0000102212 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Form 10-Q
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x☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2018. |
For the quarterly period ended June 30, 2019
or
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¨☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
For the transition period from __________ to __________
Commission File Number: 0-7617
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA
(Exact name of registrant as specified in its charter)
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| | |
Pennsylvania | | 23-1886144 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
14 North Main Street, Souderton, Pennsylvania18964
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (215) (215) 721-2400
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of class | Trading symbol | Name of exchange on which registered |
Common Stock, $5 par value | UVSP | The NASDAQ Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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| | | |
Large accelerated filer | x☒ | Accelerated filer | ¨☐ |
Non-accelerated filer | ¨☐ | Smaller reporting company | ¨☐ |
| | Emerging growth company | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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| | |
Common Stock, $5 par value | | 29,314,81829,305,447 |
(Title of Class) | | (Number of shares outstanding at OctoberJuly 31, 2018) |
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX
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Part I. | | |
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| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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Part II. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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Part II. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 5. | | |
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| Item 6. | | |
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PART I. FINANCIAL INFORMATION
| |
Item 1. | Financial Statements |
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | (UNAUDITED) | | | (UNAUDITED) | | |
(Dollars in thousands, except share data) | At September 30, 2018 | | At December 31, 2017 | At June 30, 2019 | | At December 31, 2018 |
ASSETS | | |
Cash and due from banks | $ | 52,200 |
| | $ | 46,721 |
| $ | 55,223 |
| | $ | 61,573 |
|
Interest-earning deposits with other banks | 31,910 |
| | 28,688 |
| 29,344 |
| | 47,847 |
|
Investment securities held-to-maturity (fair value $105,642 and $55,320 at September 30, 2018 and December 31, 2017, respectively) | 108,142 |
| | 55,564 |
| |
Cash and cash equivalents | | 84,567 |
| | 109,420 |
|
Investment securities held-to-maturity (fair value $175,296 and $141,575 at June 30, 2019 and December 31, 2018, respectively) | | 172,946 |
| | 142,634 |
|
Investment securities available-for-sale | 336,933 |
| | 391,457 |
| 293,022 |
| | 328,507 |
|
Investments in equity securities | 2,264 |
| | 7,061 |
| 2,865 |
| | 2,165 |
|
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost | 33,071 |
| | 27,204 |
| 32,755 |
| | 28,337 |
|
Loans held for sale | 106 |
| | 1,642 |
| 1,498 |
| | 1,754 |
|
Loans and leases held for investment | 3,866,169 |
| | 3,620,067 |
| 4,167,904 |
| | 4,006,574 |
|
Less: Reserve for loan and lease losses | (27,371 | ) | | (21,555 | ) | (32,600 | ) | | (29,364 | ) |
Net loans and leases held for investment | 3,838,798 |
| | 3,598,512 |
| 4,135,304 |
| | 3,977,210 |
|
Premises and equipment, net | 60,393 |
| | 61,797 |
| 58,292 |
| | 59,559 |
|
Operating lease right-of-use assets | | 35,508 |
| | — |
|
Goodwill | 172,559 |
| | 172,559 |
| 172,559 |
| | 172,559 |
|
Other intangibles, net of accumulated amortization and fair value adjustments of $24,423 and $21,825 at September 30, 2018 and December 31, 2017, respectively | 12,405 |
| | 13,909 |
| |
Other intangibles, net of accumulated amortization | | 10,995 |
| | 11,990 |
|
Bank owned life insurance | 110,392 |
| | 108,246 |
| 113,294 |
| | 111,599 |
|
Accrued interest receivable and other assets | 42,825 |
| | 41,502 |
| 40,693 |
| | 38,613 |
|
Total assets | $ | 4,801,998 |
| | $ | 4,554,862 |
| $ | 5,154,298 |
| | $ | 4,984,347 |
|
LIABILITIES | | | | | | |
Noninterest-bearing deposits | $ | 1,047,081 |
| | $ | 1,040,026 |
| $ | 1,166,301 |
| | $ | 1,055,919 |
|
Interest-bearing deposits: | | | | | | |
Demand deposits | 1,350,720 |
| | 1,109,438 |
| 1,424,288 |
| | 1,377,171 |
|
Savings deposits | 750,764 |
| | 830,706 |
| 822,084 |
| | 782,766 |
|
Time deposits | 671,483 |
| | 574,749 |
| 709,437 |
| | 670,077 |
|
Total deposits | 3,820,048 |
| | 3,554,919 |
| 4,122,110 |
| | 3,885,933 |
|
Short-term borrowings | 86,765 |
| | 105,431 |
| 39,350 |
| | 189,768 |
|
Long-term debt | 145,430 |
| | 155,828 |
| 170,195 |
| | 145,330 |
|
Subordinated notes | 94,514 |
| | 94,331 |
| 94,696 |
| | 94,574 |
|
Operating lease liabilities | | 38,608 |
| | — |
|
Accrued interest payable and other liabilities | 40,999 |
| | 40,979 |
| 37,669 |
| | 44,609 |
|
Total liabilities | 4,187,756 |
| | 3,951,488 |
| 4,502,628 |
| | 4,360,214 |
|
SHAREHOLDERS’ EQUITY | | | | | | |
Common stock, $5 par value: 48,000,000 shares authorized at September 30, 2018 and December 31, 2017; 31,556,799 shares issued at September 30, 2018 and December 31, 2017; 29,407,076 and 29,334,859 shares outstanding at September 30, 2018 and December 31, 2017, respectively | 157,784 |
| | 157,784 |
| |
Common stock, $5 par value: 48,000,000 shares authorized at June 30, 2019 and December 31, 2018; 31,556,799 shares issued at June 30, 2019 and December 31, 2018; 29,294,942 and 29,270,852 shares outstanding at June 30, 2019 and December 31, 2018, respectively | | 157,784 |
| | 157,784 |
|
Additional paid-in capital | 291,992 |
| | 290,133 |
| 293,947 |
| | 292,401 |
|
Retained earnings | 235,658 |
| | 216,761 |
| 267,357 |
| | 248,167 |
|
Accumulated other comprehensive loss, net of tax benefit | (28,664 | ) | | (17,771 | ) | (21,949 | ) | | (28,416 | ) |
Treasury stock, at cost; 2,149,723 and 2,221,940 shares at September 30, 2018 and December 31, 2017, respectively | (42,528 | ) | | (43,533 | ) | |
Treasury stock, at cost; 2,261,857 and 2,285,947 shares at June 30, 2019 and December 31, 2018, respectively | | (45,469 | ) | | (45,803 | ) |
Total shareholders’ equity | 614,242 |
| | 603,374 |
| 651,670 |
| | 624,133 |
|
Total liabilities and shareholders’ equity | $ | 4,801,998 |
| | $ | 4,554,862 |
| $ | 5,154,298 |
| | $ | 4,984,347 |
|
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands, except per share data) | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Interest income | | |
Interest and fees on loans and leases: | | | | | | | | | | | | | | |
Taxable | $ | 43,066 |
| | $ | 37,153 |
| | $ | 121,653 |
| | $ | 105,955 |
| $ | 47,151 |
| | $ | 40,637 |
| | $ | 92,833 |
| | $ | 78,587 |
|
Exempt from federal income taxes | 2,501 |
| | 2,106 |
| | 7,269 |
| | 6,225 |
| 2,759 |
| | 2,421 |
| | 5,442 |
| | 4,768 |
|
Total interest and fees on loans and leases | 45,567 |
| | 39,259 |
| | 128,922 |
| | 112,180 |
| 49,910 |
| | 43,058 |
| | 98,275 |
| | 83,355 |
|
Interest and dividends on investment securities: | | | | | | | | | | | | | | |
Taxable | 2,348 |
| | 1,855 |
| | 6,805 |
| | 5,376 |
| 2,645 |
| | 2,268 |
| | 5,358 |
| | 4,457 |
|
Exempt from federal income taxes | 459 |
| | 550 |
| | 1,404 |
| | 1,725 |
| 401 |
| | 477 |
| | 832 |
| | 945 |
|
Interest on deposits with other banks | 397 |
| | 133 |
| | 621 |
| | 188 |
| 569 |
| | 148 |
| | 838 |
| | 224 |
|
Interest and dividends on other earning assets | 484 |
| | 375 |
| | 1,497 |
| | 1,129 |
| 535 |
| | 509 |
| | 1,121 |
| | 1,013 |
|
Total interest income | 49,255 |
| | 42,172 |
| | 139,249 |
| | 120,598 |
| 54,060 |
| | 46,460 |
| | 106,424 |
| | 89,994 |
|
Interest expense | | | | | | | | | | | | | | |
Interest on deposits | 6,278 |
| | 3,068 |
| | 14,511 |
| | 7,720 |
| 9,111 |
| | 4,542 |
| | 17,314 |
| | 8,233 |
|
Interest on short-term borrowings | 584 |
| | 169 |
| | 2,187 |
| | 756 |
| 217 |
| | 958 |
| | 855 |
| | 1,603 |
|
Interest on long-term debt and subordinated notes | 1,970 |
| | 2,048 |
| | 5,866 |
| | 5,652 |
| 2,097 |
| | 1,970 |
| | 4,097 |
| | 3,896 |
|
Total interest expense | 8,832 |
| | 5,285 |
| | 22,564 |
| | 14,128 |
| 11,425 |
| | 7,470 |
| | 22,266 |
| | 13,732 |
|
Net interest income | 40,423 |
| | 36,887 |
| | 116,685 |
| | 106,470 |
| 42,635 |
| | 38,990 |
| | 84,158 |
| | 76,262 |
|
Provision for loan and lease losses | 2,745 |
| | 2,689 |
| | 20,207 |
| | 7,900 |
| 2,076 |
| | 15,409 |
| | 4,761 |
| | 17,462 |
|
Net interest income after provision for loan and lease losses | 37,678 |
| | 34,198 |
| | 96,478 |
| | 98,570 |
| 40,559 |
| | 23,581 |
| | 79,397 |
| | 58,800 |
|
Noninterest income | | | | | | | | | | | | | | |
Trust fee income | 1,960 |
| | 1,924 |
| | 6,000 |
| | 5,847 |
| 2,054 |
| | 2,044 |
| | 3,941 |
| | 4,040 |
|
Service charges on deposit accounts | 1,454 |
| | 1,371 |
| | 4,116 |
| | 3,927 |
| 1,447 |
| | 1,335 |
| | 2,882 |
| | 2,662 |
|
Investment advisory commission and fee income | 3,785 |
| | 3,455 |
| | 11,246 |
| | 9,969 |
| 4,055 |
| | 3,778 |
| | 7,844 |
| | 7,461 |
|
Insurance commission and fee income | 3,643 |
| | 3,492 |
| | 12,243 |
| | 11,530 |
| 3,941 |
| | 3,712 |
| | 9,085 |
| | 8,600 |
|
Other service fee income | 2,284 |
| | 2,123 |
| | 6,884 |
| | 6,355 |
| 2,590 |
| | 2,431 |
| | 4,857 |
| | 4,600 |
|
Bank owned life insurance income | 865 |
| | 742 |
| | 2,744 |
| | 3,147 |
| 743 |
| | 1,210 |
| | 1,695 |
| | 1,879 |
|
Net gain on sales of investment securities | — |
| | 7 |
| | 10 |
| | 43 |
| 7 |
| | — |
| | 8 |
| | 10 |
|
Net gain on mortgage banking activities | 754 |
| | 908 |
| | 2,412 |
| | 3,558 |
| 796 |
| | 942 |
| | 1,279 |
| | 1,658 |
|
Other income | 116 |
| | 87 |
| | 102 |
| | 712 |
| |
Other income (loss) | | 723 |
| | (138 | ) | | 1,062 |
| | (14 | ) |
Total noninterest income | 14,861 |
| | 14,109 |
| | 45,757 |
| | 45,088 |
| 16,356 |
| | 15,314 |
| | 32,653 |
| | 30,896 |
|
Noninterest expense | | | | | | | | | | | | | | |
Salaries, benefits and commissions | 20,321 |
| | 19,185 |
| | 61,033 |
| | 56,652 |
| 22,089 |
| | 20,065 |
| | 43,653 |
| | 40,712 |
|
Net occupancy | 2,515 |
| | 2,523 |
| | 7,805 |
| | 7,872 |
| 2,601 |
| | 2,533 |
| | 5,212 |
| | 5,290 |
|
Equipment | 1,042 |
| | 1,019 |
| | 3,132 |
| | 3,043 |
| 1,065 |
| | 1,067 |
| | 2,055 |
| | 2,090 |
|
Data processing | 2,339 |
| | 2,118 |
| | 6,662 |
| | 6,257 |
| 2,627 |
| | 2,091 |
| | 5,141 |
| | 4,323 |
|
Professional fees | 1,370 |
| | 1,447 |
| | 4,056 |
| | 3,934 |
| 1,307 |
| | 1,331 |
| | 2,571 |
| | 2,686 |
|
Marketing and advertising | 461 |
| | 271 |
| | 1,368 |
| | 1,125 |
| 622 |
| | 526 |
| | 938 |
| | 907 |
|
Deposit insurance premiums | 544 |
| | 409 |
| | 1,387 |
| | 1,262 |
| 430 |
| | 452 |
| | 882 |
| | 843 |
|
Intangible expenses | 479 |
| | 690 |
| | 1,685 |
| | 1,895 |
| 417 |
| | 594 |
| | 843 |
| | 1,206 |
|
Restructuring charges | — |
| | — |
| | 571 |
| | — |
| — |
| | — |
| | — |
| | 571 |
|
Other expense | 5,300 |
| | 5,033 |
| | 16,144 |
| | 15,233 |
| 5,620 |
| | 5,688 |
| | 11,040 |
| | 10,844 |
|
Total noninterest expense | 34,371 |
| | 32,695 |
| | 103,843 |
| | 97,273 |
| 36,778 |
| | 34,347 |
| | 72,335 |
| | 69,472 |
|
Income before income taxes | 18,168 |
| | 15,612 |
| | 38,392 |
| | 46,385 |
| 20,137 |
| | 4,548 |
| | 39,715 |
| | 20,224 |
|
Income tax expense | 3,204 |
| | 4,416 |
| | 6,221 |
| | 12,555 |
| 3,669 |
| | 191 |
| | 7,168 |
| | 3,017 |
|
Net income | $ | 14,964 |
| | $ | 11,196 |
| | $ | 32,171 |
| | $ | 33,830 |
| $ | 16,468 |
| | $ | 4,357 |
| | $ | 32,547 |
| | $ | 17,207 |
|
Net income per share: | | | | | | | | | | | | | | |
Basic | $ | 0.51 |
| | $ | 0.42 |
| | $ | 1.10 |
| | $ | 1.27 |
| $ | 0.56 |
| | $ | 0.15 |
| | $ | 1.11 |
| | $ | 0.59 |
|
Diluted | 0.51 |
| | 0.42 |
| | 1.09 |
| | 1.27 |
| 0.56 |
| | 0.15 |
| | 1.11 |
| | 0.58 |
|
Dividends declared | 0.20 |
| | 0.20 |
| | 0.60 |
| | 0.60 |
| |
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | Three Months Ended September 30, | Three Months Ended June 30, |
(Dollars in thousands) | 2018 | | 2017 | 2019 | | 2018 |
Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount | | Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount | Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount | | Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount |
Income | $ | 18,168 |
| | $ | 3,204 |
| | $ | 14,964 |
| | $ | 15,612 |
| | $ | 4,416 |
| | $ | 11,196 |
| $ | 20,137 |
| | $ | 3,669 |
| | $ | 16,468 |
| | $ | 4,548 |
| | $ | 191 |
| | $ | 4,357 |
|
Other comprehensive (loss) income: | | | | | | | | | | | | |
Net unrealized (losses) gains on available-for-sale investment securities: | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Net unrealized gains (losses) on available-for-sale investment securities: | | | | | | | | | | | | |
Net unrealized holding gains (losses) arising during the period | | 2,933 |
| | 616 |
| | 2,317 |
| | (1,911 | ) | | (401 | ) | | (1,510 | ) |
Less: reclassification adjustment for net gains on sales realized in net income (1) | | (7 | ) | | (2 | ) | | (5 | ) | | — |
| | — |
| | — |
|
Total net unrealized gains (losses) on available-for-sale investment securities | | 2,926 |
| | 614 |
| | 2,312 |
| | (1,911 | ) | | (401 | ) | | (1,510 | ) |
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
| | | | | | | | | | | | |
Net unrealized holding (losses) gains arising during the period | (1,122 | ) | | (236 | ) | | (886 | ) | | 1,030 |
| | 362 |
| | 668 |
| (263 | ) | | (55 | ) | | (208 | ) | | 154 |
| | 32 |
| | 122 |
|
Less: reclassification adjustment for net gains on sales realized in net income (1) | — |
| | — |
| | — |
| | (7 | ) | | (2 | ) | | (5 | ) | |
Total net unrealized (losses) gains on available-for-sale investment securities | (1,122 | ) | | (236 | ) | | (886 | ) | | 1,023 |
| | 360 |
| | 663 |
| |
Net unrealized gains (losses) on interest rate swaps used in cash flow hedges:
| | | | | | | | | | | | |
Net unrealized holding gains (losses) arising during the period | 79 |
| | 17 |
| | 62 |
| | (20 | ) | | (7 | ) | | (13 | ) | |
Less: reclassification adjustment for net losses realized in net income (2) | 1 |
| | — |
| | 1 |
| | 41 |
| | 14 |
| | 27 |
| |
Total net unrealized gains on interest rate swaps used in cash flow hedges | 80 |
| | 17 |
| | 63 |
| | 21 |
| | 7 |
| | 14 |
| |
Less: reclassification adjustment for net (gains) losses realized in net income (2) | | (14 | ) | | (3 | ) | | (11 | ) | | 6 |
| | 1 |
| | 5 |
|
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges | | (277 | ) | | (58 | ) | | (219 | ) | | 160 |
| | 33 |
| | 127 |
|
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net actuarial loss included in net periodic pension costs (3) | 281 |
| | 60 |
| | 221 |
| | 320 |
| | 112 |
| | 208 |
| 294 |
| | 62 |
| | 232 |
| | 282 |
| | 58 |
| | 224 |
|
Accretion of prior service cost included in net periodic pension costs (3) | (70 | ) | | (15 | ) | | (55 | ) | | (71 | ) | | (25 | ) | | (46 | ) | (46 | ) | | (10 | ) | | (36 | ) | | (71 | ) | | (14 | ) | | (57 | ) |
Total defined benefit pension plans | 211 |
| | 45 |
| | 166 |
| | 249 |
| | 87 |
| | 162 |
| 248 |
| | 52 |
| | 196 |
| | 211 |
| | 44 |
| | 167 |
|
Other comprehensive (loss) income | (831 | ) | | (174 | ) | | (657 | ) | | 1,293 |
| | 454 |
| | 839 |
| |
Total comprehensive income | $ | 17,337 |
| | $ | 3,030 |
| | $ | 14,307 |
| | $ | 16,905 |
| | $ | 4,870 |
| | $ | 12,035 |
| |
Other comprehensive income (loss) | | 2,897 |
| | 608 |
| | 2,289 |
| | (1,540 | ) | | (324 | ) | | (1,216 | ) |
Total comprehensive income (loss) | | $ | 23,034 |
| | $ | 4,277 |
| | $ | 18,757 |
| | $ | 3,008 |
| | $ | (133 | ) | | $ | 3,141 |
|
(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 |
Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount | | Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount |
Income | $ | 39,715 |
| | $ | 7,168 |
| | $ | 32,547 |
| | $ | 20,224 |
| | $ | 3,017 |
| | $ | 17,207 |
|
Other comprehensive income: | | | | | | | | | | | |
Net unrealized gains (losses) on available-for-sale investment securities: | | | | | | | | | | | |
Net unrealized holding gains (losses) arising during the period | 8,053 |
| | 1,691 |
| | 6,362 |
| | (8,249 | ) | | (1,732 | ) | | (6,517 | ) |
Less: reclassification adjustment for net gains on sales realized in net income (1) | (8 | ) | | (2 | ) | | (6 | ) | | (10 | ) | | (2 | ) | | (8 | ) |
Total net unrealized gains (losses) on available-for-sale investment securities | 8,045 |
| | 1,689 |
| | 6,356 |
| | (8,259 | ) | | (1,734 | ) | | (6,525 | ) |
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges:
| | | | | | | | | | | |
Net unrealized holding (losses) gains arising during the period | (431 | ) | | (91 | ) | | (340 | ) | | 366 |
| | 77 |
| | 289 |
|
Less: reclassification adjustment for net (gains) losses realized in net income (2) | (30 | ) | | (6 | ) | | (24 | ) | | 26 |
| | 5 |
| | 21 |
|
Total net unrealized (losses) gains on interest rate swaps used in cash flow hedges | (461 | ) | | (97 | ) | | (364 | ) | | 392 |
| | 82 |
| | 310 |
|
Defined benefit pension plans: | | | | | | | | | | | |
Amortization of net actuarial loss included in net periodic pension costs (3) | 588 |
| | 124 |
| | 464 |
| | 563 |
| | 117 |
| | 446 |
|
Accretion of prior service cost included in net periodic pension costs (3) | (91 | ) | | (19 | ) | | (72 | ) | | (142 | ) | | (29 | ) | | (113 | ) |
Total defined benefit pension plans | 497 |
| | 105 |
| | 392 |
| | 421 |
| | 88 |
| | 333 |
|
Other comprehensive income (loss) | 8,081 |
| | 1,697 |
| | 6,384 |
| | (7,446 | ) | | (1,564 | ) | | (5,882 | ) |
Total comprehensive income | $ | 47,796 |
| | $ | 8,865 |
| | $ | 38,931 |
| | $ | 12,778 |
| | $ | 1,453 |
| | $ | 11,325 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(Dollars in thousands) | 2018 | | 2017 |
Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount | | Before Tax Amount | | Tax Expense (Benefit) | | Net of Tax Amount |
Income | $ | 38,392 |
| | $ | 6,221 |
| | $ | 32,171 |
| | $ | 46,385 |
| | $ | 12,555 |
| | $ | 33,830 |
|
Other comprehensive (loss) income: | | | | | | | | | | | |
Net unrealized (losses) gains on available-for-sale investment securities: | | | | | | | | | | | |
Net unrealized holding (losses) gains arising during the period | (9,371 | ) | | (1,968 | ) | | (7,403 | ) | | 4,082 |
| | 1,430 |
| | 2,652 |
|
Less: reclassification adjustment for net gains on sales realized in net income (1) | (10 | ) | | (2 | ) | | (8 | ) | | (43 | ) | | (15 | ) | | (28 | ) |
Total net unrealized (losses) gains on available-for-sale investment securities | (9,381 | ) | | (1,970 | ) | | (7,411 | ) | | 4,039 |
| | 1,415 |
| | 2,624 |
|
Net unrealized gains on interest rate swaps used in cash flow hedges:
| | | | | | | | | | | |
Net unrealized holding gains (losses) arising during the period | 445 |
| | 93 |
| | 352 |
| | (105 | ) | | (37 | ) | | (68 | ) |
Less: reclassification adjustment for net losses realized in net income (2) | 27 |
| | 6 |
| | 21 |
| | 148 |
| | 52 |
| | 96 |
|
Total net unrealized gains on interest rate swaps used in cash flow hedges | 472 |
| | 99 |
| | 373 |
| | 43 |
| | 15 |
| | 28 |
|
Defined benefit pension plans: | | | | | | | | | | | |
Amortization of net actuarial loss included in net periodic pension costs (3) | 844 |
| | 177 |
| | 667 |
| | 918 |
| | 321 |
| | 597 |
|
Accretion of prior service cost included in net periodic pension costs (3) | (212 | ) | | (44 | ) | | (168 | ) | | (212 | ) | | (74 | ) | | (138 | ) |
Total defined benefit pension plans | 632 |
| | 133 |
| | 499 |
| | 706 |
| | 247 |
| | 459 |
|
Other comprehensive (loss) income | (8,277 | ) | | (1,738 | ) | | (6,539 | ) | | 4,788 |
| | 1,677 |
| | 3,111 |
|
Total comprehensive income | $ | 30,115 |
| | $ | 4,483 |
| | $ | 25,632 |
| | $ | 51,173 |
| | $ | 14,232 |
| | $ | 36,941 |
|
(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in interest expense on deposits on the consolidated statements of income (before tax amount).
(3) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 8, "Retirement Plans and Other Postretirement Benefits" for additional details.
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except share and per share data) | Common Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
Nine Months Ended September 30, 2018 | | | | | | | | | | | | |
Balance at December 31, 2017 | 29,334,859 |
| | $ | 157,784 |
| | $ | 290,133 |
| | $ | 216,761 |
| | $ | (17,771 | ) | | $ | (43,533 | ) | | $ | 603,374 |
|
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value (1) | — |
| | — |
| | — |
| | 433 |
| | (433 | ) | | — |
| | — |
|
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges (1) | — |
| | — |
| | — |
| | 3,921 |
| | (3,921 | ) | | — |
| | — |
|
Net income | — |
| | — |
| | — |
| | 32,171 |
| | — |
| | — |
| | 32,171 |
|
Other comprehensive loss, net of income tax benefit | — |
| | — |
| | — |
| | — |
| | (6,539 | ) | | — |
| | (6,539 | ) |
Cash dividends declared ($0.60 per share) | — |
| | — |
| | — |
| | (17,629 | ) | | — |
| | — |
| | (17,629 | ) |
Stock issued under dividend reinvestment and employee stock purchase plans | 62,271 |
| | — |
| | 140 |
| | 1 |
| | — |
| | 1,598 |
| | 1,739 |
|
Exercise of stock options | 59,750 |
| | — |
| | (43 | ) | | — |
| | — |
| | 1,174 |
| | 1,131 |
|
Stock-based compensation | — |
| | — |
| | 2,379 |
| | — |
| | — |
| | — |
| | 2,379 |
|
Purchases of treasury stock | (83,977 | ) | | — |
| | — |
| | — |
| | — |
| | (2,384 | ) | | (2,384 | ) |
Restricted stock awards granted, net of cancellations | 34,173 |
| | — |
| | (617 | ) | | — |
| | — |
| | 617 |
| | — |
|
Balance at September 30, 2018 | 29,407,076 |
| | $ | 157,784 |
| | $ | 291,992 |
| | $ | 235,658 |
| | $ | (28,664 | ) | | $ | (42,528 | ) | | $ | 614,242 |
|
| | (Dollars in thousands, except share and per share data) | Common Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Total | |
Nine Months Ended September 30, 2017 | | | | | | | | | | | | | |
Balance at December 31, 2016 | 26,589,353 |
| | $ | 144,559 |
| | $ | 230,494 |
| | $ | 194,516 |
| | $ | (19,454 | ) | | $ | (44,906 | ) | | $ | 505,209 |
| |
(Dollars in thousands, except per share data) | | Common Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Total |
Three Months Ended June 30, 2019 | | | | | | | | | | | | | | |
Balance at March 31, 2019 | | 29,272,502 |
| | $ | 157,784 |
| | $ | 293,255 |
| | $ | 256,746 |
| | $ | (24,238 | ) | | $ | (45,941 | ) | | $ | 637,606 |
|
Net income | — |
| | — |
| | — |
| | 33,830 |
| | — |
| | — |
| | 33,830 |
| — |
| | — |
| | — |
| | 16,468 |
| | — |
| | — |
| | 16,468 |
|
Other comprehensive income, net of income tax | — |
| | — |
| | — |
| | — |
| | 3,111 |
| | — |
| | 3,111 |
| — |
| | — |
| | — |
| | — |
| | 2,289 |
| | — |
| | 2,289 |
|
Cash dividends declared ($0.60 per share) | — |
| | — |
| | — |
| | (15,983 | ) | | — |
| | — |
| | (15,983 | ) | |
Cash dividends declared ($0.20 per share) | | — |
| | — |
| | — |
| | (5,858 | ) | | — |
| | — |
| | (5,858 | ) |
Stock issued under dividend reinvestment and employee stock purchase plans | 63,683 |
| | — |
| | 130 |
| | — |
| | — |
| | 1,709 |
| | 1,839 |
| 22,440 |
| | — |
| | 47 |
| | 1 |
| | — |
| | 516 |
| | 564 |
|
Exercise of stock options | 84,870 |
| | — |
| | (121 | ) | | — |
| | — |
| | 1,648 |
| | 1,527 |
| 9,000 |
| | — |
| | (11 | ) | | — |
| | — |
| | 181 |
| | 170 |
|
Stock-based compensation | — |
| | — |
| | 2,550 |
| | — |
| | — |
| | — |
| | 2,550 |
| — |
| | — |
| | 656 |
| | — |
| | — |
| | — |
| | 656 |
|
Purchases of treasury stock | (112,393 | ) | | — |
| | — |
| | — |
| | — |
| | (3,285 | ) | | (3,285 | ) | (9,000 | ) | | — |
| | — |
| | — |
| | — |
| | (225 | ) | | (225 | ) |
Restricted stock awards granted, net of cancellations | 45,823 |
| | — |
| | (881 | ) | | — |
| | — |
| | 881 |
| | — |
| |
Balance at September 30, 2017 | 26,671,336 |
| | $ | 144,559 |
| | $ | 232,172 |
| | $ | 212,363 |
| | $ | (16,343 | ) | | $ | (43,953 | ) | | $ | 528,798 |
| |
Balance at June 30, 2019 | | 29,294,942 |
| | $ | 157,784 |
| | $ | 293,947 |
| | $ | 267,357 |
| | $ | (21,949 | ) | | $ | (45,469 | ) | | $ | 651,670 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share data) | Common Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
Three Months Ended June 30, 2018 | | | | | | | | | | | | | |
Balance at March 31, 2018 | 29,391,934 |
| | $ | 157,784 |
| | $ | 290,095 |
| | $ | 228,097 |
| | $ | (26,791 | ) | | $ | (42,466 | ) | | $ | 606,719 |
|
Net income | — |
| | — |
| | — |
| | 4,357 |
| | — |
| | — |
| | 4,357 |
|
Other comprehensive loss, net of income tax benefit | — |
| | — |
| | — |
| | — |
| | (1,216 | ) | | — |
| | (1,216 | ) |
Cash dividends declared ($0.20 per share) | — |
| | — |
| | — |
| | (5,881 | ) | | — |
| | — |
| | (5,881 | ) |
Stock issued under dividend reinvestment and employee stock purchase plans | 21,686 |
| | — |
| | 54 |
| | 1 |
| | — |
| | 549 |
| | 604 |
|
Exercise of stock options | 22,832 |
| | — |
| | (5 | ) | | — |
| | — |
| | 448 |
| | 443 |
|
Stock-based compensation | — |
| | — |
| | 872 |
| | — |
| | — |
| | — |
| | 872 |
|
Purchases of treasury stock | (20,814 | ) | | — |
| | — |
| | — |
| | — |
| | (604 | ) | | (604 | ) |
Cancellations of restricted stock awards | (9,188 | ) | | — |
| | 222 |
| | — |
| | — |
| | (222 | ) | | — |
|
Balance at June 30, 2018 | 29,406,450 |
| | $ | 157,784 |
| | $ | 291,238 |
| | $ | 226,574 |
| | $ | (28,007 | ) | | $ | (42,295 | ) | | $ | 605,294 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share data) | Common Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Total |
Six Months Ended June 30, 2019 | | | | | | | | | | | | |
Balance at December 31, 2018 | 29,270,852 |
| | $ | 157,784 |
| | $ | 292,401 |
| | $ | 248,167 |
| | $ | (28,416 | ) | | $ | (45,803 | ) | | $ | 624,133 |
|
Adjustment to initially apply ASU No. 2016-02 for leases (1) | — |
| | — |
| | — |
| | (1,525 | ) | | — |
| | — |
| | (1,525 | ) |
Adjustment to initially apply ASU No. 2017-12 for derivatives (1) | — |
| | — |
| | — |
| | (83 | ) | | 83 |
| | — |
| | — |
|
Adjustment to initially apply ASU No. 2017-08 for premium amortization on purchased callable debt securities (1) | — |
| | — |
| | — |
| | (39 | ) | | — |
| | — |
| | (39 | ) |
Net income | — |
| | — |
| | — |
| | 32,547 |
| | — |
| | — |
| | 32,547 |
|
Other comprehensive income, net of income tax | — |
| | — |
| | — |
| | — |
| | 6,384 |
| | — |
| | 6,384 |
|
Cash dividends declared ($0.40 per share) | — |
| | — |
| | — |
| | (11,711 | ) | | — |
| | — |
| | (11,711 | ) |
Stock issued under dividend reinvestment and employee stock purchase plans | 48,183 |
| | — |
| | 77 |
| | 1 |
| | — |
| | 1,057 |
| | 1,135 |
|
Exercise of stock options | 39,500 |
| | — |
| | (102 | ) | | — |
| | — |
| | 793 |
| | 691 |
|
Stock-based compensation | — |
| | — |
| | 1,230 |
| | — |
| | — |
| | — |
| | 1,230 |
|
Purchases of treasury stock | (46,244 | ) | | — |
| | — |
| | — |
| | — |
| | (1,175 | ) | | (1,175 | ) |
Cancellations of performance-based restricted stock awards | (17,349 | ) | | — |
| | 341 |
| | — |
| | — |
| | (341 | ) | | — |
|
Balance at June 30, 2019 | 29,294,942 |
| | $ | 157,784 |
| | $ | 293,947 |
| | $ | 267,357 |
| | $ | (21,949 | ) | | $ | (45,469 | ) | | $ | 651,670 |
|
(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018"2019" for additional information.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except share and per share data) | Common Shares Outstanding | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
Six Months Ended June 30, 2018 | | | | | | | | | | | | |
Balance at December 31, 2017 | 29,334,859 |
| | $ | 157,784 |
| | $ | 290,133 |
| | $ | 216,761 |
| | $ | (17,771 | ) | | $ | (43,533 | ) | | $ | 603,374 |
|
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value | — |
| | — |
| | — |
| | 433 |
| | (433 | ) | | — |
| | — |
|
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges | — |
| | — |
| | — |
| | 3,921 |
| | (3,921 | ) | | — |
| | — |
|
Net income | — |
| | — |
| | — |
| | 17,207 |
| | — |
| | — |
| | 17,207 |
|
Other comprehensive loss, net of income tax benefit | — |
| | — |
| | — |
| | — |
| | (5,882 | ) | | — |
| | (5,882 | ) |
Cash dividends declared ($0.40 per share) | — |
| | — |
| | — |
| | (11,749 | ) | | — |
| | — |
| | (11,749 | ) |
Stock issued under dividend reinvestment and employee stock purchase plans | 41,939 |
| | — |
| | 98 |
| | 1 |
| | — |
| | 1,074 |
| | 1,173 |
|
Exercise of stock options | 36,990 |
| | — |
| | (14 | ) | | — |
| | — |
| | 725 |
| | 711 |
|
Stock-based compensation | — |
| | — |
| | 1,719 |
| | — |
| | — |
| | — |
| | 1,719 |
|
Purchases of treasury stock | (44,353 | ) | | — |
| | — |
| | — |
| | — |
| | (1,259 | ) | | (1,259 | ) |
Restricted stock awards granted, net of cancellations | 37,015 |
| | — |
| | (698 | ) | | — |
| | — |
| | 698 |
| | — |
|
Balance at June 30, 2018 | 29,406,450 |
| | $ | 157,784 |
| | $ | 291,238 |
| | $ | 226,574 |
| | $ | (28,007 | ) | | $ | (42,295 | ) | | $ | 605,294 |
|
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
(Dollars in thousands) | 2018 | | 2017 | 2019 | | 2018 |
Cash flows from operating activities: | | | | | | |
Net income | $ | 32,171 |
| | $ | 33,830 |
| $ | 32,547 |
| | $ | 17,207 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Provision for loan and lease losses | 20,207 |
| | 7,900 |
| 4,761 |
| | 17,462 |
|
Depreciation of premises and equipment | 4,180 |
| | 4,151 |
| 2,651 |
| | 2,795 |
|
Net amortization of investment securities premiums and discounts | 1,193 |
| | 1,416 |
| 834 |
| | 779 |
|
Net gain on sales of investment securities | (10 | ) | | (43 | ) | (8 | ) | | (10 | ) |
Net gain on mortgage banking activities | (2,412 | ) | | (3,558 | ) | (1,279 | ) | | (1,658 | ) |
Bank owned life insurance income | (2,744 | ) | | (3,147 | ) | (1,695 | ) | | (1,879 | ) |
Net accretion of acquisition accounting fair value adjustments | (838 | ) | | (2,572 | ) | (247 | ) | | (495 | ) |
Stock-based compensation | 2,379 |
| | 2,550 |
| 1,256 |
| | 1,719 |
|
Intangible expenses | 1,685 |
| | 1,895 |
| 843 |
| | 1,206 |
|
Other adjustments to reconcile net income to cash provided by (used in) operating activities | 117 |
| | (286 | ) | |
Other adjustments to reconcile net income to cash (used in) provided by operating activities | | (461 | ) | | 190 |
|
Originations of loans held for sale | (95,665 | ) | | (105,557 | ) | (69,323 | ) | | (74,695 | ) |
Proceeds from the sale of loans held for sale | 99,842 |
| | 112,602 |
| 70,603 |
| | 76,263 |
|
Contributions to pension and other postretirement benefit plans | (3,199 | ) | | (2,206 | ) | (132 | ) | | (133 | ) |
Decrease in accrued interest receivable and other assets | 379 |
| | 1,395 |
| |
Increase (decrease) in accrued interest payable and other liabilities | 4,021 |
| | (3,620 | ) | |
Increase in accrued interest receivable and other assets | | (3,921 | ) | | (3,089 | ) |
(Decrease) increase in accrued interest payable and other liabilities | | (4,872 | ) | | 814 |
|
Net cash provided by operating activities | 61,306 |
| | 44,750 |
| 31,557 |
| | 36,476 |
|
Cash flows from investing activities: | | | | | | |
Net capital expenditures | (2,596 | ) | | (5,040 | ) | (1,432 | ) | | (1,347 | ) |
Proceeds from maturities, calls and principal repayments of securities held-to-maturity | 7,846 |
| | 21,796 |
| 11,054 |
| | 4,253 |
|
Proceeds from maturities, calls and principal repayments of securities available-for-sale | 44,603 |
| | 49,271 |
| 27,784 |
| | 34,824 |
|
Proceeds from sales of securities available-for-sale | 1,010 |
| | 3,538 |
| 15,494 |
| | 1,010 |
|
Purchases of investment securities held-to-maturity | (60,784 | ) | | (42,585 | ) | (41,808 | ) | | (45,349 | ) |
Purchases of investment securities available-for-sale | (1,986 | ) | | (9,974 | ) | (498 | ) | | (1,485 | ) |
Proceeds from sales of money market mutual funds | 11,215 |
| | 23,035 |
| 523 |
| | 10,706 |
|
Purchases of money market mutual funds | (6,392 | ) | | (18,875 | ) | (1,203 | ) | | (6,284 | ) |
Net increase in other investments | (5,867 | ) | | (2,375 | ) | (4,418 | ) | | (5,564 | ) |
Net increase in loans and leases | (260,012 | ) | | (204,866 | ) | (162,169 | ) | | (211,534 | ) |
Net increase in interest-earning deposits | (3,222 | ) | | (22,546 | ) | |
Proceeds from sales of other real estate owned | 362 |
| | 3,996 |
| 599 |
| | 21 |
|
Purchases of bank owned life insurance | (776 | ) | | — |
| — |
| | (776 | ) |
Proceeds from bank owned life insurance | 1,374 |
| | 2,937 |
| — |
| | 1,374 |
|
Net cash used in investing activities | (275,225 | ) | | (201,688 | ) | (156,074 | ) | | (220,151 | ) |
Cash flows from financing activities: | | | | | | |
Net increase in deposits | 265,260 |
| | 261,402 |
| 236,213 |
| | 65,963 |
|
Net decrease in short-term borrowings | (18,666 | ) | | (164,080 | ) | |
Net (decrease) increase in short-term borrowings | | (150,418 | ) | | 126,422 |
|
Proceeds from issuance of long-term debt | — |
| | 95,000 |
| 25,000 |
| | — |
|
Repayment of long-term debt | (10,000 | ) | | (15,000 | ) | |
Payment of contingent consideration on acquisitions | (67 | ) | | (5,380 | ) | (65 | ) | | (67 | ) |
Purchases of treasury stock | (2,384 | ) | | (3,285 | ) | (1,175 | ) | | (1,259 | ) |
Stock issued under dividend reinvestment and employee stock purchase plans | 1,739 |
| | 1,839 |
| 1,135 |
| | 1,173 |
|
Proceeds from exercise of stock options | 1,131 |
| | 1,527 |
| 691 |
| | 711 |
|
Cash dividends paid | (17,615 | ) | | (15,966 | ) | (11,717 | ) | | (11,734 | ) |
Net cash provided by financing activities | 219,398 |
| | 156,057 |
| 99,664 |
| | 181,209 |
|
Net increase (decrease) in cash and due from banks | 5,479 |
| | (881 | ) | |
Cash and due from banks at beginning of year | 46,721 |
| | 48,757 |
| |
Cash and due from banks at end of period | $ | 52,200 |
| | $ | 47,876 |
| |
Net decrease in cash and cash equivalents | | (24,853 | ) | | (2,466 | ) |
Cash and cash equivalents at beginning of year | | 109,420 |
| | 75,409 |
|
Cash and cash equivalents at end of period | | $ | 84,567 |
| | $ | 72,943 |
|
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | $ | 21,647 |
| | $ | 15,458 |
| $ | 22,002 |
| | $ | 13,190 |
|
Cash paid for income taxes, net of refunds | 1,315 |
| | 12,448 |
| 9,883 |
| | 1,060 |
|
Non cash transactions: | | | | | | |
Transfer of loans to other real estate owned | $ | 477 |
| | $ | 649 |
| $ | — |
| | $ | 402 |
|
Note: See accompanying notes to the unaudited condensed consolidated financial statements.
UNIVEST FINANCIAL CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes to the Condensed Unaudited Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Univest Financial Corporation of Pennsylvania (the Corporation or Univest)Corporation) and its wholly owned subsidiaries. The Corporation’s direct subsidiary is Univest Bank and Trust Co. (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations for interim financial information. The accompanying unaudited consolidated financial statements reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current-year presentation. Operating results for the nine-monththree-month or six-month period ended SeptemberJune 30, 20182019 are not necessarily indicative of the results that may be expected for the year ended December 31, 20182019 or for any other period. It is suggested that theseThese unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the registrant’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, which was filed with the SEC on March 1, 2018.February 28, 2019.
Use of Estimates
The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include fair value measurement of investment securities available-for-sale and the calculation of the reserve for loan and lease losses and purchase accounting.losses.
Accounting Pronouncements Adopted in 20182019
In February 2018,2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-02, 2016-02, "Income Statement – Reporting Comprehensive IncomeLeases (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.842)"This ASUclarifies and subsequent related updates to revise the accounting treatmentfor leases. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases based on the present value of future lease payments using an estimated incremental borrowing rate. Lessor accounting activities are largely unchanged from existing lease accounting. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This new guidance was effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019 for the Corporation.
The Corporation adopted this guidance, and subsequent related updates, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings, representing the difference between the value of the reclassificationCorporation’s lease liabilities and related right-of-use assets and the existing deferred rent liability, at January 1, 2019. The Corporation elected the package of certainpractical expedients, which includes a provision which allows for the grandfathering of lease classification, among other items, and the hindsight practical expedient to determine the lease term. All leases in which the Corporation is the lessee were classified as operating leases and continue to be classified as such. On January 1, 2019, the Corporation recorded $39.6 million of operating lease liabilities and $36.6 million of related right-of-use assets and released $1.0 million of existing deferred rent liability. The resulting cumulative effect adjustment of $1.5 million, net of tax, was recorded to retained earnings at January 1, 2019. The initial and continued impact of the recording of operating lease assets had and will continue to have a negative impact on all Corporation and Bank regulatory capital ratios. Additionally, the Corporation early adopted (ASU) No. 2019-01, "Codification Improvements" , as of January 1, 2019, which serves as an an update to (ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 4, "Loans and Leases" and Note 14, "Leases" for applicable disclosures including quantitative and qualitative information about the Corporation’s leases.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" and subsequent related updates. The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income tax effectsstatement line as the hedged items. The
amendments in this guidance permit the use of the Overnight Index Swap rate based on Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes to facilitate the LIBOR to SOFR transition. This guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. The amended presentation and disclosure guidance was required only prospectively. The Corporation adopted this guidance on a modified retrospective basis through a cumulative-effect adjustment to retained earnings effective January 1, 2019. The Corporation recorded a cumulative-effect adjustment of $83 thousand related to ineffectiveness on a cash flow hedge, which was reclassified from retained earnings to accumulated other comprehensive income, as a result of the Tax Cuts and Jobs Act. The Corporation elected to early adopt this guidance effective January 1, 2018 for all stranded tax effects resulting from tax reform and reclassified stranded tax effects, totaling $3.9 million, from accumulated other comprehensive income to retained earnings. The Corporation's policy for releasing income tax effects from accumulated other comprehensive income is to release such effects on an individual basis as each item is liquidated, sold or extinguished. See Note 10, "Accumulated Other Comprehensive (Loss) Income" for additional detail.2019.
In March 2017, the FASB issued ASU No. 2017-07, "Compensation2017-08, “Receivables – Retirement Benefits (Topic 715)Nonrefundable Fees and Other Costs (Subtopic 310-20): ImprovingPremium Amortization on Purchased Callable Debt Securities.” This ASU shortens the Presentationamortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date rather than the maturity of Net Periodic Pension Costthe security. Securities within the scope of this guidance are those that have explicit, non-contingent call features that are callable at fixed prices and Net Periodic Postretirement Benefit Cost."on preset dates. The amendments in this ASUdo not require that an employer that sponsors defined benefit pension plans and other postretirement plans presentaccounting change for securities held at a discount; the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are requireddiscount continues to be presented inamortized to maturity. The guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the income statement separately fromCorporation. At December 31, 2018, the service cost component and outside a subtotalCorporation had $11.3 million of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.callable debt securities. The Corporation adopted this guidance effective January 1, 2018 withon a modified retrospective application for prior period presentation. Effective January 1, 2018, components of net benefit income other than the service cost component are presented in the Corporation's statement of income in other noninterest expense rather than in salaries, benefits and commission expense. Prior period components of net benefit income other than the service cost component were reclassed to other noninterest expense in the Corporation's statement of income.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income. At December 31, 2017, the Corporation had financial services equity securities with a carrying value of $1.1 million which included an unrealized net gain of $666 thousand. At December 31, 2017, $433 thousand
was recorded in accumulated other comprehensive income which represented the unrealized net gain, net of income taxes, based on the Corporation’s statutory tax rate as of December 31, 2017. In addition, at December 31, 2017, the Corporation had money market mutual funds with a fair value and amortized cost of $6.0 million which were reclassified to equity securities under this guidance. The Corporation adopted this guidance effective January 1, 2018 withbasis through a cumulative-effect adjustment to the balance sheet as of January 1, 2018. The balance in accumulated other comprehensive income of $433 thousand was reclassified to retained earnings effective January 1, 2018.2019. The carrying valueCorporation recorded a cumulative-effect adjustment resulting in a reduction in the unamortized premium balance for certain callable debt securities of the equity securities, at January 1, 2018, did not change; however, any future increases or decreases$49 thousand and a reduction in fair value is recorded as an increase or decrease to the carrying value and recognized in other noninterest income. During the nine months ended September 30, 2018, the Corporation recognized a $26retained earnings of approximately $39 thousand, net gain on equity securities in other noninterest income.
In May 2014,of tax, for the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)” and subsequent related updates. The Corporation adopted the guidance effective January 1, 2018 using the modified retrospective method though no adjustments were made to retained earnings as a result of the adoption. The Corporation provided expanded disclosures related to recognition of revenue from contracts with customers. See Note 14, "Revenue from Contracts with Customers."incremental amortization.
Recent Accounting Pronouncements Yet to Be Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent related updates. This ASU requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the reserve for loan and lease losses will increase upon adoption of CECL and that the increased reserve level will decrease shareholders' equity and impact regulatory capital and ratios.
In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Financial Instruments (Topic 825)." The amendments to Topic 326 are the most significant and address how a company considers recoveries and extension options when estimating expected credit losses. The ASU clarifies that a company’s estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off. The ASU clarifies that a company should consider contractual extension or renewal options that it cannot unconditionally cancel when determining the contractual term over which expected credit losses are measured. ASU No. 2019-04 is effective for the Corporation for reporting periods beginning January 1, 2020. The Corporation does not expect the adoption of the amendments related to Topics 815 and 825 will have a material impact on the Corporation's financial statements. For additional detail related to amendments to Topic 326, see previous discussion of ASU No. 2016-13.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures required by this ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The prospective method
of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements but will result in revised disclosures for fair value.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This ASU eliminates Step 2 of the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or for the Corporation's goodwill impairment test in 2020. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit plans or other postretirement plans. Disclosures removed by this ASU include the following: 1) amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year; 2) amount and timing of plan assets expected to be returned to the employer; and 3) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. Additional disclosures required by this ASU include: 1) the weighted-average interest crediting rates used in an entity's cash balance pension plans and other similar plans and 2) explanations for reasons for significant changes in the benefit obligation or plan assets. All amendments should be applied retrospectively. This ASU is effective for fiscal years ending after December 15, 2020 or December 31, 2020 for the Corporation. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statement disclosures but will result in revised disclosures for retirement plans and other postretirement benefits.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement." This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation processes for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures required by this ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The prospective method of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Corporation. Early adoption is permitted. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements but will result in revised disclosures for fair value.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additional hedging strategies permitted for hedge accounting include: hedges of contractually-specified price components of commodity purchases or sales, hedges of the benchmark rate component of the contractual coupon cash flows of fixed-rate assets or liabilities, hedges of the portion of a closed portfolio of prepayable assets not expected to prepay, and partial-term hedges of fixed-rate assets or liabilities. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income statement line as the hedged items. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test, such as a regression analysis, if the entity can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. The amended presentation and disclosure guidance is required only prospectively. The Corporation will adopt this ASU on January 1, 2019 and does not expect the adoption will have a material impact on the Corporation's financial statements.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date rather than the maturity of the security. Securities within the scope of this guidance are those that have explicit, non-contingent call features that are callable at fixed prices and on preset dates. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, or January 1, 2019 for the Corporation. Early adoption is permitted, including an interim period. This ASU is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. At September 30, 2018, the Corporation had $11.3 million of callable debt securities. Upon implementation, using the modified retrospective basis effective January 1, 2019, the Corporation expects to record a cumulative-effect adjustment resulting in a reduction in the unamortized premium balance for certain callable debt securities of approximately $50 thousand and a reduction in retained earnings of approximately $40 thousand, net of tax, for the incremental amortization. This estimate could change due to changes in the Corporation's investments in callable securities prior to the adoption date. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This ASU eliminates Step 2 of the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or for the Corporation's goodwill impairment test in 2020. Early adoption is permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Corporation does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the reserve for loan and lease losses will increase upon adoption of CECL and that the increased reserve level will decrease shareholders' equity and regulatory capital and ratios.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" and subsequent related updates to revise the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases based on the present value of future lease payments. Lessor accounting activities are largely unchanged from existing lease accounting. Disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Early adoption is permitted. This new guidance is effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019 for the Corporation.
The Corporation expects to adopt this new guidance effective January 1, 2019, retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings at January 1, 2019. The Corporation expects to elect the package of practical expedients permitted under the transition guidance which among other things, allows carry forward of the
historical lease classification. All leases in which the Corporation is the lessee are classified as operating leases and will continue to be classified as such. The Corporation expects to continue to separately account for lease and non-lease components as historically reported and expects to elect the hindsight practical expedient to determine the lease term for existing leases. The Corporation is currently implementing a third party lease accounting system to assist with the measurement of lease liabilities and related right-of-use assets, the post-implementation administration aspect of lease accounting, and the applicable disclosures related to the new guidance. The Corporation has completed the initial scoping phase of the project, including the identification and review of lease contracts applicable to the new guidance, and is in the process of determining the estimated financial statement impact of the new guidance at the transition date. While the Corporation is continuing to assess the impact of this new guidance on the balance sheet and income statement, the Corporation expects to record between $30.0 million to $40.0 million of operating lease liabilities and related right-of-use assets at January 1, 2019, with any difference between these amounts, net of the deferred tax impact, recorded as an adjustment to opening retained earnings. These estimates, based on our active lease portfolio, may change as the Corporation continues through the implementation process, or due to changes in the lease portfolio, which could include new leases, changes in lease commencement dates, and changes to renewal options and lease termination expectations. The initial and continued impact of the recording of operating lease assets will have a negative impact on all Corporation and Bank capital ratios under current regulatory guidance and possibly equity ratios.
Note 2. Earnings per Share
The Corporation uses the two-class method to calculate earnings per share as the unvested restricted stock issuedawards outstanding under the Corporation's equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if options on common shares had been exercised, as well as any adjustment to income that would result from the assumed issuance, and if restricted stock units were vested. Potential common shares that may be issued by the Corporation relate to outstanding stock options and restricted stock units, and are determined using the treasury stock method. The table also notes anti-dilutiveeffects of options to issue common stock and unvested restricted stock units are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.Anti-dilutive options are those options with weighted average exercise prices in excess of the weighted average market valuevalue.Anti-dilutive restricted stock units are those with hypothetical repurchases of shares, under the treasury stock method, exceeding the average restricted stock units outstanding for the periods presented.
The following table sets forth the computation of basic and diluted earnings per share:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars and shares in thousands, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | | | | | | | |
Net income | $ | 16,468 |
| | $ | 4,357 |
| | $ | 32,547 |
| | $ | 17,207 |
|
Net income allocated to unvested restricted stock awards | (60 | ) | | (33 | ) | | (128 | ) | | (132 | ) |
Net income allocated to common shares | $ | 16,408 |
| | $ | 4,324 |
| | $ | 32,419 |
| | $ | 17,075 |
|
Denominator: | | | | | | | |
Weighted average shares outstanding | 29,288 |
| | 29,404 |
| | 29,283 |
| | 29,380 |
|
Average unvested restricted stock awards | (107 | ) | | (228 | ) | | (119 | ) | | (221 | ) |
Denominator for basic earnings per share—weighted-average shares outstanding | 29,181 |
| | 29,176 |
| | 29,164 |
| | 29,159 |
|
Effect of dilutive securities—employee stock options and restricted stock units | 62 |
| | 95 |
| | 59 |
| | 95 |
|
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding | 29,243 |
| | 29,271 |
| | 29,223 |
| | 29,254 |
|
Basic earnings per share | $ | 0.56 |
| | $ | 0.15 |
| | $ | 1.11 |
| | $ | 0.59 |
|
Diluted earnings per share | $ | 0.56 |
| | $ | 0.15 |
| | $ | 1.11 |
| | $ | 0.58 |
|
Average anti-dilutive options and restricted stock units excluded from computation of diluted earnings per share | 325 |
| | 369 |
| | 327 |
| | 294 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars and shares in thousands, except per share data) | 2018 | | 2017 | | 2018 | | 2017 |
Numerator: | | | | | | | |
Net income | $ | 14,964 |
| | $ | 11,196 |
| | $ | 32,171 |
| | $ | 33,830 |
|
Net income allocated to unvested restricted stock | (86 | ) | | (96 | ) | | (225 | ) | | (330 | ) |
Net income allocated to common shares | $ | 14,878 |
| | $ | 11,100 |
| | $ | 31,946 |
| | $ | 33,500 |
|
Denominator: | | | | | | | |
Weighted average shares outstanding | 29,402 |
| | 26,666 |
| | 29,387 |
| | 26,653 |
|
Average unvested restricted stock | (170 | ) | | (229 | ) | | (204 | ) | | (265 | ) |
Denominator for basic earnings per share—weighted-average shares outstanding | 29,232 |
| | 26,437 |
| | 29,183 |
| | 26,388 |
|
Effect of dilutive securities—employee stock options | 86 |
| | 105 |
| | 92 |
| | 102 |
|
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding | 29,318 |
| | 26,542 |
| | 29,275 |
| | 26,490 |
|
Basic earnings per share | $ | 0.51 |
| | $ | 0.42 |
| | $ | 1.10 |
| | $ | 1.27 |
|
Diluted earnings per share | $ | 0.51 |
| | $ | 0.42 |
| | $ | 1.09 |
| | $ | 1.27 |
|
Average anti-dilutive options excluded from computation of diluted earnings per share | 359 |
| | 185 |
| | 315 |
| | 166 |
|
Note 3. Investment Securities
The following table shows the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at SeptemberJune 30, 20182019 and December 31, 2017,2018, by contractual maturity within each type: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2019 | | At December 31, 2018 |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Securities Held-to-Maturity | | | | | | | | | | | | | | | |
U.S. government corporations and agencies: | | | | | | | | | | | | | | | |
After 1 year to 5 years | $ | 6,997 |
| | $ | 55 |
| | $ | — |
| | $ | 7,052 |
| | $ | 6,996 |
| | $ | — |
| | $ | (104 | ) | | $ | 6,892 |
|
| 6,997 |
| | 55 |
| | — |
| | 7,052 |
| | 6,996 |
| | — |
| | (104 | ) | | 6,892 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
After 5 years to 10 years | 10,379 |
| | 102 |
| | — |
| | 10,481 |
| | 11,573 |
| | — |
| | (135 | ) | | 11,438 |
|
Over 10 years | 155,570 |
| | 2,253 |
| | (60 | ) | | 157,763 |
| | 124,065 |
| | 287 |
| | (1,107 | ) | | 123,245 |
|
| 165,949 |
| | 2,355 |
| | (60 | ) | | 168,244 |
| | 135,638 |
| | 287 |
| | (1,242 | ) | | 134,683 |
|
Total | $ | 172,946 |
| | $ | 2,410 |
| | $ | (60 | ) | | $ | 175,296 |
| | $ | 142,634 |
| | $ | 287 |
| | $ | (1,346 | ) | | $ | 141,575 |
|
Securities Available-for-Sale | | | | | | | | | | | | | | | |
U.S. government corporations and agencies: | | | | | | | | | | | | | | | |
Within 1 year | $ | 10,332 |
| | $ | — |
| | $ | (16 | ) | | $ | 10,316 |
| | $ | 15,108 |
| | $ | — |
| | $ | (90 | ) | | $ | 15,018 |
|
After 1 year to 5 years | — |
| | — |
| | — |
| | — |
| | 303 |
| | — |
| | (6 | ) | | 297 |
|
| 10,332 |
| | — |
| | (16 | ) | | 10,316 |
| | 15,411 |
| | — |
| | (96 | ) | | 15,315 |
|
State and political subdivisions: | | | | | | | | | | | | | | | |
Within 1 year | 1,395 |
| | 3 |
| | — |
| | 1,398 |
| | 5,900 |
| | 4 |
| | (6 | ) | | 5,898 |
|
After 1 year to 5 years | 5,732 |
| | 63 |
| | — |
| | 5,795 |
| | 15,459 |
| | 36 |
| | (56 | ) | | 15,439 |
|
After 5 years to 10 years | 36,550 |
| | 429 |
| | — |
| | 36,979 |
| | 43,923 |
| | 318 |
| | (163 | ) | | 44,078 |
|
| 43,677 |
| | 495 |
| | — |
| | 44,172 |
| | 65,282 |
| | 358 |
| | (225 | ) | | 65,415 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
After 1 year to 5 years | 5,420 |
| | 20 |
| | (5 | ) | | 5,435 |
| | 5,799 |
| | 3 |
| | (70 | ) | | 5,732 |
|
After 5 years to 10 years | 43,799 |
| | 52 |
| | (237 | ) | | 43,614 |
| | 49,904 |
| | 6 |
| | (1,381 | ) | | 48,529 |
|
Over 10 years | 93,324 |
| | 172 |
| | (730 | ) | | 92,766 |
| | 100,873 |
| | 26 |
| | (3,398 | ) | | 97,501 |
|
| 142,543 |
| | 244 |
| | (972 | ) | | 141,815 |
| | 156,576 |
| | 35 |
| | (4,849 | ) | | 151,762 |
|
Collateralized mortgage obligations: | | | | | | | | | | | | | | | |
After 5 years to 10 years | 1,497 |
| | — |
| | (31 | ) | | 1,466 |
| | 1,677 |
| | — |
| | (78 | ) | | 1,599 |
|
Over 10 years | 1,200 |
| | 11 |
| | — |
| | 1,211 |
| | 1,305 |
| | — |
| | (16 | ) | | 1,289 |
|
| 2,697 |
| | 11 |
| | (31 | ) | | 2,677 |
| | 2,982 |
| | — |
| | (94 | ) | | 2,888 |
|
Corporate bonds: | | | | | | | | | | | | | | | |
Within 1 year | 10,817 |
| | — |
| | (33 | ) | | 10,784 |
| | 7,806 |
| | — |
| | (68 | ) | | 7,738 |
|
After 1 year to 5 years | 29,115 |
| | 320 |
| | (27 | ) | | 29,408 |
| | 18,508 |
| | 1 |
| | (332 | ) | | 18,177 |
|
After 5 years to 10 years | — |
| | — |
| |
|
| | — |
| | 16,146 |
| | — |
| | (392 | ) | | 15,754 |
|
Over 10 years | 60,000 |
| | — |
| | (6,150 | ) | | 53,850 |
| | 60,000 |
| | — |
| | (8,542 | ) | | 51,458 |
|
| 99,932 |
| | 320 |
| | (6,210 | ) | | 94,042 |
| | 102,460 |
| | 1 |
| | (9,334 | ) | | 93,127 |
|
Total | $ | 299,181 |
| | $ | 1,070 |
| | $ | (7,229 | ) | | $ | 293,022 |
| | $ | 342,711 |
| | $ | 394 |
| | $ | (14,598 | ) | | $ | 328,507 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 2018 | | At December 31, 2017 |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Securities Held-to-Maturity | | | | | | | | | | | | | | | |
U.S. government corporations and agencies: | | | | | | | | | | | | | | | |
After 1 year to 5 years | $ | 6,996 |
| | $ | — |
| | $ | (214 | ) | | $ | 6,782 |
| | $ | 6,995 |
| | $ | — |
| | $ | (77 | ) | | $ | 6,918 |
|
| 6,996 |
| | — |
| | (214 | ) | | 6,782 |
| | 6,995 |
| | — |
| | (77 | ) | | 6,918 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
After 5 years to 10 years | 12,190 |
| | — |
| | (279 | ) | | 11,911 |
| | 8,944 |
| | — |
| | (51 | ) | | 8,893 |
|
Over 10 years | 88,956 |
| | — |
| | (2,007 | ) | | 86,949 |
| | 39,625 |
| | 44 |
| | (160 | ) | | 39,509 |
|
| 101,146 |
| | — |
| | (2,286 | ) | | 98,860 |
| | 48,569 |
| | 44 |
| | (211 | ) | | 48,402 |
|
Total | $ | 108,142 |
| | $ | — |
| | $ | (2,500 | ) | | $ | 105,642 |
| | $ | 55,564 |
| | $ | 44 |
| | $ | (288 | ) | | $ | 55,320 |
|
Securities Available-for-Sale | | | | | | | | | | | | | | | |
U.S. government corporations and agencies: | | | | | | | | | | | | | | | |
Within 1 year | $ | 15,153 |
| | $ | — |
| | $ | (131 | ) | | $ | 15,022 |
| | $ | 1,499 |
| | $ | — |
| | $ | (3 | ) | | $ | 1,496 |
|
After 1 year to 5 years | 303 |
| | — |
| | (9 | ) | | 294 |
| | 15,590 |
| | — |
| | (125 | ) | | 15,465 |
|
| 15,456 |
| | — |
| | (140 | ) | | 15,316 |
| | 17,089 |
| | — |
| | (128 | ) | | 16,961 |
|
State and political subdivisions: | | | | | | | | | | | | | | | |
Within 1 year | 5,943 |
| | — |
| | (11 | ) | | 5,932 |
| | 2,721 |
| | 1 |
| | (6 | ) | | 2,716 |
|
After 1 year to 5 years | 12,569 |
| | 15 |
| | (97 | ) | | 12,487 |
| | 16,787 |
| | 33 |
| | (44 | ) | | 16,776 |
|
After 5 years to 10 years | 46,803 |
| | 303 |
| | (631 | ) | | 46,475 |
| | 54,846 |
| | 897 |
| | (73 | ) | | 55,670 |
|
Over 10 years | 3,120 |
| | — |
| | (122 | ) | | 2,998 |
| | 3,120 |
| | 15 |
| | — |
| | 3,135 |
|
| 68,435 |
| | 318 |
| | (861 | ) | | 67,892 |
| | 77,474 |
| | 946 |
| | (123 | ) | | 78,297 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
After 1 year to 5 years | 4,887 |
| | — |
| | (102 | ) | | 4,785 |
| | 3,913 |
| | 12 |
| | (26 | ) | | 3,899 |
|
After 5 years to 10 years | 53,041 |
| | 6 |
| | (2,231 | ) | | 50,816 |
| | 51,428 |
| | 5 |
| | (852 | ) | | 50,581 |
|
Over 10 years | 105,808 |
| | 22 |
| | (5,017 | ) | | 100,813 |
| | 133,237 |
| | 87 |
| | (2,383 | ) | | 130,941 |
|
| 163,736 |
| | 28 |
| | (7,350 | ) | | 156,414 |
| | 188,578 |
| | 104 |
| | (3,261 | ) | | 185,421 |
|
Collateralized mortgage obligations: | | | | | | | | | | | | | | | |
After 5 years to 10 years | 1,772 |
| | — |
| | (108 | ) | | 1,664 |
| | 2,103 |
| | — |
| | (82 | ) | | 2,021 |
|
Over 10 years | 1,347 |
| | — |
| | (30 | ) | | 1,317 |
| | 1,567 |
| | 14 |
| | — |
| | 1,581 |
|
| 3,119 |
| | — |
| | (138 | ) | | 2,981 |
| | 3,670 |
| | 14 |
| | (82 | ) | | 3,602 |
|
Corporate bonds: | | | | | | | | | | | | | | | |
Within 1 year | 2,506 |
| | — |
| | (10 | ) | | 2,496 |
| | 10,006 |
| | — |
| | (5 | ) | | 10,001 |
|
After 1 year to 5 years | 23,824 |
| | 21 |
| | (442 | ) | | 23,403 |
| | 24,885 |
| | 20 |
| | (147 | ) | | 24,758 |
|
After 5 years to 10 years | 16,152 |
| | 2 |
| | (537 | ) | | 15,617 |
| | 16,669 |
| | 71 |
| | (296 | ) | | 16,444 |
|
Over 10 years | 60,000 |
| | — |
| | (7,186 | ) | | 52,814 |
| | 60,000 |
| | — |
| | (4,027 | ) | | 55,973 |
|
| 102,482 |
| | 23 |
| | (8,175 | ) | | 94,330 |
| | 111,560 |
| | 91 |
| | (4,475 | ) | | 107,176 |
|
Equity securities:* | | | | | | | | | | | | | | | |
No stated maturity | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 6,395 |
| | 667 |
| | (1 | ) | | 7,061 |
|
| N/A |
| | N/A |
| | N/A |
| | N/A |
| | 6,395 |
| | 667 |
| | (1 | ) | | 7,061 |
|
Total | $ | 353,228 |
| | $ | 369 |
| | $ | (16,664 | ) | | $ | 336,933 |
| | $ | 404,766 |
| | $ | 1,822 |
| | $ | (8,070 | ) | | $ | 398,518 |
|
* Equity securities at December 31, 2017 include $6.0 million of money market mutual funds and $1.1 million of financial services equity securities. In accordance with ASU 2016-01, beginning January 1, 2018, such amounts were reclassified from investment securities available-for-sale to investments in equity securities on the Corporation's Condensed Consolidated Balance Sheets.
Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties and mortgage-backed securities typically prepay at a rate faster than contractually due.
Securities with a carrying value of $362.0$379.0 million and $345.1$344.5 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, were pledged to secure public deposits and other contractual obligations. In addition, securities of $295$9.9 million and $296 thousand and $1.8 million were pledged to secure credit derivatives and interest rate swaps at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. See Note 11, "Derivative Instruments and Hedging Activities" for additional information.
The following table presents information related to sales of securities available-for-sale during the ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:
|
| | | | | | | |
| Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 |
Securities available-for-sale: | | | |
Proceeds from sales | $ | 15,494 |
| | $ | 1,010 |
|
Gross realized gains on sales | 29 |
| | 10 |
|
Gross realized losses on sales | 21 |
| | — |
|
Tax expense related to net realized gains on sales | 2 |
| | 2 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
(Dollars in thousands) | 2018 | | 2017 |
Securities available-for-sale: | | | |
Proceeds from sales | $ | 1,010 |
| | $ | 3,538 |
|
Gross realized gains on sales | 10 |
| | 43 |
|
Tax expense related to net realized gains on sales | 2 |
| | 15 |
|
At SeptemberJune 30, 20182019 and December 31, 2017,2018, there were no reportable investments in any single non-federal issuer representing more than 10% of shareholders’ equity.
The following table shows the fair value of securities that were in an unrealized loss position at SeptemberJune 30, 20182019 and December 31, 20172018 by the length of time those securities were in a continuous loss position. For the investment securities in an unrealized loss position, the Corporation has concluded, based on its analysis, that the unrealized losses are primarily caused by the movement of interest rates and current market conditions.conditions and there is no other-than temporary impairment of the securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than Twelve Months | | Twelve Months or Longer | | Total |
(Dollars in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
At June 30, 2019 | | | | | | | | | | | |
Securities Held-to-Maturity | | | | | | | | | | | |
Residential mortgage-backed securities | $ | 15,022 |
| | $ | (39 | ) | | $ | 3,652 |
| | $ | (21 | ) | | $ | 18,674 |
| | $ | (60 | ) |
Total | $ | 15,022 |
| | $ | (39 | ) | | $ | 3,652 |
| | $ | (21 | ) | | $ | 18,674 |
| | $ | (60 | ) |
Securities Available-for-Sale | | | | | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | — |
| | $ | 10,316 |
| | $ | (16 | ) | | $ | 10,316 |
| | $ | (16 | ) |
Residential mortgage-backed securities | — |
| | — |
| | 99,801 |
| | (972 | ) | | 99,801 |
| | (972 | ) |
Collateralized mortgage obligations | — |
| | — |
| | 1,466 |
| | (31 | ) | | 1,466 |
| | (31 | ) |
Corporate bonds | 1,497 |
| | (4 | ) | | 71,109 |
| | (6,206 | ) | | 72,606 |
| | (6,210 | ) |
Total | $ | 1,497 |
| | $ | (4 | ) | | $ | 182,692 |
| | $ | (7,225 | ) | | $ | 184,189 |
| | $ | (7,229 | ) |
At December 31, 2018 | | | | | | | | | | | |
Securities Held-to-Maturity | | | | | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | — |
| | $ | 6,892 |
| | $ | (104 | ) | | $ | 6,892 |
| | $ | (104 | ) |
Residential mortgage-backed securities | 48,192 |
| | (472 | ) | | 34,501 |
| | (770 | ) | | 82,693 |
| | (1,242 | ) |
Total | $ | 48,192 |
| | $ | (472 | ) | | $ | 41,393 |
| | $ | (874 | ) | | $ | 89,585 |
| | $ | (1,346 | ) |
Securities Available-for-Sale | | | | | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | — |
| | $ | 15,315 |
| | $ | (96 | ) | | $ | 15,315 |
| | $ | (96 | ) |
State and political subdivisions | 9,311 |
| | (61 | ) | | 15,302 |
| | (164 | ) | | 24,613 |
| | (225 | ) |
Residential mortgage-backed securities | 7,099 |
| | (106 | ) | | 141,924 |
| | (4,743 | ) | | 149,023 |
| | (4,849 | ) |
Collateralized mortgage obligations | 1,289 |
| | (16 | ) | | 1,599 |
| | (78 | ) | | 2,888 |
| | (94 | ) |
Corporate bonds | 16,896 |
| | (235 | ) | | 75,730 |
| | (9,099 | ) | | 92,626 |
| | (9,334 | ) |
Total | $ | 34,595 |
| | $ | (418 | ) | | $ | 249,870 |
| | $ | (14,180 | ) | | $ | 284,465 |
| | $ | (14,598 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than Twelve Months | | Twelve Months or Longer | | Total |
(Dollars in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
At September 30, 2018 | | | | | | | | | | | |
Securities Held-to-Maturity | | | | | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | — |
| | $ | 6,782 |
| | $ | (214 | ) | | $ | 6,782 |
| | $ | (214 | ) |
Residential mortgage-backed securities | 89,833 |
| | (1,963 | ) | | 9,027 |
| | (323 | ) | | 98,860 |
| | (2,286 | ) |
Total | $ | 89,833 |
| | $ | (1,963 | ) | | $ | 15,809 |
| | $ | (537 | ) | | $ | 105,642 |
| | $ | (2,500 | ) |
Securities Available-for-Sale | | | | | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | — |
| | $ | 15,316 |
| | $ | (140 | ) | | $ | 15,316 |
| | $ | (140 | ) |
State and political subdivisions | 33,509 |
| | (777 | ) | | 7,476 |
| | (84 | ) | | 40,985 |
| | (861 | ) |
Residential mortgage-backed securities | 27,331 |
| | (972 | ) | | 127,441 |
| | (6,378 | ) | | 154,772 |
| | (7,350 | ) |
Collateralized mortgage obligations | 1,317 |
| | (30 | ) | | 1,664 |
| | (108 | ) | | 2,981 |
| | (138 | ) |
Corporate bonds | 21,162 |
| | (467 | ) | | 69,644 |
| | (7,708 | ) | | 90,806 |
| | (8,175 | ) |
Total | $ | 83,319 |
| | $ | (2,246 | ) | | $ | 221,541 |
| | $ | (14,418 | ) | | $ | 304,860 |
| | $ | (16,664 | ) |
At December 31, 2017 | | | | | | | | | | | |
Securities Held-to-Maturity | | | | | | | | | | | |
U.S. government corporations and agencies | $ | 6,919 |
| | $ | (77 | ) | | $ | — |
| | $ | — |
| | $ | 6,919 |
| | $ | (77 | ) |
Residential mortgage-backed securities | 40,881 |
| | (211 | ) | | — |
| | — |
| | 40,881 |
| | (211 | ) |
Total | $ | 47,800 |
| | $ | (288 | ) | | $ | — |
| | $ | — |
| | $ | 47,800 |
| | $ | (288 | ) |
Securities Available-for-Sale | | | | | | | | | | | |
U.S. government corporations and agencies | $ | 5,213 |
| | $ | (38 | ) | | $ | 11,749 |
| | $ | (90 | ) | | $ | 16,962 |
| | $ | (128 | ) |
State and political subdivisions | 18,457 |
| | (91 | ) | | 6,332 |
| | (32 | ) | | 24,789 |
| | (123 | ) |
Residential mortgage-backed securities | 32,217 |
| | (210 | ) | | 141,371 |
| | (3,051 | ) | | 173,588 |
| | (3,261 | ) |
Collateralized mortgage obligations | — |
| | — |
| | 2,021 |
| | (82 | ) | | 2,021 |
| | (82 | ) |
Corporate bonds | 18,464 |
| | (1,016 | ) | | 71,957 |
| | (3,459 | ) | | 90,421 |
| | (4,475 | ) |
Equity securities | — |
| | (1 | ) | | 4 |
| | — |
| | 4 |
| | (1 | ) |
Total | $ | 74,351 |
| | $ | (1,356 | ) | | $ | 233,434 |
| | $ | (6,714 | ) | | $ | 307,785 |
| | $ | (8,070 | ) |
At SeptemberJune 30, 2018,2019, gross unrealized losses for securities available-for-sale in an unrealized loss position for twelve months or longer, totaled $14.4$7.2 million. FourThree federal agency bonds, sixteen investment grade corporate bonds, 114ninety federal agency residential mortgage securities nine investment grade municipal bonds and one collateralized mortgage obligation bondbonds had respective unrealized loss positions of $140$16 thousand, $7.7$6.2 million, $6.4$1.0 million $84 thousand and $108$31 thousand, respectively. The fair value of these 114110 securities fluctuate with changes in market conditions which for these underlying securities is primarily due to changes in the interest rate environment. The Corporation does not intend to sell the securities in an unrealized loss position and is unlikely to be required to sell these securities before a recovery of fair value, which may be maturity. Upon review of the attributes of the individual securities, the Corporation concluded these
securities were not other-than-temporarily impaired. The Corporation did not recognize any other-than-temporary impairment charges on debt securities for the ninesix months ended SeptemberJune 30, 2018 and 2017.2019 or 2018.
In conjunction with the adoption of ASU 2016-01, theThe Corporation recognized a $26$20 thousand net gain and $33 thousand net gain on equity securities during the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively, in other noninterest income and the net unrealized gain onincome. There were no sales of equity securities held at Septemberduring the six months ended June 30, 2018 was $26 thousand. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018" for additional information.2019 or June 30, 2018.
Note 4. Loans and Leases
Summary of Major Loan and Lease Categories
|
| | | | | | | | | | | |
| At June 30, 2019 |
(Dollars in thousands) | Originated | | Acquired | | Total |
Commercial, financial and agricultural | $ | 921,182 |
| | $ | 15,967 |
| | $ | 937,149 |
|
Real estate-commercial | 1,650,052 |
| | 212,095 |
| | 1,862,147 |
|
Real estate-construction | 230,459 |
| | — |
| | 230,459 |
|
Real estate-residential secured for business purpose | 314,629 |
| | 51,011 |
| | 365,640 |
|
Real estate-residential secured for personal purpose | 373,792 |
| | 46,017 |
| | 419,809 |
|
Real estate-home equity secured for personal purpose | 170,482 |
| | 7,446 |
| | 177,928 |
|
Loans to individuals | 32,345 |
| | 140 |
| | 32,485 |
|
Lease financings | 142,287 |
| | — |
| | 142,287 |
|
Total loans and leases held for investment, net of deferred income | $ | 3,835,228 |
| | $ | 332,676 |
| | $ | 4,167,904 |
|
Imputed interest on lease financings, included in the above table | $ | (15,415 | ) | | $ | — |
| | $ | (15,415 | ) |
Net deferred costs, included in the above table | 4,701 |
| | — |
| | 4,701 |
|
Overdraft deposits included in the above table | 127 |
| | — |
| | 127 |
|
|
| | | | | | | | | | | |
| At September 30, 2018 |
(Dollars in thousands) | Originated | | Acquired | | Total |
Commercial, financial and agricultural | $ | 867,636 |
| | $ | 26,686 |
| | $ | 894,322 |
|
Real estate-commercial | 1,442,681 |
| | 254,462 |
| | 1,697,143 |
|
Real estate-construction | 188,895 |
| | 3,742 |
| | 192,637 |
|
Real estate-residential secured for business purpose | 279,800 |
| | 66,531 |
| | 346,331 |
|
Real estate-residential secured for personal purpose | 327,833 |
| | 52,676 |
| | 380,509 |
|
Real estate-home equity secured for personal purpose | 177,632 |
| | 9,349 |
| | 186,981 |
|
Loans to individuals | 32,096 |
| | 142 |
| | 32,238 |
|
Lease financings | 136,008 |
| | — |
| | 136,008 |
|
Total loans and leases held for investment, net of deferred income | $ | 3,452,581 |
| | $ | 413,588 |
| | $ | 3,866,169 |
|
Unearned lease income, included in the above table | $ | (15,079 | ) | | $ | — |
| | $ | (15,079 | ) |
Net deferred costs, included in the above table | 4,064 |
| | — |
| | 4,064 |
|
Overdraft deposits included in the above table | 156 |
| | — |
| | 156 |
|
|
| | | | | | | | | | | |
| At December 31, 2018 |
(Dollars in thousands) | Originated | | Acquired | | Total |
Commercial, financial and agricultural | $ | 913,166 |
| | $ | 24,519 |
| | $ | 937,685 |
|
Real estate-commercial | 1,507,579 |
| | 233,625 |
| | 1,741,204 |
|
Real estate-construction | 215,513 |
| | — |
| | 215,513 |
|
Real estate-residential secured for business purpose | 302,393 |
| | 60,403 |
| | 362,796 |
|
Real estate-residential secured for personal purpose | 338,451 |
| | 49,959 |
| | 388,410 |
|
Real estate-home equity secured for personal purpose | 177,523 |
| | 8,728 |
| | 186,251 |
|
Loans to individuals | 32,617 |
| | 142 |
| | 32,759 |
|
Lease financings | 141,956 |
| | — |
| | 141,956 |
|
Total loans and leases held for investment, net of deferred income | $ | 3,629,198 |
| | $ | 377,376 |
| | $ | 4,006,574 |
|
Imputed interest on lease financings, included in the above table | $ | (15,118 | ) | | $ | — |
| | $ | (15,118 | ) |
Net deferred costs, included in the above table | 3,930 |
| | — |
| | 3,930 |
|
Overdraft deposits included in the above table | 139 |
| | — |
| | 139 |
|
|
| | | | | | | | | | | |
| At December 31, 2017 |
(Dollars in thousands) | Originated | | Acquired | | Total |
Commercial, financial and agricultural | $ | 833,100 |
| | $ | 63,111 |
| | $ | 896,211 |
|
Real estate-commercial | 1,235,681 |
| | 306,460 |
| | 1,542,141 |
|
Real estate-construction | 171,244 |
| | 4,592 |
| | 175,836 |
|
Real estate-residential secured for business purpose | 250,800 |
| | 91,167 |
| | 341,967 |
|
Real estate-residential secured for personal purpose | 260,654 |
| | 60,920 |
| | 321,574 |
|
Real estate-home equity secured for personal purpose | 171,884 |
| | 12,386 |
| | 184,270 |
|
Loans to individuals | 28,156 |
| | 144 |
| | 28,300 |
|
Lease financings | 129,768 |
| | — |
| | 129,768 |
|
Total loans and leases held for investment, net of deferred income | $ | 3,081,287 |
| | $ | 538,780 |
| | $ | 3,620,067 |
|
Unearned lease income, included in the above table | $ | (14,243 | ) | | $ | — |
| | $ | (14,243 | ) |
Net deferred costs, included in the above table | 4,669 |
| | — |
| | 4,669 |
|
Overdraft deposits included in the above table | 222 |
| | — |
| | 222 |
|
Overdraft deposits are re-classified as loans and are included in the total loans and leases on the balance sheet.
The carrying amount of acquired loans at SeptemberJune 30, 20182019 totaled $413.6$332.7 million, including $339.3$289.2 million of loans from the Fox Chase acquisition and $74.3$43.5 million from the Valley Green Bank acquisition. At SeptemberJune 30, 2018,2019, loans acquired with deteriorated credit quality, or acquired credit impaired loans, totaled $900$569 thousand representing $246$61 thousand from the Fox Chase acquisition and $654$508 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification (ASC) Topic 310-30.
The outstanding principal balance and carrying amount for acquired credit impaired loans at SeptemberJune 30, 20182019 and December 31, 20172018 were as follows:
| | (Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 | At June 30, 2019 | | At December 31, 2018 |
Outstanding principal balance | $ | 1,218 |
| | $ | 2,325 |
| $ | 677 |
| | $ | 893 |
|
Carrying amount | 900 |
| | 1,583 |
| 569 |
| | 695 |
|
Allowance for loan losses | — |
| | — |
| |
Reserve for loan losses | | — |
| | — |
|
The following table presents the changes in accretable yield on acquired credit impaired loans:
|
| | | | | | | |
| Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 |
Beginning of period | $ | — |
| | $ | 11 |
|
Reclassification from nonaccretable discount | 215 |
| | 375 |
|
Accretable yield amortized to interest income | (215 | ) | | (386 | ) |
End of period | $ | — |
| | $ | — |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
(Dollars in thousands) | 2018 | | 2017 |
Beginning of period | $ | 11 |
| | $ | 50 |
|
Reclassification from nonaccretable discount | 453 |
| | 823 |
|
Accretable discount amortized to interest income | (464 | ) | | (850 | ) |
Disposals | — |
| | (4 | ) |
End of period | $ | — |
| | $ | 19 |
|
Age Analysis of Past Due Loans and Leases
The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current, acquired credit impaired loans and the recorded investment innonaccrual loans and leases 90 days or more past due which are accruing interest at SeptemberJune 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accruing Loans and Leases | | | | | | |
(Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or more Past Due | | Total Past Due | | Current | | Total Accruing Loans and Leases | | Acquired Credit Impaired | | Nonaccrual Loans and Leases | | Total Loans and Leases Held for Investment |
At June 30, 2019 | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 527 |
| | $ | 274 |
| | $ | — |
| | $ | 801 |
| | $ | 934,198 |
| | $ | 934,999 |
| | $ | — |
| | $ | 2,150 |
| | $ | 937,149 |
|
Real estate—commercial real estate and construction: | | | | | | | | | | | | | | | | | |
Commercial real estate | 2,057 |
| | 6,190 |
| | 516 |
| | 8,763 |
| | 1,835,439 |
| | 1,844,202 |
| | 206 |
| | 17,739 |
| | 1,862,147 |
|
Construction | 500 |
| | 1,158 |
| | 230 |
| | 1,888 |
| | 228,465 |
| | 230,353 |
| | — |
| | 106 |
| | 230,459 |
|
Real estate—residential and home equity: | | | | | | | | | | | | | | | | | |
Residential secured for business purpose | 919 |
| | 2,284 |
| | 434 |
| | 3,637 |
| | 360,105 |
| | 363,742 |
| | 302 |
| | 1,596 |
| | 365,640 |
|
Residential secured for personal purpose | 1,529 |
| | 258 |
| | — |
| | 1,787 |
| | 415,794 |
| | 417,581 |
| | 61 |
| | 2,167 |
| | 419,809 |
|
Home equity secured for personal purpose | 206 |
| | — |
| | — |
| | 206 |
| | 176,433 |
| | 176,639 |
| | — |
| | 1,289 |
| | 177,928 |
|
Loans to individuals | 101 |
| | 47 |
| | 129 |
| | 277 |
| | 32,208 |
| | 32,485 |
| | — |
| | — |
| | 32,485 |
|
Lease financings | 620 |
| | 195 |
| | 70 |
| | 885 |
| | 141,302 |
| | 142,187 |
| | — |
| | 100 |
| | 142,287 |
|
Total | $ | 6,459 |
| | $ | 10,406 |
| | $ | 1,379 |
| | $ | 18,244 |
| | $ | 4,123,944 |
| | $ | 4,142,188 |
| | $ | 569 |
| | $ | 25,147 |
| | $ | 4,167,904 |
|
At December 31, 2018 | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 1,043 |
| | $ | 122 |
| | $ | — |
| | $ | 1,165 |
| | $ | 933,155 |
| | $ | 934,320 |
| | $ | — |
| | $ | 3,365 |
| | $ | 937,685 |
|
Real estate—commercial real estate and construction: | | | | | | | | | | | | | | | | | |
Commercial real estate | 4,995 |
| | 1,538 |
| | — |
| | 6,533 |
| | 1,716,251 |
| | 1,722,784 |
| | 206 |
| | 18,214 |
| | 1,741,204 |
|
Construction | 2,163 |
| | — |
| | — |
| | 2,163 |
| | 213,244 |
| | 215,407 |
| | — |
| | 106 |
| | 215,513 |
|
Real estate—residential and home equity: | | | | | | | | | | | | | | | | | |
Residential secured for business purpose | 2,497 |
| | 728 |
| | — |
| | 3,225 |
| | 357,827 |
| | 361,052 |
| | 426 |
| | 1,318 |
| | 362,796 |
|
Residential secured for personal purpose | 2,334 |
| | — |
| | — |
| | 2,334 |
| | 384,426 |
| | 386,760 |
| | 63 |
| | 1,587 |
| | 388,410 |
|
Home equity secured for personal purpose | 305 |
| | 96 |
| | — |
| | 401 |
| | 184,402 |
| | 184,803 |
| | — |
| | 1,448 |
| | 186,251 |
|
Loans to individuals | 207 |
| | 29 |
| | 55 |
| | 291 |
| | 32,468 |
| | 32,759 |
| | — |
| | — |
| | 32,759 |
|
Lease financings | 2,460 |
| | 411 |
| | 137 |
| | 3,008 |
| | 138,778 |
| | 141,786 |
| | — |
| | 170 |
| | 141,956 |
|
Total | $ | 16,004 |
| | $ | 2,924 |
| | $ | 192 |
| | $ | 19,120 |
| | $ | 3,960,551 |
| | $ | 3,979,671 |
| | $ | 695 |
| | $ | 26,208 |
| | $ | 4,006,574 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or more Past Due | | Total Past Due | | Current | | Acquired Credit Impaired | | Total Loans and Leases Held for Investment | | Recorded Investment 90 Days or more Past Due and Accruing Interest |
At September 30, 2018 | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 661 |
| | $ | 9,151 |
| | $ | 1,003 |
| | $ | 10,815 |
| | $ | 883,325 |
| | $ | 182 |
| | $ | 894,322 |
| | $ | — |
|
Real estate—commercial real estate and construction: | | | | | | | | | | | | | | | |
Commercial real estate | 1,168 |
| | 373 |
| | 1,313 |
| | 2,854 |
| | 1,694,083 |
| | 206 |
| | 1,697,143 |
| | 83 |
|
Construction | — |
| | — |
| | — |
| | — |
| | 192,637 |
| | — |
| | 192,637 |
| | — |
|
Real estate—residential and home equity: | | | | | | | | | | | | | | | |
Residential secured for business purpose | 2,221 |
| | 47 |
| | 1,265 |
| | 3,533 |
| | 342,350 |
| | 448 |
| | 346,331 |
| | — |
|
Residential secured for personal purpose | 2,403 |
| | 981 |
| | 1,419 |
| | 4,803 |
| | 375,642 |
| | 64 |
| | 380,509 |
| | — |
|
Home equity secured for personal purpose | 406 |
| | 189 |
| | 1,329 |
| | 1,924 |
| | 185,057 |
| | — |
| | 186,981 |
| | 128 |
|
Loans to individuals | 101 |
| | 32 |
| | 165 |
| | 298 |
| | 31,940 |
| | — |
| | 32,238 |
| | 165 |
|
Lease financings | 897 |
| | 1,639 |
| | 2,390 |
| | 4,926 |
| | 131,082 |
| | — |
| | 136,008 |
| | 848 |
|
Total | $ | 7,857 |
| | $ | 12,412 |
| | $ | 8,884 |
| | $ | 29,153 |
| | $ | 3,836,116 |
| | $ | 900 |
| | $ | 3,866,169 |
| | $ | 1,224 |
|
At December 31, 2017 | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 2,182 |
| | $ | 1,440 |
| | $ | 1,509 |
| | $ | 5,131 |
| | $ | 890,658 |
| | $ | 422 |
| | $ | 896,211 |
| | $ | — |
|
Real estate—commercial real estate and construction: | | | | | | | | | | | | | | | |
Commercial real estate | 733 |
| | 548 |
| | 1,410 |
| | 2,691 |
| | 1,539,094 |
| | 356 |
| | 1,542,141 |
| | — |
|
Construction | 1,970 |
| | — |
| | 365 |
| | 2,335 |
| | 173,501 |
| | — |
| | 175,836 |
| | — |
|
Real estate—residential and home equity: | | | | | | | | | | | | | | | |
Residential secured for business purpose | 1,651 |
| | 315 |
| | 1,355 |
| | 3,321 |
| | 338,061 |
| | 585 |
| | 341,967 |
| | 162 |
|
Residential secured for personal purpose | 4,368 |
| | 1,118 |
| | 23 |
| | 5,509 |
| | 315,845 |
| | 220 |
| | 321,574 |
| | — |
|
Home equity secured for personal purpose | 1,414 |
| | 333 |
| | 464 |
| | 2,211 |
| | 182,059 |
| | — |
| | 184,270 |
| | 148 |
|
Loans to individuals | 221 |
| | 139 |
| | 195 |
| | 555 |
| | 27,745 |
| | — |
| | 28,300 |
| | 195 |
|
Lease financings | 1,143 |
| | 392 |
| | 1,855 |
| | 3,390 |
| | 126,378 |
| | — |
| | 129,768 |
| | 256 |
|
Total | $ | 13,682 |
| | $ | 4,285 |
| | $ | 7,176 |
| | $ | 25,143 |
| | $ | 3,593,341 |
| | $ | 1,583 |
| | $ | 3,620,067 |
| | $ | 761 |
|
Nonperforming Loans and Leases
The following presents, by class of loans and leases, nonperforming loans and leases at SeptemberJune 30, 20182019 and December 31, 2017.2018. Nonperforming loans exclude acquired credit impaired loans from Fox Chase and Valley Green.
| | | At September 30, 2018 | | At December 31, 2017 | At June 30, 2019 | | At December 31, 2018 |
(Dollars in thousands) | Nonaccrual Loans and Leases* | | Accruing Troubled Debt Restructured Loans and Lease Modifications | | Loans and Leases 90 Days or more Past Due and Accruing Interest | | Total Nonperforming Loans and Leases | | Nonaccrual Loans and Leases* | | Accruing Troubled Debt Restructured Loans and Lease Modifications | | Loans and Leases 90 Days or more Past Due and Accruing Interest | | Total Nonperforming Loans and Leases | Nonaccrual Loans and Leases* | | Accruing Troubled Debt Restructured Loans and Lease Modifications | | Loans and Leases 90 Days or more Past Due and Accruing Interest | | Total Nonperforming Loans and Leases | | Nonaccrual Loans and Leases* | | Accruing Troubled Debt Restructured Loans and Lease Modifications | | Loans and Leases 90 Days or more Past Due and Accruing Interest | | Total Nonperforming Loans and Leases |
Commercial, financial and agricultural | $ | 2,795 |
| | $ | 595 |
| | $ | — |
| | $ | 3,390 |
| | $ | 4,448 |
| | $ | 921 |
| | $ | — |
| | $ | 5,369 |
| $ | 2,150 |
| | $ | — |
| | $ | — |
| | $ | 2,150 |
| | $ | 3,365 |
| | $ | 382 |
| | $ | — |
| | $ | 3,747 |
|
Real estate—commercial real estate and construction: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | 18,425 |
| | — |
| | 83 |
| | 18,508 |
| | 4,285 |
| | 10,266 |
| | — |
| | 14,551 |
| 17,739 |
| | — |
| | 516 |
| | 18,255 |
| | 18,214 |
| | — |
| | — |
| | 18,214 |
|
Construction | 106 |
| | — |
| | — |
| | 106 |
| | 365 |
| | — |
| | — |
| | 365 |
| 106 |
| | — |
| | 230 |
| | 336 |
| | 106 |
| | — |
| | — |
| | 106 |
|
Real estate—residential and home equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential secured for business purpose | 1,416 |
| | 171 |
| | — |
| | 1,587 |
| | 2,843 |
| | 206 |
| | 162 |
| | 3,211 |
| 1,596 |
| | — |
| | 434 |
| | 2,030 |
| | 1,318 |
| | 160 |
| | — |
| | 1,478 |
|
Residential secured for personal purpose | 1,815 |
| | — |
| | — |
| | 1,815 |
| | 466 |
| | 42 |
| | — |
| | 508 |
| 2,167 |
| | — |
| | — |
| | 2,167 |
| | 1,587 |
| | — |
| | — |
| | 1,587 |
|
Home equity secured for personal purpose | 1,460 |
| | — |
| | 128 |
| | 1,588 |
| | 511 |
| | — |
| | 148 |
| | 659 |
| 1,289 |
| | 55 |
| | — |
| | 1,344 |
| | 1,448 |
| | — |
| | — |
| | 1,448 |
|
Loans to individuals | — |
| | — |
| | 165 |
| | 165 |
| | — |
| | — |
| | 195 |
| | 195 |
| — |
| | — |
| | 129 |
| | 129 |
| | — |
| | — |
| | 55 |
| | 55 |
|
Lease financings | 1,542 |
| | — |
| | 848 |
| | 2,390 |
| | 1,599 |
| | — |
| | 256 |
| | 1,855 |
| 100 |
| | — |
| | 70 |
| | 170 |
| | 170 |
| | — |
| | 137 |
| | 307 |
|
Total | $ | 27,559 |
| | $ | 766 |
| | $ | 1,224 |
| | $ | 29,549 |
| | $ | 14,517 |
| | $ | 11,435 |
| | $ | 761 |
| | $ | 26,713 |
| $ | 25,147 |
| | $ | 55 |
| | $ | 1,379 |
| | $ | 26,581 |
| | $ | 26,208 |
| | $ | 542 |
| | $ | 192 |
| | $ | 26,942 |
|
* Includes nonaccrual troubled debt restructured loans of $2.6 million and lease modifications of $1.3 million and $2.5 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
Accruing troubled debt restructuring loans of $11.4 million at December 31, 2017 includes balances of $10.3 million related to one borrower which were classified as troubled debt restructurings as the related loans were granted amortization period extensions. These troubled debt restructured loans were returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructurings for the required time period. At September 30, 2018, commercial real estate nonaccrual loans and leases includes an $11.8 million loan that was placed on nonaccrual status during the first quarter of 2018. A specific reserve of $645 thousand was recorded for this loan as of September 30, 2018.
Credit Quality Indicators
The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at SeptemberJune 30, 20182019 and December 31, 2017.2018.
The Corporation employs a ten (10) grade risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business purpose of which the first six categories are pass categories (credits not adversely rated).purpose. The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. Loans with a relationship balance of less than $1 million are reviewed on a performance basis, with the primary monitored metrics being delinquency (60 days or more past due) and revolving stagnancy.. Loans with relationships greater than $1 million are reviewed at least annually. Loan relationships exceeding $15 millionwith a higher risk profile or classified as special mention or substandard are reviewed at least quarterly, or more frequently based on management’s discretion.
| |
1. | Cash Secured—No credit riskPass—Loans considered satisfactory with no indications of deterioration |
| |
2. | Fully Secured—Negligible credit riskSpecial Mention—Potential weakness that deserves management's close attention |
| |
3. | Strong—Minimal credit riskSubstandard—Well-defined weakness or weaknesses that jeopardize the liquidation of the debt |
| |
4. | Satisfactory—Nominal credit risk |
| |
5. | Acceptable—Moderate credit risk |
| |
6. | Pre-Watch—Marginal, but stable credit risk |
| |
7. | Special Mention—Potential weakness |
| |
8. | Substandard—Well-defined weakness |
| |
9. | Doubtful—Collection or liquidation in-full, on the basis of current existing facts, conditions and values, highly questionable and improbable |
| |
10. | Loss—Considered uncollectible |
Commercial Credit Exposure Credit Risk by Internally Assigned Grades
The following table presents classifications for originated loans:
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial, Financial and Agricultural | | Real Estate— Commercial | | Real Estate— Construction | | Real Estate— Residential Secured for Business Purpose | | Total |
At September 30, 2018 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Cash secured/ 2. Fully secured | $ | 2,789 |
| | $ | — |
| | $ | 23,290 |
| | $ | — |
| | $ | 26,079 |
|
3. Strong | 14,369 |
| | 699 |
| | — |
| | — |
| | 15,068 |
|
4. Satisfactory | 18,511 |
| | 24,325 |
| | — |
| | 265 |
| | 43,101 |
|
5. Acceptable | 575,671 |
| | 1,072,909 |
| | 77,773 |
| | 236,261 |
| | 1,962,614 |
|
6. Pre-watch | 222,325 |
| | 287,933 |
| | 86,326 |
| | 38,090 |
| | 634,674 |
|
7. Special Mention | 26,323 |
| | 35,402 |
| | 1,400 |
| | 2,203 |
| | 65,328 |
|
8. Substandard | 7,648 |
| | 21,413 |
| | 106 |
| | 2,981 |
| | 32,148 |
|
9. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
10.Loss | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 867,636 |
| | $ | 1,442,681 |
| | $ | 188,895 |
| | $ | 279,800 |
| | $ | 2,779,012 |
|
At December 31, 2017 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Cash secured/ 2. Fully secured | $ | 2,521 |
| | $ | — |
| | $ | 20,420 |
| | $ | — |
| | $ | 22,941 |
|
3. Strong | 9,206 |
| | 1,821 |
| | — |
| | — |
| | 11,027 |
|
4. Satisfactory | 30,283 |
| | 26,950 |
| | — |
| | 274 |
| | 57,507 |
|
5. Acceptable | 593,205 |
| | 960,258 |
| | 76,899 |
| | 215,750 |
| | 1,846,112 |
|
6. Pre-watch | 179,990 |
| | 209,844 |
| | 72,168 |
| | 29,738 |
| | 491,740 |
|
7. Special Mention | 4,027 |
| | 12,974 |
| | 1,392 |
| | 296 |
| | 18,689 |
|
8. Substandard | 13,868 |
| | 23,834 |
| | 365 |
| | 4,742 |
| | 42,809 |
|
9. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
10.Loss | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 833,100 |
| | $ | 1,235,681 |
| | $ | 171,244 |
| | $ | 250,800 |
| | $ | 2,490,825 |
|
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial, Financial and Agricultural | | Real Estate— Commercial | | Real Estate— Construction | | Real Estate— Residential Secured for Business Purpose | | Total |
At June 30, 2019 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Pass | $ | 874,098 |
| | $ | 1,622,980 |
| | $ | 228,421 |
| | $ | 309,658 |
| | $ | 3,035,157 |
|
2. Special Mention | 27,036 |
| | 17,773 |
| | 1,932 |
| | 1,705 |
| | 48,446 |
|
3. Substandard | 20,048 |
| | 9,299 |
| | 106 |
| | 3,266 |
| | 32,719 |
|
4. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 921,182 |
| | $ | 1,650,052 |
| | $ | 230,459 |
| | $ | 314,629 |
| | $ | 3,116,322 |
|
At December 31, 2018 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Pass | $ | 882,736 |
| | $ | 1,455,234 |
| | $ | 215,407 |
| | $ | 298,356 |
| | $ | 2,851,733 |
|
2. Special Mention | 23,287 |
| | 31,791 |
| | — |
| | 721 |
| | 55,799 |
|
3. Substandard | 7,143 |
| | 20,554 |
| | 106 |
| | 3,316 |
| | 31,119 |
|
4. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 913,166 |
| | $ | 1,507,579 |
| | $ | 215,513 |
| | $ | 302,393 |
| | $ | 2,938,651 |
|
The following table presents classifications for acquired loans: |
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial, Financial and Agricultural | | Real Estate— Commercial | | Real Estate— Construction | | Real Estate— Residential Secured for Business Purpose | | Total |
At June 30, 2019 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Pass | $ | 15,967 |
| | $ | 199,560 |
| | $ | — |
| | $ | 50,446 |
| | $ | 265,973 |
|
2. Special Mention | — |
| | — |
| | — |
| | — |
| | — |
|
3. Substandard | — |
| | 12,535 |
| | — |
| | 565 |
| | 13,100 |
|
4. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 15,967 |
| | $ | 212,095 |
| | $ | — |
| | $ | 51,011 |
| | $ | 279,073 |
|
December 31, 2018 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Pass | $ | 24,450 |
| | $ | 220,911 |
| | $ | — |
| | $ | 59,567 |
| | $ | 304,928 |
|
2. Special Mention | — |
| | — |
| | — |
| | — |
| | — |
|
3. Substandard | 69 |
| | 12,714 |
| | — |
| | 836 |
| | 13,619 |
|
4. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 24,519 |
| | $ | 233,625 |
| | $ | — |
| | $ | 60,403 |
| | $ | 318,547 |
|
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial, Financial and Agricultural | | Real Estate— Commercial | | Real Estate— Construction | | Real Estate— Residential Secured for Business Purpose | | Total |
At September 30, 2018 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Cash secured/ 2. Fully secured | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
3. Strong | — |
| | — |
| | — |
| | — |
| | — |
|
4. Satisfactory | — |
| | — |
| | — |
| | — |
| | — |
|
5. Acceptable | 23,085 |
| | 155,221 |
| | — |
| | 56,107 |
| | 234,413 |
|
6. Pre-watch | 2,475 |
| | 81,048 |
| | 3,742 |
| | 9,115 |
| | 96,380 |
|
7. Special Mention | 838 |
| | 4,421 |
| | — |
| | — |
| | 5,259 |
|
8. Substandard | 288 |
| | 13,772 |
| | — |
| | 1,309 |
| | 15,369 |
|
9. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
10.Loss | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 26,686 |
| | $ | 254,462 |
| | $ | 3,742 |
| | $ | 66,531 |
| | $ | 351,421 |
|
December 31, 2017 | | | | | | | | | |
Grade: | | | | | | | | | |
1. Cash secured/ 2. Fully secured | $ | 1,120 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,120 |
|
3. Strong | — |
| | — |
| | — |
| | — |
| | — |
|
4. Satisfactory | 125 |
| | 482 |
| | — |
| | — |
| | 607 |
|
5. Acceptable | 49,949 |
| | 183,490 |
| | — |
| | 73,402 |
| | 306,841 |
|
6. Pre-watch | 6,183 |
| | 98,977 |
| | 4,592 |
| | 15,861 |
| | 125,613 |
|
7. Special Mention | 1,007 |
| | 17,028 |
| | — |
| | — |
| | 18,035 |
|
8. Substandard | 4,727 |
| | 6,483 |
| | — |
| | 1,904 |
| | 13,114 |
|
9. Doubtful | — |
| | — |
| | — |
| | — |
| | — |
|
10.Loss | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 63,111 |
| | $ | 306,460 |
| | $ | 4,592 |
| | $ | 91,167 |
| | $ | 465,330 |
|
Credit Exposure—Real Estate—Residential Secured for Personal Purpose, Real Estate—Home Equity Secured for Personal Purpose, Loans to individuals, Lease Financing Credit Risk Profile by Payment Activity
The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans secured for a personal purpose, home equity loans secured for a personal purpose, loans to individuals and lease financings. Nonperforming loans and leases are loans and leases past due 90 days or more, loans and leases on nonaccrual of interest and troubled debt restructured loans and lease modifications. Performing loans and leases are reviewed only if the loan becomes 60 days or more past due. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss.
The following table presents classifications for originated loans:
| | (Dollars in thousands) | Real Estate— Residential Secured for Personal Purpose | | Real Estate— Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Total | Real Estate— Residential Secured for Personal Purpose | | Real Estate— Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Total |
At September 30, 2018 | | | | | | | | | | |
At June 30, 2019 | | | | | | | | | | |
Performing | $ | 327,138 |
| | $ | 177,115 |
| | $ | 31,931 |
| | $ | 133,618 |
| | $ | 669,802 |
| $ | 372,578 |
| | $ | 170,172 |
| | $ | 32,216 |
| | $ | 142,117 |
| | $ | 717,083 |
|
Nonperforming | 695 |
| | 517 |
| | 165 |
| | 2,390 |
| | 3,767 |
| 1,214 |
| | 310 |
| | 129 |
| | 170 |
| | 1,823 |
|
Total | $ | 327,833 |
| | $ | 177,632 |
| | $ | 32,096 |
| | $ | 136,008 |
| | $ | 673,569 |
| $ | 373,792 |
| | $ | 170,482 |
| | $ | 32,345 |
| | $ | 142,287 |
| | $ | 718,906 |
|
At December 31, 2017 | | | | | | | | | | |
At December 31, 2018 | | | | | | | | | | |
Performing | $ | 260,589 |
| | $ | 171,527 |
| | $ | 27,961 |
| | $ | 127,913 |
| | $ | 587,990 |
| $ | 337,762 |
| | $ | 177,139 |
| | $ | 32,562 |
| | $ | 141,649 |
| | $ | 689,112 |
|
Nonperforming | 65 |
| | 357 |
| | 195 |
| | 1,855 |
| | 2,472 |
| 689 |
| | 384 |
| | 55 |
| | 307 |
| | 1,435 |
|
Total | $ | 260,654 |
| | $ | 171,884 |
| | $ | 28,156 |
| | $ | 129,768 |
| | $ | 590,462 |
| $ | 338,451 |
| | $ | 177,523 |
| | $ | 32,617 |
| | $ | 141,956 |
| | $ | 690,547 |
|
The following table presents classifications for acquired loans:
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Real Estate— Residential Secured for Personal Purpose | | Real Estate— Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Total |
At June 30, 2019 | | | | | | | | | |
Performing | $ | 45,064 |
| | $ | 6,412 |
| | $ | 140 |
| | $ | — |
| | $ | 51,616 |
|
Nonperforming | 953 |
| | 1,034 |
| | — |
| | — |
| | 1,987 |
|
Total | $ | 46,017 |
| | $ | 7,446 |
| | $ | 140 |
| | $ | — |
| | $ | 53,603 |
|
At December 31, 2018 | | | | | | | | | |
Performing | $ | 49,061 |
| | $ | 7,664 |
| | $ | 142 |
| | $ | — |
| | $ | 56,867 |
|
Nonperforming | 898 |
| | 1,064 |
| | — |
| | — |
| | 1,962 |
|
Total | $ | 49,959 |
| | $ | 8,728 |
| | $ | 142 |
| | $ | — |
| | $ | 58,829 |
|
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Real Estate— Residential Secured for Personal Purpose | | Real Estate— Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Total |
At September 30, 2018 | | | | | | | | | |
Performing | $ | 51,556 |
| | $ | 8,278 |
| | $ | 142 |
| | $ | — |
| | $ | 59,976 |
|
Nonperforming | 1,120 |
| | 1,071 |
| | — |
| | — |
| | 2,191 |
|
Total | $ | 52,676 |
| | $ | 9,349 |
| | $ | 142 |
| | $ | — |
| | $ | 62,167 |
|
At December 31, 2017 | | | | | | | | | |
Performing | $ | 60,477 |
| | $ | 12,084 |
| | $ | 144 |
| | $ | — |
| | $ | 72,705 |
|
Nonperforming | 443 |
| | 302 |
| | — |
| | — |
| | 745 |
|
Total | $ | 60,920 |
| | $ | 12,386 |
| | $ | 144 |
| | $ | — |
| | $ | 73,450 |
|
Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases
The following presents, by portfolio segment, a summary of the activity in the reserve for loan and lease losses for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:
| | (Dollars in thousands) | Commercial, Financial and Agricultural | | Real Estate— Commercial and Construction | | Real Estate— Residential Secured for Business Purpose | | Real Estate— Residential and Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Unallocated | | Total | Commercial, Financial and Agricultural | | Real Estate— Commercial and Construction | | Real Estate— Residential Secured for Business Purpose | | Real Estate— Residential and Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Unallocated | | Total |
Three Months Ended September 30, 2018 | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2019 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 8,950 |
| | $ | 14,981 |
| | $ | 2,302 |
| | $ | 3,379 |
| | $ | 469 |
| | $ | 1,275 |
| | $ | 246 |
| | $ | 31,602 |
|
Charge-offs | | (1,018 | ) | | (33 | ) | | — |
| | (4 | ) | | (51 | ) | | (110 | ) | | N/A |
| | (1,216 | ) |
Recoveries | | 19 |
| | — |
| | 6 |
| | 7 |
| | 16 |
| | 90 |
| | N/A |
| | 138 |
|
Provision (recovery of provision) | | 1,178 |
| | 530 |
| | 170 |
| | 136 |
| | 47 |
| | (14 | ) | | 29 |
| | 2,076 |
|
Ending balance | | $ | 9,129 |
| | $ | 15,478 |
| | $ | 2,478 |
| | $ | 3,518 |
| | $ | 481 |
| | $ | 1,241 |
| | $ | 275 |
| | $ | 32,600 |
|
Three Months Ended June 30, 2018 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 6,942 |
| | $ | 11,178 |
| | $ | 1,871 |
| | $ | 1,908 |
| | $ | 372 |
| | $ | 1,079 |
| | $ | 60 |
| | $ | 23,410 |
|
Charge-offs | | (13,048 | ) | | — |
| | — |
| | — |
| | (79 | ) | | (169 | ) | | N/A |
| | (13,296 | ) |
Recoveries | | 23 |
| | — |
| | 7 |
| | 8 |
| | 16 |
| | 75 |
| | N/A |
| | 129 |
|
Provision (recovery of provision) | | 13,341 |
| | 1,149 |
| | 126 |
| | 578 |
| | 138 |
| | 86 |
| | (9 | ) | | 15,409 |
|
Ending balance | | $ | 7,258 |
| | $ | 12,327 |
| | $ | 2,004 |
| | $ | 2,494 |
| | $ | 447 |
| | $ | 1,071 |
| | $ | 51 |
| | $ | 25,652 |
|
Six Months Ended June 30, 2019 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 7,258 |
| | $ | 12,327 |
| | $ | 2,004 |
| | $ | 2,494 |
| | $ | 447 |
| | $ | 1,071 |
| | $ | 51 |
| | $ | 25,652 |
| $ | 7,983 |
| | $ | 13,903 |
| | $ | 2,236 |
| | $ | 3,199 |
| | $ | 484 |
| | $ | 1,288 |
| | $ | 271 |
| | $ | 29,364 |
|
Charge-offs | (904 | ) | | — |
| | (30 | ) | | — |
| | (82 | ) | | (123 | ) | | N/A |
| | (1,139 | ) | (1,486 | ) | | (74 | ) | | — |
| | (15 | ) | | (136 | ) | | (214 | ) | | N/A |
| | (1,925 | ) |
Recoveries | 22 |
| | 1 |
| | 8 |
| | 6 |
| | 25 |
| | 51 |
| | N/A |
| | 113 |
| 101 |
| | 91 |
| | 10 |
| | 12 |
| | 38 |
| | 148 |
| | N/A |
| | 400 |
|
Provision | 813 |
| | 906 |
| | 72 |
| | 527 |
| | 82 |
| | 138 |
| | 206 |
| | 2,744 |
| 2,531 |
| | 1,558 |
| | 232 |
| | 321 |
| | 95 |
| | 19 |
| | 4 |
| | 4,760 |
|
Provision for acquired credit impaired loans | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
| — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Ending balance | $ | 7,189 |
| | $ | 13,234 |
| | $ | 2,054 |
| | $ | 3,028 |
| | $ | 472 |
| | $ | 1,137 |
| | $ | 257 |
| | $ | 27,371 |
| $ | 9,129 |
| | $ | 15,478 |
| | $ | 2,478 |
| | $ | 3,518 |
| | $ | 481 |
| | $ | 1,241 |
| | $ | 275 |
| | $ | 32,600 |
|
Three Months Ended September 30, 2017 | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 8,313 |
| | $ | 8,468 |
| | $ | 1,129 |
| | $ | 974 |
| | $ | 329 |
| | $ | 1,660 |
| | $ | 37 |
| | $ | 20,910 |
| $ | 6,742 |
| | $ | 9,839 |
| | $ | 1,661 |
| | $ | 1,754 |
| | $ | 373 |
| | $ | 1,132 |
| | $ | 54 |
| | $ | 21,555 |
|
Charge-offs | (290 | ) | | — |
| | (56 | ) | | (83 | ) | | (61 | ) | | (3,097 | ) | | N/A |
| | (3,587 | ) | (13,649 | ) | | (40 | ) | | — |
| | — |
| | (171 | ) | | (305 | ) | | N/A |
| | (14,165 | ) |
Recoveries | 325 |
| | 1 |
| | 29 |
| | 68 |
| | 35 |
| | 73 |
| | N/A |
| | 531 |
| 249 |
| | 73 |
| | 258 |
| | 65 |
| | 46 |
| | 109 |
| | N/A |
| | 800 |
|
(Recovery of provision) provision | (1,732 | ) | | 787 |
| | 204 |
| | 756 |
| | 51 |
| | 2,654 |
| | (30 | ) | | 2,690 |
| |
Recovery of provision for acquired credit impaired loans | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) | |
Ending balance | $ | 6,616 |
| | $ | 9,256 |
| | $ | 1,305 |
| | $ | 1,715 |
| | $ | 354 |
| | $ | 1,290 |
| | $ | 7 |
| | $ | 20,543 |
| |
Nine Months Ended September 30, 2018 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | |
Beginning balance | $ | 6,742 |
| | $ | 9,839 |
| | $ | 1,661 |
| | $ | 1,754 |
| | $ | 373 |
| | $ | 1,132 |
| | $ | 54 |
| | $ | 21,555 |
| |
Charge-offs | (14,553 | ) | | (40 | ) | | (30 | ) | | — |
| | (253 | ) | | (428 | ) | | N/A |
| | (15,304 | ) | |
Recoveries | 271 |
| | 74 |
| | 266 |
| | 71 |
| | 71 |
| | 160 |
| | N/A |
| | 913 |
| |
Provision | 14,729 |
| | 3,361 |
| | 157 |
| | 1,201 |
| | 281 |
| | 273 |
| | 203 |
| | 20,205 |
| |
Provision (recovery of provision) | | 13,916 |
| | 2,455 |
| | 85 |
| | 674 |
| | 199 |
| | 135 |
| | (3 | ) | | 17,461 |
|
Provision for acquired credit impaired loans | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Ending balance | $ | 7,189 |
| | $ | 13,234 |
| | $ | 2,054 |
| | $ | 3,028 |
| | $ | 472 |
| | $ | 1,137 |
| | $ | 257 |
| | $ | 27,371 |
| $ | 7,258 |
| | $ | 12,327 |
| | $ | 2,004 |
| | $ | 2,494 |
| | $ | 447 |
| | $ | 1,071 |
| | $ | 51 |
| | $ | 25,652 |
|
Nine Months Ended September 30, 2017 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | |
Beginning balance | $ | 7,037 |
| | $ | 7,505 |
| | $ | 774 |
| | $ | 993 |
| | $ | 364 |
| | $ | 788 |
| | $ | 38 |
| | $ | 17,499 |
| |
Charge-offs | (576 | ) | | (30 | ) | | (1,237 | ) | | (177 | ) | | (301 | ) | | (3,681 | ) | | N/A |
| | (6,002 | ) | |
Recoveries | 722 |
| | 4 |
| | 47 |
| | 89 |
| | 116 |
| | 168 |
| | N/A |
| | 1,146 |
| |
(Recovery of provision) provision | (567 | ) | | 1,777 |
| | 1,722 |
| | 808 |
| | 175 |
| | 4,015 |
| | (31 | ) | | 7,899 |
| |
(Recovery of provision) provision for acquired credit impaired loans | — |
| | — |
| | (1 | ) | | 2 |
| | — |
| | — |
| | — |
| | 1 |
| |
Ending balance | $ | 6,616 |
| | $ | 9,256 |
| | $ | 1,305 |
| | $ | 1,715 |
| | $ | 354 |
| | $ | 1,290 |
| | $ | 7 |
| | $ | 20,543 |
| |
N/A – Not applicable
Charge-offs for the ninethree and six months ended SeptemberJune 30, 2018 includeincluded a charge-off of $12.7 million during the second quarter of 2018 for a commercial loan relationship related to alleged fraudulent activities perpetrated by one or more employees of the
a borrower. The Bank owned a participating interest which originally totaled $13.0 million in an approximately $80.0 million commercial lending facility. The charge-off representsrepresented the entire principal amount owed to the Bank.
The following presents, by portfolio segment, a summary of the balance in the reserve for loan and lease losses disaggregated on the basis of impairment method and the recorded investment in loans and leases disaggregated on the basis of impairment method at SeptemberJune 30, 20182019 and 2017:2018:
| | (Dollars in thousands) | Commercial, Financial and Agricultural | | Real Estate— Commercial and Construction | | Real Estate— Residential Secured for Business Purpose | | Real Estate— Residential and Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Unallocated | | Total | Commercial, Financial and Agricultural | | Real Estate— Commercial and Construction | | Real Estate— Residential Secured for Business Purpose | | Real Estate— Residential and Home Equity Secured for Personal Purpose | | Loans to Individuals | | Lease Financings | | Unallocated | | Total |
At September 30, 2018 | | | | | | | | | | | | | | | | |
At June 30, 2019 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance: individually evaluated for impairment | $ | 211 |
| | $ | 645 |
| | $ | — |
| | $ | 192 |
| | $ | — |
| | $ | — |
| | N/A |
| | $ | 1,048 |
| $ | 99 |
| | $ | 1,840 |
| | $ | 165 |
| | $ | 335 |
| | $ | — |
| | $ | — |
| | N/A |
| | $ | 2,439 |
|
Ending balance: collectively evaluated for impairment | 6,978 |
| | 12,504 |
| | 2,014 |
| | 2,836 |
| | 472 |
| | 1,137 |
| | 257 |
| | 26,198 |
| 9,030 |
| | 13,630 |
| | 2,313 |
| | 3,183 |
| | 481 |
| | 1,241 |
| | 275 |
| | 30,153 |
|
Ending balance: acquired credit impaired loans evaluated for impairment | — |
| | 85 |
| | 40 |
| | — |
| | — |
| | — |
| | — |
| | 125 |
| |
Ending balance: acquired non-credit impaired loans evaluated for impairment | | — |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
|
Total ending balance | $ | 7,189 |
| | $ | 13,234 |
| | $ | 2,054 |
| | $ | 3,028 |
| | $ | 472 |
| | $ | 1,137 |
| | $ | 257 |
| | $ | 27,371 |
| $ | 9,129 |
| | $ | 15,478 |
| | $ | 2,478 |
| | $ | 3,518 |
| | $ | 481 |
| | $ | 1,241 |
| | $ | 275 |
| | $ | 32,600 |
|
Loans and leases held for investment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance: individually evaluated for impairment | $ | 4,889 |
| | $ | 18,970 |
| | $ | 1,588 |
| | $ | 3,275 |
| | $ | — |
| | $ | 1,250 |
| | | | $ | 29,972 |
| |
Ending balance: individually evaluated for impairment (1) | | $ | 2,150 |
| | $ | 17,845 |
| | $ | 1,596 |
| | $ | 3,511 |
| | $ | — |
| | $ | — |
| | | | $ | 25,102 |
|
Ending balance: collectively evaluated for impairment | 862,747 |
| | 1,610,805 |
| | 278,212 |
| | 502,190 |
| | 32,096 |
| | 134,758 |
| | | | 3,420,808 |
| 919,032 |
| | 1,873,296 |
| | 313,291 |
| | 542,751 |
| | 32,345 |
| | 142,287 |
| | | | 3,823,002 |
|
Loans measured at fair value | — |
| | 1,801 |
| | — |
| | — |
| | — |
| | — |
| | | | 1,801 |
| — |
| | 1,725 |
| | — |
| | — |
| | — |
| | — |
| | | | 1,725 |
|
Acquired non-credit impaired loans | 26,504 |
| | 257,998 |
| | 66,083 |
| | 61,961 |
| | 142 |
| | — |
| | | | 412,688 |
| |
Acquired non-impaired loans | | 15,967 |
| | 199,534 |
| | 50,451 |
| | 51,414 |
| | 140 |
| | — |
| | | | 317,506 |
|
Acquired credit impaired loans | 182 |
| | 206 |
| | 448 |
| | 64 |
| | — |
| | — |
| | | | 900 |
| — |
| | 206 |
| | 302 |
| | 61 |
| | — |
| | — |
| | | | 569 |
|
Total ending balance | $ | 894,322 |
| | $ | 1,889,780 |
| | $ | 346,331 |
| | $ | 567,490 |
| | $ | 32,238 |
| | $ | 136,008 |
| | | | $ | 3,866,169 |
| $ | 937,149 |
| | $ | 2,092,606 |
| | $ | 365,640 |
| | $ | 597,737 |
| | $ | 32,485 |
| | $ | 142,287 |
| | | | $ | 4,167,904 |
|
At September 30, 2017 | | | | | | | | | | | | | | | | |
At June 30, 2018 | | | | | | | | | | | | | | | | |
Reserve for loan and lease losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance: individually evaluated for impairment | $ | 15 |
| | $ | 40 |
| | $ | 33 |
| | $ | — |
| | $ | — |
| | $ | — |
| | N/A |
| | $ | 88 |
| $ | 646 |
| | $ | 866 |
| | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | — |
| | N/A |
| | $ | 1,524 |
|
Ending balance: collectively evaluated for impairment | 6,601 |
| | 9,216 |
| | 1,272 |
| | 1,715 |
| | 354 |
| | 1,290 |
| | 7 |
| | 20,455 |
| 6,612 |
| | 11,420 |
| | 1,951 |
| | 2,494 |
| | 447 |
| | 1,071 |
| | 51 |
| | 24,046 |
|
Ending balance: acquired non-credit impaired loans evaluated for impairment | | — |
| | 41 |
| | 41 |
| | — |
| | — |
| | — |
| | — |
| | 82 |
|
Total ending balance | $ | 6,616 |
| | $ | 9,256 |
| | $ | 1,305 |
| | $ | 1,715 |
| | $ | 354 |
| | $ | 1,290 |
| | $ | 7 |
| | $ | 20,543 |
| $ | 7,258 |
| | $ | 12,327 |
| | $ | 2,004 |
| | $ | 2,494 |
| | $ | 447 |
| | $ | 1,071 |
| | $ | 51 |
| | $ | 25,652 |
|
Loans and leases held for investment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance: individually evaluated for impairment | $ | 7,883 |
| | $ | 17,274 |
| | $ | 4,471 |
| | $ | 932 |
| | $ | — |
| | $ | 1,250 |
| | | | $ | 31,810 |
| |
Ending balance: individually evaluated for impairment (1) | | $ | 6,238 |
| | $ | 21,004 |
| | $ | 2,132 |
| | $ | 3,306 |
| | $ | — |
| | $ | 1,250 |
| | | | $ | 33,930 |
|
Ending balance: collectively evaluated for impairment | 774,886 |
| | 1,307,585 |
| | 209,340 |
| | 415,161 |
| | 27,297 |
| | 122,888 |
| | | | 2,857,157 |
| 875,390 |
| | 1,569,475 |
| | 265,283 |
| | 470,994 |
| | 31,048 |
| | 131,872 |
| | | | 3,344,062 |
|
Loans measured at fair value | — |
| | 2,014 |
| | — |
| | — |
| | — |
| | — |
| | | | 2,014 |
| — |
| | 1,847 |
| | — |
| | — |
| | — |
| | — |
| | | | 1,847 |
|
Acquired non-credit impaired loans | 75,983 |
| | 344,818 |
| | 95,625 |
| | 77,991 |
| | 144 |
| | — |
| | | | 594,561 |
| |
Acquired non-impaired loans | | 44,265 |
| | 259,998 |
| | 70,837 |
| | 62,318 |
| | 143 |
| | — |
| | | | 437,561 |
|
Acquired credit impaired loans | 465 |
| | 356 |
| | 584 |
| | 217 |
| | — |
| | — |
| | | | 1,622 |
| 267 |
| | 206 |
| | 460 |
| | 65 |
| | — |
| | — |
| | | | 998 |
|
Total ending balance | $ | 859,217 |
| | $ | 1,672,047 |
| | $ | 310,020 |
| | $ | 494,301 |
| | $ | 27,441 |
| | $ | 124,138 |
| | | | $ | 3,487,164 |
| $ | 926,160 |
| | $ | 1,852,530 |
| | $ | 338,712 |
| | $ | 536,683 |
| | $ | 31,191 |
| | $ | 133,122 |
| | | | $ | 3,818,398 |
|
(1) Includes $14.6 million and $17.9 million of acquired loans which were individually evaluated for impairment at June 30, 2019 and 2018, respectively.
N/A – Not applicable
The Corporation recordsdoes not provide a provisionreserve for loan loss for the acquired non-impaired loans only whenunless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.loss.
Impaired Loans (excludes Lease Financings)
The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not a reserve for credit losses and the amounts for which there is a reserve for credit losses at SeptemberJune 30, 20182019 and December 31, 2017.2018. The impaired loans exclude acquired credit impaired loans.
| | | At September 30, 2018 | | At December 31, 2017 | At June 30, 2019 | | At December 31, 2018 |
(Dollars in thousands) | Recorded Investment | | Unpaid Principal Balance | | Related Reserve | | Recorded Investment | | Unpaid Principal Balance | | Related Reserve | Recorded Investment | | Unpaid Principal Balance | | Related Reserve | | Recorded Investment | | Unpaid Principal Balance | | Related Reserve |
Impaired loans with no related reserve recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 3,958 |
| | $ | 4,535 |
| | | | $ | 7,019 |
| | $ | 8,301 |
| | | $ | 1,980 |
| | $ | 2,590 |
| | | | $ | 2,776 |
| | $ | 3,361 |
| | |
Real estate—commercial real estate | 7,110 |
| | 7,976 |
| | | | 15,621 |
| | 16,507 |
| | | 5,158 |
| | 6,163 |
| | | | 6,578 |
| | 7,516 |
| | |
Real estate—construction | 106 |
| | 111 |
| | | | 365 |
| | 365 |
| | | 106 |
| | 111 |
| | | | 106 |
| | 111 |
| | |
Real estate—residential secured for business purpose | 1,588 |
| | 1,776 |
| | | | 3,430 |
| | 4,620 |
| | | 829 |
| | 1,006 |
| | | | 1,478 |
| | 1,660 |
| | |
Real estate—residential secured for personal purpose | 1,091 |
| | 1,142 |
| | | | 508 |
| | 566 |
| | | 1,443 |
| | 1,516 |
| | | | 863 |
| | 911 |
| | |
Real estate—home equity secured for personal purpose | 1,460 |
| | 1,488 |
| | | | 511 |
| | 523 |
| | | 1,269 |
| | 1,329 |
| | | | 1,373 |
| | 1,404 |
| | |
Total impaired loans with no related reserve recorded | $ | 15,313 |
| | $ | 17,028 |
| | | | $ | 27,454 |
| | $ | 30,882 |
| | | $ | 10,785 |
| | $ | 12,715 |
| | | | $ | 13,174 |
| | $ | 14,963 |
| | |
Impaired loans with a reserve recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 931 |
| | $ | 984 |
| | $ | 211 |
| | $ | 60 |
| | $ | 60 |
| | $ | 31 |
| $ | 170 |
| | $ | 170 |
| | $ | 99 |
| | $ | 971 |
| | $ | 1,024 |
| | $ | 413 |
|
Real estate—commercial real estate | 11,754 |
| | 12,138 |
| | 645 |
| | 933 |
| | 933 |
| | 99 |
| 12,581 |
| | 13,336 |
| | 1,840 |
| | 11,637 |
| | 12,162 |
| | 675 |
|
Real estate—residential secured for business purpose | — |
| | — |
| | — |
| | 35 |
| | 37 |
| | 1 |
| 767 |
| | 769 |
| | 165 |
| | — |
| | — |
| | — |
|
Real estate—residential secured for personal purpose | 724 |
| | 724 |
| | 192 |
| | — |
| | — |
| | — |
| 724 |
| | 724 |
| | 260 |
| | 724 |
| | 724 |
| | 252 |
|
Real estate—home equity secured for personal purpose | | 75 |
| | 75 |
| | 75 |
| | 75 |
| | 75 |
| | 75 |
|
Total impaired loans with a reserve recorded | $ | 13,409 |
| | $ | 13,846 |
| | $ | 1,048 |
| | $ | 1,028 |
| | $ | 1,030 |
| | $ | 131 |
| $ | 14,317 |
| | $ | 15,074 |
| | $ | 2,439 |
| | $ | 13,407 |
| | $ | 13,985 |
| | $ | 1,415 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Total impaired loans: | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 2,150 |
| | $ | 2,760 |
| | $ | 99 |
| | $ | 3,747 |
| | $ | 4,385 |
| | $ | 413 |
|
Real estate—commercial real estate | 17,739 |
| | 19,499 |
| | 1,840 |
| | 18,215 |
| | 19,678 |
| | 675 |
|
Real estate—construction | 106 |
| | 111 |
| | — |
| | 106 |
| | 111 |
| | — |
|
Real estate—residential secured for business purpose | 1,596 |
| | 1,775 |
| | 165 |
| | 1,478 |
| | 1,660 |
| | — |
|
Real estate—residential secured for personal purpose | 2,167 |
| | 2,240 |
| | 260 |
| | 1,587 |
| | 1,635 |
| | 252 |
|
Real estate—home equity secured for personal purpose | 1,344 |
| | 1,404 |
| | 75 |
| | 1,448 |
| | 1,479 |
| | 75 |
|
Total impaired loans | $ | 25,102 |
| | $ | 27,789 |
| | $ | 2,439 |
| | $ | 26,581 |
| | $ | 28,948 |
| | $ | 1,415 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Total impaired loans: | | | | | | | | | | | |
Commercial, financial and agricultural | $ | 4,889 |
| | $ | 5,519 |
| | $ | 211 |
| | $ | 7,079 |
| | $ | 8,361 |
| | $ | 31 |
|
Real estate—commercial real estate | 18,864 |
| | 20,114 |
| | 645 |
| | 16,554 |
| | 17,440 |
| | 99 |
|
Real estate—construction | 106 |
| | 111 |
| | — |
| | 365 |
| | 365 |
| | — |
|
Real estate—residential secured for business purpose | 1,588 |
| | 1,776 |
| | — |
| | 3,465 |
| | 4,657 |
| | 1 |
|
Real estate—residential secured for personal purpose | 1,815 |
| | 1,866 |
| | 192 |
| | 508 |
| | 566 |
| | — |
|
Real estate—home equity secured for personal purpose | 1,460 |
| | 1,488 |
| | — |
| | 511 |
| | 523 |
| | — |
|
Total impaired loans | $ | 28,722 |
| | $ | 30,874 |
| | $ | 1,048 |
| | $ | 28,482 |
| | $ | 31,912 |
| | $ | 131 |
|
Impaired loans include nonaccrual loans and accruing troubled debt restructured loans and other accruing impaired loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. These loans are individually measured to determine the amount of potential impairment. The loans are reviewed for impairment based on the fair value of the collateral for collateral dependent loans and for certain loans based on discounted cash flows using the loans’ initial effective interest rates. Impaired loans include other accruing impaired loans of $1.9 million and $4.1 million at September 30, 2018 and December 31, 2017, respectively. Specific reserves on other accruing impaired loans were $0 thousand and $99 thousand at September 30, 2018 and December 31, 2017, respectively.
The following presents by class of loans, the average recorded investment in impaired loans and an analysis of interest on impaired loans. A loan may remain on accrual status if it is an accruing troubled debt restructured loan or if it is in the process of collection and is either guaranteed or well secured. Therefore, interest income on accruing impaired loans is recognized using the accrual method.
| | | Three Months Ended September 30, 2018 | | Three Months Ended September 30, 2017 | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
(Dollars in thousands) | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms | | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms | | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms |
Commercial, financial and agricultural | $ | 5,671 |
| | $ | 31 |
| | $ | 58 |
| | $ | 10,211 |
| | $ | 52 |
| | $ | 92 |
| $ | 2,509 |
| | $ | 12 |
| | $ | 49 |
| | $ | 6,394 |
| | $ | 32 |
| | $ | 134 |
|
Real estate—commercial real estate | 19,878 |
| | 22 |
| | 261 |
| | 18,583 |
| | 201 |
| | 69 |
| 18,058 |
| | — |
| | 242 |
| | 22,914 |
| | 18 |
| | 265 |
|
Real estate—construction | 108 |
| | — |
| | 2 |
| | 365 |
| | — |
| | 5 |
| 106 |
| | — |
| | 2 |
| | 56 |
| | — |
| | 3 |
|
Real estate—residential secured for business purpose | 1,844 |
| | 4 |
| | 32 |
| | 3,579 |
| | 16 |
| | 34 |
| 1,557 |
| | — |
| | 36 |
| | 1,966 |
| | 5 |
| | 23 |
|
Real estate—residential secured for personal purpose | 1,850 |
| | — |
| | 26 |
| | 635 |
| | 1 |
| | 8 |
| 1,937 |
| | — |
| | 29 |
| | 889 |
| | 2 |
| | 33 |
|
Real estate—home equity secured for personal purpose | 1,507 |
| | — |
| | 21 |
| | 288 |
| | — |
| | 5 |
| 1,358 |
| | 1 |
| | 20 |
| | 1,033 |
| | — |
| | 31 |
|
Total | $ | 30,858 |
| | $ | 57 |
| | $ | 400 |
| | $ | 33,661 |
| | $ | 270 |
| | $ | 213 |
| $ | 25,525 |
| | $ | 13 |
| | $ | 378 |
| | $ | 33,252 |
| | $ | 57 |
| | $ | 489 |
|
| |
* | Includes interest income recognized on a cash basis for nonaccrual loans of $5$12 thousandand$02 thousand for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $52$1 thousand and $270$55 thousand for the three months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
(Dollars in thousands) | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms | | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms |
Commercial, financial and agricultural | $ | 3,066 |
| | $ | 17 |
| | $ | 103 |
| | $ | 7,090 |
| | $ | 72 |
| | $ | 211 |
|
Real estate—commercial real estate | 18,122 |
| | 3 |
| | 496 |
| | 20,105 |
| | 190 |
| | 552 |
|
Real estate—construction | 106 |
| | — |
| | 3 |
| | 137 |
| | — |
| | 5 |
|
Real estate—residential secured for business purpose | 1,443 |
| | — |
| | 56 |
| | 2,107 |
| | 10 |
| | 47 |
|
Real estate—residential secured for personal purpose | 1,792 |
| | — |
| | 54 |
| | 720 |
| | 3 |
| | 44 |
|
Real estate—home equity secured for personal purpose | 1,384 |
| | 1 |
| | 43 |
| | 819 |
| | — |
| | 39 |
|
Total | $ | 25,913 |
| | $ | 21 |
| | $ | 755 |
| | $ | 30,978 |
| | $ | 275 |
| | $ | 898 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | Nine Months Ended September 30, 2017 |
(Dollars in thousands) | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms | | Average Recorded Investment | | Interest Income Recognized* | | Additional Interest Income That Would Have Been Recognized Under Original Terms |
Commercial, financial and agricultural | $ | 6,589 |
| | $ | 103 |
| | $ | 269 |
| | $ | 11,030 |
| | $ | 162 |
| | $ | 263 |
|
Real estate—commercial real estate | 19,935 |
| | 212 |
| | 813 |
| | 21,120 |
| | 618 |
| | 223 |
|
Real estate—construction | 128 |
| | — |
| | 7 |
| | 219 |
| | — |
| | 15 |
|
Real estate—residential secured for business purpose | 2,018 |
| | 14 |
| | 79 |
| | 4,053 |
| | 53 |
| | 139 |
|
Real estate—residential secured for personal purpose | 1,064 |
| | 3 |
| | 70 |
| | 629 |
| | 2 |
| | 31 |
|
Real estate—home equity secured for personal purpose | 1,026 |
| | — |
| | 60 |
| | 391 |
| | — |
| | 15 |
|
Total | $ | 30,760 |
| | $ | 332 |
| | $ | 1,298 |
| | $ | 37,442 |
| | $ | 835 |
| | $ | 686 |
|
| |
* | Includes interest income recognized on a cash basis for nonaccrual loans of $13$15 thousandand $4$8 thousand for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and interest income recognized on the accrual method for accruing impaired loans of $319$6 thousand and $831$267 thousand for the ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively. |
Impaired Leases
The Corporation had no impaired leases of $1.3 million at SeptemberJune 30, 2018 and2019 or December 31, 2017 with no related reserves. See discussion in Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases.2018.
Troubled Debt Restructured Loans
The following presents, by class of loans, information regarding accruing and nonaccrual loans that were restructured:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 | | Three Months Ended September 30, 2017 |
(Dollars in thousands) | Number
of
Loans | | Pre-
Restructuring
Outstanding
Recorded
Investment | | Post-
Restructuring
Outstanding
Recorded
Investment | | Related
Reserve | | Number
of
Loans | | Pre-
Restructuring
Outstanding
Recorded
Investment | | Post-
Restructuring
Outstanding
Recorded
Investment | | Related
Reserve |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Total | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Total | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
(Dollars in thousands) | Number of Loans | | Pre- Restructuring Outstanding Recorded Investment | | Post- Restructuring Outstanding Recorded Investment | | Related Reserve | | Number of Loans | | Pre- Restructuring Outstanding Recorded Investment | | Post- Restructuring Outstanding Recorded Investment | | Related Reserve |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Real estate—home equity secured for personal purpose | 1 |
| | $ | 55 |
| | $ | 55 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total | 1 |
| | $ | 55 |
| | $ | 55 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Real estate—residential secured for personal purpose | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 66 |
| | $ | 66 |
| | $ | — |
|
Total | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 66 |
| | $ | 66 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
(Dollars in thousands) | Number of Loans | | Pre- Restructuring Outstanding Recorded Investment | | Post- Restructuring Outstanding Recorded Investment | | Related Allowance | | Number of Loans | | Pre- Restructuring Outstanding Recorded Investment | | Post- Restructuring Outstanding Recorded Investment | | Related Allowance |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Real estate—home equity secured for personal purpose | 1 |
| | $ | 55 |
| | $ | 55 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total | 1 |
| | $ | 55 |
| | $ | 55 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Commercial, financial and agricultural* | 2 |
| | $ | 956 |
| | $ | 956 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Real estate—commercial real estate* | 1 |
| | 1,313 |
| | 1,313 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Real estate—residential secured for personal purpose | — |
| | — |
| | — |
| | — |
| | 1 |
| | 66 |
| | 66 |
| | — |
|
Total | 3 |
| | $ | 2,269 |
| | $ | 2,269 |
| | $ | — |
| | 1 |
| | $ | 66 |
| | $ | 66 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | Nine Months Ended September 30, 2017 |
(Dollars in thousands) | Number of Loans | | Pre- Restructuring Outstanding Recorded Investment | | Post- Restructuring Outstanding Recorded Investment | | Related Allowance | | Number of Loans | | Pre- Restructuring Outstanding Recorded Investment | | Post- Restructuring Outstanding Recorded Investment | | Related Allowance |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Real estate—commercial real estate | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 3 |
| | $ | 9,206 |
| | $ | 9,206 |
| | $ | — |
|
Total | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 3 |
| | $ | 9,206 |
| | $ | 9,206 |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Real estate—commercial real estate | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 328 |
| | $ | 328 |
| | $ | — |
|
Real estate—residential secured for personal purpose | 1 |
| | 66 |
| | 66 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | 1 |
| | $ | 66 |
| | $ | 66 |
| | $ | — |
| | 1 |
| | $ | 328 |
| | $ | 328 |
| | $ | — |
|
* The three nonaccrual troubled debt restructured loans during the six months ended June 30, 2019 in the above table were modified via the execution of a forbearance agreement. These loans relate to one borrower and were on nonaccrual status at the time of modification.
The Corporation grants concessions to existing borrowers primarily related to extensions of interest-only payment periods and an occasional payment modification. These modifications typically are for up to one year. The goal when restructuring a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing troubled debt restructured loans are primarily comprised of loans on which interest is being accrued under the restructured terms, and the loans are current or less than ninety days past due.
The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the three and ninesix months ended SeptemberJune 30, 20182019 and 2017.2018.
|
| | | | | | |
| Amortization Period Extension |
(Dollars in thousands) | No. of Loans | | Amount |
Three Months Ended June 30, 2019 | | | |
Accruing Troubled Debt Restructured Loans: | | | |
Real estate—home equity secured for personal purpose | 1 |
| | $ | 55 |
|
Total | 1 |
| | $ | 55 |
|
Nonaccrual Troubled Debt Restructured Loans: | | | |
Total | — |
| | $ | — |
|
Three Months Ended June 30, 2018 | | | |
Accruing Troubled Debt Restructured Loans: | | | |
Total | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | |
Real estate—residential secured for personal purpose | 1 |
| | $ | 66 |
|
Total | 1 |
| | $ | 66 |
|
Six Months Ended June 30, 2019 | | | |
Accruing Troubled Debt Restructured Loans: | | | |
Real estate—home equity secured for personal purpose | 1 |
| | $ | 55 |
|
Total | 1 |
| | $ | 55 |
|
Nonaccrual Troubled Debt Restructured Loans: | | | |
Commercial, financial and agricultural | 2 |
| | $ | 956 |
|
Real estate—commercial real estate | 1 |
| | 1,313 |
|
Total | 3 |
| | $ | 2,269 |
|
Six Months Ended June 30, 2018 | | | |
Accruing Troubled Debt Restructured Loans: | | | |
Total | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | |
Real estate—residential secured for personal purpose | 1 |
| | $ | 66 |
|
Total | 1 |
| | $ | 66 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Maturity Date Extension | | Amortization Period Extension | | Total Concessions Granted |
(Dollars in thousands) | No. of Loans | | Amount | | No. of Loans | | Amount | | No. of Loans | | Amount |
Three Months Ended September 30, 2018 | | | | | | | | | | | |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Three Months Ended September 30, 2017 | | | | | | | | | | | |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Nine Months Ended September 30, 2018 | | | | | | | | | | | |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | |
Real estate—residential secured for personal purpose | — |
| | $ | — |
| | 1 |
| | $ | 66 |
| | 1 |
| | $ | 66 |
|
Total | — |
| | $ | — |
| | 1 |
| | $ | 66 |
| | 1 |
| | $ | 66 |
|
Nine Months Ended September 30, 2017 | | | | | | | | | | | |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | |
Real estate—commercial real estate | — |
| | $ | — |
| | 3 |
| | $ | 9,206 |
| | 3 |
| | $ | 9,206 |
|
Total | — |
| | $ | — |
| | 3 |
| | $ | 9,206 |
| | 3 |
| | $ | 9,206 |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | |
Real estate—commercial real estate | 1 |
| | $ | 328 |
| | — |
| | $ | — |
| | 1 |
| | $ | 328 |
|
Total | 1 |
| | $ | 328 |
| | — |
| | $ | — |
| | 1 |
| | $ | 328 |
|
The following presents, by class of loans, information regarding accruing and nonaccrual troubled debt restructured loans, for which there were payment defaults within twelve months of the restructuring date:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
(Dollars in thousands) | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | 1 |
| | $ | 953 |
|
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | 1 |
| | $ | 953 |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
(Dollars in thousands) | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
Accruing Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Nonaccrual Troubled Debt Restructured Loans: | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | — |
| | $ | — |
| | — |
| | $ | — |
| | 1 |
| | $ | 953 |
| | — |
| | $ | — |
|
Total | — |
| | $ | — |
| | — |
| | $ | — |
| | 1 |
| | $ | 953 |
| | — |
| | $ | — |
|
The following presents, by class of loans, information regarding consumer mortgages collateralized by residential real estate property that are in the process of foreclosure at SeptemberJune 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | |
(Dollars in thousands) | At June 30, 2019 | | At December 31, 2018 |
Real estate-residential secured for personal purpose | $ | 714 |
| | $ | 563 |
|
Real estate-home equity secured for personal purpose | 1,134 |
| | 1,134 |
|
Total | $ | 1,848 |
| | $ | 1,697 |
|
|
| | | | | | | |
(Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 |
Real estate-residential secured for personal purpose | $ | — |
| | $ | 31 |
|
Real estate-home equity secured for personal purpose | 812 |
| | — |
|
Total | $ | 812 |
| | $ | 31 |
|
The following presentsCorporation held no foreclosed residential real estate property included in other real estate owned at SeptemberJune 30, 20182019 and December 31, 2017.2018. Lease Financings
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", and subsequent related updates, to revise the accounting for leases. The Corporation adopted this guidance effective January 1, 2019 on a modified retrospective basis at January 1, 2019. Additionally, the Corporation early adopted (ASU) No. 2019-01, "Codification Improvements", as of January 1, 2019, which serves as an update to (ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information. Lessor accounting was largely unchanged as a result of the standard. Additional disclosures required under the standard are included in the following section.
The Corporation, through Univest Capital, Inc., an equipment financing business and a subsidiary of the Bank, provides lease financing to customers primarily in the form of sales-type leases with fixed payment terms and $1.00 dollar buyout clauses. A minor number of contracts are classified as either direct financing leases or operating leases. The fair value of the identified assets within sales-type and direct financing leases are equal to the carrying amount such that there is no profit or loss recorded or deferred upon lease commencement. All receivables related to the equipment financing business are recorded within lease financings as of June 30, 2019.
The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting, review and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk by primarily using $1.00 buyout leases, in which the entire cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term for the majority of its lease portfolio.
Lease financings are stated at net investment amount, consisting of the present value of lease payments and unguaranteed residual value, plus initial direct costs. Initial direct costs, comprised of commissions paid that would not have been incurred if the lease had not been obtained, are deferred and amortized over the life of the contract, and are presented within net interest income on leases.
The following presents the schedule of minimum lease payments receivable:
|
| | | | | | | |
(Dollars in thousands) | At June 30, 2019 | | At December 31, 2018 |
2019 (excluding the six months ended June 30, 2019) | $ | 29,479 |
| | $ | 55,201 |
|
2020 | 49,897 |
| | 43,355 |
|
2021 | 36,433 |
| | 29,678 |
|
2022 | 23,877 |
| | 17,687 |
|
2023 | 11,722 |
| | 6,674 |
|
Thereafter | 3,478 |
| | 1,975 |
|
Total future minimum lease payments receivable | 154,886 |
| | 154,570 |
|
Plus: Unguaranteed residual | 823 |
| | 600 |
|
Plus: Initial direct costs | 1,993 |
| | 1,904 |
|
Less: Imputed interest | (15,415 | ) | | (15,118 | ) |
Lease financings | $ | 142,287 |
| | $ | 141,956 |
|
|
| | | | | | | |
(Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 |
Foreclosed residential real estate | $ | 57 |
| | $ | 80 |
|
Included within the "2019 (excluding the six months ended June 30, 2019)" line item above as of June 30, 2019 and December 31, 2018 are $20 thousand and $0 thousand, respectively, of receivables related to an operating lease contract.
For the six months ended June 30, 2019 and 2018, the Corporation recognized $4.0 million and $3.7 million, respectively, of interest income on lease financings within total interest and fees on loans and leases on the condensed consolidated statements of income. The Corporation did not record any profit or loss upon the commencement date of its leases or any lease income related to variable lease payments.
Note 5. Goodwill and Other Intangible Assets
The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The Corporation also has goodwill which is deemed to be an indefinite intangible asset and is not amortized.
Changes in the carrying amount of the Corporation's goodwill by business segment for the ninesix months ended SeptemberJune 30, 20182019 were as follows:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Consolidated |
Balance at December 31, 2018 | $ | 138,476 |
| | $ | 15,434 |
| | $ | 18,649 |
| | $ | 172,559 |
|
Addition to goodwill from acquisitions | — |
| | — |
| | — |
| | — |
|
Balance at June 30, 2019 | $ | 138,476 |
| | $ | 15,434 |
| | $ | 18,649 |
| | $ | 172,559 |
|
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Consolidated |
Balance at December 31, 2017 | $ | 138,476 |
| | $ | 15,434 |
| | $ | 18,649 |
| | $ | 172,559 |
|
Addition to goodwill from acquisitions | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2018 | $ | 138,476 |
| | $ | 15,434 |
| | $ | 18,649 |
| | $ | 172,559 |
|
The following table reflects the components of intangible assets at the dates indicated: |
| | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2019 | | At December 31, 2018 |
(Dollars in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized intangible assets: | | | | | | | | | | | |
Covenants not to compete | $ | — |
| | $ | — |
| | $ | — |
| | $ | 710 |
| | $ | 710 |
| | $ | — |
|
Core deposit intangibles | 6,788 |
| | 3,609 |
| | 3,179 |
| | 6,788 |
| | 3,143 |
| | 3,645 |
|
Customer related intangibles | 8,819 |
| | 7,602 |
| | 1,217 |
| | 12,381 |
| | 10,804 |
| | 1,577 |
|
Servicing rights | 17,960 |
| | 11,361 |
| | 6,599 |
| | 17,314 |
| | 10,546 |
| | 6,768 |
|
Total amortized intangible assets | $ | 33,567 |
| | $ | 22,572 |
| | $ | 10,995 |
| | $ | 37,193 |
| | $ | 25,203 |
| | $ | 11,990 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 2018 | | At December 31, 2017 |
(Dollars in thousands) | Gross Carrying Amount | | Accumulated Amortization and Fair Value Adjustments | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization and Fair Value Adjustments | | Net Carrying Amount |
Amortized intangible assets: | | | | | | | | | | | |
Covenants not to compete | $ | 710 |
| | $ | 710 |
| | $ | — |
| | $ | 710 |
| | $ | 580 |
| | $ | 130 |
|
Core deposit intangibles | 6,788 |
| | 2,903 |
| | 3,885 |
| | 6,788 |
| | 2,135 |
| | 4,653 |
|
Customer related intangibles | 12,381 |
| | 10,576 |
| | 1,805 |
| | 12,381 |
| | 9,828 |
| | 2,553 |
|
Servicing rights | 16,949 |
| | 10,234 |
| | 6,715 |
| | 15,855 |
| | 9,282 |
| | 6,573 |
|
Total amortized intangible assets | $ | 36,828 |
| | $ | 24,423 |
| | $ | 12,405 |
| | $ | 35,734 |
| | $ | 21,825 |
| | $ | 13,909 |
|
The estimated aggregate amortization expense for core deposit and customer relatedcustomer-related intangibles for the remainder of 20182019 and the succeeding fiscal years is as follows:
|
| | | | |
Year | (Dollars in thousands) | Amount |
Remainder of 2019 | | $ | 739 |
|
2020 | | 1,200 |
|
2021 | | 923 |
|
2022 | | 666 |
|
2023 | | 409 |
|
Thereafter | | 459 |
|
|
| | | | |
Year | (Dollars in thousands) | Amount |
Remainder of 2018 | | $ | 468 |
|
2019 | | 1,565 |
|
2020 | | 1,200 |
|
2021 | | 923 |
|
2022 | | 666 |
|
Thereafter | | 868 |
|
The Corporation has originated mortgage servicing rights, which are included in other intangible assets on the consolidated balance sheets.sheet. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of these rights was $11.9$8.8 million at SeptemberJune 30, 20182019 and $10.0$11.5 million at December 31, 2017.2018. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at SeptemberJune 30, 20182019 and December 31, 2017.2018. The Corporation also records servicing rights on small business administration (SBA) loans. The value of these servicing rights was $32$135 thousand and $21$42 thousand at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
Changes in the servicing rights balance are summarized as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Beginning of period | $ | 6,725 |
| | $ | 6,605 |
| | $ | 6,768 |
| | $ | 6,573 |
|
Servicing rights capitalized | 321 |
| | 350 |
| | 587 |
| | 687 |
|
Amortization of servicing rights | (426 | ) | | (305 | ) | | (735 | ) | | (610 | ) |
Changes in valuation allowance | (21 | ) | | — |
| | (21 | ) | | — |
|
End of period | $ | 6,599 |
| | $ | 6,650 |
| | $ | 6,599 |
| | $ | 6,650 |
|
Residential mortgage and SBA loans serviced for others | $ | 1,042,438 |
| | $ | 1,019,233 |
| | $ | 1,042,438 |
| | $ | 1,019,233 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Beginning of period | $ | 6,650 |
| | $ | 6,548 |
| | $ | 6,573 |
| | $ | 6,485 |
|
Servicing rights capitalized | 406 |
| | 376 |
| | 1,093 |
| | 1,106 |
|
Amortization of servicing rights | (341 | ) | | (368 | ) | | (951 | ) | | (1,035 | ) |
End of period | $ | 6,715 |
| | $ | 6,556 |
| | $ | 6,715 |
| | $ | 6,556 |
|
Residential mortgage and SBA loans serviced for others | $ | 1,024,229 |
| | $ | 997,169 |
| | $ | 1,024,229 |
| | $ | 997,169 |
|
Activity in the valuation allowance for mortgage servicing rights was as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Valuation allowance, beginning of period | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Additions | (21 | ) | | — |
| | (21 | ) | | — |
|
Valuation allowance, end of period | $ | (21 | ) | | $ | — |
| | $ | (21 | ) | | $ | — |
|
The estimated amortization expense of servicing rights for the remainder of 20182019 and the succeeding fiscal years is as follows:
|
| | | | |
Year | (Dollars in thousands) | Amount |
Remainder of 2019 | | $ | 1,174 |
|
2020 | | 993 |
|
2021 | | 822 |
|
2022 | | 678 |
|
2023 | | 535 |
|
Thereafter | | 2,397 |
|
|
| | | | |
Year | (Dollars in thousands) | Amount |
Remainder of 2018 | | $ | 858 |
|
2019 | | 770 |
|
2020 | | 682 |
|
2021 | | 603 |
|
2022 | | 533 |
|
Thereafter | | 3,269 |
|
Note 6. Deposits
Deposits and their respective weighted average interest rate at SeptemberJune 30, 20182019 and December 31, 20172018 consist of the following:
|
| | | | | | | | | | | | | |
| At June 30, 2019 | | At December 31, 2018 |
| Weighted Average Interest Rate | | Amount | | Weighted Average Interest Rate | | Amount |
| (Dollars in thousands) |
Noninterest-bearing deposits | — | % | | $ | 1,166,301 |
| | — | % | | $ | 1,055,919 |
|
Demand deposits | 1.20 |
| | 1,424,288 |
| | 1.01 |
| | 1,377,171 |
|
Savings deposits | 0.48 |
| | 822,084 |
| | 0.33 |
| | 782,766 |
|
Time deposits | 2.02 |
| | 709,437 |
| | 1.76 |
| | 670,077 |
|
Total | 0.86 | % | | $ | 4,122,110 |
| | 0.73 | % | | $ | 3,885,933 |
|
|
| | | | | | | | | | | | | |
| At September 30, 2018 | | At December 31, 2017 |
| Weighted Average Interest Rate | | Amount | | Weighted Average Interest Rate | | Amount |
| (Dollars in thousands) |
Noninterest-bearing deposits | — | % | | $ | 1,047,081 |
| | — | % | | $ | 1,040,026 |
|
Demand deposits | 0.93 |
| | 1,350,720 |
| | 0.43 |
| | 1,109,438 |
|
Savings deposits | 0.28 |
| | 750,764 |
| | 0.26 |
| | 830,706 |
|
Time deposits | 1.66 |
| | 671,483 |
| | 1.12 |
| | 574,749 |
|
Total | 0.67 | % | | $ | 3,820,048 |
| | 0.38 | % | | $ | 3,554,919 |
|
The aggregate amount of time deposits in denominations of $100 thousand or more was $276.6$339.3 million at SeptemberJune 30, 20182019 and $250.0$283.4 million at December 31, 2017.2018. Deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently up to $250 thousand. The aggregate amount of time deposits in denominations over $250 thousand was $126.7$177.2 million at SeptemberJune 30, 20182019 and $118.4$129.5 million at December 31, 2017.2018.
At SeptemberJune 30, 2018,2019, the scheduled maturities of time deposits are as follows:
|
| | | | |
Year | (Dollars in thousands) | Amount |
Remainder of 2019 | | $ | 280,027 |
|
2020 | | 215,587 |
|
2021 | | 79,504 |
|
2022 | | 40,832 |
|
2023 | | 72,125 |
|
Thereafter | | 21,362 |
|
Total | | $ | 709,437 |
|
|
| | | | |
Year | (Dollars in thousands) | Amount |
Remainder of 2018 | | $ | 92,465 |
|
2019 | | 335,088 |
|
2020 | | 114,034 |
|
2021 | | 32,865 |
|
2022 | | 33,222 |
|
Thereafter | | 63,809 |
|
Total | | $ | 671,483 |
|
Note 7. Borrowings
The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less. The long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization, from the Fox Chase acquisition.
|
| | | | | | | | | | | | | |
| At June 30, 2019 | | At December 31, 2018 |
(Dollars in thousands) | Balance at End of Period | | Weighted Average Interest Rate at End of Period | | Balance at End of Period | | Weighted Average Interest Rate at End of Period |
Short-term borrowings: | | | | | | | |
FHLB borrowings | $ | — |
| | — | % | | $ | 108,300 |
| | 2.62 | % |
Federal funds purchased | 20,000 |
| | 2.43 |
| | 60,000 |
| | 2.60 |
|
Customer repurchase agreements | 19,350 |
| | 0.05 |
| | 21,468 |
| | 0.05 |
|
| | | | | | | |
Long-term debt: | | | | | | | |
FHLB advances | $ | 150,000 |
| | 1.99 | % | | $ | 125,000 |
| | 1.92 | % |
Security repurchase agreements | 20,195 |
| | 2.82 |
| | 20,330 |
| | 2.71 |
|
| | | | | | | |
Subordinated notes | $ | 94,696 |
| | 5.33 | % | | $ | 94,574 |
| | 5.33 | % |
|
| | | | | | | | | | | | | |
| At September 30, 2018 | | At December 31, 2017 |
(Dollars in thousands) | Balance at End of Period | | Weighted Average Interest Rate at End of Period | | Balance at End of Period | | Weighted Average Interest Rate at End of Period |
Short-term borrowings: | | | | | | | |
FHLB borrowings | $ | 16,980 |
| | 2.38 | % | | $ | 30,225 |
| | 1.54 | % |
Federal funds purchased | 50,000 |
| | 2.33 |
| | 55,000 |
| | 1.56 |
|
Customer repurchase agreements | 19,785 |
| | 0.05 |
| | 20,206 |
| | 0.05 |
|
| | | | | | | |
Long-term debt: | | | | | | | |
FHLB advances | $ | 115,000 |
| | 1.82 | % | | $ | 125,036 |
| | 1.73 | % |
Security repurchase agreements | 30,430 |
| | 2.14 |
| | 30,792 |
| | 1.52 |
|
| | | | | | | |
Subordinated notes | $ | 94,514 |
| | 5.34 | % | | $ | 94,331 |
| | 5.35 | % |
The Corporation, through the Bank, has a credit facility with the Federal Home Loan Bank (FHLB) with a maximum borrowing capacity of approximately $1.6$1.7 billion. Advances from the FHLB are collateralizedsecured by a blanket floating lien on all firstqualifying commercial real estate and residential mortgage loans, of the Bank, FHLB capital stock owned by the Bankinvestments and any funds on deposit with the FHLB.other assets. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Bank had outstanding short-term letters of credit with the FHLB totaling $382.9$408.3 million and $234.2$347.5 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.
The Corporation, through the Bank, maintains uncommitted federal fund credit lines with several correspondent banks totalingthat totaled $504.0 million and $367.0 million at SeptemberJune 30, 20182019 and December 31, 2017.2018, respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia in order to access the Discount Window Lending program. The collateral consisting of investment securities was valued at $66.2$104.6 million and $52.0$69.5 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Corporation had no outstanding borrowings under this program.
The Corporation has a $10.0 million committed line of credit with a correspondent bank. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Corporation had no outstanding borrowings under this line.
Long-term advances with the FHLB of Pittsburgh mature as follows:
|
| | | | | | |
(Dollars in thousands) | As of June 30, 2019 | | Weighted Average Rate |
Remainder of 2019 | $ | 10,000 |
| | 1.35 | % |
2020 | 40,000 |
| | 1.70 |
|
2021 | 80,000 |
| | 2.07 |
|
2022 | 10,000 |
| | 2.09 |
|
2023 | 10,000 |
| | 3.02 |
|
Thereafter | — |
| | — |
|
Total | $ | 150,000 |
| | 1.99 | % |
|
| | | | | | |
(Dollars in thousands) | As of September 30, 2018 | | Weighted Average Rate |
Remainder of 2018 | $ | — |
| | — | % |
2019 | 10,000 |
| | 1.35 |
|
2020 | 40,000 |
| | 1.70 |
|
2021 | 55,000 |
| | 1.94 |
|
2022 | 10,000 |
| | 2.09 |
|
Thereafter | — |
| | — |
|
Total | $ | 115,000 |
| | 1.82 | % |
Long-term debt under security repurchase agreements with large commercial banks mature as follows:
|
| | | | | | |
(Dollars in thousands) | As of June 30, 2019 | | Weighted Average Rate |
Remainder of 2019 | $ | 10,038 |
| | 2.83 | % |
2020 | 10,157 |
| | 2.81 |
|
2021 | — |
| | — |
|
2022 | — |
| | — |
|
2023 | — |
| | — |
|
Thereafter | — |
| | — |
|
Total | $ | 20,195 |
| | 2.82 | % |
|
| | | | | | |
(Dollars in thousands) | As of September 30, 2018 | | Weighted Average Rate |
Remainder of 2018 | $ | 10,032 |
| | 1.52 | % |
2019 | 10,152 |
| | 2.45 |
|
2020 | 10,246 |
| | 2.44 |
|
2021 | — |
| | — |
|
2022 | — |
| | — |
|
Thereafter | — |
| | — |
|
Total | $ | 30,430 |
| | 2.14 | % |
Long-term debt under security repurchase agreements totaling $25.4$20.2 million are variable based on the one-month LIBOR rate plus a spread. One borrowing for $5.0 million has a fixed interest rate and may be called by the lender based on the underlying agreement.
Note 8. Retirement Plans and Other Postretirement Benefits
Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law; theselaw. These plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants;participants and all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.
The Corporation also provides certain postretirement healthcare and life insurance benefits for retired employees. Information on these benefits is reported under “Other Postretirement Benefits” within this footnote.
The Corporation sponsors a Supplemental Non-Qualified Pension Plan, which was established in 1981 prior to the existence of athe 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants; allparticipants. All current participants are now retired.
Components of net periodic benefit cost (income) were as follows:
| | | Three Months Ended September 30, | Three Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
(Dollars in thousands) | Retirement Plans | | Other Post Retirement Benefits | Retirement Plans | | Other Post Retirement Benefits |
Service cost | $ | 140 |
| | $ | 124 |
| | $ | 22 |
| | $ | 12 |
| $ | 110 |
| | $ | 140 |
| | $ | 16 |
| | $ | 22 |
|
Interest cost | 440 |
| | 487 |
| | 23 |
| | 29 |
| 476 |
| | 439 |
| | 24 |
| | 23 |
|
Expected return on plan assets | (849 | ) | | (797 | ) | | — |
| | — |
| (770 | ) | | (795 | ) | | — |
| | — |
|
Amortization of net actuarial loss | 280 |
| | 309 |
| | 1 |
| | 11 |
| 294 |
| | 281 |
| | — |
| | 1 |
|
Accretion of prior service cost | (70 | ) | | (71 | ) | | — |
| | — |
| (46 | ) | | (71 | ) | | — |
| | — |
|
Net periodic benefit (income) cost | $ | (59 | ) | | $ | 52 |
| | $ | 46 |
| | $ | 52 |
| |
Net periodic benefit cost (income) | | $ | 64 |
| | $ | (6 | ) | | $ | 40 |
| | $ | 46 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
(Dollars in thousands) | Retirement Plans | | Other Post Retirement Benefits |
Service cost | $ | 219 |
| | $ | 280 |
| | $ | 33 |
| | $ | 44 |
|
Interest cost | 952 |
| | 880 |
| | 47 |
| | 46 |
|
Expected return on plan assets | (1,541 | ) | | (1,591 | ) | | — |
| | — |
|
Amortization of net actuarial loss | 588 |
| | 561 |
| | — |
| | 2 |
|
Accretion of prior service cost | (91 | ) | | (142 | ) | | — |
| | — |
|
Net periodic benefit cost (income) | $ | 127 |
| | $ | (12 | ) | | $ | 80 |
| | $ | 92 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
(Dollars in thousands) | Retirement Plans | | Other Post Retirement Benefits |
Service cost | $ | 420 |
| | $ | 399 |
| | $ | 66 |
| | $ | 36 |
|
Interest cost | 1,320 |
| | 1,439 |
| | 69 |
| | 88 |
|
Expected return on plan assets | (2,440 | ) | | (2,298 | ) | | — |
| | — |
|
Amortization of net actuarial loss | 841 |
| | 886 |
| | 3 |
| | 32 |
|
Accretion of prior service cost | (212 | ) | | (212 | ) | | — |
| | — |
|
Net periodic benefit (income) cost | $ | (71 | ) | | $ | 214 |
| | $ | 138 |
| | $ | 156 |
|
The components of net periodic benefit cost other than the service cost component are included in other noninterest expense in the consolidated statements of income.
The Corporation made a contribution of $3.0 million to its qualified retirement plan on July 5, 2018. The Corporation previously disclosed in its financial statements for the year ended December 31, 20172018 that it expected to make contributions of $158$157 thousand to its non-qualified retirement plans and $80$89 thousand to its other postretirement benefit plans in 2018.2019. During the ninesix months ended SeptemberJune 30, 2018,2019, the Corporation contributed $120$80 thousand to its non-qualified retirement plans and $79$52 thousand to its other postretirement plans. During the ninesix months ended SeptemberJune 30, 2018, $2.02019, $1.3 million was paid to participants from the retirement plans and $79$52 thousand was paid to participants from the other postretirement plans.
Note 9. Stock-Based Incentive Plan
The Corporation has a shareholder approved 2013 Long-Term Incentive Plan, which replaced the expired 2003 Long-Term Incentive Plan. UnderIn December 2018, the Corporation's Board of Directors approved an Amended and Restated Univest 2013 Long-Term Incentive Plan (the Plan) to allow for the issuance of restricted stock units.
During the three months ended March 31, 2019, the Corporation mayissued to directors and employees (“grantees”) restricted stock units rather than restricted stock awards or stock options, which were issued to grantees in prior reporting periods. Restricted stock units differ from restricted stock awards in that Corporation stock is not issued to grantees at the date of the grant up to 3,698,974 optionsand the grantee does not have voting or dividend rights during the vesting period. In the following schedules, issued restricted stock units have been combined with restricted stock awards, as the determination of the value at the grant date and methodology for recording stock-based compensation expense is the same for restricted stock units and restricted stock to employees and non-employee directors, which includes 330,625 shares as a result of the Corporation's common stock issuance in 2017, 857,191 shares as a result of the completion of the acquisition of Fox Chase in 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank in 2015.awards.
The following is a summary of the Corporation's stock option activity and related information for the ninesix months ended SeptemberJune 30, 2018:2019:
|
| | | | | | | | | | | | |
(Dollars in thousands, except per share data) | Shares Under Option | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value at June 30, 2019 |
Outstanding at December 31, 2018 | 597,405 |
| | $ | 23.98 |
| | | | |
Expired | (9,756 | ) | | 23.61 |
| | | | |
Forfeited | (8,000 | ) | | 26.06 |
| | | | |
Exercised | (39,500 | ) | | 17.48 |
| | | | |
Outstanding at June 30, 2019 | 540,149 |
| | 24.44 |
| | 7.0 | | $ | 1,658 |
|
Exercisable at June 30, 2019 | 373,220 |
| | 22.72 |
| | 6.4 | | 1,644 |
|
|
| | | | | | | | | | | | |
(Dollars in thousands, except per share data) | Shares Under Option | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value at September 30, 2018 |
Outstanding at December 31, 2017 | 512,735 |
| | $ | 21.90 |
| | | | |
Granted | 192,278 |
| | 28.50 |
| | | | |
Expired | (500 | ) | | 28.15 |
| | | | |
Forfeited | (20,418 | ) | | 26.14 |
| | | | |
Exercised | (59,750 | ) | | 18.92 |
| | | | |
Outstanding at September 30, 2018 | 624,345 |
| | 24.08 |
| | 7.5 | | $ | 2,150 |
|
Exercisable at September 30, 2018 | 259,031 |
| | 20.41 |
| | 5.9 | | 1,662 |
|
The following is a summary of nonvested stock options at SeptemberJune 30, 20182019 including changes during the ninesix months then ended:
|
| | | | | | |
(Dollars in thousands, except per share data) | Nonvested Stock Options | | Weighted Average Grant Date Fair Value |
Nonvested stock options at December 31, 2018 | 344,230 |
| | $ | 6.48 |
|
Vested | (169,301 | ) | | 6.44 |
|
Forfeited | (8,000 | ) | | 6.43 |
|
Nonvested stock options at June 30, 2019 | 166,929 |
| | 6.52 |
|
|
| | | | | | |
(Dollars in thousands, except per share data) | Nonvested Stock Options | | Weighted Average Grant Date Fair Value |
Nonvested stock options at December 31, 2017 | 352,142 |
| | $ | 6.47 |
|
Granted | 192,278 |
| | 6.46 |
|
Vested | (158,688 | ) | | 6.43 |
|
Forfeited | (20,418 | ) | | 6.49 |
|
Nonvested stock options at September 30, 2018 | 365,314 |
| | 6.48 |
|
The following aggregated assumptions were used to estimate the fair value of options granted during the ninesix months ended SeptemberJune 30, 2018 and 2017:2018. The Corporation did not issue stock options during the six months ended June 30, 2019.
|
| | |
| Six Months Ended June 30, 2018 |
Expected option life in years | 6.6 |
|
Risk free interest rate | 2.80 | % |
Expected dividend yield | 2.81 | % |
Expected volatility | 27.15 | % |
Fair value of options | $6.46 |
|
| | | | | |
| Nine months ended September 30, |
| 2018 | | 2017 |
| Actual |
Expected option life in years | 6.6 |
| | 6.9 |
|
Risk free interest rate | 2.80 | % | | 2.30 | % |
Expected dividend yield | 2.81 | % | | 2.84 | % |
Expected volatility | 27.15 | % | | 29.75 | % |
Fair value of options | $6.46 | | $6.72 |
The following is a summary of nonvested restricted stock awards and nonvested restricted stock units at SeptemberJune 30, 20182019 including changes during the ninesix months then ended:
|
| | | | | | |
(Dollars in thousands, except per share data) | Nonvested Stock Awards and Units | | Weighted Average Grant Date Fair Value |
Nonvested stock awards at December 31, 2018 | 157,579 |
| | $ | 25.33 |
|
Granted | 113,729 |
| | 25.66 |
|
Vested | (32,965 | ) | | 21.86 |
|
Cancelled | (17,349 | ) | | 19.68 |
|
Nonvested stock awards and units at June 30, 2019 | 220,994 |
| | 26.46 |
|
|
| | | | | | |
(Dollars in thousands, except per share data) | Nonvested Share Awards | | Weighted Average Grant Date Fair Value |
Nonvested share awards at December 31, 2017 | 229,026 |
| | $ | 21.93 |
|
Granted | 59,953 |
| | 28.39 |
|
Vested | (94,867 | ) | | 19.94 |
|
Forfeited | (25,780 | ) | | 21.63 |
|
Nonvested share awards at September 30, 2018 | 168,332 |
| | 25.41 |
|
The fair value of restricted stock awards and units is equivalent to the fair value of the Corporation's stock on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock awards and units is summarized below for the periods indicated:
|
| | | | | | | |
| Six Months Ended June 30, |
(Dollars in thousands, except per share data) | 2019 | | 2018 |
Restricted stock awards and units granted | 113,729 |
| | 59,953 |
|
Weighted average grant date fair value | $ | 25.66 |
| | $ | 28.39 |
|
Intrinsic value of awards vested | $ | 809 |
| | $ | 1,193 |
|
|
| | | | | | | |
| Nine months ended September 30, |
(Dollars in thousands, except per share data) | 2018 | | 2017 |
Shares granted | 59,953 |
| | 61,823 |
|
Weighted average grant date fair value | $ | 28.39 |
| | $ | 28.08 |
|
Intrinsic value of awards vested | $ | 2,648 |
| | $ | 2,914 |
|
The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested stock options and nonvested restricted stock awards and units at SeptemberJune 30, 20182019 is presented below:
|
| | | | | |
(Dollars in thousands) | Unrecognized Compensation Cost | | Weighted-Average Period Remaining (Years) |
Stock options | $ | 793 |
| | 1.4 |
Restricted stock awards and units | 3,631 |
| | 2.3 |
| $ | 4,424 |
| | 2.1 |
|
| | | | | |
(Dollars in thousands) | Unrecognized Compensation Cost | | Weighted-Average Period Remaining (Years) |
Stock options | $ | 1,592 |
| | 1.9 |
Restricted stock awards | 2,107 |
| | 1.8 |
| $ | 3,699 |
| | 1.9 |
The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:
|
| | | | | | | |
| Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 |
Stock-based compensation expense: | | | |
Stock options | $ | 378 |
| | $ | 515 |
|
Restricted stock awards and units | 878 |
| | 1,204 |
|
Employee stock purchase plan | 36 |
| | 34 |
|
Total | $ | 1,292 |
| | $ | 1,753 |
|
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options | $ | 284 |
| | $ | 413 |
|
|
| | | | | | | |
| Nine months ended September 30, |
(Dollars in thousands) | 2018 | | 2017 |
Stock-based compensation expense: | | | |
Stock options | $ | 797 |
| | $ | 678 |
|
Restricted stock awards | 1,582 |
| | 1,872 |
|
Employee stock purchase plan | 51 |
| | 47 |
|
Total | $ | 2,430 |
| | $ | 2,597 |
|
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of incentive stock options | $ | 624 |
| | $ | 1,263 |
|
Note 10. Accumulated Other Comprehensive (Loss) Income
The following table shows the components of accumulated other comprehensive (loss) income, net of taxes, for the periods presented:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities | | Net Change Related to Derivatives Used for Cash Flow Hedges | | Net Change Related to Defined Benefit Pension Plans | | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2018 | $ | (11,221 | ) | | $ | 81 |
| | $ | (17,276 | ) | | $ | (28,416 | ) |
Adjustment to initially apply ASU No. 2017-12 for derivatives (1) | — |
| | 83 |
| | — |
| | 83 |
|
Other comprehensive income (loss) | 6,356 |
| | (364 | ) | | 392 |
| | 6,384 |
|
Balance, June 30, 2019 | $ | (4,865 | ) | | $ | (200 | ) | | $ | (16,884 | ) | | $ | (21,949 | ) |
| | | | | | | |
Balance, December 31, 2017 | $ | (4,061 | ) | | $ | 9 |
| | $ | (13,719 | ) | | $ | (17,771 | ) |
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value | (433 | ) | | — |
| | — |
| | (433 | ) |
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges | (968 | ) | | 2 |
| | (2,955 | ) | | (3,921 | ) |
Other comprehensive (loss) income | (6,525 | ) | | 310 |
| | 333 |
| | (5,882 | ) |
Balance, June 30, 2018 | $ | (11,987 | ) | | $ | 321 |
| | $ | (16,341 | ) | | $ | (28,007 | ) |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Net Unrealized (Losses) Gains on Available-for-Sale Investment Securities | | Net Change Related to Derivatives Used for Cash Flow Hedges | | Net Change Related to Defined Benefit Pension Plans | | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2017 | $ | (4,061 | ) | | $ | 9 |
| | $ | (13,719 | ) | | $ | (17,771 | ) |
Adjustment to initially apply ASU No. 2016-01 for equity securities measured at fair value (1) | (433 | ) | | — |
| | — |
| | (433 | ) |
Adjustment to initially apply ASU No. 2018-02 for reclassification of stranded net tax charges (1) | (968 | ) | | 2 |
| | (2,955 | ) | | (3,921 | ) |
Other comprehensive (loss) income | (7,411 | ) | | 373 |
| | 499 |
| | (6,539 | ) |
Balance, September 30, 2018 | $ | (12,873 | ) | | $ | 384 |
| | $ | (16,175 | ) | | $ | (28,664 | ) |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2016 | $ | (4,988 | ) | | $ | (141 | ) | | $ | (14,325 | ) | | $ | (19,454 | ) |
Net Change | 2,624 |
| | 28 |
| | 459 |
| | 3,111 |
|
Balance, September 30, 2017 | $ | (2,364 | ) | | $ | (113 | ) | | $ | (13,866 | ) | | $ | (16,343 | ) |
(1) See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2018"2019" for additional information.
Note 11. Derivative Instruments and Hedging Activities
Interest Rate Swaps
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" and subsequent related updates. The Corporation adopted this guidance effective January 1, 2019, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at January 1, 2019. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information.
The Corporation may use interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.
In 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year maturity fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate of one-month LIBOR. The swap matures in November 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. At SeptemberJune 30, 2018,2019, approximately $95$21 thousand in net deferred gains,losses, net of tax, recorded in accumulated other comprehensive loss are expected to be reclassified into earnings during the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to SeptemberJune 30, 2018.2019. At SeptemberJune 30, 2018,2019, the notional amount of the interest rate swap was $17.3$16.7 million, with a positivenegative fair value of $485$254 thousand.
The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of $1.4$1.3 million to hedge a 10-year fixed rate loan that is earning interest at 5.83%. The Corporation pays a fixed rate of 5.83% and receives a floating rate based on the one-month LIBOR plus 350 basis points. The swap matures in October 2021. TheEffective January 1, 2019, the entire change in the fair values of the interest rate swap and the hedged loan included in the assessment of hedge effectiveness is
recorded in interest income in the consolidated statements of income. Prior to January 1, 2019, the difference between changes in the fair values of the interest rate swap agreement and the hedged loan representsrepresented hedge ineffectiveness and iswas recorded in other noninterest income in the consolidated statements of operations.income.
The Corporation has an interest rate swap with a current notional amount of $445$361 thousand, for a 15-year fixed rate loan that is earning interest at 7.43%. The Corporation pays a fixed rate of 7.43% and receives a floating rate based on the one-month LIBOR plus 224 basis points. The swap matures in April 2022. The interest rate swap is carried at fair value in accordance with
FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."
Credit Derivatives
The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts with loan customers referred to them by the Corporation. By the terms of the agreements, the third-party financial institution has recourse to the Corporation for any exposure created under each swap contract in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. These transactions represent credit derivatives and are a customary arrangement that allows the Corporation to provide access to interest rate transactions for customers without creating the swap. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of income.
At SeptemberJune 30, 2018,2019, the Corporation has sixteentwenty-eight variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and customers with a current notional amount of $84.7$186.7 million and remaining maturities ranging from less than one year to 10 years. At SeptemberJune 30, 2018,2019, the fair value of the swaps to the customers was a net liability of $24 thousand$8.2 million and all$119.7 million of notional amount of the swaps were in paying positions while $67.0 million were in receiving positions to the third-party financial institution. At June 30, 2019, the fair value of the Corporation's interest rate swap credit derivatives was a liability of $160 thousand.
The maximum potential payments by the Corporation to the third-party financial institution under these credit derivatives are not estimable as they are contingent on future interest rates and the agreement does not provide for a limitation of the maximum potential payment amount.
Mortgage Banking Derivatives
Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk. The fair values of these derivative loan commitments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties.
Derivatives Tables
The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at SeptemberJune 30, 20182019 and December 31, 2017.2018. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not added to or netted against the fair value amounts.
|
| | | | | | | | | | | | | | | |
| | | Derivative Assets | | Derivative Liabilities |
(Dollars in thousands) | Notional Amount | | Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value |
At June 30, 2019 | | | | | | | | | |
Interest rate swap - cash flow hedge | $ | 16,685 |
| | | | $ | — |
| | Other liabilities | | $ | 254 |
|
Interest rate swap - fair value hedge | 1,324 |
| | | | — |
| | Other liabilities | | 20 |
|
Total | $ | 18,009 |
| | | | $ | — |
| | | | $ | 274 |
|
At December 31, 2018 | | | | | | | | | |
Interest rate swap - cash flow hedge | $ | 17,076 |
| | Other assets | | $ | 185 |
| | | | $ | — |
|
Interest rate swap - fair value hedge | 1,346 |
| | Other assets | | 4 |
| | | | — |
|
Total | $ | 18,422 |
| | | | $ | 189 |
| | | | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | | Derivative Assets | | Derivative Liabilities |
(Dollars in thousands) | Notional Amount | | Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value |
At September 30, 2018 | | | | | | | | | |
Interest rate swap - cash flow hedge | $ | 17,269 |
| | Other assets | | $ | 485 |
| | | | $ | — |
|
Interest rate swap - fair value hedge | 1,357 |
| | Other assets | | 20 |
| | | | — |
|
Total | $ | 18,626 |
| | | | $ | 505 |
| | | | $ | — |
|
At December 31, 2017 | | | | | | | | | |
Interest rate swap - cash flow hedge | $ | 17,836 |
| | Other assets | | $ | 13 |
| | | | $ | — |
|
Interest rate swap - fair value hedge | 1,388 |
| | | | — |
| | Other liabilities | | 12 |
|
Total | $ | 19,224 |
| | | | $ | 13 |
| | | | $ | 12 |
|
The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at SeptemberJune 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | | | | | | | | | |
| | | Derivative Assets | | Derivative Liabilities |
(Dollars in thousands) | Notional Amount | | Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value |
At June 30, 2019 | | | | | | | | | |
Interest rate swap | $ | 361 |
| | | | $ | — |
| | Other liabilities | | $ | 19 |
|
Credit derivatives | 186,688 |
| | | | — |
| | Other liabilities | | 160 |
|
Interest rate locks with customers | 38,175 |
| | Other assets | | 798 |
| | | | — |
|
Forward loan sale commitments | 39,657 |
| | | | — |
| | Other liabilities | | 197 |
|
Total | $ | 264,881 |
| | | | $ | 798 |
| | | | $ | 376 |
|
At December 31, 2018 | | | | | | | | | |
Interest rate swap | $ | 418 |
| |
| | $ | — |
| | Other liabilities | | $ | 20 |
|
Credit derivatives | 122,410 |
| |
| | — |
| | Other liabilities | | 72 |
|
Interest rate locks with customers | 21,494 |
| | Other assets | | 490 |
| | | | — |
|
Forward loan sale commitments | 23,227 |
| | | | — |
| | Other liabilities | | 150 |
|
Total | $ | 167,549 |
| | | | $ | 490 |
| | | | $ | 242 |
|
|
| | | | | | | | | | | | | | | |
| | | Derivative Assets | | Derivative Liabilities |
(Dollars in thousands) | Notional Amount | | Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value |
At September 30, 2018 | | | | | | | | | |
Interest rate swap | $ | 445 |
| | | | $ | — |
| | Other liabilities | | $ | 20 |
|
Credit derivatives | 84,709 |
| | | | — |
| | Other liabilities | | 24 |
|
Interest rate locks with customers | 23,529 |
| | Other assets | | 305 |
| | | | — |
|
Forward loan sale commitments | 23,884 |
| | Other assets | | 53 |
| | | | — |
|
Total | $ | 132,567 |
| | | | $ | 358 |
| | | | $ | 44 |
|
At December 31, 2017 | | | | | | | | | |
Interest rate swap | $ | 523 |
| |
| | $ | — |
| | Other liabilities | | $ | 38 |
|
Credit derivatives | 75,622 |
| |
| | — |
| | Other liabilities | | 36 |
|
Interest rate locks with customers | 27,411 |
| | Other assets | | 527 |
| | | | — |
|
Forward loan sale commitments | 29,037 |
| | Other assets | | 61 |
| | | | — |
|
Total | $ | 132,593 |
| | | | $ | 588 |
| | | | $ | 74 |
|
The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
|
| | | | | | | | | | | | | | | | | |
| Statement of Income Classification | | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Interest rate swap—cash flow hedge—net interest payments | Interest expense | | $ | (14 | ) | | $ | 6 |
| | $ | (30 | ) | | $ | 26 |
|
Interest rate swap—fair value hedge—effectiveness | Interest income | | — |
| | — |
| | 1 |
| | — |
|
Interest rate swap—fair value hedge—ineffectiveness | Other noninterest income | | — |
| | 2 |
| | — |
| | 2 |
|
Total net gain (loss) | | | $ | 14 |
| | $ | (4 | ) | | $ | 31 |
| | $ | (24 | ) |
|
| | | | | | | | | | | | | | | | | |
| Statement of Income Classification | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Interest rate swap—cash flow hedge—net interest payments | Interest expense | | $ | 1 |
| | $ | 41 |
| | $ | 27 |
| | $ | 148 |
|
Interest rate swap—fair value hedge—ineffectiveness | Other noninterest income | | 1 |
| | — |
| | 3 |
| | 5 |
|
Net loss | | | $ | — |
| | $ | (41 | ) | | $ | (24 | ) | | $ | (143 | ) |
The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:
| | | Statement of Income Classification | | Three Months Ended September 30, | | Nine Months Ended September 30, | Statement of Income Classification | | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Credit derivatives | Other noninterest income | | $ | 48 |
| | $ | 25 |
| | $ | 87 |
| | $ | 149 |
| Other noninterest income | | $ | 318 |
| | $ | 34 |
| | $ | 582 |
| | $ | 38 |
|
Interest rate locks with customers | Net (loss) gain on mortgage banking activities | | (328 | ) | | (129 | ) | | (223 | ) | | 433 |
| Net gain on mortgage banking activities | | 343 |
| | 237 |
| | 308 |
| | 105 |
|
Forward loan sale commitments | Net gain (loss) on mortgage banking activities | | 144 |
| | (166 | ) | | (8 | ) | | (258 | ) | Net loss on mortgage banking activities | | (76 | ) | | (104 | ) | | (47 | ) | | (153 | ) |
Total | | $ | (136 | ) | | $ | (270 | ) | | $ | (144 | ) | | $ | 324 |
| |
Total net gain (loss) | | | $ | 585 |
| | $ | 167 |
| | $ | 843 |
| | $ | (10 | ) |
The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at SeptemberJune 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | | | |
(Dollars in thousands) | Accumulated Other Comprehensive (Loss) Income | | At June 30, 2019 | | At December 31, 2018 |
Interest rate swap—cash flow hedge | Fair value, net of taxes | | $ | (201 | ) | | $ | 80 |
|
Total | | | $ | (201 | ) | | $ | 80 |
|
|
| | | | | | | | | |
(Dollars in thousands) | Accumulated Other Comprehensive (Loss) Income | | At September 30, 2018 | | At December 31, 2017 |
Interest rate swap—cash flow hedge | Fair value, net of taxes | | $ | 383 |
| | $ | 9 |
|
Total | | | $ | 383 |
| | $ | 9 |
|
Note 12. Fair Value Disclosures
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Corporation determines the fair value of financial instruments based on the fair value hierarchy. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Corporation. Unobservable inputs are inputs that reflect the Corporation’s assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances, including assumptions about risk. Three levels of inputs are used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting period.
Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2: Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include: financial instruments whose value is determined using pricing models, discounted cash-flow methodologies, or similar techniques, as well as instruments for which the fair value calculation requires significant management judgment or estimation.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Investment Securities
Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include U.S. Treasury securities, most equity securities and money market mutual funds. Mutual funds are registered investment companies which are valued at net asset value of shares on a market exchange at the end of each trading day. Level 2 of the valuation hierarchy includes securities issued by U.S. Government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds and certain equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy.
Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available
trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does not have sufficient verifiable information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.
Certain corporate bonds owned by the Corporation are classified as Level 3 as they are not traded in active markets. The fair value of each bond is estimated by benchmarking similar transactions of structure, yield and credit which are owned by the Corporation and are actively traded in the market.
On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation, the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at SeptemberJune 30, 2018.
2019.
Derivative Financial Instruments
The fair values of derivative financial instruments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate swaps and mortgage banking derivative financial instruments are classified within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore classified in Level 3 of the valuation hierarchy.
Two commercial loans associated with interest rate swaps are classified in Level 3 of the valuation hierarchy since lending credit risk is not an observable input for these loans. The unrealized gain on the two loans was $6$45 thousand at SeptemberJune 30, 2018.2019.
Contingent Consideration Liability
The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through noninterest expense. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected revenue may result in a lower estimated fair value of the contingent consideration liability.
The following table presents the assets and liabilities measured at fair value on a recurring basis at SeptemberJune 30, 20182019 and December 31, 2017,2018, classified using the fair value hierarchy:
| | | At September 30, 2018 | At June 30, 2019 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Assets/ Liabilities at Fair Value | Level 1 | | Level 2 | | Level 3 | | Assets/ Liabilities at Fair Value |
Assets: | | |
Available-for-sale securities: | | | | | | | | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | 15,316 |
| | $ | — |
| | $ | 15,316 |
| $ | — |
| | $ | 10,316 |
| | $ | — |
| | $ | 10,316 |
|
State and political subdivisions | — |
| | 67,892 |
| | — |
| | 67,892 |
| — |
| | 44,172 |
| | — |
| | 44,172 |
|
Residential mortgage-backed securities | — |
| | 156,414 |
| | — |
| | 156,414 |
| — |
| | 141,815 |
| | — |
| | 141,815 |
|
Collateralized mortgage obligations | — |
| | 2,981 |
| | — |
| | 2,981 |
| — |
| | 2,677 |
| | — |
| | 2,677 |
|
Corporate bonds | — |
| | 67,923 |
| | 26,407 |
| | 94,330 |
| — |
| | 67,117 |
| | 26,925 |
| | 94,042 |
|
Total available-for-sale securities | — |
| | 310,526 |
| | 26,407 |
| | 336,933 |
| — |
| | 266,097 |
| | 26,925 |
| | 293,022 |
|
Equity securities: | | | | | | | | | | | | | | |
Equity securities - financial services industry | 1,103 |
| | — |
| | — |
| | 1,103 |
| 943 |
| | — |
| | — |
| | 943 |
|
Money market mutual funds | 1,161 |
| | — |
| | — |
| | 1,161 |
| 1,922 |
| | — |
| | — |
| | 1,922 |
|
Total equity securities | 2,264 |
| | — |
| | — |
| | 2,264 |
| 2,865 |
| | — |
| | — |
| | 2,865 |
|
Loans* | — |
|
| — |
|
| 1,801 |
| | 1,801 |
| — |
| | — |
| | 1,725 |
| | 1,725 |
|
Interest rate swaps* | — |
| | 505 |
| | — |
| | 505 |
| |
Interest rate locks with customers* | — |
| | 305 |
| | — |
| | 305 |
| — |
| | 798 |
| | — |
| | 798 |
|
Forward loan sale commitments* | — |
| | 53 |
| | — |
| | 53 |
| |
Total assets | $ | 2,264 |
| | $ | 311,389 |
| | $ | 28,208 |
| | $ | 341,861 |
| $ | 2,865 |
| | $ | 266,895 |
| | $ | 28,650 |
| | $ | 298,410 |
|
Liabilities: | | | | | | | | | | | | | | |
Contingent consideration liability | $ | — |
| | $ | — |
| | $ | 310 |
| | $ | 310 |
| $ | — |
| | $ | — |
| | $ | 211 |
| | $ | 211 |
|
Interest rate swaps* | — |
| | 20 |
| | — |
| | 20 |
| — |
| | 293 |
| | — |
| | 293 |
|
Credit derivatives* | — |
| | — |
| | 24 |
| | 24 |
| — |
| | — |
| | 160 |
| | 160 |
|
Forward loan sale commitments* | | — |
| | 197 |
| | — |
| | 197 |
|
Total liabilities | $ | — |
| | $ | 20 |
| | $ | 334 |
| | $ | 354 |
| $ | — |
| | $ | 490 |
| | $ | 371 |
| | $ | 861 |
|
|
| | | | | | | | | | | | | | | |
| At December 31, 2018 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Assets/ Liabilities at Fair Value |
Assets: | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | 15,315 |
| | $ | — |
| | $ | 15,315 |
|
State and political subdivisions | — |
| | 65,415 |
| | — |
| | 65,415 |
|
Residential mortgage-backed securities | — |
| | 151,762 |
| | — |
| | 151,762 |
|
Collateralized mortgage obligations | — |
| | 2,888 |
| | — |
| | 2,888 |
|
Corporate bonds | — |
| | 67,398 |
| | 25,729 |
| | 93,127 |
|
Total available-for-sale securities | — |
| | 302,778 |
| | 25,729 |
| | 328,507 |
|
Equity securities: | | | | | | | |
Equity securities - financial services industry | 924 |
| | — |
| | — |
| | 924 |
|
Money market mutual funds | 1,241 |
| | — |
| | — |
| | 1,241 |
|
Total equity securities | 2,165 |
| | — |
| | — |
| | 2,165 |
|
Loans* | — |
| | — |
| | 1,779 |
| | 1,779 |
|
Interest rate swap* | — |
| | 189 |
| | — |
| | 189 |
|
Interest rate locks with customers* | — |
| | 490 |
| | — |
| | 490 |
|
Total assets | $ | 2,165 |
| | $ | 303,457 |
| | $ | 27,508 |
| | $ | 333,130 |
|
Liabilities: | | | | | | | |
Contingent consideration liability | $ | — |
| | $ | — |
| | $ | 259 |
| | $ | 259 |
|
Interest rate swaps* | — |
| | 20 |
| | — |
| | 20 |
|
Credit derivatives* | — |
| | — |
| | 72 |
| | 72 |
|
Forward loan sale commitments* | — |
| | 150 |
| | — |
| | 150 |
|
Total liabilities | $ | — |
| | $ | 170 |
| | $ | 331 |
| | $ | 501 |
|
|
| | | | | | | | | | | | | | | |
| At December 31, 2017 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Assets/ Liabilities at Fair Value |
Assets: | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. government corporations and agencies | $ | — |
| | $ | 16,961 |
| | $ | — |
| | $ | 16,961 |
|
State and political subdivisions | — |
| | 78,297 |
| | — |
| | 78,297 |
|
Residential mortgage-backed securities | — |
| | 185,421 |
| | — |
| | 185,421 |
|
Collateralized mortgage obligations | — |
| | 3,602 |
| | — |
| | 3,602 |
|
Corporate bonds | — |
| | 79,190 |
| | 27,986 |
| | 107,176 |
|
Total available-for-sale securities | — |
| | 363,471 |
| | 27,986 |
| | 391,457 |
|
Equity securities: | | | | | | | |
Equity securities - financial services industry | 1,076 |
| | — |
| | — |
| | 1,076 |
|
Money market mutual funds | 5,985 |
| | — |
| | — |
| | 5,985 |
|
Total equity securities | 7,061 |
| | — |
| | — |
| | 7,061 |
|
Loans* | — |
|
| — |
| | 1,958 |
|
| 1,958 |
|
Interest rate swap* | — |
| | 13 |
| | — |
| | 13 |
|
Interest rate locks with customers* | — |
| | 527 |
| | — |
| | 527 |
|
Forward loan sale commitments* | — |
| | 61 |
| | — |
| | 61 |
|
Total assets | $ | 7,061 |
| | $ | 364,072 |
| | $ | 29,944 |
| | $ | 401,077 |
|
Liabilities: | | | | | | | |
Contingent consideration liability | $ | — |
| | $ | — |
| | $ | 339 |
| | $ | 339 |
|
Interest rate swaps* | — |
| | 50 |
| | — |
| | 50 |
|
Credit derivatives* | — |
| | — |
| | 36 |
| | 36 |
|
Total liabilities | $ | — |
| | $ | 50 |
| | $ | 375 |
| | $ | 425 |
|
* Such financial instruments are recorded at fair value as further described in Note 11, "Derivative Instruments and Hedging Activities."
The following table includes a rollforward of corporate bonds, loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
(Dollars in thousands) | Balance at December 31, 2018 | | Purchases/additions | | Sales | | Payments received | | Premium amortization, net | | Increase (decrease) in value | | Balance at June 30, 2019 |
Corporate bonds | $ | 25,729 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,196 |
| | $ | 26,925 |
|
Loans | 1,779 |
| | — |
| | — |
| | (78 | ) | | — |
| | 24 |
| | 1,725 |
|
Credit derivatives | (72 | ) | | (670 | ) | | — |
| | — |
| | — |
| | 582 |
| | (160 | ) |
Net total | $ | 27,436 |
| | $ | (670 | ) | | $ | — |
| | $ | (78 | ) | | $ | — |
| | $ | 1,802 |
| | $ | 28,490 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
(Dollars in thousands) | Balance at December 31, 2017 | | Purchases/additions | | Sales | | Payments received | | Premium amortization, net | | (Decrease) increase in value | | Balance at September 30, 2018 |
Corporate bonds | $ | 27,986 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1,579 | ) | | $ | 26,407 |
|
Loans | 1,958 |
| | — |
| | — |
| | (110 | ) | | — |
| | (47 | ) | | 1,801 |
|
Credit derivatives | (36 | ) | | (75 | ) | | — |
| | — |
| | — |
| | 87 |
| | (24 | ) |
Net total | $ | 29,908 |
| | $ | (75 | ) | | $ | — |
| | $ | (110 | ) | | $ | — |
| | $ | (1,539 | ) | | $ | 28,184 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
(Dollars in thousands) | Balance at December 31, 2017 | | Purchases/additions | | Sales | | Payments received | | Premium amortization, net | | (Decrease) increase in value | | Balance at June 30, 2018 |
Corporate bonds | $ | 27,986 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1,600 | ) | | $ | 26,386 |
|
Loans | 1,958 |
| | — |
| | — |
| | (73 | ) | | — |
| | (38 | ) | | 1,847 |
|
Credit derivatives | (36 | ) | | (40 | ) | | — |
| | — |
| | — |
| | 39 |
| | (37 | ) |
Net total | $ | 29,908 |
| | $ | (40 | ) | | $ | — |
| | $ | (73 | ) | | $ | — |
| | $ | (1,599 | ) | | $ | 28,196 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
(Dollars in thousands) | Balance at December 31, 2016 | | Purchases/additions | | Sales | | Payments received | | Premium amortization, net | | (Decrease) increase in value | | Balance at September 30, 2017 |
Corporate bonds | $ | 28,778 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (233 | ) | | $ | 28,545 |
|
Loans | 2,138 |
| | — |
| | — |
| | (102 | ) | | — |
| | (22 | ) | | 2,014 |
|
Credit derivatives | (9 | ) | | (272 | ) | | — |
| | — |
| | — |
| | 149 |
| | (132 | ) |
Net total | $ | 30,907 |
| | $ | (272 | ) | | $ | — |
| | $ | (102 | ) | | $ | — |
| | $ | (106 | ) | | $ | 30,427 |
|
The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:
| | | Nine Months Ended September 30, 2018 | Six Months Ended June 30, 2019 |
(Dollars in thousands) | Balance at December 31, 2017 | | Contingent Consideration from New Acquisition | | Payment of Contingent Consideration | | Adjustment of Contingent Consideration | | Balance at September 30, 2018 | Balance at December 31, 2018 | | Contingent Consideration from New Acquisition | | Payment of Contingent Consideration | | Adjustment of Contingent Consideration | | Balance at June 30, 2019 |
Girard Partners | 339 |
| | — |
| | 67 |
| | 38 |
| | 310 |
| $ | 259 |
| | $ | — |
| | $ | 65 |
| | $ | 17 |
| | $ | 211 |
|
Total contingent consideration liability | $ | 339 |
| | $ | — |
| | $ | 67 |
| | $ | 38 |
| | $ | 310 |
| $ | 259 |
| | $ | — |
| | $ | 65 |
| | $ | 17 |
| | $ | 211 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
(Dollars in thousands) | Balance at December 31, 2017 | | Contingent Consideration from New Acquisition | | Payment of Contingent Consideration | | Adjustment of Contingent Consideration | | Balance at June 30, 2018 |
Girard Partners | $ | 339 |
| | $ | — |
| | $ | 67 |
| | $ | 28 |
| | $ | 300 |
|
Total contingent consideration liability | $ | 339 |
| | $ | — |
| | $ | 67 |
| | $ | 28 |
| | $ | 300 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
(Dollars in thousands) | Balance at December 31, 2016 | | Contingent Consideration from New Acquisition | | Payment of Contingent Consideration | | Adjustment of Contingent Consideration | | Balance at September 30, 2017 |
Sterner Insurance Associates | $ | 331 |
| | $ | — |
| | $ | 30 |
| | $ | (301 | ) | | $ | — |
|
Girard Partners | 5,668 |
| | — |
| | 5,350 |
| | 41 |
| | 359 |
|
Total contingent consideration liability | $ | 5,999 |
| | $ | — |
| | $ | 5,380 |
| | $ | (260 | ) | | $ | 359 |
|
The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or impairment charges of individual assets. The following table represents assets measured at fair value on a non-recurring basis at SeptemberJune 30, 20182019 and December 31, 2017:2018:
| | | At September 30, 2018 | At June 30, 2019 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Assets at Fair Value | Level 1 | | Level 2 | | Level 3 | | Assets at Fair Value |
Impaired loans held for investment | $ | — |
| | $ | — |
| | $ | 27,674 |
| | $ | 27,674 |
| $ | — |
| | $ | — |
| | $ | 22,663 |
| | $ | 22,663 |
|
Impaired leases held for investment | — |
|
| — |
|
| 1,250 |
| | 1,250 |
| |
Other real estate owned | — |
| | — |
| | 1,433 |
| | 1,433 |
| — |
| | — |
| | 540 |
| | 540 |
|
Total | $ | — |
| | $ | — |
| | $ | 30,357 |
| | $ | 30,357 |
| $ | — |
| | $ | — |
| | $ | 23,203 |
| | $ | 23,203 |
|
|
| | | | | | | | | | | | | | | |
| At December 31, 2018 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Assets at Fair Value |
Impaired loans held for investment | $ | — |
| | $ | — |
| | $ | 25,166 |
| | $ | 25,166 |
|
Other real estate owned | — |
| | — |
| | 1,187 |
| | 1,187 |
|
Total | $ | — |
| | $ | — |
| | $ | 26,353 |
| | $ | 26,353 |
|
|
| | | | | | | | | | | | | | | |
| At December 31, 2017 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Assets at Fair Value |
Impaired loans held for investment | $ | — |
| | $ | — |
| | $ | 28,351 |
| | $ | 28,351 |
|
Impaired leases held for investment | — |
| | — |
| | 1,250 |
| | 1,250 |
|
Other real estate owned | — |
| | — |
| | 1,843 |
| | 1,843 |
|
Total | $ | — |
| | $ | — |
| | $ | 31,444 |
| | $ | 31,444 |
|
The following table presents assets and liabilities and off-balance sheet items not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed at SeptemberJune 30, 20182019 and December 31, 2017.2018. The disclosed fair values are classified using the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | | | |
| At June 30, 2019 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Carrying Amount |
Assets: | | | | | | | | | |
Cash and short-term interest-earning assets | $ | 84,567 |
| | $ | — |
| | $ | — |
| | $ | 84,567 |
| | $ | 84,567 |
|
Held-to-maturity securities | — |
| | 175,296 |
| | — |
| | 175,296 |
| | 172,946 |
|
Federal Home Loan Bank, Federal Reserve Bank and other stock | NA |
| | NA |
| | NA |
| | NA |
| | 32,755 |
|
Loans held for sale | — |
| | 1,531 |
| | — |
| | 1,531 |
| | 1,498 |
|
Net loans and leases held for investment | — |
| | — |
| | 4,121,087 |
| | 4,121,087 |
| | 4,110,916 |
|
Servicing rights | — |
| | — |
| | 8,911 |
| | 8,911 |
| | 6,599 |
|
Total assets | $ | 84,567 |
| | $ | 176,827 |
| | $ | 4,129,998 |
| | $ | 4,391,392 |
| | $ | 4,409,281 |
|
Liabilities: | | | | | | | | | |
Deposits: | | | | | | | | | |
Demand and savings deposits, non-maturity | $ | 3,412,673 |
| | $ | — |
| | $ | — |
| | $ | 3,412,673 |
| | $ | 3,412,673 |
|
Time deposits | — |
| | 712,030 |
| | — |
| | 712,030 |
| | 709,437 |
|
Total deposits | 3,412,673 |
| | 712,030 |
| | — |
| | 4,124,703 |
| | 4,122,110 |
|
Short-term borrowings | — |
| | 39,350 |
| | — |
| | 39,350 |
| | 39,350 |
|
Long-term debt | — |
| | 171,177 |
| | — |
| | 171,177 |
| | 170,195 |
|
Subordinated notes | — |
| | 96,572 |
| | — |
| | 96,572 |
| | 94,696 |
|
Total liabilities | $ | 3,412,673 |
| | $ | 1,019,129 |
| | $ | — |
| | $ | 4,431,802 |
| | $ | 4,426,351 |
|
Off-Balance-Sheet: | | | | | | | | | |
Commitments to extend credit | $ | — |
| | $ | (8,066 | ) | | $ | — |
| | $ | (8,066 | ) | | $ | — |
|
| | | At September 30, 2018 | At December 31, 2018 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Carrying Amount | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Carrying Amount |
Assets: | | | | | | | | | | | | | | | | | | |
Cash and short-term interest-earning assets | $ | 84,110 |
| | $ | — |
| | $ | — |
| | $ | 84,110 |
| | $ | 84,110 |
| $ | 109,420 |
| | $ | — |
| | $ | — |
| | $ | 109,420 |
| | $ | 109,420 |
|
Held-to-maturity securities | — |
| | 105,642 |
| | — |
| | 105,642 |
| | 108,142 |
| — |
| | 141,575 |
| | — |
| | 141,575 |
| | 142,634 |
|
Federal Home Loan Bank, Federal Reserve Bank and other stock | NA |
| | NA |
| | NA |
| | NA |
| | 33,071 |
| NA |
| | NA |
| | NA |
| | NA |
| | 28,337 |
|
Loans held for sale | — |
| | 114 |
| | — |
| | 114 |
| | 106 |
| — |
| | 1,798 |
| | — |
| | 1,798 |
| | 1,754 |
|
Net loans and leases held for investment | — |
| | — |
| | 3,794,987 |
| | 3,794,987 |
| | 3,808,073 |
| — |
| | — |
| | 3,924,329 |
| | 3,924,329 |
| | 3,950,265 |
|
Servicing rights | — |
| | — |
| | 11,935 |
| | 11,935 |
| | 6,715 |
| — |
| | — |
| | 11,496 |
| | 11,496 |
| | 6,768 |
|
Total assets | $ | 84,110 |
| | $ | 105,756 |
| | $ | 3,806,922 |
| | $ | 3,996,788 |
| | $ | 4,040,217 |
| $ | 109,420 |
| | $ | 143,373 |
| | $ | 3,935,825 |
| | $ | 4,188,618 |
| | $ | 4,239,178 |
|
Liabilities: | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | |
Demand and savings deposits, non-maturity | $ | 3,148,565 |
| | $ | — |
| | $ | — |
| | $ | 3,148,565 |
| | $ | 3,148,565 |
| $ | 3,215,856 |
| | $ | — |
| | $ | — |
| | $ | 3,215,856 |
| | $ | 3,215,856 |
|
Time deposits | — |
| | 661,806 |
| | — |
| | 661,806 |
| | 671,483 |
| — |
| | 664,738 |
| | — |
| | 664,738 |
| | 670,077 |
|
Total deposits | 3,148,565 |
| | 661,806 |
| | — |
| | 3,810,371 |
| | 3,820,048 |
| 3,215,856 |
| | 664,738 |
| | — |
| | 3,880,594 |
| | 3,885,933 |
|
Short-term borrowings | — |
| | 86,765 |
| | — |
| | 86,765 |
| | 86,765 |
| — |
| | 189,768 |
| | — |
| | 189,768 |
| | 189,768 |
|
Long-term debt | — |
| | 142,862 |
| | — |
| | 142,862 |
| | 145,430 |
| — |
| | 144,021 |
| | — |
| | 144,021 |
| | 145,330 |
|
Subordinated notes | — |
| | 96,063 |
| | — |
| | 96,063 |
| | 94,514 |
| — |
| | 95,113 |
| | — |
| | 95,113 |
| | 94,574 |
|
Total liabilities | $ | 3,148,565 |
| | $ | 987,496 |
| | $ | — |
| | $ | 4,136,061 |
| | $ | 4,146,757 |
| $ | 3,215,856 |
| | $ | 1,093,640 |
| | $ | — |
| | $ | 4,309,496 |
| | $ | 4,315,605 |
|
Off-Balance-Sheet: | | | | | | | | | | | | | | | | | | |
Commitments to extend credit | $ | — |
| | $ | (2,508 | ) | | $ | — |
| | $ | (2,508 | ) | | $ | — |
| $ | — |
| | $ | (2,516 | ) | | $ | — |
| | $ | (2,516 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | |
| At December 31, 2017 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Carrying Amount |
Assets: | | | | | | | | | |
Cash and short-term interest-earning assets | $ | 75,409 |
| | $ | — |
| | $ | — |
| | $ | 75,409 |
| | $ | 75,409 |
|
Held-to-maturity securities | — |
| | 55,320 |
| | — |
| | 55,320 |
| | 55,564 |
|
Federal Home Loan Bank, Federal Reserve Bank and other stock | NA |
| | NA |
| | NA |
| | NA |
| | 27,204 |
|
Loans held for sale | — |
| | 1,676 |
| | — |
| | 1,676 |
| | 1,642 |
|
Net loans and leases held for investment | — |
| | — |
| | 3,547,451 |
| | 3,547,451 |
| | 3,566,953 |
|
Servicing rights | — |
| | — |
| | 10,046 |
| | 10,046 |
| | 6,573 |
|
Total assets | $ | 75,409 |
| | $ | 56,996 |
| | $ | 3,557,497 |
| | $ | 3,689,902 |
| | $ | 3,733,345 |
|
Liabilities: | | | | | | | | | |
Deposits: | | | | | | | | | |
Demand and savings deposits, non-maturity | $ | 2,980,170 |
| | $ | — |
| | $ | — |
| | $ | 2,980,170 |
| | $ | 2,980,170 |
|
Time deposits | — |
| | 574,737 |
| | — |
| | 574,737 |
| | 574,749 |
|
Total deposits | 2,980,170 |
| | 574,737 |
| | — |
| | 3,554,907 |
| | 3,554,919 |
|
Short-term borrowings | — |
| | 105,431 |
| | — |
| | 105,431 |
| | 105,431 |
|
Long-term debt | — |
| | 156,834 |
| | — |
| | 156,834 |
| | 155,828 |
|
Subordinated notes | — |
| | 98,075 |
| | — |
| | 98,075 |
| | 94,331 |
|
Total liabilities | $ | 2,980,170 |
| | $ | 935,077 |
| | $ | — |
| | $ | 3,915,247 |
| | $ | 3,910,509 |
|
Off-Balance-Sheet: | | | | | | | | | |
Commitments to extend credit | $ | — |
| | $ | (2,414 | ) | | $ | — |
| | $ | (2,414 | ) | | $ | — |
|
The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required to be disclosed:
Cash and short-term interest-earning assets: The carrying amounts reported in the balance sheet for cash and due from banks, interest-earning deposits with other banks federal funds sold and other short-term investments is their stated value. Cash and short-term interest-earning assets are classified within Level 1 in the fair value hierarchy.
Held-to-maturity securities: Fair values for the held-to-maturity investment securities are estimated by using pricing models or quoted prices of securities with similar characteristics and are classified in Level 2 in the fair value hierarchy.
Federal Home Loan Bank, Federal Reserve Bank and other stock: It is not practical to determine the fair values of Federal Home Loan Bank, Federal Reserve Bank and other stock, due to restrictions placed on their transferability.
Loans held for sale: The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. Loans held for sale are carried at the lower of cost or estimated fair value. There were no valuation adjustments for loans held for sale at SeptemberJune 30, 20182019 and December 31, 2017.2018.
Loans and leases held for investment: As of September 30, 2018, theThe fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers, adjusted as appropriate to consider credit, liquidity and marketability factors to arrive at a fair value that represents the Corporation's exit price at which these instruments would be sold or transferred. As of December 31, 2017, the fair values for loans and leases held for investment were estimated using discounted cash flow analyses, using a discount rate based on current interest rates at which similar loans with similar terms would be made to borrowers and include components for credit risk, operating expense and embedded prepayment options. An overall valuation adjustment was made for specific credit risks in addition to general portfolio risk and is significant to the valuation.Loans and leases are classified within Level 3 in the fair value hierarchy.hierarchy since credit risk is not an observable input.
Impaired loans and leases held for investment: For impaired loans and leases, the Corporation uses a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that the Corporation may adjust due to specific characteristics of the loan/lease or collateral. At SeptemberJune 30, 2019, impaired loans held for investment had a carrying amount of $25.1 million with a valuation allowance of $2.4 million. At December 31, 2018, impaired loans held for investment had a carrying amount of $28.7$26.6 million with a valuation allowance of $1.0$1.4 million. At December 31, 2017, impaired loans held for investment had a carrying amount of $28.5 million with a valuation allowance of $131 thousand. The Corporation had no impaired leases of $1.3 million with no reserve at SeptemberJune 30, 20182019 and December 31, 2017.2018.
Servicing rights: The Corporation estimates the fair value of mortgage servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. Mortgage servicing rights are classified within Level 3 in the fair value hierarchy based upon management's assessment of the inputs. The Corporation reviews the mortgage servicing rights portfolio on a quarterly basis for impairment and the mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The Corporation also records servicing rights on SBA loans. At SeptemberJune 30, 2018 and December 31, 2017,2019, servicing rights had a carrying amount of $6.7 million and $6.6 million respectively,with a valuation allowance of $21 thousand. At December 31, 2018, servicing rights carrying amount of $6.7 million with no valuation allowance.
Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable intangible assets. During the ninesix months ended SeptemberJune 30, 2018,2019, there were no triggering events that required valuation of goodwill and other identifiable intangible assets.
Other real estate owned: The fair value of other real estate owned (OREO) is originally estimated based upon the appraised value less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. Subsequently, OREO is reported at the lower of the original cost or the current fair value less cost to sell. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. New appraisals are generally obtained on an annual basis if an agreement of sale does not exist. During the ninesix months ended SeptemberJune 30, 2018, two properties had write-downs totaling $503 thousand, four properties were transferred into OREO with a fair value of $477 thousand and three properties were2019, one property was sold with total proceeds of $362$599 thousand. At SeptemberJune 30,
2018 2019 and December 31, 2017,2018, OREO had a carrying amount of $1.4 million$540 thousand and $1.8$1.2 million, respectively. Other real estate owned is classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.
Deposit liabilities: The fair values for demand and savings accounts, with no stated maturities, is the amount payable on demand at the reporting date (carrying value) and are classified within Level 1 in the fair value hierarchy. The fair values for time
deposits with fixed maturities are estimated by discounting the final maturity using interest rates currently offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 in the fair value hierarchy.
Short-term borrowings: The fair value of short-term borrowings are estimated using current market rates for similar borrowings and are classified within Level 2 in the fair value hierarchy.
Long-term debt: The fair value of long-term debt is estimated by using discounted cash flow analysis, based on current market rates for debt with similar terms and remaining maturities. Long-term debt is classified within Level 2 in the fair value hierarchy.
Subordinated notes: The fair value of the subordinated notes are estimated by discounting the principal balance using the treasury yield curve for the term to the call date as the Corporation has the option to call the subordinated notes. The subordinated notes are classified within Level 2 in the fair value hierarchy.
Off-balance-sheet instruments: Fair values for the Corporation’s off-balance-sheet instruments are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing and are classified within Level 2 in the fair value hierarchy.
Note 13. Segment Reporting
At SeptemberJune 30, 2018,2019, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany eliminations are included in the "Other" segment.
The Corporation's Banking segment consists of commercial, consumer and mortgage banking as well as lease financing. The Wealth Management segment consists of investment advisory services, retirement plan services, trust, municipal pension services and broker/dealer services. The Insurance segment consists of commercial lines, personal lines, benefits and human resources consulting.
Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated below.
|
| |
● | The Banking segment provides financial services to consumerindividuals, businesses, municipalities and commercial customers and governmental units.nonprofit organizations. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing. |
● | The Wealth Management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions. |
● | The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and human resources consulting. |
The following table provides total assets by reportable business segment as of the dates indicated.
| | (Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 | | At September 30, 2017 | At June 30, 2019 | | At December 31, 2018 | | At June 30, 2018 |
Banking | $ | 4,711,093 |
| | $ | 4,466,301 |
| | $ | 4,327,920 |
| $ | 5,059,733 |
| | $ | 4,895,732 |
| | $ | 4,656,201 |
|
Wealth Management | 38,042 |
| | 34,600 |
| | 34,903 |
| 42,024 |
| | 39,090 |
| | 37,227 |
|
Insurance | 29,299 |
| | 27,846 |
| | 25,139 |
| 32,256 |
| | 30,117 |
| | 29,295 |
|
Other | 23,564 |
| | 26,115 |
| | 29,401 |
| 20,285 |
| | 19,408 |
| | 26,458 |
|
Consolidated assets | $ | 4,801,998 |
| | $ | 4,554,862 |
| | $ | 4,417,363 |
| $ | 5,154,298 |
| | $ | 4,984,347 |
| | $ | 4,749,181 |
|
The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017.2018.
| | | Three Months Ended | Three Months Ended |
| September 30, 2018 | June 30, 2019 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Interest income | $ | 49,238 |
| | $ | 9 |
| | $ | — |
| | $ | 8 |
| | $ | 49,255 |
| $ | 54,041 |
| | $ | 11 |
| | $ | — |
| | $ | 8 |
| | $ | 54,060 |
|
Interest expense | 7,571 |
| | — |
| | — |
| | 1,261 |
| | 8,832 |
| 10,164 |
| | — |
| | — |
| | 1,261 |
| | 11,425 |
|
Net interest income | 41,667 |
| | 9 |
| | — |
| | (1,253 | ) | | 40,423 |
| 43,877 |
| | 11 |
| | — |
| | (1,253 | ) | | 42,635 |
|
Provision for loan and lease losses | 2,745 |
| | — |
| | — |
| | — |
| | 2,745 |
| 2,076 |
| | — |
| | — |
| | — |
| | 2,076 |
|
Noninterest income | 5,070 |
| | 5,795 |
| | 3,845 |
| | 151 |
| | 14,861 |
| 6,014 |
| | 6,155 |
| | 4,145 |
| | 42 |
| | 16,356 |
|
Intangible expenses | 240 |
| | 136 |
| | 103 |
| | — |
| | 479 |
| 233 |
| | 105 |
| | 79 |
| | — |
| | 417 |
|
Other noninterest expense | 26,542 |
| | 3,547 |
| | 3,087 |
| | 716 |
| | 33,892 |
| 28,098 |
| | 3,788 |
| | 3,072 |
| | 1,403 |
| | 36,361 |
|
Intersegment (revenue) expense* | (512 | ) | | 377 |
| | 135 |
| | — |
| | — |
| (295 | ) | | 161 |
| | 134 |
| | — |
| | — |
|
Income (expense) before income taxes | 17,722 |
| | 1,744 |
| | 520 |
| | (1,818 | ) | | 18,168 |
| 19,779 |
| | 2,112 |
| | 860 |
| | (2,614 | ) | | 20,137 |
|
Income tax (benefit) expense | 3,171 |
| | 493 |
| | 156 |
| | (616 | ) | | 3,204 |
| |
Income tax expense (benefit) | | 3,660 |
| | 409 |
| | 70 |
| | (470 | ) | | 3,669 |
|
Net income (loss) | $ | 14,551 |
| | $ | 1,251 |
| | $ | 364 |
| | $ | (1,202 | ) | | $ | 14,964 |
| $ | 16,119 |
| | $ | 1,703 |
| | $ | 790 |
| | $ | (2,144 | ) | | $ | 16,468 |
|
Capital expenditures | $ | 570 |
| | $ | 73 |
| | $ | 16 |
| | $ | 86 |
| | $ | 745 |
| $ | 371 |
| | $ | 35 |
| | $ | 39 |
| | $ | 137 |
| | $ | 582 |
|
| | | Three Months Ended | Three Months Ended |
| September 30, 2017 | June 30, 2018 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Interest income | $ | 42,161 |
| | $ | 4 |
| | $ | — |
| | $ | 7 |
| | $ | 42,172 |
| $ | 46,444 |
| | $ | 8 |
| | $ | — |
| | $ | 8 |
| | $ | 46,460 |
|
Interest expense | 4,031 |
| | — |
| | — |
| | 1,254 |
| | 5,285 |
| 6,209 |
| | — |
| | — |
| | 1,261 |
| | 7,470 |
|
Net interest income | 38,130 |
| | 4 |
| | — |
| | (1,247 | ) | | 36,887 |
| 40,235 |
| | 8 |
| | — |
| | (1,253 | ) | | 38,990 |
|
Provision for loan and lease losses | 2,689 |
| | — |
| | — |
| | — |
| | 2,689 |
| 15,409 |
| | — |
| | — |
| | — |
| | 15,409 |
|
Noninterest income | 4,993 |
| | 5,428 |
| | 3,620 |
| | 68 |
| | 14,109 |
| 5,461 |
| | 5,862 |
| | 3,904 |
| | 87 |
| | 15,314 |
|
Intangible expenses | 357 |
| | 168 |
| | 165 |
| | — |
| | 690 |
| 329 |
| | 137 |
| | 128 |
| | — |
| | 594 |
|
Other noninterest expense | 25,733 |
| | 3,472 |
| | 2,803 |
| | (3 | ) | | 32,005 |
| 26,723 |
| | 3,628 |
| | 3,093 |
| | 309 |
| | 33,753 |
|
Intersegment (revenue) expense* | (264 | ) | | 146 |
| | 118 |
| | — |
| | — |
| (295 | ) | | 156 |
| | 139 |
| | — |
| | — |
|
Income (expense) before income taxes | 14,608 |
| | 1,646 |
| | 534 |
| | (1,176 | ) | | 15,612 |
| 3,530 |
| | 1,949 |
| | 544 |
| | (1,475 | ) | | 4,548 |
|
Income tax expense (benefit) | 4,033 |
| | 648 |
| | 224 |
| | (489 | ) | | 4,416 |
| |
Income tax (benefit) expense | | (162 | ) | | 597 |
| | 163 |
| | (407 | ) | | 191 |
|
Net income (loss) | $ | 10,575 |
| | $ | 998 |
| | $ | 310 |
| | $ | (687 | ) | | $ | 11,196 |
| $ | 3,692 |
| | $ | 1,352 |
| | $ | 381 |
| | $ | (1,068 | ) | | $ | 4,357 |
|
Capital expenditures | $ | 582 |
| | $ | 5 |
| | $ | 3 |
| | $ | 178 |
| | $ | 768 |
| $ | 820 |
| | $ | 40 |
| | $ | 2 |
| | $ | 10 |
| | $ | 872 |
|
| | | Nine Months Ended | Six Months Ended |
| September 30, 2018 | June 30, 2019 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Interest income | $ | 139,204 |
| | $ | 22 |
| | $ | — |
| | $ | 23 |
| | $ | 139,249 |
| $ | 106,387 |
| | $ | 21 |
| | $ | — |
| | $ | 16 |
| | $ | 106,424 |
|
Interest expense | 18,781 |
| | — |
| | — |
| | 3,783 |
| | 22,564 |
| 19,744 |
| | — |
| | — |
| | 2,522 |
| | 22,266 |
|
Net interest income | 120,423 |
| | 22 |
| | — |
| | (3,760 | ) | | 116,685 |
| 86,643 |
| | 21 |
| | — |
| | (2,506 | ) | | 84,158 |
|
Provision for loan and lease losses | 20,207 |
| | — |
| | — |
| | — |
| | 20,207 |
| 4,761 |
| | — |
| | — |
| | — |
| | 4,761 |
|
Noninterest income | 15,320 |
| | 17,397 |
| | 12,835 |
| | 205 |
| | 45,757 |
| 10,985 |
| | 11,875 |
| | 9,498 |
| | 295 |
| | 32,653 |
|
Intangible expenses | 898 |
| | 415 |
| | 372 |
| | — |
| | 1,685 |
| 466 |
| | 210 |
| | 167 |
| | — |
| | 843 |
|
Restructuring charges | 571 |
| | — |
| | — |
| | — |
| | 571 |
| |
Other noninterest expense | 80,790 |
| | 10,969 |
| | 9,425 |
| | 403 |
| | 101,587 |
| 55,877 |
| | 7,582 |
| | 6,198 |
| | 1,835 |
| | 71,492 |
|
Intersegment (revenue) expense* | (1,098 | ) | | 686 |
| | 412 |
| | — |
| | — |
| (594 | ) | | 327 |
| | 267 |
| | — |
| | — |
|
Income (expense) before income taxes | 34,375 |
| | 5,349 |
| | 2,626 |
| | (3,958 | ) | | 38,392 |
| 37,118 |
| | 3,777 |
| | 2,866 |
| | (4,046 | ) | | 39,715 |
|
Income tax expense (benefit) | 5,006 |
| | 1,636 |
| | 775 |
| | (1,196 | ) | | 6,221 |
| 6,780 |
| | 723 |
| | 263 |
| | (598 | ) | | 7,168 |
|
Net income (loss) | $ | 29,369 |
| | $ | 3,713 |
| | $ | 1,851 |
| | $ | (2,762 | ) | | $ | 32,171 |
| $ | 30,338 |
| | $ | 3,054 |
| | $ | 2,603 |
| | $ | (3,448 | ) | | $ | 32,547 |
|
Capital expenditures | $ | 2,360 |
| | $ | 162 |
| | $ | 25 |
| | $ | 151 |
| | $ | 2,698 |
| $ | 1,136 |
| | $ | 74 |
| | $ | 64 |
| | $ | 158 |
| | $ | 1,432 |
|
| | | Nine Months Ended | Six Months Ended |
| September 30, 2017 | June 30, 2018 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Interest income | $ | 120,575 |
| | $ | 6 |
| | $ | — |
| | $ | 17 |
| | $ | 120,598 |
| $ | 89,966 |
| | $ | 13 |
| | $ | — |
| | $ | 15 |
| | $ | 89,994 |
|
Interest expense | 10,352 |
| | — |
| | — |
| | 3,776 |
| | 14,128 |
| 11,210 |
| | — |
| | — |
| | 2,522 |
| | 13,732 |
|
Net interest income | 110,223 |
| | 6 |
| | — |
| | (3,759 | ) | | 106,470 |
| 78,756 |
| | 13 |
| | — |
| | (2,507 | ) | | 76,262 |
|
Provision for loan and lease losses | 7,900 |
| | — |
| | — |
| | — |
| | 7,900 |
| 17,462 |
| | — |
| | — |
| | — |
| | 17,462 |
|
Noninterest income | 16,945 |
| | 15,965 |
| | 11,913 |
| | 265 |
| | 45,088 |
| 10,250 |
| | 11,602 |
| | 8,990 |
| | 54 |
| | 30,896 |
|
Intangible expenses | 1,151 |
| | 506 |
| | 238 |
| | — |
| | 1,895 |
| 658 |
| | 279 |
| | 269 |
| | — |
| | 1,206 |
|
Restructuring charges | | 571 |
| | — |
| | — |
| | — |
| | 571 |
|
Other noninterest expense | 74,949 |
| | 10,404 |
| | 8,718 |
| | 1,307 |
| | 95,378 |
| 54,384 |
| | 7,286 |
| | 6,338 |
| | (313 | ) | | 67,695 |
|
Intersegment (revenue) expense* | (792 | ) | | 438 |
| | 354 |
| | — |
| | — |
| (586 | ) | | 309 |
| | 277 |
| | — |
| | — |
|
Income (expense) before income taxes | 43,960 |
| | 4,623 |
| | 2,603 |
| | (4,801 | ) | | 46,385 |
| 16,517 |
| | 3,741 |
| | 2,106 |
| | (2,140 | ) | | 20,224 |
|
Income tax expense (benefit) | 11,754 |
| | 1,812 |
| | 1,095 |
| | (2,106 | ) | | 12,555 |
| 1,836 |
| | 1,142 |
| | 619 |
| | (580 | ) | | 3,017 |
|
Net income (loss) | $ | 32,206 |
| | $ | 2,811 |
| | $ | 1,508 |
| | $ | (2,695 | ) | | $ | 33,830 |
| $ | 14,681 |
| | $ | 2,599 |
| | $ | 1,487 |
| | $ | (1,560 | ) | | $ | 17,207 |
|
Capital expenditures | $ | 6,921 |
| | $ | 27 |
| | $ | 202 |
| | $ | 262 |
| | $ | 7,412 |
| $ | 1,790 |
| | $ | 89 |
| | $ | 9 |
| | $ | 65 |
| | $ | 1,953 |
|
*Includes an allocation of general and administrative expenses from both the parent holding company and the Bank. These expenses are generally allocated based upon number of employees and square footage utilized.
Note 14. Revenue from Contracts with CustomersLeases
In May 2014,February 2016, the FASB issued ASU No. 2014-09, 2016-02, "Revenue from Contracts with CustomersLeases (Topic 606)”842)", and subsequent related updates.updates, to revise the accounting for leases. The Corporation adopted thethis guidance effective January 1, 2018 using the2019, on a modified retrospective method though no adjustments were madebasis through a cumulative-effect adjustment to retained earnings as a result of the adoption. The Corporation’s revenue is the sum of net interest income and noninterest income. Revenues are recognized when obligations under the terms of contracts with customers are satisfied, including the transfer of control of the promised goods or services to customers, in an amount that reflects the considerationat January 1, 2019. Additionally, the Corporation expectsearly adopted (ASU) No. 2019-01, "Codification Improvements", as of January 1, 2019, which serves as an update to be entitled(ASU) No. 2016-02, and is effective for the first interim period within annual periods beginning after December 15, 2019, or January 1, 2020, for the Corporation. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Adopted in 2019" for additional information.
The Corporation and its subsidiaries are obligated under non-cancelable operating leases for premises for certain financial centers and other office locations The Corporation determines if an arrangement is a lease at inception by assessing whether a contract contains a right to control an identified asset for a period of time in exchange for those goodsconsideration. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheet commencing at January 1, 2019. For purposes of calculating operating lease liabilities, lease terms include options to extend or services. Theterminate the lease when it is reasonably certain that the Corporation provides services to customers which have related performance obligationswill exercise that are completed to recognize revenue. The Corporation's revenues are generally recognized either immediately uponoption and begins when the completionCorporation has control and possession of the services or over time asleased property, which may be before rental payments are due under the services are performed. Any services performed over time generally require services to be rendered each period and therefore progress in completing these services is measured based upon the passage of time.
The following tables disaggregate the Corporation's revenue by major source for the three and nine months ended September 30, 2018 and 2017.
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2018 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Net interest income (1) | $ | 41,667 |
| | $ | 9 |
| | $ | — |
| | $ | (1,253 | ) | | $ | 40,423 |
|
| | | | | | | | | |
Noninterest income: | | | | | | | | | |
Trust fee income | — |
| | 1,960 |
| | — |
| | — |
| | 1,960 |
|
Service charges on deposit accounts | 1,454 |
| | — |
| | — |
| | — |
| | 1,454 |
|
Investment advisory commission and fee income | — |
| | 3,785 |
| | — |
| | — |
| | 3,785 |
|
Insurance commission and fee income | — |
| | — |
| | 3,643 |
| | — |
| | 3,643 |
|
Other service fee income (2) | 2,032 |
| | 50 |
| | 202 |
| | — |
| | 2,284 |
|
Bank owned life insurance income (1) | 708 |
| | — |
| | — |
| | 157 |
| | 865 |
|
Net gain on mortgage banking activities (1) | 754 |
| | — |
| | — |
| | — |
| | 754 |
|
Other (loss) income (2) | 122 |
| | — |
| | — |
| | (6 | ) | | 116 |
|
Total noninterest income | $ | 5,070 |
| | $ | 5,795 |
| | $ | 3,845 |
| | $ | 151 |
| | $ | 14,861 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Net interest income (1) | $ | 38,130 |
| | $ | 4 |
| | $ | — |
| | $ | (1,247 | ) | | $ | 36,887 |
|
| | | | | | | | | |
Noninterest income: | | | | | | | | | |
Trust fee income | — |
| | 1,924 |
| | — |
| | — |
| | 1,924 |
|
Service charges on deposit accounts | 1,371 |
| | — |
| | — |
| | — |
| | 1,371 |
|
Investment advisory commission and fee income | — |
| | 3,455 |
| | — |
| | — |
| | 3,455 |
|
Insurance commission and fee income | — |
| | — |
| | 3,492 |
| | — |
| | 3,492 |
|
Other service fee income (2) | 1,947 |
| | 49 |
| | 127 |
| | — |
| | 2,123 |
|
Bank owned life insurance income (1) | 675 |
| | — |
| | — |
| | 67 |
| | 742 |
|
Net gain on sales of investment securities (1) | 6 |
| | — |
| | — |
| | 1 |
| | 7 |
|
Net gain on mortgage banking activities (1) | 908 |
| | — |
| | — |
| | — |
| | 908 |
|
Other income (2) | 86 |
| | — |
| | 1 |
| | — |
| | 87 |
|
Total noninterest income | $ | 4,993 |
| | $ | 5,428 |
| | $ | 3,620 |
| | $ | 68 |
| | $ | 14,109 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2018 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Net interest income (1) | $ | 120,423 |
| | $ | 22 |
| | $ | — |
| | $ | (3,760 | ) | | $ | 116,685 |
|
| | | | | | | | | |
Noninterest income: | | | | | | | | | |
Trust fee income | — |
| | 6,000 |
| | — |
| | — |
| | 6,000 |
|
Service charges on deposit accounts | 4,116 |
| | — |
| | — |
| | — |
| | 4,116 |
|
Investment advisory commission and fee income | — |
| | 11,246 |
| | — |
| | — |
| | 11,246 |
|
Insurance commission and fee income | — |
| | — |
| | 12,243 |
| | — |
| | 12,243 |
|
Other service fee income (2) | 6,139 |
| | 151 |
| | 594 |
| | — |
| | 6,884 |
|
Bank owned life insurance income (1) | 2,567 |
| | — |
| | — |
| | 177 |
| | 2,744 |
|
Net gain on sales of investment securities (1) | 10 |
| | — |
| | — |
| | — |
| | 10 |
|
Net gain on mortgage banking activities (1) | 2,412 |
| | — |
| | — |
| | — |
| | 2,412 |
|
Other (loss) income (2) | 76 |
| | — |
| | (2 | ) | | 28 |
| | 102 |
|
Total noninterest income | $ | 15,320 |
| | $ | 17,397 |
| | $ | 12,835 |
| | $ | 205 |
| | $ | 45,757 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 |
(Dollars in thousands) | Banking | | Wealth Management | | Insurance | | Other | | Consolidated |
Net interest income (1) | $ | 110,223 |
| | $ | 6 |
| | $ | — |
| | $ | (3,759 | ) | | $ | 106,470 |
|
| | | | | | | | | |
Noninterest income: | | | | | | | | | |
Trust fee income | — |
| | 5,847 |
| | — |
| | — |
| | 5,847 |
|
Service charges on deposit accounts | 3,927 |
| | — |
| | — |
| | — |
| | 3,927 |
|
Investment advisory commission and fee income | — |
| | 9,969 |
| | — |
| | — |
| | 9,969 |
|
Insurance commission and fee income | — |
| | — |
| | 11,530 |
| | — |
| | 11,530 |
|
Other service fee income (2) | 5,825 |
| | 149 |
| | 381 |
| | — |
| | 6,355 |
|
Bank owned life insurance income (1) | 2,886 |
| | — |
| | — |
| | 261 |
| | 3,147 |
|
Net gain on sales of investment securities (1) | 39 |
| | — |
| | — |
| | 4 |
| | 43 |
|
Net gain on mortgage banking activities (1) | 3,558 |
| | — |
| | — |
| | — |
| | 3,558 |
|
Other income (2) | 710 |
| | — |
| | 2 |
| | — |
| | 712 |
|
Total noninterest income | $ | 16,945 |
| | $ | 15,965 |
| | $ | 11,913 |
| | $ | 265 |
| | $ | 45,088 |
|
| |
(1) | Net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives are excluded from the scope of the standard. Noninterest income streams that are out-of-scope of the standard include bank owned life insurance income, sales of investment securities and mortgage banking activities. |
| |
(2) | Other service fee income and other income include certain items that are in scope and certain items that are out of scope of the standard and are described further in the following paragraphs. |
Banking Segment
The Banking segment provides financial services to consumer and commercial customers and governmental units. These services include a full range of banking services such as deposit taking, loan origination and servicing, mortgage banking, other general banking services and equipment lease financing.
Service charges on deposit accounts are generally earned on depository accounts for commercial and consumer customers and primarily includes fees for account services, overdraft services, and cash management services for commercial customers. Account services include fees for event-driven services such as ATM transactions and fees for periodic account maintenance activities. Cash management services for commercial customers include fees for event-driven services such as lockbox processing and line sweep services and fees for periodic account maintenance activities. The Corporation's obligation for event-driven services is satisfied at the time of the event when the service is delivered, while the obligation for periodic services is satisfied over the course of each month. Obligations for overdraft services is satisfied at the time of the overdraft.
Other service fee income is earned from commercial and consumer customers and primarily includes credit and debit card interchange and merchant revenues, mortgage servicing income, which is out of scope of the standard, and other deposit related service fee income such as wire transfers, check services and safe deposit boxes. Interchange and merchant revenues are recognized concurrently with the delivery of services on a monthly basis. Other deposit related service fee income include fees for event-driven services, such as wire transfers and check services, and fees for periodic services such as safe deposit box services. The obligation for event-driven services is satisfied at the time of the event when the service is delivered, while the obligation for periodic services is satisfied over the course of each month.
Other income primarilyincludes net gains or losses from the sales of loans and leases, net gains or losses from the sales or disposition of fixedlease. Right-of use assets and net gains or losses on interest rate swaps, all of whichoperating lease liabilities are out of scope of the standard, and net gains or losses on sales and write-downs of other real estate owned. Net gains or losses on sales of other real estate owned are recognized at the point in time in which control of the other real estate owned is transferred.
Wealth Management Segment
The wealth management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisory managing private investment accounts for both individuals and institutions.
Trust fee income is earned for providing trust, investment management and other related services. Obligations for trust and other related services are generally satisfied over time but may be satisfied at points in time for certain activities that are transactional in nature and obligations for investment management services are generally performed over time. Fees for trust fee income are typically based on a tiered scale relative to the market value of assets under management and are recognized in conjunction with the delivery of services.
Investment advisory commission and fee income include fees for financial planning, guardian and custodian of employee benefits, investment advisory, and brokerage services. Obligations for financial planning, guardian and custodian of employee benefits, and investment advisory services are generally satisfied over time and fees, typically based on a tiered scale relative to the market value of assets under management are recognized in conjunction with the delivery of services. Brokerage services are typically event driven and are based on the size and numberpresent value of transactions executedlease payments, discounted using the Corporation’s incremental borrowing rate, over the lease term at the client’s direction and recognized oncommencement date. The Corporation determines its incremental borrowing rate using publicly available information available for debt issuers with similar credit ratings as the trade date.
Insurance Segment
The insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions, personal insurance lines and human resources consulting.
Insurance commission and fee income is derived primarily from commissions fromBank, as the sale of insurance policies, which are generally calculated as a percentagemajority of the policy premium, and contingent income, which is calculated based on the performanceCorporation’s leases are related to properties of the policies held by each carrier. ObligationsBank. The Corporation continues to separately account for lease and non-lease components (such as property taxes, insurance, and maintenance costs) as historically reported. Rent expense for the saleCorporation's leases, which generally have escalating rental payments over the term of insurance policies are generally satisfied at the point in time which the policylease, is executed and are recognized at the point in time in which the amounts are knownand collection is reasonably assured. Obligations for contingent income are generally satisfied over time and are recognized at the point in time in which the amounts are known and collection is reasonably assured.
Other service fee income is earned from human resources consulting services. These obligations are generally satisfied over time and are recognized on a periodic basis.straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms generally containing one or more five-year renewal options. At June 30, 2019, the Corporation's leases have remaining terms of 1 to 24 years. The Corporation does not currently have any leases with an initial term of 12 months or less, including reasonably certain renewal terms; any such future leases will be recorded on the balance sheet.
Information with respect to operating leases for the under FASB ASC 842 "Leases" follows:
|
| | | | | | | |
(Dollars in thousands) | Three months ended June 30, 2019 | | Six months ended June 30, 2019 |
Lease cost | $ | 947 |
| | $ | 1,894 |
|
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from leases | | | 1,739 |
|
| | | |
| | | |
| At June 30, 2019 | | |
Weighted-average remaining lease term in years | 15.2 |
| | |
Weighted-average discount rate | 4.24 | % | | |
At June 30, 2019, maturities of lease liabilities under FASB ASC 842 "Leases" are as follows:
|
| | | | |
Maturity of Lease Liabilities | (Dollars in thousands) | Amount |
Remainder of 2019 | | $ | 1,797 |
|
2020 | | 3,633 |
|
2021 | | 3,689 |
|
2022 | | 3,662 |
|
2023 | | 3,611 |
|
Thereafter | | 37,298 |
|
Total lease payments | | 53,690 |
|
Less: imputed interest | | (15,082 | ) |
Present value of lease liabilities | | $ | 38,608 |
|
At December 31, 2018, a summary of the future minimum rental commitments under non-cancelable operating leases with original or remaining terms greater than one year under FASB ASC 840 "Leases" was as follows:
|
| | | | |
| | |
Year | (Dollars in thousands) | Amount |
2019 | | $ | 3,536 |
|
2020 | | 3,632 |
|
2021 | | 3,688 |
|
2022 | | 3,660 |
|
2023 | | 3,610 |
|
Thereafter | | 37,389 |
|
Total | | $ | 55,515 |
|
Note 15. Restructuring Charges
During January 2018, the Corporation announced the closure of two owned financial centers and one leased financial center and reduced staff associated with these financial centers, resulting in accruing a loss of $571 thousand related to the Banking business segment. These financial centers were closed in April 2018. The remaining accrued restructuring expense at January 1, 2018 of $23 thousand relates to 2016 restructuring charges.
A roll-forward of the remaining accrued restructuring expense for the nine months ended September 30, 2018 is as follows:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Severance expenses | | Write-downs and retirements of fixed assets | | Lease cancellations | | Total |
Accrued at January 1, 2018 | $ | — |
| | $ | — |
| | $ | 23 |
| | $ | 23 |
|
Restructuring charges | 366 |
| | 48 |
| | 157 |
| | 571 |
|
Payments | (284 | ) | | — |
| | (30 | ) | | (314 | ) |
Non-cash settlement | — |
| | (48 | ) | | — |
| | (48 | ) |
Accrued at September 30, 2018 | $ | 82 |
| | $ | — |
| | $ | 150 |
| | $ | 232 |
|
Note 16. Contingencies
The Corporation is periodically subject to various pending and threatened legal actions, which involve claims for monetary relief. Based upon information presently available to the Corporation, it is the Corporation's opinion that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All dollar amounts presented in tables are in thousands, except per share data. “BP” equates to “basis points”; “N/ M”NM equates to “not meaningful”; “—” equates to “zero” or “doesn’t round to a reportable number”; and “N/A” equates to “not applicable.” Certain prior period amounts have been reclassified to conform to the current-year presentation.)
Forward-Looking Statements
The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words “believe,” “anticipate,” “estimate,” “expect,” “project,” “target,” “goal” and similar expressions are intended to identify forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including but not limited to those set forth below:
Operating, legal and regulatory risks;
Economic, political and competitive forces impacting various lines of business;
Legislative, regulatory and accounting changes;
Demand for our financial products and services in our market area;
Volatility in interest rates;
The qualitycomposition and compositioncredit quality of our loan and investment portfolios;
Our ability to access cost-effective funding;
Our ability to continue to implement our business strategies;
Our ability to manage market risk, credit risk and operational risk;
Timing of revenues and expenditures;
ReturnsReturn on investment decisions;
System failures or cyber-security breaches of our information technology infrastructure and those of our third-party service providers;
Our ability to retain key employees;
Other risks and uncertainties, including those occurring in the U.S. and world financial systems; and
The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These and other risk factors are more fully described in this report and in the Univest Financial Corporation of Pennsylvania (the Corporation) Annual Report on Form 10-K for the year ended December 31, 20172018 under the section entitled "Item 1A --- Risk Factors," and from time to time in other filings made by the Corporation with the SEC.
These forward-looking statements speak only at the date of the report. The Corporation expressly disclaims any obligation to publicly release any updates or revisions to reflect any change in the Corporation’s expectations with regard to any change in events, conditions or circumstances on which any such statement is based.
Critical Accounting Policies
Management, in order to prepare the Corporation’s financial statements in conformity with U.S. generally accepted accounting principles, is required to make estimates and assumptions that affect the amounts reported in the Corporation’s financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies discussed below, could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the fair value measurement of investment securities available-for-sale and the calculation of the reserve for loan and lease losses and purchase accounting as areas with critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation’s 20172018 Annual Report on Form 10-K.
General
The Corporation is a Pennsylvania corporation organized in 1973 and registered as a bank holding company andpursuant to the
Bank Holding Company Act of 1956. Effective January 1, 2019, the name of the Corporation was changed from Univest Corporation of Pennsylvania to Univest Financial Corporation. The Corporation owns all of the capital stock of Univest Bank and Trust Co. (the Bank).The consolidated financial statements include the accounts of the Corporation and the Bank.
The Bank is engaged in the commercial and consumer banking business and provides a full range of banking and trust services to customers. The Bank is the parent company of Delview, Inc., which is the parent company of Univest Insurance, Inc., an independent insurance agency, Univest Investments, Inc., a full-service broker-dealer and investment advisory firm, and Girard Partners Ltd. (Girard Partners), a registered investment advisory firm. The Bank is also the parent company of Univest Capital, Inc., an equipment financing business, and TCG Investment Advisory, a registered investment advisor, which provides discretionary investment consulting and management services.
Through its wholly-owned subsidiaries, the Bank provides a variety of financial services tofor individuals, businesses, municipalities and businesses throughoutnon-profit organizations. Effective January 1, 2019, the Bank's marketswealth management segment was re-branded under the Girard name with associated name changes of operation.several subsidiaries while continuing to provide fiduciary services, investment management, and financial and retirement planning. The Bank is the parent company of Girard Investment Services, LLC (formerly Univest Investments, Inc.), a full-service registered broker-dealer and a licensed insurance agency, Girard Advisory Services, LLC (formerly Girard Partners Ltd.), a registered investment advisory firm, and Girard Pension Services, LLC (formerly TCG Investment Advisory, Inc.), a registered investment advisor, which provides investment consulting and management services to municipal entities. The Bank is also the parent company of Univest Insurance, LLC, an independent insurance agency and Univest Capital, Inc., an equipment financing business. The Bank's former subsidiary, Delview, Inc. was dissolved effective January 1, 2019.
The Corporation earns revenue primarily from the margins and fees generated from lending and depository services to customers as well as fee-based income from trust, insurance, mortgage banking and investment services to customers. The Corporation seeks to achieve adequate and reliable earnings through business growth while maintaining adequate levels of capital and liquidity and limiting exposure to credit and interest rate risk to Board of Directors approved levels.risk.
The Corporation seeks to establish itself as the financial provider of choice in the markets it serves. The Corporation plans to achieve this goal by offering a broad range of high quality financial products and services and by increasing market awareness of its brand and the benefits that can be derived from its products.products and services. The Corporation operates in an attractive marketmarkets for financial services but also faces intense competition from domestic and international banking organizations and other insurance and wealth management providers. The Corporation has taken initiatives to achieve its business objectives by acquiring banks, and other financial service providers and lending teams in strategic markets, through marketing, public relations and advertising, by establishing standards of service excellence for customers, and by using technology to ensure that the needs of customers are understood and satisfied.
Executive Overview
The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:
| | | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change | Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(Dollars in thousands, except per share data) | 2018 | | 2017 | | Amount | | Percent | | 2018 | | 2017 | | Amount | | Percent | 2019 | | 2018 | | Amount | | Percent | | 2019 | | 2018 | | Amount | | Percent |
Net income | $ | 14,964 |
| | $ | 11,196 |
| | $ | 3,768 |
| | 33.7 | % | | $ | 32,171 |
| | $ | 33,830 |
| | $ | (1,659 | ) | | (4.9 | )% | $ | 16,468 |
| | $ | 4,357 |
| | $ | 12,111 |
| | N/M | | $ | 32,547 |
| | $ | 17,207 |
| | $ | 15,340 |
| | 89.1 | % |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.51 |
| | $ | 0.42 |
| | $ | 0.09 |
| | 21.4 |
| | $ | 1.10 |
| | $ | 1.27 |
| | $ | (0.17 | ) | | (13.4 | ) | $ | 0.56 |
| | $ | 0.15 |
| | $ | 0.41 |
| | N/M | | $ | 1.11 |
| | $ | 0.59 |
| | $ | 0.52 |
| | 88.1 |
|
Diluted | 0.51 |
| | 0.42 |
| | 0.09 |
| | 21.4 |
| | 1.09 |
| | 1.27 |
| | (0.18 | ) | | (14.2 | ) | 0.56 |
| | 0.15 |
| | 0.41 |
| | N/M | | 1.11 |
| | 0.58 |
| | 0.53 |
| | 91.4 |
|
Return on average assets | 1.23 | % | | 1.01 | % | | 22 BP |
| | 21.8 |
| | 0.92 | % | | 1.05 | % | | (13) BP |
| | (12.4 | ) | 1.28 | % | | 0.37 | % | | 91 BP |
| | N/M | | 1.29 | % | | 0.75 | % | | 54 BP |
| | 72.0 |
|
Return on average equity | 9.70 |
| | 8.43 |
| | 127 BP |
| | 15.1 |
| | 7.05 |
| | 8.73 |
| | (168) BP |
| | (19.2 | ) | 10.23 |
| | 2.86 |
| | 737 BP |
| | N/M | | 10.28 |
| | 5.70 |
| | 458 BP |
| | 80.4 |
|
The Corporation reported net income of $15.0$16.5 million, or $0.51$0.56 diluted earnings per share, for the three months ended SeptemberJune 30, 2018,2019, compared to net income of $11.2$4.4 million, or $0.42$0.15 diluted earnings per share, for the three months ended SeptemberJune 30, 2017.2018. Net income for the ninesix months ended SeptemberJune 30, 20182019 was $32.2$32.5 million, or $1.09$1.11 diluted earnings per share, compared to net income of $33.8$17.2 million, or $1.27$0.58 diluted earnings per share, for the ninesix months ended SeptemberJune 30, 2017.2018.
The financial results for the ninethree and six months ended SeptemberJune 30, 2018 included a pre-tax charge to the provision for loan and lease losses of $12.7 million (after-tax charge of $10.1 million) in the second quarter of 2018,, which represented $0.34 diluted earnings per share in each period, related to alleged fraudulent activities perpetrated by one or more employees of a borrower. In addition, the financial results for the ninethree and six months ended SeptemberJune 30, 2018 included a tax-free bank owned life insurance ("BOLI")(BOLI) death benefit claims of $446 thousand, during the second quarter of 2018, which represented $0.02 diluted earnings per share as well asfor each period. The six months ended June 30, 2018 included restructuring costs related to financial center closures of $451 thousand, net of tax, or $0.02 of diluted earnings per share, recognized in the first quarter of 2018. There were no restructuring costs during the nine months ended September 30, 2017
The financial results for the nine months ended September 30, 2017 included a tax-free BOLI death benefit claim of $889 thousand recognized in the second quarter of 2017,2018, which represented $0.03$0.02 diluted earnings per share.
The financial results for the three and nine months ended September 30, 2018 also included a reduction in the Corporation's statutory federal income tax rate from 35% to 21% effective January 1, 2018 in accordance with the Tax Cuts and Jobs Act of 2017 (“TCJA”).
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on loans and leases, investments and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is the principal source of the Corporation’s revenue. Table 1 presents a summary of the Corporation’s average balances, tax-equivalent interest income, and interest expense, and the tax-equivalent yields earned on average assets, and the cost of average liabilities, and shareholders’ equity on a tax-equivalent basis for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017.2018. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the weighted average tax-equivalent yield on interest-earning assets less the weighted average cost of interest-bearing liabilities. The effect of net interestinterest- free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity. Table 2 analyzes the changes in the tax-equivalent net interest income for the periods broken down by their rate and volume components.
Table 1, Table 2,Three and the interest income and net interest income analysis contain tax-equivalent financial information and measures determined by methods other than in accordance with U.S. GAAP. The management of the Corporation uses this non-GAAP financial information and measures in its analysis of the Corporation's performance. This financial information and measures should not be considered a substitute for GAAP basis financial information or measures nor should they be viewed as a substitute for operating results determined in accordance with GAAP. Management believes the presentation of the non-GAAP financial information and measures provide useful information that is essential to a proper understanding of the financial results of the Corporation.
The statutory federal tax rate utilized in the respective tables and analyses was 21% for the three and ninesix months ended SeptemberJune 30, 2019 versus 2018 and was 35% for the three and nine months ended September 30, 2017.
Three and nine months ended September 30, 2018 versus 2017
Reported net interest income for the three months ended September 30, 2018 was $40.4 million, an increase of $3.5 million, or 9.6%, compared to the three months ended September 30, 2017. Net interest income on a tax-equivalent basis for the three months ended SeptemberJune 30, 20182019 was $41.1$43.3 million, an increase of $2.8$3.6 million, or 7.3%9.2%, compared to the three months ended SeptemberJune 30, 2017. Reported net interest income for the nine months ended September 30, 2018 was $116.7 million, an increase of $10.2 million, or 9.6%, compared to the same period in 2017.2018. Net interest income on a tax-equivalent basis for the ninesix months ended SeptemberJune 30, 20182019 was $118.7$85.5 million, an increase of $8.0$7.9 million, or 7.2%10.1%, compared to the same period in 2017.
2018. The increase in reported and tax-equivalent net interest income for the ninethree and six months ended SeptemberJune 30, 20182019 compared to the same periodperiods in 20172018 was primarily due to the growth in average loans of 10.2%10.1% and interest free funding through growth in average equity of 17.7%.10.3%, respectively.
The net interest margin on a tax-equivalent basis for the thirdsecond quarter of 20182019 was 3.71%3.67%, compared to 3.80%3.73% for the thirdsecond quarter of 2017.2018. During the three and six months ended June 30, 2019, excess liquidity reduced net interest margin by approximately 5 basis points and 3 basis points, respectively. This excess liquidity was primarily driven by strong deposit growth. The net interest margin on a tax-equivalent basis for the ninesix months ended SeptemberJune 30, 20182019 was 3.72%3.71%, compared to 3.78%3.72% for the ninesix months ended SeptemberJune 30, 2017.2018. The favorable impact of purchase accounting accretion was threeone basis points ($343 thousand)point for the three months ended SeptemberJune 30, 2018,2019, compared to 11three basis points ($1.1 million) for the three months ended SeptemberJune 30, 2017.2018. The favorable impact of purchase accounting accretion was threeone basis point for the six months ended June 30, 2019, compared to two basis points ($838 thousand) for the ninesix months ended SeptemberJune 30, 2018, compared to nine basis points ($2.6 million) for the nine months ended September 30, 2017.2018.
Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis | | | Three Months Ended September 30, | Three Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
(Dollars in thousands) | Average Balance | | Income/ Expense | | Average Rate | | Average Balance | | Income/ Expense | | Average Rate | Average Balance | | Income/ Expense | | Average Rate | | Average Balance | | Income/ Expense | | Average Rate |
Assets: | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning deposits with other banks | $ | 80,678 |
| | $ | 398 |
| | 1.96 | % | | $ | 43,941 |
| | $ | 133 |
| | 1.20 | % | $ | 102,623 |
| | $ | 569 |
| | 2.22 | % | | $ | 37,254 |
| | $ | 148 |
| | 1.59 | % |
U.S. government obligations | 22,331 |
| | 90 |
| | 1.60 |
| | 31,126 |
| | 110 |
| | 1.40 |
| 17,315 |
| | 73 |
| | 1.69 |
| | 23,183 |
| | 91 |
| | 1.57 |
|
Obligations of states and political subdivisions | 68,703 |
| | 581 |
| | 3.36 |
| | 81,114 |
| | 846 |
| | 4.14 |
| 59,267 |
| | 507 |
| | 3.43 |
| | 71,092 |
| | 603 |
| | 3.40 |
|
Other debt and equity securities | 362,388 |
| | 2,258 |
| | 2.47 |
| | 347,622 |
| | 1,745 |
| | 1.99 |
| 394,840 |
| | 2,572 |
| | 2.61 |
| | 356,100 |
| | 2,177 |
| | 2.45 |
|
Federal funds sold and other earning assets | 31,107 |
| | 484 |
| | 6.17 |
| | 28,063 |
| | 375 |
| | 5.30 |
| |
Total interest-earning deposits, investments, federal funds sold and other earning assets | 565,207 |
| | 3,811 |
| | 2.68 |
| | 531,866 |
| | 3,209 |
| | 2.39 |
| |
Federal Home Loan Bank, Federal Reserve Bank and other stock | | 31,938 |
| | 535 |
| | 6.72 |
| | 32,788 |
| | 509 |
| | 6.23 |
|
Total interest-earning deposits, investments and other interest-earning assets | | 605,983 |
| | 4,256 |
| | 2.82 |
| | 520,417 |
| | 3,528 |
| | 2.72 |
|
Commercial, financial and agricultural loans | 796,593 |
| | 10,184 |
| | 5.07 |
| | 762,418 |
| | 8,656 |
| | 4.50 |
| 820,009 |
| | 10,589 |
| | 5.18 |
| | 810,610 |
| | 9,750 |
| | 4.82 |
|
Real estate—commercial and construction loans | 1,729,538 |
| | 20,527 |
| | 4.71 |
| | 1,549,799 |
| | 17,999 |
| | 4.61 |
| 1,912,248 |
| | 23,110 |
| | 4.85 |
| | 1,661,198 |
| | 19,044 |
| | 4.60 |
|
Real estate—residential loans | 880,589 |
| | 10,447 |
| | 4.71 |
| | 770,839 |
| | 8,751 |
| | 4.50 |
| 941,712 |
| | 11,483 |
| | 4.89 |
| | 853,769 |
| | 10,046 |
| | 4.72 |
|
Loans to individuals | 32,057 |
| | 499 |
| | 6.18 |
| | 27,509 |
| | 416 |
| | 6.00 |
| 31,939 |
| | 510 |
| | 6.40 |
| | 28,985 |
| | 444 |
| | 6.14 |
|
Municipal loans and leases | 316,149 |
| | 3,037 |
| | 3.81 |
| | 281,509 |
| | 3,208 |
| | 4.52 |
| 335,399 |
| | 3,305 |
| | 3.95 |
| | 313,181 |
| | 2,961 |
| | 3.79 |
|
Lease financings | 77,369 |
| | 1,409 |
| | 7.23 |
| | 75,161 |
| | 1,331 |
| | 7.03 |
| 81,762 |
| | 1,459 |
| | 7.16 |
| | 75,452 |
| | 1,353 |
| | 7.19 |
|
Gross loans and leases | 3,832,295 |
| | 46,103 |
| | 4.77 |
| | 3,467,235 |
| | 40,361 |
| | 4.62 |
| 4,123,069 |
| | 50,456 |
| | 4.91 |
| | 3,743,195 |
| | 43,598 |
| | 4.67 |
|
Total interest-earning assets | 4,397,502 |
| | 49,914 |
| | 4.50 |
| | 3,999,101 |
| | 43,570 |
| | 4.32 |
| 4,729,052 |
| | 54,712 |
| | 4.64 |
| | 4,263,612 |
| | 47,126 |
| | 4.43 |
|
Cash and due from banks | 48,737 |
| | | | | | 46,969 |
| | | | | 46,868 |
| | | | | | 45,158 |
| | | | |
Reserve for loan and lease losses | (26,099 | ) | | | | | | (21,425 | ) | | | | | (31,847 | ) | | | | | | (23,914 | ) | | | | |
Premises and equipment, net | 60,622 |
| | | | | | 65,025 |
| | | | | 58,873 |
| | | | | | 61,234 |
| | | | |
Operating lease right-of-use assets | | 35,821 |
| | | | | | — |
| | | | |
Other assets | 336,559 |
| | | | | | 326,662 |
| | | | | 331,681 |
| | | | | | 336,737 |
| | | | |
Total assets | $ | 4,817,321 |
| | | | | | $ | 4,416,332 |
| | | | | $ | 5,170,448 |
| | | | | | $ | 4,682,827 |
| | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing checking deposits | $ | 465,992 |
| | $ | 541 |
| | 0.46 |
| | $ | 438,956 |
| | $ | 132 |
| | 0.12 |
| $ | 457,231 |
| | $ | 457 |
| | 0.40 |
| | $ | 463,156 |
| | $ | 383 |
| | 0.33 |
|
Money market savings | 813,769 |
| | 2,664 |
| | 1.30 |
| | 587,590 |
| | 919 |
| | 0.62 |
| 982,440 |
| | 4,234 |
| | 1.73 |
| | 694,734 |
| | 1,758 |
| | 1.01 |
|
Regular savings | 787,383 |
| | 581 |
| | 0.29 |
| | 904,528 |
| | 646 |
| | 0.28 |
| 818,523 |
| | 1,013 |
| | 0.50 |
| | 803,586 |
| | 582 |
| | 0.29 |
|
Time deposits | 633,552 |
| | 2,492 |
| | 1.56 |
| | 557,757 |
| | 1,371 |
| | 0.98 |
| 688,897 |
| | 3,407 |
| | 1.98 |
| | 553,579 |
| | 1,819 |
| | 1.32 |
|
Total time and interest-bearing deposits | 2,700,696 |
| | 6,278 |
| | 0.92 |
| | 2,488,831 |
| | 3,068 |
| | 0.49 |
| 2,947,091 |
| | 9,111 |
| | 1.24 |
| | 2,515,055 |
| | 4,542 |
| | 0.72 |
|
Short-term borrowings | 129,365 |
| | 584 |
| | 1.79 |
| | 72,719 |
| | 169 |
| | 0.92 |
| 48,312 |
| | 217 |
| | 1.80 |
| | 217,327 |
| | 958 |
| | 1.77 |
|
Long-term debt | 148,323 |
| | 709 |
| | 1.90 |
| | 207,057 |
| | 794 |
| | 1.52 |
| 159,572 |
| | 836 |
| | 2.10 |
| | 155,628 |
| | 709 |
| | 1.83 |
|
Subordinated notes | 94,480 |
| | 1,261 |
| | 5.30 |
| | 94,238 |
| | 1,254 |
| | 5.28 |
| 94,663 |
| | 1,261 |
| | 5.34 |
| | 94,420 |
| | 1,261 |
| | 5.36 |
|
Total borrowings | 372,168 |
| | 2,554 |
| | 2.72 |
| | 374,014 |
| | 2,217 |
| | 2.35 |
| 302,547 |
| | 2,314 |
| | 3.07 |
| | 467,375 |
| | 2,928 |
| | 2.51 |
|
Total interest-bearing liabilities | 3,072,864 |
| | 8,832 |
| | 1.14 |
| | 2,862,845 |
| | 5,285 |
| | 0.73 |
| 3,249,638 |
| | 11,425 |
| | 1.41 |
| | 2,982,430 |
| | 7,470 |
| | 1.00 |
|
Noninterest-bearing deposits | 1,091,931 |
| | | | | | 991,487 |
| | | | | 1,198,320 |
| | | | | | 1,048,901 |
| | | | |
Operating lease liabilities | | 38,873 |
| | | | | | — |
| | | | |
Accrued expenses and other liabilities | 40,723 |
| | | | | | 34,968 |
| | | | | 38,079 |
| | | | | | 39,829 |
| | | | |
Total liabilities | 4,205,518 |
| | | | | | 3,889,300 |
| | | | | 4,524,910 |
| | | | | | 4,071,160 |
| | | | |
Shareholders’ Equity: | | | | | | | | | | | | | | | | | | | | | | |
Common stock | 157,784 |
| | | | | | 144,559 |
| | | | | 157,784 |
| | | | | | 157,784 |
| | | | |
Additional paid-in capital | 291,499 |
| | | | | | 231,575 |
| | | | | 293,496 |
| | | | | | 290,517 |
| | | | |
Retained earnings and other equity | 162,520 |
| | | | | | 150,898 |
| | | | | 194,258 |
| | | | | | 163,366 |
| | | | |
Total shareholders’ equity | 611,803 |
| | | | | | 527,032 |
| | | | | 645,538 |
| | | | | | 611,667 |
| | | | |
Total liabilities and shareholders’ equity | $ | 4,817,321 |
| | | | | | $ | 4,416,332 |
| | | | | $ | 5,170,448 |
| | | | | | $ | 4,682,827 |
| | | | |
Net interest income | | | $ | 41,082 |
| | | | | | $ | 38,285 |
| | | | | $ | 43,287 |
| | | | | | $ | 39,656 |
| | |
Net interest spread | | | | | 3.36 |
| | | | | | 3.59 |
| | | | | 3.23 |
| | | | | | 3.43 |
|
Effect of net interest-free funding sources | | | | | 0.35 |
| | | | | | 0.21 |
| | | | | 0.44 |
| | | | | | 0.30 |
|
Net interest margin | | | | | 3.71 | % | | | | | | 3.80 | % | | | | | 3.67 | % | | | | | | 3.73 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities | 143.11 | % | | | | | | 139.69 | % | | | | | 145.53 | % | | | | | | 142.96 | % | | | | |
| | | | | | | | | | | | |
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs, purchase accounting adjustments,
and unearned discount.
Nonaccrual loans and leases have been included in the average loan and lease balances.
Loans held for sale have been included in the average loan balances.
Tax-equivalent amounts for the three months ended SeptemberJune 30, 20182019 and 20172018 have been calculated using the
Corporation’s Corporation's federal applicable rate of 21% and 35%, respectively..
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
(Dollars in thousands) | Average Balance | | Income/ Expense | | Average Rate | | Average Balance | | Income/ Expense | | Average Rate | Average Balance | | Income/ Expense | | Average Rate | | Average Balance | | Income/ Expense | | Average Rate |
Assets: | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning deposits with other banks | $ | 45,931 |
| | $ | 622 |
| | 1.81 | % | | $ | 23,624 |
| | $ | 188 |
| | 1.06 | % | $ | 72,760 |
| | $ | 838 |
| | 2.32 | % | | $ | 28,269 |
| | $ | 224 |
| | 1.60 | % |
U.S. government obligations | 23,139 |
| | 275 |
| | 1.59 |
| | 32,862 |
| | 329 |
| | 1.34 |
| 18,669 |
| | 155 |
| | 1.67 |
| | 23,550 |
| | 185 |
| | 1.58 |
|
Obligations of states and political subdivisions | 71,429 |
| | 1,777 |
| | 3.33 |
| | 83,424 |
| | 2,654 |
| | 4.25 |
| 61,703 |
| | 1,053 |
| | 3.44 |
| | 72,814 |
| | 1,196 |
| | 3.31 |
|
Other debt and equity securities | 359,324 |
| | 6,530 |
| | 2.43 |
| | 349,930 |
| | 5,047 |
| | 1.93 |
| 390,440 |
| | 5,203 |
| | 2.69 |
| | 357,766 |
| | 4,272 |
| | 2.41 |
|
Federal funds sold and other earning assets | 30,992 |
| | 1,497 |
| | 6.46 |
| | 27,952 |
| | 1,129 |
| | 5.40 |
| |
Total interest-earning deposits, investments, federal funds sold and other earning assets | 530,815 |
| | 10,701 |
| | 2.70 |
| | 517,792 |
| | 9,347 |
| | 2.41 |
| |
Federal Home Loan Bank, Federal Reserve Bank and other stock | | 32,148 |
| | 1,121 |
| | 7.03 |
| | 30,933 |
| | 1,013 |
| | 6.60 |
|
Total interest-earning deposits, investments and other interest-earning assets | | 575,720 |
| | 8,370 |
| | 2.93 |
| | 513,332 |
| | 6,890 |
| | 2.71 |
|
Commercial, financial and agricultural loans | 796,520 |
| | 28,834 |
| | 4.84 |
| | 748,489 |
| | 24,669 |
| | 4.41 |
| 815,565 |
| | 21,347 |
| | 5.28 |
| | 796,483 |
| | 18,650 |
| | 4.72 |
|
Real estate—commercial and construction loans | 1,664,183 |
| | 57,189 |
| | 4.59 |
| | 1,504,024 |
| | 50,368 |
| | 4.48 |
| 1,867,510 |
| | 44,669 |
| | 4.82 |
| | 1,630,964 |
| | 36,662 |
| | 4.53 |
|
Real estate—residential loans | 857,442 |
| | 30,168 |
| | 4.70 |
| | 753,186 |
| | 25,466 |
| | 4.52 |
| 940,015 |
| | 22,895 |
| | 4.91 |
| | 845,677 |
| | 19,721 |
| | 4.70 |
|
Loans to individuals | 29,683 |
| | 1,356 |
| | 6.11 |
| | 28,304 |
| | 1,222 |
| | 5.77 |
| 32,230 |
| | 1,028 |
| | 6.43 |
| | 28,475 |
| | 857 |
| | 6.07 |
|
Municipal loans and leases | 313,710 |
| | 8,890 |
| | 3.79 |
| | 281,347 |
| | 9,513 |
| | 4.52 |
| 333,858 |
| | 6,526 |
| | 3.94 |
| | 312,470 |
| | 5,853 |
| | 3.78 |
|
Lease financings | 75,853 |
| | 4,106 |
| | 7.24 |
| | 77,050 |
| | 4,230 |
| | 7.34 |
| 81,330 |
| | 2,894 |
| | 7.18 |
| | 75,083 |
| | 2,697 |
| | 7.24 |
|
Gross loans and leases | 3,737,391 |
| | 130,543 |
| | 4.67 |
| | 3,392,400 |
| | 115,468 |
| | 4.55 |
| 4,070,508 |
| | 99,359 |
| | 4.92 |
| | 3,689,152 |
| | 84,440 |
| | 4.62 |
|
Total interest-earning assets | 4,268,206 |
| | 141,244 |
| | 4.42 |
| | 3,910,192 |
| | 124,815 |
| | 4.27 |
| 4,646,228 |
| | 107,729 |
| | 4.68 |
| | 4,202,484 |
| | 91,330 |
| | 4.38 |
|
Cash and due from banks | 45,490 |
| | | | | | 44,257 |
| | | | | 45,797 |
| | | | | | 43,839 |
| | | | |
Reserve for loan and lease losses | (24,027 | ) | | | | | | (20,045 | ) | | | | | (30,984 | ) | | | | | | (22,973 | ) | | | | |
Premises and equipment, net | 61,194 |
| | | | | | 65,076 |
| | | | | 59,025 |
| | | | | | 61,485 |
| | | | |
Operating lease right-of-use assets | | 36,472 |
| | | | | | — |
| | | | |
Other assets | 335,433 |
| | | | | | 328,010 |
| | | | | 331,272 |
| | | | | | 334,879 |
| | | | |
Total assets | $ | 4,686,296 |
| | | | | | $ | 4,327,490 |
| | | | | $ | 5,087,810 |
| | | | | | $ | 4,619,714 |
| | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing checking deposits | $ | 451,542 |
| | $ | 1,216 |
| | 0.36 |
| | $ | 437,099 |
| | $ | 355 |
| | 0.11 |
| $ | 468,019 |
| | $ | 1,171 |
| | 0.50 |
| | $ | 444,197 |
| | $ | 675 |
| | 0.31 |
|
Money market savings | 722,859 |
| | 5,765 |
| | 1.07 |
| | 560,071 |
| | 2,177 |
| | 0.52 |
| 950,641 |
| | 7,982 |
| | 1.69 |
| | 676,651 |
| | 3,101 |
| | 0.92 |
|
Regular savings | 808,276 |
| | 1,720 |
| | 0.28 |
| | 849,629 |
| | 1,441 |
| | 0.23 |
| 803,859 |
| | 1,827 |
| | 0.46 |
| | 818,895 |
| | 1,139 |
| | 0.28 |
|
Time deposits | 576,540 |
| | 5,810 |
| | 1.35 |
| | 565,437 |
| | 3,747 |
| | 0.89 |
| 672,193 |
| | 6,334 |
| | 1.90 |
| | 547,562 |
| | 3,318 |
| | 1.22 |
|
Total time and interest-bearing deposits | 2,559,217 |
| | 14,511 |
| | 0.76 |
| | 2,412,236 |
| | 7,720 |
| | 0.43 |
| 2,894,712 |
| | 17,314 |
| | 1.21 |
| | 2,487,305 |
| | 8,233 |
| | 0.67 |
|
Short-term borrowings | 174,002 |
| | 2,187 |
| | 1.68 |
| | 120,390 |
| | 756 |
| | 0.84 |
| 82,796 |
| | 855 |
| | 2.08 |
| | 196,690 |
| | 1,603 |
| | 1.64 |
|
Long-term debt | 153,211 |
| | 2,083 |
| | 1.82 |
| | 185,315 |
| | 1,876 |
| | 1.35 |
| 152,475 |
| | 1,575 |
| | 2.08 |
| | 155,697 |
| | 1,374 |
| | 1.78 |
|
Subordinated notes | 94,420 |
| | 3,783 |
| | 5.36 |
| | 94,177 |
| | 3,776 |
| | 5.36 |
| 94,633 |
| | 2,522 |
| | 5.37 |
| | 94,390 |
| | 2,522 |
| | 5.39 |
|
Total borrowings | 421,633 |
| | 8,053 |
| | 2.55 |
| | 399,882 |
| | 6,408 |
| | 2.14 |
| 329,904 |
| | 4,952 |
| | 3.03 |
| | 446,777 |
| | 5,499 |
| | 2.48 |
|
Total interest-bearing liabilities | 2,980,850 |
| | 22,564 |
| | 1.01 |
| | 2,812,118 |
| | 14,128 |
| | 0.67 |
| 3,224,616 |
| | 22,266 |
| | 1.39 |
| | 2,934,082 |
| | 13,732 |
| | 0.94 |
|
Noninterest-bearing deposits | 1,055,456 |
| | | | | | 960,797 |
| | | | | 1,144,185 |
| | | | | | 1,036,916 |
| | | | |
Operating lease liabilities | | 39,478 |
| | | | | | — |
| | | | |
Accrued expenses and other liabilities | 40,154 |
| | | | | | 36,581 |
| | | | | 40,936 |
| | | | | | 39,881 |
| | | | |
Total liabilities | 4,076,460 |
| | | | | | 3,809,496 |
| | | | | 4,449,215 |
| | | | | | 4,010,879 |
| | | | |
Shareholders’ Equity: | | | | | | | | | | | | | | | | | | | | | | |
Common stock | 157,784 |
| | | | | | 144,559 |
| | | | | 157,784 |
| | | | | | 157,784 |
| | | | |
Additional paid-in capital | 290,746 |
| | | | | | 230,793 |
| | | | | 293,123 |
| | | | | | 290,363 |
| | | | |
Retained earnings and other equity | 161,306 |
| | | | | | 142,642 |
| | | | | 187,688 |
| | | | | | 160,688 |
| | | | |
Total shareholders’ equity | 609,836 |
| | | | | | 517,994 |
| | | | | 638,595 |
| | | | | | 608,835 |
| | | | |
Total liabilities and shareholders’ equity | $ | 4,686,296 |
| | | | | | $ | 4,327,490 |
| | | | | $ | 5,087,810 |
| | | | | | $ | 4,619,714 |
| | | | |
Net interest income | | | $ | 118,680 |
| | | | | | $ | 110,687 |
| | | | | $ | 85,463 |
| | | | | | $ | 77,598 |
| | |
Net interest spread | | | | | 3.41 |
| | | | | | 3.60 |
| | | | | 3.29 |
| | | | | | 3.44 |
|
Effect of net interest-free funding sources | | | | | 0.31 |
| | | | | | 0.18 |
| | | | | 0.42 |
| | | | | | 0.28 |
|
Net interest margin | | | | | 3.72 | % | | | | | | 3.78 | % | | | | | 3.71 | % | | | | | | 3.72 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities | 143.19 | % | | | | | | 139.05 | % | | | | | 144.09 | % | | | | | | 143.23 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Notes: For rate calculation purposes, average loan and lease categories include deferred fees and costs, purchase accounting adjustments,
and unearned discount.
Nonaccrual loans and leases have been included in the average loan and lease balances.
Loans held for sale have been included in the average loan balances.
Tax-equivalent amounts for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 have been calculated using the
Corporation’s Corporation's federal applicable rate of 21% and 35%, respectively..
Table 2—Analysis of Changes in Net Interest Income
The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest income for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated proportionately.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, 2018 Versus 2017 | | September 30, 2018 Versus 2017 | June 30, 2019 Versus 2018 | | June 30, 2019 Versus 2018 |
(Dollars in thousands) | Volume Change | | Rate Change | | Total | | Volume Change | | Rate Change | | Total | Volume Change | | Rate Change | | Total | | Volume Change | | Rate Change | | Total |
Interest income: | | | | | | |
| |
| |
| | | | | | |
| |
| |
|
Interest-earning deposits with other banks | $ | 151 |
| | $ | 114 |
| | $ | 265 |
| | $ | 248 |
| | $ | 186 |
| | $ | 434 |
| $ | 343 |
| | $ | 78 |
| | $ | 421 |
| | $ | 477 |
| | $ | 137 |
| | $ | 614 |
|
U.S. government obligations | (34 | ) | | 14 |
| | (20 | ) | | (108 | ) | | 54 |
| | (54 | ) | (25 | ) | | 7 |
| | (18 | ) | | (40 | ) | | 10 |
| | (30 | ) |
Obligations of states and political subdivisions | (119 | ) | | (146 | ) | | (265 | ) | | (350 | ) | | (527 | ) | | (877 | ) | (101 | ) | | 5 |
| | (96 | ) | | (188 | ) | | 45 |
| | (143 | ) |
Other debt and equity securities | 77 |
| | 436 |
| | 513 |
| | 140 |
| | 1,343 |
| | 1,483 |
| 247 |
| | 148 |
| | 395 |
| | 409 |
| | 522 |
| | 931 |
|
Federal funds sold and other earning assets | 43 |
| | 66 |
| | 109 |
| | 131 |
| | 237 |
| | 368 |
| |
Interest on deposits, investments, federal funds sold and other earning assets | 118 |
| | 484 |
| | 602 |
| | 61 |
| | 1,293 |
| | 1,354 |
| |
Federal Home Loan Bank, Federal Reserve Bank and other stock | | (13 | ) | | 39 |
| | 26 |
| | 41 |
| | 67 |
| | 108 |
|
Interest on deposits, investments and other earning assets | | 451 |
| | 277 |
| | 728 |
| | 699 |
| | 781 |
| | 1,480 |
|
Commercial, financial and agricultural loans | 400 |
| | 1,128 |
| | 1,528 |
| | 1,653 |
| | 2,512 |
| | 4,165 |
| 113 |
| | 726 |
| | 839 |
| | 453 |
| | 2,244 |
| | 2,697 |
|
Real estate—commercial and construction loans | 2,129 |
| | 399 |
| | 2,528 |
| | 5,543 |
| | 1,278 |
| | 6,821 |
| 2,991 |
| | 1,075 |
| | 4,066 |
| | 5,555 |
| | 2,452 |
| | 8,007 |
|
Real estate—residential loans | 1,277 |
| | 419 |
| | 1,696 |
| | 3,652 |
| | 1,050 |
| | 4,702 |
| 1,065 |
| | 372 |
| | 1,437 |
| | 2,266 |
| | 908 |
| | 3,174 |
|
Loans to individuals | 71 |
| | 12 |
| | 83 |
| | 61 |
| | 73 |
| | 134 |
| 46 |
| | 20 |
| | 66 |
| | 118 |
| | 53 |
| | 171 |
|
Municipal loans and leases | 368 |
| | (539 | ) | | (171 | ) | | 1,019 |
| | (1,642 | ) | | (623 | ) | 216 |
| | 128 |
| | 344 |
| | 416 |
| | 257 |
| | 673 |
|
Lease financings | 40 |
| | 38 |
| | 78 |
| | (66 | ) | | (58 | ) | | (124 | ) | 112 |
| | (6 | ) | | 106 |
| | 219 |
| | (22 | ) | | 197 |
|
Interest and fees on loans and leases | 4,285 |
| | 1,457 |
| | 5,742 |
| | 11,862 |
| | 3,213 |
| | 15,075 |
| 4,543 |
| | 2,315 |
| | 6,858 |
| | 9,027 |
| | 5,892 |
| | 14,919 |
|
Total interest income | 4,403 |
| | 1,941 |
| | 6,344 |
| | 11,923 |
| | 4,506 |
| | 16,429 |
| 4,994 |
| | 2,592 |
| | 7,586 |
| | 9,726 |
| | 6,673 |
| | 16,399 |
|
Interest expense: | | | | | | |
| |
| |
| | | | | | |
| |
| |
|
Interest-bearing checking deposits | 9 |
| | 400 |
| | 409 |
| | 12 |
| | 849 |
| | 861 |
| (5 | ) | | 79 |
| | 74 |
| | 40 |
| | 456 |
| | 496 |
|
Money market savings | 453 |
| | 1,292 |
| | 1,745 |
| | 773 |
| | 2,815 |
| | 3,588 |
| 909 |
| | 1,567 |
| | 2,476 |
| | 1,591 |
| | 3,290 |
| | 4,881 |
|
Regular savings | (87 | ) | | 22 |
| | (65 | ) | | (65 | ) | | 344 |
| | 279 |
| 11 |
| | 420 |
| | 431 |
| | (22 | ) | | 710 |
| | 688 |
|
Time deposits | 209 |
| | 912 |
| | 1,121 |
| | 76 |
| | 1,987 |
| | 2,063 |
| 521 |
| | 1,067 |
| | 1,588 |
| | 875 |
| | 2,141 |
| | 3,016 |
|
Interest on time and interest-bearing deposits | 584 |
| | 2,626 |
| | 3,210 |
| | 796 |
| | 5,995 |
| | 6,791 |
| 1,436 |
| | 3,133 |
| | 4,569 |
| | 2,484 |
| | 6,597 |
| | 9,081 |
|
Short-term borrowings | 187 |
| | 228 |
| | 415 |
| | 441 |
| | 990 |
| | 1,431 |
| (757 | ) | | 16 |
| | (741 | ) | | (1,098 | ) | | 350 |
| | (748 | ) |
Long-term debt | (256 | ) | | 171 |
| | (85 | ) | | (364 | ) | | 571 |
| | 207 |
| 19 |
| | 108 |
| | 127 |
| | (28 | ) | | 229 |
| | 201 |
|
Subordinated notes | 3 |
| | 4 |
| | 7 |
| | 7 |
| | — |
| | 7 |
| |
Interest on borrowings | (66 | ) | | 403 |
| | 337 |
| | 84 |
| | 1,561 |
| | 1,645 |
| (738 | ) | | 124 |
| | (614 | ) | | (1,126 | ) | | 579 |
| | (547 | ) |
Total interest expense | 518 |
| | 3,029 |
| | 3,547 |
| | 880 |
| | 7,556 |
| | 8,436 |
| 698 |
| | 3,257 |
| | 3,955 |
| | 1,358 |
| | 7,176 |
| | 8,534 |
|
Net interest income | $ | 3,885 |
| | $ | (1,088 | ) | | $ | 2,797 |
| | $ | 11,043 |
| | $ | (3,050 | ) | | $ | 7,993 |
| $ | 4,296 |
| | $ | (665 | ) | | $ | 3,631 |
| | $ | 8,368 |
| | $ | (503 | ) | | $ | 7,865 |
|
Interest Income
Three and ninesix months ended SeptemberJune 30, 20182019 versus 20172018
Interest income on a tax-equivalent basis for the three months ended SeptemberJune 30, 20182019 was $49.9$54.7 million, an increase of $6.3$7.6 million, or 14.6%16.1%, from the same period in 2017.2018. Interest income on a tax-equivalent basis for the ninesix months ended SeptemberJune 30, 20182019 was $141.2$107.7 million, an increase of $16.4 million, or 13.2%18.0%, from the same period in 2017.2018. The increase in interest income (tax-equivalent) for the three and ninesix months ended SeptemberJune 30, 20182019 was primarily due to organic loan growth in commercial real estate commercial business and residential real estate loans. In addition,loans and an increase in loan yields increasedprimarily for commercial business and commercial real estate loans as the Federal Reserve increased interest rates 75 basis points in 2017 and 75100 basis points in 2018. The favorable impact of purchase accounting accretion on interest-earning assets was one basis point ($182 thousand)for the three and six months ended June 30, 2019, compared to one basis point for the three months ended SeptemberJune 30, 2018 compared to a favorableand no impact of five basis points ($527 thousand) foron the same period in the prior year. The favorable impact of purchase accounting accretionyield on interest-earning assets was one basis point ($308 thousand) for the ninesix months ended SeptemberJune 30, 2018, compared to a favorable impact of three basis points ($837 thousand) for the same period in the prior year.2018.
Interest Expense
Three and ninesix months ended SeptemberJune 30, 20182019 versus 20172018
Interest expense for the three months ended SeptemberJune 30, 20182019 was $8.8$11.4 million, an increase of $3.5$4.0 million, or 67.1%52.9%, from the same period in 2017.2018. Interest expense for the ninesix months ended SeptemberJune 30, 20182019 was $22.6$22.3 million, an increase of $8.4$8.5 million, or 59.7%
62.1%, from the same period in 2017.2018. The increase in interest expense for the three and six months ended SeptemberJune 30, 20182019 was primarily due to higher deposit and borrowing costs, which were impacted by the Federal Reserve interest rate increases in 20172018. In addition, average deposits grew 17.2% and 16.4%, respectively, for the three and six months ended June 30, 219 compared to the same periods in 2018. The favorable impact of purchase accounting amortization on interest-bearing liabilities was twoone basis points ($161 thousand)point for the three and six months ended SeptemberJune 30, 2018,2019, compared to a favorable impact of eight basis points ($539 thousand) for the same period in the prior year. The favorable impact of purchase accounting amortization on interest-bearing liabilities was three basis points ($529 thousand) for the ninethree and six months ended SeptemberJune 30, 2018, compared to a favorable impact of eight basis points ($1.7 million) for the same period in the prior year.2018.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the three and six months ended SeptemberJune 30, 20182019 was $2.7$2.1 million consistent with the same period in 2017. Net and lease charge-offs for the three months ended September 30, 2018 were $1.0$4.8 million, respectively, compared to $3.1$15.4 million and $17.5 million, respectively, for the same periodperiods in the prior year.
The provision for loan and lease losses for the nine months ended September 30, 2018 was $20.2 million compared to $7.9 million for the same period in 2017.2018. Net loan and lease charge-offs for the ninethree and six months ended SeptemberJune 30, 20182019 were $14.4$1.1 million and $1.5 million, respectively, compared to $4.9$13.2 million and $13.4 million, respectively, for the same periodperiods in the prior year. The increase in bothBoth net loan and lease charge-offs and the provision for loan and leaseslease losses and loan and lease charge-offs forduring 2018 included the nine months ended September 30, 2018 was primarily due to thepreviously discussed $12.7 million commercial loan charge-off during the second quarter of 2018 previously discussed in the Executive Overview.
charge-off.
Noninterest Income
The following table presents noninterest income for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017:2018: | | | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change | Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(Dollars in thousands) | 2018 | | 2017 | | Amount | | Percent | | 2018 | | 2017 | | Amount | | Percent | 2019 | | 2018 | | Amount | | Percent | | 2019 | | 2018 | | Amount | | Percent |
Trust fee income | $ | 1,960 |
| | $ | 1,924 |
| | $ | 36 |
| | 1.9 | % | | $ | 6,000 |
| | $ | 5,847 |
| | $ | 153 |
| | 2.6 | % | $ | 2,054 |
| | $ | 2,044 |
| | $ | 10 |
| | 0.5 | % | | $ | 3,941 |
| | $ | 4,040 |
| | $ | (99 | ) | | (2.5 | )% |
Service charges on deposit accounts | 1,454 |
| | 1,371 |
| | 83 |
| | 6.1 |
| | 4,116 |
| | 3,927 |
| | 189 |
| | 4.8 |
| 1,447 |
| | 1,335 |
| | 112 |
| | 8.4 |
| | 2,882 |
| | 2,662 |
| | 220 |
| | 8.3 |
|
Investment advisory commission and fee income | 3,785 |
| | 3,455 |
| | 330 |
| | 9.6 |
| | 11,246 |
| | 9,969 |
| | 1,277 |
| | 12.8 |
| 4,055 |
| | 3,778 |
| | 277 |
| | 7.3 |
| | 7,844 |
| | 7,461 |
| | 383 |
| | 5.1 |
|
Insurance commission and fee income | 3,643 |
| | 3,492 |
| | 151 |
| | 4.3 |
| | 12,243 |
| | 11,530 |
| | 713 |
| | 6.2 |
| 3,941 |
| | 3,712 |
| | 229 |
| | 6.2 |
| | 9,085 |
| | 8,600 |
| | 485 |
| | 5.6 |
|
Other service fee income | 2,284 |
| | 2,123 |
| | 161 |
| | 7.6 |
| | 6,884 |
| | 6,355 |
| | 529 |
| | 8.3 |
| 2,590 |
| | 2,431 |
| | 159 |
| | 6.5 |
| | 4,857 |
| | 4,600 |
| | 257 |
| | 5.6 |
|
Bank owned life insurance income | 865 |
| | 742 |
| | 123 |
| | 16.6 |
| | 2,744 |
| | 3,147 |
| | (403 | ) | | (12.8 | ) | 743 |
| | 1,210 |
| | (467 | ) | | (38.6 | ) | | 1,695 |
| | 1,879 |
| | (184 | ) | | (9.8 | ) |
Net gain on sales of investment securities | — |
| | 7 |
| | (7 | ) | | N/M |
| | 10 |
| | 43 |
| | (33 | ) | | (76.7 | ) | 7 |
| | — |
| | 7 |
| | N/M |
| | 8 |
| | 10 |
| | (2 | ) | | (20.0 | ) |
Net gain on mortgage banking activities | 754 |
| | 908 |
| | (154 | ) | | (17.0 | ) | | 2,412 |
| | 3,558 |
| | (1,146 | ) | | (32.2 | ) | 796 |
| | 942 |
| | (146 | ) | | (15.5 | ) | | 1,279 |
| | 1,658 |
| | (379 | ) | | (22.9 | ) |
Other income | 116 |
| | 87 |
| | 29 |
| | 33.3 |
| | 102 |
| | 712 |
| | (610 | ) | | (85.7 | ) | |
Other income (loss) | | 723 |
| | (138 | ) | | 861 |
| | N/M |
| | 1,062 |
| | (14 | ) | | 1,076 |
| | N/M |
|
Total noninterest income | $ | 14,861 |
| | $ | 14,109 |
| | $ | 752 |
| | 5.3 | % | | $ | 45,757 |
| | $ | 45,088 |
| | $ | 669 |
| | 1.5 | % | $ | 16,356 |
| | $ | 15,314 |
| | $ | 1,042 |
| | 6.8 | % | | $ | 32,653 |
| | $ | 30,896 |
| | $ | 1,757 |
| | 5.7 | % |
Three and ninesix months ended SeptemberJune 30, 20182019 versus 20172018
Noninterest income for the three months ended SeptemberJune 30, 20182019 was $14.9$16.4 million, an increase of $752 thousand,$1.0 million, or 5.3%6.8%, from the three months ended SeptemberJune 30, 2017.2018. Noninterest income for the ninesix months ended SeptemberJune 30, 20182019 was $45.8$32.7 million, an increase of $669 thousand,$1.8 million, or 1.5%5.7%, from the samecomparable period in the prior year.
Investment advisory commission and fee income increased $330$277 thousand, or 9.6%7.3%, for the three months and $1.3 million,$383 thousand, or 12.8%5.1%, for the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to new customer relationships and continued favorable market performance.relationships. Insurance commission and fee income increased $151$229 thousand, or 4.3%6.2%, for the three months ended June 30, 2019, primarily due to an increase in premiums for commercial lines and group life and health. Insurance commission and fee income increased $485 thousand, or 5.6%, for the six months ended June 30, 2019, primarily due to an increase in premiums for commercial lines, group life and health and contingent commission income. Service charges on deposit accounts increased $112 thousand, or 8.4%, for the three months and $713$220 thousand, or 6.2%8.3%, for the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to an increase in group life and health premiums and an increase in contingent commissionincreased fee income of $374 thousand, which is largely recognized in the first quarter of the year.on commercial cash management accounts. Other service fee income increased $161$159 thousand, or 7.6%6.5%, for the three months and $529$257 thousand, or 8.3%5.6%, for the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to increases in debit card interchange income.
Other income mortgage servicing feesincreased $861 thousand for the three months and human resource$1.1 million for the six months ended June 30, 2019. Fees on risk participation agreements increased $284 thousand for the three months and payroll consulting services within$543 thousand for the insurance linesix months ended June 30, 2019 driven by increased customer activity. Gain on sale of business. Service chargessmall business administration (SBA) loans increased $259 thousand for the three months and $313 thousand for the six months ended June 30, 2019 related to increased SBA loan sale activity. Net loss on deposit accounts increased $83valuations and sales of other real estate owned was $55 thousand for the six months ended June 30, 2019 compared to $482 thousand for the three and six months ended June 30, 2018.
These increases were partially offset by a decrease in BOLI income of $467 thousand, or 6.1%38.6%, for the three months and $189$184 thousand, or 4.8%9.8%, for the ninesix months ended SeptemberJune 30, 2018, primarily due to increased fee income on cash management accounts.
BOLI income decreased $403 thousand for the nine months ended September 30, 20182019. These decreases were primarily due to proceeds from BOLI death benefits of $446 thousand recognized in the second quarter of 2018 compared to $889 thousand in the second quarter of 2017.2018. The net gain on mortgage banking activities decreased $154$146 thousand, or 17.0%15.5%, for the three months and $1.1 million,$379 thousand, or 32.2%,22.9% for the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to a decreasecontraction in refinance mortgage volume, a shortage of housing supply and the Bank retaining, on balance-sheet, a higher percentage of its mortgage originations. Such on balance-sheet loans are predominantly hybrid adjustable rate mortgages. Other income decreased $610 thousand, or 85.7%, for the nine months ended September 30, 2018. The decrease in the nine months ended September 30, 2018 was primarily duemargins to a net loss of $325 thousand related to valuations and sales of other real estate owned and sales of closed branches as compared to a net gain of $245 thousand of such assets in the nine months ended September 30, 2017.
remain price competitive.
Noninterest Expense
The following table presents noninterest expense for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:
| | | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change | Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(Dollars in thousands) | 2018 | | 2017 | | Amount | | Percent | | 2018 | | 2017 | | Amount | | Percent | 2019 | | 2018 | | Amount | | Percent | | 2019 | | 2018 | | Amount | | Percent |
Salaries, benefits and commissions | $ | 20,321 |
| | $ | 19,185 |
| | $ | 1,136 |
| | 5.9 | % | | $ | 61,033 |
| | $ | 56,652 |
| | $ | 4,381 |
| | 7.7 | % | $ | 22,089 |
| | $ | 20,065 |
| | $ | 2,024 |
| | 10.1 | % | | $ | 43,653 |
| | $ | 40,712 |
| | $ | 2,941 |
| | 7.2 | % |
Net occupancy | 2,515 |
| | 2,523 |
| | (8 | ) | | (0.3 | ) | | 7,805 |
| | 7,872 |
| | (67 | ) | | (0.9 | ) | 2,601 |
| | 2,533 |
| | 68 |
| | 2.7 |
| | 5,212 |
| | 5,290 |
| | (78 | ) | | (1.5 | ) |
Equipment | 1,042 |
| | 1,019 |
| | 23 |
| | 2.3 |
| | 3,132 |
| | 3,043 |
| | 89 |
| | 2.9 |
| 1,065 |
| | 1,067 |
| | (2 | ) | | (0.2 | ) | | 2,055 |
| | 2,090 |
| | (35 | ) | | (1.7 | ) |
Data processing | 2,339 |
| | 2,118 |
| | 221 |
| | 10.4 |
| | 6,662 |
| | 6,257 |
| | 405 |
| | 6.5 |
| 2,627 |
| | 2,091 |
| | 536 |
| | 25.6 |
| | 5,141 |
| | 4,323 |
| | 818 |
| | 18.9 |
|
Professional fees | 1,370 |
| | 1,447 |
| | (77 | ) | | (5.3 | ) | | 4,056 |
| | 3,934 |
| | 122 |
| | 3.1 |
| 1,307 |
| | 1,331 |
| | (24 | ) | | (1.8 | ) | | 2,571 |
| | 2,686 |
| | (115 | ) | | (4.3 | ) |
Marketing and advertising | 461 |
| | 271 |
| | 190 |
| | 70.1 |
| | 1,368 |
| | 1,125 |
| | 243 |
| | 21.6 |
| 622 |
| | 526 |
| | 96 |
| | 18.3 |
| | 938 |
| | 907 |
| | 31 |
| | 3.4 |
|
Deposit insurance premiums | 544 |
| | 409 |
| | 135 |
| | 33.0 |
| | 1,387 |
| | 1,262 |
| | 125 |
| | 9.9 |
| 430 |
| | 452 |
| | (22 | ) | | (4.9 | ) | | 882 |
| | 843 |
| | 39 |
| | 4.6 |
|
Intangible expenses | 479 |
| | 690 |
| | (211 | ) | | (30.6 | ) | | 1,685 |
| | 1,895 |
| | (210 | ) | | (11.1 | ) | 417 |
| | 594 |
| | (177 | ) | | (29.8 | ) | | 843 |
| | 1,206 |
| | (363 | ) | | (30.1 | ) |
Restructuring charges | — |
| | — |
| | — |
| | — |
| | 571 |
| | — |
| | 571 |
| | N/M |
| — |
| | — |
| | — |
| | — |
| | — |
| | 571 |
| | (571 | ) | | N/M |
|
Other expense | 5,300 |
| | 5,033 |
| | 267 |
| | 5.3 |
| | 16,144 |
| | 15,233 |
| | 911 |
| | 6.0 |
| 5,620 |
| | 5,688 |
| | (68 | ) | | (1.2 | ) | | 11,040 |
| | 10,844 |
| | 196 |
| | 1.8 |
|
Total noninterest expense | $ | 34,371 |
| | $ | 32,695 |
| | $ | 1,676 |
| | 5.1 | % | | $ | 103,843 |
| | $ | 97,273 |
| | $ | 6,570 |
| | 6.8 | % | $ | 36,778 |
| | $ | 34,347 |
| | $ | 2,431 |
| | 7.1 | % | | $ | 72,335 |
| | $ | 69,472 |
| | $ | 2,863 |
| | 4.1 | % |
Three and ninesix months ended SeptemberJune 30, 20182019 versus 20172018
Noninterest expense for the three months ended SeptemberJune 30, 20182019 was $34.4$36.8 million, an increase of $1.7$2.4 million, or 5.1%7.1%, from the three months ended SeptemberJune 30, 2017.2018. Noninterest expense for the ninesix months ended SeptemberJune 30, 20182019 was $103.8$72.3 million, an increase of $6.6$2.9 million, or 6.8%4.1%, from the comparable period in the prior year.
Salaries, benefits and commissions increased $1.1$2.0 million, or 5.9%10.1%, for the three months and $4.4$2.9 million, or 7.7%7.2%, for the ninesix months ended SeptemberJune 30, 2018,2019, primarily attributable to additional staff hired to support revenue generation across all business
lines, expansion of our financial center footprint in Lancaster Countycommercial lending groups and annual merit increases. During the first quarter of 2019, Univest hired a team of eight commercial lenders and support staff to focus on increasing Univest’s presence in Western Lancaster and York Counties, Pennsylvania. During the second quarter of 2019, a team of three commercial lenders was hired to help expand Univest’s presence in the New Jersey suburbs of Philadelphia. Data processing expense increased $221$536 thousand, or 25.6%, for the three months and $405$818 thousand, or 18.9%, for the ninesix months ended SeptemberJune 30, 20182019, primarily due to increasedcontinued investments in customer relationship management software, internal infrastructure improvements and outsourced data processing solutions. Marketing and advertising
These increases were partially offset by a decrease in intangibles expense increased $190of $177 thousand, or 29.8%, for the three months and $243$363 thousand, or 30.1%, for the ninesix months ended SeptemberJune 30, 2018 primarily related to deposit product campaigns. Other expense increased $267 thousand for the three months and $911 thousand for the nine months ended September 30, 2018 primarily2019 due to increases in Bank shares tax, loan processing expenses and increased corporate development expenses. Restructuringrun-off of the intangible assets. In addition, restructuring costs related to financial center closures and staffing rationalization were $571 thousand during the first quarter of 2018. There were no restructuring costs during the nine months ended September 30, 2017. Excluding restructuring costs, noninterest expense for the nine months increased $6.0 million or 6.2% from the comparable period in 2017.
Tax Provision
The provision for income taxes for the three months ended SeptemberJune 30, 2019 and 2018 and 2017 was $3.2$3.7 million and $4.4 million,$191 thousand, at effective rates of 17.6%18.2% and 28.3%4.2%, respectively. The provision for income taxes for the ninesix months ended SeptemberJune 30, 20182019 and 2017 2018
was $6.2$7.2 million and $12.6$3.0 million, at effective rates of 16.2%18.0% and 27.1%14.9%, respectively. As previously discussed, the Corporation's statutory federal tax rate was reduced to 21% effective January 1, 2018 in accordance with the TCJA. The Corporation's effective income tax rate for the nine months ended September 30, 2018 wasrates were favorably impacted by discrete tax benefits and proceeds from BOLI death benefits. Excluding these discrete items, the effective tax rate was 18.3% and 18.2% for the ninesix months ended SeptemberJune 30, 2019 and 2018, which reflects the impact of the Corporation's level of tax-exempt income for the period relative to the overall level of taxable income.respectively.
Financial Condition
Assets
The following table presents assets at the dates indicated:
| | | At September 30, 2018 | | At December 31, 2017 | | Change | At June 30, 2019 | | At December 31, 2018 | | Change |
(Dollars in thousands) | Amount | | Percent | Amount | | Percent |
Cash and interest-earning deposits | $ | 84,110 |
| | $ | 75,409 |
| | $ | 8,701 |
| | 11.5 |
| $ | 84,567 |
| | $ | 109,420 |
| | $ | (24,853 | ) | | (22.7 | )% |
Investment securities | 447,339 |
| | 454,082 |
| | (6,743 | ) | | (1.5 | ) | 468,833 |
| | 473,306 |
| | (4,473 | ) | | (0.9 | ) |
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost | 33,071 |
| | 27,204 |
| | 5,867 |
| | 21.6 |
| 32,755 |
| | 28,337 |
| | 4,418 |
| | 15.6 |
|
Loans held for sale | 106 |
| | 1,642 |
| | (1,536 | ) | | (93.5 | ) | 1,498 |
| | 1,754 |
| | (256 | ) | | (14.6 | ) |
Loans and leases held for investment | 3,866,169 |
| | 3,620,067 |
| | 246,102 |
| | 6.8 |
| 4,167,904 |
| | 4,006,574 |
| | 161,330 |
| | 4.0 |
|
Reserve for loan and lease losses | (27,371 | ) | | (21,555 | ) | | (5,816 | ) | | (27.0 | ) | (32,600 | ) | | (29,364 | ) | | (3,236 | ) | | (11.0 | ) |
Premises and equipment, net | 60,393 |
| | 61,797 |
| | (1,404 | ) | | (2.3 | ) | 58,292 |
| | 59,559 |
| | (1,267 | ) | | (2.1 | ) |
Operating lease right-of-use assets | | 35,508 |
| | — |
| | 35,508 |
| | N/M |
|
Goodwill and other intangibles, net | 184,964 |
| | 186,468 |
| | (1,504 | ) | | (0.8 | ) | 183,554 |
| | 184,549 |
| | (995 | ) | | (0.5 | ) |
Bank owned life insurance | 110,392 |
| | 108,246 |
| | 2,146 |
| | 2.0 |
| 113,294 |
| | 111,599 |
| | 1,695 |
| | 1.5 |
|
Accrued interest receivable and other assets | 42,825 |
| | 41,502 |
| | 1,323 |
| | 3.2 |
| 40,693 |
| | 38,613 |
| | 2,080 |
| | 5.4 |
|
Total assets | $ | 4,801,998 |
| | $ | 4,554,862 |
| | $ | 247,136 |
| | 5.4 | % | $ | 5,154,298 |
| | $ | 4,984,347 |
| | $ | 169,951 |
| | 3.4 | % |
Investment Securities
Total investments securities at SeptemberJune 30, 20182019 decreased $6.7$4.5 million from December 31, 2017.2018. Maturities and pay-downs of $55.3$36.2 million, calls of $8.4$3.1 million, sales of $1.0$15.5 million and decreasesnet amortization of purchased premiums and discounts of $1.2 million were partially offset by purchases of $43.5 million and increases in the fair value of available-for-sale investment securities of $9.4 million were partially off-set by purchases of $69.2$8.0 million. The decreaseincrease in the fair value of available-for-sale investment securities was due to increased interest rates during the year.flattening of the yield curve.
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost
The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $18.3$18.0 million and $12.5$13.6 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. FHLB stock increased $5.8$4.4 million mainly due to purchase requirements related to the increase in FHLB borrowing volume during the year.
The Bank held $14.6 million in Federal Reserve Bank stock as required by the Federal Reserve Bank at SeptemberJune 30, 20182019 and December 31, 2017.2018.
Loans and Leases
Gross loans and leases held for investment grew $246.1$161.3 million, or 6.8%4.0%, from December 31, 2017.2018. The growth in loans was primarily in commercial real estate commercial business and residential real estate loans.
Asset Quality
The Bank's strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans and leases. Performance of the loan and lease portfolio is monitored on a regular basis by Bank management and lending officers.
Loans and leases are deemed impaired when, based on current information and events, it is probable that the Bank will be unable to collect all proceeds due according to the original contractual terms of the agreement or when a loan or lease is classified as a troubled debt restructuring. Factors considered by management in determining impairment include payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.
When a loan or lease, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease is typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest,
even though the loan or lease is currently performing. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of net deferred fees and costs is suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate collectability of principal.
Loans or leases are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
At SeptemberJune 30, 2018,2019, the recorded investment in loans and leases held for investment that were considered to be impaired was $30.0$25.1 million. The related reserve for loan and lease losses was $1.0$2.4 million. At December 31, 2017,2018, the recorded investment in loans and leases that were considered to be impaired was $29.7$26.6 million. The related reserve for loan and lease losses was $131 thousand. During the first quarter of 2018, one commercial real-estate loan totaling $12.3 million was placed on non-accrual status. This was partially offset by troubled debt restructured commercial real estate loans for another borrower totaling $10.3 million being returned to performing status during the first quarter of 2018 as the borrower was in compliance with the modified terms of the restructuring for the required time period.$1.4 million. The impaired loan and lease balances consisted mainly of commercial real estate, loansresidential real estate and business loans. Impaired loans and leases include nonaccrual loans and leases and accruing troubled debt restructured loans and lease modifications and other accruing impaired loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the original contractual terms. The amount of the specific reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits.
Other real estate owned was $1.4 million$540 thousand at SeptemberJune 30, 2018,2019, compared to $1.8$1.2 million at December 31, 2017.2018. During the nine months ended September 30, 2018, two residential propertiesfirst quarter of 2019, a commercial real estate property with a carrying value of $403$654 thousand and two parcels of land with a carrying value of $74 thousand was transferred to other real estate owned and three residential properties with a carrying value of $366 thousand were sold for a net loss of $4$55 thousand. Additionally, the market value of a parcel of land was written down by $460 thousand based on a potential agreement to sell the property and the market value of a residential property was written down by $43 thousand to reflect current market conditions.
Reserve for Loan and Lease Losses
The reserve for loan and lease losses is maintained at a level representing management's best estimate of known risks and inherent losses in the portfolio, based upon management's evaluation of the portfolio's collectability. Management evaluates the need to establish reserves against losses on loans and leases on a quarterly basis. When changes in the reserve are necessary, an adjustment is made.
The reserve for loan and lease losses consists of a reserve for impaired loans and leases and a general valuation allowance on the remainder of the originated portfolio. Although management determines the amount of each element of the reserve separately, the entire reserve for loan and lease losses is available for losses onin the portfolio. The Corporation recordsdoes not provide a provisionreserve for loan losslosses for the acquired non-impaired loans only whenunless additional deterioration of the portfolio is identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of acquired credit impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.losses.
The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve for these off-balance sheet credits was $437$418 thousand and $390$426 thousand at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
Table 3—Nonaccrual and Past Due Loans and Leases; Troubled Debt Restructured Loans and Lease Modifications; Other Real Estate Owned; and Related Ratios
The following table details information pertaining to the Corporation’s nonperforming assets at the dates indicated. Nonperforming loans and assets exclude acquired credit impaired loans from Fox Chase and Valley Green.
| | (Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 | At June 30, 2019 | | At December 31, 2018 |
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications*: | | | | | | |
Commercial, financial and agricultural | $ | 2,795 |
| | $ | 4,448 |
| $ | 2,150 |
| | $ | 3,365 |
|
Real estate—commercial | 18,425 |
| | 4,285 |
| 17,739 |
| | 18,214 |
|
Real estate—construction | 106 |
| | 365 |
| 106 |
| | 106 |
|
Real estate—residential | 4,691 |
| | 3,820 |
| 5,052 |
| | 4,353 |
|
Lease financings | 1,542 |
| | 1,599 |
| 100 |
| | 170 |
|
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications* | 27,559 |
| | 14,517 |
| 25,147 |
| | 26,208 |
|
Accruing troubled debt restructured loans and lease modifications not included in the above | 766 |
| | 11,435 |
| 55 |
| | 542 |
|
Accruing loans and leases 90 days or more past due: | | | | | | |
Real estate—commercial | 83 |
| | — |
| 516 |
| | — |
|
Real estate—construction | | 230 |
| | — |
|
Real estate—residential | 128 |
| | 310 |
| 434 |
| | — |
|
Loans to individuals | 165 |
| | 195 |
| 129 |
| | 55 |
|
Lease financings | 848 |
| | 256 |
| 70 |
| | 137 |
|
Total accruing loans and leases, 90 days or more past due | 1,224 |
| | 761 |
| 1,379 |
| | 192 |
|
Total nonperforming loans and leases | 29,549 |
| | 26,713 |
| 26,581 |
| | 26,942 |
|
Other real estate owned | 1,433 |
| | 1,843 |
| 540 |
| | 1,187 |
|
Total nonperforming assets | $ | 30,982 |
| | $ | 28,556 |
| $ | 27,121 |
| | $ | 28,129 |
|
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and lease modifications) / loans and leases held for investment | 0.71 | % | | 0.40 | % | 0.60 | % | | 0.65 | % |
Nonperforming loans and leases / loans and leases held for investment | 0.76 |
| | 0.74 |
| 0.64 |
| | 0.67 |
|
Nonperforming assets / total assets | 0.65 |
| | 0.63 |
| 0.53 |
| | 0.56 |
|
| | | | | | |
Allowance for loan and lease losses | $ | 27,371 |
| | $ | 21,555 |
| $ | 32,600 |
| | $ | 29,364 |
|
Allowance for loan and lease losses / loans and leases held for investment | 0.71 | % | | 0.60 | % | 0.78 | % | | 0.73 | % |
Allowance for loan and lease losses / loans and leases held for investment (excluding acquired loans at period-end) | 0.79 |
| | 0.70 |
| 0.85 |
| | 0.81 |
|
Allowance for loan and lease losses / nonaccrual loans and leases held for investment | 99.32 |
| | 148.48 |
| 129.64 |
| | 112.04 |
|
Allowance for loan and lease losses / nonperforming loans and leases held for investment | 92.63 |
| | 80.69 |
| 122.64 |
| | 108.99 |
|
Acquired credit impaired loans | $ | 900 |
| | $ | 1,583 |
| $ | 569 |
| | $ | 695 |
|
| | | | | | |
| | | | |
Nonperforming loans and leases and acquired credit impaired loans / loans and leases held for investment | 0.79 | % | | 0.78 | % | 0.65 | % | | 0.69 | % |
Nonperforming assets and acquired credit impaired loans / total assets | 0.66 |
| | 0.66 |
| 0.54 |
| | 0.58 |
|
* Nonaccrual troubled debt restructured loans and lease modifications included in nonaccrual loans and leases in the above table | $ | 1,324 |
| | $ | 2,513 |
| $ | 2,573 |
| | $ | 1,284 |
|
The following table provides additional information on the Corporation’s nonaccrual loans held for investment:
| | (Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 | At June 30, 2019 | | At December 31, 2018 |
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications | $ | 27,559 |
| | $ | 14,517 |
| $ | 25,147 |
| | $ | 26,208 |
|
Nonaccrual loans and leases with partial charge-offs | 3,490 |
| | 5,397 |
| 2,302 |
| | 2,210 |
|
Life-to-date partial charge-offs on nonaccrual loans and leases | 2,667 |
| | 4,107 |
| 1,353 |
| | 1,320 |
|
Charge-off rate of nonaccrual loans and leases with partial charge-offs | 43.3 | % | | 43.2 | % | |
Specific reserves on impaired loans | $ | 1,048 |
| | $ | 131 |
| $ | 2,439 |
| | $ | 1,415 |
|
Goodwill and Other Intangible Assets
Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions. The Corporation has core deposit and customer-related intangibles and servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life using the present value of projected cash flows. The amortization of intangible assets was $812$835 thousand and $1.0 million$885 thousand for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The amortization of intangible assets was $2.6$1.6 million and $3.2$1.8 million for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. See Note 5 to the Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for a summary of intangible assets at SeptemberJune 30, 20182019 and December 31, 2017. 2018.
The Corporation also has goodwill with a net carrying value of $172.6 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, which is deemed to be an indefinite intangible asset and is not amortized.
The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often, if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment. There was no impairment of goodwill or identifiable intangibles during the ninesix months ended SeptemberJune 30, 20182019 and 2017.2018. Since the last annual impairment analysis during 2017,2018, there have been no circumstances to indicate impairment. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.
Liabilities
The following table presents liabilities at the dates indicated:
| | (Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 | | Change | At June 30, 2019 | | At December 31, 2018 | | Change |
Amount | | Percent | Amount | | Percent |
Deposits | $ | 3,820,048 |
| | $ | 3,554,919 |
| | $ | 265,129 |
| | 7.5 | % | $ | 4,122,110 |
| | $ | 3,885,933 |
| | $ | 236,177 |
| | 6.1 | % |
Short-term borrowings | 86,765 |
| | 105,431 |
| | (18,666 | ) | | (17.7 | ) | 39,350 |
| | 189,768 |
| | (150,418 | ) | | (79.3 | ) |
Long-term debt | 145,430 |
|
| 155,828 |
| | (10,398 | ) | | (6.7 | ) | 170,195 |
|
| 145,330 |
| | 24,865 |
| | 17.1 |
|
Subordinated notes | 94,514 |
| | 94,331 |
| | 183 |
| | 0.2 |
| 94,696 |
| | 94,574 |
| | 122 |
| | 0.1 |
|
Operating lease liabilities | | 38,608 |
| | — |
| | 38,608 |
| | N/M |
|
Accrued interest payable and other liabilities | 40,999 |
| | 40,979 |
| | 20 |
| | N/M |
| 37,669 |
| | 44,609 |
| | (6,940 | ) | | (15.6 | ) |
Total liabilities | $ | 4,187,756 |
| | $ | 3,951,488 |
| | $ | 236,268 |
| | 6.0 | % | $ | 4,502,628 |
| | $ | 4,360,214 |
| | $ | 142,414 |
| | 3.3 | % |
Deposits
Total deposits increased $265.1$236.2 million, or 7.5%6.1%, from December 31, 2017,2018, primarily due to increases in commercial, public funds and consumer time deposits.
Borrowings
Total borrowings decreased $28.9$125.4 million, or 29.2%, from December 31, 2017,2018, primarily due to a decrease in short-term borrowings of $18.7 million and repayment of long-term FHLB debt of $10.0 million in the third quarter of 2018.$150.4 million. The increase in seasonal public funds deposits and time deposits reducereduced the need to borrow short-term funds.
Shareholders’ Equity
The following table presents total shareholders’ equity at the dates indicated:
| | (Dollars in thousands) | At September 30, 2018 | | At December 31, 2017 | | Change | At June 30, 2019 | | At December 31, 2018 | | Change |
Amount | | Percent | Amount | | Percent |
Common stock | $ | 157,784 |
| | $ | 157,784 |
| | $ | — |
| | N/M |
| $ | 157,784 |
| | $ | 157,784 |
| | $ | — |
| | — | % |
Additional paid-in capital | 291,992 |
| | 290,133 |
| | 1,859 |
| | 0.6 |
| 293,947 |
| | 292,401 |
| | 1,546 |
| | 0.5 |
|
Retained earnings | 235,658 |
| | 216,761 |
| | 18,897 |
| | 8.7 |
| 267,357 |
| | 248,167 |
| | 19,190 |
| | 7.7 |
|
Accumulated other comprehensive loss | (28,664 | ) | | (17,771 | ) | | (10,893 | ) | | (61.3 | ) | (21,949 | ) | | (28,416 | ) | | 6,467 |
| | 22.8 |
|
Treasury stock | (42,528 | ) | | (43,533 | ) | | 1,005 |
| | 2.3 |
| (45,469 | ) | | (45,803 | ) | | 334 |
| | 0.7 |
|
Total shareholders’ equity | $ | 614,242 |
| | $ | 603,374 |
| | $ | 10,868 |
| | 1.8 | % | $ | 651,670 |
| | $ | 624,133 |
| | $ | 27,537 |
| | 4.4 | % |
The increase in shareholder's equity at SeptemberJune 30, 20182019 of $10.9$27.5 million, or 4.4%, from December 31, 20172018 was primarily related to an increase in retained earnings of $18.9$19.2 million. Retained earnings at SeptemberJune 30, 2018 were2019 was impacted by the ninesix months of net income of $32.2$32.5 million andpartially offset by the reclassification of $3.9 million and $433 thousand from accumulated other comprehensive income related adjustments to the January 1, 20182019 adoption of ASU 2016-01No. 2016-02 of $1.5 million and ASU 2018-02, respectively, partially offset by cash dividends declared of $17.6$11.7 million. Accumulated other comprehensive loss increaseddecreased by $10.9$6.5 million mainly attributable to decreasesincreases in the fair value of available-for-sale investment securities of $7.4$6.4 million, net of tax,tax.
Discussion of Segments
The Corporation has three operating segments: Banking, Wealth Management and Insurance. Detailed segment information appears in Note 13, "Segment Reporting" included in the reclassification to retained earnings from the previously discussed adoption of ASU 2016-01 and ASU 2018-02 ($3.0 million relatedNotes to the defined benefit pension plansConsolidated Financial Statements under Item 1 of this Quarterly Report on Form 10-Q (Note 13 in the Notes to the Consolidated Financial Statements).
The Banking segment, as presented in Note 13 in the Notes to the Consolidated Financial Statements, reported pre-tax income of $19.8 million and $1.4$3.5 million relatedfor the three months ended June 30, 2019 and 2018, respectively, and $37.1 million and $16.5 million for the six months ended June 30, 2019 and 2018, respectively. See the section of this MD&A under the heading “Net Interest Income", “Interest Income”, “Interest Expense”, and “Provision for Loan and Lease Losses” for a discussion of the Banking Segment.
The Wealth Management segment, as presented in Note 13 in the Notes to investment securities). Treasury stock decreased by $1.0the Consolidated Financial Statements, reported pre-tax income of $2.1 million and $1.9 million for the three months ended June 30, 2019 and 2018, respectively, and $3.8 million and $3.7 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income was $6.2 million and $5.9 million for the three months ended June 30, 2019 and 2018, respectively, and $11.9 million and $11.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase in pre-tax income and noninterest income for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018 was primarily due to an increase in assets under management. Assets under management and supervision were $3.7 billion as of June 30, 2019 and $3.5 billion as of June 30, 2018. The increase in assets under management and supervision as of June 30, 2019, as compared to June 30, 2018, was primarily driven by new customer relationships.
The Insurance segment, as presented in Note 13 in the issuanceNotes to the Consolidated Financial Statements, reported pre-tax income of restricted stock.$860 thousand and $544 thousand for the three months ended June 30, 2019 and 2018, respectively, and $2.9 million and $2.1 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income was $4.1 million and $3.9 million for the three months ended June 30, 2019 and 2018, respectively, and $9.5 million and $9.0 million for the six months ended June 30, 2019 and 2018, respectively. Noninterest income increased primarily due to increases in commercial lines and group life and health premiums and contingent commission income.
Capital Adequacy
The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements. Capital adequacy guidelines, and additionally for the Bank the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total capital, Tier 1 capital and Tier 1 common capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), or leverage ratio.
In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The new minimum capital requirements were effective on January 1, 2015. Under the newcurrent rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The capital conservation buffer requirements began to be phased in over a four-year period beginning January 1, 2016 with final phase in occurring 2019.
The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a four-year period beginning January 1, 2015. Under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. During 2018, the Corporation and the Bank must hold a capital conservation buffer greater than 1.875% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. It is the Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer which would require Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50% beginning in the first quarter of 2019. The Corporation and the Bank were in compliance with these requirements at March 31, 2019 and June 30, 2019.
Table 4—Regulatory Capital
The Corporation's and Bank's actual and required capital ratios as of SeptemberJune 30, 20182019 and December 31, 20172018 under regulatory capital rules were as follows.
| | | Actual | | For Capital Adequacy Purposes | | To Be Well-Capitalized Under Prompt Corrective Action Provisions | Actual | | For Capital Adequacy Purposes | | To Be Well-Capitalized Under Prompt Corrective Action Provisions |
(Dollars in thousands) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
At September 30, 2018 | | | | | | | | |
At June 30, 2019 | | | | | | | | |
Total Capital (to Risk-Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | $ | 591,928 |
| | 13.87 | % | | $ | 341,489 |
| | 8.00 | % | | $ | 426,861 |
| | 10.00 | % | $ | 629,324 |
| | 13.79 | % | | $ | 364,990 |
| | 8.00 | % | | $ | 456,238 |
| | 10.00 | % |
Bank | 491,854 |
| | 11.59 |
| | 339,613 |
| | 8.00 |
| | 424,516 |
| | 10.00 |
| 529,106 |
| | 11.65 |
| | 363,289 |
| | 8.00 |
| | 454,112 |
| | 10.00 |
|
Tier 1 Capital (to Risk-Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | 469,309 |
| | 10.99 |
| | 256,117 |
| | 6.00 |
| | 341,489 |
| | 8.00 |
| 501,310 |
| | 10.99 |
| | 273,743 |
| | 6.00 |
| | 364,990 |
| | 8.00 |
|
Bank | 463,749 |
| | 10.92 |
| | 254,709 |
| | 6.00 |
| | 339,613 |
| | 8.00 |
| 495,788 |
| | 10.92 |
| | 272,467 |
| | 6.00 |
| | 363,289 |
| | 8.00 |
|
Tier 1 Common Capital (to Risk-Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | 469,309 |
| | 10.99 |
| | 192,087 |
| | 4.50 |
| | 277,460 |
| | 6.50 |
| 501,310 |
| | 10.99 |
| | 205,307 |
| | 4.50 |
| | 296,554 |
| | 6.50 |
|
Bank | 463,749 |
| | 10.92 |
| | 191,032 |
| | 4.50 |
| | 275,935 |
| | 6.50 |
| 495,788 |
| | 10.92 |
| | 204,350 |
| | 4.50 |
| | 295,173 |
| | 6.50 |
|
Tier 1 Capital (to Average Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | 469,309 |
| | 10.07 |
| | 186,356 |
| | 4.00 |
| | 232,944 |
| | 5.00 |
| 501,310 |
| | 10.01 |
| | 200,268 |
| | 4.00 |
| | 250,336 |
| | 5.00 |
|
Bank | 463,749 |
| | 10.01 |
| | 185,237 |
| | 4.00 |
| | 231,546 |
| | 5.00 |
| 495,788 |
| | 9.95 |
| | 199,407 |
| | 4.00 |
| | 249,258 |
| | 5.00 |
|
At December 31, 2017 | | | | | | | | | | | | |
At December 31, 2018 | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | $ | 563,797 |
| | 14.00 | % | | $ | 322,148 |
| | 8.00 | % | | $ | 402,685 |
| | 10.00 | % | $ | 604,213 |
| | 13.70 | % | | $ | 352,764 |
| | 8.00 | % | | $ | 440,955 |
| | 10.00 | % |
Bank | 464,851 |
| | 11.62 |
| | 320,003 |
| | 8.00 |
| | 400,004 |
| | 10.00 |
| 506,728 |
| | 11.54 |
| | 351,220 |
| | 8.00 |
| | 439,026 |
| | 10.00 |
|
Tier 1 Capital (to Risk-Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | 447,228 |
| | 11.11 |
| | 241,611 |
| | 6.00 |
| | 322,148 |
| | 8.00 |
| 479,550 |
| | 10.88 |
| | 264,573 |
| | 6.00 |
| | 352,764 |
| | 8.00 |
|
Bank | 442,613 |
| | 11.07 |
| | 240,002 |
| | 6.00 |
| | 320,003 |
| | 8.00 |
| 476,639 |
| | 10.86 |
| | 263,415 |
| | 6.00 |
| | 351,220 |
| | 8.00 |
|
Tier 1 Common Capital (to Risk-Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | 447,228 |
| | 11.11 |
| | 181,208 |
| | 4.50 |
| | 261,745 |
| | 6.50 |
| 479,550 |
| | 10.88 |
| | 198,430 |
| | 4.50 |
| | 286,621 |
| | 6.50 |
|
Bank | 442,613 |
| | 11.07 |
| | 180,002 |
| | 4.50 |
| | 260,002 |
| | 6.50 |
| 476,639 |
| | 10.86 |
| | 197,561 |
| | 4.50 |
| | 285,367 |
| | 6.50 |
|
Tier 1 Capital (to Average Assets): | | | | | | | | | | | | | | | | | | | | | | |
Corporation | 447,228 |
| | 10.48 |
| | 170,753 |
| | 4.00 |
| | 213,441 |
| | 5.00 |
| 479,550 |
| | 10.13 |
| | 189,374 |
| | 4.00 |
| | 236,718 |
| | 5.00 |
|
Bank | 442,613 |
| | 10.45 |
| | 169,453 |
| | 4.00 |
| | 211,816 |
| | 5.00 |
| 476,639 |
| | 10.12 |
| | 188,487 |
| | 4.00 |
| | 235,609 |
| | 5.00 |
|
At SeptemberJune 30, 20182019 and December 31, 2017,2018, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. The Corporation, like other bank holding companies, currently is required to maintain Tier 1 capital and Total capital equal to at least 6.0% and 8.0%, respectively, of total risk-weighted assets (including various off-balance-sheet items). The Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy guidelines. During 2018, the Corporation and the Bank must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 1.875% of total risk-weighted assets in order to avoid limitations on capital distributions. For a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, Tier 1 and Total capital ratios must be at least 8.0% and 10.0% on a risk-adjusted basis, respectively. At September
June 30, 2018,2019, the Bank is categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. The January 1, 2019 adoption of ASU No. 2016-02 had and will continue to have a negative impact on all Corporation and Bank regulatory capital ratios. The Corporation will continue to analyze the impact of the phase in of the capital conservation buffer as well as the impact of new accounting rules, such as Lease Accounting (ASU No. 2016-02) and CECL (ASU No. 2016-13) on its regulatory capital ratios.
In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as the beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts would be calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital. The election must be made in the first reporting period that CECL is adopted. See Note 1, "Summary of Significant Accounting Policies - Accounting Pronouncements Yet to the financial statements included in Part I, Item I of this Form 10-QBe Adopted" for additional information.
Asset/Liability Management
The primary functions of Asset/Liability Management are to assure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet cash flow requirements of customers and corporate needs. Management's objective with regard to address interest rate risk is to understand the Corporation's sensitivity to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest income.
The Corporation uses both interest-sensitivity gap analysis and earnings at risk simulation modeling to quantify exposure to interest rate risk. The Corporation uses the gap analysis to identify and monitor long-term rate exposure and uses a simulation model to measure the short-term rate exposures. The Corporation runs various earnings simulation scenarios to quantify the impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulation uses expected cash flows and repricing characteristics for all financial instruments at a point in time and incorporates company developed,company-developed, market-based assumptions regarding growth, pricing, and optionality such as prepayment speeds. As interest rates increase, fixed-rate assets that banks hold will tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold will tend to increase in value.
Liquidity
The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy demand for loans, deposit withdrawals, repayment of borrowings and certificates of deposit at maturity, operating expenditures,expense, and capital expansion.expenditures. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a daily basis. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.
Sources of Funds
Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from a base of consumer, business,individuals, businesses, municipalities and non-profit customers located in our primary service areas. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks, credit unions, savings institutions, mutual funds, security dealers and others.
TheAs part of its diversified funding strategy, the Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes federal funds purchases from correspondent bank borrowings,banks, secured borrowing lines from the Federal Home Loan Bank of Pittsburgh, the Federal Reserve Bank of Philadelphia and, at times, brokered deposits and other similar sources.
The Corporation, through the Bank, has a credit facility with the FHLB with a maximum borrowing capacity of approximately $1.6$1.7 billion. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the carrying amount of overnight borrowings with the FHLB was $17.0 million$0 and $30.2$108.3 million, respectively. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the carrying amount of long-term borrowings with the FHLB was $115.0$150.0 million and $125.0 million, respectively. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Bank had outstanding short-term letters of credit with the FHLB totaling $382.9$408.3 million and $234.2$347.5 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.
The Corporation, through the Bank, maintains uncommitted federal fund lines with several correspondent banks totalingthat totaled $504.0 million and $367.0 million at SeptemberJune 30, 20182019 and December 31, 2017.2018, respectively. At SeptemberJune 30, 20182019 and December 31, 2017,
2018, the Corporation had $50.0$20.0 million and $55.0$60.0 million, respectively, of outstanding federal funds purchased with these correspondent banks. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
The Corporation, through the Bank, holds collateral at the Federal Reserve Bank of Philadelphia in order to access the Discount Window Lending program. The collateral consisting of investment securities was valued at $66.2$104.6 million and $52.0$69.5 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Corporation had no outstanding borrowings under this program.
The Corporation has a $10.0 million committed line of credit with a correspondent bank. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Corporation had no outstanding borrowings under this line.
Cash Requirements
The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The most significant contractual obligation, in both the under and over one yearone-year time period, is for the Bank to repay certificates of deposit and short-term and long-term borrowings. The Bank anticipates meeting these obligations by continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.
Commitments to extend credit are the Bank’s most significant commitment in both the under and over one yearone-year time periods. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”
Recent Regulatory and Legislative Developments
SEC FAST Act Modernization and Simplification of Regulation S-K
On August 17, 2018,April 2, 2019, the SEC issued Release No. 33-10532, "Disclosure Update33-10618; 34-85381, "FAST Act Modernization and Simplification.Simplification of Regulation S-K." ThisThe amendments under this rule amendsmodernize and simplify certain disclosure requirements that were redundant with or superseded by other SEC disclosure requirements or U.S. GAAP or for changes in the information environment. The changes are generally expected to reduce or eliminate some of a SEC registrant's disclosures in certain topics but some provisions require additional disclosures. The rule extends to interim periods the annual disclosure requirement under Regulation S-X of presenting changes in shareholders' equity for the current and comparative year-to-date interim periods. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should include a reconciliation ofmanner that reduces the beginning balancecosts and burdens on registrants while continuing to the ending balance for each period for which a statement of comprehensive income is requiredprovide material information to be filed.investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The amendments were effective on November 5, 2018. May 2, 2019, except for specific amendments that are effective after May 2, 2019 as cited in the rule. The Corporation currently includes year-to-date changes in shareholders' equity inprovided the additional disclosures on the Form 10-Q and will additionally provide the quarterly changes in shareholders' equity in the Form 10-Qcover page for the quarter endingended March 31, 2019. The2019. The Corporation continues to analyze the amended disclosure requirements under this rule, but does not believe that such changes will materially impact the Corporation’s disclosures.
Economic Growth, Regulatory Relief, and Consumer Protection Act
On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Most of the changes made by the new Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation. Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidated assets of not less than 8% or more than 10%, and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. The Corporation continues to analyze the changes implemented by the Act, but does not believe that such changes will materially impact the Corporation’s business, operations, or financial results. disclosures.
| |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
No material changes in the Corporation’s market risk or market strategy occurred during the current period. A detailed discussion of market risk is provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017.2018.
| |
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Management is responsible for the disclosure controls and procedures of the Corporation. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of SeptemberJune 30, 2018.2019.
Changes in Internal Control over Financial Reporting
There were no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended SeptemberJune 30, 20182019 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
PART II. OTHER INFORMATION
The Corporation is periodically subject to various pending and threatened legal actions, which involve claims for monetary relief. Based upon information presently available to the Corporation, it is the Corporation's opinion that any legal and financial responsibility arising from such claims will not have a material adverse effect on the Corporation's results of operations, financial position or cash flows.
There have been no material changes in risk factors from those disclosed under Item 1A, “Risk Factors” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
| |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information on repurchases by the Corporation of its common stock under the Corporation's Board approved program.
|
| | | | | | | | | | | | |
ISSUER PURCHASES OF EQUITY SECURITIES |
Period | Total Number
of Shares
Purchased | | Average
Price Paid
per Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs | | Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs |
JulyApril 1 – 31, 201830, 2019 | — |
| | $ | — |
| | — |
| | 1,014,246864,246 |
|
AugustMay 1 – 31, 20182019 | — |
| | — |
| | — |
| | 1,014,246864,246 |
|
SeptemberJune 1 – 30, 20182019 | — |
| | — |
| | — |
| | 1,014,246864,246 |
|
Total | — |
| | $ | — |
| | — |
| | |
| |
1. | Transactions are reported as of trade dates. |
| |
2. | On October 23, 2013, the Corporation’s Board of Directors approved a new stock repurchase plan for the repurchase of up to 800,000 shares, or approximately 5% of the shares outstanding. On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares available for repurchase under the Corporation's share repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. The repurchased shares limitplan does not include normal treasury activity such as purchases to fund the dividend reinvestment, employee stock purchase and equity compensation plans. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time. |
In addition to the repurchases disclosed above, participants in the Corporation's stock-based incentive plans may have shares withheld to cover income taxes upon the vesting of restricted stock awards and may use a stock swap to exercise non-qualified stock options. Shares withheld to pay income taxes upon the vesting of restricted stock awards and stock swaps to exercise stock options are repurchased pursuant to the terms of the applicable plan and not under the Corporation's share repurchase program. There were no shares repurchased pursuant to these plans during the three months ended June 30, 2019.
| |
Item 3. | Defaults Upon Senior Securities |
None.
| |
Item 4. | Mine Safety Disclosures |
Not Applicable.
None.
|
| | | |
a. | Exhibits | | |
| | | |
| Exhibit 3.1 | | |
| | | |
| Exhibit 3.2 | | |
| | | |
| Exhibit 10.1 | | |
| | | |
| Exhibit 10.2 | | |
| | | |
| Exhibit 10.3 | | |
| | | |
| Exhibit 10.4 | | |
| | | |
| Exhibit 31.1 | | |
| | | |
| Exhibit 31.2 | | |
| | | |
| Exhibit 32.1 | | |
| | |
| Exhibit 32.2 | | |
| | |
| Exhibit 101.INS101 | | XBRL Instance DocumentThe following financial statements from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholder's Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
| | | |
| Exhibit 101.SCH104 | | XBRL Taxonomy Extension Schema Document |
| | |
| Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
| Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| Exhibit 101.DEF | | XBRL Taxonomy Extension Definition Linkbase DocumentThe cover page from the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |
| Univest Financial Corporation of Pennsylvania |
| (Registrant) |
| |
Date: NovemberAugust 2, 20182019 | /s/ Jeffrey M. Schweitzer |
| Jeffrey M. Schweitzer President and Chief Executive Officer
(Principal Executive Officer) |
| |
Date: NovemberAugust 2, 20182019 | /s/ Roger S. DeaconBrian J. Richardson |
| Roger S. DeaconBrian J. Richardson
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |