10-Q 1 levelone-secondquarter10q.htm SECOND QUARTER 10-Q Document

 

Section 1: 10-Q (10-Q)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    
 þ    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018

 o    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ____________

LEVEL ONE BANCORP, INC.
(Exact name of registrant as specified in its charter)

Commission File Number: 001-38458
Michigan
(State or other jurisdiction of
incorporation or organization)
 
71-1015624
(I.R.S. Employer
Identification No.)
32991 Hamilton Court
Farmington Hills, MI
(Address of principal executive offices)
 
48334
(Zip code)
(248) 737-0300
(Registrant's telephone number, including area code)
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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes þ No o

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     o                             Accelerated filer         o

Non-accelerated filer    þ                            Smaller reporting company     o

Emerging growth company    þ

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No þ

As of August 8, 2018, the number of shares outstanding of the registrant’s Common Stock, no par value, was 7,749,116 shares.



Level One Bancorp, Inc.
Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
LEVEL ONE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
 
June 30, 2018
 
December 31, 2017
Assets
 
 

 
 

Cash and cash equivalents
 
$
34,767

 
$
63,661

Securities available-for-sale
 
196,047

 
150,969

Federal Home Loan Bank stock
 
8,303

 
8,303

Mortgage loans held for sale, at fair value
 
3,991

 
4,548

Loans:
 
 

 
 

Originated loans
 
946,724

 
920,895

Acquired loans
 
99,065

 
114,028

Total loans
 
1,045,789

 
1,034,923

Less: Allowance for loan losses
 
(11,465
)
 
(11,713
)
Net loans
 
1,034,324

 
1,023,210

Premises and equipment
 
13,144

 
13,435

Goodwill
 
9,387

 
9,387

Other intangible assets, net
 
557

 
667

Bank-owned life insurance
 
11,703

 
11,542

Income tax benefit
 
2,510

 
3,102

Other assets
 
8,180

 
12,467

Total assets
 
$
1,322,913

 
$
1,301,291

Liabilities
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing demand deposits
 
$
320,213

 
$
324,923

Interest-bearing demand deposits
 
57,060

 
62,644

Money market and savings deposits
 
247,542

 
289,363

Time deposits
 
440,401

 
443,452

Total deposits
 
1,065,216

 
1,120,382

Borrowings
 
86,594

 
47,833

Subordinated notes
 
14,867

 
14,844

Other liabilities
 
12,791

 
10,272

Total liabilities
 
1,179,468

 
1,193,331

Shareholders' equity
 
 

 
 

Common stock:
 
 

 
 

Authorized—20,000,000 shares at 6/30/2018 and 12/31/2017
 
 

 
 

Issued and outstanding—7,748,641 shares at 6/30/2018 and 6,435,461 shares at 12/31/2017
 
90,201

 
59,511

Retained earnings
 
56,383

 
49,232

Accumulated other comprehensive loss, net of tax
 
(3,139
)
 
(783
)
Total shareholders' equity
 
143,445

 
107,960

Total liabilities and shareholders' equity
 
$
1,322,913

 
$
1,301,291

   
See accompanying notes to the consolidated financial statements.


3


LEVEL ONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
 
For the three months ended June 30,
 
For the six months ended June 30,
(Dollars in thousands, except per share data)
 
2018
 
2017
 
2018
 
2017
Interest income
 
 

 
 

 
 
 
 
Originated loans, including fees
 
$
11,833

 
$
9,739

 
$
23,011

 
$
19,093

Acquired loans, including fees
 
2,293

 
3,438

 
4,719

 
6,831

Securities:
 
 

 
 

 


 


Taxable
 
667

 
402

 
1,241

 
816

Tax-exempt
 
380

 
210

 
731

 
381

Federal funds sold and other
 
207

 
245

 
452

 
360

Total interest income
 
15,380

 
14,034

 
30,154

 
27,481

Interest Expense
 
 

 
 

 
 

 
 

Deposits
 
2,487

 
1,451

 
4,665

 
2,728

Borrowed funds
 
225

 
224

 
444

 
400

Subordinated notes
 
253

 
253

 
503

 
503

Total interest expense
 
2,965

 
1,928

 
5,612

 
3,631

Net interest income
 
12,415

 
12,106

 
24,542

 
23,850

Provision expense (benefit) for loan losses
 
(710
)
 
68

 
(156
)
 
266

Net interest income after provision for loan losses
 
13,125

 
12,038

 
24,698

 
23,584

Noninterest income
 
 

 
 

 
 

 
 

Service charges on deposits
 
618

 
718

 
1,260

 
1,298

Net gain on sales of securities
 

 
58

 

 
58

Net gain on sale of residential mortgage loans
 
404

 
413

 
640

 
712

Net gain on sale of commercial loans
 
11

 

 
11

 
146

Other charges and fees
 
419

 
595

 
913

 
950

Total noninterest income
 
1,452

 
1,784

 
2,824

 
3,164

Noninterest expense
 
 

 
 

 
 

 
 

Salary and employee benefits
 
6,169

 
5,319

 
12,125

 
10,590

Occupancy and equipment expense
 
1,074

 
1,012

 
2,120

 
2,024

Professional service fees
 
471

 
540

 
737

 
1,080

Marketing expense
 
291

 
232

 
433

 
479

Printing and supplies expense
 
112

 
121

 
216

 
234

Data processing expense
 
511

 
479

 
947

 
892

Other expense
 
1,077

 
1,148

 
2,262

 
2,229

Total noninterest expense
 
9,705

 
8,851

 
18,840

 
17,528

Income before income taxes
 
4,872

 
4,971

 
8,682

 
9,220

Income tax provision
 
860

 
1,650

 
1,502

 
3,147

Net income
 
$
4,012

 
$
3,321

 
$
7,180

 
$
6,073

Earnings per common share:
 
 

 
 

 
 

 
 

Basic
 
$
0.54

 
$
0.52

 
$
1.02

 
$
0.95

Diluted
 
$
0.53

 
$
0.50

 
$
1.00

 
$
0.92

Average common shares outstanding—basic
 
7,456

 
6,391

 
7,050

 
6,380

Average common shares outstanding—diluted
 
7,613

 
6,606

 
7,211

 
6,597

Cash dividends declared per common share
 
$
0.03

 
$

 
$
0.06

 
$

See accompanying notes to the consolidated financial statements.

4


LEVEL ONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
For the three months ended June 30,
 
For the six months ended June 30,
(Dollars in thousands)
 
2018
 
2017
 
2018
 
2017
Net income
 
$
4,012

 
$
3,321

 
$
7,180

 
$
6,073

Other comprehensive income:
 
 
 
 

 
 
 
 

Unrealized holding gains (losses) on securities available-for-sale arising during the period
 
(264
)
 
1,649

 
(2,769
)
 
1,770

Reclassification adjustment for gains included in income
 

 
(58
)
 

 
(58
)
Tax effect(1)
 
56

 
(557
)
 
581

 
(599
)
Net unrealized gains (losses) on securities available-for-sale, net of tax
 
(208
)
 
1,034

 
(2,188
)
 
1,113

Total comprehensive income, net of tax
 
$
3,804

 
$
4,355

 
$
4,992

 
$
7,186

__________________________________________________________________________ 
(1) Includes $20 thousand of tax expense related to reclassification for the three and six months ended June 30, 2017.

See accompanying notes to the consolidated financial statements.

5


LEVEL ONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollar in thousands)
 
Common Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Shareholders' Equity
Balance at December 31, 2016
 
$
58,306

 
$
39,391

 
$
(1,126
)
 
$
96,571

Net income
 

 
6,073

 

 
6,073

Other comprehensive income
 

 

 
1,113

 
1,113

Exercise of stock options (7,200 shares), including tax benefit
 
151

 

 

 
151

Stock-based compensation expense
 
298

 

 

 
298

Balance at June 30, 2017
 
$
58,755

 
$
45,464

 
$
(13
)
 
$
104,206

 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
$
59,511

 
$
49,232

 
$
(783
)
 
$
107,960

Net income
 

 
7,180

 

 
7,180

Other comprehensive loss
 

 

 
(2,188
)
 
(2,188
)
Reclass of tax reform adjustments due to early adoption of ASU 2018-02
 

 
168

 
(168
)
 

Initial public offering of 1,150,765 shares of common stock, net of issuance costs
 
29,030

 

 

 
29,030

Dividend payment of $0.03 share
 

 
(197
)
 

 
(197
)
Exercise of stock options (125,394 shares)
 
1,257

 

 

 
1,257

Stock-based compensation expense
 
403

 

 

 
403

Balance at June 30, 2018
 
$
90,201

 
$
56,383

 
$
(3,139
)
 
$
143,445

See accompanying notes to the consolidated financial statements.


6


LEVEL ONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
For the six months ended June 30,
(Dollars in thousands)
 
2018
 
2017
Cash flows from operating activities
 
 

 
 

Net income
 
$
7,180

 
$
6,073

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation of fixed assets
 
663

 
697

Amortization of core deposit intangibles
 
110

 
117

Stock-based compensation expense
 
403

 
298

Provision expense (benefit) for loan losses
 
(156
)
 
266

Net securities premium amortization
 
634

 
330

Net gain on sales of securities
 

 
(58
)
Originations of loans held for sale
 
(24,151
)
 
(27,756
)
Proceeds from sales of loans originated for sale
 
25,055

 
34,908

Net gain on sales of loans
 
(651
)
 
(858
)
Accretion on acquired purchase credit impaired loans
 
(1,909
)
 
(3,177
)
Gain on sale of other real estate owned
 
(48
)
 
(180
)
Increase in cash surrender value of life insurance
 
(161
)
 
(162
)
Amortization of debt issuance costs
 
23

 
29

Net decrease in accrued interest receivable and other assets
 
4,816

 
1,442

Net increase in accrued interest payable and other liabilities
 
2,519

 
3,752

Deferred income tax benefit (expense)
 
11

 
(448
)
Net cash provided by operating activities
 
14,338

 
15,273

Cash flows from investing activities
 
 

 
 

Net (increase)/decrease in loans
 
(8,745
)
 
20,133

Principal payments on securities available-for-sale
 
4,295

 
4,532

Purchases of securities available-for-sale
 
(52,776
)
 
(23,127
)
Purchases of FHLB Stock
 

 
(2,475
)
Additions to premises and equipment
 
(391
)
 
(531
)
Proceeds from:
 
 

 
 

Sale of securities available-for-sale
 

 
4,987

Sale of other real estate owned
 
700

 
479

Net cash provided by (used in) investing activities
 
(56,917
)
 
3,998

Cash flows from financing activities
 
 

 
 

Net increase/(decrease) in deposits
 
(55,166
)
 
65,546

Change in short-term borrowings
 
38,795

 
13,866

Repayment of long-term debt
 
(34
)
 
(14,506
)
Net proceeds from issuance of common stock related to initial public offering
 
29,030

 

Proceeds from exercised stock options
 
1,257

 
151

Common stock dividend of $0.03 share
 
(197
)
 

Net cash provided by financing activities
 
13,685

 
65,057

Net change in cash and cash equivalents
 
(28,894
)
 
84,328

Beginning cash and cash equivalents
 
63,661

 
19,116

Ending cash and cash equivalents
 
$
34,767

 
$
103,444

Supplemental disclosure of cash flow information:
 
 

 
 

Interest paid
 
$
5,726

 
$
3,593

Income taxes paid
 
100

 
1,645

Transfer of loans held for sale to loans held for investment
 
304

 

Transfer from premises and equipment to other assets
 
20

 
1,794

Transfer from loans to other real estate owned
 

 
268

See accompanying notes to the consolidated financial statements.

7


LEVEL ONE BANCORP, INC.
NOTES TO THE CONSOLIDATED STATEMENTS
JUNE 30, 2018
NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations:
Level One Bancorp, Inc. (the "Company") was organized to become a bank holding company to establish and operate a new bank, Level One Bank (the "Bank") in Farmington Hills, Michigan. The organization process began in June 2006 and the Company was incorporated on July 17, 2006 under Michigan law. The Bank began operations on October 5, 2007.
The Bank is a Michigan banking corporation with depository accounts insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC"). The Bank provides a wide range of business and consumer financial services in the greater Farmington Hills, Novi, Northville, Birmingham, Ferndale, Sterling Heights, Bloomfield Township, Detroit and Grand Rapids areas. Its primary deposit products are checking, interest-bearing demand, money market and savings, and term certificate accounts, and its primary lending products are commercial real estate, commercial and industrial, residential real estate, and consumer loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other financial instruments, which potentially represent concentrations of credit risk, include federal funds sold.
On July 9, 2017, the Company formed a new subsidiary, Hamilton Court Insurance Company ("Hamilton Court"), which is a wholly owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company and the Bank, and reinsurance to ten other third party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace. The Hamilton Court insurance subsidiary was designed to insure the risks of the Company and the Bank by providing additional insurance coverage for deductibles, excess limits and uninsured exposures. Hamilton Court is domiciled in Nevada.
On April 24, 2018, the Company sold 1,150,765 shares of common stock in its initial public offering, including 180,000 shares of common stock pursuant to the exercise in full by the underwriters of their option to purchase additional shares. The aggregate offering price for the shares sold by the Company was $32.2 million, and after deducting $2.1 million of underwriting discounts and $1.1 million of offering expenses paid to third parties, the Company received total net proceeds of $29.0 million from the initial public offering. In addition, certain selling shareholders participated in the offering and sold an aggregate of 229,235 shares of our common stock at an aggregate offering price of $6.4 million. The Company did not receive any proceeds from the sales of shares by the selling shareholders.
Basis of Presentation and Principles of Consolidation:
The accompanying unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results for the full year. These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2017, included in our registration statement on Form S-1, as amended, filed with the SEC on April 12, 2018 and declared effective on April 19, 2018.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the Bank and Hamilton Court, after elimination of significant intercompany transactions and accounts.
Use of Estimates:
To prepare financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, therefore future results could differ. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, expected cash flows from acquired loans, fair value amounts related to business combinations, income taxes, goodwill impairment and those assets and liabilities that require fair value measurement.

8


Emerging Growth Company Status:
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period when complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period, which means these financial statements, as well as financial statements we file in the future for as long as we remain an emerging growth company, will be subject to all new or revised accounting standards generally applicable to private companies.
Recent Accounting Standards:
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09 "Revenue from Contracts with Customers (Topic 606)," which provides a framework for revenue recognition that replaces the existing industry and transaction specific requirements under the existing standards. ASU 2014-09 requires an entity to apply a five-step model to determine when to recognize revenue and at what amount. The model specifies that revenue should be recognized when (or as) an entity transfers control of goods or services to a customer at the amount in which the entity expects to be entitled. Depending on whether certain criteria are met, revenue should be recognized either over time, in a manner that depicts the entity's performance, or at a point in time, when control of the goods or services are transferred to the customer.
The amendments of ASU 2014-09 may be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The guidance will be effective for the Company for the fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company plans to adopt these amendments within the time frames stated above.
The Company is continuing to evaluate the impact ASU 2014-09 will have on our consolidated financial statements. Based on this evaluation to date, management has determined that the majority of the revenues earned by the Company are not within the scope of ASU 2014-09, and that a few of the revenue streams that have been identified as being in scope would include service charges and interchange fees. Management will continue to evaluate the impact the adoption of ASU 2014-09 will have on our consolidated financial statements, focusing on noninterest income sources within the scope of ASU 2014-09 as well as new disclosures required by these amendments; however, the adoption of ASU 2014-09 is not expected to have a material impact on the Company's consolidated financial statements but is expected to result in additional disclosures.
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," to improve the accounting for financial instruments. This ASU requires equity investments with readily determinable fair values to be measured at fair value with changes recognized in net income regardless of classification. For equity investments without a readily determinable fair value, the value of the investment would be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer instead of fair value, unless a qualitative assessment indicates impairment. Additionally, this ASU requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements, as well as the required use of exit pricing when measuring the fair value of financial instruments for disclosure purposes. The guidance will be effective for the Company for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and is to be applied prospectively with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Management is in the planning stages of developing processes and procedures to comply with the disclosures requirements of this ASU, which could impact the disclosures the Company makes related to fair value of its financial instruments. The Company is planning to adopt this new guidance within the time frames stated above.
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," to improve transparency and comparability across entities regarding leasing arrangements. This ASU requires the recognition of a separate lease liability representing the required discounted lease payments over the lease term and a separate lease asset representing the right to use the underlying asset during the same lease term. Additionally, this ASU provides clarification regarding the identification of certain

9


components of contracts that would represent a lease as well as requires additional disclosures to the notes of the financial statements.
The guidance will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, and is to be applied under a modified retrospective approach. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements. Additionally, the Company does not expect to significantly change operating lease agreements prior to adoption. The Company is planning to adopt this new guidance within the time frames stated above.
Allowance for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," to replace the current incurred loss methodology for recognizing credit losses, which delays recognition until it is probable a loss has been incurred, with a methodology that reflects an estimate of all expected credit losses and considers additional reasonable and supportable forecasted information when determining credit loss estimates. This impacts the calculation of the allowance for credit losses for all financial assets measured under the amortized cost basis, including PCI loans at the time of and subsequent to acquisition. Additionally, credit losses related to available-for-sale debt securities would be recorded through the allowance for credit losses and not as a direct adjustment to the amortized cost of the securities. The guidance will be effective for the Company for fiscal years beginning after December 15, 2020, including interim periods after that fiscal year, and is to be applied under a modified retrospective approach. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements as well as the impact on current systems and processes. At this time, the Company is reviewing potential methodologies for estimating expected credit losses using reasonable and supportable forecast information as well as has identified certain data and system requirements. Once adopted, we expect our allowance for loan losses to increase through a one-time adjustment to retained earnings; however, until our evaluation is complete, the estimated increase in allowance will be unknown. The Company is planning to adopt this new guidance within the time frames stated above.
Investment Securities
The Company elected to early adopt ASU No. 2017-08, "Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities ("ASU 2017-08")" during the first quarter of 2017. The guidance in ASU 2017-08 shortens the amortization period for certain callable debt securities that are held at a premium to the earliest call date. Debt securities held at a discount will continue to be amortized as a yield adjustment over the life of the instrument. The early adoption of ASU 2017-08 in the first quarter of 2017 did not have a material impact on the Company's Consolidated Financial Statements.
Income Taxes - Tax Cuts and Jobs Act
In February 2018, the FASB issued ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220)," which allows an entity to elect a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA"). The amount of that reclassification should include the effect of changes of tax rate on the deferred tax amount, any related valuation allowance and other income tax effects on the items in AOCI. In addition, the ASU requires that an entity state if an election to reclassify the tax effects to retained earnings is made, along with a description of other income tax effects that are reclassified from AOCI. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. The Company early adopted the ASU and reclassified $168 thousand from retained earnings to AOCI during the first quarter of 2018.
In May 2018, the FASB issued an update to ASU No. 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118," regarding the accounting implications of the recently issued TCJA. The update clarifies that in a company's financial statements that include the reporting period in which the TCJA was enacted, a company must first reflect the income tax effects of the TCJA in which the accounting under GAAP is complete. These amounts would not be provisional amounts. The Company would also report provisional amounts for those specific income tax effects for which the accounting under GAAP will be incomplete but for which a reasonable estimate can be determined. This accounting update is effective immediately. The Company believes its accounting for the income tax effects of the TCJA is complete. Technical corrections or other forthcoming guidance could change how we interpret provisions of the TCJA, which may impact our effective tax rate and could affect our deferred tax assets, tax positions and/or our tax liabilities.


10


NOTE 2—SECURITIES
The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at June 30, 2018 and December 31, 2017 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss.
(Dollars in thousands)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
June 30, 2018
 
 

 
 

 
 

 
 

 U.S. government sponsored entities & agencies
 
$
2,398

 
$

 
$
(43
)
 
$
2,355

State and political subdivision
 
67,753

 
382

 
(956
)
 
67,179

Mortgage-backed securities: residential
 
10,626

 
4

 
(471
)
 
10,159

Mortgage-backed securities: commercial
 
12,728

 

 
(398
)
 
12,330

Collateralized mortgage obligations: residential              
 
21,023

 
138

 
(407
)
 
20,754

Collateralized mortgage obligations: commercial              
 
30,721

 
4

 
(844
)
 
29,881

US Treasury
 
24,254

 

 
(1,164
)
 
23,090

SBA
 
17,077

 

 
(122
)
 
16,955

Asset backed securities
 
3,868

 

 
(2
)
 
3,866

Corporate Bonds
 
9,573

 

 
(95
)
 
9,478

Total available-for-sale
 
$
200,021

 
$
528

 
$
(4,502
)
 
$
196,047

December 31, 2017
 
 

 
 

 
 

 
 

State and political subdivision
 
$
52,951

 
$
602

 
$
(329
)
 
$
53,224

Mortgage-backed securities: residential
 
8,689

 
3

 
(261
)
 
8,431

Mortgage-backed securities: commercial
 
9,879

 
12

 
(72
)
 
9,819

Collateralized mortgage obligations: residential              
 
19,304

 
125

 
(208
)
 
19,221

Collateralized mortgage obligations: commercial              
 
20,879

 
11

 
(333
)
 
20,557

US Treasury
 
24,283

 

 
(710
)
 
23,573

SBA
 
12,644

 
10

 
(38
)
 
12,616

Corporate Bonds
 
3,545

 

 
(17
)
 
3,528

Total available-for-sale
 
$
152,174

 
$
763

 
$
(1,968
)
 
$
150,969

The proceeds from sales of securities and the associated gains and losses for the periods below are as follows:
 
 
For the three and six months ended June 30,
(Dollars in thousands)
 
2018
 
2017
Proceeds
 
$

 
$
4,987

Gross gains
 

 
58

The amortized cost and fair value of securities are shown in the table below by contractual maturity. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage-backed securities and collateralized mortgage obligations receive monthly principal payments, which are not reflected below.
 
 
June 30, 2018
(Dollars in thousands)
 
Amortized
Cost
 
Fair
Value
Within one year
 
$
1,220

 
$
1,216

One to five years
 
53,564

 
52,009

Five to ten years
 
34,652

 
33,938

Beyond ten years
 
110,585

 
108,884

Total
 
$
200,021

 
$
196,047


11


Securities pledged at June 30, 2018 and December 31, 2017 had a carrying amount of $41.9 million and $36.5 million, respectively, and were pledged to secure Federal Home Loan Bank ("FHLB") advances, Federal Reserve Bank line of credit, repurchase agreements and deposits.
As of June 30, 2018, the Bank held 48 tax-exempt state and local municipal securities totaling $33.3 million backed by the Michigan School Bond Loan Fund. Other than the aforementioned investments, at June 30, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity.
The following table summarizes securities with unrealized losses at June 30, 2018 and December 31, 2017 aggregated by security type and length of time in a continuous unrealized loss position:
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
(Dollars in thousands)
 
Fair
value
 
Unrealized
Losses
 
Fair
value
 
Unrealized
Losses
 
Fair
value
 
Unrealized
Losses
June 30, 2018
 
 

 
 

 
 

 
 

 
 

 
 

Available-for-sale
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government sponsored entities & agencies
 
$
2,355

 
$
(43
)
 
$

 
$

 
$
2,355

 
$
(43
)
State and political subdivision
 
33,106

 
(577
)
 
8,353

 
(379
)
 
41,459

 
(956
)
Mortgage-backed securities: residential
 
2,760

 
(22
)
 
7,206

 
(449
)
 
9,966

 
(471
)
Mortgage-backed securities: commercial
 
10,091

 
(307
)
 
2,239

 
(91
)
 
12,330

 
(398
)
Collateralized mortgage obligations: residential
 
6,996

 
(137
)
 
6,289

 
(270
)
 
13,285

 
(407
)
Collateralized mortgage obligations: commercial
 
22,441

 
(769
)
 
2,365

 
(75
)
 
24,806

 
(844
)
US Treasury
 
3,860

 
(106
)
 
19,230

 
(1,058
)
 
23,090

 
(1,164
)
SBA
 
15,908

 
(94
)
 
1,047

 
(28
)
 
16,955

 
(122
)
Asset backed securities
 
1,938

 
(2
)
 

 

 
1,938

 
(2
)
Corporate Bonds
 
6,903

 
(95
)
 
510

 

 
7,413

 
(95
)
Total available-for-sale
 
$
106,358

 
$
(2,152
)
 
$
47,239

 
$
(2,350
)
 
$
153,597

 
$
(4,502
)
December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

Available-for-sale
 
 

 
 

 
 

 
 

 
 

 
 

State and political subdivision
 
$
17,285

 
$
(127
)
 
$
6,002

 
$
(202
)
 
$
23,287

 
$
(329
)
Mortgage-backed securities: residential
 
1,966

 
(33
)
 
6,226

 
(228
)
 
8,192

 
(261
)
Mortgage-backed securities: commercial
 
5,874

 
(31
)
 
1,867

 
(41
)
 
7,741

 
(72
)
Collateralized mortgage obligations: residential
 
4,609

 
(40
)
 
7,828

 
(168
)
 
12,437

 
(208
)
Collateralized mortgage obligations: commercial
 
15,717

 
(294
)
 
2,813

 
(39
)
 
18,530

 
(333
)
US Treasury
 
3,937

 
(27
)
 
19,637

 
(683
)
 
23,574

 
(710
)
SBA
 
8,516

 
(25
)
 
367

 
(13
)
 
8,883

 
(38
)
Corporate Bonds
 
3,528

 
(17
)
 

 

 
3,528

 
(17
)
Total available-for-sale
 
$
61,432

 
$
(594
)
 
$
44,740

 
$
(1,374
)
 
$
106,172

 
$
(1,968
)
As of June 30, 2018, the Company's investment portfolio consisted of 258 securities, 182 of which were in an unrealized loss position. The unrealized losses for these securities resulted primarily from changes in interest rates. The Company expects full recovery of the carrying amount of these securities and does not intend to sell the securities in an unrealized loss position nor does it believe it will be required to sell securities in an unrealized loss position before the value is recovered. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2018.

12


NOTE 3—LOANS
The following table presents the recorded investment in loans at June 30, 2018 and December 31, 2017. The recorded investment in loans excludes accrued interest receivable.
(Dollars in thousands)
 
Originated
 
Acquired
 
Total
June 30, 2018
 
 

 
 

 
 

Commercial real estate
 
$
463,350

 
$
70,606

 
$
533,956

Commercial and industrial
 
352,718

 
10,521

 
363,239

Residential real estate
 
129,908

 
17,855

 
147,763

Consumer
 
748

 
83

 
831

Total
 
$
946,724

 
$
99,065

 
$
1,045,789

December 31, 2017
 
 

 
 

 
 

Commercial real estate
 
$
431,872

 
$
79,890

 
$
511,762

Commercial and industrial
 
365,679

 
12,007

 
377,686

Residential real estate
 
122,551

 
21,888

 
144,439

Consumer
 
793

 
243

 
1,036

Total
 
$
920,895

 
$
114,028

 
$
1,034,923

Information as to nonperforming assets was as follows:
(Dollars in thousands)
 
June 30, 2018
 
December 31, 2017
Nonaccrual loans:
 
 

 
 

Commercial real estate
 
$
2,557

 
$
2,257

Commercial and industrial
 
5,983

 
9,024

Residential real estate
 
2,737

 
2,767

Total nonaccrual loans
 
11,277

 
14,048

Other real estate owned
 

 
652

Total nonperforming assets
 
$
11,277

 
$
14,700

Loans 90 days or more past due and still accruing
 
$
259

 
$
440

At June 30, 2018 and December 31, 2017, all of the loans 90 days or more past due and still accruing were PCI loans.
Loan delinquency as of the dates presented below was as follows:
(Dollars in thousands)
 
Current
 
30 - 59 Days
Past Due
 
60 - 89 Days
Past Due
 
90+ Days
Past Due
 
Total
June 30, 2018
 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$
532,658

 
$
1,298

 
$

 
$

 
$
533,956

Commercial and industrial
 
362,573

 
498

 
1

 
167

 
363,239

Residential real estate
 
143,942

 
2,239

 
203

 
1,379

 
147,763

Consumer
 
788

 
43

 

 

 
831

Total
 
$
1,039,961

 
$
4,078

 
$
204

 
$
1,546

 
$
1,045,789

December 31, 2017
 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$
507,250

 
$
3,066

 
$
1,412

 
$
34

 
$
511,762

Commercial and industrial
 
373,829

 
1,397

 
2,455

 
5

 
377,686

Residential real estate
 
138,613

 
3,808

 
1,258

 
760

 
144,439

Consumer
 
985

 
51

 

 

 
1,036

Total
 
$
1,020,677

 
$
8,322

 
$
5,125

 
$
799

 
$
1,034,923


13


Impaired Loans
Information as to impaired loans, excluding purchased credit impaired loans, is as follows:
(Dollars in thousands)
 
June 30, 2018
 
December 31, 2017
Nonaccrual loans
 
$
11,277

 
$
14,048

Performing troubled debt restructurings:
 
 

 
 
Commercial real estate
 
1,517

 

Commercial and industrial
 
578

 
961

Residential real estate
 
364

 
261

Total performing troubled debt restructurings
 
2,459

 
1,222

Total impaired loans, excluding purchase credit impaired loans
 
$
13,736

 
$
15,270

Troubled Debt Restructurings
The Company assesses loan modifications to determine whether a modification constitutes a troubled debt restructuring ("TDR"). This applies to all loan modifications except for modifications to loans accounted for in pools under ASC 310-30, which are not subject to TDR accounting/classification. For loans excluded from ASC 310-30 accounting, a modification is considered a TDR when a borrower is experiencing financial difficulties and the Company grants a concession to the borrower. For loans accounted for individually under ASC 310-30, a modification is considered a TDR when a borrower is experiencing financial difficulties and the effective yield after the modification is less than the effective yield at the time the loan was acquired or less than the effective yield of any re-estimation of cash flows subsequent to acquisition in association with consideration of qualitative factors included within ASC 310-40. All TDRs are considered impaired loans. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses.
As of June 30, 2018 and December 31, 2017, the Company had a recorded investment in troubled debt restructurings of $10.8 million and $7.6 million, respectively. The Company has allocated a specific reserve of $988 thousand for those loans at June 30, 2018 and a specific reserve of $975 thousand for those loans at December 31, 2017. The Company has not committed to lend additional amounts to borrowers whose loans have been modified. As of June 30, 2018, there were $8.3 million of nonperforming TDRs and $2.5 million of performing TDRs included in impaired loans. As of December 31, 2017, there were $6.4 million of nonperforming TDRs and $1.2 million of performing TDRs included in impaired loans.
All TDRs are considered impaired loans in the calendar year of their restructuring. A loan that has been modified will return to performing status if it satisfies a six-month performance requirement; however, it will continue to be reported as a TDR and considered impaired.
The following table presents the recorded investment of loans modified as TDRs during the three and six months ended June 30, 2018 and six months ended June 30, 2017, by type of concession granted. There were no loans modified as TDRs during the three months ended June 30, 2017. In cases where more than one type of concession was granted, the loans were categorized based on the most significant concession.

14


 
 
Concession type
 
 
 
 
 
Financial effects of
modification
(Dollars in thousands)
 
Principal
deferral
 
Interest
rate
 
Forbearance
agreement
 
Total
number of
loans
 
Total
recorded
investment
 
Net
charge-offs
 
Provision
for loan
losses
For the three months ended June 30, 2018
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$

 
$

 
$
691

 
1

 
$
691

 
$
101

 
$

Commercial and industrial
 
138

 

 
93

 
2

 
231

 

 

Residential real estate
 

 

 
110

 
2

 
110

 

 
5

Total
 
$
138

 
$

 
$
894

 
5

 
$
1,032

 
$
101

 
$
5

For the six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
$

 
$

 
$
2,793

 
4

 
$
2,793

 
$
101

 
$

Commercial and industrial
 
138

 

 
1,004

 
3

 
1,142

 

 

Residential real estate
 

 

 
110

 
2

 
110

 

 
5

Total
 
$
138

 
$

 
$
3,907

 
9

 
$
4,045

 
$
101

 
$
5

For the six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$

 
$
366

 
$

 
2

 
$
366

 
$

 
$

Total
 
$

 
$
366

 
$

 
2

 
$
366

 
$

 
$

On an ongoing basis, the Company monitors the performance of TDRs to their modified terms. The following tables present the number of loans modified in TDRs during the previous 12 months for which there was payment default during the three and six months ended June 30, 2018 and June 30, 2017, including the recorded investment as of each period end. A payment on a TDR is considered to be in default once it is greater than 30 days past due.
 
 
Three months ended June 30, 2018
 
Six months ended June 30, 2018
(Dollars in thousands)
 
Total number of
loans
 
Total recorded
investment
 
Charged off following a
subsequent default
 
Total number of
loans
 
Total recorded
investment
 
Charged off following a
subsequent default
Commercial real estate
 

 
$

 
$

 
1

 
$
1,149

 
$
11

Total
 

 
$

 
$

 
1

 
$
1,149

 
$
11

 
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
(Dollars in thousands)
 
Total number of
loans
 
Total recorded
investment
 
Charged off following a
subsequent default
 
Total number of
loans
 
Total recorded
investment
 
Charged off following a
subsequent default
Commercial real estate
 
2

 
$
287

 
$
2

 
2

 
$
287

 
$
2

Commercial and industrial
 

 

 

 
1

 
882

 

Residential real estate
 

 

 

 
1

 
301

 

Total
 
2

 
$
287

 
$
2

 
4

 
$
1,470

 
$
2

Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and industrial and commercial real estate loans. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:
Pass.    Higher quality loans that do not fit any of the other categories described below. This category includes loans risk rated with the following ratings: cash/stock secured, excellent credit risk, superior credit risk, good credit risk, satisfactory credit risk, and marginal credit risk.

15


Special Mention.    Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.
Substandard.    Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.    Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Based on the most recent analysis performed, the risk category of loans by class of loans was as follows:
(Dollars in thousands)
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
June 30, 2018
 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$
519,536

 
$
6,223

 
$
7,455

 
$
742

 
$
533,956

Commercial and industrial
 
346,989

 
7,332

 
8,918

 

 
363,239

Total
 
$
866,525

 
$
13,555

 
$
16,373

 
$
742

 
$
897,195

December 31, 2017
 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$
492,731

 
$
10,664

 
$
8,323

 
$
44

 
$
511,762

Commercial and industrial
 
361,740

 
5,945

 
9,963

 
38

 
377,686

Total
 
$
854,471

 
$
16,609

 
$
18,286

 
$
82

 
$
889,448

For residential real estate loans and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity. Residential real estate loans and consumer loans are considered nonperforming if 90 days or more past due. Consumer loan types are continuously monitored for changes in delinquency trends and other asset quality indicators.
The following presents residential real estate and consumer loans by credit quality:
(Dollars in thousands)
 
Performing
 
Nonperforming
 
Total
June 30, 2018
 
 

 
 

 
 

Residential real estate
 
$
145,026

 
$
2,737

 
$
147,763

Consumer
 
831

 

 
831

Total
 
$
145,857

 
$
2,737

 
$
148,594

December 31, 2017
 
 

 
 

 
 

Residential real estate
 
$
141,672

 
$
2,767

 
$
144,439

Consumer
 
1,036

 

 
1,036

Total
 
$
142,708

 
$
2,767

 
$
145,475

Purchased Credit Impaired Loans:
As part of the Company's previous four acquisitions, the Company acquired purchase credit impaired ("PCI") loans for which there was evidence of credit quality deterioration since origination and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments. The total balance of all PCI loans from these acquisitions was as follows:

16


(Dollars in thousand)
 
Unpaid Principal Balance
 
Recorded Investment
June 30, 2018
 
 

 
 

Commercial real estate
 
$
10,038

 
$
5,863

Commercial and industrial
 
617

 
119

Residential real estate
 
5,208

 
3,530

Total PCI loans
 
$
15,863

 
$
9,512

December 31, 2017
 
 
 
 
Commercial real estate
 
$
10,084

 
$
5,771

Commercial and industrial
 
808

 
417

Residential real estate
 
4,068

 
3,558

Total PCI loans
 
$
14,960

 
$
9,746

The following table reflects the activity in the accretable yield of PCI loans from past acquisitions, which includes total expected cash flows, including interest, in excess of the recorded investment.
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
2018
 
2017
 
2018
 
2017
Balance at beginning of period
 
$
13,534

 
$
18,237

 
$
14,452

 
$
19,893

Accretion of income
 
(991
)
 
(1,510
)
 
(1,909
)
 
(3,177
)
Adjustments to accretable yield
 
(159
)
 
123

 
(159
)
 
134

Other activity, net
 
6

 

 
6

 

Balance at end of period
 
$
12,390

 
$
16,850

 
$
12,390

 
$
16,850

"Accretion of income" represents the income earned on these loans for the year. "Adjustments to accretable yield" represents the net amount of accretable yield added or removed as a result of the semi-annual re-estimation of expected cash flows.
For the six months ended June 30, 2018 and year ended December 31, 2017, respectively, allowance for loans losses on PCI loans decreased by $96 thousand and increased by $234 thousand.

17


NOTE 4—ALLOWANCE
An allowance for loan losses is maintained to absorb losses from the loan portfolio. The allowance for loan losses is based on management's continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.
The Company established an allowance for loan losses associated with PCI loans (accounted for under ASC 310-30) based on credit deterioration subsequent to the acquisition date. As of June 30, 2018, the Company had six PCI loan pools and 12 non-pooled PCI loans. The Company re-estimates cash flows expected to be collected for purchased credit impaired loans on a semi-annual basis, with any decline in expected cash flows recorded as provision for loan losses on a discounted basis during the period. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan's remaining life.
For loans not accounted for under ASC 310-30, the Company individually evaluates certain impaired loans on a quarterly basis and establishes specific allowances for such loans, if required. A loan is considered impaired when it is probable that interest or principal payments will not be made in accordance with the contractual terms of the loan agreement. Consistent with this definition, all loans for which the accrual of interest has been discontinued (nonaccrual loans) and all TDRs are considered impaired. The Company individually evaluates nonaccrual loans with book balances of $250 thousand or more, all loans whose terms have been modified in a TDR, and certain other loans. The threshold for individual evaluation is revised on an infrequent basis, generally when economic circumstances change significantly. Specific allowances for impaired loans are estimated using one of several methods, including the estimated fair value of underlying collateral, observable market value of similar debt or discounted expected future cash flows. All other impaired loans are individually evaluated by identifying its risk characteristics and applying the standard reserve factor for the corresponding loan pool.
Loans which do not meet the criteria to be individually evaluated are evaluated in pools of loans with similar risk characteristics. Business loans are assigned to pools based on the Company's internal risk rating system. Internal risk ratings are assigned to each business loan at the time of approval and are subjected to subsequent periodic reviews by the Company's senior management, generally at least annually or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. For business loans not individually evaluated, losses inherent to the pool are estimated by applying standard reserve factors to outstanding principal balances.
The allowance for loans not individually evaluated is determined by applying estimated loss rates to various pools of loans within the portfolios with similar risk characteristics. Estimated loss rates for all pools are updated quarterly, incorporating quantitative and qualitative factors such as recent charge-off experience, current economic conditions and trends, changes in collateral values of properties securing loans (using index-based estimates), and trends with respect to past due and nonaccrual amounts.
Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance less any remaining purchase discount.











18


Information as to loans individually evaluated for impairment, including impaired PCI loans, is as follows:
(Dollars in thousands)
 
Recorded with
no related
allowance
 
Recorded
with related
allowance
 
Total
recorded
investment
 
Contractual
principal
balance
 
Related
allowance
June 30, 2018
 
 

 
 

 
 

 
 

 
 

Individually evaluated impaired loans:
 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$
4,039

 
$
5,506

 
$
9,545

 
$
14,081

 
$
828

Commercial and industrial
 
2,930

 
3,597

 
6,527

 
7,425

 
1,026

Residential real estate
 
1,973

 
3,390

 
5,363

 
7,163

 
154

Total
 
$
8,942

 
$
12,493

 
$
21,435

 
$
28,669

 
$
2,008

December 31, 2017
 
 

 
 

 
 

 
 

 
 

Individually evaluated impaired loans:
 
 

 
 

 
 

 
 

 
 

Commercial real estate
 
$
2,222

 
$
5,339

 
$
7,561

 
$
13,536

 
$
876

Commercial and industrial
 
5,238

 
5,059

 
10,297

 
11,677

 
1,549

Residential real estate
 
1,696

 
3,132

 
4,828

 
6,502

 
154

Total
 
$
9,156

 
$
13,530

 
$
22,686

 
$
31,715

 
$
2,579

 
(Dollars in thousands)
 
Average
Recorded