonvested balance as of December 31, 2014
|
|
154,998
|
|
|
$
|
16.97
|
|
Granted
|
|
53,790
|
|
|
22.52
|
|
Vested
|
|
(64,874
|
)
|
|
15.23
|
|
Forfeited
|
|
(8,443
|
)
|
|
15.03
|
|
Nonvested balance as of December 31, 2015
|
|
135,471
|
|
|
20.13
|
|
Granted
|
|
2,905
|
|
|
21.68
|
|
Vested
|
|
(2,246
|
)
|
|
21.35
|
|
Forfeited
|
|
(2,044
|
)
|
|
14.50
|
|
Nonvested balance as of March 31, 2016
|
|
134,086
|
|
|
$
|
20.23
|
|
As of
March 31, 2016
, the Corporation had
$2.0 million
of deferred compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately
2.63
years. As of
March 31, 2016
, all restricted shares that vested were issued.
For the
three
months ended
March 31, 2016
and
2015
, share-based compensation expense related to restricted stock included in the Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(In Thousands)
|
Share-based compensation expense
|
$
|
296
|
|
|
$
|
234
|
|
Note 4 — Securities
The amortized cost and estimated fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Amortized cost
|
|
Gross
unrealized
holding gains
|
|
Gross
unrealized
holding losses
|
|
Estimated
fair value
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
8,047
|
|
|
$
|
34
|
|
|
$
|
(14
|
)
|
|
$
|
8,067
|
|
Municipal obligations
|
|
5,176
|
|
|
22
|
|
|
(4
|
)
|
|
5,194
|
|
Asset-backed securities
|
|
1,279
|
|
|
—
|
|
|
(60
|
)
|
|
1,219
|
|
Collateralized mortgage obligations - government issued
|
|
39,577
|
|
|
836
|
|
|
(32
|
)
|
|
40,381
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
85,525
|
|
|
509
|
|
|
(72
|
)
|
|
85,962
|
|
|
|
$
|
139,604
|
|
|
$
|
1,401
|
|
|
$
|
(182
|
)
|
|
$
|
140,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Amortized cost
|
|
Gross
unrealized
holding gains
|
|
Gross
unrealized
holding losses
|
|
Estimated
fair value
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
8,047
|
|
|
$
|
2
|
|
|
$
|
(32
|
)
|
|
$
|
8,017
|
|
Municipal obligations
|
|
4,278
|
|
|
12
|
|
|
(7
|
)
|
|
4,283
|
|
Asset-backed securities
|
|
1,327
|
|
|
$
|
—
|
|
|
(58
|
)
|
|
1,269
|
|
Collateralized mortgage obligations - government issued
|
|
43,845
|
|
|
814
|
|
|
(116
|
)
|
|
44,543
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
82,707
|
|
|
145
|
|
|
(416
|
)
|
|
82,436
|
|
|
|
$
|
140,204
|
|
|
$
|
973
|
|
|
$
|
(629
|
)
|
|
$
|
140,548
|
|
The amortized cost and estimated fair value of securities held-to-maturity and the corresponding amounts of gross unrecognized gains and losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Amortized cost
|
|
Gross
unrecognized
holding gains
|
|
Gross
unrecognized
holding losses
|
|
Estimated
fair value
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
1,496
|
|
|
$
|
6
|
|
|
$
|
(3
|
)
|
|
$
|
1,499
|
|
Municipal obligations
|
|
16,026
|
|
|
443
|
|
|
(7
|
)
|
|
16,462
|
|
Collateralized mortgage obligations - government issued
|
|
11,176
|
|
|
144
|
|
|
(1
|
)
|
|
11,319
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
7,787
|
|
|
146
|
|
|
—
|
|
|
7,933
|
|
|
|
$
|
36,485
|
|
|
$
|
739
|
|
|
$
|
(11
|
)
|
|
$
|
37,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Amortized cost
|
|
Gross
unrecognized
holding gains
|
|
Gross
unrecognized
holding losses
|
|
Estimated
fair value
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
1,495
|
|
|
$
|
1
|
|
|
$
|
(11
|
)
|
|
$
|
1,485
|
|
Municipal obligations
|
|
16,038
|
|
|
332
|
|
|
(5
|
)
|
|
16,365
|
|
Collateralized mortgage obligations - government issued
|
|
11,718
|
|
|
32
|
|
|
(41
|
)
|
|
11,709
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
8,031
|
|
|
12
|
|
|
(44
|
)
|
|
7,999
|
|
|
|
$
|
37,282
|
|
|
$
|
377
|
|
|
$
|
(101
|
)
|
|
$
|
37,558
|
|
U.S. Government agency obligations - government-sponsored enterprises represent securities issued by the Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”). Collateralized mortgage obligations - government issued represent securities guaranteed by the Government National Mortgage Association (“GNMA”). Collateralized mortgage obligations - government-sponsored enterprises include securities guaranteed by the FHLMC and the FNMA. Asset-backed securities represent securities issued by the Student Loan Marketing Association (“SLMA”) which are 97% guaranteed by the U.S. government. Municipal obligations include securities issued by various municipalities located primarily within the State of Wisconsin and are primarily general obligation bonds that are tax-exempt in nature. There were
no
sales of securities available-for-sale for the
three
months ended
March 31, 2016
and
2015
.
At
March 31, 2016
and
December 31, 2015
, securities with a fair value of
$21.2 million
and
$23.0 million
, respectively, were pledged to secure interest rate swap contracts, outstanding Federal Home Loan Bank (“FHLB”) advances, if any, and additional FHLB availability.
The amortized cost and estimated fair value of securities by contractual maturity at
March 31, 2016
are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Amortized cost
|
|
Estimated
fair value
|
|
Amortized cost
|
|
Estimated
fair value
|
|
|
(In Thousands)
|
Due in one year or less
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due in one year through five years
|
|
14,019
|
|
|
14,089
|
|
|
4,794
|
|
|
4,847
|
|
Due in five through ten years
|
|
91,048
|
|
|
91,897
|
|
|
12,727
|
|
|
13,113
|
|
Due in over ten years
|
|
33,537
|
|
|
33,837
|
|
|
18,964
|
|
|
19,253
|
|
|
|
$
|
139,604
|
|
|
$
|
140,823
|
|
|
$
|
36,485
|
|
|
$
|
37,213
|
|
The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments with unrealized losses, aggregated by investment category and length of time that individual investments were in a continuous loss position at
March 31, 2016
and
December 31, 2015
. At
March 31, 2016
, the Corporation held
35
available-for-sale securities that were in an unrealized loss position, respectively. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. At
March 31, 2016
, the Corporation held
10
available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.
The Corporation also has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Corporation reviews its securities on a quarterly basis to monitor its exposure to other-than-temporary impairment. Consideration is given to such factors as the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, and an evaluation of the present value of expected future cash flows, if necessary. Based on the Corporation’s evaluation, it is expected that the Corporation will recover the entire amortized cost basis of each security. Accordingly,
no
other than temporary impairment was recorded in the Consolidated Statements of Income for the
three
months ended
March 31, 2016
and
2015
.
A summary of unrealized loss information for securities available-for-sale, categorized by security type follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
1,746
|
|
|
$
|
4
|
|
|
$
|
1,990
|
|
|
$
|
10
|
|
|
$
|
3,736
|
|
|
$
|
14
|
|
Municipal obligations
|
|
913
|
|
|
2
|
|
|
414
|
|
|
2
|
|
|
1,327
|
|
|
4
|
|
Asset-backed securities
|
|
1,219
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
1,219
|
|
|
60
|
|
Collateralized mortgage obligations - government issued
|
|
442
|
|
|
1
|
|
|
2,865
|
|
|
31
|
|
|
3,307
|
|
|
32
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
19,558
|
|
|
56
|
|
|
1,682
|
|
|
16
|
|
|
21,240
|
|
|
72
|
|
|
|
$
|
23,878
|
|
|
$
|
123
|
|
|
$
|
6,951
|
|
|
$
|
59
|
|
|
$
|
30,829
|
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
3,536
|
|
|
$
|
13
|
|
|
$
|
1,981
|
|
|
$
|
19
|
|
|
$
|
5,517
|
|
|
$
|
32
|
|
Municipal obligations
|
|
2,403
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
2,403
|
|
|
7
|
|
Asset-backed securities
|
|
1,269
|
|
|
$
|
58
|
|
|
—
|
|
|
—
|
|
|
1,269
|
|
|
58
|
|
Collateralized mortgage obligations - government issued
|
|
3,373
|
|
|
19
|
|
|
5,687
|
|
|
97
|
|
|
9,060
|
|
|
116
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
59,992
|
|
|
373
|
|
|
1,717
|
|
|
43
|
|
|
61,709
|
|
|
416
|
|
|
|
$
|
70,573
|
|
|
$
|
470
|
|
|
$
|
9,385
|
|
|
$
|
159
|
|
|
$
|
79,958
|
|
|
$
|
629
|
|
The tables below show the Corporation’s gross unrecognized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at
March 31, 2016
and
December 31, 2015
. At
March 31, 2016
, the Corporation held
five
held-to-maturity securities that were in an unrecognized loss position, respectively. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. There were
four
held-to-maturity securities that were in a continuous unrecognized loss position for twelve months or greater as of
March 31, 2016
. It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of the present value of the expected future cash flows. Accordingly,
no
other than temporary impairment was recorded in the Consolidated Statements of Income for the
three
months ended
March 31, 2016
.
A summary of unrecognized loss information for securities held-to-maturity, categorized by security type follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
Fair value
|
|
Unrecognized
losses
|
|
Fair value
|
|
Unrecognized
losses
|
|
Fair value
|
|
Unrecognized
losses
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
3
|
|
|
$
|
1,000
|
|
|
$
|
3
|
|
Municipal obligations
|
|
268
|
|
|
1
|
|
|
206
|
|
|
6
|
|
|
474
|
|
|
7
|
|
Collateralized mortgage obligations - government issued
|
|
—
|
|
|
—
|
|
|
605
|
|
|
1
|
|
|
605
|
|
|
1
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
268
|
|
|
$
|
1
|
|
|
$
|
1,811
|
|
|
$
|
10
|
|
|
$
|
2,079
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
Fair value
|
|
Unrecognized
losses
|
|
Fair value
|
|
Unrecognized
losses
|
|
Fair value
|
|
Unrecognized
losses
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
11
|
|
|
$
|
1,000
|
|
|
$
|
11
|
|
Municipal obligations
|
|
436
|
|
|
4
|
|
|
199
|
|
|
1
|
|
|
635
|
|
|
5
|
|
Collateralized mortgage obligations - government issued
|
|
6,518
|
|
|
41
|
|
|
—
|
|
|
—
|
|
|
6,518
|
|
|
41
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
5,168
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
5,168
|
|
|
44
|
|
|
|
$
|
12,122
|
|
|
$
|
89
|
|
|
$
|
1,199
|
|
|
$
|
12
|
|
|
$
|
13,321
|
|
|
$
|
101
|
|
Note 5 — Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses
Loan and lease receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
(In Thousands)
|
Commercial real estate
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
174,286
|
|
|
$
|
176,322
|
|
Commercial real estate — non-owner occupied
|
|
441,539
|
|
|
436,901
|
|
Construction and land development
|
|
179,778
|
|
|
160,404
|
|
Multi-family
|
|
84,004
|
|
|
80,254
|
|
1-4 family
(1)
|
|
52,620
|
|
|
51,607
|
|
Total commercial real estate
|
|
932,227
|
|
|
905,488
|
|
Commercial and industrial
(2)
|
|
461,573
|
|
|
473,592
|
|
Direct financing leases, net
|
|
31,617
|
|
|
31,093
|
|
Consumer and other
|
|
|
|
|
Home equity and second mortgages
|
|
7,366
|
|
|
8,237
|
|
Other
|
|
18,510
|
|
|
16,319
|
|
Total consumer and other
|
|
25,876
|
|
|
24,556
|
|
Total gross loans and leases receivable
|
|
1,451,293
|
|
|
1,434,729
|
|
Less:
|
|
|
|
|
Allowance for loan and lease losses
|
|
16,684
|
|
|
16,316
|
|
Deferred loan fees
|
|
1,010
|
|
|
1,062
|
|
Loans and leases receivable, net
|
|
$
|
1,433,599
|
|
|
$
|
1,417,351
|
|
|
|
(1)
|
Includes residential real estate loans held for sale totaling $1.7 million as of March 31, 2016 and $1.3 million as of December 31, 2015.
|
|
|
(2)
|
Includes guaranteed portion of SBA loans held for sale totaling $1.4 million as of December 31, 2015. No guaranteed portion of SBA loans were held for sale as of March 31, 2016.
|
Loans transferred to third parties consist of the guaranteed portion of SBA loans as well as participation interests in other originated loans. The total principal amount of loans transferred during the three months ended
March 31, 2016
and
2015
was
$18.1 million
and
$15.8 million
, respectively. Each of the transfers of these financial assets met the qualifications for sale
accounting, including the requirements specific to loan participations, and therefore all of the loans transferred during the
three
months ended
March 31, 2016
and
December 31, 2015
have been derecognized in the unaudited Consolidated Financial Statements. The Corporation has a continuing involvement in each of the agreements by way of relationship management and servicing the loans; however, there are no further obligations to the third-party participant required of the Corporation, other than standard representations and warranties related to sold amounts, that would preclude the application of sale accounting treatment. The guaranteed portion of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements.
No
gain or loss was recognized on participation interests in other originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total amount of loan participations purchased on the Corporation’s Consolidated Balance Sheets as of
March 31, 2016
and
December 31, 2015
was
$463,000
and
$467,000
, respectively.
The total amount of outstanding loans transferred to third parties as loan participations sold at
March 31, 2016
and
December 31, 2015
was
$181.6 million
and
$169.2 million
, respectively, all of which was treated as a sale and derecognized under the applicable accounting guidance at the time of the transfers of the financial assets. The Corporation’s continuing involvement with these loans is by way of partial ownership, relationship management and all servicing responsibilities; however, there are no further obligations of the Corporation, other than standard representations and warranties to the sold amount, that would preclude the application of sale accounting treatment. As of
March 31, 2016
and
December 31, 2015
, the total amount of the Corporation’s partial ownership of loans on the Corporation’s Consolidated Balance Sheets was
$139.6 million
and
$136.8 million
, respectively. As of
March 31, 2016
,
$1.6 million
loans in this participation sold portfolio were considered impaired as compared to
$1.8 million
as of
December 31, 2015
. The Corporation does not share in the participant’s portion of the charge-offs.
The Corporation sells residential real estate loans, servicing released, in the secondary market. The total principal amount of residential real estate loans sold during the
three
months ended
March 31, 2016
and March 31, 2015 was
$7.2 million
and
$9.1 million
, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the
three
months ended
March 31, 2016
have been derecognized in the unaudited Consolidated Financial Statements. The Corporation has a continuing involvement in each of the transactions, including by way of relationship management and standard representations and warranties related to the sold amount; however, there are no further obligations of the Corporation that would would preclude the application of sale accounting treatment. The loans were transferred at their fair value and the related gain was recognized as non-interest income upon the transfer in the unaudited Consolidated Financial Statements.
According to ASC 310-30,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer
, purchased credit-impaired loans exhibit evidence of deterioration in credit quality since origination for which it is probable at acquisition that the Corporation will be unable to collect all contractually required payments. Purchased credit-impaired loans are initially recorded at fair value, which is estimated by discounting the cash flows expected to be collected at the acquisition date. Because the estimate of expected cash flows reflects an estimate of future credit losses expected to be incurred over the life of the loans, an allowance for credit losses is not recorded at the acquisition date. The excess of cash flows expected at acquisition over the estimated fair value, referred to as the accretable yield, is recognized in interest income over the remaining life of the loan on a level-yield basis, contingent on the subsequent evaluation of future expected cash flows. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. A subsequent decrease in the estimate of cash flows expected to be received on purchased credit-impaired loans generally results in the recognition of an allowance for credit losses. Subsequent increases in cash flows result in reversal of any nonaccretable difference (or allowance for loan and lease losses to the extent any has been recorded) with a positive impact on interest income recognized. The measurement of cash flows involves assumptions and judgments for interest rates, prepayments, default rates, loss severity, and collateral values. All of these factors are inherently subjective and significant changes in the cash flow estimates over the life of the loan can result.
The following table reflects the contractually required payments receivable and fair value of the Corporation’s purchased credit impaired loans as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
(In Thousands)
|
Contractually required payments
|
$
|
5,166
|
|
|
$
|
5,291
|
|
Fair value of purchased credit impaired loans
|
$
|
3,160
|
|
|
$
|
3,250
|
|
The following table presents a rollforward of the Corporation’s accretable yield as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended March 31, 2016
|
|
As of and for the Year Ended December 31, 2015
|
|
(In Thousands)
|
Accretable yield, beginning of period
|
$
|
414
|
|
|
$
|
676
|
|
Accretion recognized in earnings
|
(33
|
)
|
|
(50
|
)
|
Reclassification to nonaccretable difference for loans with changing cash flows
(1)
|
(9
|
)
|
|
(60
|
)
|
Changes in accretable yield for non-credit related changes in expected cash flows
(2)
|
9
|
|
|
(152
|
)
|
Accretable yield, end of period
|
$
|
381
|
|
|
$
|
414
|
|
|
|
(1)
|
Represents changes in accretable yield for those loans that are driven primarily by credit performance.
|
|
|
(2)
|
Represents changes in accretable yield for those loans that are driven primarily by changes in actual and estimated payments.
|
The following information illustrates ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality indicators as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
|
As of March 31, 2016
|
|
I
|
|
II
|
|
III
|
|
IV
|
|
Total
|
|
|
(Dollars in Thousands)
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
144,146
|
|
|
$
|
14,184
|
|
|
$
|
13,070
|
|
|
$
|
2,886
|
|
|
$
|
174,286
|
|
Commercial real estate — non-owner occupied
|
|
406,493
|
|
|
28,185
|
|
|
5,962
|
|
|
899
|
|
|
441,539
|
|
Construction and land development
|
|
165,735
|
|
|
6,215
|
|
|
3,127
|
|
|
4,701
|
|
|
179,778
|
|
Multi-family
|
|
83,487
|
|
|
517
|
|
|
—
|
|
|
—
|
|
|
84,004
|
|
1-4 family
(1)
|
|
43,432
|
|
|
4,104
|
|
|
1,786
|
|
|
3,298
|
|
|
52,620
|
|
Total commercial real estate
|
|
843,293
|
|
|
53,205
|
|
|
23,945
|
|
|
11,784
|
|
|
932,227
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
384,103
|
|
|
27,028
|
|
|
43,721
|
|
|
6,721
|
|
|
461,573
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct financing leases, net
|
|
30,195
|
|
|
964
|
|
|
458
|
|
|
—
|
|
|
31,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
6,118
|
|
|
766
|
|
|
139
|
|
|
343
|
|
|
7,366
|
|
Other
|
|
17,846
|
|
|
23
|
|
|
—
|
|
|
641
|
|
|
18,510
|
|
Total consumer and other
|
|
23,964
|
|
|
789
|
|
|
139
|
|
|
984
|
|
|
25,876
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans and leases receivable
|
|
$
|
1,281,555
|
|
|
$
|
81,986
|
|
|
$
|
68,263
|
|
|
$
|
19,489
|
|
|
$
|
1,451,293
|
|
Category as a % of total portfolio
|
|
88.31
|
%
|
|
5.65
|
%
|
|
4.70
|
%
|
|
1.34
|
%
|
|
100.00
|
%
|
|
|
(1)
|
Includes residential real estate loans held for sale totaling $1.7 million in Category I.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
|
As of December 31, 2015
|
|
I
|
|
II
|
|
III
|
|
IV
|
|
Total
|
|
|
(Dollars in Thousands)
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
156,379
|
|
|
$
|
7,654
|
|
|
$
|
9,311
|
|
|
$
|
2,978
|
|
|
$
|
176,322
|
|
Commercial real estate — non-owner occupied
|
|
410,517
|
|
|
20,662
|
|
|
3,408
|
|
|
2,314
|
|
|
436,901
|
|
Construction and land development
|
|
151,508
|
|
|
3,092
|
|
|
874
|
|
|
4,930
|
|
|
160,404
|
|
Multi-family
|
|
79,368
|
|
|
884
|
|
|
—
|
|
|
2
|
|
|
80,254
|
|
1-4 family
(1)
|
|
42,389
|
|
|
3,985
|
|
|
1,865
|
|
|
3,368
|
|
|
51,607
|
|
Total commercial real estate
|
|
840,161
|
|
|
36,277
|
|
|
15,458
|
|
|
13,592
|
|
|
905,488
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
(2)
|
|
431,598
|
|
|
7,139
|
|
|
25,706
|
|
|
9,149
|
|
|
473,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct financing leases, net
|
|
29,514
|
|
|
1,013
|
|
|
528
|
|
|
38
|
|
|
31,093
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
7,497
|
|
|
—
|
|
|
141
|
|
|
599
|
|
|
8,237
|
|
Other
|
|
15,616
|
|
|
48
|
|
|
—
|
|
|
655
|
|
|
16,319
|
|
Total consumer and other
|
|
23,113
|
|
|
48
|
|
|
141
|
|
|
1,254
|
|
|
24,556
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans and leases receivable
|
|
$
|
1,324,386
|
|
|
$
|
44,477
|
|
|
$
|
41,833
|
|
|
$
|
24,033
|
|
|
$
|
1,434,729
|
|
Category as a % of total portfolio
|
|
92.30
|
%
|
|
3.10
|
%
|
|
2.92
|
%
|
|
1.68
|
%
|
|
100.00
|
%
|
|
|
(1)
|
Includes residential real estate loans held for sale totaling $1.3 million in Category I.
|
|
|
(2)
|
Includes guaranteed portion of SBA loans held for sale totaling $1.4 million in Category I.
|
Credit underwriting through a committee process is a key component of the Corporation’s operating philosophy. Business development officers have relatively low individual lending authority limits, and thus a significant portion of the Corporation’s new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, asset quality grade of the credit, amount of the credit, or the related complexities of each proposal.
Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition, and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management.
Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrower’s management team or the industry in which the borrower operates. Loans and leases in this category are not subject to additional monitoring procedures above and beyond what is required at the origination or renewal of the loan or lease. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers and continued review of such borrowers’ compliance with the terms of their respective agreements.
Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends and collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by subcommittees of the Banks’ loan committees.
Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Banks. Category III loans and leases generally exhibit undesirable characteristics such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and loan committees of the Banks on a monthly basis and the Banks’ Boards of Directors at each of their regularly scheduled meetings.
Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases have been placed on non-accrual as management has determined that it is unlikely that the Banks will receive the contractual principal and interest in accordance with the contractual terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and loan committees of the Banks on a monthly basis and the Banks’ Boards of Directors at each of their regularly scheduled meetings.
Utilizing regulatory classification terminology, the Corporation identified
$33.9 million
and
$26.8 million
of loans and leases as Substandard as of
March 31, 2016
and
December 31, 2015
, respectively.
No
loans were considered Special Mention, Doubtful or Loss as of either
March 31, 2016
or
December 31, 2015
. The population of Substandard loans are a subset of Category III and Category IV loans.
The delinquency aging of the loan and lease portfolio by class of receivable as of
March 31, 2016
and
December 31, 2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
30-59
days past due
|
|
60-89
days past due
|
|
Greater
than 90
days past due
|
|
Total past due
|
|
Current
|
|
Total loans
|
|
|
(Dollars in Thousands)
|
Accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171,469
|
|
|
$
|
171,469
|
|
Non-owner occupied
|
|
234
|
|
|
354
|
|
|
—
|
|
|
588
|
|
|
440,689
|
|
|
441,277
|
|
Construction and land development
|
|
312
|
|
|
1,063
|
|
|
—
|
|
|
1,375
|
|
|
173,901
|
|
|
175,276
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84,004
|
|
|
84,004
|
|
1-4 family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,989
|
|
|
49,989
|
|
Commercial and industrial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
454,855
|
|
|
454,855
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,617
|
|
|
31,617
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,076
|
|
|
7,076
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,869
|
|
|
17,869
|
|
Total
|
|
546
|
|
|
1,417
|
|
|
—
|
|
|
1,963
|
|
|
1,431,469
|
|
|
1,433,432
|
|
Non-accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
465
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
465
|
|
|
$
|
2,352
|
|
|
$
|
2,817
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
262
|
|
|
262
|
|
Construction and land development
|
|
—
|
|
|
—
|
|
|
391
|
|
|
391
|
|
|
4,111
|
|
|
4,502
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
—
|
|
|
741
|
|
|
945
|
|
|
1,686
|
|
|
945
|
|
|
2,631
|
|
Commercial and industrial
|
|
—
|
|
|
—
|
|
|
792
|
|
|
792
|
|
|
5,926
|
|
|
6,718
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
290
|
|
|
290
|
|
Other
|
|
—
|
|
|
—
|
|
|
641
|
|
|
641
|
|
|
—
|
|
|
641
|
|
Total
|
|
465
|
|
|
741
|
|
|
2,769
|
|
|
3,975
|
|
|
13,886
|
|
|
17,861
|
|
Total loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
465
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
465
|
|
|
$
|
173,821
|
|
|
$
|
174,286
|
|
Non-owner occupied
|
|
234
|
|
|
354
|
|
|
—
|
|
|
588
|
|
|
440,951
|
|
|
441,539
|
|
Construction and land development
|
|
312
|
|
|
1,063
|
|
|
391
|
|
|
1,766
|
|
|
178,012
|
|
|
179,778
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84,004
|
|
|
84,004
|
|
1-4 family
|
|
—
|
|
|
741
|
|
|
945
|
|
|
1,686
|
|
|
50,934
|
|
|
52,620
|
|
Commercial and industrial
|
|
—
|
|
|
—
|
|
|
792
|
|
|
792
|
|
|
460,781
|
|
|
461,573
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,617
|
|
|
31,617
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,366
|
|
|
7,366
|
|
Other
|
|
—
|
|
|
—
|
|
|
641
|
|
|
641
|
|
|
17,869
|
|
|
18,510
|
|
Total
|
|
$
|
1,011
|
|
|
$
|
2,158
|
|
|
$
|
2,769
|
|
|
$
|
5,938
|
|
|
$
|
1,445,355
|
|
|
$
|
1,451,293
|
|
Percent of portfolio
|
|
0.07
|
%
|
|
0.15
|
%
|
|
0.19
|
%
|
|
0.41
|
%
|
|
99.59
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
30-59
days past due
|
|
60-89
days past due
|
|
Greater
than 90
days past due
|
|
Total past due
|
|
Current
|
|
Total loans
|
|
|
(Dollars in Thousands)
|
Accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
173,416
|
|
|
$
|
173,416
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
435,222
|
|
|
435,222
|
|
Construction and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155,675
|
|
|
155,675
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80,252
|
|
|
80,252
|
|
1-4 family
|
|
78
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
48,918
|
|
|
48,996
|
|
Commercial and industrial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
464,456
|
|
|
464,456
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,055
|
|
|
31,055
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,695
|
|
|
7,695
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,664
|
|
|
15,664
|
|
Total
|
|
78
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
1,412,353
|
|
|
1,412,431
|
|
Non-accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
—
|
|
|
$
|
473
|
|
|
$
|
—
|
|
|
$
|
473
|
|
|
$
|
2,434
|
|
|
$
|
2,907
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,678
|
|
|
1,678
|
|
Construction and land development
|
|
397
|
|
|
—
|
|
|
—
|
|
|
397
|
|
|
4,332
|
|
|
4,729
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
1-4 family
|
|
430
|
|
|
34
|
|
|
895
|
|
|
1,359
|
|
|
1,252
|
|
|
2,611
|
|
Commercial and industrial
|
|
2,077
|
|
|
—
|
|
|
564
|
|
|
2,641
|
|
|
6,495
|
|
|
9,136
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
38
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
250
|
|
|
250
|
|
|
292
|
|
|
542
|
|
Other
|
|
—
|
|
|
—
|
|
|
655
|
|
|
655
|
|
|
—
|
|
|
655
|
|
Total
|
|
2,904
|
|
|
507
|
|
|
2,364
|
|
|
5,775
|
|
|
16,523
|
|
|
22,298
|
|
Total loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
—
|
|
|
$
|
473
|
|
|
$
|
—
|
|
|
$
|
473
|
|
|
$
|
175,850
|
|
|
$
|
176,323
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
436,900
|
|
|
436,900
|
|
Construction and land development
|
|
397
|
|
|
—
|
|
|
—
|
|
|
397
|
|
|
160,007
|
|
|
160,404
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80,254
|
|
|
80,254
|
|
1-4 family
|
|
508
|
|
|
34
|
|
|
895
|
|
|
1,437
|
|
|
50,170
|
|
|
51,607
|
|
Commercial and industrial
|
|
2,077
|
|
|
—
|
|
|
564
|
|
|
2,641
|
|
|
470,951
|
|
|
473,592
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,093
|
|
|
31,093
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
250
|
|
|
250
|
|
|
7,987
|
|
|
8,237
|
|
Other
|
|
—
|
|
|
—
|
|
|
655
|
|
|
655
|
|
|
15,664
|
|
|
16,319
|
|
Total
|
|
$
|
2,982
|
|
|
$
|
507
|
|
|
$
|
2,364
|
|
|
$
|
5,853
|
|
|
$
|
1,428,876
|
|
|
$
|
1,434,729
|
|
Percent of portfolio
|
|
0.21
|
%
|
|
0.04
|
%
|
|
0.16
|
%
|
|
0.41
|
%
|
|
99.59
|
%
|
|
100.00
|
%
|
The Corporation’s total impaired assets consisted of the following at
March 31, 2016
and
December 31, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
(Dollars in Thousands)
|
Non-accrual loans and leases
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
2,817
|
|
|
$
|
2,907
|
|
Commercial real estate — non-owner occupied
|
|
262
|
|
|
1,678
|
|
Construction and land development
|
|
4,502
|
|
|
4,729
|
|
Multi-family
|
|
—
|
|
|
2
|
|
1-4 family
|
|
2,631
|
|
|
2,611
|
|
Total non-accrual commercial real estate
|
|
10,212
|
|
|
11,927
|
|
Commercial and industrial
|
|
6,718
|
|
|
9,136
|
|
Direct financing leases, net
|
|
—
|
|
|
38
|
|
Consumer and other:
|
|
|
|
|
Home equity and second mortgages
|
|
290
|
|
|
542
|
|
Other
|
|
641
|
|
|
655
|
|
Total non-accrual consumer and other loans
|
|
931
|
|
|
1,197
|
|
Total non-accrual loans and leases
|
|
17,861
|
|
|
22,298
|
|
Foreclosed properties, net
|
|
1,677
|
|
|
1,677
|
|
Total non-performing assets
|
|
19,538
|
|
|
23,975
|
|
Performing troubled debt restructurings
|
|
1,628
|
|
|
1,735
|
|
Total impaired assets
|
|
$
|
21,166
|
|
|
$
|
25,710
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Total non-accrual loans and leases to gross loans and leases
|
|
1.23
|
%
|
|
1.55
|
%
|
Total non-performing assets to total gross loans and leases plus foreclosed properties, net
|
|
1.34
|
|
|
1.67
|
|
Total non-performing assets to total assets
|
|
1.09
|
|
|
1.35
|
|
Allowance for loan and lease losses to gross loans and leases
|
|
1.15
|
|
|
1.14
|
|
Allowance for loan and lease losses to non-accrual loans and leases
|
|
93.41
|
|
|
73.17
|
|
As of
March 31, 2016
and
December 31, 2015
,
$14.0 million
and
$16.2 million
of the non-accrual loans were considered troubled debt restructurings, respectively. As of
March 31, 2016
, there were
no
unfunded commitments associated with troubled debt restructured loans and leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
|
Number
of
Loans
|
|
Pre-Modification
Recorded
Investment
|
|
Post-Modification
Recorded
Investment
|
|
Number
of
Loans
|
|
Pre-Modification
Recorded
Investment
|
|
Post-Modification
Recorded
Investment
|
|
|
(Dollars in Thousands)
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate — owner occupied
|
|
3
|
|
$
|
1,209
|
|
|
$
|
1,163
|
|
|
3
|
|
$
|
1,209
|
|
|
$
|
1,188
|
|
Commercial real estate — non-owner occupied
|
|
5
|
|
1,150
|
|
|
899
|
|
|
5
|
|
1,150
|
|
|
904
|
|
Construction and land development
|
|
3
|
|
6,034
|
|
|
4,351
|
|
|
3
|
|
6,034
|
|
|
4,593
|
|
Multi-family
|
|
—
|
|
—
|
|
|
—
|
|
|
1
|
|
184
|
|
|
2
|
|
1-4 family
|
|
15
|
|
2,035
|
|
|
1,840
|
|
|
15
|
|
2,035
|
|
|
1,869
|
|
Commercial and industrial
|
|
11
|
|
7,973
|
|
|
6,392
|
|
|
10
|
|
7,572
|
|
|
8,330
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
4
|
|
461
|
|
|
343
|
|
|
4
|
|
461
|
|
|
349
|
|
Other
|
|
1
|
|
2,076
|
|
|
641
|
|
|
1
|
|
2,076
|
|
|
655
|
|
Total
|
|
42
|
|
$
|
20,938
|
|
|
$
|
15,629
|
|
|
42
|
|
$
|
20,721
|
|
|
$
|
17,890
|
|
All loans and leases modified as a troubled debt restructuring are evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses.
As of
March 31, 2016
and
December 31, 2015
, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
|
Number
of
Loans
|
|
Recorded Investment
|
|
Number
of
Loans
|
|
Recorded Investment
|
|
|
(Dollars in Thousands)
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Extension of term
|
|
1
|
|
|
$
|
20
|
|
|
1
|
|
|
$
|
24
|
|
Interest rate concession
|
|
1
|
|
|
54
|
|
|
1
|
|
|
55
|
|
Combination of extension and interest rate concession
|
|
24
|
|
|
8,179
|
|
|
25
|
|
|
8,477
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
Combination of extension and interest rate concession
|
|
11
|
|
|
6,392
|
|
|
10
|
|
|
8,330
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
Extension of term
|
|
1
|
|
|
641
|
|
|
1
|
|
|
655
|
|
Combination of extension and interest rate concession
|
|
4
|
|
|
343
|
|
|
4
|
|
|
349
|
|
Total
|
|
42
|
|
|
$
|
15,629
|
|
|
42
|
|
|
$
|
17,890
|
|
There were
no
loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the
three
months ended
March 31, 2016
.
The following represents additional information regarding the Corporation’s impaired loans and leases by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
|
As of and for the Three Months Ended March 31, 2016
|
|
|
Recorded
investment
|
|
Unpaid
principal
balance
|
|
Impairment
reserve
|
|
Average
recorded
investment
(1)
|
|
Foregone
interest
income
|
|
Interest
income
recognized
|
|
Net
foregone
interest
income
|
|
|
(In Thousands)
|
With no impairment reserve recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
2,255
|
|
|
$
|
2,255
|
|
|
$
|
—
|
|
|
$
|
2,140
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
35
|
|
Non-owner occupied
|
|
899
|
|
|
939
|
|
|
—
|
|
|
1,843
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Construction and land development
|
|
4,701
|
|
|
7,372
|
|
|
—
|
|
|
4,935
|
|
|
34
|
|
|
—
|
|
|
34
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
134
|
|
|
(133
|
)
|
1-4 family
|
|
2,442
|
|
|
2,504
|
|
|
—
|
|
|
2,658
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Commercial and industrial
|
|
481
|
|
|
481
|
|
|
—
|
|
|
106
|
|
|
22
|
|
|
18
|
|
|
4
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
244
|
|
|
244
|
|
|
—
|
|
|
493
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Other
|
|
641
|
|
|
1,307
|
|
|
—
|
|
|
649
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Total
|
|
11,663
|
|
|
15,102
|
|
|
—
|
|
|
12,848
|
|
|
150
|
|
|
152
|
|
|
(2
|
)
|
With impairment reserve recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
631
|
|
|
$
|
631
|
|
|
$
|
18
|
|
|
$
|
628
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction and land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
856
|
|
|
862
|
|
|
126
|
|
|
851
|
|
|
7
|
|
|
—
|
|
|
7
|
|
Commercial and industrial
|
|
6,240
|
|
|
6,240
|
|
|
730
|
|
|
6,224
|
|
|
143
|
|
|
—
|
|
|
143
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
99
|
|
|
99
|
|
|
23
|
|
|
98
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
7,826
|
|
|
7,832
|
|
|
897
|
|
|
7,801
|
|
|
161
|
|
|
—
|
|
|
161
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
2,886
|
|
|
$
|
2,886
|
|
|
$
|
18
|
|
|
$
|
2,768
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
44
|
|
Non-owner occupied
|
|
899
|
|
|
939
|
|
|
—
|
|
|
1,843
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Construction and land development
|
|
4,701
|
|
|
7,372
|
|
|
—
|
|
|
4,935
|
|
|
34
|
|
|
—
|
|
|
34
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
134
|
|
|
(133
|
)
|
1-4 family
|
|
3,298
|
|
|
3,366
|
|
|
126
|
|
|
3,509
|
|
|
37
|
|
|
—
|
|
|
37
|
|
Commercial and industrial
|
|
6,721
|
|
|
6,721
|
|
|
730
|
|
|
6,330
|
|
|
165
|
|
|
18
|
|
|
147
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
343
|
|
|
343
|
|
|
23
|
|
|
591
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Other
|
|
641
|
|
|
1,307
|
|
|
—
|
|
|
649
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Grand total
|
|
$
|
19,489
|
|
|
$
|
22,934
|
|
|
$
|
897
|
|
|
$
|
20,649
|
|
|
$
|
311
|
|
|
$
|
152
|
|
|
$
|
159
|
|
|
|
(1)
|
Average recorded investment is calculated primarily using daily average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
|
As of and for the Year Ended December 31, 2015
|
|
|
Recorded
investment
|
|
Unpaid
principal
balance
|
|
Impairment
reserve
|
|
Average
recorded
investment
(1)
|
|
Foregone
interest
income
|
|
Interest
income
recognized
|
|
Net
Foregone
Interest
Income
|
|
|
(In Thousands)
|
With no impairment reserve recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
2,164
|
|
|
$
|
2,164
|
|
|
$
|
—
|
|
|
$
|
712
|
|
|
$
|
53
|
|
|
$
|
12
|
|
|
$
|
41
|
|
Non-owner occupied
|
|
2,314
|
|
|
2,355
|
|
|
—
|
|
|
962
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Construction and land development
|
|
4,533
|
|
|
7,203
|
|
|
—
|
|
|
4,807
|
|
|
133
|
|
|
—
|
|
|
133
|
|
Multi-family
|
|
2
|
|
|
369
|
|
|
—
|
|
|
10
|
|
|
27
|
|
|
—
|
|
|
27
|
|
1-4 family
|
|
2,423
|
|
|
2,486
|
|
|
—
|
|
|
1,604
|
|
|
82
|
|
|
4
|
|
|
78
|
|
Commercial and industrial
|
|
2,546
|
|
|
2,590
|
|
|
—
|
|
|
544
|
|
|
172
|
|
|
6
|
|
|
166
|
|
Direct financing leases, net
|
|
38
|
|
|
38
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
500
|
|
|
500
|
|
|
—
|
|
|
390
|
|
|
23
|
|
|
63
|
|
|
(40
|
)
|
Other
|
|
655
|
|
|
1,321
|
|
|
—
|
|
|
688
|
|
|
82
|
|
|
—
|
|
|
82
|
|
Total
|
|
15,175
|
|
|
19,026
|
|
|
—
|
|
|
9,721
|
|
|
597
|
|
|
85
|
|
|
512
|
|
With impairment reserve recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
814
|
|
|
$
|
814
|
|
|
$
|
20
|
|
|
$
|
215
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
5
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction and land development
|
|
397
|
|
|
397
|
|
|
48
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
945
|
|
|
950
|
|
|
173
|
|
|
605
|
|
|
34
|
|
|
—
|
|
|
34
|
|
Commercial and industrial
|
|
6,603
|
|
|
6,603
|
|
|
847
|
|
|
810
|
|
|
102
|
|
|
—
|
|
|
102
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
99
|
|
|
99
|
|
|
25
|
|
|
58
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
8,858
|
|
|
8,863
|
|
|
1,113
|
|
|
1,722
|
|
|
153
|
|
|
2
|
|
|
151
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
2,978
|
|
|
$
|
2,978
|
|
|
$
|
20
|
|
|
$
|
927
|
|
|
$
|
60
|
|
|
$
|
14
|
|
|
$
|
46
|
|
Non-owner occupied
|
|
2,314
|
|
|
2,355
|
|
|
—
|
|
|
962
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Construction and land development
|
|
4,930
|
|
|
7,600
|
|
|
48
|
|
|
4,841
|
|
|
133
|
|
|
—
|
|
|
133
|
|
Multi-family
|
|
2
|
|
|
369
|
|
|
—
|
|
|
10
|
|
|
27
|
|
|
—
|
|
|
27
|
|
1-4 family
|
|
3,368
|
|
|
3,436
|
|
|
173
|
|
|
2,209
|
|
|
116
|
|
|
4
|
|
|
112
|
|
Commercial and industrial
|
|
9,149
|
|
|
9,193
|
|
|
847
|
|
|
1,354
|
|
|
274
|
|
|
6
|
|
|
268
|
|
Direct financing leases, net
|
|
38
|
|
|
38
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
599
|
|
|
599
|
|
|
25
|
|
|
448
|
|
|
33
|
|
|
63
|
|
|
(30
|
)
|
Other
|
|
655
|
|
|
1,321
|
|
|
—
|
|
|
688
|
|
|
82
|
|
|
—
|
|
|
82
|
|
Grand total
|
|
$
|
24,033
|
|
|
$
|
27,889
|
|
|
$
|
1,113
|
|
|
$
|
11,443
|
|
|
$
|
750
|
|
|
$
|
87
|
|
|
$
|
663
|
|
|
|
(1)
|
Average recorded investment is calculated primarily using daily average balances.
|
The difference between the loans and leases recorded investment and the unpaid principal balance of
$3.4 million
and
$3.9 million
as of
March 31, 2016
and
December 31, 2015
represents partial charge-offs resulting from confirmed losses due to the value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included
$1.6 million
and
$1.7 million
of loans as of
March 31, 2016
and
December 31, 2015
that were performing troubled debt restructurings, and thus, while not on non-accrual, were reported as impaired, due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to principal. Foregone interest represents the interest that was contractually due on the note but not received or recorded. To the extent the amount of principal on a non-accrual note is fully collected and additional cash is received, the Corporation will recognize interest income.
To determine the level and composition of the allowance for loan and lease losses, the Corporation breaks out the portfolio by segments and risk ratings. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.
A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended March 31, 2016
|
|
|
Commercial
real estate
|
|
Commercial
and
industrial loans and leases
|
|
Consumer
and other
|
|
Total
|
|
|
(Dollars in Thousands)
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
11,220
|
|
|
$
|
4,387
|
|
|
$
|
709
|
|
|
$
|
16,316
|
|
Charge-offs
|
|
(41
|
)
|
|
(196
|
)
|
|
(7
|
)
|
|
(244
|
)
|
Recoveries
|
|
84
|
|
|
—
|
|
|
3
|
|
|
87
|
|
Provision
|
|
217
|
|
|
297
|
|
|
11
|
|
|
525
|
|
Ending balance
|
|
$
|
11,480
|
|
|
$
|
4,488
|
|
|
$
|
716
|
|
|
$
|
16,684
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
144
|
|
|
$
|
730
|
|
|
$
|
23
|
|
|
$
|
897
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
11,336
|
|
|
$
|
3,758
|
|
|
$
|
693
|
|
|
$
|
15,787
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loans and lease receivables:
|
|
|
|
|
|
|
|
|
Ending balance, gross
|
|
$
|
932,227
|
|
|
$
|
493,190
|
|
|
$
|
25,876
|
|
|
$
|
1,451,293
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
9,106
|
|
|
$
|
6,481
|
|
|
$
|
793
|
|
|
$
|
16,380
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
920,443
|
|
|
$
|
486,468
|
|
|
$
|
24,892
|
|
|
$
|
1,431,803
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
2,678
|
|
|
$
|
241
|
|
|
$
|
191
|
|
|
$
|
3,110
|
|
Allowance as % of gross loans
|
|
1.23
|
%
|
|
0.91
|
%
|
|
2.77
|
%
|
|
1.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2015
|
|
|
Commercial
real estate
|
|
Commercial
and
industrial loans and leases
|
|
Consumer
and other
|
|
Total
|
|
|
(Dollars in Thousands)
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
8,619
|
|
|
$
|
5,492
|
|
|
$
|
218
|
|
|
$
|
14,329
|
|
Charge-offs
|
|
(793
|
)
|
|
(711
|
)
|
|
(9
|
)
|
|
(1,513
|
)
|
Recoveries
|
|
104
|
|
|
6
|
|
|
4
|
|
|
114
|
|
Provision
|
|
3,290
|
|
|
(400
|
)
|
|
496
|
|
|
3,386
|
|
Ending balance
|
|
$
|
11,220
|
|
|
$
|
4,387
|
|
|
$
|
709
|
|
|
$
|
16,316
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
240
|
|
|
$
|
847
|
|
|
$
|
26
|
|
|
$
|
1,113
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
10,980
|
|
|
$
|
3,540
|
|
|
$
|
683
|
|
|
$
|
15,203
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loans and lease receivables:
|
|
|
|
|
|
|
|
|
Ending balance, gross
|
|
$
|
905,488
|
|
|
$
|
504,685
|
|
|
$
|
24,556
|
|
|
$
|
1,434,729
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
10,849
|
|
|
$
|
8,942
|
|
|
$
|
1,061
|
|
|
$
|
20,852
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
891,897
|
|
|
$
|
495,497
|
|
|
$
|
23,495
|
|
|
$
|
1,410,889
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
2,742
|
|
|
$
|
246
|
|
|
$
|
193
|
|
|
$
|
3,181
|
|
Allowance as % of gross loans
|
|
1.24
|
%
|
|
0.87
|
%
|
|
2.89
|
%
|
|
1.14
|
%
|
Note 6 — Deposits
The composition of deposits at
March 31, 2016
and
December 31, 2015
was as follows. Average balances represent year-to-date averages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
Balance
|
|
Average
balance
|
|
Weighted
average rate
|
|
Balance
|
|
Average
balance
|
|
Weighted
average rate
|
|
|
(Dollars in Thousands)
|
Non-interest-bearing transaction accounts
|
|
$
|
236,662
|
|
|
$
|
228,294
|
|
|
—
|
%
|
|
$
|
231,199
|
|
|
$
|
211,945
|
|
|
—
|
%
|
Interest-bearing transaction accounts
|
|
154,351
|
|
|
162,793
|
|
|
0.22
|
|
|
165,921
|
|
|
125,558
|
|
|
0.24
|
|
Money market accounts
|
|
646,336
|
|
|
646,362
|
|
|
0.51
|
|
|
612,642
|
|
|
602,842
|
|
|
0.55
|
|
Certificates of deposit
|
|
68,284
|
|
|
73,163
|
|
|
0.83
|
|
|
79,986
|
|
|
106,177
|
|
|
0.78
|
|
Wholesale deposits
|
|
475,955
|
|
|
497,274
|
|
|
1.60
|
|
|
487,483
|
|
|
450,460
|
|
|
1.43
|
|
Total deposits
|
|
$
|
1,581,588
|
|
|
$
|
1,607,886
|
|
|
0.76
|
|
|
$
|
1,577,231
|
|
|
$
|
1,496,982
|
|
|
0.73
|
|
Note 7 — FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable
The composition of borrowed funds at
March 31, 2016
and
December 31, 2015
was as follows. Average balances represent year-to-date averages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
Balance
|
|
Average
balance
|
|
Weighted
average
rate
|
|
Balance
|
|
Average
balance
|
|
Weighted
average
rate
|
|
|
(Dollars in Thousands)
|
Federal funds purchased
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
$
|
237
|
|
|
0.86
|
%
|
FHLB advances and other borrowings
|
|
8,646
|
|
|
9,033
|
|
|
2.00
|
|
|
9,790
|
|
|
15,457
|
|
|
1.14
|
|
Senior line of credit
|
|
3,910
|
|
|
3,064
|
|
|
3.22
|
|
|
2,510
|
|
|
1,619
|
|
|
3.18
|
|
Subordinated notes payable
|
|
22,455
|
|
|
22,446
|
|
|
7.14
|
|
|
22,440
|
|
|
22,410
|
|
|
7.14
|
|
Junior subordinated notes
|
|
9,993
|
|
|
9,991
|
|
|
11.09
|
|
|
9,990
|
|
|
9,982
|
|
|
11.14
|
|
|
|
$
|
45,004
|
|
|
$
|
44,534
|
|
|
6.75
|
|
|
$
|
44,730
|
|
|
$
|
49,705
|
|
|
5.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
6,910
|
|
|
|
|
|
|
$
|
7,010
|
|
|
|
|
|
Long-term borrowings
|
|
38,094
|
|
|
|
|
|
|
37,720
|
|
|
|
|
|
|
|
$
|
45,004
|
|
|
|
|
|
|
$
|
44,730
|
|
|
|
|
|
As of March 31, 2016, the Corporation was in compliance with its debt covenants under its third party secured senior line of credit. Per the promissory note dated February 19, 2016, the Corporation pays a commitment fee on this senior line of credit. During both the
three
months ended
March 31, 2016
and 2015, the Corporation incurred additional interest expense due to this fee of
$3,000
.
Note 8 — Fair Value Disclosures
The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date and is based on exit prices. Fair value includes assumptions about risk such as nonperformance risk in liability fair values and is a market-based measurement, not an entity-specific measurement. The standard describes three levels of inputs that may be used to measure fair value.
Level 1
— Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2
— Level 2 inputs are inputs, other than quoted prices included with Level 1, that are observable for the asset or liability either directly or indirectly, 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
— Level 3 inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
March 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In Thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
$
|
—
|
|
|
$
|
5,194
|
|
|
$
|
—
|
|
|
$
|
5,194
|
|
Asset backed securities
|
|
—
|
|
|
1,219
|
|
|
—
|
|
|
1,219
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
—
|
|
|
8,067
|
|
|
—
|
|
|
8,067
|
|
Collateralized mortgage obligations - government issued
|
|
—
|
|
|
40,381
|
|
|
—
|
|
|
40,381
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
—
|
|
|
85,962
|
|
|
—
|
|
|
85,962
|
|
Interest rate swaps
|
|
—
|
|
|
1,139
|
|
|
—
|
|
|
1,139
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
1,139
|
|
|
$
|
—
|
|
|
$
|
1,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In Thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
$
|
—
|
|
|
$
|
4,283
|
|
|
$
|
—
|
|
|
$
|
4,283
|
|
Asset backed securities
|
|
—
|
|
|
1,269
|
|
|
—
|
|
|
1,269
|
|
U.S. Government agency obligations - government-sponsored enterprises
|
|
—
|
|
|
8,017
|
|
|
—
|
|
|
8,017
|
|
Collateralized mortgage obligations - government issued
|
|
—
|
|
|
44,543
|
|
|
—
|
|
|
44,543
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
—
|
|
|
82,436
|
|
|
—
|
|
|
82,436
|
|
Interest rate swaps
|
|
—
|
|
|
552
|
|
|
—
|
|
|
552
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
552
|
|
|
$
|
—
|
|
|
$
|
552
|
|
For assets and liabilities measured at fair value on a recurring basis, there were
no
transfers between the levels during the
three
months ended
March 31, 2016
or the year ended
December 31, 2015
related to the above measurements.
Assets and liabilities measured at fair value on a non-recurring basis, segregated by fair value hierarchy are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using
|
|
Total
Gains
(Losses)
|
|
|
March 31,
2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In Thousands)
|
Impaired loans
|
|
$
|
14,314
|
|
|
$
|
—
|
|
|
$
|
12,601
|
|
|
$
|
1,713
|
|
|
$
|
—
|
|
Foreclosed properties
|
|
1,677
|
|
|
—
|
|
|
1,677
|
|
|
—
|
|
|
—
|
|
Loan servicing rights
|
|
1,692
|
|
|
—
|
|
|
—
|
|
|
1,692
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Fair Value Measurements Using
|
|
Total
Gains
(Losses)
|
|
|
December 31,
2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In Thousands)
|
Impaired loans
|
|
$
|
17,763
|
|
|
$
|
—
|
|
|
$
|
11,518
|
|
|
$
|
6,245
|
|
|
$
|
—
|
|
Foreclosed properties
|
|
1,677
|
|
|
—
|
|
|
1,677
|
|
|
—
|
|
|
(36
|
)
|
Loan servicing rights
|
|
1,563
|
|
|
—
|
|
|
—
|
|
|
1,563
|
|
|
—
|
|
Impaired loans were written down to the fair value of their underlying collateral less costs to sell of
$14.3 million
and
$17.8 million
at
March 31, 2016
and
December 31, 2015
, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value and primarily included observable inputs for the individual impaired loans being evaluated such as current appraisals, recent sales of similar assets or other observable market data, and are reflected within Level 2 of the hierarchy. In cases where an input is unobservable, specifically discounts applied to appraisal values to adjust such values to current market conditions or to reflect net realizable value, the impaired loan balance is reflected within Level 3 of the hierarchy. The quantification of unobservable inputs for Level 3 impaired loan values range from
10%
-
93%
. The weighted average of those unobservable inputs as of the measurement date of
March 31, 2016
was
29%
. The majority of the impaired loans in the Level 3 category are considered collateral dependent loans.
Loan servicing rights represent the asset retained upon sale of the guaranteed portion of certain SBA loans. When SBA loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. The servicing rights are subsequently measured using the amortization method, which requires amortization into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
The Corporation periodically reviews this portfolio for impairment and engages a third-party valuation firm to assess the fair value of the overall servicing rights portfolio. Loan servicing rights do not trade in an active, open market with readily observable prices. While sales of loan servicing rights do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its loan servicing rights. The valuation model incorporates prepayment assumptions to project loan servicing rights cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the loan servicing rights. The valuation model considers portfolio characteristics of the underlying serviced portion of the SBA loans and uses the following significant unobservable inputs: (1) constant prepayment rate (“CPR”) assumptions based on the SBA sold pools historical CPR as quoted in Bloomberg and (2) a discount rate of 10%. Due to the nature of the valuation inputs, loan servicing rights are classified in Level 3 of the fair value hierarchy.
As of
March 31, 2016
and
December 31, 2015
, the estimated fair value of the Corporation’s loan servicing asset was
$1.7 million
and
$1.6 million
, respectively.
Foreclosed properties, upon initial recognition, are re-measured and reported at fair value through a charge-off to the allowance for loan and lease losses, if deemed necessary, based upon the fair value of the foreclosed property. The fair value of a foreclosed property, upon initial recognition, is estimated using a market approach or Level 2 inputs based on observable market data, typically a current appraisal, or Level 3 inputs based upon assumptions specific to the individual property or equipment. Level 3 inputs typically include unobservable inputs such as management-applied discounts used to further reduce values to a net realizable value and may be used in situations when observable inputs become stale. Foreclosed property fair value inputs may transition to Level 1 upon receipt of an accepted offer for the sale of the related foreclosed property.
As of
March 31, 2016
and
December 31, 2015
, there were
no
foreclosed properties supported by a Level 3 valuation. Subsequent impairments of foreclosed properties are recorded as a loss on foreclosed properties. Based upon an evaluation of value of certain of the Corporation’s foreclosed properties, there were
no
impairment losses recognized for the three months ended
March 31, 2016
. The activity of the Corporation’s foreclosed properties is summarized as follows:
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended March 31, 2016
|
|
As of and for the Year Ended December 31, 2015
|
|
(In Thousands)
|
Foreclosed properties at the beginning of the period
|
$
|
1,677
|
|
|
$
|
1,693
|
|
Foreclosed properties acquired in acquisition, at fair value
|
—
|
|
|
—
|
|
Loans transferred to foreclosed properties, at lower of cost or fair value
|
—
|
|
|
341
|
|
Proceeds from sale of foreclosed properties
|
—
|
|
|
(528
|
)
|
Net gain on sale of foreclosed properties
|
—
|
|
|
207
|
|
Impairment valuation
|
—
|
|
|
(36
|
)
|
Foreclosed properties at the end of the period
|
$
|
1,677
|
|
|
$
|
1,677
|
|
Fair Value of Financial Instruments
The Corporation is required to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions, consistent with exit price concepts for fair value measurements, are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In Thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
104,854
|
|
|
$
|
104,858
|
|
|
$
|
89,259
|
|
|
$
|
4,699
|
|
|
$
|
10,900
|
|
Securities available-for-sale
|
|
140,823
|
|
|
140,823
|
|
|
—
|
|
|
140,823
|
|
|
—
|
|
Securities held-to-maturity
|
|
36,485
|
|
|
37,213
|
|
|
—
|
|
|
37,213
|
|
|
—
|
|
Loans held for sale
|
|
1,697
|
|
|
1,697
|
|
|
—
|
|
|
1,697
|
|
|
—
|
|
Loans and lease receivables, net
|
|
1,431,902
|
|
|
1,460,700
|
|
|
—
|
|
|
12,601
|
|
|
1,448,099
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
|
2,734
|
|
|
2,734
|
|
|
—
|
|
|
—
|
|
|
2,734
|
|
Cash surrender value of life insurance
|
|
28,541
|
|
|
28,541
|
|
|
28,541
|
|
|
—
|
|
|
—
|
|
Accrued interest receivable
|
|
4,789
|
|
|
4,789
|
|
|
4,789
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
1,139
|
|
|
1,139
|
|
|
—
|
|
|
1,139
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,581,588
|
|
|
$
|
1,586,447
|
|
|
$
|
1,037,349
|
|
|
$
|
549,098
|
|
|
$
|
—
|
|
Federal Home Loan Bank and other borrowings
|
|
35,011
|
|
|
35,841
|
|
|
—
|
|
|
35,841
|
|
|
—
|
|
Junior subordinated notes
|
|
9,993
|
|
|
6,613
|
|
|
—
|
|
|
—
|
|
|
6,613
|
|
Interest rate swaps
|
|
1,139
|
|
|
1,139
|
|
|
—
|
|
|
1,139
|
|
|
—
|
|
Accrued interest payable
|
|
1,937
|
|
|
1,937
|
|
|
1,937
|
|
|
—
|
|
|
—
|
|
Off-balance-sheet items:
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
65
|
|
|
65
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In Thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
113,564
|
|
|
$
|
113,564
|
|
|
$
|
100,063
|
|
|
$
|
4,451
|
|
|
$
|
9,050
|
|
Securities available-for-sale
|
|
140,548
|
|
|
140,548
|
|
|
—
|
|
|
140,548
|
|
|
—
|
|
Securities held-to-maturity
|
|
37,282
|
|
|
37,558
|
|
|
—
|
|
|
37,558
|
|
|
—
|
|
Loans held for sale
|
|
2,702
|
|
|
2,702
|
|
|
—
|
|
|
2,702
|
|
|
—
|
|
Loans and lease receivables, net
|
|
1,414,649
|
|
|
1,445,773
|
|
|
—
|
|
|
11,518
|
|
|
1,434,255
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
|
2,843
|
|
|
2,843
|
|
|
—
|
|
|
—
|
|
|
2,843
|
|
Cash surrender value of life insurance
|
|
28,298
|
|
|
28,298
|
|
|
28,298
|
|
|
—
|
|
|
—
|
|
Accrued interest receivable
|
|
4,412
|
|
|
4,412
|
|
|
4,412
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
552
|
|
|
552
|
|
|
—
|
|
|
552
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,577,231
|
|
|
$
|
1,577,838
|
|
|
$
|
1,009,762
|
|
|
$
|
568,076
|
|
|
$
|
—
|
|
Federal Home Loan Bank and other borrowings
|
|
34,740
|
|
|
35,353
|
|
|
—
|
|
|
35,353
|
|
|
—
|
|
Junior subordinated notes
|
|
9,990
|
|
|
6,614
|
|
|
—
|
|
|
—
|
|
|
6,614
|
|
Interest rate swaps
|
|
552
|
|
|
552
|
|
|
—
|
|
|
552
|
|
|
—
|
|
Accrued interest payable
|
|
1,766
|
|
|
1,766
|
|
|
1,766
|
|
|
—
|
|
|
—
|
|
Off-balance-sheet items:
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
183
|
|
|
183
|
|
|
—
|
|
|
—
|
|
|
183
|
|
Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the Consolidated Balance Sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation.
Cash and cash equivalents:
The carrying amounts reported for cash and due from banks, interest-bearing deposits held by the Corporation, accrued interest receivable and accrued interest payable approximate fair value because of their immediate availability and because they do not present unanticipated credit concerns. As of
March 31, 2016
and
December 31, 2015
, the Corporation held
$10.9 million
and
$9.1 million
, respectively, of commercial paper. The fair value of commercial paper is classified as a Level 3 input due to the lack of available independent pricing sources. The carrying value of brokered certificates of deposit purchased is equivalent to the purchase price of the instruments as the Corporation has not elected a fair value option for these instruments. The fair value of brokered certificates of deposits purchased is based on the discounted value of contractual cash flows using a discount rate reflective of rates currently offered for deposits of similar remaining maturities. As of
March 31, 2016
and
December 31, 2015
, the Corporation held
$4.7 million
and
$4.5 million
, respectively, of brokered certificates of deposits.
Securities:
The fair value measurements of investment securities are determined by a third-party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source on a quarterly basis to review for reasonableness. Any significant differences in pricing are reviewed with appropriate members of management who have the relevant technical expertise to assess the results. The Corporation has determined that these valuations are classified in Level 2 of the fair value hierarchy. When the independent pricing service does not provide a fair value measurement for a particular security, the Corporation will estimate the fair value based on specific information about each security. Fair values derived in this manner are classified in Level 3 of the fair value hierarchy.
Loans Held for Sale:
Loans held for sale, which consist of residential real estate mortgage loans and the guaranteed portion of SBA loans, are carried at the lower of cost or estimated fair value. The estimated fair value was based on what secondary markets are currently offering for portfolios with similar characteristics.
Loans and Leases:
The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts that the Corporation believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of performing and nonperforming loans is calculated by discounting scheduled and expected cash flows through the estimated maturity using estimated market rates that reflect the credit and interest rate risk inherent in the portfolio of loans and then applying a discount factor based upon the embedded credit risk of the loan and the fair value of collateral securing nonperforming loans when the loan is collateral dependent. The estimate of maturity is based on the Banks’ historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. Significant unobservable inputs include, but are not limited to, discounts (investor yield premiums) applied to fair value calculations to further determine the exit price value of a portfolio of loans.
Federal Home Loan Bank and Federal Reserve Bank Stock:
The carrying amount of FHLB and FRB stock equals its fair value because the shares may be redeemed by the FHLB and the FRB at their carrying amount of $100 per share.
Cash Surrender Value of Life Insurance:
The carrying amount of the cash surrender value of life insurance approximates its fair value as the carrying value represents the current settlement amount.
Deposits:
The fair value of deposits with no stated maturity, such as demand deposits and money market accounts, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the intangible value that results from the funding provided by deposit liabilities compared to borrowing funds in the market.
Borrowed Funds:
Market rates currently available to the Corporation and Banks for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
Interest Rate Swaps:
The carrying amount and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation considers the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Financial Instruments with Off-Balance-Sheet Risks:
The fair value of the Corporation’s off-balance-sheet instruments is based on quoted market prices and fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the related counterparty. Commitments to extend credit and standby letters of credit are generally not marketable. Furthermore, interest rates on any amounts drawn under such commitments would generally be established at market rates at the time of the draw. Fair value would principally derive from the present value of fees received for those products.
Limitations:
Fair value estimates are made at a discrete point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holding of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and are not considered in the estimates.
Note 9 — Derivative Financial Instruments
The Corporation offers interest rate swap products directly to qualified commercial borrowers. The Corporation economically hedges client derivative transactions by entering into offsetting interest rate swap contracts executed with a third party. Derivative transactions executed as part of this program are not designated as accounting hedge relationships and are marked to market through earnings each period. The derivative contracts have mirror-image terms, which results in the positions’ changes in fair value primarily offsetting through earnings each period. The credit risk and risk of non-performance embedded in the fair value calculations is different between the dealer counterparties and the commercial borrowers, which may result in a difference in the changes in the fair value of the mirror-image swaps. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the counterparty’s risk in the fair value measurements. When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considers the impact of netting and any applicable credit enhancements such as collateral postings, thresholds and guarantees.
At
March 31, 2016
, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was
23.3 million
. The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers. These interest rate swaps mature in
August, 2018
through
February, 2023
. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. These commercial borrower swaps were reported on the Consolidated Balance Sheets as a derivative asset of
$1.1 million
and are included in accrued interest receivable and other assets. In the event of default on a commercial borrower interest rate swap by the counterparty, a right of offset exists to allow the commercial borrower to set off amounts due against the related commercial loan. As of
March 31, 2016
,
no
interest rate swaps were in default and therefore all values for the commercial borrower swaps are recorded on a gross basis within the Corporation’s financial position.
At
March 31, 2016
, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also
23.3 million
. The Corporation pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties. These interest rate swaps mature in
August, 2018
through
February, 2023
. Dealer counterparty swaps are subject to master netting agreements among the contracts within each of the Banks and are reported on the Consolidated Balance Sheets as a net derivative liability of
$1.1 million
, included in accrued interest payable and other liabilities as of
March 31, 2016
. The gross amount of dealer counterparty swaps was also
$1.1 million
as no right of offset existed with the dealer counterparty swaps as of
March 31, 2016
.
The table below provides information about the location and fair value of the Corporation’s derivative instruments as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Contracts
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
(In Thousands)
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Accrued interest receivable and other assets
|
|
$
|
1,139
|
|
|
Accrued interest payable and other liabilities
|
|
$
|
1,139
|
|
December 31, 2015
|
|
Accrued interest receivable and other assets
|
|
$
|
552
|
|
|
Accrued interest payable and other liabilities
|
|
$
|
552
|
|
No
derivative instruments held by the Corporation for the
three
months ended
March 31, 2016
were considered hedging instruments. All changes in the fair value of these instruments are recorded in
other non-interest income
. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the
three
months ended
March 31, 2016
and
2015
had an insignificant impact on the unaudited Consolidated Statements of Income.
Note 10 — Regulatory Capital
The Corporation and the Banks are subject to various regulatory capital requirements administered by Federal, State of Wisconsin and State of Kansas banking agencies.
Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions on the part of regulators, that if undertaken, could have a direct material effect on the Banks’ assets, liabilities and certain off-balance-sheet items as calculated under regulatory practices.
The Corporation’s and the Banks’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Corporation regularly reviews and updates when appropriate its Capital and Liquidity Action Plan (the “Capital Plan”), which is designed to help ensure appropriate capital adequacy, to plan for future capital needs and to ensure that the Corporation serves as a source of financial strength to the Banks. The Corporation’s and the Banks’ Boards of Directors and management teams adhere to the appropriate regulatory guidelines on decisions which affect their respective capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness.
As a bank holding company, the Corporation’s ability to pay dividends is affected by the policies and enforcement powers of the Board of Governors of the Federal Reserve system (the “Federal Reserve”). Federal Reserve guidance urges companies to strongly consider eliminating, deferring or significantly reducing dividends if: (i) net income available to common shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividend; (ii) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital ratios. Management intends, when appropriate under regulatory guidelines, to consult with the Federal Reserve Bank of Chicago and provide it with information on the Corporation’s then-current and prospective earnings and capital position in advance of declaring any cash dividends. As a Wisconsin corporation, the Corporation is subject to the limitations of the Wisconsin Business Corporation Law, which prohibit the Corporation from paying dividends if such payment would: (i) render the Corporation unable to pay its debts as they become due in the usual course of business, or (ii) result in the Corporation’s assets being less than the sum of its total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of any stockholders with preferential rights superior to those stockholders receiving the dividend.
The Banks are also subject to certain legal, regulatory and other restrictions on their ability to pay dividends to the Corporation. As a bank holding company, the payment of dividends by the Banks to the Corporation is one of the sources of funds the Corporation could use to pay dividends, if any, in the future and to make other payments. Future dividend decisions by the Banks and the Corporation will continue to be subject to compliance with various legal, regulatory and other restrictions as defined from time to time.
Qualitative measures established by regulation to ensure capital adequacy require the Corporation and the Banks to maintain minimum amounts and ratios of Total, common equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. These risk-based capital requirements presently address credit risk related to both recorded and off-balance-sheet commitments and obligations. Management believes, as of
March 31, 2016
, that the Corporation and the Banks met all applicable capital adequacy requirements.
In July 2013, the FRB and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks. These rules are applicable to all financial institutions that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as bank and savings and loan holding companies other than “small bank holding companies” (generally non-publicly traded bank holding companies with consolidated assets of less than $1 billion). Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Corporation. The rules include a new Common Equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. The rules also permit banking organizations with less than $15 billion to retain, through one-time election, the existing treatment for accumulated other comprehensive income, which would not affect regulatory capital. The Corporation elected to retain this treatment, which reduces the volatility of regulatory capital ratios. A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer
will be phased in beginning
January 1, 2016
at
0.625%
of risk-weighted assets and increase each subsequent year by an additional
0.625%
until reaching its final level of
2.5%
on
January 1, 2019
.
The phase-in period for the final rules became effective for the Corporation on January 1, 2015, with full compliance with all of the final rules’ requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of
March 31, 2016
, the Corporation’s and the Bank’s capital levels remained characterized as well capitalized under the new rules.
The following table summarizes the Corporation’s and Banks’ capital ratios and the ratios required by their federal regulators at
March 31, 2016
and
December 31, 2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required for Capital Adequacy Purposes
|
|
Minimum Required to Be Well
Capitalized Under Prompt Corrective Action Requirements
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
(Dollars in Thousands)
|
As of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
192,670
|
|
|
11.24
|
%
|
|
$
|
137,131
|
|
|
8.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
145,732
|
|
|
11.43
|
|
|
102,002
|
|
|
8.00
|
|
|
$
|
127,502
|
|
|
10.00
|
%
|
First Business Bank — Milwaukee
|
|
21,170
|
|
|
11.74
|
|
|
14,425
|
|
|
8.00
|
|
|
18,032
|
|
|
10.00
|
|
Alterra Bank
|
|
31,464
|
|
|
12.37
|
|
|
20,345
|
|
|
8.00
|
|
|
25,432
|
|
|
10.00
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
153,531
|
|
|
8.96
|
%
|
|
$
|
102,848
|
|
|
6.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
132,943
|
|
|
10.43
|
|
|
76,501
|
|
|
6.00
|
|
|
$
|
102,002
|
|
|
8.00
|
%
|
First Business Bank — Milwaukee
|
|
19,350
|
|
|
10.73
|
|
|
10,819
|
|
|
6.00
|
|
|
14,425
|
|
|
8.00
|
|
Alterra Bank
|
|
29,390
|
|
|
11.56
|
|
|
15,259
|
|
|
6.00
|
|
|
20,345
|
|
|
8.00
|
|
Common equity tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
143,531
|
|
|
8.37
|
%
|
|
$
|
77,136
|
|
|
4.50
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
132,943
|
|
|
10.43
|
|
|
57,376
|
|
|
4.50
|
|
|
$
|
82,877
|
|
|
6.50
|
%
|
First Business Bank — Milwaukee
|
|
19,350
|
|
|
10.73
|
|
|
8,114
|
|
|
4.50
|
|
|
11,721
|
|
|
6.50
|
|
Alterra Bank
|
|
29,390
|
|
|
11.56
|
|
|
11,444
|
|
|
4.50
|
|
|
16,530
|
|
|
6.50
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
153,531
|
|
|
8.44
|
%
|
|
$
|
72,805
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
132,943
|
|
|
10.30
|
|
|
51,647
|
|
|
4.00
|
|
|
$
|
64,559
|
|
|
5.00
|
%
|
First Business Bank — Milwaukee
|
|
19,350
|
|
|
7.38
|
|
|
10,485
|
|
|
4.00
|
|
|
13,106
|
|
|
5.00
|
|
Alterra Bank
|
|
29,390
|
|
|
9.45
|
|
|
12,440
|
|
|
4.00
|
|
|
15,551
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required for Capital Adequacy Purposes
|
|
Minimum Required to Be Well
Capitalized Under Prompt Corrective Action Requirements
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
(Dollars in Thousands)
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
189,163
|
|
|
11.11
|
%
|
|
$
|
136,208
|
|
|
8.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
141,388
|
|
|
11.12
|
|
|
101,754
|
|
|
8.00
|
|
|
$
|
127,193
|
|
|
10.00
|
%
|
First Business Bank — Milwaukee
|
|
20,931
|
|
|
12.03
|
|
|
13,914
|
|
|
8.00
|
|
|
17,392
|
|
|
10.00
|
|
Alterra Bank
|
|
30,300
|
|
|
11.39
|
|
|
21,279
|
|
|
8.00
|
|
|
26,598
|
|
|
10.00
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
149,920
|
|
|
8.81
|
|
|
$
|
102,156
|
|
|
6.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
128,852
|
|
|
10.13
|
|
|
76,316
|
|
|
6.00
|
|
|
$
|
101,754
|
|
|
8.00
|
%
|
First Business Bank — Milwaukee
|
|
19,172
|
|
|
11.02
|
|
|
10,435
|
|
|
6.00
|
|
|
13,914
|
|
|
8.00
|
|
Alterra Bank
|
|
28,278
|
|
|
10.63
|
|
|
15,959
|
|
|
6.00
|
|
|
21,279
|
|
|
8.00
|
|
Common equity tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
139,920
|
|
|
8.22
|
|
|
$
|
76,617
|
|
|
4.50
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
128,852
|
|
|
10.13
|
|
|
57,237
|
|
|
4.50
|
|
|
$
|
110,669
|
|
|
6.50
|
%
|
First Business Bank — Milwaukee
|
|
19,172
|
|
|
11.02
|
|
|
7,826
|
|
|
4.50
|
|
|
82,675
|
|
|
6.50
|
|
Alterra Bank
|
|
28,278
|
|
|
10.63
|
|
|
11,969
|
|
|
4.50
|
|
|
11,305
|
|
|
6.50
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
149,920
|
|
|
8.63
|
|
|
$
|
69,466
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
128,852
|
|
|
10.44
|
|
|
49,359
|
|
|
4.00
|
|
|
$
|
61,698
|
|
|
5.00
|
%
|
First Business Bank — Milwaukee
|
|
19,172
|
|
|
7.81
|
|
|
9,821
|
|
|
4.00
|
|
|
12,276
|
|
|
5.00
|
|
Alterra Bank
|
|
28,278
|
|
|
9.89
|
|
|
11,441
|
|
|
4.00
|
|
|
14,301
|
|
|
5.00
|
|