10-Q 1 cac-033117x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
FORM 10-Q
x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.      0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
 
MAINE
01-0413282
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
2 ELM STREET, CAMDEN, ME
04843
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code:  (207) 236-8821
 
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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x          No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
 
Yes x          No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a 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 accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨          No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:
Outstanding at May 1, 2017:  Common stock (no par value) 15,512,582 shares.



CAMDEN NATIONAL CORPORATION

 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2017
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
 
 
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
ITEM 1.
FINANCIAL STATEMENTS
 
 
 
 
 
Consolidated Statements of Condition - March 31, 2017 and December 31, 2016
 
 
 
 
Consolidated Statements of Income - Three Months Ended March 31, 2017 and 2016
 
 
 
 
Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2017 and 2016
 
 
 
 
Consolidated Statements of Changes in Shareholders’ Equity - Three Months Ended March 31, 2017 and 2016
 
 
 
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2017 and 2016
 
 
 
 
Notes to the Unaudited Consolidated Financial Statements
 
 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 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
 
 
 
SIGNATURES

2



PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(In thousands, except number of shares)
 
March 31, 2017
 
December 31, 2016
ASSETS
 
 

 
 

Cash and due from banks
 
$
78,095

 
$
87,707

Securities:
 
 

 
 

Available-for-sale securities, at fair value
 
823,241

 
779,867

Held-to-maturity securities, at amortized cost
 
94,474

 
94,609

Federal Home Loan Bank and Federal Reserve Bank stock, at cost
 
25,346

 
23,203

Total securities
 
943,061

 
897,679

Loans held for sale, at fair value
 
5,679

 
14,836

Loans
 
2,645,139

 
2,594,564

Less: allowance for loan losses
 
(23,721
)
 
(23,116
)
Net loans
 
2,621,418

 
2,571,448

Goodwill
 
94,697

 
94,697

Other intangible assets
 
6,292

 
6,764

Bank-owned life insurance
 
78,697

 
78,119

Premises and equipment, net
 
42,100

 
42,873

Deferred tax assets
 
37,278

 
39,263

Interest receivable
 
9,080

 
8,654

Other real estate owned
 
620

 
922

Other assets
 
21,448

 
21,268

Total assets
 
$
3,938,465

 
$
3,864,230

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Liabilities
 
 

 
 

Deposits:
 
 

 
 

Demand
 
$
387,173

 
$
406,934

Interest checking
 
767,521

 
701,494

Savings and money market
 
975,856

 
979,263

Certificates of deposit
 
458,069

 
468,203

Brokered deposits
 
348,564

 
272,635

Total deposits
 
2,937,183

 
2,828,529

Short-term borrowings
 
487,355

 
530,129

Long-term borrowings
 
10,773

 
10,791

Subordinated debentures
 
58,794

 
58,755

Accrued interest and other liabilities
 
46,533

 
44,479

Total liabilities
 
3,540,638

 
3,472,683

Commitments and Contingencies
 


 


Shareholders’ Equity
 
 

 
 

Common stock, no par value: authorized 20,000,000 shares, issued and outstanding 15,508,025 and 15,476,379 on March 31, 2017 and December 31, 2016, respectively
 
155,855

 
156,041

Retained earnings
 
255,910

 
249,415

Accumulated other comprehensive loss:
 
 

 
 

Net unrealized losses on available-for-sale securities, net of tax
 
(6,543
)
 
(6,085
)
Net unrealized losses on cash flow hedging derivative instruments, net of tax
 
(5,308
)
 
(5,694
)
Net unrecognized losses on postretirement plans, net of tax
 
(2,087
)
 
(2,130
)
Total accumulated other comprehensive loss
 
(13,938
)
 
(13,909
)
Total shareholders’ equity
 
397,827

 
391,547

Total liabilities and shareholders’ equity
 
$
3,938,465

 
$
3,864,230

The accompanying notes are an integral part of these consolidated financial statements.

3



CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 
Three Months Ended 
 March 31,
(In thousands, except number of shares and per share data)
 
2017
 
2016(1)
Interest Income
 
 

 
 

Interest and fees on loans
 
$
27,062

 
$
27,016

Interest on U.S. government and sponsored enterprise obligations
 
4,256

 
3,990

Interest on state and political subdivision obligations
 
702

 
714

Interest on federal funds sold and other investments
 
394

 
261

Total interest income
 
32,414

 
31,981

Interest Expense
 
 

 
 

Interest on deposits
 
2,554

 
2,042

Interest on borrowings
 
1,161

 
1,136

Interest on subordinated debentures
 
844

 
851

Total interest expense
 
4,559

 
4,029

Net interest income
 
27,855

 
27,952

Provision for credit losses
 
579

 
872

Net interest income after provision for credit losses
 
27,276

 
27,080

Non-Interest Income
 
 

 
 

Debit card income
 
1,834

 
1,902

Service charges on deposit accounts
 
1,823

 
1,724

Mortgage banking income, net
 
1,553

 
808

Income from fiduciary services
 
1,247

 
1,169

Bank-owned life insurance
 
577

 
422

Other service charges and fees
 
468

 
426

Brokerage and insurance commissions
 
453

 
458

Other income
 
617

 
1,008

Total non-interest income
 
8,572

 
7,917

Non-Interest Expense
 
 

 
 

Salaries and employee benefits
 
12,147

 
11,591

Furniture, equipment and data processing
 
2,325

 
2,427

Net occupancy costs
 
1,946

 
1,877

Consulting and professional fees
 
845

 
885

Debit card expense
 
660

 
720

Regulatory assessments
 
545

 
721

Amortization of intangible assets
 
472

 
476

Merger and acquisition costs
 

 
644

Other real estate owned and collection (recoveries) costs, net
 
(44
)
 
656

Other expenses
 
2,532

 
2,912

Total non-interest expense
 
21,428

 
22,909

Income before income tax expense
 
14,420

 
12,088

Income tax expense
 
4,344

 
3,442

Net Income
 
$
10,076

 
$
8,646

 
 
 
 
 
Per Share Data
 
 

 
 

Basic earnings per share
 
$
0.65

 
$
0.56

Diluted earnings per share
 
$
0.64

 
$
0.56

Weighted average number of common shares outstanding
 
15,488,848

 
15,389,990

Diluted weighted average number of common shares outstanding
 
15,568,639

 
15,459,585

(1)
The consolidated statement of income for the three months ended March 31, 2016 has been adjusted to reflect the adoption of Accounting Standards Updates No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09") in the second quarter of 2016 effective as of January 1, 2016.

The accompanying notes are an integral part of these consolidated financial statements.  

4



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2017
 
2016
Net Income
 
$
10,076

 
$
8,646

Other comprehensive (loss) income:
 
 
 
 

Net change in unrealized (losses) gains on available-for-sale securities, net of tax of $247, and ($4,183), respectively
 
(458
)
 
7,769

Net change in unrealized gains (losses) on cash flow hedging derivatives:
 
 
 
 
Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax of ($48), and $1,261, respectively
 
90

 
(2,342
)
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, net of tax of ($159) and ($128), respectively(1)
 
296

 
237

Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax
 
386

 
(2,105
)
Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($23) and ($21), respectively(2)
 
43

 
38

Other comprehensive (loss) income
 
(29
)
 
5,702

Comprehensive Income
 
$
10,047

 
$
14,348

(1)
Reclassified into the consolidated statements of income in interest on subordinated debentures.
(2)
Reclassified into the consolidated statements of income in salaries and employee benefits.
 
The accompanying notes are an integral part of these consolidated financial statements.

5




CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
 
 
Common Stock
 
 
 
Accumulated
Other Comprehensive
Loss
 
Total Shareholders’
Equity
(In thousands, except number of shares and per share data)
 
Shares
Outstanding1
 
Amount
 
Retained
Earnings
 
 
Balance at December 31, 2015
 
15,330,717

 
$
153,083

 
$
222,329

 
$
(12,222
)
 
$
363,190

Cumulative effect adjustment(2)
 

 
72

 
(72
)
 

 

Net income
 

 

 
8,646

 

 
8,646

Other comprehensive income, net of tax
 

 

 

 
5,702

 
5,702

Stock-based compensation expense
 

 
324

 

 

 
324

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
75,766

 
719

 

 

 
719

Cash dividends declared ($0.20 per share)(1)
 

 

 
(3,123
)
 

 
(3,123
)
Balance at March 31, 2016
 
15,406,483

 
$
154,198

 
$
227,780

 
$
(6,520
)
 
$
375,458

 
 
 
 
 
 
 
 
 
 

Balance at December 31, 2016
 
15,476,379

 
$
156,041

 
$
249,415

 
$
(13,909
)
 
$
391,547

Net income
 

 

 
10,076

 

 
10,076

Other comprehensive loss, net of tax
 

 

 

 
(29
)
 
(29
)
Stock-based compensation expense
 

 
366

 

 

 
366

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
31,646

 
(552
)
 

 

 
(552
)
Cash dividends declared ($0.23 per share)
 

 

 
(3,581
)
 

 
(3,581
)
Balance at March 31, 2017
 
15,508,025


$
155,855


$
255,910

 
$
(13,938
)
 
$
397,827

(1)
Share and per share amounts as of December 31, 2015 and as of and for the three months ended March 31, 2016 have been adjusted to reflect the three-for-two stock split effective September 30, 2016.
(2)
In the second quarter of 2016, the Company adopted ASU 2016-09, effective January 1, 2016. The Company made a policy election to not estimate the forfeiture rate in the accounting for share-based compensation on its unvested share-based awards. The change in policy was accounted for on a modified-retrospective basis and represents the cumulative effect adjustment to shareholders' equity.
 
The accompanying notes are an integral part of these consolidated financial statements.

6



CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Three Months Ended 
 March 31,
(In thousands)
 
2017
 
2016(1)
Operating Activities
 
 

 
 

Net Income
 
$
10,076

 
$
8,646

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

 
 

Provision for credit losses
 
579

 
872

Depreciation and amortization expense
 
916

 
1,427

Purchase accounting accretion, net
 
(748
)
 
(1,055
)
Investment securities amortization and accretion, net
 
786

 
652

Stock-based compensation expense
 
366

 
324

Amortization of intangible assets
 
472

 
476

Net (decrease) increase in other real estate owned valuation allowance and (gain) loss on disposition
 
(27
)
 
66

Originations of mortgage loans held for sale
 
(33,629
)
 
(44,431
)
Proceeds from the sale of mortgage loans
 
44,320

 
39,868

Gain on sale of mortgage loans, net of origination costs
 
(1,280
)
 
(972
)
Decrease in other assets
 
3,283

 
2,869

Decrease in other liabilities
 
(20
)
 
(4,171
)
Net cash provided by operating activities
 
25,094

 
4,571

Investing Activities
 
 

 
 

Proceeds from maturities of available-for-sale securities
 
32,557

 
28,580

Purchase of available-for-sale securities
 
(77,286
)
 
(66,849
)
Purchase of securities held-to-maturity
 

 
(3,929
)
Net increase in loans
 
(50,049
)
 
(2,321
)
Purchase of Federal Home Loan Bank stock
 
(2,143
)
 
(92
)
Proceeds from the sale of other real estate owned
 
329

 
42

Recoveries of previously charged-off loans
 
183

 
104

Purchase of premises and equipment
 
(264
)
 
(464
)
Proceeds from the sale of premises and equipment
 
137

 

Net cash used by investing activities
 
(96,536
)
 
(44,929
)
Financing Activities
 
 
 
 

Net increase (decrease) in deposits
 
108,736

 
(51,286
)
Net (repayments of) proceeds from borrowings less than 90 days
 
(37,779
)
 
86,726

Repayments of wholesale repurchase agreements
 
(5,000
)
 

Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings
 
(552
)
 
719

Cash dividends paid on common stock
 
(3,575
)
 
(3,088
)
Net cash provided by financing activities
 
61,830

 
33,071

Net decrease in cash and cash equivalents
 
(9,612
)
 
(7,287
)
Cash and cash equivalents at beginning of period
 
87,707

 
79,488

Cash and cash equivalents at end of period
 
$
78,095

 
$
72,201

Supplemental information
 
 

 
 

Interest paid
 
$
4,549

 
$
4,029

Income taxes paid
 
57

 
5

Transfer from loans to other real estate owned
 

 
32

SBM Financial, Inc. acquisition measurement-period adjustments
 

 
390

(1)
The consolidated statement of cash flows for the three months ended March 31, 2016 has been adjusted to reflect the adoption of ASU 2016-09 in the second quarter of 2016 effective as of January 1, 2016.
 





The accompanying notes are an integral part of these consolidated financial statements.

7


NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in tables expressed in thousands, except per share data)


NOTE 1 – BASIS OF PRESENTATION
 
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation as of March 31, 2017 and December 31, 2016, the consolidated statements of income for the three months ended March 31, 2017 and 2016, the consolidated statements of comprehensive income for the three months ended March 31, 2017 and 2016, the consolidated statements of changes in shareholders' equity for the three months ended March 31, 2017 and 2016, and the consolidated statements of cash flows for the three months ended March 31, 2017 and 2016. All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior period were reclassified to conform to the current period presentation. The income reported for the three months ended March 31, 2017 is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the year ended December 31, 2016 Annual Report on Form 10-K.


8



The acronyms and abbreviations identified below are used throughout this Form 10-Q, including Part I. "Financial Information." The following was provided to aid the reader and provide a reference page when reviewing this section of the Form 10-Q.
AFS:
Available-for-sale
 
HPFC:
Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ALCO:
Asset/Liability Committee
 
HTM:
Held-to-maturity
ALL:
Allowance for loan losses
 
IRS:
Internal Revenue Service
AOCI:
Accumulated other comprehensive income (loss)
 
LIBOR:
London Interbank Offered Rate
ASC:
Accounting Standards Codification
 
LTIP:
Long-Term Performance Share Plan
ASU:
Accounting Standards Update
 
Management ALCO:
Management Asset/Liability Committee
Bank:
Camden National Bank, a wholly-owned subsidiary of Camden National Corporation
 
MBS:
Mortgage-backed security
Board ALCO:
Board of Directors' Asset/Liability Committee
 
MSRs:
Mortgage servicing rights
BOLI:
Bank-owned life insurance
 
MSPP:
Management Stock Purchase Plan
BSA:
Bank Secrecy Act
 
OTTI:
Other-than-temporary impairment
CCTA:
Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation
 
NIM:
Net interest margin on a fully-taxable basis
CDARS:
Certificate of Deposit Account Registry System
 
N.M.:
Not meaningful
CDs:
Certificate of deposits
 
OCC:
Office of the Comptroller of the Currency
CMO:
Collateralized mortgage obligation
 
OCI:
Other comprehensive income (loss)
Company:
Camden National Corporation
 
OFAC:
Office of Foreign Assets Control
DCRP:
Defined Contribution Retirement Plan
 
OREO:
Other real estate owned
EPS:
Earnings per share
 
SERP:
Supplemental executive retirement plans
FASB:
Financial Accounting Standards Board
 
TDR:
Troubled-debt restructured loan
FDIC:
Federal Deposit Insurance Corporation
 
UBCT:
Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
FHLB:
Federal Home Loan Bank
 
U.S.:
United States of America
FHLBB:
Federal Home Loan Bank of Boston
 
USD:
United States Dollar
FRB:
Federal Reserve System Board of Governors
 
2003 Plan:
2003 Stock Option and Incentive Plan
FRBB:
Federal Reserve Bank of Boston
 
2012 Plan:
2012 Equity and Incentive Plan
Freddie Mac:
Federal Home Loan Mortgage Corporation
 
2013 Repurchase Program:
2013 Common Stock Repurchase Program, approved by the Company's Board of Directors
GAAP:
Generally accepted accounting principles in the United States
 
 
 


9



NOTE 2 – EPS
 
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:
 
 
Three Months Ended 
 March 31,
 
 
2017
 
2016(5)
Net income(1)
 
$
10,076

 
$
8,646

Dividends and undistributed earnings allocated to participating securities(2)
 
(45
)
 
(32
)
Net income available to common shareholders
 
$
10,031

 
$
8,614

Weighted-average common shares outstanding for basic EPS
 
15,488,848

 
15,389,990

Dilutive effect of stock-based awards(3)
 
79,791

 
69,595

Weighted-average common and potential common shares for diluted EPS
 
15,568,639

 
15,459,585

Earnings per common share(1)(2):
 
 

 
 

Basic EPS
 
$
0.65

 
$
0.56

Diluted EPS
 
$
0.64

 
$
0.56

Awards excluded from the calculation of diluted EPS(4):
 
 
 
 
Stock options
 

 
19,875

(1) The financial information for the three months ended March 31, 2016 has been adjusted to reflect the adoption of ASU 2016-09.
(2) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(3) Represents the effect of the assumed exercise of stock options, vesting of restricted shares, vesting of restricted stock units, and vesting of LTIP awards that have met the performance criteria, as applicable, utilizing the treasury stock method.
(4) Represents stock-based awards not included in the computation of potential common shares for purposes of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock and are considered anti-dilutive.
(5) Share and per share amounts for the three months ended March 31, 2016 have been adjusted to reflect the three-for-two stock split effective September 30, 2016.

Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities. 
  
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards. 
 
Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.

10



NOTE 3 – SECURITIES
 
The following tables summarize the amortized cost and estimated fair values of AFS and HTM securities, as of the dates indicated: 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
March 31, 2017
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
8,156

 
$
130

 
$

 
$
8,286

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
526,135

 
2,392

 
(7,030
)
 
521,497

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
292,901

 
172

 
(6,064
)
 
287,009

Subordinated corporate bonds
5,483

 
190

 

 
5,673

Total AFS debt securities
832,675

 
2,884

 
(13,094
)
 
822,465

Equity securities
632

 
144

 

 
776

Total AFS securities
$
833,307

 
$
3,028

 
$
(13,094
)
 
$
823,241

HTM Securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
94,474

 
$
583

 
$
(713
)
 
$
94,344

Total HTM securities
$
94,474

 
$
583

 
$
(713
)
 
$
94,344

December 31, 2016
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
8,848

 
$
153

 
$

 
$
9,001

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
485,222

 
2,515

 
(7,115
)
 
480,622

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
289,046

 
265

 
(5,421
)
 
283,890

Subordinated corporate bonds
5,481

 
132

 

 
5,613

Total AFS debt securities
788,597

 
3,065

 
(12,536
)
 
779,126

Equity securities
632

 
109

 

 
741

Total AFS securities
$
789,229

 
$
3,174

 
$
(12,536
)
 
$
779,867

HTM Securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
94,609

 
$
618

 
$
(631
)
 
$
94,596

Total HTM securities
$
94,609

 
$
618

 
$
(631
)
 
$
94,596

 
Net unrealized losses on AFS securities at March 31, 2017 included in AOCI amounted to $6.5 million, net of a deferred tax benefit of $3.5 million. Net unrealized losses on AFS securities at December 31, 2016 included in AOCI amounted to $6.1 million, net of a deferred tax benefit of $3.3 million.

During the first three months of 2017, the Company purchased investment securities totaling $77.3 million, all of which were designated as AFS securities.

During the first three months of 2016, the Company purchased investment securities totaling $70.8 million. The Company designated $66.9 million as AFS securities and $3.9 million as HTM securities.


11



Impaired Securities
Management periodically reviews the Company’s investment portfolio to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, and recoverability of invested amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in determining OTTI. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is permanently reduced and a corresponding charge to earnings is recognized.
 
The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at March 31, 2017 and December 31, 2016, by length of time that individual securities in each category have been in a continuous loss position:  
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2017
 

 
 

 
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
$
393,109

 
$
(5,745
)
 
$
28,177

 
$
(1,285
)
 
$
421,286

 
$
(7,030
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
193,320

 
(3,114
)
 
70,552

 
(2,950
)
 
263,872

 
(6,064
)
Total AFS securities
$
586,429

 
$
(8,859
)
 
$
98,729

 
$
(4,235
)
 
$
685,158

 
$
(13,094
)
HTM Securities:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
45,174

 
$
(713
)
 
$

 
$

 
$
45,174

 
$
(713
)
Total HTM securities
$
45,174

 
$
(713
)
 
$

 
$

 
$
45,174

 
$
(713
)
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

AFS Securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
$
348,579

 
$
(5,780
)
 
$
29,496

 
$
(1,335
)
 
$
378,075

 
$
(7,115
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
163,412

 
(2,906
)
 
74,212

 
(2,515
)
 
237,624

 
(5,421
)
Total AFS securities
$
511,991

 
$
(8,686
)
 
$
103,708

 
$
(3,850
)
 
$
615,699

 
$
(12,536
)
HTM Securities:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
42,805

 
$
(631
)
 
$

 
$

 
$
42,805

 
$
(631
)
Total HTM securities
$
42,805

 
$
(631
)
 
$

 
$

 
$
42,805

 
$
(631
)

At March 31, 2017 and December 31, 2016, the Company held 232 and 209 investment securities with a fair value of $730.3 million and $658.5 million that were in an unrealized loss position totaling $13.8 million and $13.2 million, respectively, that were considered temporary. Of these, MBS and CMOs with a fair value of $98.7 million were in an unrealized loss position totaling $4.2 million at March 31, 2017 and MBS and CMOs with a fair value of $103.7 million were in an unrealized loss position totaling $3.9 million at December 31, 2016 for 12 months or more. The unrealized loss was reflective of current interest rates in excess of the yield received on investments and is not indicative of an overall change in credit quality or other factors with the Company's investment portfolio. At March 31, 2017 and December 31, 2016, gross unrealized losses on the Company's AFS and HTM securities were 2% of the respective investment securities fair value.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at March 31, 2017 until the decline in value has recovered.

12




Sale of Securities
For the three months ended March 31, 2017 and 2016, the Company did not sell any investment securities.

FHLBB and FRB Stock
As of March 31, 2017 and December 31, 2016, the Company's investment in FHLBB stock was $20.0 million and $17.8 million, respectively. As of March 31, 2017 and December 31, 2016, the Company's investment in FRB stock was $5.4 million.

Securities Pledged
At March 31, 2017 and December 31, 2016, securities with an amortized cost of $604.0 million and $597.3 million and estimated fair values of $595.7 million and $589.7 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
 
Contractual Maturities
The amortized cost and estimated fair values of debt securities by contractual maturity at March 31, 2017, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 
 
Amortized
Cost
 
Fair
Value
AFS Securities
 
 
 
Due in one year or less
$
1,585

 
$
1,587

Due after one year through five years
88,748

 
88,607

Due after five years through ten years
170,189

 
169,920

Due after ten years
572,153

 
562,351

 
$
832,675

 
$
822,465

HTM Securities
 
 
 
Due in one year or less
$
762

 
$
768

Due after one year through five years
4,801

 
4,870

Due after five years through ten years
4,561

 
4,622

Due after ten years
84,350

 
84,084

 
$
94,474

 
$
94,344

 


13



NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES
 
The composition of the Company’s loan portfolio, excluding residential loans held for sale, at March 31, 2017 and December 31, 2016 was as follows:   
 
March 31,
2017
 
December 31,
2016
Residential real estate
$
819,639

 
$
802,494

Commercial real estate
1,096,475

 
1,050,780

Commercial
333,607

 
333,639

Home equity
322,826

 
329,907

Consumer
16,669

 
17,332

HPFC
55,923

 
60,412

Total loans
$
2,645,139

 
$
2,594,564


The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination (costs) fees totaling:
 
March 31,
2017
 
December 31,
2016
Net unamortized fair value mark discount on acquired loans
$
8,125

 
$
8,810

Net unamortized loan origination (costs) fees
(248
)
 
(66
)
Total
$
7,877

 
$
8,744


The Bank’s lending activities are primarily conducted in Maine, but also include a mortgage loan production office in Massachusetts and a commercial loan production office in New Hampshire. The Company originates single family and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.

The HPFC loan portfolio consists of niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. Effective February 19, 2016, the Company closed HPFC's operations and is no longer originating loans.

The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.

Effective January 1, 2017, the Company's internal policy for assessing individual loans for impairment was changed to increase the principal balance threshold for a loan from $250,000 to $500,000. The qualitative factors for assessing a loan individually for impairment in accordance with the Company's internal policy were unchanged, and continue to require the loan to be classified as substandard or doubtful and on non-accrual status. There were no other significant changes in the Company's ALL methodology during the three months ended March 31, 2017.

The Board of Directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, concentration levels, and the ALL methodology. The Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit

14



quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the Board of Directors. The Company's practice is to proactively manage the portfolio such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include:

Residential Real Estate. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties.

Commercial Real Estate. Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

Home Equity. Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer. Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

HPFC. Prior to the Company's closing of HPFC's operations, effective February 19, 2016, it provided commercial lending to dentists, optometrists and veterinarians, many of which were start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral consists of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the terms range from seven to ten years.

15



The following presents the activity in the ALL and select loan information by portfolio segment for the three months ended March 31, 2017 and 2016, and for the year ended December 31, 2016
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Total
For The Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Beginning balance
 
$
4,160

 
$
12,154

 
$
3,755

 
$
2,194

 
$
181

 
$
672

 
$
23,116

Loans charged off
 
(5
)
 
(3
)
 
(136
)
 
(1
)
 
(14
)
 

 
(159
)
Recoveries
 

 
103

 
77

 
1

 
2

 

 
183

Provision (credit)(1)
 
116

 
472

 
119

 
(87
)
 
6

 
(45
)
 
581

Ending balance
 
$
4,271

 
$
12,726

 
$
3,815

 
$
2,107

 
$
175

 
$
627

 
$
23,721

ALL balance attributable to loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
485

 
$
1,100

 
$

 
$
83

 
$

 
$
66

 
$
1,734

Collectively evaluated for impairment
 
3,786

 
11,626

 
3,815

 
2,024

 
175

 
561

 
21,987

Total ending ALL
 
$
4,271

 
$
12,726

 
$
3,815

 
$
2,107

 
$
175

 
$
627

 
$
23,721

Loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
4,408

 
$
13,191

 
$
1,994

 
$
430

 
$
7

 
$
98

 
$
20,128

Collectively evaluated for impairment
 
815,231

 
1,083,284

 
331,613

 
322,396

 
16,662

 
55,825

 
2,625,011

Total ending loans balance
 
$
819,639

 
$
1,096,475

 
$
333,607

 
$
322,826

 
$
16,669

 
$
55,923

 
$
2,645,139

For The Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
4,545

 
$
10,432

 
$
3,241

 
$
2,731

 
$
193

 
$
24

 
$
21,166

Loans charged off
 
(210
)
 
(222
)
 
(226
)
 
(128
)
 
(15
)
 

 
(801
)
Recoveries
 
40

 
9

 
52

 
1

 
2

 

 
104

Provision(1)
 
141

 
161

 
231

 
18

 
2

 
317

 
870

Ending balance
 
$
4,516

 
$
10,380

 
$
3,298

 
$
2,622

 
$
182

 
$
341

 
$
21,339

ALL balance attributable to loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
512

 
$
158

 
$
214

 
$
89

 
$

 
$
307

 
$
1,280

Collectively evaluated for impairment
 
4,004

 
10,222

 
3,084

 
2,533

 
182

 
34

 
20,059

Total ending ALL
 
$
4,516

 
$
10,380

 
$
3,298

 
$
2,622

 
$
182

 
$
341

 
$
21,339

Loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
6,033

 
$
3,130

 
$
3,862

 
$
492

 
$
7

 
$
357

 
$
13,881

Collectively evaluated for impairment
 
805,941

 
949,351

 
288,202

 
344,005

 
17,182

 
74,072

 
2,478,753

Total ending loans balance
 
$
811,974

 
$
952,481

 
$
292,064

 
$
344,497

 
$
17,189

 
$
74,429

 
$
2,492,634


16



 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Total
For The Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Beginning balance
 
$
4,545

 
$
10,432

 
$
3,241

 
$
2,731

 
$
193

 
$
24

 
$
21,166

Loans charged off
 
(356
)
 
(315
)
 
(2,218
)
 
(308
)
 
(101
)
 
(507
)
 
(3,805
)
Recoveries
 
95

 
50

 
332

 
2

 
7

 

 
486

Provision (credit)(1)
 
(124
)
 
1,987

 
2,400

 
(231
)
 
82

 
1,155

 
5,269

Ending balance
 
$
4,160

 
$
12,154

 
$
3,755

 
$
2,194

 
$
181

 
$
672

 
$
23,116

ALL balance attributable to loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
483

 
$
1,373

 
$

 
$
86

 
$

 
$
65

 
$
2,007

Collectively evaluated for impairment
 
3,677

 
10,781

 
3,755

 
2,108

 
181

 
607

 
21,109

Total ending ALL
 
$
4,160

 
$
12,154

 
$
3,755

 
$
2,194

 
$
181

 
$
672

 
$
23,116

Loans:
 
  

 
  

 
  

 
  

 
  

 
 
 
  

Individually evaluated for impairment
 
$
4,348

 
$
13,317

 
$
2,028

 
$
457

 
$
7

 
$
97

 
$
20,254

Collectively evaluated for impairment
 
798,146

 
1,037,463

 
331,611

 
329,450

 
17,325

 
60,315

 
2,574,310

Total ending loans balance
 
$
802,494

 
$
1,050,780

 
$
333,639

 
$
329,907

 
$
17,332

 
$
60,412

 
$
2,594,564

(1)
The provision (credit) for loan losses excludes any impact for the change in the reserve for unfunded commitments, which represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and other liabilities on the consolidated statements of condition. At March 31, 2017 and 2016, and December 31, 2016, the reserve for unfunded commitments was $9,000, $24,000 and $11,000, respectively.

The following reconciles the three months ended March 31, 2017 and 2016, and year ended December 31, 2016 provision for loan losses to the provision for credit losses as presented on the consolidated statement of income:
 
 
Three Months Ended 
 March 31,
 
Year Ended December 31,
2016
 
 
2017
 
2016
 
Provision for loan losses
 
$
581

 
$
870

 
$
5,269

Change in reserve for unfunded commitments
 
(2
)
 
2

 
(11
)
Provision for credit losses
 
$
579

 
$
872

 
$
5,258


The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored by Credit Risk Administration. As of March 31, 2017, the non-residential building operators' industry exposure was 13% of the Company's total loan portfolio and 31% of the total commercial real estate portfolio. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of March 31, 2017.

To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial, commercial real estate, residential real estate, and HPFC loans are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ALL:

Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured

17



using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.
Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.
Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.
Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.

Asset quality indicators are periodically reassessed to appropriately reflect the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.
 
The following summarizes credit risk exposure indicators by portfolio segment as of the following dates:
 
 
Residential 
Real Estate
 
Commercial 
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Total
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass (Grades 1-6)
 
$
808,075

 
$
1,038,096

 
$
321,667

 
$

 
$

 
$
53,669

 
$
2,221,507

Performing
 

 

 

 
321,278

 
16,665

 

 
337,943

Special Mention (Grade 7)
 
952

 
15,625

 
5,486

 

 

 
239

 
22,302

Substandard (Grade 8)
 
10,612

 
42,754

 
5,017

 

 

 
2,015

 
60,398

Doubtful (Grade 9)
 

 

 
1,437

 

 

 

 
1,437

Non-performing
 

 

 

 
1,548

 
4

 

 
1,552

Total
 
$
819,639

 
$
1,096,475

 
$
333,607

 
$
322,826

 
$
16,669

 
$
55,923

 
$
2,645,139

December 31, 2016
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Pass (Grades 1-6)
 
$
789,554

 
$
1,003,386

 
$
321,148

 
$

 
$

 
$
58,943

 
$
2,173,031

Performing
 

 

 

 
328,287

 
17,328

 

 
345,615

Special Mention (Grade 7)
 
2,387

 
5,724

 
5,598

 

 

 
257

 
13,966

Substandard (Grade 8)
 
10,553

 
41,670

 
5,437

 

 

 
1,212

 
58,872

Doubtful (Grade 9)
 

 

 
1,456

 

 

 

 
1,456

Non-performing
 

 

 

 
1,620

 
4

 

 
1,624

Total
 
$
802,494

 
$
1,050,780

 
$
333,639

 
$
329,907

 
$
17,332

 
$
60,412

 
$
2,594,564

 
The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is well-secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan may return to accrual

18



status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally placed on non-accrual status because they are charged-off once their collectability is in doubt.

The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and a summary of non-accrual loans, which include TDRs, and loans past due over 90 days and accruing as of the following dates:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater
than
90 Days
 
Total
Past Due
 
Current
 
Total Loans
Outstanding
 
Loans > 90
Days Past
Due and
Accruing
 
Non-Accrual
Loans
March 31, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential real estate
$
2,188

 
$
354

 
$
3,376

 
$
5,918

 
$
813,721

 
$
819,639

 
$

 
$
4,105

Commercial real estate
2,393

 
127

 
12,653