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”), through our wholly-owned subsidiary, First Business Bank (“FBB” or the “Bank”), has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). FBB operates as a commercial banking institution primarily in the Wisconsin and greater Kansas City markets. FBB also offers trust and investment services through First Business Trust & Investments (“FBTI”) and investment portfolio administrative services and asset/liability management services through First Business Consulting Services (“FBCS”), both divisions of FBB. The Bank provides a full range of financial services to businesses, business owners, executives, professionals and high net worth individuals. The Bank is subject to competition from other financial institutions and service providers and is 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”), ABKC Real Estate, LLC (“ABKC”), Rimrock Road Investment Fund, LLC (“Rimrock Road”), BOC Investment, LLC (“BOC”), Mitchell Street Apartments Investment, LLC (“Mitchell Street”) and FBB Tax Credit Investment LLC (“FBB Tax Credit”). FMIC is located in and was formed under the laws of the state of Nevada.
Basis of Presentation.
The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and 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, 2017
. The unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 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.
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 securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve and income taxes. The results of operations for the
three
month period ended
March 31, 2018
are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending
December 31, 2018
. 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 unaudited 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, 2017
.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“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 to 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. 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. In April, May and December 2016, the FASB also issued ASU No. 2016-10, No. 2016-12 and No. 2016-20, respectively, related to Topic 606. The amendments do not change the core principles of the previously issued guidance, but instead further clarify and provide implementation guidance for certain aspects of the original ASU.
During the first quarter of 2018, the Company adopted ASU 2014-09 and all subsequent amendments to the ASU (collectively, “ASC 606”) using the modified retrospective method. The majority of the Company’s revenues are derived from interest
income and other sources that are outside the scope of ASC 606. The primary revenue streams subject to the guidance include trust and investment services fee income, service charges on deposits and the sale of foreclosed properties. The Corporation completed an assessment and evaluated contracts to assess and quantify accounting methodology changes resulting from these standards.
Trust and investment service fees
: The Corporation earns fees from contracts with customers for investment management, trust and estate management, company retirement plan and brokerage services to manage assets for investment and/or transact on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly, quarterly or annual services and are generally assessed based on a tiered scale of the market value of assets under management or administration at the end of the period. Fees that are transaction-based are recognized at the point in time that the transaction is executed.
Service charges on deposits
: The Corporation earns fees from deposit customers for account maintenance, information reporting, account reconciliation and transaction-based activity, such as overdraft and service fees. Transaction-based fees are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. All other fees are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation.
Gain or loss on foreclosed properties
: The Corporation records a gain or loss from the sale of foreclosed property when control of the property transfers to the buyer. If the Corporation finances the sale of the property to the buyer, the Corporation assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed property is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain or loss on sale if a significant financing component is present.
The adoption of ASC 606 did not result in a change to the current accounting practices for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.
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 adopted the accounting standard during the first quarter of 2018 and modified its fair value disclosure of financial instruments to reflect an exit price notion. The modifications were substantially related to loans and lease receivables, deposits, Federal Home Loan Bank advances and other borrowings. The Corporation did not have any equity securities subject to the fair value adjustment. The adoption of the standard did not have a material impact on the Corporation’s results of operations, financial position and liquidity.
In February 2016, the FASB issued ASU No. 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. The Corporation leases office space, loan production offices and specialty financing production offices under noncancelable operating leases which expire on various dates through 2029. The Corporation also leases office equipment. Future minimum lease payments for noncancelable operating leases as of March 31, 2018 was $12.0 million.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments- Credit Losses (Topic 326).”
The ASU replaces the incurred loss impairment methodology for recognizing credit losses with a methodology that reflects all expected credit losses. The ASU also requires consideration of a broader range of information to inform credit loss estimates, including such factors as past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures and any other financial asset not excluded from the scope that have the contractual right to receive cash. Entities will apply the amendments in the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The ASU is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018. The Corporation intends to adopt the accounting standard during the first quarter of 2020, as required, and is currently evaluating the impact on its results of operations, financial position and liquidity. A cross-functional team has been established and a third-party software solution has been obtained to assist with the implementation of the standard. Management is in the process of gathering necessary data and reviewing potential methods to calculate the expected credit losses.
In August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230).
” The ASU provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The amendments in this update will be applied retrospectively to each prior period presented. The Corporation adopted the accounting standard during the first quarter of 2018 with no material impact on its results of operations, financial position and liquidity.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation- Stock Compensation (Topic 718).”
The ASU provides clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU is effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Corporation adopted the standard in the first quarter of 2018 with no material impact on its results of operations, financial position and liquidity.
In February 2018, the FASB issued ASU No. 2018-02, “
Income Statement- Reporting Comprehensive Income (Topic 220).
” The ASU allowed a reclassification from accumulated comprehensive income to retained earnings for stranded effects resulting from the Tax Cuts and Jobs Act. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Corporation early adopted the standard in the fourth quarter of 2017, which resulted in a $222,000 one-time reclassification from accumulated comprehensive income to retained earnings.
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, or dividend equivalents, 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.
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
|
(Dollars in Thousands, Except Share Data)
|
Basic earnings per common share
|
|
|
|
|
Net income
|
|
$
|
3,649
|
|
|
$
|
3,397
|
|
Less: earnings allocated to participating securities
|
|
54
|
|
|
45
|
|
Basic earnings allocated to common stockholders
|
|
$
|
3,595
|
|
|
$
|
3,352
|
|
Weighted-average common shares outstanding, excluding participating securities
|
|
8,633,278
|
|
|
8,600,620
|
|
Basic earnings per common share
|
|
$
|
0.42
|
|
|
$
|
0.39
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
|
|
Earnings allocated to common stockholders
|
|
$
|
3,595
|
|
|
$
|
3,352
|
|
Weighted-average diluted common shares outstanding, excluding participating securities
|
|
8,633,278
|
|
|
8,600,620
|
|
Diluted earnings per common share
|
|
$
|
0.42
|
|
|
$
|
0.39
|
|
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, restricted stock, restricted stock units, dividend equivalent units and any other type of award permitted by the Plan. As of
March 31, 2018
,
210,780
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 its treasury stock for shares delivered under the Plan.
Restricted Stock
Under the Plan, the Corporation may grant restricted stock to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While restricted stock is subject to forfeiture, restricted stock participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. Restricted stock units do not have voting rights and are provided dividend equivalents. The restricted stock granted under the Plan is 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 stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the unaudited Consolidated Statements of Income.
Restricted stock activity for the year ended
December 31, 2017
and the
three
months ended
March 31, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Restricted Shares/Units
|
|
Weighted Average
Grant-Date
Fair Value
|
Nonvested balance as of December 31, 2016
|
|
116,245
|
|
|
$
|
21.13
|
|
Granted
|
|
71,130
|
|
|
21.67
|
|
Vested
|
|
(48,550
|
)
|
|
21.51
|
|
Forfeited
|
|
(8,384
|
)
|
|
21.65
|
|
Nonvested balance as of December 31, 2017
|
|
130,441
|
|
|
21.43
|
|
Granted
|
|
1,055
|
|
|
21.43
|
|
Vested
|
|
(1,238
|
)
|
|
22.70
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Nonvested balance as of March 31, 2018
|
|
130,258
|
|
|
$
|
21.44
|
|
As of
March 31, 2018
, the Corporation had
$2.2 million
of deferred unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately
2.70
years.
For the
three
months ended
March 31, 2018
and
2017
, share-based compensation expense related to restricted stock included in the unaudited Consolidated Statements of Income was
$286,000
and
$276,000
, respectively.
Note 4 — Securities
The amortized cost and 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, 2018
|
|
|
Amortized Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
999
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
990
|
|
Municipal obligations
|
|
8,291
|
|
|
1
|
|
|
(111
|
)
|
|
8,181
|
|
Collateralized mortgage obligations - government issued
|
|
23,147
|
|
|
95
|
|
|
(397
|
)
|
|
22,845
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
95,509
|
|
|
11
|
|
|
(2,236
|
)
|
|
93,284
|
|
Other securities
|
|
2,695
|
|
|
—
|
|
|
(34
|
)
|
|
2,661
|
|
|
|
$
|
130,641
|
|
|
$
|
107
|
|
|
$
|
(2,787
|
)
|
|
$
|
127,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Amortized Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
|
(In Thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
999
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Municipal obligations
|
|
9,494
|
|
|
2
|
|
|
(82
|
)
|
|
9,414
|
|
Collateralized mortgage obligations - government issued
|
|
22,313
|
|
|
149
|
|
|
(213
|
)
|
|
22,249
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
91,480
|
|
|
24
|
|
|
(1,199
|
)
|
|
90,305
|
|
Other securities
|
|
3,040
|
|
|
3
|
|
|
(6
|
)
|
|
3,037
|
|
|
|
$
|
127,326
|
|
|
$
|
179
|
|
|
$
|
(1,500
|
)
|
|
$
|
126,005
|
|
The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrealized gains and losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
Amortized Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
1,499
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
1,490
|
|
Municipal obligations
|
|
21,657
|
|
|
48
|
|
|
(129
|
)
|
|
21,576
|
|
Collateralized mortgage obligations - government issued
|
|
8,613
|
|
|
—
|
|
|
(232
|
)
|
|
8,381
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
10,116
|
|
|
15
|
|
|
(169
|
)
|
|
9,962
|
|
|
|
$
|
41,885
|
|
|
$
|
63
|
|
|
$
|
(539
|
)
|
|
$
|
41,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Amortized Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
1,499
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
1,490
|
|
Municipal obligations
|
|
21,680
|
|
|
176
|
|
|
(34
|
)
|
|
21,822
|
|
Collateralized mortgage obligations - government issued
|
|
9,072
|
|
|
1
|
|
|
(130
|
)
|
|
8,943
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
5,527
|
|
|
—
|
|
|
(86
|
)
|
|
5,441
|
|
|
|
$
|
37,778
|
|
|
$
|
177
|
|
|
$
|
(259
|
)
|
|
$
|
37,696
|
|
U.S. government agency obligations - government-sponsored enterprises represent securities issued by the Federal Home Loan Bank (“FHLB”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”). 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. Collateralized mortgage obligations - government issued represent securities guaranteed by the Government National Mortgage Association. Collateralized mortgage obligations - government-sponsored enterprises include securities guaranteed by the FHLMC and the FNMA. Other securities
represent certificates of deposit of insured banks and savings institutions with an original maturity greater than three months.
No
sales of available-for-sale securities occurred during the
three
months ended
March 31, 2018
and
2017
, respectively.
At
March 31, 2018
and
December 31, 2017
, securities with a fair value of
$2.6 million
and
$2.8 million
, respectively, were pledged to secure interest rate swap contracts.
The amortized cost and fair value of securities by contractual maturity at
March 31, 2018
are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
|
|
(In Thousands)
|
Due in one year or less
|
|
$
|
3,894
|
|
|
$
|
3,886
|
|
|
$
|
1,700
|
|
|
$
|
1,691
|
|
Due in one year through five years
|
|
19,198
|
|
|
18,836
|
|
|
10,819
|
|
|
10,786
|
|
Due in five through ten years
|
|
31,867
|
|
|
31,274
|
|
|
20,298
|
|
|
20,032
|
|
Due in over ten years
|
|
75,682
|
|
|
73,965
|
|
|
9,068
|
|
|
8,900
|
|
|
|
$
|
130,641
|
|
|
$
|
127,961
|
|
|
$
|
41,885
|
|
|
$
|
41,409
|
|
The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual investments were in a continuous loss position at
March 31, 2018
and
December 31, 2017
. At
March 31, 2018
, the Corporation held
158
available-for-sale securities that were in an unrealized loss position. 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, 2018
, the Corporation held
49
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 unaudited Consolidated Statements of Income for the
three
months ended
March 31, 2018
and
2017
.
A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
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
|
|
$
|
990
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
990
|
|
|
$
|
9
|
|
Municipal obligations
|
|
4,914
|
|
|
70
|
|
|
2,094
|
|
|
41
|
|
|
7,008
|
|
|
111
|
|
Collateralized mortgage obligations - government issued
|
|
11,220
|
|
|
153
|
|
|
6,531
|
|
|
244
|
|
|
17,751
|
|
|
397
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
61,842
|
|
|
1,275
|
|
|
26,298
|
|
|
961
|
|
|
88,140
|
|
|
2,236
|
|
Other securities
|
|
2,418
|
|
|
32
|
|
|
243
|
|
|
2
|
|
|
2,661
|
|
|
34
|
|
|
|
$
|
81,384
|
|
|
$
|
1,539
|
|
|
$
|
35,166
|
|
|
$
|
1,248
|
|
|
$
|
116,550
|
|
|
$
|
2,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
$
|
6,132
|
|
|
$
|
43
|
|
|
$
|
2,755
|
|
|
$
|
39
|
|
|
$
|
8,887
|
|
|
$
|
82
|
|
Collateralized mortgage obligations - government issued
|
|
7,104
|
|
|
40
|
|
|
6,715
|
|
|
173
|
|
|
13,819
|
|
|
213
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
59,256
|
|
|
476
|
|
|
28,004
|
|
|
723
|
|
|
87,260
|
|
|
1,199
|
|
Other securities
|
|
1,954
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
1,954
|
|
|
$
|
6
|
|
|
|
$
|
74,446
|
|
|
$
|
565
|
|
|
$
|
37,474
|
|
|
$
|
935
|
|
|
$
|
111,920
|
|
|
$
|
1,500
|
|
The tables below show the Corporation’s gross unrealized 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, 2018
and
December 31, 2017
. At
March 31, 2018
, the Corporation held
81
held-to-maturity securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. There were
16
held-to-maturity securities that had been in a continuous loss position for twelve months or greater as of
March 31, 2018
. It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of aforementioned factors. Accordingly,
no
other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the
three
months ended
March 31, 2018
and
2017
.
A summary of unrealized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,499
|
|
|
$
|
9
|
|
|
$
|
1,499
|
|
|
$
|
9
|
|
Municipal obligations
|
|
14,446
|
|
|
120
|
|
|
258
|
|
|
9
|
|
|
14,704
|
|
|
129
|
|
Collateralized mortgage obligations - government issued
|
|
4,225
|
|
|
106
|
|
|
4,388
|
|
|
126
|
|
|
8,613
|
|
|
232
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
2,875
|
|
|
7
|
|
|
5,241
|
|
|
162
|
|
|
8,116
|
|
|
169
|
|
|
|
$
|
21,546
|
|
|
$
|
233
|
|
|
$
|
11,386
|
|
|
$
|
306
|
|
|
$
|
32,932
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
(In Thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,499
|
|
|
$
|
9
|
|
|
$
|
1,499
|
|
|
$
|
9
|
|
Municipal obligations
|
|
3,723
|
|
|
27
|
|
|
259
|
|
|
7
|
|
|
3,982
|
|
|
34
|
|
Collateralized mortgage obligations - government issued
|
|
3,868
|
|
|
51
|
|
|
4,677
|
|
|
79
|
|
|
8,545
|
|
|
130
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
—
|
|
|
—
|
|
|
5,527
|
|
|
86
|
|
|
5,527
|
|
|
86
|
|
|
|
$
|
7,591
|
|
|
$
|
78
|
|
|
$
|
11,962
|
|
|
$
|
181
|
|
|
$
|
19,553
|
|
|
$
|
259
|
|
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,
2018
|
|
December 31,
2017
|
|
|
(In Thousands)
|
Commercial real estate:
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
197,268
|
|
|
$
|
200,387
|
|
Commercial real estate — non-owner occupied
|
|
484,151
|
|
|
470,236
|
|
Land development
|
|
46,379
|
|
|
40,154
|
|
Construction
|
|
156,020
|
|
|
125,157
|
|
Multi-family
|
|
136,098
|
|
|
136,978
|
|
1-4 family
|
|
41,866
|
|
|
44,976
|
|
Total commercial real estate
|
|
1,061,782
|
|
|
1,017,888
|
|
Commercial and industrial
|
|
443,005
|
|
|
429,002
|
|
Direct financing leases, net
|
|
31,387
|
|
|
30,787
|
|
Consumer and other:
|
|
|
|
|
Home equity and second mortgages
|
|
8,270
|
|
|
7,262
|
|
Other
|
|
20,717
|
|
|
18,099
|
|
Total consumer and other
|
|
28,987
|
|
|
25,361
|
|
Total gross loans and leases receivable
|
|
1,565,161
|
|
|
1,503,038
|
|
Less:
|
|
|
|
|
Allowance for loan and lease losses
|
|
18,638
|
|
|
18,763
|
|
Deferred loan fees
|
|
1,671
|
|
|
1,443
|
|
Loans and leases receivable, net
|
|
$
|
1,544,852
|
|
|
$
|
1,482,832
|
|
As of
March 31, 2018
and
December 31, 2017
, the total amount of the Corporation’s ownership of SBA loans comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
|
|
(In Thousands)
|
Retained, unguaranteed portions of sold SBA loans
|
|
$
|
28,348
|
|
|
$
|
30,071
|
|
Other SBA loans
(1)
|
|
19,431
|
|
|
22,254
|
|
Total SBA loans
|
|
$
|
47,779
|
|
|
$
|
52,325
|
|
|
|
(1)
|
Primarily consisted of SBA Express loans and impaired SBA loans that were repurchased from the secondary market, all of which were not saleable as of March 31, 2018 and December 31, 2017, respectively.
|
As of
March 31, 2018
and
December 31, 2017
,
$8.0 million
and
$11.1 million
of SBA loans were considered impaired, respectively.
Loans transferred to third parties consist of the guaranteed portions of SBA loans which the Corporation sold in the secondary market, participation interests in other originated loans and residential real estate loans. The total principal amount of the guaranteed portions of SBA loans sold during the three months ended
March 31, 2018
and
2017
was
$3.1 million
and
$3.3 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, 2018
and
2017
have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portions 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. The total outstanding balance of sold SBA loans at
March 31, 2018
and
December 31, 2017
was
$97.7 million
and
$100.3 million
, respectively.
The total principal amount of transferred participation interests in other originated commercial loans during the
three
months ended
March 31, 2018
and
2017
was
$19.7 million
and
$12.0 million
, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.
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 outstanding balance of these transferred loans at
March 31, 2018
and
December 31, 2017
was
$108.7 million
and
$106.4 million
, respectively. As of
March 31, 2018
and
December 31, 2017
, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was
$187.8 million
and
$181.7 million
, respectively.
No
loans in this participation portfolio were considered impaired as of
March 31, 2018
and
December 31, 2017
. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the unaudited Consolidated Balance Sheets as of
March 31, 2018
and
December 31, 2017
was
$650,000
.
The following tables illustrate 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, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
Category
|
|
|
|
|
I
|
|
II
|
|
III
|
|
IV
|
|
Total
|
|
|
(Dollars in Thousands)
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
167,290
|
|
|
$
|
15,592
|
|
|
$
|
10,354
|
|
|
$
|
4,032
|
|
|
$
|
197,268
|
|
Commercial real estate — non-owner occupied
|
|
462,505
|
|
|
20,533
|
|
|
1,080
|
|
|
33
|
|
|
484,151
|
|
Land development
|
|
42,818
|
|
|
1,044
|
|
|
—
|
|
|
2,517
|
|
|
46,379
|
|
Construction
|
|
153,285
|
|
|
508
|
|
|
227
|
|
|
2,000
|
|
|
156,020
|
|
Multi-family
|
|
136,098
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
136,098
|
|
1-4 family
|
|
32,221
|
|
|
7,640
|
|
|
1,071
|
|
|
934
|
|
|
41,866
|
|
Total commercial real estate
|
|
994,217
|
|
|
45,317
|
|
|
12,732
|
|
|
9,516
|
|
|
1,061,782
|
|
Commercial and industrial
|
|
351,392
|
|
|
24,916
|
|
|
56,240
|
|
|
10,457
|
|
|
443,005
|
|
Direct financing leases, net
|
|
29,622
|
|
|
317
|
|
|
1,448
|
|
|
—
|
|
|
31,387
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
8,261
|
|
|
7
|
|
|
—
|
|
|
2
|
|
|
8,270
|
|
Other
|
|
20,401
|
|
|
—
|
|
|
—
|
|
|
316
|
|
|
20,717
|
|
Total consumer and other
|
|
28,662
|
|
|
7
|
|
|
—
|
|
|
318
|
|
|
28,987
|
|
Total gross loans and leases receivable
|
|
$
|
1,403,893
|
|
|
$
|
70,557
|
|
|
$
|
70,420
|
|
|
$
|
20,291
|
|
|
$
|
1,565,161
|
|
Category as a % of total portfolio
|
|
89.69
|
%
|
|
4.51
|
%
|
|
4.50
|
%
|
|
1.30
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Category
|
|
|
|
|
I
|
|
II
|
|
III
|
|
IV
|
|
Total
|
|
|
(Dollars in Thousands)
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
166,018
|
|
|
$
|
18,442
|
|
|
$
|
8,850
|
|
|
$
|
7,077
|
|
|
$
|
200,387
|
|
Commercial real estate — non-owner occupied
|
|
441,246
|
|
|
27,854
|
|
|
1,102
|
|
|
34
|
|
|
470,236
|
|
Land development
|
|
36,470
|
|
|
1,057
|
|
|
—
|
|
|
2,627
|
|
|
40,154
|
|
Construction
|
|
121,528
|
|
|
757
|
|
|
—
|
|
|
2,872
|
|
|
125,157
|
|
Multi-family
|
|
136,978
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
136,978
|
|
1-4 family
|
|
34,598
|
|
|
7,735
|
|
|
1,220
|
|
|
1,423
|
|
|
44,976
|
|
Total commercial real estate
|
|
936,838
|
|
|
55,845
|
|
|
11,172
|
|
|
14,033
|
|
|
1,017,888
|
|
Commercial and industrial
|
|
341,875
|
|
|
25,344
|
|
|
49,453
|
|
|
12,330
|
|
|
429,002
|
|
Direct financing leases, net
|
|
28,866
|
|
|
342
|
|
|
1,579
|
|
|
—
|
|
|
30,787
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
7,250
|
|
|
8
|
|
|
—
|
|
|
4
|
|
|
7,262
|
|
Other
|
|
17,745
|
|
|
—
|
|
|
—
|
|
|
354
|
|
|
18,099
|
|
Total consumer and other
|
|
24,995
|
|
|
8
|
|
|
—
|
|
|
358
|
|
|
25,361
|
|
Total gross loans and leases receivable
|
|
$
|
1,332,574
|
|
|
$
|
81,539
|
|
|
$
|
62,204
|
|
|
$
|
26,721
|
|
|
$
|
1,503,038
|
|
Category as a % of total portfolio
|
|
88.66
|
%
|
|
5.42
|
%
|
|
4.14
|
%
|
|
1.78
|
%
|
|
100.00
|
%
|
Credit underwriting primarily through a committee process is a key component of the Corporation’s operating philosophy. Commercial lenders 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 borrowers’ management team or the industry in which the borrower operates. 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 or 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 Bank’s Loan Committee.
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 Bank. 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 subcommittees of the Bank’s Loan Committee on a monthly basis and the Bank’s Board 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, with the exception of performing troubled debt restructurings, have been placed on non-accrual as management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original 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 subcommittees of the Bank’s Loan Committee on a monthly basis and the Bank’s Board of Directors at each of their regularly scheduled meetings.
Utilizing regulatory classification terminology, the Corporation identified
$30.6 million
and
$32.7 million
of loans and leases as Substandard as of
March 31, 2018
and
December 31, 2017
, respectively. No loans and leases were identified as Doubtful as of March 31, 2018. The Corporation identified
$4.7 million
of loans and leases as Doubtful as of
December 31, 2017
. Additionally,
no
loans were considered Special Mention, doubtful or Loss as of either
March 31, 2018
or
December 31, 2017
. The population of Substandard loans is 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, 2018
and
December 31, 2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
30-59
Days Past Due
|
|
60-89
Days Past Due
|
|
Greater
Than 90 Days Past Due
|
|
Total Past Due
|
|
Current
|
|
Total Loans and Leases
|
|
|
(Dollars in Thousands)
|
Accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
193,290
|
|
|
$
|
193,290
|
|
Non-owner occupied
|
|
388
|
|
|
—
|
|
|
—
|
|
|
388
|
|
|
483,730
|
|
|
484,118
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,862
|
|
|
43,862
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
154,020
|
|
|
154,020
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
136,098
|
|
|
136,098
|
|
1-4 family
|
|
545
|
|
|
—
|
|
|
—
|
|
|
545
|
|
|
40,588
|
|
|
41,133
|
|
Commercial and industrial
|
|
1,618
|
|
|
—
|
|
|
—
|
|
|
1,618
|
|
|
430,934
|
|
|
432,552
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,387
|
|
|
31,387
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
129
|
|
|
—
|
|
|
—
|
|
|
129
|
|
|
8,141
|
|
|
8,270
|
|
Other
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
20,400
|
|
|
20,401
|
|
Total
|
|
2,681
|
|
|
—
|
|
|
—
|
|
|
2,681
|
|
|
1,542,450
|
|
|
1,545,131
|
|
Non-accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
395
|
|
|
—
|
|
|
3,520
|
|
|
3,915
|
|
|
63
|
|
|
3,978
|
|
Non-owner occupied
|
|
33
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,517
|
|
|
2,517
|
|
Construction
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
2,000
|
|
|
—
|
|
|
2,000
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
162
|
|
|
—
|
|
|
529
|
|
|
691
|
|
|
42
|
|
|
733
|
|
Commercial and industrial
|
|
2,960
|
|
|
—
|
|
|
6,510
|
|
|
9,470
|
|
|
983
|
|
|
10,453
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
316
|
|
|
316
|
|
|
—
|
|
|
316
|
|
Total
|
|
3,550
|
|
|
—
|
|
|
12,875
|
|
|
16,425
|
|
|
3,605
|
|
—
|
|
20,030
|
|
Total loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
395
|
|
|
—
|
|
|
3,520
|
|
|
3,915
|
|
|
193,353
|
|
|
197,268
|
|
Non-owner occupied
|
|
421
|
|
|
—
|
|
|
—
|
|
|
421
|
|
|
483,730
|
|
|
484,151
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,379
|
|
|
46,379
|
|
Construction
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
2,000
|
|
|
154,020
|
|
|
156,020
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
136,098
|
|
|
136,098
|
|
1-4 family
|
|
707
|
|
|
—
|
|
|
529
|
|
|
1,236
|
|
|
40,630
|
|
|
41,866
|
|
Commercial and industrial
|
|
4,578
|
|
|
—
|
|
|
6,510
|
|
|
11,088
|
|
|
431,917
|
|
|
443,005
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,387
|
|
|
31,387
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
129
|
|
|
—
|
|
|
—
|
|
|
129
|
|
|
8,141
|
|
|
8,270
|
|
Other
|
|
1
|
|
|
—
|
|
|
316
|
|
|
317
|
|
|
20,400
|
|
|
20,717
|
|
Total
|
|
$
|
6,231
|
|
|
$
|
—
|
|
|
$
|
12,875
|
|
|
$
|
19,106
|
|
|
$
|
1,546,055
|
|
|
$
|
1,565,161
|
|
Percent of portfolio
|
|
0.40
|
%
|
|
—
|
%
|
|
0.82
|
%
|
|
1.22
|
%
|
|
98.78
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
30-59
Days Past Due
|
|
60-89
Days Past Due
|
|
Greater
Than 90 Days Past Due
|
|
Total Past Due
|
|
Current
|
|
Total Loans and Leases
|
|
|
(Dollars in Thousands)
|
Accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
193,366
|
|
|
$
|
193,366
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
470,202
|
|
|
470,202
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,528
|
|
|
37,528
|
|
Construction
|
|
—
|
|
|
196
|
|
|
—
|
|
|
196
|
|
|
122,089
|
|
|
122,285
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
136,978
|
|
|
136,978
|
|
1-4 family
|
|
496
|
|
|
—
|
|
|
—
|
|
|
496
|
|
|
43,319
|
|
|
43,815
|
|
Commercial and industrial
|
|
1,169
|
|
|
197
|
|
|
—
|
|
|
1,366
|
|
|
415,315
|
|
|
416,681
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,787
|
|
|
30,787
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
106
|
|
|
—
|
|
|
—
|
|
|
106
|
|
|
7,156
|
|
|
7,262
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,745
|
|
|
17,745
|
|
Total
|
|
1,771
|
|
|
393
|
|
|
—
|
|
|
2,164
|
|
|
1,474,485
|
|
|
1,476,649
|
|
Non-accruing loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
405
|
|
|
—
|
|
|
4,836
|
|
|
5,241
|
|
|
1,780
|
|
|
7,021
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
34
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,626
|
|
|
2,626
|
|
Construction
|
|
—
|
|
|
—
|
|
|
2,872
|
|
|
2,872
|
|
|
—
|
|
|
2,872
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
—
|
|
|
—
|
|
|
948
|
|
|
948
|
|
|
213
|
|
|
1,161
|
|
Commercial and industrial
|
|
782
|
|
|
—
|
|
|
7,349
|
|
|
8,131
|
|
|
4,190
|
|
|
12,321
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
345
|
|
|
345
|
|
|
9
|
|
|
354
|
|
Total
|
|
1,187
|
|
|
—
|
|
|
16,350
|
|
|
17,537
|
|
|
8,852
|
|
|
26,389
|
|
Total loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
405
|
|
|
—
|
|
|
4,836
|
|
|
5,241
|
|
|
195,146
|
|
|
200,387
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
470,236
|
|
|
470,236
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,154
|
|
|
40,154
|
|
Construction
|
|
—
|
|
|
196
|
|
|
2,872
|
|
|
3,068
|
|
|
122,089
|
|
|
125,157
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
136,978
|
|
|
136,978
|
|
1-4 family
|
|
496
|
|
|
—
|
|
|
948
|
|
|
1,444
|
|
|
43,532
|
|
|
44,976
|
|
Commercial and industrial
|
|
1,951
|
|
|
197
|
|
|
7,349
|
|
|
9,497
|
|
|
419,505
|
|
|
429,002
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,787
|
|
|
30,787
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
106
|
|
|
—
|
|
|
—
|
|
|
106
|
|
|
7,156
|
|
|
7,262
|
|
Other
|
|
—
|
|
|
—
|
|
|
345
|
|
|
345
|
|
|
17,754
|
|
|
18,099
|
|
Total
|
|
$
|
2,958
|
|
|
$
|
393
|
|
|
$
|
16,350
|
|
|
$
|
19,701
|
|
|
$
|
1,483,337
|
|
|
$
|
1,503,038
|
|
Percent of portfolio
|
|
0.20
|
%
|
|
0.03
|
%
|
|
1.09
|
%
|
|
1.32
|
%
|
|
98.68
|
%
|
|
100.00
|
%
|
The Corporation’s total impaired assets consisted of the following at
March 31, 2018
and
December 31, 2017
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
|
|
(Dollars in Thousands)
|
Non-accrual loans and leases
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
Commercial real estate — owner occupied
|
|
$
|
3,978
|
|
|
$
|
7,021
|
|
Commercial real estate — non-owner occupied
|
|
33
|
|
|
34
|
|
Land development
|
|
2,517
|
|
|
2,626
|
|
Construction
|
|
2,000
|
|
|
2,872
|
|
Multi-family
|
|
—
|
|
|
—
|
|
1-4 family
|
|
733
|
|
|
1,161
|
|
Total non-accrual commercial real estate
|
|
9,261
|
|
|
13,714
|
|
Commercial and industrial
|
|
10,453
|
|
|
12,321
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
Other
|
|
316
|
|
|
354
|
|
Total non-accrual consumer and other loans
|
|
316
|
|
|
354
|
|
Total non-accrual loans and leases
|
|
20,030
|
|
|
26,389
|
|
Foreclosed properties, net
|
|
1,484
|
|
|
1,069
|
|
Total non-performing assets
|
|
21,514
|
|
|
27,458
|
|
Performing troubled debt restructurings
|
|
261
|
|
|
332
|
|
Total impaired assets
|
|
$
|
21,775
|
|
|
$
|
27,790
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Total non-accrual loans and leases to gross loans and leases
|
|
1.28
|
%
|
|
1.76
|
%
|
Total non-performing assets to total gross loans and leases plus foreclosed properties, net
|
|
1.37
|
|
|
1.83
|
|
Total non-performing assets to total assets
|
|
1.15
|
|
|
1.53
|
|
Allowance for loan and lease losses to gross loans and leases
|
|
1.19
|
|
|
1.25
|
|
Allowance for loan and lease losses to non-accrual loans and leases
|
|
93.05
|
|
|
71.10
|
|
As of
March 31, 2018
and
December 31, 2017
,
$8.6 million
and
$8.8 million
of the non-accrual loans and leases were considered troubled debt restructurings, respectively. There were
no
unfunded commitments associated with troubled debt restructured loans and leases as of
March 31, 2018
.
The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable as of
March 31, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
As of December 31, 2017
|
|
|
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)
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate — owner occupied
|
|
3
|
|
$
|
1,065
|
|
|
$
|
868
|
|
|
3
|
|
$
|
1,065
|
|
|
$
|
880
|
|
Commercial real estate — non-owner occupied
|
|
1
|
|
158
|
|
|
33
|
|
|
1
|
|
158
|
|
|
34
|
|
Land development
|
|
1
|
|
5,745
|
|
|
2,516
|
|
|
1
|
|
5,745
|
|
|
2,626
|
|
Construction
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Multi-family
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
1-4 family
|
|
7
|
|
560
|
|
|
243
|
|
|
8
|
|
627
|
|
|
307
|
|
Commercial and industrial
|
|
10
|
|
8,759
|
|
|
4,913
|
|
|
10
|
|
8,759
|
|
|
4,951
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgage
|
|
1
|
|
37
|
|
|
2
|
|
|
2
|
|
37
|
|
|
4
|
|
Other
|
|
1
|
|
2,077
|
|
|
316
|
|
|
2
|
|
2,094
|
|
|
345
|
|
Total
|
|
24
|
|
$
|
18,401
|
|
|
$
|
8,891
|
|
|
27
|
|
$
|
18,485
|
|
|
$
|
9,147
|
|
All loans and leases modified as a troubled debt restructuring are measured 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, 2018
and
December 31, 2017
, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
As of December 31, 2017
|
|
|
Number of
Loans
|
|
Recorded Investment
|
|
Number of
Loans
|
|
Recorded Investment
|
|
|
(Dollars in Thousands)
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Extension of term
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Interest rate concession
|
|
12
|
|
|
3,660
|
|
|
12
|
|
|
3,793
|
|
Combination of extension of term and interest rate concession
|
|
—
|
|
|
—
|
|
|
1
|
|
|
54
|
|
Commercial and industrial:
|
|
|
|
|
|
|
|
|
Combination of extension of term and interest rate concession
|
|
10
|
|
|
4,913
|
|
|
10
|
|
|
4,951
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
Extension of term
|
|
1
|
|
|
316
|
|
|
1
|
|
|
328
|
|
Combination of extension of term and interest rate concession
|
|
1
|
|
|
2
|
|
|
3
|
|
|
21
|
|
Total
|
|
24
|
|
|
$
|
8,891
|
|
|
27
|
|
|
$
|
9,147
|
|
During the three months ended
March 31, 2018
and
March 31, 2017
no
loans were modified to a troubled debt restructuring.
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, 2018
. There were
three
loans modified in a troubled debt restructuring
during the previous 12 months which subsequently defaulted during the three months ended
March 31, 2017
. The total recorded investment of these loans was
$878,000
as of
March 31, 2017
.
The following represents additional information regarding the Corporation’s impaired loans and leases, including performing troubled debt restructurings, by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended March 31, 2018
|
|
|
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
|
|
$
|
4,032
|
|
|
$
|
5,331
|
|
|
$
|
—
|
|
|
$
|
6,531
|
|
|
$
|
134
|
|
|
$
|
148
|
|
|
$
|
(14
|
)
|
Non-owner occupied
|
|
33
|
|
|
74
|
|
|
—
|
|
|
39
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Land development
|
|
2,517
|
|
|
6,814
|
|
|
—
|
|
|
2,553
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Construction
|
|
2,000
|
|
|
2,872
|
|
|
—
|
|
|
2,862
|
|
|
52
|
|
|
—
|
|
|
52
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
934
|
|
|
1,204
|
|
|
—
|
|
|
1,351
|
|
|
20
|
|
|
18
|
|
|
2
|
|
Commercial and industrial
|
|
3,621
|
|
|
4,297
|
|
|
—
|
|
|
5,134
|
|
|
124
|
|
|
104
|
|
|
20
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
2
|
|
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
27
|
|
|
(27
|
)
|
Other
|
|
316
|
|
|
982
|
|
|
—
|
|
|
330
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Total
|
|
13,455
|
|
|
21,576
|
|
|
—
|
|
|
18,803
|
|
|
363
|
|
|
297
|
|
|
66
|
|
With impairment reserve recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Land development
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Construction
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
|
6,836
|
|
|
9,145
|
|
|
3,088
|
|
|
6,850
|
|
|
278
|
|
|
—
|
|
|
278
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
6,836
|
|
|
9,145
|
|
|
3,088
|
|
|
6,850
|
|
|
278
|
|
|
—
|
|
|
278
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
4,032
|
|
|
5,331
|
|
|
—
|
|
|
6,531
|
|
|
134
|
|
|
148
|
|
|
(14
|
)
|
Non-owner occupied
|
|
33
|
|
|
74
|
|
|
—
|
|
|
39
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Land development
|
|
2,517
|
|
|
6,814
|
|
|
—
|
|
|
2,553
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Construction
|
|
2,000
|
|
|
2,872
|
|
|
—
|
|
|
2,862
|
|
|
52
|
|
|
—
|
|
|
52
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
934
|
|
|
1,204
|
|
|
—
|
|
|
1,351
|
|
|
20
|
|
|
18
|
|
|
2
|
|
Commercial and industrial
|
|
10,457
|
|
|
13,442
|
|
|
3,088
|
|
|
11,984
|
|
|
402
|
|
|
104
|
|
|
298
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
2
|
|
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
27
|
|
|
(27
|
)
|
Other
|
|
316
|
|
|
982
|
|
|
—
|
|
|
330
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Grand total
|
|
$
|
20,291
|
|
|
$
|
30,721
|
|
|
$
|
3,088
|
|
|
$
|
25,653
|
|
|
$
|
641
|
|
|
$
|
297
|
|
|
$
|
344
|
|
|
|
(1)
|
Average recorded investment is calculated primarily using daily average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2017
|
|
|
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
|
|
$
|
7,077
|
|
|
$
|
7,077
|
|
|
$
|
—
|
|
|
$
|
5,549
|
|
|
$
|
613
|
|
|
$
|
—
|
|
|
$
|
613
|
|
Non-owner occupied
|
|
34
|
|
|
75
|
|
|
—
|
|
|
1,830
|
|
|
97
|
|
|
226
|
|
|
(129
|
)
|
Land development
|
|
2,627
|
|
|
5,297
|
|
|
—
|
|
|
3,092
|
|
|
84
|
|
|
—
|
|
|
84
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
134
|
|
|
214
|
|
|
(80
|
)
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
1,423
|
|
|
1,706
|
|
|
—
|
|
|
2,146
|
|
|
53
|
|
|
7
|
|
|
46
|
|
Commercial and industrial
|
|
5,465
|
|
|
6,502
|
|
|
—
|
|
|
3,634
|
|
|
858
|
|
|
7
|
|
|
851
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
4
|
|
|
3
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
345
|
|
|
1,011
|
|
|
—
|
|
|
365
|
|
|
59
|
|
|
—
|
|
|
59
|
|
Total
|
|
16,975
|
|
|
21,671
|
|
|
—
|
|
|
18,624
|
|
|
1,898
|
|
|
454
|
|
|
1,444
|
|
With impairment reserve recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-owner occupied
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Land development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
|
2,872
|
|
|
2,872
|
|
|
415
|
|
|
2,252
|
|
|
158
|
|
|
—
|
|
|
158
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
|
6,865
|
|
|
8,813
|
|
|
4,067
|
|
|
12,288
|
|
|
639
|
|
|
—
|
|
|
639
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
9
|
|
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
9,746
|
|
|
11,694
|
|
|
4,491
|
|
|
14,540
|
|
|
797
|
|
|
—
|
|
|
797
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
7,077
|
|
|
7,077
|
|
|
—
|
|
|
5,549
|
|
|
613
|
|
|
—
|
|
|
613
|
|
Non-owner occupied
|
|
34
|
|
|
75
|
|
|
—
|
|
|
1,830
|
|
|
97
|
|
|
226
|
|
|
(129
|
)
|
Land development
|
|
2,627
|
|
|
5,297
|
|
|
—
|
|
|
3,092
|
|
|
84
|
|
|
—
|
|
|
84
|
|
Construction
|
|
2,872
|
|
|
2,872
|
|
|
415
|
|
|
4,252
|
|
|
292
|
|
|
214
|
|
|
78
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1-4 family
|
|
1,423
|
|
|
1,706
|
|
|
—
|
|
|
2,146
|
|
|
53
|
|
|
7
|
|
|
46
|
|
Commercial and industrial
|
|
12,330
|
|
|
15,315
|
|
|
4,067
|
|
|
15,922
|
|
|
1,497
|
|
|
7
|
|
|
1,490
|
|
Direct financing leases, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
4
|
|
|
3
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
354
|
|
|
1,020
|
|
|
9
|
|
|
365
|
|
|
59
|
|
|
—
|
|
|
59
|
|
Grand total
|
|
$
|
26,721
|
|
|
$
|
33,365
|
|
|
$
|
4,491
|
|
|
$
|
33,164
|
|
|
$
|
2,695
|
|
|
$
|
454
|
|
|
$
|
2,241
|
|
|
|
(1)
|
Average recorded investment is calculated primarily using daily average balances.
|
The difference between the recorded investment of loans and leases and the unpaid principal balance of
$10.4 million
and
$6.6 million
as of
March 31, 2018
and
December 31, 2017
, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised 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
$261,000
and
$332,000
of loans as of
March 31, 2018
and
December 31, 2017
, respectively, that were performing troubled debt restructurings, and although 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 such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan 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 categorizes the portfolio into segments with similar risk characteristics. 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, 2018
|
|
|
Commercial
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
and Other
|
|
Total
|
|
|
(Dollars in Thousands)
|
Beginning balance
|
|
$
|
10,131
|
|
|
$
|
8,225
|
|
|
$
|
407
|
|
|
$
|
18,763
|
|
Charge-offs
|
|
(2,175
|
)
|
|
(490
|
)
|
|
(20
|
)
|
|
(2,685
|
)
|
Recoveries
|
|
13
|
|
|
2
|
|
|
69
|
|
|
84
|
|
Net charge-offs
|
|
(2,162
|
)
|
|
(488
|
)
|
|
49
|
|
|
(2,601
|
)
|
Provision for credit losses
|
|
2,021
|
|
|
414
|
|
|
41
|
|
|
2,476
|
|
Ending balance
|
|
$
|
9,990
|
|
|
$
|
8,151
|
|
|
$
|
497
|
|
|
$
|
18,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended March 31, 2017
|
|
|
Commercial
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
and Other
|
|
Total
|
|
|
(Dollars in Thousands)
|
Beginning balance
|
|
$
|
12,384
|
|
|
$
|
7,970
|
|
|
$
|
558
|
|
|
$
|
20,912
|
|
Charge-offs
|
|
(67
|
)
|
|
(55
|
)
|
|
(87
|
)
|
|
(209
|
)
|
Recoveries
|
|
104
|
|
|
246
|
|
|
41
|
|
|
391
|
|
Net charge-offs
|
|
37
|
|
|
191
|
|
|
(46
|
)
|
|
182
|
|
Provision for credit losses
|
|
396
|
|
|
(218
|
)
|
|
394
|
|
|
572
|
|
Ending balance
|
|
$
|
12,817
|
|
|
$
|
7,943
|
|
|
$
|
906
|
|
|
$
|
21,666
|
|
The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
Commercial
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
and Other
|
|
Total
|
|
|
(Dollars in Thousands)
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
9,990
|
|
|
$
|
5,063
|
|
|
$
|
497
|
|
|
$
|
15,550
|
|
Individually evaluated for impairment
|
|
—
|
|
|
3,088
|
|
|
—
|
|
|
3,088
|
|
Loans acquired with deteriorated credit quality
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
9,990
|
|
|
$
|
8,151
|
|
|
$
|
497
|
|
|
$
|
18,638
|
|
Loans and lease receivables:
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,052,266
|
|
|
$
|
463,935
|
|
|
$
|
28,669
|
|
|
$
|
1,544,870
|
|
Individually evaluated for impairment
|
|
9,101
|
|
|
10,452
|
|
|
318
|
|
|
19,871
|
|
Loans acquired with deteriorated credit quality
|
|
415
|
|
|
5
|
|
|
—
|
|
|
420
|
|
Total
|
|
$
|
1,061,782
|
|
|
$
|
474,392
|
|
|
$
|
28,987
|
|
|
$
|
1,565,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Commercial
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
and Other
|
|
Total
|
|
|
(Dollars in Thousands)
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
9,716
|
|
|
$
|
4,158
|
|
|
$
|
398
|
|
|
$
|
14,272
|
|
Individually evaluated for impairment
|
|
415
|
|
|
4,067
|
|
|
9
|
|
|
4,491
|
|
Loans acquired with deteriorated credit quality
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
10,131
|
|
|
$
|
8,225
|
|
|
$
|
407
|
|
|
$
|
18,763
|
|
Loans and lease receivables:
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,003,855
|
|
|
$
|
447,459
|
|
|
$
|
25,003
|
|
|
$
|
1,476,317
|
|
Individually evaluated for impairment
|
|
13,506
|
|
|
12,324
|
|
|
358
|
|
|
26,188
|
|
Loans acquired with deteriorated credit quality
|
|
527
|
|
|
6
|
|
|
—
|
|
|
533
|
|
Total
|
|
$
|
1,017,888
|
|
|
$
|
459,789
|
|
|
$
|
25,361
|
|
|
$
|
1,503,038
|
|
Note 6 — Other Assets
The Corporation is a limited partner in several limited partnership investments. The Corporation is not the general partner, does not have controlling ownership and is not the primary beneficiary in any of these limited partnerships and the limited partnerships have not been consolidated. These investments are accounted for using the equity method of accounting and are evaluated for impairment at the end of each reporting period.
A summary of accrued interest receivable and other assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
(In Thousands)
|
Accrued interest receivable
|
|
$
|
5,403
|
|
|
$
|
5,019
|
|
Net deferred tax asset
|
|
6,327
|
|
|
2,584
|
|
Investment in historic development entities
|
|
1,849
|
|
|
1,161
|
|
Investment in a community development entity
|
|
6,464
|
|
|
6,591
|
|
Investment in limited partnerships
|
|
4,333
|
|
|
4,261
|
|
Investment in Trust II
|
|
315
|
|
|
315
|
|
Fair value of interest rate swaps
|
|
961
|
|
|
942
|
|
Prepaid expenses
|
|
3,556
|
|
|
3,091
|
|
Other assets
|
|
2,986
|
|
|
5,884
|
|
Total accrued interest receivable and other assets
|
|
$
|
32,194
|
|
|
$
|
29,848
|
|
Note 7 — Deposits
The composition of deposits at
March 31, 2018
and
December 31, 2017
is shown below. Average balances represent year-to-date averages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
Balance
|
|
Average
Balance
|
|
Average Rate
|
|
Balance
|
|
Average
Balance
|
|
Average Rate
|
|
|
(Dollars in Thousands)
|
Non-interest-bearing transaction accounts
|
|
$
|
240,422
|
|
|
$
|
228,557
|
|
|
—
|
%
|
|
$
|
277,445
|
|
|
$
|
230,907
|
|
|
—
|
%
|
Interest-bearing transaction accounts
|
|
262,766
|
|
|
297,730
|
|
|
0.55
|
|
|
217,625
|
|
|
226,540
|
|
|
0.59
|
|
Money market accounts
|
|
498,310
|
|
|
514,837
|
|
|
0.66
|
|
|
515,077
|
|
|
583,241
|
|
|
0.47
|
|
Certificates of deposit
|
|
77,107
|
|
|
80,904
|
|
|
1.18
|
|
|
76,199
|
|
|
56,667
|
|
|
1.00
|
|
Wholesale deposits
|
|
292,553
|
|
|
300,855
|
|
|
1.77
|
|
|
307,985
|
|
|
361,712
|
|
|
1.70
|
|
Total deposits
|
|
$
|
1,371,158
|
|
|
$
|
1,422,883
|
|
|
0.80
|
|
|
$
|
1,394,331
|
|
|
$
|
1,459,067
|
|
|
0.74
|
|
Note 8 — FHLB Advances, Other Borrowings and Junior Subordinated Notes
The composition of borrowed funds at
March 31, 2018
and
December 31, 2017
is shown below. Average balances represent year-to-date averages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
Balance
|
|
Weighted Average
Balance
|
|
Weighted
Average Rate
|
|
Balance
|
|
Weighted Average
Balance
|
|
Weighted
Average Rate
|
|
|
(Dollars in Thousands)
|
Federal funds purchased
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
$
|
66
|
|
|
1.22
|
%
|
FHLB advances
|
|
284,500
|
|
|
217,517
|
|
|
1.84
|
|
|
183,500
|
|
|
105,276
|
|
|
1.40
|
|
Line of credit
|
|
10
|
|
|
10
|
|
|
4.32
|
|
|
10
|
|
|
328
|
|
|
3.64
|
|
Other borrowings
(1)
|
|
675
|
|
|
675
|
|
|
8.09
|
|
|
675
|
|
|
1,241
|
|
|
14.50
|
|
Subordinated notes payable
|
|
23,727
|
|
|
23,718
|
|
|
6.67
|
|
|
23,713
|
|
|
23,161
|
|
|
6.93
|
|
Junior subordinated notes
|
|
10,022
|
|
|
10,020
|
|
|
10.94
|
|
|
10,019
|
|
|
10,011
|
|
|
11.11
|
|
|
|
$
|
318,934
|
|
|
$
|
251,940
|
|
|
2.68
|
|
|
$
|
217,917
|
|
|
$
|
140,083
|
|
|
3.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
93,010
|
|
|
|
|
|
|
$
|
37,010
|
|
|
|
|
|
Long-term borrowings
|
|
225,924
|
|
|
|
|
|
|
180,907
|
|
|
|
|
|
|
|
$
|
318,934
|
|
|
|
|
|
|
$
|
217,917
|
|
|
|
|
|
|
|
(1)
|
Weighted average rate of other borrowings reflects the cost of prepaying a secured borrowing during the second quarter of 2017.
|
As of
March 31, 2018
and
December 31, 2017
, 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, 2018, the Corporation pays a commitment fee on this line of credit. During both the
three
months ended
March 31, 2018
and
2017
, the Corporation incurred interest expense due to this fee of
$3,000
.
Note 9 — Commitments and Contingencies
In the ordinary course of business, the Corporation sells the guaranteed portions of SBA loans, as well as participation interests in other originated loans, to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management and servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program and standard representations and warranties related to sold amounts. In the event of a
loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults.
Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450,
Contingencies
, and determined a recourse reserve based on the probability of future losses for these loans to be
$2.5 million
at
March 31, 2018
, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.
The summary of the activity in the SBA recourse reserve is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
|
|
(In Thousands)
|
Balance at the beginning of the period
|
|
$
|
2,849
|
|
|
$
|
1,750
|
|
SBA recourse (benefit) provision
|
|
(295
|
)
|
|
6
|
|
Charge-offs, net
|
|
(38
|
)
|
|
(91
|
)
|
Balance at the end of the period
|
|
$
|
2,516
|
|
|
$
|
1,665
|
|
In the normal course of business, various legal proceedings involving the Corporation are pending. Management, based upon advice from legal counsel, does not anticipate any significant losses as a result of these actions. Management believes that any liability arising from any such proceedings currently existing or threatened will not have a material adverse effect on the Corporation’s financial position, results of operations and cash flows.
Note 10 — 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In Thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
—
|
|
|
$
|
990
|
|
|
$
|
—
|
|
|
$
|
990
|
|
Municipal obligations
|
|
—
|
|
|
8,181
|
|
|
—
|
|
|
8,181
|
|
Collateralized mortgage obligations - government issued
|
|
—
|
|
|
22,845
|
|
|
—
|
|
|
22,845
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
—
|
|
|
93,284
|
|
|
—
|
|
|
93,284
|
|
Other securities
|
|
—
|
|
|
2,661
|
|
|
—
|
|
|
2,661
|
|
Interest rate swaps
|
|
—
|
|
|
1,511
|
|
|
—
|
|
|
1,511
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
—
|
|
|
961
|
|
|
—
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In Thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government agency obligations - government-sponsored enterprises
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Municipal obligations
|
|
—
|
|
|
9,414
|
|
|
—
|
|
|
9,414
|
|
Asset backed securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Collateralized mortgage obligations - government issued
|
|
—
|
|
|
22,249
|
|
|
—
|
|
|
22,249
|
|
Collateralized mortgage obligations - government-sponsored enterprises
|
|
—
|
|
|
90,305
|
|
|
—
|
|
|
90,305
|
|
Other securities
|
|
—
|
|
|
3,037
|
|
|
—
|
|
|
3,037
|
|
Interest rate swaps
|
|
—
|
|
|
942
|
|
|
—
|
|
|
942
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
—
|
|
|
1,064
|
|
|
—
|
|
|
1,064
|
|
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, 2018
or the year ended
December 31, 2017
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In Thousands)
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
4,333
|
|
|
$
|
6,414
|
|
|
$
|
10,747
|
|
Foreclosed properties
|
|
—
|
|
|
1,484
|
|
|
—
|
|
|
1,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In Thousands)
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
10,063
|
|
|
$
|
5,084
|
|
|
$
|
15,147
|
|
Foreclosed properties
|
|
—
|
|
|
1,069
|
|
|
—
|
|
|
1,069
|
|
Impaired loans were written down to the fair value of their underlying collateral less costs to sell of
$10.7 million
and
$15.1 million
at
March 31, 2018
and
December 31, 2017
, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. 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 when discounts are 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
13%
-
75%
as of the measurement date of
March 31, 2018
. The weighted average of those unobservable inputs was
16%
. The majority of the impaired loans in the Level 3 category are considered collateral dependent loans or are supported by a SBA guaranty.
Foreclosed properties, upon initial recognition, are remeasured 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.
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, 2018
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In Thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
61,322
|
|
|
$
|
61,319
|
|
|
$
|
41,622
|
|
|
$
|
19,697
|
|
|
$
|
—
|
|
Securities available-for-sale
|
|
127,961
|
|
|
127,961
|
|
|
—
|
|
|
127,961
|
|
|
—
|
|
Securities held-to-maturity
|
|
41,885
|
|
|
41,409
|
|
|
—
|
|
|
41,409
|
|
|
—
|
|
Loans held for sale
|
|
3,429
|
|
|
3,772
|
|
|
—
|
|
|
3,772
|
|
|
—
|
|
Loans and lease receivables, net
|
|
1,544,852
|
|
|
1,541,857
|
|
|
—
|
|
|
4,333
|
|
|
1,537,524
|
|
Federal Home Loan Bank stock
|
|
8,650
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Accrued interest receivable
|
|
5,403
|
|
|
5,403
|
|
|
5,403
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
1,511
|
|
|
1,511
|
|
|
—
|
|
|
1,511
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,371,158
|
|
|
1,367,168
|
|
|
1,001,498
|
|
|
365,670
|
|
|
—
|
|
Federal Home Loan Bank advances and other borrowings
|
|
308,912
|
|
|
305,156
|
|
|
—
|
|
|
305,156
|
|
|
—
|
|
Junior subordinated notes
|
|
10,022
|
|
|
8,352
|
|
|
—
|
|
|
—
|
|
|
8,352
|
|
Accrued interest payable
|
|
2,456
|
|
|
2,456
|
|
|
2,456
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
961
|
|
|
961
|
|
|
—
|
|
|
961
|
|
|
—
|
|
Off-balance-sheet items:
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
52
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
52
|
|
N/A = The fair value is not applicable due to restrictions placed on transferability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In Thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,539
|
|
|
$
|
52,539
|
|
|
$
|
35,114
|
|
|
$
|
17,425
|
|
|
$
|
—
|
|
Securities available-for-sale
|
|
126,005
|
|
|
126,005
|
|
|
—
|
|
|
126,005
|
|
|
—
|
|
Securities held-to-maturity
|
|
37,778
|
|
|
37,696
|
|
|
—
|
|
|
37,696
|
|
|
—
|
|
Loans held for sale
|
|
2,194
|
|
|
2,413
|
|
|
—
|
|
|
2,413
|
|
|
—
|
|
Loans and lease receivables, net
|
|
1,482,832
|
|
|
1,482,664
|
|
|
—
|
|
|
10,063
|
|
|
1,472,601
|
|
Federal Home Loan Bank stock
|
|
5,670
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Accrued interest receivable
|
|
5,019
|
|
|
5,019
|
|
|
5,019
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
942
|
|
|
942
|
|
|
—
|
|
|
942
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,394,331
|
|
|
1,391,801
|
|
|
1,010,147
|
|
|
381,654
|
|
|
—
|
|
Federal Home Loan Bank advances and other borrowings
|
|
207,898
|
|
|
206,441
|
|
|
—
|
|
|
206,441
|
|
|
—
|
|
Junior subordinated notes
|
|
10,019
|
|
|
8,836
|
|
|
—
|
|
|
—
|
|
|
8,836
|
|
Accrued interest payable
|
|
2,095
|
|
|
2,095
|
|
|
2,095
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
|
1,064
|
|
|
1,064
|
|
|
—
|
|
|
1,064
|
|
|
—
|
|
Off-balance-sheet items:
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
75
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
75
|
|
N/A = The fair value is not applicable due to restrictions placed on transferability
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 unaudited 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.
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 by 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 the guaranteed portions of SBA loans, are carried at the lower of cost or estimated fair value. The estimated fair value is based on what secondary markets are currently offering for portfolios with similar characteristics.
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.
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 11 — 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 considered hedging instruments 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 considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds and guarantees.
At
March 31, 2018
, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was
$91.0 million
. The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers. These interest rate swaps mature between
September 2018
and
July 2034
. 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 unaudited Consolidated Balance Sheet as a derivative assets of
$961,000
, included in accrued interest receivable and other assets, and as a derivative liability of
$265,000
, included in accrued interest payable and other liabilities. As of
March 31, 2018
,
no
interest rate swaps were in default and therefore all values for the commercial borrower swaps were recorded on a gross basis on the unaudited Consolidated Balance Sheets.
At
March 31, 2018
, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also
$91.0 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
September 2018
through
July 2034
. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the unaudited Consolidated Balance Sheet as a net derivate liability of
$696,000
, included in accrued interest payable and other liabilities. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative liability of
961,000
and gross derivative assets of
265,000
. No right of offset existed with dealer counterparty swaps as of
March 31, 2018
.
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, 2018
and
2017
had an insignificant impact on the unaudited Consolidated Statements of Income.
The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The instruments are designated as cash flow hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with forecasted issuances of short-term FHLB advances. The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affects earnings.
As of March 31, 2018, the aggregate notional value of interest rate swaps designated as cash flow hedges was
$30.0 million
. These interest rate swaps matures between
June 2027
and
December 2027
. A pre-tax unrealized gain of
$672,000
was recognized in other comprehensive income for the three months ended March 31, 2018 and there was no ineffective portion of these hedge.
No
interest rate swaps designated as cash flow hedges were outstanding as of March 31, 2017.
The table below provides information about the balance sheet location and fair value of the Corporation’s derivative instruments as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Contracts
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
(In Thousands)
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Accrued interest receivable and other assets
|
|
$
|
961
|
|
|
Accrued interest payable and other liabilities
|
|
$
|
961
|
|
December 31, 2017
|
|
Accrued interest receivable and other assets
|
|
$
|
942
|
|
|
Accrued interest payable and other liabilities
|
|
$
|
942
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Accrued interest receivable and other assets
|
|
$
|
550
|
|
|
Accumulated other comprehensive income
(1)
|
|
$
|
550
|
|
December 31, 2017
|
|
Accumulated other comprehensive income
(1)
|
|
$
|
122
|
|
|
Accrued interest payable and other liabilities
|
|
$
|
122
|
|
|
|
(1)
|
The fair value of derivatives designated as hedging instruments included in accumulated other comprehensive income represent pre-tax amounts, which are reported net of tax on the unaudited Consolidated Balance Sheets.
|
Note 12 — Regulatory Capital
The Corporation and the Bank are subject to various regulatory capital requirements administered by Federal and the State of Wisconsin 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 Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory practices.
The Corporation’s and the Bank’s 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, 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 Bank. The Corporation’s and the Bank’s 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 financial institutions to strongly consider eliminating, deferring or significantly reducing dividends if: (i) net income available to common stockholders 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 and 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 Bank is 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 Bank 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 Bank 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 Bank 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 adjusted total assets. These risk-based capital requirements presently address credit risk related to both recorded and off-balance-sheet commitments and obligations.
In July 2013, the FRB and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s 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 increased 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 in assets to retain, through a one-time election, the past treatment for accumulated other comprehensive income, which did 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, was 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 will increase each subsequent year by an additional
0.625%
until reaching its final level of
2.5%
on
January 1, 2019
.
As of
March 31, 2018
, the Corporation’s capital levels exceeded the regulatory minimums and Bank’s capital levels remained characterized as well capitalized under the regulatory framework. The following table summarizes both the Corporation’s and Bank’s capital ratios and the ratios required by their federal regulators at
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required for Capital Adequacy Purposes
|
|
For Capital Adequacy Purposes Plus Capital Conservation Buffer
|
|
Minimum Required to Be Well
Capitalized Under Prompt Corrective Action Requirements
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
(Dollars in Thousands)
|
As of March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
216,519
|
|
|
11.78
|
%
|
|
$
|
147,099
|
|
|
8.00
|
%
|
|
$
|
181,575
|
|
|
9.875
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
209,579
|
|
|
11.45
|
|
|
146,437
|
|
|
8.00
|
|
|
180,758
|
|
|
9.875
|
|
|
$
|
183,046
|
|
|
10.00
|
%
|
Tier 1 capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
171,638
|
|
|
9.33
|
%
|
|
$
|
110,324
|
|
|
6.00
|
%
|
|
$
|
144,801
|
|
|
7.875
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
188,425
|
|
|
10.29
|
|
|
109,828
|
|
|
6.00
|
|
|
144,149
|
|
|
7.875
|
|
|
$
|
146,437
|
|
|
8.00
|
%
|
Common equity tier 1 capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
161,616
|
|
|
8.79
|
%
|
|
$
|
82,743
|
|
|
4.50
|
%
|
|
$
|
117,219
|
|
|
6.375
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
188,425
|
|
|
10.29
|
|
|
82,371
|
|
|
4.50
|
|
|
116,692
|
|
|
6.375
|
|
|
$
|
118,980
|
|
|
6.50
|
%
|
Tier 1 leverage capital
(to adjusted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
171,638
|
|
|
9.26
|
%
|
|
$
|
74,127
|
|
|
4.00
|
%
|
|
$
|
74,127
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
188,425
|
|
|
10.19
|
|
|
73,929
|
|
|
4.00
|
|
|
73,929
|
|
|
4.00
|
|
|
$
|
92,412
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Required for Capital Adequacy Purposes
|
|
For Capital Adequacy Purposes Plus Capital Conservation Buffer
|
|
Minimum Required to Be Well
Capitalized Under Prompt Corrective Action Requirements
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
(Dollars in Thousands)
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
214,501
|
|
|
11.98
|
%
|
|
$
|
143,219
|
|
|
8.00
|
%
|
|
$
|
165,597
|
|
|
9.250
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
207,986
|
|
|
11.66
|
|
|
142,736
|
|
|
8.00
|
|
|
165,038
|
|
|
9.250
|
|
|
$
|
178,420
|
|
|
10.00
|
%
|
Tier 1 capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
169,176
|
|
|
9.45
|
%
|
|
$
|
107,414
|
|
|
6.00
|
%
|
|
$
|
129,792
|
|
|
7.250
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
186,374
|
|
|
10.45
|
|
|
107,052
|
|
|
6.00
|
|
|
129,354
|
|
|
7.250
|
|
|
$
|
142,736
|
|
|
8.00
|
%
|
Common equity tier 1 capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
159,157
|
|
|
8.89
|
%
|
|
$
|
80,561
|
|
|
4.50
|
%
|
|
$
|
102,939
|
|
|
5.750
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
186,374
|
|
|
10.45
|
|
|
80,289
|
|
|
4.50
|
|
|
102,591
|
|
|
5.750
|
|
|
$
|
115,973
|
|
|
6.50
|
%
|
Tier 1 leverage capital
(to adjusted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
169,176
|
|
|
9.54
|
%
|
|
$
|
70,920
|
|
|
4.00
|
%
|
|
$
|
70,920
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
First Business Bank
|
|
186,374
|
|
|
10.56
|
|
|
70,617
|
|
|
4.00
|
|
|
70,617
|
|
|
4.00
|
|
|
$
|
88,272
|
|
|
5.00
|
%
|