Company Quick10K Filing
Century Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 -0 $-0
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-K 2019-03-15 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-03-15 Annual: 2017-12-31
10-Q 2017-11-06 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-05-08 Quarter: 2017-03-31
10-K 2017-03-15 Annual: 2016-12-31
10-Q 2016-11-07 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-03-09 Annual: 2015-12-31
10-Q 2015-11-06 Quarter: 2015-09-30
10-Q 2015-08-06 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-03-12 Annual: 2014-12-31
10-Q 2014-11-07 Quarter: 2014-09-30
10-Q 2014-08-07 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-03-13 Annual: 2013-12-31
10-Q 2013-11-08 Quarter: 2013-09-30
10-Q 2013-08-06 Quarter: 2013-06-30
10-K 2013-03-12 Annual: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-07 Quarter: 2012-06-30
10-Q 2012-05-08 Quarter: 2012-03-31
10-K 2012-03-13 Annual: 2011-12-31
10-Q 2011-11-07 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-06 Quarter: 2011-03-31
10-K 2011-03-11 Annual: 2010-12-31
10-Q 2010-11-05 Quarter: 2010-09-30
10-Q 2010-08-06 Quarter: 2010-06-30
10-Q 2010-05-05 Quarter: 2010-03-31
10-K 2010-03-11 Annual: 2009-12-31
8-K 2019-10-08 Earnings, Exhibits
8-K 2019-07-09 Earnings, Exhibits
8-K 2019-06-11 Officers
8-K 2019-04-17 Shareholder Vote
8-K 2019-04-09 Earnings, Exhibits
8-K 2019-04-06 Control
8-K 2019-01-15 Earnings, Exhibits
8-K 2018-10-09 Earnings, Exhibits
8-K 2018-07-10 Earnings, Exhibits
8-K 2018-04-25 Shareholder Vote
8-K 2018-04-10 Earnings, Exhibits
8-K 2018-01-16 Earnings, Exhibits
CNBKA 2019-09-30
Part I - Item 1
Note 1. Basis of Financial Statement Presentation
Note 2. Recent Accounting Developments
Note 3. Securities Available-For-Sale
Note 4. Investment Securities Held-To-Maturity
Note 5. Allowance for Loan Losses
Note 6. Reclassifications Out of Accumulated Other Comprehensive Income (A)
Note 7. Earnings per Share ("Eps")
Note 8. Employee Benefits
Note 9. Fair Value Measurements
Note 10. Fair Values of Financial Instruments
Note 11. Revenue From Contracts with Customers
Note 12. Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds -
Item 3 Defaults Upon Senior Securities - None
Item 4 Mine Safety Disclosures - Not Applicable
Item 5 Other Information - None
Item 6 Exhibits
EX-31.1 d651228dex311.htm
EX-31.2 d651228dex312.htm
EX-32.1 d651228dex321.htm
EX-32.2 d651228dex322.htm

Century Bancorp Earnings 2019-09-30

CNBKA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
MNSB
AUB
CFB
ZBK
BRBS
AMTB
BBD 1,305,544 1,180,868 0 0 0 0 -14,734 0%
CNBKA 5,201 4,882 0 0 38 98 -251 -2.6 1%
CBSH 25,772 22,601 0 0 429 634 -961 -1.5 2%
HMTA 565 511 0 0 4 9 -23 -2.5 1%

10-Q 1 d651228d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2019.

or

 

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

Commission file number: 0-15752

 

 

CENTURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

COMMONWEALTH OF MASSACHUSETTS   04-2498617

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

400 MYSTIC AVENUE, MEDFORD, MA   02155
(Address of principal executive offices)   (Zip Code)

(781) 391-4000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of class

 

Trading

Symbol(s)

 

Name of exchange

Class A Common Stock, $1.00 par value   CNBKA   Nasdaq Global 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), (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  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 growth company” in Rule 12b-2 of the Exchange Act.

(Check one):

 

Large accelerated filer      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 any 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

As of October 31, 2019, the Registrant had outstanding:

 

Class A Common Stock, $1.00 par value

   3,650,449 Shares

Class B Common Stock, $1.00 par value

   1,917,460 Shares

 

 

 


Table of Contents

Century Bancorp, Inc.

Index

 

         Page
Number
 

Part I

  Financial Information   
  Forward Looking Statements      3  

Item 1.

  Financial Statements (unaudited)   
 

Consolidated Balance Sheets:

September 30, 2019 and December 31, 2018

     4  
 

Consolidated Statements of Income:

Three Months and Nine Months Ended September 30, 2019 and 2018

     5  
 

Consolidated Statements of Comprehensive Income:

Three Months and Nine Months Ended September 30, 2019 and 2018

     6  
 

Consolidated Statements of Changes in Stockholders’ Equity:

Three Months Ended September 30, 2019 and 2018

     7  
 

Consolidated Statements of Changes in Stockholders’ Equity:

Nine Months Ended September 30, 2019 and 2018

     8  
 

Consolidated Statements of Cash Flows:

Nine Months Ended September 30, 2019 and 2018

     9  
  Notes to Consolidated Financial Statements      10 - 34  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      35 - 45  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      46  

Item 4.

  Controls and Procedures      46  

Part II.

  Other Information   

Item 1.

  Legal Proceedings      47  

Item 1A.

  Risk Factors      47  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      47  

Item 3.

  Defaults Upon Senior Securities      47  

Item 4.

  Mine Safety Disclosures      47  

Item 5.

  Other Information      47  

Item 6.

  Exhibits      47  

Signatures

       48  

Exhibits

  Ex-31.1   
  Ex-31.2   
  Ex-32.1   
  Ex-32.2   
  Ex-101 Instance Document   
  Ex-101 Schema Document   
  Ex-101 Calculation Linkbase Document   
  Ex-101 Labels Linkbase Document   
  Ex-101 Presentation Linkbase Document   
  Ex-101 Definition Linkbase Document   

 


Table of Contents

Forward Looking Statements

Except for the historical information contained herein, this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, without limitation, (i) the fact that the Company’s success is dependent to a significant extent upon general economic conditions in New England, (ii) the fact that the Company’s earnings depend to a great extent upon the level of net interest income (the difference between interest income earned on loans and investments and the interest expense paid on deposits and other borrowings) generated by the Bank and thus the Bank’s results of operations may be adversely affected by increases or decreases in interest rates, (iii) the fact that the banking business is highly competitive and the profitability of the Company depends upon the Bank’s ability to attract loans and deposits within its market area, where the Bank competes with a variety of traditional banking and other institutions such as credit unions and finance companies, and (iv) the fact that a significant portion of the Company’s loan portfolio is comprised of commercial loans, exposing the Company to the risks inherent in loans based upon analyses of credit risk, the value of underlying collateral, including real estate, and other more intangible factors, which are considered in making commercial loans. Accordingly, the Company’s profitability may be negatively impacted by errors in risk analyses, and by loan defaults, and the ability of certain borrowers to repay such loans may be adversely affected by any downturn in general economic conditions. These factors, as well as general economic and market conditions, may materially and adversely affect the market price of shares of the Company’s common stock. Because of these and other factors, past financial performance should not be considered an indicator of future performance. The forward-looking statements contained herein represent the Company’s judgment as of the date of this Form 10-Q, and the Company cautions readers not to place undue reliance on such statements.

 

Page 3 of 48


Table of Contents

PART I – Item 1

Century Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands, except share data)

 

     September 30,
2019
    December 31,
2018
 
Assets     

Cash and due from banks

   $ 85,014     $ 89,540  

Federal funds sold and interest-bearing deposits in other banks

     249,091       252,963  
  

 

 

   

 

 

 

Total cash and cash equivalents

     334,105       342,503  

Securities available-for-sale, amortized cost $261,939 and $336,751, respectively

     261,739       336,759  

Securities held-to-maturity, fair value $2,188,465 and $1,991,421, respectively

     2,164,135       2,046,647  

Federal Home Loan Bank of Boston, stock at cost

     14,025       17,974  

Equity securities, amortized cost $1,635 and $1,635, respectively

     1,672       1,596  

Loans, net:

    

Construction and land development

     7,824       13,628  

Commercial and industrial

     783,950       761,625  

Municipal

     121,802       97,290  

Commercial real estate

     765,385       750,362  

Residential real estate

     364,317       348,250  

Consumer and overdrafts

     21,748       22,083  

Home equity

     310,635       292,340  
  

 

 

   

 

 

 

Total loans, net

     2,375,661       2,285,578  

Less: allowance for loan losses

     29,097       28,543  
  

 

 

   

 

 

 

Net loans

     2,346,564       2,257,035  

Bank premises and equipment

     31,520       23,921  

Accrued interest receivable

     13,275       14,406  

Goodwill

     2,714       2,714  

Other assets

     129,432       120,380  
  

 

 

   

 

 

 

Total assets

   $ 5,299,181     $ 5,163,935  
  

 

 

   

 

 

 
Liabilities     

Deposits:

    

Demand deposits

   $ 797,455     $ 813,478  

Savings and NOW deposits

     1,759,401       1,707,019  

Money market accounts

     1,249,923       1,325,888  

Time deposits

     533,074       560,579  
  

 

 

   

 

 

 

Total deposits

     4,339,853       4,406,964  

Securities sold under agreements to repurchase

     307,235       154,240  

Other borrowed funds

     209,188       202,378  

Subordinated debentures

     36,083       36,083  

Other liabilities

     77,862       63,831  
  

 

 

   

 

 

 

Total liabilities

     4,970,221       4,863,496  
Stockholders’ Equity     

Preferred Stock – $1.00 par value; 100,000 shares authorized; no shares issued and outstanding

     —         —    

Common stock, Class A, $1.00 par value per share; authorized 10,000,000 shares; issued 3,650,449 shares and 3,608,329 shares, respectively

     3,650       3,608  

Common stock, Class B, $1.00 par value per share; authorized 5,000,000 shares; issued 1,917,460 shares and 1,959,580 shares respectively

     1,918       1,960  

Additional paid-in capital

     12,292       12,292  

Retained earnings

     328,801       301,488  
  

 

 

   

 

 

 
     346,661       319,348  

Unrealized losses on securities available-for-sale, net of taxes

     (150     6  

Unrealized losses on securities transferred to held-to-maturity, net of taxes

     (1,991     (2,565

Pension liability, net of taxes

     (15,560     (16,350
  

 

 

   

 

 

 

Total accumulated other comprehensive loss, net of taxes

     (17,701     (18,909
  

 

 

   

 

 

 

Total stockholders’ equity

     328,960       300,439  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 5,299,181     $ 5,163,935  
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated interim financial statements.

 

Page 4 of 48


Table of Contents

Century Bancorp, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except share data)

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2019      2018      2019      2018  

Interest income

           

Loans

   $ 22,117      $ 20,167      $ 65,106      $ 57,613  

Securities held-to-maturity

     14,623        11,507        43,006        32,930  

Securities available-for-sale

     2,184        2,500        7,305        6,821  

Federal funds sold and interest-bearing deposits in other banks

     928        591        3,204        2,239  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     39,852        34,765        118,621        99,603  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

           

Savings and NOW deposits

     5,445        2,972        16,788        7,778  

Money market accounts

     5,050        3,652        15,805        9,039  

Time deposits

     3,038        2,571        8,724        7,465  

Securities sold under agreements to repurchase

     697        288        1,572        657  

Other borrowed funds and subordinated debentures

     1,852        2,078        5,274        5,793  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     16,082        11,561        48,163        30,732  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     23,770        23,204        70,458        68,871  

Provision for loan losses

     75        —          700        900  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     23,695        23,204        69,758        67,971  

Other operating income

           

Service charges on deposit accounts

     2,310        2,137        6,801        6,268  

Lockbox fees

     937        892        3,018        2,304  

Net gains on sales of securities

     53        105        61        302  

Gains on sales of mortgage loans

     —          —          154        —    

Other income

     986        1,035        3,676        3,210  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other operating income

     4,286        4,169        13,710        12,084  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses

           

Salaries and employee benefits

     10,670        10,570        32,621        32,331  

Occupancy

     1,463        1,481        4,686        4,579  

Equipment

     862        781        2,440        2,355  

Other

     4,467        4,516        14,170        13,243  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     17,462        17,348        53,917        52,508  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     10,519        10,025        29,551        27,547  

Provision for income taxes

     435        444        584        1,259  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 10,084      $ 9,581      $ 28,967      $ 26,288  
  

 

 

    

 

 

    

 

 

    

 

 

 

Share data:

           

Weighted average number of shares outstanding, basic

           

Class A

     3,650,449        3,608,329        3,627,076        3,608,129  

Class B

     1,917,460        1,959,580        1,940,833        1,959,780  

Weighted average number of shares outstanding, diluted

           

Class A

     5,567,909        5,567,909        5,567,909        5,567,909  

Class B

     1,917,460        1,959,580        1,940,833        1,959,780  

Basic earnings per share:

           

Class A

   $ 2.19      $ 2.09      $ 6.30      $ 5.73  

Class B

   $ 1.09      $ 1.04      $ 3.15      $ 2.86  

Diluted earnings per share

           

Class A

   $ 1.81      $ 1.72      $ 5.20      $ 4.72  

Class B

   $ 1.09      $ 1.04      $ 3.15      $ 2.86  

See accompanying notes to unaudited consolidated interim financial statements.

 

Page 5 of 48


Table of Contents

Century Bancorp, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)

 

     Three months ended September 30,  
     2019     2018  

Net income

   $ 10,084     $ 9,581  

Other comprehensive income (loss), net of tax:

    

Unrealized gains (losses) on securities:

    

Unrealized gains (losses) arising during period

     113       (88

Less: reclassification adjustment for gains included in net income

     (39     (76
  

 

 

   

 

 

 

Total unrealized gains (losses) on securities

     74       (164

Accretion of net unrealized losses transferred

     155       238  

Defined benefit pension plans:

    

Amortization of prior service cost and loss included in net periodic benefit cost

     263       292  
  

 

 

   

 

 

 

Other comprehensive income

     492       366  
  

 

 

   

 

 

 

Comprehensive income

   $ 10,576     $ 9,947  
  

 

 

   

 

 

 
     Nine months ended September 30,  
     2019     2018  

Net income

   $ 28,967     $ 26,288  

Other comprehensive income (loss), net of tax:

    

Unrealized gains (losses) on securities:

    

Unrealized (losses) gains arising during period

     (112     412  

Less: reclassification adjustment for gains included in net income

     (44     (217
  

 

 

   

 

 

 

Total unrealized (losses) gains on securities

     (156     195  

Accretion of net unrealized losses transferred

     574       872  

Defined benefit pension plans:

    

Amortization of prior service cost and loss included in net periodic benefit cost

     790       877  
  

 

 

   

 

 

 

Other comprehensive income

     1,208       1,944  
  

 

 

   

 

 

 

Comprehensive income

   $ 30,175     $ 28,232  
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated interim financial statements.

 

Page 6 of 48


Table of Contents

Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

For the Three Months Ended September 30, 2019 and 2018

 

    Class A
Common
Stock
    Class B
Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 
    (In thousands)  

Balance at June 30, 2018

  $ 3,608     $ 1,960     $ 12,292     $ 283,084     $ (23,463   $ 277,481  

Net income

    —         —         —         9,581       —         9,581  

Other comprehensive income, net of tax:

              —    

Unrealized holding (losses) gains arising during period, net of $30 in taxes

    —         —         —         —         (164     (164

Accretion of unrealized losses on securities transferred to held-to-maturity, net of $85 in taxes

    —         —         —         —         238       238  

Pension liability adjustment, net of $114 in taxes

    —         —         —         —         292       292  

Cash dividends paid, Class A common stock, $.12 per share

    —         —         —         (432     —         (432

Cash dividends paid, Class B common stock, $.06 per share

    —         —         —         (119     —         (119
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2018

  $ 3,608     $ 1,960     $ 12,292     $ 292,114     $ (23,097   $ 286,877  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2019

  $ 3,620     $ 1,948     $ 12,292     $ 319,270     $ (18,193   $ 318,937  

Net income

    —         —         —         10,084       —         10,084  

Other comprehensive income, net of tax:

              —    

Unrealized holding (losses) gains arising during period, net of $23 in taxes and $53 in realized gains

    —         —         —         —         74       74  

Accretion of unrealized losses on securities transferred to held-to-maturity, net of $54 in taxes

    —         —         —         —         155       155  

Pension liability adjustment, net of $103 in taxes

    —         —         —         —         263       263  

Conversion of Class B Common Stock to Class A Common Stock, 30,000 shares

    30       (30     —         —         —         —    

Cash dividends paid, Class A common stock, $.12 per share

    —         —         —         (438     —         (438

Cash dividends paid, Class B common stock, $.06 per share

    —         —         —         (115     —         (115
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2019

  $ 3,650     $ 1,918     $ 12,292     $ 328,801     $ (17,701   $ 328,960  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated interim financial statements.

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Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

For the Nine Months Ended September 30, 2019 and 2018

 

    Class A
Common
Stock
    Class B
Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 
    (In thousands)  

Balance at December 31, 2017

  $ 3,606     $ 1,962     $ 12,292     $ 263,666     $ (21,229   $ 260,297  

Net income

    —         —         —         26,288       —         26,288  

Other comprehensive income, net of tax:

              —    

Unrealized holding (losses) gains arising during period, net of $39 in taxes and $302 in realized gains

    —         —         —         —         195       195  

Accretion of unrealized losses on securities transferred to held-to-maturity, net of $314 in taxes

    —         —         —         —         872       872  

Pension liability adjustment, net of $342 in taxes

    —         —         —         —         877       877  

Adoption of ASU 2018-2, Income Statement-Reporting Comprehensive Income (Topic 220)-Reclassification of Certain Tax Effects from AOCI

    —         —         —         3,783       (3,783     —    

Adoption of ASU 2016-1, Financial Instruments-Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities

    —         —         —         29       (29     —    

Conversion of Class B Common Stock to Class A Common Stock, 2,500 shares

    2       (2     —         —         —         —    

Cash dividends paid, Class A common stock, $.36 per share

    —         —         —         (1,299     —         (1,299

Cash dividends paid, Class B common stock, $.18 per share

    —         —         —         (353     —         (353
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2018

  $ 3,608     $ 1,960     $ 12,292     $ 292,114     $ (23,097   $ 286,877  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2018

  $ 3,608     $ 1,960     $ 12,292     $ 301,488     $ (18,909   $ 300,439  

Net income

    —         —         —         28,967       —         28,967  

Other comprehensive income, net of tax:

              —    

Unrealized holding (losses) gains arising during period, net of $52 in taxes and $61 in realized gains

    —         —         —         —         (156     (156

Accretion of unrealized losses on securities transferred to held-to-maturity, net of $205 in taxes

    —         —         —         —         574       574  

Pension liability adjustment, net of $309 in taxes

    —         —         —         —         790       790  

Conversion of Class B Common Stock to Class A Common Stock, 42,120 shares

    42       (42     —         —         —         —    

Cash dividends paid, Class A common stock, $.36 per share

    —         —         —         (1,304     —         (1,304

Cash dividends paid, Class B common stock, $.18 per share

    —         —         —         (350     —         (350
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2019

  $ 3,650     $ 1,918     $ 12,292     $ 328,801     $ (17,701   $ 328,960  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated interim financial statements.

 

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Century Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

For the Nine Months Ended September 30, 2019 and 2018

 

     Nine months ended September 30,  
     2019     2018  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 28,967     $ 26,288  

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

    

Gain on sales of mortgage loans

     (154     —    

Net gains on sales of securities

     (61     (302

Net (gain) loss on equity securities

     (76     47  

Provision for loan losses

     700       900  

Deferred income taxes

     (593     (1,270

Net depreciation and amortization

     (1,693     1,116  

Decrease (increase) in accrued interest receivable

     1,131       (1,699

(Increase) decrease in other assets

     (1,037     1,542  

Increase in other liabilities

     2,029       4,825  
  

 

 

   

 

 

 

Net cash provided by operating activities

     29,213       31,447  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Proceeds from redemptions of Federal Home Loan Bank of Boston stock

     13,801       13,619  

Purchase of Federal Home Loan Bank of Boston stock

     (9,852     (14,583

Proceeds from calls/maturities of securities available-for-sale

     115,574       111,922  

Proceeds from sales of securities available-for-sale

     16,285       27,517  

Purchase of securities available-for-sale

     (57,005     (108,871

Proceeds from calls/maturities of securities held-to-maturity

     313,358       187,009  

Purchase of securities held-to-maturity

     (427,124     (358,824

Proceeds from sales of securities held-to-maturity

     1,194       —    

Proceeds from life insurance policies

     5,124       375  

Net increase in loans

     (98,915     (83,967

Proceeds from sales of portfolio loans

     8,871       —    

Capital expenditures

     (9,962     (2,900
  

 

 

   

 

 

 

Net cash used in investing activities

     (128,651     (228,703
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net decrease in time deposits

     (27,505     (45,475

Net decrease (increase) in demand, savings, money market and NOW deposits

     (39,606     92,915  

Cash dividends

     (1,654     (1,652

Net increase (decrease) in securities sold under agreements to repurchase

     152,995       (18,500

Net increase in other borrowed funds

     6,810       24,828  
  

 

 

   

 

 

 

Net cash provided by financing activities

     91,040       52,116  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (8,398     (145,140

Cash and cash equivalents at beginning of period

     342,503       356,430  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 334,105     $ 211,290  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid (received) during the period for:

    

Interest

   $ 48,127     $ 30,680  

Income taxes

     (6,604     590  

Change in unrealized gains (losses) on securities available-for-sale, net of taxes

     (156     195  

Change in unrealized losses on securities transferred to held-to-maturity, net of taxes

     574       872  

Pension liability adjustment, net of taxes

     790       877  

Change in due to (from) to broker

       —       897  

See accompanying notes to unaudited consolidated interim financial statements.

 

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Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements

Nine Months Ended September 30, 2019 and 2018

Note 1. Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of Century Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Century Bank and Trust Company (the “Bank”). The consolidated financial statements also include the accounts of the Bank’s wholly owned subsidiaries, Century Subsidiary Investments, Inc. (“CSII”), Century Subsidiary Investments, Inc. II (“CSII II”), Century Subsidiary Investments, Inc. III (“CSII III”) and Century Financial Services Inc. (“CFSI”). CSII, CSII II, and CSII III are engaged in buying, selling and holding investment securities. CFSI has the power to engage in financial agency, securities brokerage, and investment and financial advisory services and related securities credit. The Company also owns 100% of Century Bancorp Capital Trust II (“CBCT II”). The entity is an unconsolidated subsidiary of the Company.

All significant intercompany accounts and transactions have been eliminated in consolidation. The Company provides a full range of banking services to individual, business and municipal customers in Massachusetts, New Hampshire, Rhode Island, Connecticut, and New York. As a bank holding company, the Company is subject to the regulation and supervision of the Federal Reserve Board. The Bank, a state chartered financial institution, is subject to supervision and regulation by applicable state and federal banking agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation (the “FDIC”) and the Commonwealth of Massachusetts Commissioner of Banks. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. All aspects of the Company’s business are highly competitive. The Company faces aggressive competition from other lending institutions and from numerous other providers of financial services. The Company has one reportable operating segment.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s quarterly report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission.

Material estimates that are susceptible to change in the near term relate to the allowance for loan losses. Management believes that the allowance for loan losses is adequate based on a review of factors, including historical charge-off rates with additional allocations based on qualitative risk factors for each category and general economic factors. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Certain reclassifications are made to prior-year amounts whenever necessary to conform with the current-year presentation.

Note 2. Recent Accounting Developments

Recently Adopted Accounting Standards Updates

In July 2017, FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2018. The effect of this update did not have a material impact on the Company’s consolidated financial position.

In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization of Purchased Callable Debt. The FASB is issuing this ASU to amend the amortization period for certain purchased callable debt securities held at a premium. The FASB is shortening the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The effect of this update did not have a material impact on the Company’s consolidated financial position.

 

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In February 2016, the FASB issued ASU 2016-02, Leases. This ASU required lessees to put most leases on their balance sheet but recognize expenses on their income statements in a manner similar to today’s accounting. This ASU also eliminated today’s real estate-specific provisions for all companies. For lessors, this ASU modified the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. The Company also reviewed contracts to determine if they contain embedded leases. The Company’s balance sheet impact was $15.1 million as of January 1, 2019. This amount was recorded as a right of use asset, included in other assets, with a corresponding lease liability, included in other liabilities.

In July 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) was issued to provide more detailed guidance and additional clarification for implementing ASU 2016-02. Also in July 2018, ASU 2018-11, “Targeted Improvements” (“ASU 2018-11”) was issued and allows for an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements.” The Company used this optional transition method for the adoption of Topic 842.

Accounting Standards Issued but not yet Adopted

The following list identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in the process of implementing this ASU, has purchased a software solution and is capturing information needed to implement this ASU. As part of the FASB ASC 326 implementation process the company is using two models: a rating migration model and a probability of default model. The probability of default model is based primarily on four components: loss history, product lifecycle, behavioral attributes and the economic environment. The ratings migration model is designed to estimate loss reserves according to the CECL standard for rated loans or similar instruments. The model structure follows a grade migration approach, where the default rate is based on the probability of each grade transition which is modeled using historical data.

The Company has started to input information into the models, and is running the software program and comparing to existing results. In addition, the Company has also begun developing accounting policies, as well as designing and implementing new internal controls relevant to the updated methodologies and models. The Company has not determined the dollar impact as of September 30, 2019.

The securities held-to-maturity include U.S. Treasury, U.S. Government Sponsored Enterprises, BSA Backed Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities. The Company expects no impact from ASU 2016-13 to arise from this portfolio.

Since ASU 2016-13, the FASB has issued amendments intended on improving the clarification of the amendment, ASU 2018-19 Codification Improvements to Topic 326, Financial Instruments – Credit Losses and ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging. The amendment in ASU 2018-19 was issued in November 2018 and was intended to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendment in ASU 2019-04 was issued in April 2019 and was intended to clarify stakeholders’ specific issues about certain aspects of the amendments in ASU 2016-13. ASU 2019-05 Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief was also issued in May 2019. This ASU provides entities the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized costs basis. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall. The amendments in this ASU should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the statement of financial position as of the date that an entity early adopted the amendments in ASU 2016-13.

 

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In August 2018, FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU 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 remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This ASU is effective for annual reporting periods beginning after December 15, 2020. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update is not expected to have a material impact on the Company’s disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

Securities and Exchange Commission (SEC) ruling:

In August 2018, the SEC issued a final rule that amends certain of the Commission’s disclosure requirements “that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, or changes in the information environment.” The financial reporting implications of the final rule’s amendments may vary by company, but the changes are generally expected to reduce or eliminate some of an SEC registrant’s disclosure requirements. In limited circumstances, however, the amendments may expand those requirements, including those related to interim disclosures about changes in stockholders’ equity. Under the requirements, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for “the current and comparative year-to-date periods, with subtotals for each interim period.” Beginning with its March 31, 2019 filing, the Company included a reconciliation for the current quarter and year-to-date interim periods as well as the comparative periods of the prior years (i.e., a reconciliation covering each period for which an income statement is presented).

Note 3. Securities Available-for-Sale

 

    September 30, 2019     December 31, 2018  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
    Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 
    (in thousands)  

U.S. Treasury

  $ —       $ —       $ —       $ —       $ 2,000      $ —        $ 8      $ 1,992  

U.S. Government Sponsored Enterprises

    —         —         —         —         3,946        —          31        3,915  

SBA Backed Securities

    58,714       51       101       58,664       70,477        1        284        70,194  

U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities

    170,532       189       439       170,282       162,604        536        250        162,890  

Privately Issued Residential Mortgage-Backed Securities

    574       6       1       579       679        3        10        672  

Obligations Issued by States and Political Subdivisions

    28,519       57       —         28,576       93,445        58        —          93,503  

Other Debt Securities

    3,600       64       26       3,638       3,600        37        44        3,593  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

  $ 261,939     $ 367     $ 567     $ 261,739     $ 336,751      $ 635      $ 627      $ 336,759  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Included in SBA Backed Securities, U.S. Government Sponsored Enterprise Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities are securities at fair value pledged to secure public deposits and repurchase agreements amounting to $196,356,000 and $197,304,000 at September 30, 2019 and December 31, 2018, respectively. Also included in securities

 

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available-for-sale are securities at fair value pledged for borrowing at the Federal Home Loan Bank of Boston amounting to $32,590,000 and $34,787,000 at September 30, 2019 and December 31, 2018, respectively. The Company realized gross gains of $13,000 from the proceeds of $16,285,000 from the sales of available-for-sale securities for the nine months ended September 30, 2019. The Company realized gross gains of $302,000 from the proceeds of $27,517,000 from the sales of available-for-sale securities for the nine months ended September 30, 2018.

Debt securities of U.S. Government Sponsored Enterprises and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities primarily refer to debt securities of Fannie Mae and Freddie Mac.

The following table shows the maturity distribution of the Company’s securities available-for-sale at September 30, 2019.

 

     Amortized
Cost
     Fair
Value
 
     (in thousands)  

Within one year

   $ 26,187      $ 26,184  

After one but within five years

     134,881        134,811  

After five but within ten years

     85,551        85,378  

More than 10 years

     15,320        15,366  
  

 

 

    

 

 

 

Total

   $ 261,939      $ 261,739  
  

 

 

    

 

 

 

The weighted average remaining life of investment securities available-for-sale at September 30, 2019 was 5.1 years. The contractual maturities, which were used in the table above, of mortgage-backed securities, will differ from the actual maturities, due to the ability of the issuers to prepay underlying obligations. Also $234,949,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of September 30, 2019 and December 31, 2018, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the underlying credit quality of the issuers, and the Company does not intend to sell these debt securities and it is not more likely than not that it will be required to sell these debt securities before the anticipated recovery of its remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered that the principal and interest on these securities are from issuers that are investment grade.

The unrealized loss on SBA Backed Securities, U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2019 or December 31, 2018.

In evaluating the underlying credit quality of a security, management considers several factors such as the credit rating of the obligor and the issuer, if applicable. Internal reviews of issuer financial statements are performed as deemed necessary. In the case of privately issued mortgage-backed securities, the performance of the underlying loans is analyzed as deemed necessary to determine the estimated future cash flows of the securities. Factors considered include the level of subordination, current and estimated future default rates, current and estimated prepayment rates, estimated loss severity rates, geographic concentrations and origination dates of underlying loans.

 

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The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at September 30, 2019. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 24 and 18 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 134 holdings at September 30, 2019.

 

    September 30, 2019  
    Less than 12 months     12 months or longer     Total  
Temporarily Impaired Investments   Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
 
    (in thousands)  

U.S. Treasury

  $ —       $ —       $ —       $ —       $ —       $ —    

U.S. Government Sponsored Enterprises

    —         —         —         —         —         —    

SBA Backed Securities

    11,133       11       24,944       90       36,077       101  

U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities

    81,305       264       27,872       175       109,177       439  

Privately Issued Residential Mortgage-Backed Securities

    —         —         282       1       282       1  

Obligations Issued by States and Political Subdivisions

    —         —         —         —         —         —    

Other Debt Securities

    800       1       475       25       1,275       26  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 93,238     $ 276     $ 53,573     $ 291     $ 146,811     $ 567  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2018. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 10 and 30 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 190 holdings at December 31, 2018.

 

    December 31, 2018  
    Less than 12 months     12 months or longer     Total  
Temporarily Impaired Investments   Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
 
    (in thousands)  

U.S. Treasury

  $ —       $ —       $ 1,992     $ 8     $ 1,992     $ 8  

U.S. Government Sponsored Enterprises

    3,914       31       —         —         3,914       31  

SBA Backed Securities

    17,950       28       44,323       256       62,273       284  

U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities

    19,244       21       45,782       229       65,026       250  

Privately Issued Residential Mortgage-Backed Securities

    —         —         495       10       495       10  

Obligations Issued by States and Political Subdivisions

    —         —         —         —         —         —    

Other Debt Securities

    —         —         455       44       455       44  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 41,108     $ 80     $ 93,047     $ 547     $ 134,155     $ 627  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 4. Investment Securities Held-to-Maturity

 

    September 30, 2019     December 31, 2018  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 
    (in thousands)  

U.S. Treasury

  $ —       $ —       $ —       $ —       $ 9,960     $ —       $ 2     $ 9,958  

U.S. Government Sponsored Enterprises

    121,516       653       67       122,102       234,228       336       803       233,761  

SBA Backed Securities

    47,126       452       66       47,512       52,051       —         2,065       49,986  

U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities

    1,995,493       29,911       6,553       2,018,851       1,750,408       2,324       55,016       1,697,716  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,164,135     $ 31,016     $ 6,686     $ 2,188,465     $ 2,046,647     $ 2,660     $ 57,886     $ 1,991,421  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $1,692,033,000 and $1,441,059,000 at September 30, 2019 and December 31, 2018, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank of Boston at fair value amounting to $427,425,000 and $291,190,000 at September 30, 2019 and December 31, 2018, respectively. The Company realized gross gains of $48,000 from the proceeds of $1,194,000 from the sales of held-to-maturity securities for the nine months ended September 30, 2019. The sales of securities held-to-maturity relate to certain mortgage backed securities for which the company has previously collected a substantial portion of its principal investment. There were no sales of held-to-maturity securities for the nine months ended September 30, 2018.

At September 30, 2019 and December 31, 2018, all mortgage-backed securities are obligations of U.S. Government Agencies and Government Sponsored Enterprises. Debt securities of U.S. Government Sponsored Enterprises and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities primarily refer to debt securities of Fannie Mae and Freddie Mac.

The following table shows the maturity distribution of the Company’s securities held-to-maturity at September 30, 2019.

 

     Amortized
Cost
     Fair
Value
 
     (in thousands)  

Within one year

   $ 70,980      $ 71,260  

After one but within five years

     1,809,564        1,829,087  

After five but within ten years

     271,068        275,192  

More than ten years

     12,523        12,926  
  

 

 

    

 

 

 

Total

   $ 2,164,135      $ 2,188,465  
  

 

 

    

 

 

 

The weighted average remaining life of investment securities held-to-maturity at September 30, 2019 was 3.6 years. Included in the weighted average remaining life calculation at September 30, 2019 were $66,196,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. The contractual maturities, which were used in the table above, of mortgage-backed securities, will differ from the actual maturities, due to the ability of the issuers to prepay underlying obligations. Also $111,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of September 30, 2019 and December 31, 2018, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the underlying credit quality of the issuers, and the Company does not intend to sell these debt securities and it is not more likely than not that it will be required to sell these debt securities before the anticipated recovery of their remaining amortized costs. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade.

The unrealized loss on U.S. Government Sponsored Enterprises, SBA Backed Securities, and U.S. Government Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company does not intend to sell any of these securities and it is not more likely than not that it will be required to sell these securities before the anticipated recovery of the remaining amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2019 or December 31, 2018.

In evaluating the underlying credit quality of a security, management considers several factors such as the credit rating of the obligor and the issuer, if applicable. Internal reviews of issuer financial statements are performed as deemed necessary.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio September 30, 2019. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months or longer. There are 44 and 112 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 505 holdings at September 30, 2019.

 

     September 30, 2019  
     Less Than 12 Months      12 Months or Longer      Total  
Temporarily Impaired Investments    Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (in thousands)  

U.S. Treasury

   $ —        $ —        $ —        $ —        $ —        $ —    

U.S. Government Sponsored Enterprises

     9,976        22        9,954        45        19,930        67  

SBA Backed Securities

     13,673        66        —          —          13,673        66  

U.S. Government Agency and Sponsored Enterprise Mortgage- Backed Securities

     163,889        816        430,714        5,737        594,603        6,553  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 187,538      $ 904      $ 440,668      $ 5,782      $ 628,206      $ 6,686  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2018. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 56 and 315 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 475 holdings at December 31, 2018.

 

     December 31, 2018  
     Less Than 12 Months      12 Months or Longer      Total  
Temporarily Impaired Investments    Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (in thousands)  

U.S. Treasury

   $ 9,958      $ 2      $ —        $ —        $ 9,958      $ 2  

U.S. Government Sponsored Enterprises

     9,849        42        69,499        761        79,348        803  

SBA Backed Securities

     —          —          49,987        2,065        49,987        2,065  

U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities

     188,125        2,032        1,249,689        52,984        1,437,814        55,016  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 207,932      $ 2,076      $ 1,369,175      $ 55,810      $ 1,577,107      $ 57,886  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 5. Allowance for Loan Losses

The Company maintains an allowance for loan losses in an amount determined by management on the basis of the character of the loans, loan performance, financial condition of borrowers, the value of collateral securing loans and other relevant factors.

The following table summarizes the changes in the Company’s allowance for loan losses for the periods indicated.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2019      2018      2019      2018  
     (in thousands)  

Allowance for loan losses, beginning of period

   $ 29,070      $ 27,144      $ 28,543      $ 26,255  

Loans charged off

     (118      (89      (336      (247

Recoveries on loans previously charged-off

     70        1,490        190        1,637  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net recoveries (charge-offs)

     (48      1,401        (146      1,390  

Provision charged to expense

     75        —          700        900  
  

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan losses, end of period

   $ 29,097      $ 28,545      $ 29,097      $ 28,545  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Further information pertaining to the allowance for loan losses for the three months ending September 30, 2019 is as follows:

 

    Construction
and Land
Development
    Commercial
and
Industrial
    Municipal     Commercial
Real Estate
    Residential
Real Estate
    Consumer     Home
Equity
    Unallocated     Total  
    (in thousands)  
Allowance for loan losses:                  

Balance at June 30, 2019

  $ 1,052     $ 11,338     $ 1,832     $ 10,848     $ 2,210     $ 380     $ 1,120     $ 290     $ 29,070  

Charge-offs

    —         (57     —         —         —         (61     —         —         (118

Recoveries

    —         23       —         —         —         47       —         —         70  

Provision

    (752     9       751       53       (24     (84     (33     155       75  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2019

  $ 300     $ 11,313     $ 2,583     $ 10,901     $ 2,186     $ 282     $ 1,087     $ 445     $ 29,097  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans deemed to be impaired

  $ —       $ 2     $ —       $ 86     $ —       $ —       $ —       $ —       $ 88  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans not deemed to be impaired

  $ 300     $ 11,311     $ 2,583     $ 10,815     $ 2,186     $ 282     $ 1,087     $ 445     $ 29,009  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                 

Ending balance

  $ 7,824     $ 783,950     $ 121,802     $ 765,385     $ 364,317     $ 21,748     $ 310,635     $ —       $ 2,375,661  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans deemed to be impaired

  $ —       $ 203     $ —       $ 2,373     $ —       $ —       $ —       $ —       $ 2,576  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans not deemed to be impaired

  $ 7,824     $ 783,747     $ 121,802     $ 763,012     $ 364,317     $ 21,748     $ 310,635     $ —       $ 2,373,085  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Further information pertaining to the allowance for loan losses for the nine months ending September 30, 2019 is as follows:

 

    Construction
and Land
Development
    Commercial
and
Industrial
    Municipal     Commercial
Real Estate
    Residential
Real Estate
    Consumer     Home
Equity
    Unallocated     Total  
    (in thousands)  

Allowance for loan losses:

                 

Balance at December 31, 2018

  $ 1,092     $ 10,998     $ 1,838     $ 10,663     $ 2,190     $ 365     $ 1,111     $ 286     $ 28,543  

Charge-offs

    —         (108     —         —         —         (228     —         —         (336

Recoveries

    —         49       —         —         —         141       —         —         190  

Provision

    (792     374       745       238       (4     4       (24     159       700  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2019

  $ 300     $ 11,313     $ 2,583     $ 10,901     $ 2,186     $ 282     $ 1,087     $ 445     $ 29,097  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans deemed to be impaired

  $ —       $ 2     $ —       $ 86     $ —       $ —       $ —       $ —       $ 88  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans not deemed to be impaired

  $ 300     $ 11,311     $ 2,583     $ 10,815     $ 2,186     $ 282     $ 1,087     $ 445     $ 29,009  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                 

Ending balance

  $ 7,824     $ 783,950     $ 121,802     $ 765,385     $ 364,317     $ 21,748     $ 310,635     $ —       $ 2,375,661  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans deemed to be impaired

  $ —       $ 203     $ —       $ 2,373     $ —       $ —       $ —       $ —       $ 2,576  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans not deemed to be impaired

  $ 7,824     $ 783,747     $ 121,802     $ 763,012     $ 364,317     $ 21,748     $ 310,635     $ —       $ 2,373,085  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the nine months ending September 30, 2019, the Company’s provision was primarily attributable to an increase in municipal, Commercial and industrial, and commercial real estate balances offset, somewhat, by a decrease in construction and land development balances. During the three months ending September 30, 2019, the Company’s provision was primarily attributable to an increase in municipal balances offset, somewhat, by a decrease in construction and land development balances. The Company monitors the outlook for the industries in which our borrowers operate. Healthcare and higher education are two of the primary industries. In particular the Company utilizes outlooks and forecasts from various sources. The Company also monitors the volatility of the losses within the historical data. Overall there were improvements in historical loss rates.

 

Page 17 of 48


Table of Contents

Further information pertaining to the allowance for loan losses for the three months ending September 30, 2018 follows:

 

    Construction
and Land
Development
    Commercial
and Industrial
    Municipal     Commercial
Real Estate
    Residential
Real Estate
    Consumer     Home
Equity
    Unallocated     Total  
    (in thousands)  

Allowance for loan losses:

                 

Balance at June 30, 2018

  $ 633     $ 10,384     $ 1,704     $ 10,209     $ 2,493     $ 336     $ 1,078     $ 307     $ 27,144  

Charge-offs

    —         (11     —         —         —         (78     —         —         (89

Recoveries

    1,432       16       —         —         —         42       —         —         1,490  

Provision

    (1,155     895       84       415       (182     32       (28     (61     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2018

  $ 910     $ 11,284     $ 1,788     $ 10,624     $ 2,311     $ 332     $ 1,050     $ 246     $ 28,545  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans deemed to be impaired

  $ —       $ 93     $ —       $ 95     $ 350     $ —       $ —       $ —       $ 538  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans not deemed to be impaired

  $ 910     $ 11,191     $ 1,788     $ 10,529     $ 1,961     $ 332     $ 1,050     $ 246     $ 28,007  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                 

Ending balance

  $ 12,434     $ 783,960     $ 94,532     $ 730,265     $ 335,114     $ 21,216     $ 283,818     $ —       $ 2,261,339  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans deemed to be impaired

  $ —       $ 660     $ —       $ 2,680     $ 2,675     $ —       $ —       $ —       $ 6,015  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans not deemed to be impaired

  $ 12,434     $ 783,300     $ 94,532     $ 727,585     $ 332,439     $ 21,216     $ 283,818     $ —       $ 2,255,324  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Further information pertaining to the allowance for loan losses for the nine months ending September 30, 2018 follows:

 

    Construction
and Land
Development
    Commercial
and
Industrial
    Municipal     Commercial
Real Estate
    Residential
Real Estate
    Consumer     Home
Equity
    Unallocated     Total  
    (in thousands)  

Allowance for loan losses:

                 

Balance at December 31, 2017

  $ 1,645     $ 9,651     $ 1,720     $ 9,728     $ 1,873     $ 373     $ 989     $ 276     $ 26,255  

Charge-offs

    —         (16     —         —         —         (231     —         —         (247

Recoveries

    1,432       49       —         —         —         156       —         —         1,637  

Provision

    (2,167     1,600       68       896       438       34       61       (30     900  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2018

  $ 910     $ 11,284     $ 1,788     $ 10,624     $ 2,311     $ 332     $ 1,050     $ 246     $ 28,545  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans deemed to be impaired

  $ —       $ 93     $ —       $ 95     $ 350     $ —       $ —       $ —       $ 538  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amount of allowance for loan losses

for loans not deemed to be impaired

  $ 910     $ 11,191     $ 1,788     $ 10,529     $ 1,961     $ 332     $ 1,050     $ 246     $ 28,007  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                 

Ending balance

  $ 12,434     $ 783,960     $ 94,532     $ 730,265     $ 335,114     $ 21,216     $ 283,818     $ —       $ 2,261,339  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans deemed to be impaired

  $ —       $ 660     $ —       $ 2,680     $ 2,675     $ —       $ —       $ —       $ 6,015  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans not deemed to be impaired

  $ 12,434     $ 783,300     $ 94,532     $ 727,585     $ 332,439     $ 21,216     $ 283,818     $ —       $ 2,255,324  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the nine months ending September 30, 2018, the Company’s provision was primarily attributable to an increase in residential real estate balances and increased qualitative allocations for commercial and industrial and commercial real estate loans, offset, somewhat by the recovery of a construction loan previously charged-off and a decrease in construction balances. During the three months ending September 30, 2018, the Company did not require a provision mainly as a result of recoveries of a construction loan previously charged-off and a decrease in construction loan balances offset by increased qualitative allocations for commercial and industrial and commercial real estate loans. The Company monitors the outlook for the industries in which our borrowers operate. Healthcare and higher education are two of the primary industries. In particular the Company utilizes outlooks and forecasts from various sources. Overall a general weakening in the outlook was noted resulting in a general increase in the general economic factors. The Company also monitors the volatility of the losses within the historical data.

 

Page 18 of 48


Table of Contents

The Company utilizes a six grade internal loan rating system for commercial real estate, construction and commercial loans as follows:

Loans rated 1-3 (Pass):

Loans in this category are considered “pass” rated loans with low to average risk.

Loans rated 4 (Monitor):

These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of September 30, 2019 and December 31, 2018.

Loans rated 5 (Substandard):

Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of September 30, 2019 and December 31, 2018.

Loans rated 6 (Doubtful):

Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of September 30, 2019 and December 31, 2018 and full collectability is doubtful.

Impaired:

Impaired loans represent classified loans that management is closely monitoring for credit quality. A loan is classified as impaired when it is probable that the Company will be unable to collect all amounts due.

The following table presents the Company’s loans by risk rating at September 30, 2019.

 

     Construction
and Land
Development
     Commercial
and
Industrial
     Municipal      Commercial
Real Estate
 
     (in thousands)  

Grade:

           

1-3 (Pass)

   $ 7,824      $ 779,722      $ 121,802      $ 738,459  

4 (Monitor)

     —          4,025        —          24,553  

5 (Substandard)

     —          —          —          —    

6 (Doubtful)

     —          —          —          —    

Impaired

     —          203        —          2,373  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,824      $ 783,950      $ 121,802      $ 765,385  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the Company’s loans by risk rating at December 31, 2018.

 

     Construction
and Land
Development
     Commercial
and
Industrial
     Municipal      Commercial
Real Estate
 
     (in thousands)  

Grade:

           

1-3 (Pass)

   $ 13,628      $ 757,089      $ 97,290      $ 723,170  

4 (Monitor)

     —          4,135        —          24,542  

5 (Substandard)

     —          —          —          —    

6 (Doubtful)

     —          —          —          —    

Impaired

     —          401        —          2,650  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,628      $ 761,625      $ 97,290      $ 750,362  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 19 of 48


Table of Contents

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at September 30, 2019 and are included within the total loan portfolio.

 

     Commercial
and
Industrial
     Municipal      Commercial
Real
Estate
     Total  
     (in thousands)  

Credit Rating:

           

Aaa – Aa3

   $ 497,124      $ 54,495      $ 40,759      $ 592,378  

A1 – A3

     187,970        7,479        148,735        344,184  

Baa1 – Baa3

     —          51,133        122,288        173,421  

Ba2

     —          5,895        —          5,895  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 685,094      $ 119,002      $ 311,782      $ 1,115,878  
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, 2018.

 

     Commercial
and
Industrial
     Municipal      Commercial
Real
Estate
     Total  
     (in thousands)  

Credit Rating:

           

Aaa – Aa3

   $ 491,247      $ 54,105      $ 42,790      $ 588,142  

A1 – A3

     172,472        7,605        151,381        331,458  

Baa1 – Baa3

     —          26,970        118,197        145,167  

Ba2

     —          6,810        —          6,810  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 663,719      $ 95,490      $ 312,368      $ 1,071,577  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company utilized payment performance as credit quality indicators for the loan types listed below. The indicators are depicted in the table “aging of past due loans,” below.

Further information pertaining to the allowance for loan losses at September 30, 2019 follows:

 

     Accruing
30-89 Days
Past Due
     Non
Accrual
     Accruing
Greater
than
90 Days
     Total
Past
Due
     Current
Loans
     Total  
     (in thousands)  

Construction and land development

   $ —        $ —        $ —        $ —        $ 7,824      $ 7,824  

Commercial and industrial

     108        19        —          127        783,823        783,950  

Municipal

     —          —          —          —          121,802        121,802  

Commercial real estate

     155        167        —          322        765,063        765,385  

Residential real estate

     1,129        334        —          1,463        362,854        364,317  

Consumer and overdrafts

     15        —          —          15        21,733        21,748  

Home equity

     1,050        546        —          1,596        309,039        310,635  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,457      $ 1,066      $ —        $ 3,523      $ 2,372,138      $ 2,375,661  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 20 of 48


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Further information pertaining to the allowance for loan losses at December 31, 2018 follows:

 

     Accruing
30-89 Days
Past Due
     Non
Accrual
     Accruing
Greater
than
90 Days
     Total
Past
Due
     Current
Loans
     Total  
     (in thousands)  

Construction and land development

   $ —        $ —        $ —        $ —        $ 13,628      $ 13,628  

Commercial and industrial

     187        115        —          302        761,323        761,625  

Municipal

     —          —          —          —          97,290        97,290  

Commercial real estate

     774        190        —          964        749,398        750,362  

Residential real estate

     2,554        569        —          3,123        345,127        348,250  

Consumer and overdrafts

     24        14        —          38        22,045        22,083  

Home equity

     1,108        425        —          1,533        290,807        292,340  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,647      $ 1,313      $ —        $ 5,960      $ 2,279,618      $ 2,285,578  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Loans are charged-off when management believes that the collectability of the loan’s principal is not probable. The specific factors that management considers in making the determination that the collectability of the loan’s principal is not probable include: the delinquency status of the loan, the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the consolidated financial statements contained in the Company’s Annual Report for the fiscal year ended December 31, 2018.

 

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The following is information pertaining to impaired loans for September 30, 2019:

 

     Carrying
Value
     Unpaid
Principal
Balance
     Required
Reserve
     Average
Carrying
Value

for 3 Months
Ending
9/30/19
     Interest
Income
Recognized
for 3 Months
Ending
9/30/19
     Average
Carrying
Value

for 9 Months
Ending
9/30/19
     Interest
Income
Recognized
for 9 Months
Ending
9/30/19
 
     (in thousands)                

With no required reserve recorded:

                    

Construction and land development

   $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Commercial and industrial

     87        306        —          89        2        87        6  

Municipal

     —          —          —          —          —          —          —    

Commercial real estate

     167        194        —          729        —          529        —    

Residential real estate

     —          —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —          —    

Home equity

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 254      $ 500      $ —        $ 818      $ 2      $ 616      $ 6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With required reserve recorded:

                    

Construction and land development

   $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Commercial and industrial

     116        116        2        310        2        299        6  

Municipal

     —          —          —          —          —          —          —    

Commercial real estate

     2,206        2,326        86        2,140        23        2,350        67  

Residential real estate

     —          —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —          —    

Home equity

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,322      $ 2,442      $ 88      $ 2,450      $ 25      $ 2,649      $ 73  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

                    

Construction and land development

   $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Commercial and industrial

     203        422        2        399        4        386        12  

Municipal

     —          —          —          —          —          —          —    

Commercial real estate

     2,373        2,520        86        2,869        23        2,879        67  

Residential real estate

     —          —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —          —    

Home equity

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,576      $ 2,942      $ 88      $ 3,268      $ 27      $ 3,265      $ 79  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 22 of 48


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The following is information pertaining to impaired loans for September 30, 2018:

 

     Carrying
Value
     Unpaid
Principal
Balance
     Required
Reserve
     Average
Carrying
Value
for 3 Months
Ending
9/30/18
     Interest
Income
Recognized
for 3 Months
Ending
9/30/18
     Average
Carrying
Value
for 9 Months
Ending
9/30/18
     Interest
Income
Recognized
for 9 Months
Ending
9/30/18
 
     (in thousands)  

With no required reserve recorded:

  

Construction and land development

   $ —        $ —        $  —        $ —        $ —        $ —        $ —    

Commercial and industrial

     84        282        —          56        —          47        —    

Municipal

     —          —          —          —          —          —          —    

Commercial real estate

     196        219        —          280        —          267        —    

Residential real estate

     —          —          —          —          —          —          —    

Consumer

     —          —          —          —          —          —          —    

Home equity

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 280      $ 501      $ —        $ 336      $ —        $ 314      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With required reserve recorded:

                    

Construction and land development

   $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Commercial and industrial

     576        593        93        589        5        490        14  

Municipal

     —          —          —          —          —          —          —    

Commercial real estate

     2,484        2,597        95        2,262        24        2,278        71  

Residential real estate

     2,675        2,675        350        2,675        —          3,136        80  

Consumer

     —          —          —          —          —          —          —    

Home equity

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,735      $ 5,865      $ 538      $ 5,526      $ 29      $ 5,904      $ 165  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

                    

Construction and land development

   $ —        $ —        $ —        $ —        $ —        $ —        $ —    

Commercial and industrial

     660        875        93        645        5        537        14  

Municipal

     —          —          —          —          —          —          —    

Commercial real estate

     2,680        2,816        95        2,542        24        2,545        71  

Residential real estate

     2,675        2,675        350        2,675        —          3,136        80  

Consumer

     —          —          —          —          —          —          —    

Home equity

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,015      $ 6,366      $ 538      $ 5,862      $ 29      $ 6,218      $ 165  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Troubled debt restructurings are identified as modifications in which a concession was granted to a customer who was having financial difficulties. This concession may be below market rate, longer amortization/term, or a lower payment amount. The present value calculation of the modification did not result in an increase in the allowance for these loans beyond any previously established allocations.

There was no troubled debt restructuring that occurred during the nine month period ended September 30, 2019. Also, there were no commitments to lend additional funds to troubled debt restructuring borrowers. There were no troubled debt restructurings that subsequently defaulted during the first nine months of 2019.

There was one residential real estate loan and one consumer loan that were modified during the first quarter of 2018. The loans were modified by reducing the interest rates as well as extending the terms on both loans. The pre-modification and post-modification outstanding recorded investment was $2,675,000 for the residential real estate loan that was not accruing interest and had a specific reserve of $350,000. The pre-modification and post-modification outstanding recorded investment was $17,000 for the consumer loan that was accruing and had a specific reserve of $1,000. The financial impact for the modifications was not material. There was one troubled debt restructuring, for $2,675,000, which subsequently defaulted during the first nine months of 2018. This troubled debt restructuring became other real estate owned during the fourth quarter of 2018 and subsequently sold during the third quarter of 2019.

 

Page 23 of 48


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Note 6. Reclassifications Out of Accumulated Other Comprehensive Income (a)

Amount Reclassified from Accumulated Other Comprehensive Income

 

Details about Accumulated Other

Comprehensive Income Components

   Three
Months Ended
September 30, 2019
    Three
Months Ended
September 30, 2018
    Affected Line Item in the
Statement where Net Income is
Presented
(in thousands)

Unrealized gains and losses on

available-for-sale securities

   $ 54     $ 105     Net gains on sales of
investments

Tax (expense) or benefit

     (15     (29   Provision for income taxes
  

 

 

   

 

 

   

Net of tax

   $ 39     $ 76     Net income
  

 

 

   

 

 

   

Accretion of unrealized losses transferred

   $ (209   $ (323   Interest on securities
held-to-maturity

Tax (expense) or benefit

     54       85     Provision for income taxes
  

 

 

   

 

 

   

Net of tax

   $ (155   $ (238   Net income
  

 

 

   

 

 

   

Amortization of defined benefit

pension items

      

Prior-service costs

   $ (29 )(b)    $ (4 )(b)    Salaries and employee benefits

Actuarial gains (losses)

     (337 )(b)      (402 )(b)    Salaries and employee benefits
  

 

 

   

 

 

   

Total before tax

     (366     (406   Income before taxes
  

 

 

   

 

 

   

Tax (expense) or benefit

     103       114     Provision for income taxes
  

 

 

   

 

 

   

Net of tax

   $ (263   $ (292   Net income
  

 

 

   

 

 

   

Details about Accumulated Other

Comprehensive Income Components

   Nine
Months Ended
September 30, 2019
    Nine
Months Ended
September 30, 2018
    Affected Line Item in the
Statement where Net Income is
Presented
(in thousands)

Unrealized gains and losses on

available-for-sale securities

   $ 61     $ 302     Net gains on sales of
investments

Tax (expense) or benefit

     (17     (85   Provision for income taxes
  

 

 

   

 

 

   

Net of tax

   $ 44     $ 217     Net income
  

 

 

   

 

 

   

Accretion of unrealized losses transferred

   $ (779   $ (1,186   Interest on securities
held-to-maturity

Tax (expense) or benefit

     205       314     Provision for income taxes
  

 

 

   

 

 

   

Net of tax

   $ (574   $ (872   Net income
  

 

 

   

 

 

   

Amortization of defined benefit

pension items

      

Prior-service costs

   $ (86 )(b)    $ (12 )(b)    Salaries and employee benefits

Actuarial gains (losses)

     (1,013 )(b)      (1,207 )(b)    Salaries and employee benefits
  

 

 

   

 

 

   

Total before tax

     (1,099     (1,219   Income before taxes
  

 

 

   

 

 

   

Tax (expense) or benefit

     309       342     Provision for income taxes
  

 

 

   

 

 

   

Net of tax

   $ (790   $ (877   Net income
  

 

 

   

 

 

   

 

(a)

Amount in parentheses indicates reductions to net income.

(b)

These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Employee Benefits footnote (Note 8) for additional details).

 

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Note 7. Earnings per Share (“EPS”)

Class A and Class B shares participate equally in undistributed earnings. Under the Company’s Articles of Organization, the holders of Class A Common Stock are entitled to receive dividends per share equal to at least 200% of dividends paid, if any, from time to time, on each share of Class B Common Stock.

Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS excludes all common stock equivalents. The Company had no common stock equivalents outstanding for the periods ended September 30, 2019 and 2018.

The following table is a reconciliation of basic EPS and diluted EPS.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(in thousands except share and per share data)    2019      2018      2019      2018  

Basic EPS Computation:

           

Numerator:

           

Net income, Class A

   $ 7,986      $ 7,535      $ 22,849      $ 20,674  

Net income, Class B

     2,098        2,046        6,118        5,614  

Denominator:

           

Weighted average shares outstanding, Class A

     3,650,449        3,608,329        3,627,076        3,608,129  

Weighted average shares outstanding, Class B

     1,917,460        1,959,580        1,940,833        1,959,780  

Basic EPS, Class A

   $ 2.19      $ 2.09      $ 6.30      $ 5.73  

Basic EPS, Class B

     1.09        1.04        3.15        2.86  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted EPS Computation:

           

Numerator:

           

Net income, Class A

   $ 7,986      $ 7,535      $ 22,849      $ 20,674  

Net income, Class B

     2,098        2,046        6,118        5,614  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net income, for diluted EPS, Class A computation

     10,084        9,581        28,967        26,288  

Denominator:

           

Weighted average shares outstanding, basic, Class A

     3,650,449        3,608,329        3,627,076        3,608,129  

Weighted average shares outstanding, Class B

     1,917,460        1,959,580        1,940,833        1,959,780  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding diluted, Class A

     5,567,909        5,567,909        5,567,909        5,567,909  

Weighted average shares outstanding, Class B

     1,917,460        1,959,580        1,940,833        1,959,780  

Diluted EPS, Class A

   $ 1.81      $ 1.72      $ 5.20      $ 4.72  

Diluted EPS, Class B

     1.09        1.04        3.15        2.86  
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 8. Employee Benefits

The Company provides pension benefits to its employees under a noncontributory, defined benefit plan which is funded on a current basis in compliance with the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and recognizes costs over the estimated employee service period.

The Company also has a Supplemental Executive Insurance/Retirement Plan (the “Supplemental Plan”) which is limited to certain officers and employees of the Company. The Supplemental Plan is accrued on a current basis and recognizes costs over the estimated employee service period.

Executive officers of the Company and its subsidiaries who have at least one year of service may participate in the Supplemental Plan. The Supplemental Plan is voluntary, and participants are required to contribute to its cost. Life insurance policies, which are owned by the Company, are purchased covering the lives of each participant.

 

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Components of Net Periodic Benefit Cost for the Three Months Ended September 30,

 

     Pension Benefits      Supplemental Insurance/
Retirement Plan
 
     2019      2018      2019      2018  
     (in thousands)  

Service cost

   $ 276      $ 353      $ 256      $ 277  

Interest

     473        371        482        346  

Expected return on plan assets

     (819      (954      —          —    

Recognized prior service cost (benefit)

     —          (25      28        29  

Recognized net actuarial losses

     229        226        109        176  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost (credit)

   $ 159      $ (29    $ 875      $ 828  
  

 

 

    

 

 

    

 

 

    

 

 

 

Components of Net Periodic Benefit Cost for the Nine Months Ended September 30,

 

     Pension Benefits      Supplemental Insurance/
Retirement Plan
 
     2019      2018      2019      2018  
     (in thousands)  

Service cost

   $ 828      $ 1,059      $ 768      $ 831  

Interest

     1,419        1,111        1,445        1,040  

Expected return on plan assets

     (2,457      (2,863      —          —    

Recognized prior service cost (benefit)

     —          (75      86        87  

Recognized net actuarial losses

     687        680        326        527  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost (credit)

   $ 477      $ (88    $ 2,625      $ 2,485  
  

 

 

    

 

 

    

 

 

    

 

 

 

Approximately $1,506,000 and $507,000 of costs other than service costs, from the table above, are included in other expenses for the nine months ended September 30, 2019 and 2018, respectively.

Contributions

The Company does not intend to contribute to the Defined Benefit Pension Plan in 2019.

Note 9. Fair Value Measurements

The Company follows FASB ASC 820-10, Fair Value Measurements and Disclosures and ASU 2016-1, “Financial Instruments-Overall” (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities, which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC 820-10 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels of the hierarchy are as follows:

Level I – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are highly liquid cash instruments with quoted prices such as G-7 government, agency securities, listed equities and money market securities, as well as listed derivative instruments.

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are corporate bonds and loans, mortgage whole loans, municipal bonds, and OTC derivatives.

Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Instruments that are included in this category generally include certain commercial mortgage loans, certain private equity investments, and distressed debt and non-investment grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.

 

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The results of the fair value hierarchy as of September 30, 2019, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:

 

    Securities AFS Fair Value Measurements Using  
    Carrying
Value
    Quoted Prices
In Active
Markets for
Identical
Assets

(Level 1)
    Significant
Observable
Inputs
(Level 2)
    Significant
Other
Unobservable
Inputs
(Level 3)
 
    (in thousands)  

SBA Backed Securities

  $ 58,664     $ —       $ 58,664     $ —    

U.S. Government Agency and Sponsored Mortgage-Backed Securities

    170,282       —         170,282       —    

Privately Issued Residential Mortgage- Backed Securities

    579       —         579       —    

Obligations Issued by States and Political Subdivisions

    28,576       —         4,775       23,801  

Other Debt Securities

    3,638       —         3,638       —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 261,739     $ —       $ 237,938     $ 23,801  
 

 

 

   

 

 

   

 

 

   

 

 

 

Equity Securities

  $ 1,672     $ 324     $ 1,348     $ —    
Financial Instruments Measured at Fair Value on a Non-recurring Basis:  

Impaired Loans

  $ 173     $ —       $ —       $ 173  

Impaired loan balances represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Fair value is generally determined through a review process that includes independent appraisals, discounted cash flows, or other external assessments of the underlying collateral, which generally include various Level 3 inputs which are not observable. The Company discounts the fair values, as appropriate, based on management’s observations of the local real estate market for loans in this category.

Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. All impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions related to impaired loans recognized for the three and nine month periods ended September 30, 2019 amounted to $(204,837) and $37,099, respectively.

 

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The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands). Management continues to monitor the assumptions used to value the assets listed below.

 

Asset

   Fair Value      Valuation Technique   Unobservable Input   Unobservable Input
Value or Range

Securities AFS (4)

   $ 23,801      Discounted cash flow   Discount rate   1.7%-3.1% (3)

Impaired Loans

   $ 173      Appraisal of collateral (1)   Appraisal adjustments (2)   0%-30% discount

 

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

(3)

Weighted averages.

(4)

Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.

The changes in Level 3 securities for the nine month period ended September 30, 2019 are shown in the table below:

 

     Obligations
Issued by States
& Political
Subdivisions
 
     (in thousands)  

Balance at December 31, 2018

   $ 88,728  

Purchases

     13,290  

Maturities and calls

     (78,196

Amortization

     (21
  

 

 

 

Balance at September 30, 2019

   $ 23,801  
  

 

 

 

The amortized cost of Level 3 securities was $23,801,000 at September 30, 2019 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair value. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

The fair value of impaired loans decreased by $78,000, for the first nine months of 2019, mainly attributable to one loan that was removed from impaired loans. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the nine month period ended September 30, 2019.

The changes in Level 3 securities for the nine month period ended September 30, 2018, are shown in the table below:

 

     Auction Rate
Securities
     Obligations
Issued by States
& Political
Subdivisions
     Total  
     (in thousands)  

Balance at December 31, 2017

   $ 4,459      $ 78,141      $ 82,600  

Purchases

     —          105,837        105,837  

Maturities and calls

     —          (72,640      (72,640

Transfer to Level 2

     (4,459      —          (4,459

Amortization

     —          (104      (104

Changes in fair value

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Balance at September 30, 2018

   $ —        $ 111,234      $ 111,234  
  

 

 

    

 

 

    

 

 

 

 

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The amortized cost of Level 3 securities was $111,234,000 at September 30, 2018 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity. There was one transfer of a security from level 3 to level 2 for the nine months ended September 30, 2018 as a result of increased trading activity and quoted market prices. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the nine month period ended September 30, 2018.

The results of the fair value hierarchy as of December 31, 2018, are as follows:

 

Financial Instruments Measured at Fair Value on a Recurring Basis:  
     Securities AFS Fair Value Measurements Using  
     Carrying
Value
     Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
     Significant
Observable
Inputs
(Level 2)
     Significant
Other
Unobservable
Inputs
(Level 3)
 
     (in thousands)  

U.S. Treasury

   $ 1,992      $ —        $ 1,992      $ —    

U.S. Government Sponsored Enterprises

     3,915        —          3,915        —    

SBA Backed Securities

     70,194        —          70,194        —    

U.S. Government Agency and Sponsored Mortgage-Backed Securities

     162,890        —          162,890        —    

Privately Issued Residential Mortgage- Backed Securities

     672        —          672        —    

Obligations Issued by States and Political Subdivisions

     93,503        —          4,775        88,728  

Other Debt Securities

     3,593           3,593     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 336,759      $ —        $ 248,031      $ 88,728  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity Securities

   $ 1,596      $ 293      $ 1,303      $ —    
Financial Instruments Measured at Fair Value on a Non-recurring Basis:  

Other Real Estate Owned

   $ 2,225      $ —        $ —        $ 2,225  

Impaired Loans

   $ 251      $ —        $ —        $ 251  

Impaired loan balances represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Fair value is generally determined through a review process that includes independent appraisals, discounted cash flows, or other external assessments of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. The Company discounts the fair values, as appropriate, based on management’s observations of the local real estate market for loans in this category.

Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. Within the past twelve months there have been no updated appraisals, however, all impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions relate to impaired loans recognized for 2018 for the estimated credit loss amounted to $540,000.

There was a transfer of an auction rate security during 2018 from level 3 to level 2. Quoted prices on the auction rate security became available but traded infrequently. There were no other transfers between level 1, 2 and 3 for the year ended December 31, 2018. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the year ended December 31, 2018.

 

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The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands). Management continues to monitor the assumptions used to value the assets listed below.

 

Asset

   Fair Value     

Valuation Technique

  

Unobservable Input

   Unobservable Input
Value or Range

Securities AFS (4)

   $ 88,728      Discounted cash flow    Discount rate    2.1%-4.1% (3)

Other Real Estate Owned

   $ 2,225      Appraisal of collateral (1)    Appraisal adjustments (2)    30% discount

Impaired Loans

   $ 251      Appraisal of collateral (1)    Appraisal adjustments (2)    0%-30% discount

 

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

(3)

Weighted averages.

(4)

Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.

Note 10. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments. Excluded from this disclosure are all non-financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

Securities Held-to-Maturity

The fair values of these securities were based on quoted market prices, where available, as provided by third-party investment portfolio pricing vendors. If quoted market prices were not available, fair values provided by the vendors were based on quoted market prices of comparable instruments in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs and methods” as defined in the “fair value hierarchy” provided by FASB.

Loans

The fair value of loans is estimated using the exit price notion consistent with Topic 820, Fair Value Measurement. Fair value is determined based on a discounted cash flow analysis. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk. For certain non-performing assets, fair value of the underlying collateral is determined based on the estimated values of individual receipts.

Time Deposits

The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Other Borrowed Funds

The fair value of other borrowed funds is based on the discounted value of contractual cash flows. The discount rate used is estimated based on the rates currently offered for other borrowed funds of similar remaining maturities.

 

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Subordinated Debentures

The fair value of subordinated debentures is based on the discounted value of contractual cash flows. The discount rate used is estimated based on the rates currently offered for other subordinated debentures of similar remaining maturities.

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2019 and December 31, 2018. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, short-term investments, FHLBB stock and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings and accrued interest payable.

 

September 30, 2019

   Carrying
Amount
     Estimated
Fair Value
     Fair Value
Measurements
Level 1 Inputs
     Level 2
Inputs
     Level 3
Inputs
 
     (in thousands)  

Financial assets:

              

Securities held-to-maturity

   $ 2,164,135      $ 2,188,465      $ —        $ 2,188,465      $ —    

Loans (1)

     2,346,564        2,398,515        —          —          2,398,515  

Financial liabilities:

                     

Time deposits

     533,074        532,135        —          532,135        —    

Other borrowed funds

     209,188        209,263        —          209,263        —    

Subordinated debentures

     36,083        36,083        —          36,083        —    

December 31, 2018

                                  

Financial assets:

              

Securities held-to-maturity

   $ 2,046,647      $ 1,991,421      $ —        $ 1,991,421      $ —    

Loans (1)

     2,257,035        2,279,712        —          —          2,279,712  

Financial liabilities:

                     

Time deposits

     560,579        559,988        —          559,988        —    

Other borrowed funds

     202,378        203,122        —          203,122        —    

Subordinated debentures

     36,083        36,083        —          36,083        —    

 

(1)