10-Q 1 gsbc-10q093018.htm QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2018


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 ACT OF 1934

For the Quarterly Period Ended September 30, 2018

Commission File Number 0-18082

GREAT SOUTHERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland
 
43-1524856
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
1451 E. Battlefield, Springfield, Missouri
 
65804
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(417) 887-4400
(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 /X/     No /  /
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes/X/   No /  /
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer /  /
Accelerated filer /X/
Non-accelerated filer /  /
Smaller reporting company /  /
 
Emerging growth company /  /

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. / /

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes /  /   No /X/
 
The number of shares outstanding of each of the registrant's classes of common stock: 14,158,300 shares of common stock, par value $.01 per share, outstanding at November 1, 2018.

1
 
 
 
 
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except number of shares)

   
SEPTEMBER 30,
    
DECEMBER 31,
  
   
2018
    
2017
  
   
(Unaudited)
        
             
ASSETS
            
Cash
  
$
99,044
    
$
115,600
  
Interest-bearing deposits in other financial institutions
    
109,777
      
126,653
  
Cash and cash equivalents
    
208,821
      
242,253
  
Available-for-sale securities
    
191,251
      
179,179
  
Held-to-maturity securities (fair value $0  – September 2018; $131 - December 2017)
    
—
      
130
  
Mortgage loans held for sale
    
3,474
      
8,203
  
Loans receivable, net of allowance for loan losses of $37,497 – September 2018; $36,492 - December 2017
    
3,942,766
      
3,726,302
  
Interest receivable
    
13,008
      
12,338
  
Prepaid expenses and other assets
    
41,116
      
47,122
  
Other real estate owned and repossessions, net
    
12,844
      
22,002
  
Premises and equipment, net
    
133,319
      
138,018
  
Goodwill and other intangible assets
    
9,613
      
10,850
  
Investment in Federal Home Loan Bank stock
    
14,918
      
11,182
  
Current and deferred income taxes
    
12,956
      
16,942
  
          Total Assets
  
$
4,584,086
    
$
4,414,521
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Liabilities:
                
Deposits
  
$
3,595,665
    
$
3,597,144
  
Federal Home Loan Bank advances
    
240,000
      
127,500
  
Securities sold under reverse repurchase agreements with customers
    
112,184
      
80,531
  
Short-term borrowings
    
1,360
      
16,604
  
Subordinated debentures issued to capital trusts
    
25,774
      
25,774
  
Subordinated notes
    
73,804
      
73,688
  
Accrued interest payable
    
3,013
      
2,904
  
Advances from borrowers for taxes and insurance
    
8,858
      
5,319
  
Accounts payable and accrued expenses
    
15,301
      
13,395
  
          Total Liabilities
    
4,075,959
      
3,942,859
  
Stockholders' Equity:
                
Capital stock
                
Serial preferred stock –$.01 par value; authorized 1,000,000 shares; issued
 and outstanding September 2018 and December 2017 - -0- shares
    
—
      
—
  
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding September 2018  –14,153,290 shares;
 December 2017 - 14,087,533 shares
    
142
      
141
  
Additional paid-in capital
    
29,553
      
28,203
  
Retained earnings
    
480,027
      
442,077
  
Accumulated other comprehensive income (loss)
    
(1,595
)
    
1,241
  
          Total Stockholders' Equity
    
508,127
      
471,662
  
          Total Liabilities and Stockholders' Equity
  
$
4,584,086
    
$
4,414,521
  

See Notes to Consolidated Financial Statements

2
 
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
   
THREE MONTHS ENDED
 SEPTEMBER 30,
  
   
2018
    
2017
  
   
(Unaudited)
  
             
INTEREST INCOME
            
Loans
  
$
51,063
    
$
44,824
  
Investment securities and other
    
1,919
      
1,544
  
TOTAL INTEREST INCOME
    
52,982
      
46,368
  
                 
INTEREST EXPENSE
                
Deposits
    
7,352
      
5,131
  
Federal Home Loan Bank advances
    
1,192
      
546
  
Short-term borrowings and repurchase agreements
    
177
      
118
  
Subordinated debentures issued to capital trusts
    
252
      
267
  
Subordinated notes
    
1,024
      
1,025
  
TOTAL INTEREST EXPENSE
    
9,997
      
7,087
  
NET INTEREST INCOME
    
42,985
      
39,281
  
Provision for Loan Losses
    
1,300
      
2,950
  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
41,685
      
36,331
  
                 
NON-INTEREST INCOME
                
Commissions
    
309
      
279
  
Service charges and ATM fees
    
5,458
      
5,533
  
Net realized gains on sales of loans
    
417
      
719
  
Late charges and fees on loans
    
466
      
436
  
Gain on sales of securities
    
2
      
—
  
Gain on derivative interest rate products
    
5
      
8
  
Gain on sale of business units
    
7,414
      
—
  
Other income
    
533
      
680
  
TOTAL NON-INTEREST INCOME
    
14,604
      
7,655
  
                 
NON-INTEREST EXPENSE
                
Salaries and employee benefits
    
15,162
      
14,664
  
Net occupancy and equipment expense
    
6,551
      
6,079
  
Postage
    
843
      
845
  
Insurance
    
682
      
755
  
Advertising
    
589
      
587
  
Office supplies and printing
    
255
      
279
  
Telephone
    
827
      
790
  
Legal, audit and other professional fees
    
875
      
610
  
Expense on other real estate owned and repossessions
    
498
      
1,343
  
Partnership tax credit investment amortization
    
91
      
217
  
Acquired deposit intangible asset amortization
    
412
      
412
  
Other operating expenses
    
1,524
      
1,453
  
TOTAL NON-INTEREST EXPENSE
    
28,309
      
28,034
  
                 
Income Before Income Taxes
    
27,980
      
15,952
  
Provision for Income Taxes
    
5,464
      
4,289
  
Net income
  
$
22,516
    
$
11,663
  
                 
Basic Earnings Per Share
  
$
1.59
    
$
0.83
  
Diluted Earnings Per Share
  
$
1.57
    
$
0.82
  
Dividends Declared Per Share
  
$
0.32
    
$
0.24
  

See Notes to Consolidated Financial Statements
 
3
 
 
 

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
 
   
NINE MONTHS ENDED
 SEPTEMBER 30,
  
   
2018
    
2017
  
   
(Unaudited)
  
             
INTEREST INCOME
            
Loans
  
$
144,447
    
$
131,734
  
Investment securities and other
    
5,361
      
4,791
  
TOTAL INTEREST INCOME
    
149,808
      
136,525
  
                 
INTEREST EXPENSE
                
Deposits
    
19,058
      
15,100
  
Federal Home Loan Bank advances
    
2,964
      
1,045
  
Short-term borrowings and repurchase agreements
    
385
      
662
  
Subordinated debentures issued to capital trusts
    
692
      
760
  
Subordinated notes
    
3,073
      
3,075
  
TOTAL INTEREST EXPENSE
    
26,172
      
20,642
  
NET INTEREST INCOME
    
123,636
      
115,883
  
Provision for Loan Losses
    
5,200
      
7,150
  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
118,436
      
108,733
  
                 
NON-INTEREST INCOME
                
Commissions
    
868
      
851
  
Service charges and ATM fees
    
16,191
      
16,195
  
Net realized gains on sales of loans
    
1,438
      
2,343
  
Late charges and fees on loans
    
1,240
      
1,922
  
Gain on sales of securities
    
2
      
—
  
Gain (loss) on derivative interest rate products
    
53
      
(5
)
Gain on termination of loss sharing agreements
    
—
      
7,704
  
Amortization of income/(expense) related to business acquisitions
    
—
      
(486
)
Gain on sale of business units
    
7,414
      
—
  
Other income
    
1,792
      
2,627
  
TOTAL NON-INTEREST INCOME
    
28,998
      
31,151
  
                 
NON-INTEREST EXPENSE
                
Salaries and employee benefits
    
44,731
      
44,495
  
Net occupancy and equipment expense
    
19,234
      
18,419
  
Postage
    
2,544
      
2,651
  
Insurance
    
2,002
      
2,300
  
Advertising
    
1,892
      
1,656
  
Office supplies and printing
    
789
      
1,208
  
Telephone
    
2,339
      
2,389
  
Legal, audit and other professional fees
    
2,373
      
1,991
  
Expense on other real estate owned and repossessions
    
4,376
      
2,595
  
Partnership tax credit investment amortization
    
484
      
713
  
Acquired deposit intangible asset amortization
    
1,237
      
1,237
  
Other operating expenses
    
4,536
      
5,322
  
TOTAL NON-INTEREST EXPENSE
    
86,537
      
84,976
  
                 
Income Before Income Taxes
    
60,897
      
54,908
  
Provision for Income Taxes
    
11,076
      
15,550
  
Net income
  
$
49,821
    
$
39,358
  
                 
Basic Earnings Per Share
  
$
3.53
    
$
2.81
  
Diluted Earnings Per Share
  
$
3.49
    
$
2.77
  
Dividends Declared Per Share
  
$
0.88
    
$
0.70
  

See Notes to Consolidated Financial Statements
 
4
 
 
 

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

   
THREE MONTHS ENDED
 SEPTEMBER 30,
  
   
2018
    
2017
  
   
(Unaudited)
  
             
Net Income
  
$
22,516
    
$
11,663
  
                 
Unrealized appreciation (depreciation) on available-for-sale securities,
    net of taxes (credit) of $(232) and $(101), for 2018 and 2017, respectively
    
(805
)
    
(177
)
                 
Reclassification adjustment for gains included in net income,
    net of (taxes) credit of $0 for each of 2018 and 2017
    
(2
)
    
—
  
                 
Change in fair value of cash flow hedge, net of taxes of $0 and $38,
   for 2018 and 2017, respectively
    
—
      
64
  
                 
Comprehensive Income
  
$
21,709
    
$
11,550
  

   
NINE MONTHS ENDED
SEPTEMBER 30,
  
   
2018
    
2017
  
   
(Unaudited)
  
             
Net Income
  
$
49,821
    
$
39,358
  
                 
Unrealized appreciation (depreciation) on available-for-sale securities, net
    of taxes (credit) of $(894) and $106, for 2018 and 2017, respectively
    
(3,106
)
    
186
  
                 
Reclassification adjustment for gains included in net income,
    net of (taxes) credit of $0 for each of 2018 and 2017
    
(2
)
    
—
  
                 
Change in fair value of cash flow hedge, net of taxes of $0
    and $93, for 2018 and 2017, respectively
    
—
      
161
  
                 
Comprehensive Income
  
$
46,713
    
$
39,705
  

See Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 


5



GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

   
NINE MONTHS ENDED
SEPTEMBER 30,
  
   
2018
    
2017
  
   
(Unaudited)
  
             
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net income
  
$
49,821
    
$
39,358
  
Proceeds from sales of loans held for sale
    
72,229
      
104,175
  
Originations of loans held for sale
    
(65,788
)
    
(95,384
)
Items not requiring (providing) cash:
                
Depreciation
    
6,842
      
6,901
  
Amortization
    
1,837
      
2,064
  
Compensation expense for stock option grants
    
539
      
412
  
Provision for loan losses
    
5,200
      
7,150
  
Net gains on loan sales
    
(1,438
)
    
(2,343
)
Net realized gains on sales of available-for-sale securities
    
(2
)
    
—
  
Net losses on sale of premises and equipment
    
122
      
183
  
Net losses on sale/write-down of other real estate owned and repossessions
    
2,003
      
211
  
Gain realized on sale of business units
    
(7,414
)
    
—
  
Gain realized on termination of loss sharing agreements
    
—
      
(7,704
)
Accretion of deferred income, premiums, discounts and other
    
(2,032
)
    
(1,492
)
(Gain) loss on derivative interest rate products
    
(53
)
    
5
  
Deferred income taxes
    
(6,278
)
    
(3,686
)
Changes in:
                
Interest receivable
    
(670
)
    
669
  
Prepaid expenses and other assets
    
5,967
      
(271
)
Accrued expenses and other liabilities
    
1,331
      
787
  
Income taxes refundable/payable
    
11,158
      
841
  
Net cash provided by operating activities
    
73,374
      
51,876
  
CASH FLOWS FROM INVESTING ACTIVITIES
                
Net change in loans
    
(171,672
)
    
136,205
  
Purchase of loans
    
(57,382
)
    
(203,294
)
Cash paid for sale of business units
    
(50,356
)
    
—
  
Cash received from FDIC loss sharing reimbursements
    
—
      
16,245
  
Purchase of premises and equipment
    
(7,833
)
    
(4,546
)
Proceeds from sale of premises and equipment
    
2,296
      
521
  
Proceeds from sale of other real estate owned and repossessions
    
16,124
      
22,788
  
Capitalized costs on other real estate owned
    
(153
)
    
(117
)
Proceeds from sales of available-for-sale securities
    
502
      
—
  
Proceeds from maturities and calls of held-to-maturity securities
    
130
      
117
  
Proceeds from maturities and calls of available-for-sale securities
    
2,366
      
9,579
  
Principal reductions on mortgage-backed securities
    
17,134
      
19,834
  
Purchase of available-for-sale securities
    
(36,677
)
    
—
  
Purchase of Federal Home Loan Bank stock
    
(3,736
)
    
(248
)
Net cash used in investing activities
    
(289,257
)
    
(2,916
)
CASH FLOWS FROM FINANCING ACTIVITIES
                
Net increase (decrease) in certificates of deposit
    
84,177
      
(121,438
)
Net increase (decrease) in checking and savings deposits
    
(24,535
)
    
42,563
  
Proceeds from Federal Home Loan Bank advances
    
2,363,500
      
889,000
  
Repayments of Federal Home Loan Bank advances
    
(2,251,000
)
    
(746,435
)
Net increase (decrease) in short-term borrowings
    
16,409
      
(132,424
)
Advances from borrowers for taxes and insurance
    
3,539
      
4,182
  
Dividends paid
    
(11,288
)
    
(9,523
)
Stock options exercised
    
1,649
      
2,018
  
Net cash provided by (used in) financing activities
    
182,451
      
(72,057
)
DECREASES IN CASH AND CASH EQUIVALENTS
    
(33,432
)
    
(23,097
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
242,253
      
279,769
  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  
$
208,821
    
$
256,672
  

See Notes to Consolidated Financial Statements
 
6
 
7

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Great Southern Bancorp, Inc. (the "Company" or "Great Southern") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The financial statements presented herein reflect all adjustments which are, in the opinion of management, necessary to fairly present the financial condition, results of operations and cash flows of the Company as of the dates and for the periods presented. Those adjustments consist only of normal recurring adjustments. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the full year. The consolidated statement of financial condition of the Company as of December 31, 2017, has been derived from the audited consolidated statement of financial condition of the Company as of that date.  Certain prior period amounts have been reclassified to conform to the current period presentation.  These reclassifications had no effect on net income.

Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for 2017 filed with the Securities and Exchange Commission.


NOTE 2: NATURE OF OPERATIONS AND OPERATING SEGMENTS

The Company operates as a one-bank holding company.  The Company's business primarily consists of the operations of Great Southern Bank (the "Bank"), which provides a full range of financial services to customers primarily located in Missouri, Iowa, Kansas, Minnesota, Nebraska and Arkansas.  In addition, the Company operates commercial loan production offices in Dallas, Texas; Tulsa, Oklahoma; Omaha, Nebraska and Chicago, Illinois.  The Company and the Bank are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies.

The Company's banking operation is its only reportable segment.  The banking operation is principally engaged in the business of originating residential and commercial real estate loans, construction loans, commercial business loans and consumer loans and funding these loans through attracting deposits from the general public, accepting brokered deposits and borrowing from the Federal Home Loan Bank and others.  The operating results of this segment are regularly reviewed by management to make decisions about resource allocations and to assess performance.  Selected information is not presented separately for the Company's reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.


NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date, which deferred the effective date of ASU 2014-09.  In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs--Contracts with Customers (Subtopic 340-40). The guidance in this Update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. These Updates were effective beginning January 1, 2018.  Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We have determined that certain components of our non-interest income contain revenue streams which are included in the scope of these updates, such as deposit-related fees, service charges, debit card interchange fees and other charges and fees, and revenue from the sale of other real estate owned; however the adoption of these updates did not
 
7
 
 
 
 
materially impact the Company's consolidated statements of income. We adopted the guidance using the modified retrospective adoption method, and no cumulative effect adjustment to opening retained earnings was required as a result of the adoption.

Under ASU 2014-09, for revenue not associated with financial instruments, we apply the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when performance obligation is satisfied. Our contracts with customers are generally short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice period. Performance obligations for our customer contracts are generally satisfied at a single point in time, typically when the transaction is complete, or over time. For performance obligations satisfied over time, we primarily use the output method, directly measuring the value of the products/services transferred to the customer, to determine when performance obligations have been satisfied. We typically receive payment from customers and recognize revenue concurrent with the satisfaction of our performance obligations. In most cases, this occurs within a single financial reporting period. For payments received in advance of the satisfaction of performance obligations, revenue recognition is deferred until such time the performance obligations have been satisfied. In cases where we have not received payment despite satisfaction of our performance obligations, we accrue an estimate of the amount due in the period our performance obligations have been satisfied. For contracts with variable components, only amounts for which collection is probable are accrued. We generally act in a principal capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue and the related costs to provide our services on a gross basis in our financial statements. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognize revenue and the related costs to provide our services on a net basis in our financial statements. These transactions primarily relate to fees derived from our customers' use of various interchange and ATM/debit card networks.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.  The Update requires investments in equity securities, except for those under the equity method of accounting, to be measured at fair value with changes in fair value recognized through net income.  The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.  The Update also clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.  The Update was effective for the Company on January 1, 2018 and did not have a material impact on the Company's consolidated statements of financial condition or our consolidated statements of income.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and in July 2018 FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases.  The amendments in this Update revise the accounting related to lessee accounting.  Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases.  The Update is effective for the Company beginning in the first quarter of 2019, with early adoption permitted.  Adoption of the standard requires the use of a modified retrospective transition approach for all periods presented at the time of adoption.  Based on the Company's leases outstanding at September 30, 2018, which total less than 20 leased properties and no significant leased equipment, we do not expect the new standard to have a material impact on our consolidated statements of financial condition or our consolidated statements of income, although an increase to assets and liabilities will occur at the time of adoption, in an amount currently estimated at approximately $6 million - $8 million based on our current lease portfolio.  The Company's new leases and lease modifications and renewals prior to the implementation date could impact the level of materiality.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326).  The Update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance
 
8
 
 
 
 
sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  For public companies, the update is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will be permitted beginning after December 15, 2018. An entity will apply the amendments in this update on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company has formed a cross functional committee to oversee the system, data, reporting and other considerations for the purposes of meeting the requirements of this standard.  We have assessed our data and system needs and are in the process of uploading the necessary historical loan data to the software that will be used in meeting certain requirements of this standard.  The Company is evaluating the impact of adopting the new guidance, including the implementation of new data systems to capture the information needed to comply with the new standard.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment, or the overall impact of the new guidance on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230).  The Update provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows.  These items include: cash payments for debt prepayment or debt extinguishment costs; cash outflows for the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; and beneficial interests acquired in securitization transactions.  The amendments in the Update are to be applied retrospectively.  The Update was effective for the Company on January 1, 2018 and did not result in a material impact on the Company's consolidated financial statements, including the statement of cash flows.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740).  The Update provides guidance on the accounting for the income tax consequences of intra-entity transfers of assets other than inventory.  Under this guidance, companies will be required to recognize the income tax consequences of an intra-entity asset transfer when the transfer occurs.  The Update was effective for the Company on January 1, 2018.  The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations - Clarifying the Definition of a Business (Topic 805). The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments in this Update were effective for the Company on January 1, 2018. The adoption of this new guidance must be applied on a prospective basis and did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350). To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test should be performed by comparing the fair value of a reporting unit with its carrying amount and an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value.  An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary.  The nature of and reason for the change in accounting principle should be disclosed upon transition. The amendments in this update should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017.  We are currently evaluating the impact of adopting the new guidance, including consideration of early adoption, on the consolidated financial statements, but it is not expected to have a material impact.

In May 2017, the FASB issued ASU 2017-09, Compensation --Stock Compensation (Topic 718): Scope of Modification Accounting. The amendment provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 7l8. The amendments clarify that modification accounting only applies to an entity if the fair value, vesting conditions, or classification of the award changes as a result of changes in the terms or conditions of a share-based payment award. The
 
9
 
 
 
 
ASU should be applied prospectively to awards modified on or after the adoption date.  The guidance was effective for the Company on January 1, 2018.  The adoption of the ASU did not impact the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to improve the financial reporting of hedging relationships by better aligning an entity's risk management activity with the economic objectives in undertaking those activities. In addition, the amendments in this update simplify the application of hedge accounting for preparers of financial statements, as well as improve the understandability of an entity's risk management activities being conveyed to financial statement users. The Company early adopted the ASU on a prospective basis effective October 1, 2018, and the adoption did not have a material effect on the Company's consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). The amendment allows an entity to elect to reclassify the stranded tax effects resulting from the change in income tax rate from H.R.1, originally known as the "Tax Cuts and Jobs Act," from accumulated other comprehensive income to retained earnings.  The amendments in this update are effective for periods beginning after December 15, 2018.  Early adoption is permitted.  The Company chose to early adopt ASU 2018-02 effective January 1, 2018.  The stranded tax amount related to unrealized gains and losses on available for sale securities, which was reclassified from accumulated other comprehensive income to retained earnings at the time of adoption, was $272,000.  There were no other income tax effects related to the application of the Act to be reclassified from AOCI to retained earnings.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 is effective for period beginning after December 15, 2019, with early adoption permitted for certain removed and modified disclosures, and is not expected to have a significant impact on our financial statements.


NOTE 4: EARNINGS PER SHARE

   
Three Months Ended September 30,
  
   
2018
    
2017
  
   
(In Thousands, Except Per Share Data)
  
             
Basic:
            
Average shares outstanding
    
14,146
      
14,038
  
Net income
  
$
22,516
    
$
11,663
  
Per share amount
  
$
1.59
    
$
0.83
  
                 
Diluted:
                
Average shares outstanding
    
14,146
      
14,038
  
Net effect of dilutive stock options – based on the treasury
                
stock method using average market price
    
153
      
186
  
Diluted shares
    
14,299
      
14,224
  
Net income
  
$
22,516
    
$
11,663
  
Per share amount
  
$
1.57
    
$
0.82
  
 
 
10
 
 
 

   
Nine Months Ended September 30,
  
   
2018
    
2017
  
   
(In Thousands, Except Per Share Data)
  
             
Basic:
            
Average shares outstanding
    
14,124
      
14,007
  
Net income
  
$
49,821
    
$
39,358
  
Per share amount
  
$
3.53
    
$
2.81
  
                 
Diluted:
                
Average shares outstanding
    
14,124
      
14,007
  
Net effect of dilutive stock options – based on the treasury
                
stock method using average market price
    
136
      
186
  
Diluted shares
    
14,260
      
14,193
  
Net income
  
$
49,821
    
$
39,358
  
Per share amount
  
$
3.49
    
$
2.77
  

Options outstanding at September 30, 2018 and 2017, to purchase 170,600 and 114,300 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended September 30, 2018 and 2017, respectively.  Options outstanding at September 30, 2018 and 2017, to purchase 260,947 and 114,300 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the nine month periods because the exercise prices of such options were greater than the average market prices of the common stock for the nine months ended September 30, 2018 and 2017, respectively.


NOTE 5: INVESTMENT SECURITIES

   
September 30, 2018
  
         
Gross
    
Gross
          
Tax
  
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
    
Equivalent
  
   
Cost
    
Gains
    
Losses
    
Value
    
Yield
  
   
(In Thousands)
  
                               
AVAILABLE-FOR-SALE SECURITIES:
                              
Mortgage-backed securities
  
$
124,777
    
$
639
    
$
3,891
    
$
121,525
      
2.44
%
Collateralized mortgage obligations
    
17,481
      
—
      
97
      
17,384
      
3.03
  
States and political subdivisions
    
51,047
      
1,314
      
19
      
52,342
      
4.81
  
   
$
193,305
    
$
1,953
    
$
4,007
    
$
191,251
      
3.12
%

   
December 31, 2017
  
         
Gross
    
Gross
          
Tax
  
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
    
Equivalent
  
   
Cost
    
Gains
    
Losses
    
Value
    
Yield
  
   
(In Thousands)
  
                               
AVAILABLE-FOR-SALE SECURITIES:
                              
Mortgage-backed securities
  
$
123,300
    
$
871
    
$
1,638
    
$
122,533
      
2.19
%
States and political subdivisions
    
53,930
      
2,716
      
—
      
56,646
      
4.72
  
   
$
177,230
    
$
3,587
    
$
1,638
    
$
179,179
      
2.96
%
                                         
HELD-TO-MATURITY SECURITIES:
                                        
States and political subdivisions
  
$
130
    
$
1
    
$
—
    
$
131
      
6.14
%
 
11
 

 

The amortized cost and fair value of available-for-sale securities at September 30, 2018, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

   
Amortized
    
Fair
  
   
Cost
    
Value
  
   
(In Thousands)
  
             
One year or less
  
$
—
    
$
—
  
After one through five years
    
841
      
905
  
After five through ten years
    
9,556
      
9,687
  
After ten years
    
40,650
      
41,750
  
Securities not due on a single maturity date
    
142,258
      
138,909
  
                 
   
$
193,305
    
$
191,251
  

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2018 and December 31, 2017, was approximately $117.5 million and $89.7 million, respectively, which is approximately 61.4% and 50.0% of the Company's available-for-sale and held-to-maturity investment portfolio, respectively.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary.

The following table shows the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2018 and December 31, 2017:

   
September 30, 2018
  
   
Less than 12 Months
    
12 Months or More
    
Total
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
Description of Securities
  
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
   
(In Thousands)
  
                                     
Mortgage-backed securities
  
$
24,226
    
$
(557
)
  
$
72,518
    
$
(3,334
)
  
$
96,744
    
$
(3,891
)
Collateralized mortgage obligations
    
17,384
      
(97
)
    
—
      
—
      
17,384
      
(97
)
State and political
                                                
subdivisions
    
3,341
      
(19
)
    
—
      
—
      
3,341
      
(19
)
   
$
44,951
    
$
(673
)
  
$
72,518
    
$
(3,334
)
  
$
117,469
    
$
(4,007
)

   
December 31, 2017
  
   
Less than 12 Months
    
12 Months or More
    
Total
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
Description of Securities
  
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
   
(In Thousands)
  
                                     
Mortgage-backed securities
  
$
33,862
    
$
(384
)
  
$
55,845
    
$
(1,254
)
  
$
89,707
    
$
(1,638
)
State and political
                                                
subdivisions
    
—
      
—
      
—
      
—
      
—
      
—
  
   
$
33,862
    
$
(384
)
  
$
55,845
    
$
(1,254
)
  
$
89,707
    
$
(1,638
)

Gross gains of $2,000 and $2,000 and gross losses of $0 and $0 resulting from sales of available-for-sale securities were realized during the three and nine months ended September 30, 2018.  There were no sales of available-for-sale securities during the three and nine months ended September 30, 2017.  Gains and losses on sales of securities are determined on the specific-identification method.
 
12
 
 
 

Other-than-temporary Impairment.  Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities.  For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model.  For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.  The Company does not currently have securities within the scope of this guidance for beneficial interests in securitized financial assets.

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  The Company considers the length of time a security has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of the security, the type of security and other factors.  If certain criteria are met, the Company performs additional review and evaluation using observable market values or various inputs in economic models to determine if an unrealized loss is other-than-temporary.  The Company uses quoted market prices for marketable equity securities and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock exchange.  For non-agency collateralized mortgage obligations, to determine if the unrealized loss is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss.  The Company also evaluates any current credit enhancement underlying these securities to determine the impact on cash flows.  If the Company determines that a given security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

During the three and nine months ended September 30, 2018 and 2017, respectively, no securities were determined to have impairment that had become other-than-temporary.

Credit Losses Recognized on Investments.  During the three and nine months ended September 30, 2018 and 2017, respectively, there were no debt securities that experienced fair value deterioration due to credit losses, or due to other market factors, that are not otherwise other-than-temporarily impaired.

Amounts Reclassified Out of Accumulated Other Comprehensive Income.  During the three and nine months ended September 30, 2018 and 2017, there were no amounts reclassified from accumulated other comprehensive income other than the $272,000 stranded tax amount related to unrealized gains and losses on available for sale securities noted above in Note 3, which was reclassified from accumulated other comprehensive income to retained earnings as of January 1, 2018 due to the adoption of ASU 2018-02.
 
 
 
 
13

 


NOTE 6: LOANS AND ALLOWANCE FOR LOAN LOSSES

Classes of loans at September 30, 2018 and December 31, 2017 were as follows:

   
September 30,
    
December 31,
  
   
2018
    
2017
  
   
(In Thousands)
  
             
One- to four-family residential construction
  
$
25,477
    
$
20,793
  
Subdivision construction
    
16,054
      
18,062
  
Land development
    
44,502
      
43,971
  
Commercial construction
    
1,283,468
      
1,068,352
  
Owner occupied one- to four-family residential
    
255,994
      
190,515
  
Non-owner occupied one- to four-family residential
    
109,282
      
119,468
  
Commercial real estate
    
1,383,871
      
1,235,329
  
Other residential
    
791,786
      
745,645
  
Commercial business
    
332,037
      
353,351
  
Industrial revenue bonds
    
14,179
      
21,859
  
Consumer auto
    
277,884
      
357,142
  
Consumer other
    
57,921
      
63,368
  
Home equity lines of credit
    
117,061
      
115,439
  
Loans acquired and accounted for under ASC 310-30, net of discounts
    
177,150
      
209,669
  
     
4,886,666
      
4,562,963
  
Undisbursed portion of loans in process
    
(899,620
)
    
(793,669
)
Allowance for loan losses
    
(37,497
)
    
(36,492
)
Deferred loan fees and gains, net
    
(6,783
)
    
(6,500
)
   
$
3,942,766
    
$
3,726,302
  
                 
Weighted average interest rate
    
5.03
%
    
4.74
%
 
 
 
 
 
 
 
 
14

 

Classes of loans by aging were as follows:

   
September 30, 2018
  
                                       
Total Loans
  
                                 
Total
    
> 90 Days
  
   
30-59 Days
    
60-89 Days
    
Over
    
Total
          
Loans
    
Past Due and
  
   
Past Due
    
Past Due
    
90 Days
    
Past Due
    
Current
    
Receivable
    
Still Accruing
  
   
(In Thousands)
  
                                           
One- to four-family
                                          
residential construction
  
$
—
    
$
294
    
$
—
    
$
294
    
$
25,183
    
$
25,477
    
$
—
  
Subdivision construction
    
12
      
—
      
—
      
12
      
16,042
      
16,054
      
—
  
Land development
    
—
      
32
      
—
      
32
      
44,470
      
44,502
      
—
  
Commercial construction
    
—
      
—
      
—
      
—
      
1,283,468
      
1,283,468
      
—
  
Owner occupied one- to
                                                        
four-family residential
    
138
      
62
      
1,270
      
1,470
      
254,524
      
255,994
      
—
  
Non-owner occupied one-
                                                        
to four-family residential
    
—
      
—
      
1,481
      
1,481
      
107,801
      
109,282
      
—
  
Commercial real estate
    
327
      
38
      
346
      
711
      
1,383,160
      
1,383,871
      
—
  
Other residential
    
—
      
—
      
—
      
—
      
791,786
      
791,786
      
—
  
Commercial business
    
129
      
—
      
1,590
      
1,719
      
330,318
      
332,037
      
—
  
Industrial revenue bonds
    
—
      
—
      
—
      
—
      
14,179
      
14,179
      
—
  
Consumer auto
    
2,705
      
858
      
1,367
      
4,930
      
272,954
      
277,884
      
—
  
Consumer other
    
473
      
220
      
326
      
1,019
      
56,902
      
57,921
      
—
  
Home equity lines of credit
    
353
      
—
      
95
      
448
      
116,613
      
117,061
      
—
  
Loans acquired and
                                                        
accounted for under
                                                        
ASC 310-30, net of
                                                        
discounts
    
1,780
      
1,442
      
2,385
      
5,607
      
171,543
      
177,150
      
—
  
     
5,917
      
2,946
      
8,860
      
17,723
      
4,868,943
      
4,886,666
      
—
  
Less loans acquired and
    accounted for under
                                                        
ASC 310-30, net
    
1,780
      
1,442
      
2,385
      
5,607
      
171,543
      
177,150
      
—
  
                                                         
Total
  
$
4,137
    
$
1,504
    
$
6,475
    
$
12,116
    
$
4,697,400
    
$
4,709,516
    
$
—
  
 
 
 
 
 
 
 
 
15
 
 

 

   
December 31, 2017
  
                                       
Total Loans
  
                                 
Total
    
> 90 Days
  
   
30-59 Days
    
60-89 Days
    
Over
    
Total
          
Loans
    
Past Due and
  
   
Past Due
    
Past Due
    
90 Days
    
Past Due
    
Current
    
Receivable
    
Still Accruing
  
   
(In Thousands)
  
                                           
One- to four-family
                                          
residential construction
  
$
250
    
$
—
    
$
—
    
$
250
    
$
20,543
    
$
20,793
    
$
—
  
Subdivision construction
    
—
      
—
      
98
      
98
      
17,964
      
18,062
      
—
  
Land development
    
54
      
37
      
—
      
91
      
43,880
      
43,971
      
—
  
Commercial construction
    
—
      
—
      
—
      
—
      
1,068,352
      
1,068,352
      
—
  
Owner occupied one- to
                                                        
four-family residential
    
1,927
      
71
      
904
      
2,902
      
187,613
      
190,515
      
—
  
Non-owner occupied one-
                                                        
to four-family residential
    
947
      
190
      
1,816
      
2,953
      
116,515
      
119,468
      
58
  
Commercial real estate
    
8,346
      
993
      
1,226
      
10,565
      
1,224,764
      
1,235,329
      
—
  
Other residential
    
540
      
353
      
1,877
      
2,770
      
742,875
      
745,645
      
—
  
Commercial business
    
2,623
      
1,282
      
2,063
      
5,968
      
347,383
      
353,351
      
—
  
Industrial revenue bonds
    
—
      
—
      
—
      
—
      
21,859
      
21,859
      
—
  
Consumer auto
    
5,196
      
1,230
      
2,284
      
8,710
      
348,432
      
357,142
      
12
  
Consumer other
    
464
      
64
      
557
      
1,085
      
62,283
      
63,368
      
—
  
Home equity lines of credit
    
58
      
—
      
430
      
488
      
114,951
      
115,439
      
26
  
Loans acquired and
                                                        
accounted for under ASC 310-30, net of
                                                        
discounts
    
4,449
      
1,951
      
10,675
      
17,075
      
192,594
      
209,669
      
272
  
     
24,854
      
6,171
      
21,930
      
52,955
      
4,510,008
      
4,562,963
      
368
  
Less loans acquired and
    accounted for under ASC
    310-30, net
    
4,449
      
1,951
      
10,675
      
17,075
      
192,594
      
209,669
      
272
  
                                                         
Total
  
$
20,405
    
$
4,220
    
$
11,255
    
$
35,880
    
$
4,317,414
    
$
4,353,294
    
$
96
  

Nonaccruing loans (excluding FDIC-assisted acquired loans, net of discount) are summarized as follows:

   
September 30,
    
December 31,
  
   
2018
    
2017
  
   
(In Thousands)
  
             
One- to four-family residential construction
  
$
—
    
$
—
  
Subdivision construction
    
—
      
98
  
Land development
    
—
      
—
  
Commercial construction
    
—
      
—
  
Owner occupied one- to four-family residential
    
1,270
      
904
  
Non-owner occupied one- to four-family residential
    
1,481
      
1,758
  
Commercial real estate
    
346
      
1,226
  
Other residential
    
—
      
1,877
  
Commercial business
    
1,590
      
2,063
  
Industrial revenue bonds
    
—
      
—
  
Consumer auto
    
1,367
      
2,272
  
Consumer other
    
326
      
557
  
Home equity lines of credit
    
95
      
404
  
                 
Total
  
$
6,475
    
$
11,159
  
 
16
 

 


The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2018.  Also presented are the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2018:

   
One- to Four-
                                      
   
Family
                                      
   
Residential and
    
Other
    
Commercial
    
Commercial
    
Commercial
              
   
Construction
    
Residential
    
Real Estate
    
Construction
    
Business
    
Consumer
    
Total
  
   
(In Thousands)
  
                                           
Allowance for loan losses
                                          
Balance July 1, 2018
  
$
2,727
    
$
3,845
    
$
19,474
    
$
2,395
    
$
2,991
    
$
6,124
    
$
37,556
  
Provision (benefit) charged to
   expense
    
7
      
341
      
708
      
538
      
(1,019
)
    
725
      
1,300
  
Losses charged off
    
(18
)
    
(194
)
    
—
      
(4
)
    
(274
)
    
(2,128
)
    
(2,618
)
Recoveries
    
79
      
41
      
1
      
97
      
80
      
961
      
1,259
  
Balance September 30, 2018
  
$
2,795
    
$
4,033
    
$
20,183
    
$
3,026
    
$
1,778
    
$
5,682
    
$
37,497
  
                                                         
Balance January 1, 2018
  
$
2,108
    
$
2,839
    
$
18,639
    
$
1,767
    
$
3,581
    
$
7,558
    
$
36,492
  
Provision (benefit) charged to
   expense
    
494
      
1,310
      
1,519
      
1,009
      
(991
)
    
1,859
      
5,200
  
Losses charged off
    
(59
)
    
(525
)
    
(102
)
    
(87
)
    
(1,155
)
    
(7,062
)
    
(8,990
)
Recoveries
    
252
      
409
      
127
      
337
      
343
      
3,327
      
4,795
  
Balance September 30, 2018
  
$
2,795
    
$
4,033
    
$
20,183
    
$
3,026
    
$
1,778
    
$
5,682
    
$
37,497
  
                                                         
Ending balance:
                                                        
Individually evaluated for
                                                        
impairment
  
$
771
    
$
—
    
$
635
    
$
—
    
$
324
    
$
433
    
$
2,163
  
Collectively evaluated for
                                                        
impairment
  
$
1,987
    
$
4,006
    
$
19,288
    
$
2,953
    
$
1,438
    
$
5,221
    
$
34,893
  
Loans acquired and
                                                        
accounted for under
                                                        
ASC 310-30
  
$
37
    
$
27
    
$
260
    
$
73
    
$
16
    
$
28
    
$
441
  
                                                         
Loans
                                                        
Individually evaluated for
                                                        
impairment
  
$
6,302
    
$
—
    
$
3,556
    
$
14
    
$
2,008
    
$
2,524
    
$
14,404
  
Collectively evaluated for
                                                        
impairment
  
$
400,505
    
$
791,786
    
$
1,380,315
    
$
1,327,956
    
$
344,208
    
$
450,342
    
$
4,695,112
  
Loans acquired and
                                                        
accounted for under
                                                        
ASC 310-30
  
$
98,702
    
$
12,927
    
$
35,980
    
$
4,240
    
$
4,613
    
$
20,688
    
$
177,150
  
 
17
 
 


The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2017:

   
One- to Four-
                                      
   
Family
                                      
   
Residential and
    
Other
    
Commercial
    
Commercial
    
Commercial
              
   
Construction
    
Residential
    
Real Estate
    
Construction
    
Business
    
Consumer
    
Total
  
   
(In Thousands)
  
                                           
Allowance for loan losses
                                          
Balance July 1, 2017
  
$
2,413
    
$
3,655
    
$
15,442
    
$
1,711
    
$
4,365
    
$
8,947
    
$
36,533
  
Provision (benefit) charged to
   expense
    
285
      
190
      
643
      
298
      
562
      
972
      
2,950
  
Losses charged off
    
(74
)
    
(10
)
    
(357
)
    
—
      
(1,090
)
    
(3,151
)
    
(4,682
)
Recoveries
    
46
      
89
      
74
      
129
      
66
      
1,038
      
1,442
  
Balance September 30, 2017
  
$
2,670
    
$
3,924
    
$
15,802
    
$
2,138
    
$
3,903
    
$
7,806
    
$
36,243
  
                                                         
Balance January 1, 2017
  
$
2,322
    
$
5,486
    
$
15,938
    
$
2,284
    
$
3,015
    
$
8,355
    
$
37,400
  
Provision (benefit) charged to
   expense
    
407
      
(1,708
)
    
1,413
      
74
      
1,786
      
5,178
      
7,150
  
Losses charged off
    
(150
)
    
(12
)
    
(1,649
)
    
(386
)
    
(1,365
)
    
(9,120
)
    
(12,682
)
Recoveries
    
91
      
158
      
100
      
166
      
467
      
3,393
      
4,375
  
Balance September 30, 2017
  
$
2,670
    
$
3,924
    
$
15,802
    
$
2,138
    
$
3,903
    
$
7,806
    
$
36,243
  

The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2017:

   
One- to Four-
                                      
   
Family
                                      
   
Residential and
    
Other
    
Commercial
    
Commercial
    
Commercial
              
   
Construction
    
Residential
    
Real Estate
    
Construction
    
Business
    
Consumer
    
Total
  
   
(In Thousands)
  
                                           
Allowance for loan losses
                                          
Individually evaluated for
                                          
impairment
  
$
513
    
$
—
    
$
599
    
$
—
    
$
2,140
    
$
699
    
$
3,951
  
Collectively evaluated for
                                                        
impairment
  
$
1,564
    
$
2,813
    
$
17,843
    
$
1,690
    
$
1,369
    
$
6,802
    
$
32,081
  
Loans acquired and
                                                        
accounted for under
                                                        
ASC 310-30
  
$
31
    
$
26
    
$
197
    
$
77
    
$
72
    
$
57
    
$
460
  
                                                         
Loans
                                                        
Individually evaluated for
                                                        
impairment
  
$
6,950
    
$
2,907
    
$
8,315
    
$
15
    
$
3,018
    
$
4,129
    
$
25,334
  
Collectively evaluated for
                                                        
impairment
  
$
341,888
    
$
742,738
    
$
1,227,014
    
$
1,112,308
    
$
372,192
    
$
531,820
    
$
4,327,960
  
Loans acquired and
                                                        
accounted for under
                                                        
ASC 310-30
  
$
120,295
    
$
14,877
    
$
39,210
    
$
3,806
    
$
5,275
    
$
26,206
    
$
209,669
  

The portfolio segments used in the preceding three tables correspond to the loan classes used in all other tables in Note 6 as follows:
·
The one- to four-family residential and construction segment includes the one- to four-family residential construction, subdivision construction, owner occupied one- to four-family residential and non-owner occupied one- to four-family residential classes
·
The other residential segment corresponds to the other residential class
·
The commercial real estate segment includes the commercial real estate and industrial revenue bonds classes
 
18
 
 
 
 
 
·
The commercial construction segment includes the land development and commercial construction classes
·
The commercial business segment corresponds to the commercial business class
·
The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes

A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include not only nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.

Impaired loans (excluding FDIC-assisted loans, net of discount), are summarized as follows:

   
September 30, 2018
  
         
Unpaid
        
   
Recorded
    
Principal
    
Specific
  
   
Balance
    
Balance
    
Allowance
  
    (In Thousands)  
                         
One- to four-family residential construction
  
$
—
    
$
—
    
$
—
  
Subdivision construction
    
241
      
241
      
107
  
Land development
    
14
      
18
      
—
  
Commercial construction
    
—
      
—
      
—
  
Owner occupied one- to four-family residential
    
3,663
      
3,995
      
343
  
Non-owner occupied one- to four-family residential
    
2,398
      
2,677
      
321
  
Commercial real estate
    
3,556
      
3,714
      
635
  
Other residential
    
—
      
—
      
—
  
Commercial business
    
2,008
      
2,383
      
324
  
Industrial revenue bonds
    
—
      
—
      
—
  
Consumer auto
    
1,843
      
2,046
      
331
  
Consumer other
    
566
      
751
      
85
  
Home equity lines of credit
    
115
      
133
      
17
  
                         
Total
  
$
14,404
    
$
15,958
    
$
2,163
  

   
Three Months Ended
    
Nine Months Ended
  
   
September 30, 2018
    
September 30, 2018
  
   
Average
          
Average
        
   
Investment
    
Interest
    
Investment
    
Interest
  
   
in Impaired
    
Income
    
in Impaired
    
Income
  
   
Loans
    
Recognized
    
Loans
    
Recognized
  
   
(In Thousands)
  
                         
One- to four-family residential construction
  
$
—
    
$
—
    
$
—
    
$
—
  
Subdivision construction
    
299
      
3
      
336
      
11
  
Land development
    
15
      
1
      
15
      
1
  
Commercial construction
    
—
      
—
      
—
      
—
  
Owner occupied one- to four-family residential
    
3,401
      
53
      
3,322
      
142
  
Non-owner occupied one- to four-family residential
    
2,583
      
38
      
3,082
      
130
  
Commercial real estate
    
6,689
      
55
      
7,115
      
278
  
Other residential
    
675
      
—
      
1,368
      
20
  
Commercial business
    
2,581
      
40
      
3,277
      
329
  
Industrial revenue bonds
    
—
      
—
      
—
      
—
  
Consumer auto
    
1,865
      
37
      
2,120
      
118
  
Consumer other
    
671
      
11
      
806
      
48
  
Home equity lines of credit
    
405
      
—
      
500
      
28
  
                                 
Total
  
$
19,184
    
$
238
    
$
21,941
    
$
1,105
  
 
 
19
 
 

 
   
At or for the Year Ended December 31, 2017
  
                     
Average
        
         
Unpaid
          
Investment
    
Interest
  
   
Recorded
    
Principal
    
Specific
    
in Impaired
    
Income
  
   
Balance
    
Balance
    
Allowance
    
Loans
    
Recognized
  
   
(In Thousands)
  
                               
One- to four-family residential construction
  
$
—
    
$
—
    
$
—
    
$
193
    
$
—
  
Subdivision construction
    
349
      
367
      
114
      
584
      
22
  
Land development
    
15
      
18
      
—
      
1,793
      
24
  
Commercial construction
    
—
      
—
      
—
      
—
      
—
  
Owner occupied one- to four-family residential
    
3,405
      
3,723
      
331
      
3,405
      
166
  
Non-owner occupied one- to four-family residential
    
3,196
      
3,465
      
68
      
2,419
      
165
  
Commercial real estate
    
8,315
      
8,490
      
599
      
9,075
      
567
  
Other residential
    
2,907
      
2,907
      
—
      
3,553
      
147
  
Commercial business
    
3,018