Company Quick10K Filing
Quick10K
Westamerica Bancorporation
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$59.56 27 $1,604
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-25 Other Events, Exhibits
8-K 2019-07-18 Earnings, Exhibits
8-K 2019-06-28 Enter Agreement, Officers, Exhibits
8-K 2019-04-29 Shareholder Vote
8-K 2019-04-25 Other Events, Exhibits
8-K 2019-04-18 Earnings, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-17 Earnings, Exhibits
8-K 2019-01-03 Officers
8-K 2018-10-25 Other Events, Exhibits
8-K 2018-10-18 Earnings, Exhibits
8-K 2018-07-26 Other Events, Exhibits
8-K 2018-07-19 Earnings, Exhibits
8-K 2018-04-30 Shareholder Vote
8-K 2018-04-26 Other Events, Exhibits
8-K 2018-04-19 Earnings, Exhibits
8-K 2018-03-22 Amend Bylaw, Other Events, Exhibits
8-K 2018-03-13 Officers
8-K 2018-01-25 Other Events, Exhibits
8-K 2018-01-18 Earnings, Exhibits
8-K 2018-01-03 Officers
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LBC Luther Burbank 599
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SMBK Smartfinancial 286
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MFNC Mackinac Financial 150
WABC 2019-06-30
Part I - Financial Information
Item 1    Financial Statements
Note 1: Basis of Presentation
Note 2: Accounting Policies          
Note 3:  Investment Securities
Note 4: Loans, Allowance for Loan Losses and Other Real Estate Owned
Note 5: Concentration of Credit Risk
Note 6: Other Assets and Other Liabilities
Note 7: Goodwill and Identifiable Intangible Assets
Note 8: Deposits and Borrowed Funds
Note 9:  Fair Value Measurements
Note 10: Commitments and Contingent Liabilities
Note 11: Earnings per Common Share
Note 12: Income Taxes
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_152323.htm
EX-31.2 ex_152324.htm
EX-32.1 ex_152325.htm
EX-32.2 ex_152327.htm

Westamerica Bancorporation Earnings 2019-06-30

WABC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

glbnxyz20190630_10q.htm
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One-half of the amount of the bank's subscription shall be paid to the FRB and the remaining half will be subject to call when deemed necessary by the Board of Governors of the Federal Reserve System.There were no transfers in to or out of level 3 during the six months ended June 30, 2019.There were no transfers in to or out of level 3 during the year ended December 31, 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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 June 30, 2019

       or

 

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

    For the transition period from __________ to __________.       

                                                                                              

Commission file number: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

                                                                                                               

  California   94-2156203  
 

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1108 Fifth Avenue, San Rafael, California94901

(Address of Principal Executive Offices) (Zip Code)

 

Registrant's Telephone Number, Including Area Code (707) 863-6000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

  Yes   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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

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 ☑  

 

                                            

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

WABC

The Nasdaq Stock Market, LLC

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

 

  Title of Class   Shares outstanding as of July 29, 2019  
  Common Stock,   26,981,750  
  No Par Value      

 

 

 

 

 

 

 

TABLE OF CONTENTS

  

  Page   

Forward Looking Statements

 3

   
PART I - FINANCIAL INFORMATION  
   

Item 1      Financial Statements

 4

   

Notes to Unaudited Consolidated Financial Statements

 9

   

Item 2      Management's Discussion and Analysis of Financial Condition and Results of Operations

29

   

Item 3      Quantitative and Qualitative Disclosures about Market Risk

51

   

Item 4      Controls and Procedures

51

   

PART II - OTHER INFORMATION

 
   

Item 1      Legal Proceedings

51

   

Item 1A   Risk Factors

51

   

Item 2      Unregistered Sales of Equity Securities and Use of Proceeds

51

   

Item 3      Defaults upon Senior Securities

52

   

Item 4      Mine Safety Disclosures

52

   

Item 5      Other Information

52

   

Item 6      Exhibits

52

   

Signatures

53

   

Exhibit Index

54

   

Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)

55

   

Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)

56

   

Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350

57

   

Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350

58

-2-

 

 

FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains forward-looking statements about Westamerica Bancorporation (the “Company”) for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, future credit quality and performance, the appropriateness of the allowance for loan losses, loan growth or reduction, mitigation of risk in the Company’s loan and investment securities portfolios, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements.  Words such as "believes", "anticipates", "expects", “estimates”, "intends", "targeted", "projected", “forecast”, "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to (1) the length and severity of difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (13) changes in the securities markets and (14) the outcome of contingencies, such as legal proceedings. However, the reader should not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.

 

Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2018, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report.

 

-3-

 

 

 

PART I - FINANCIAL INFORMATION

Item 1    Financial Statements

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 
                 
   

 

At June 30,

2019

   

 

At December 31,

2018

 
   

(In thousands)

 

Assets:

               

Cash and due from banks

  $ 418,586     $ 420,284  

Equity securities

    1,797       1,747  

Debt securities available for sale

    2,775,899       2,654,670  

Debt securities held to maturity, with fair values of:

         

$872,976 at June 30, 2019 and $971,445 at December 31, 2018

    867,989       984,609  

Loans

    1,161,712       1,207,202  

Allowance for loan losses

    (20,117 )     (21,351 )

Loans, net of allowance for loan losses

    1,141,595       1,185,851  

Other real estate owned

    43       350  

Premises and equipment, net

    34,014       34,507  

Identifiable intangibles, net

    1,540       1,929  

Goodwill

    121,673       121,673  

Other assets

    160,312       162,906  

Total Assets

  $ 5,523,448     $ 5,568,526  
                 

Liabilities:

               

Noninterest-bearing deposits

  $ 2,163,841     $ 2,243,251  

Interest-bearing deposits

    2,566,421       2,623,588  

Total deposits

    4,730,262       4,866,839  

Short-term borrowed funds

    54,581       51,247  

Other liabilities

    45,168       34,849  

Total Liabilities

    4,830,011       4,952,935  
                 

Contingencies (Note 10)

       
                 

Shareholders' Equity:

               

Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,962 at June 30, 2019 and 26,730 at December 31, 2018

    459,369       448,351  

Deferred compensation

    771       1,395  

Accumulated other comprehensive income (loss)

    13,124       (39,996 )

Retained earnings

    220,173       205,841  

Total Shareholders' Equity

    693,437       615,591  

Total Liabilities and Shareholders' Equity

  $ 5,523,448     $ 5,568,526  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

-4-

 
 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF INCOME

 

(unaudited)

 
                                 
   

For the Three Months

   

For the Six Months

 
   

Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 
   

(In thousands, except per share data)

 

Interest and Loan Fee Income:

                               

Loans

  $ 14,822     $ 14,957     $ 29,619     $ 29,654  

Equity securities

    99       86       197       171  

Debt securities available for sale

    17,823       14,323       35,344       27,874  

Debt securities held to maturity

    4,924       6,216       10,253       12,390  

Interest-bearing cash

    1,958       1,764       3,696       3,572  

Total Interest and Loan Fee Income

    39,626       37,346       79,109       73,661  

Interest Expense:

                               

Deposits

    478       449       963       899  

Short-term borrowed funds

    9       10       18       19  

Total Interest Expense

    487       459       981       918  

Net Interest and Loan Fee Income

    39,139       36,887       78,128       72,743  

Provision for Loan Losses

    -       -       -       -  

Net Interest and Loan Fee Income After Provision for Loan Losses

    39,139       36,887       78,128       72,743  

Noninterest Income:

                               

Service charges on deposit accounts

    4,493       4,645       8,997       9,397  

Merchant processing services

    2,657       2,305       5,215       4,725  

Debit card fees

    1,641       1,698       3,148       3,303  

Trust fees

    749       726       1,466       1,469  

ATM processing fees

    722       698       1,355       1,362  

Other service fees

    585       650       1,162       1,281  

Life insurance gains

    433       -       433       -  

Financial services commissions

    93       141       194       255  

Equity securities gains (losses)

    26       (14 )     50       (50 )

Other noninterest income

    889       920       1,847       1,982  

Total Noninterest Income

    12,288       11,769       23,867       23,724  

Noninterest Expense:

                               

Salaries and related benefits

    13,090       13,186       26,198       26,537  

Occupancy and equipment

    4,916       4,864       9,964       9,555  

Outsourced data processing services

    2,367       2,299       4,736       4,639  

Loss contingency

    553       -       553       -  

Professional fees

    481       871       1,146       1,656  

Courier service

    451       422       893       885  

Amortization of identifiable intangibles

    79       453       389       1,023  

Other noninterest expense

    3,624       3,646       6,865       7,468  

Total Noninterest Expense

    25,561       25,741       50,744       51,763  

Income Before Income Taxes

    25,866       22,915       51,251       44,704  

Provision for income taxes

    6,241       4,905       11,980       9,188  

Net Income

  $ 19,625     $ 18,010     $ 39,271     $ 35,516  
                                 

Average Common Shares Outstanding

    26,942       26,630       26,892       26,581  

Average Diluted Common Shares Outstanding

    26,987       26,728       26,950       26,696  

Per Common Share Data:

                               

Basic earnings

  $ 0.73     $ 0.68     $ 1.46     $ 1.34  

Diluted earnings

    0.73       0.67       1.46       1.33  

Dividends paid

    0.41       0.40       0.81       0.80  

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

-5-

 

 

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(unaudited)

 
                                 
   

For the Three Months

   

For the Six Months

 
   

Ended June 30,

 
   

 

2019    

 

2018    

 

2019    

 

2018  
   

(In thousands)

 

Net income

  $ 19,625     $ 18,010     $ 39,271     $ 35,516  

Other comprehensive income (loss):

                               

Changes in net unrealized gains (losses) on debt securities available for sale

    34,602       (9,154 )     75,415       (42,000 )

Deferred tax (expense) benefit

    (10,229 )     2,706       (22,295 )     12,415  

Changes in net unrealized gains (losses) on debt securities available for sale, net of tax

    24,373       (6,448 )     53,120       (29,585 )

Total comprehensive income

  $ 43,998     $ 11,562     $ 92,391     $ 5,931  

 

 

 

   

See accompanying notes to unaudited consolidated financial statements.

 

 

   

 


 

 

 

 

 

 

-6-

 
 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

(unaudited)

 
                                                 
                           

Accumulated

                 
   

Common

                   

Other

                 
   

Shares

   

Common

   

Deferred

   

Comprehensive

   

Retained

         
   

Outstanding

   

Stock

   

Compensation

   

(Loss) Income

   

Earnings

   

Total

 
   

(In thousands)

 
                                                 
Balance, December 31, 2017     26,425     $ 431,734     $ 1,533     $ (16,832 )   $ 173,804     $ 590,239  

Cumulative effect of equity securities losses reclassified

                            142       (142 )     -  
Adjusted Balance, January 1, 2018     26,425       431,734       1,533       (16,690 )     173,662       590,239  

Reclass stranded tax effects resulting from the Tax Cuts and Jobs Act

                            (3,625 )     3,625       -  

Net income for the period

                                    17,506       17,506  

Other comprehensive loss

                            (23,137 )             (23,137 )

Exercise of stock options

    166       7,534                               7,534  

Stock based compensation

    -       525                               525  

Stock awarded to employees

    -       24                               24  

Dividends ($0.40 per share)

                                    (10,608 )     (10,608 )
Balance, March 31, 2018     26,591     $ 439,817     $ 1,533     $ (43,452 )   $ 184,185     $ 582,083  

Net income for the period

                                    18,010       18,010  

Other comprehensive loss

                            (6,448 )             (6,448 )

Exercise of stock options

    46       1,949                               1,949  

Restricted stock activity

    20       1,143                               1,143  

Stock based compensation

    -       525                               525  

Stock awarded to employees

    1       53                               53  

Retirement of common stock

    (9 )     (149 )                     (375 )     (524 )

Dividends ($0.40 per share)

                                    (10,653 )     (10,653 )
Balance, June 30, 2018     26,649     $ 443,338     $ 1,533     $ (49,900 )   $ 191,167     $ 586,138  
                                                 
Balance, December 31, 2018     26,730     $ 448,351     $ 1,395     $ (39,996 )   $ 205,841     $ 615,591  

Cumulative effect of bond premium amortization adjustment, net of tax

                                    (2,801 )     (2,801 )

Adjusted Balance, January 1, 2019

    26,730       448,351       1,395       (39,996 )     203,040       612,790  

Net income for the period

                                    19,646       19,646  

Other comprehensive income

                            28,747               28,747  

Shares issued from stock warrant exercise, net of repurchase

    51                                       -  

Exercise of stock options

    120       5,771                               5,771  

Restricted stock activity

            624       (624 )                     -  

Stock based compensation

    -       541                               541  

Stock awarded to employees

    -       17                               17  

Dividends ($0.40 per share)

                                    (10,745 )     (10,745 )
Balance, March 31, 2019     26,901     $ 455,304     $ 771     $ (11,249 )   $ 211,941     $ 656,767  

Net income for the period

                                    19,625       19,625  

Other comprehensive income

                            24,373               24,373  

Exercise of stock options

    50       2,539                               2,539  

Restricted stock activity

    18       1,073                               1,073  

Stock based compensation

    -       541                               541  

Stock awarded to employees

    1       48                               48  

Retirement of common stock

    (8 )     (136 )                     (352 )     (488 )

Dividends ($0.41 per share)

                                    (11,041 )     (11,041 )
Balance, June 30, 2019     26,962     $ 459,369     $ 771     $ 13,124     $ 220,173     $ 693,437  
 

See accompanying notes to unaudited consolidated financial statements.

 

-7-

 

 

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)

 
   

For the Six Months

 
   

Ended June 30,

 
   

2019

   

2018

 
   

(In thousands)

 

Operating Activities:

               

Net income

  $ 39,271     $ 35,516  

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

               

Depreciation and amortization/accretion

    9,852       12,594  

Provision for loan losses

    -       -  

Net amortization of deferred loan fees

    (215 )     (112 )

Increase in interest income receivable

    (673 )     (1,375 )

(Increase) decrease in income taxes receivable

    (6,549 )     2,556  

Decrease (increase) in net deferred tax asset

    4,902       (204 )

Increase in other assets

    (20,013 )     (346 )

Stock option compensation expense

    1,082       1,050  

Increase in interest expense payable

    44       50  

(Decrease) increase in other liabilities

    12,323       137  

Equity securities (gains) losses

    (50 )     50  

Life insurance gains

    (433 )     -  

Net writedown of premises and equipment

    -       3  

Net gain on sale of foreclosed assets

    -       (46 )

Writedown of foreclosed assets

    -       27  

Net Cash Provided by Operating Activities

  $ 39,541       49,900  
                 

Investing Activities:

               

Net repayments of loans

    44,721       89,041  

Proceeds from life insurance policies

    1,273       -  

Purchases of debt securities available for sale

    (418,223 )     (439,212 )

Proceeds from sale/maturity/calls of debt securities available for sale

    368,216       220,037  

Proceeds from maturity/calls of debt securities held to maturity

    111,099       78,551  

Purchases of premises and equipment

    (1,425 )     (2,309 )

Proceeds from sale of foreclosed assets

    307       506  

Net Cash Provided by (Used in) Investing Activities

    105,968       (53,386 )
                 

Financing Activities:

               

Net change in deposits

    (136,577 )     59,509  

Net change in short-term borrowings

    3,334       10,423  

Exercise of stock options

    8,310       9,483  

Retirement of common stock

    (488 )     (524 )

Common stock dividends paid

    (21,786 )     (21,261 )

Net Cash (Used in) Provided by Financing Activities

    (147,207 )     57,630  
Net Change In Cash and Due from Banks     (1,698 )     54,144  

Cash and Due from Banks at Beginning of Period

    420,284       575,002  

Cash and Due from Banks at End of Period

    418,586       629,146  
                 

Supplemental Cash Flow Disclosures:

               

Supplemental disclosure of non cash activities:

               

Right-of-use assets acquired in exchange for operating lease liabilities

  $ 23,087     $ -  

Amount recognized upon initial adoption of ASU 2016-02 included above

    15,325       -  

Loan collateral transferred to other real estate owned

    -       -  

Securities purchases pending settlement

    -       3,159  

Supplemental disclosure of cash flow activities:

               

Cash paid for amounts included in operating lease liabilities

    3,411       -  

Interest paid for the period

    874       885  

Income tax payments for the period

    12,910       6,776  

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

-8-

 

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1: Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

 

 

Note 2: Accounting Policies          

 

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions.

 

Application of these principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

 

Certain amounts in prior periods have been reclassified to conform to the current presentation.

 

Recently Adopted Accounting Standards

 

In the six months ended June 30, 2019, the Company adopted the following new accounting guidance:

 

FASB ASU 2016-02, Leases (Topic 842), was issued February 25, 2016. The provisions of the new standard require lessees to recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP.


The Company adopted the ASU provisions effective January 1, 2019, and elected the modified retrospective transition approach. The Company elected the package of practical expedients provided in the ASU, which allowed the Company to rely on lease classification determinations made under prior accounting guidance and forego reevaluation of (i) whether any existing contracts are or contain a lease, (ii) whether existing leases are operating or finance leases, and (iii) the initial direct cost for any existing leases. The Company also elected to combine lease and non-lease components and exempt short-term leases with an original term of one year or less from on-balance sheet recognition. The implementing entry recognized a lease liability of $15.3 million and right-of-use asset of $15.3 million for facilities leases. The change in occupancy and equipment expense was not material.

 

FASB ASU 2017-08, Receivables – Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, was issued March 2017. The ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

 

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The Company adopted the ASU provisions on January 1, 2019. The implementing entry reduced the carrying value of investment securities, specifically obligations of states and political subdivisions, by $3.1 million and reduced retained earnings by $2.8 million, net of tax. The change in premium amortization method was not material to revenue recognition.

 

FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, was issued August 2017.  The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.  The ASU also provides for a one-time reclassification of prepayable assets from held-to-maturity (HTM) to available for sale (AFS) regardless of derivative use.

 

The Company adopted the ASU provisions on January 1, 2019. The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be permitted with the approval of the Company’s Board of Directors. The Company evaluated the prepayable assets in the HTM portfolio and did not effect a one-time reclassification of prepayable assets from HTM to the AFS upon implementation.

 

Recently Issued Accounting Standards

 

FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued on June 16, 2016. The ASU significantly changes estimates for credit losses related to financial assets measured at amortized cost and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with the current expected credit loss (CECL) model, which will accelerate recognition of credit losses.  Additionally, credit losses relating to debt securities available-for-sale will be recorded through an allowance for credit losses under the new standard. The Company will also be required to provide additional disclosures related to the financial assets within the scope of the new standard.

 

The Company will be required to adopt the ASU provisions on January 1, 2020. Management has evaluated available data, defined portfolio segments of loans with similar attributes, and selected loss estimate models for each identified loan portfolio segment. Management has preliminarily measured historical loss rates for each portfolio segment. Management has also segmented debt securities held to maturity, selected methods to estimate losses for each segment, and preliminarily measured a loss estimate. The ultimate adjustment to the allowance for loan losses will be accomplished through an offsetting after-tax adjustment to shareholders’ equity. Economic conditions and the composition of the Company’s loan portfolio and debt securities held to maturity at the time of adoption will influence the extent of the adopting accounting adjustment. Management expects to develop an aggregate loss estimate by December 31, 2019.

 

FASB ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, was issued August 2018.  The ASU is part of the disclosure framework project, where the primary focus is to improve the effectiveness of disclosures in the financial statements.  The ASU removes, modifies and adds disclosure requirements related to Fair Value Measurements.

 

The provisions of the ASU are effective January 1, 2020 with the option to early adopt any removed or modified disclosures upon issuance of the ASU.  The Company early adopted the provisions to remove and/or modify relevant disclosures in the “Fair Value Measurements” note to the unaudited consolidated financial statements.  The requirement to include additional disclosures will be adopted by the Company January 1, 2020.  The additional disclosures will not affect the financial results upon adoption.

 

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Note 3:  Investment Securities

 

Effective January 1, 2018, upon adoption of ASU 2016-01, equity securities included in the Company’s available for sale portfolio of $1,800 thousand were reclassified to equity securities. The reclassification of equity securities resulted in recording a cumulative effect adjustment to decrease retained earnings by $142 thousand, net of tax.

 

The market value of equity securities was $1,797 thousand and $1,747 thousand at June 30, 2019 and December 31, 2018, respectively. During the six months ended June 30, 2019, the Company recognized gross unrealized holding gains of $50 thousand in earnings. During the six months ended June 30, 2018, the Company recognized gross unrealized holding losses of $50 thousand in earnings.

 

An analysis of the amortized cost and fair value by major categories of debt securities available for sale, which are carried at fair value with net unrealized gains (losses) reported on an after-tax basis as a component of cumulative other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, follows:


 

   

At June 30, 2019

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(In thousands)

 

Debt securities available for sale

                               

U.S. Treasury securities

  $ 44,473     $ 100     $ -     $ 44,573  

Securities of U.S. Government sponsored entities

    167,239       69       (170 )     167,138  

Agency residential mortgage-backed securities (MBS)

    987,024       8,236       (8,314 )     986,946  

Non-agency residential MBS

    109       3       -       112  

Agency commercial MBS

    5,635       5       (19 )     5,621  

Securities of U.S. Government entities

    815       -       (7 )     808  

Obligations of states and political subdivisions

    172,268       3,486       (100 )     175,654  

Corporate securities

    1,379,704       17,462       (2,119 )     1,395,047  

Total debt securities available for sale

    2,757,267       29,361       (10,729 )     2,775,899  

Debt securities held to maturity

                               

Agency residential MBS

    402,961       824       (3,861 )     399,924  

Non-agency residential MBS

    2,610       96       -       2,706  

Obligations of states and political subdivisions

    462,418       7,947       (19 )     470,346  

Total debt securities held to maturity

    867,989       8,867       (3,880 )     872,976  

Total

  $ 3,625,256     $ 38,228     $ (14,609 )   $ 3,648,875  

 

   

At December 31, 2018

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(In thousands)

 

Debt securities available for sale

                               

U.S. Treasury securities

  $ 139,572     $ 5     $ (3 )   $ 139,574  

Securities of U.S. Government sponsored entities

    167,228       65       (3,275 )     164,018  

Agency residential MBS

    883,715       595       (30,439 )     853,871  

Non-agency residential MBS

    113       1       -       114  

Agency commercial MBS

    1,869       -       (27 )     1,842  

Securities of U.S. Government entities

    1,128       -       (9 )     1,119  

Obligations of states and political subdivisions

    180,220       1,856       (2,985 )     179,091  

Corporate securities

    1,337,608       1,075