Document
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
 
FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018
OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to __________________.
 
Commission File No. 0-13660
 
Seacoast Banking Corporation of Florida
(Exact Name of Registrant as Specified in its Charter)
 
Florida
 
59-2260678
(State or Other Jurisdiction of
Incorporation or Organization
 
(I.R.S. Employer
Identification No.)
815 COLORADO AVENUE, STUART FL
 
34994
(Address of Principal Executive Offices)
 
(Zip Code)
(772) 287-4000
(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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated
Accelerated
Non-Accelerated
Small Reporting
Filer x
Filer ¨
Filer ¨
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 ý
 
Common Stock, $0.10 Par Value – 47,163,109 shares as of June 30, 2018
 
 
 


INDEX
 
SEACOAST BANKING CORPORATION OF FLORIDA
 
 
 
PAGE #
Part I
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed consolidated statements of income – Three and six months ended June 30, 2018 and 2017
 
 
 
 
Condensed consolidated statements of comprehensive income – Three and six months ended June 30, 2018 and 2017
 
 
 
 
Consolidated statements of cash flows – Six months ended June 30, 2018 and 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
 
June 30, 2018
 
December 31, 2017
 
(In thousands, except share data)
ASSETS
 

 
 

Cash and due from banks
$
123,927

 
$
104,039

Interest bearing deposits with other banks
7,594

 
5,465

Total cash and cash equivalents
131,521

 
109,504

 
 
 
 
Time deposits with other banks
10,562

 
12,553

 
 
 
 
Debt securities:
 
 
 
Available for sale (at fair value)
954,906

 
949,460

Held to maturity (fair value: $370,787 at June 30, 2018 and $414,470 at December 31, 2017)
382,137

 
416,863

Total debt securities
1,337,043

 
1,366,323

 
 
 
 
Loans held for sale (at fair value)
14,707

 
24,306

 
 
 
 
Loans
3,974,016

 
3,817,377

Less: Allowance for loan losses
(28,924
)
 
(27,122
)
Loans, net of allowance for loan losses
3,945,092

 
3,790,255

 
 
 
 
Bank premises and equipment, net
63,991

 
66,883

Other real estate owned
8,417

 
7,640

Goodwill
148,555

 
147,578

Other intangible assets, net
17,319

 
19,099

Bank owned life insurance
121,602

 
123,981

Net deferred tax assets
26,021

 
25,417

Other assets
97,851

 
116,590

TOTAL ASSETS
$
5,922,681

 
$
5,810,129

 
 
 
 
LIABILITIES
 
 
 
Deposits
$
4,697,440

 
$
4,592,720

Securities sold under agreements to repurchase
200,050

 
216,094

Federal Home Loan Bank (FHLB) borrowings
205,000

 
211,000

Subordinated debt
70,664

 
70,521

Other liabilities
33,364

 
30,130

TOTAL LIABILITIES
5,206,518

 
5,120,465

 
 
 
 
SHAREHOLDERS' EQUITY
 
 
 
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 47,297,474 and outstanding 47,163,109 shares at June 30, 2018, and authorized 60,000,000, issued 47,032,259 and outstanding 46,917,735 shares at December 31, 2017
4,716

 
4,693

Other shareholders' equity
711,447

 
684,971

TOTAL SHAREHOLDERS' EQUITY
716,163

 
689,664

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
5,922,681

 
$
5,810,129

See notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands, except per share data)
Interest and fees on loans
$
46,519

 
$
38,209

 
$
91,776

 
$
70,100

Interest and dividends on securities
9,605

 
8,585

 
19,209

 
16,959

Interest on interest bearing deposits and other investments
585

 
604

 
1,201

 
1,114

TOTAL INTEREST INCOME
56,709

 
47,398

 
112,186

 
88,173

 
 
 
 
 
 
 
 
Interest on deposits
1,988

 
854

 
3,526

 
1,478

Interest on time certificates
2,629

 
814

 
4,808

 
1,380

Interest on borrowed money
1,885

 
1,574

 
3,883

 
2,994

TOTAL INTEREST EXPENSE
6,502

 
3,242

 
12,217

 
5,852

 
 
 
 
 
 
 
 
NET INTEREST INCOME
50,207

 
44,156

 
99,969

 
82,321

 
 
 
 
 
 
 
 
Provision for loan losses
2,529

 
1,401

 
3,614

 
2,705

 
 
 
 
 
 
 
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
47,678

 
42,755

 
96,355

 
79,616

 
 
 
 
 
 
 
 
Noninterest income
 
 
 
 
 
 
 
Other income
12,769

 
10,467

 
25,167

 
20,372

Securities (losses)/gains, net
(48
)
 
21

 
(150
)
 
21

TOTAL NONINTEREST INCOME (Note H)
12,721

 
10,488

 
25,017

 
20,393

 
 
 
 
 
 
 
 
TOTAL NONINTEREST EXPENSES (Note H)
38,246

 
41,625

 
75,410

 
76,371

INCOME BEFORE INCOME TAXES
22,153

 
11,618

 
45,962

 
23,638

 
 
 
 
 
 
 
 
Provision for income taxes
5,189

 
3,942

 
10,971

 
8,036

NET INCOME
$
16,964

 
$
7,676

 
$
34,991

 
$
15,602

 
 
 
 
 
 
 
 
SHARE DATA
 
 
 
 
 
 
 
Net income per share - diluted
$
0.35

 
$
0.18

 
$
0.73

 
$
0.38

Net income per share - basic
0.36

 
0.18
 
0.74
 
0.38

Cash dividends declared
0.00

 
0.00

 
0.00

 
0.00

Average shares outstanding - diluted
47,974,118

 
43,556,285

 
47,827,646

 
41,538,769

Average shares outstanding - basic
47,164,909

 
42,841,152

 
47,058,958

 
40,851,273

 
See notes to condensed consolidated financial statements.
 



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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
NET INCOME
$
16,964

 
$
7,676

 
$
34,991

 
$
15,602

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized (losses) gains on securities available for sale
(5,995
)
 
5,601

 
(17,016
)
 
8,776

Amortization of unrealized losses on securities transferred to held to maturity, net
218

 
122

 
334

 
244

Reclassification adjustment for gains included in net income
0
 
(21
)
 
0
 
(21
)
Income tax effect on other comprehensive (loss) income
1,543

 
(2,199
)
 
4,439

 
(3,467
)
Total other comprehensive (loss) income
(4,234
)
 
3,503

 
(12,243
)
 
5,532

COMPREHENSIVE INCOME
$
12,730


$
11,179

 
$
22,748

 
$
21,134

 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 



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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
 
 
Six Months Ended June 30,
 
2018
 
2017
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Net income
$
34,991

 
$
15,602

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
3,134

 
2,677

Amortization of premiums and discounts on securities, net
1,732

 
1,838

Other amortization and accretion, net
225

 
(429
)
Stock based compensation
3,622

 
2,540

Origination of loans designated for sale
(159,991
)
 
(117,379
)
Sale of loans designated for sale
173,385

 
113,527

Provision for loan losses
3,614

 
2,705

Deferred income taxes
4,559

 
7,338

    Gains on sale of securities
0

 
(21
)
Gains on sale of loans
(5,277
)
 
(3,078
)
Losses (gains) on sale and write-downs of other real estate owned
298

 
(212
)
Losses on disposition of fixed assets
231

 
2,316

Changes in operating assets and liabilities, net of effects from acquired companies:
 
 
 
Net decrease in other assets
19,230

 
1,347

Net increase (decrease) in other liabilities
3,184

 
(2,634
)
Net cash provided by operating activities
82,937

 
26,137

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Maturities and repayments of debt securities available for sale
77,860

 
125,115

Maturities and repayments of debt securities held to maturity
34,360

 
42,883

    Proceeds from sale of debt securities available for sale
0

 
3,820

Purchases of debt securities available for sale
(101,354
)
 
(142,062
)
Purchases of debt securities held to maturity
0

 
(49,963
)
Maturities of time deposits with other banks
1,991

 
847

Net new loans and principal repayments
(161,038
)
 
(198,080
)
Proceeds from the sale of other real estate owned
5,184

 
3,324

Proceeds from sale of FHLB and Federal Reserve Bank Stock
20,570

 
14,832

Purchase of FHLB and Federal Reserve Stock
(23,055
)
 
(15,012
)
Purchase of VISA Class B stock
0

 
(6,180
)
Redemption of bank owned life insurance
4,232

 
0

Net cash from bank acquisition
0

 
30,233

Additions to bank premises and equipment
(2,475
)
 
(2,979
)
Net cash used in investing activities
(143,725
)
 
(193,222
)
 
See notes to condensed consolidated financial statements.
 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
 

 
Six Months Ended June 30,
 
2018
 
2017
 
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Net increase in deposits
$
104,720

 
$
166,863

Net decrease in federal funds purchased and repurchase agreements
(16,044
)
 
(36,644
)
Net decrease in FHLB borrowings
(6,000
)
 
(20,000
)
Issuance of common stock, net of related expense
0

 
55,641

Stock based employee benefit plans
129

 
(222
)
Dividends paid
0

 
0

Net cash provided by financing activities
82,805

 
165,638

Net increase (decrease) in cash and cash equivalents
22,017

 
(1,447
)
Cash and cash equivalents at beginning of period
109,504

 
109,644

Cash and cash equivalents at end of period
$
131,521

 
$
108,197

 
 
 
 
Supplemental disclosure of non cash investing activities:
 
 
 
Transfers from loans to other real estate owned
4,207

 
448

Transfers from bank premises to other real estate owned
2,052

 
1,212


 
See notes to condensed consolidated financial statements.
 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Seacoast Banking Corporation of Florida and Subsidiaries
 
Note A – Basis of Presentation
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of Seacoast Banking Corporation of Florida and its subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the six-month period ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Certain prior period amounts have been reclassified to conform to the current period presentation.
 
Adoption of new accounting pronouncements
 
On January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-9, “Revenue from Contracts with Customers,” and all the related amendments (collectively, “ASC 606”) using the modified retrospective approach applied to all contracts in place at that date. Adoption had no material impact on the Company’s consolidated financial statements including no change to the amount or timing of revenue recognized for contracts within the scope of the new standard. Activity in the scope of the new standard includes:
 
•
Service Charges on Deposits: Seacoast National Bank ("Seacoast Bank") offers a variety of deposit-related services to its customers through several delivery channels including branch offices, ATMs, telephone, mobile, and internet banking. Transaction-based fees are recognized when services, each of which represents a performance obligation, are satisfied. Service fees may be assessed monthly, quarterly, or annually; however, the account agreements to which these fees relate can be cancelled at any time by Seacoast and/or the customer. Therefore, the contract term is considered a single day (a day-to-day contract).

•
Trust Fees: The Company earns trust fees from fiduciary services provided to trust customers which include custody of assets, recordkeeping, collection and distribution of funds. Fees are earned over time and accrued monthly as the Company provides services, and are generally assessed based on the market value of the trust assets under management at a particular date or over a particular period.

•
Brokerage Commissions and Fees: The Company earns commissions and fees from investment brokerage services provided to its customers through an arrangement with a third-party service provider. Commissions received from the third-party service provider are recorded monthly and are based upon customer activity. Fees are earned over time and accrued monthly as services are provided. The Company acts as an agent in this arrangement and therefore presents the brokerage commissions and fees net of related costs.

•
Interchange Income: Fees earned on card transactions depend upon the volume of activity, as well as the fees permitted by the payment network. Such fees are recognized by the Company upon fulfilling its performance obligation to approve the card transaction.

On January 1, 2018, we adopted ASU 2016-1, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” Upon adoption, we reclassified $0.1 million of accumulated unrealized loss pertaining to an equity investment previously classified as available for sale from Accumulated Other Comprehensive Income to Retained Earnings.
 
Use of Estimates
 
The preparation of these condensed consolidated financial statements required the use of certain estimates by management in determining the Company’s assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
 

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Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for loan losses, the valuation of investment securities available for sale, fair value of impaired loans, contingent liabilities, fair value of other real estate owned, and the valuation of deferred tax assets. Actual results could differ from those estimates.

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Note B – Recently Issued Accounting Standards, Not Yet Adopted
 
The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on the Company's financial statements:
 
ASU 2016-02, Leases (Topic 842)
Description
In February 2016, the FASB amended existing guidance that requires lessees recognize the following for all leases at the commencement date:
1.
A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis.
2.
A right-of-use specified asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. In July 2018, the FASB issued ASU 2018-11, which provides an additional optional transition method. The additional transition method allows entities to initially apply the new lease standard at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which the entity adopts the new lease standard would continue to be in accordance with current GAAP (Topic 840), including disclosures.


Date of Adoption
This amendment is effective for public business entities for reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted.  
Effect on the Consolidated Financial Statements
The Company is in the process of evaluating its existing leases, which are primarily operating leases of branch properties and equipment, to determine the amounts to be recognized as right-of-use assets and lease liabilities.  The Company will adopt the new standard effective January 1, 2019. The effect of adoption on the Company’s consolidated statements of income is not expected to be material.


 
ASU 2016-13, Financial Instruments –Credit Losses (Topic 326)
Description
In June 2016, the FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures including loan commitments, standby letters of credit, financial guarantees and other similar instruments.



 
Date of Adoption
This amendment is effective for public business entities for reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods after December 15, 2018, including interim reporting periods within that period.
Effect on the Consolidated Financial Statements
The Company’s transition oversight committee is in the process of evaluating and implementing changes to credit loss estimation models and related processes. Updates to business processes and the documentation of accounting policy decisions are ongoing. The Company may recognize an increase in the allowance for loan losses upon adoption, recorded as a one-time effect cumulative adjustment to retained earnings. However, the magnitude of the impact on the Company's consolidated financial statements has not yet been determined. The Company will adopt this accounting standard effective January 1, 2020.


 

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ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Description
In January 2017, the FASB amended the existing guidance to simplify the goodwill impairment measurement test by eliminating Step 2. The amendment requires the Company to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value. Additionally, an entity should consider the tax effects from any tax deductible goodwill on the carrying amount when measuring the impairment loss.
Date of Adoption
This amendment is effective for public business entities for reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted on annual goodwill impairment tests performed after January 1, 2017.
Effect on the Consolidated Financial Statements
The impact to the consolidated financial statements from the adoption of this pronouncement is not expected to be material.
 
ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased callable Debt Securities
Description
In March 2017, the FASB issued guidance which requires entities to amortize premiums on certain purchased callable debt securities to their earliest call date. The accounting for purchased callable debt securities held at a discount did not change. Amortizing the premium to the earliest call date generally aligns interest income recognition with the economics of instruments. This guidance requires a modified retrospective approach under which a cumulative adjustment will be made to retained earnings as of the beginning of the period in which it is adopted.
Date of Adoption
The amendments are effective for public business entities for annual periods beginning after December 15, 2018, including interim periods within those periods.
Effect on the Consolidated Financial Statements
The impact to the Company's consolidated financial statements from the adoption of this pronouncement is not expected to be material.
 
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Description
In August 2017, the FASB provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments also simplify the application of the hedge accounting guidance.
Date of Adoption
The amendments are effective for public business entities for annual periods beginning after December 15, 2018, including interim periods within those periods.
Effect on the Consolidated Financial Statements
The impact to the Company's consolidated financial statements from the adoption of this pronouncement is not expected to be material.

Note C – Earnings per Share
 
For the three and six months ended June 30, 2018, options to purchase 479,000 and 378,000 shares, respectively, were antidilutive and not included in the computation of diluted earnings per share, compared to 269,000 and 149,000, respectively, for the three and six months ended June 30, 2017. The dilutive impact of restricted stock and stock options is calculated under the treasury method.

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Three Months Ended June 30,
 
Six Months Ended
June 30,
(Dollars in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Basic earnings per share
 
 
 
 
 
 
 
Net income
$
16,964

 
$
7,676

 
$
34,991

 
$
15,602

Average common stock outstanding
47,164,909

 
42,841,152

 
47,058,958

 
40,851,273

Net income per share
$
0.36

 
$
0.18

 
$
0.74

 
$
0.38

 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
Net income
$
16,964

 
$
7,676

 
$
34,991

 
$
15,602

Average common stock outstanding
47,164,909

 
42,841,152

 
47,058,958

 
40,851,273

Add: Dilutive effect of employee restricted stock and stock options
809,209

 
715,133

 
768,688

 
687,496

Average diluted stock outstanding
47,974,118

 
43,556,285

 
47,827,646

 
41,538,769

Net income per share
$
0.35

 
$
0.18

 
$
0.73

 
$
0.38

 
On February 21, 2017, the Company completed a public offering of 2,702,500 shares of common stock, generating net proceeds to the Company of $55.7 million. In addition, CapGen Capital Group III LP (“CapGen”), in conjunction with the Company’s offering, sold 6,210,000 shares of the Company’s common stock, with no net proceeds to the Company.

Note D – Securities
 
The gross amortized cost, gross unrealized gains and losses and gross fair value of securities available for sale and held to maturity at June 30, 2018 and December 31, 2017(1) are summarized as follows:
 
 
June 30, 2018
 
Gross
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Debt securities available for sale
 

 
 

 
 

 
 

U.S. Treasury securities and obligations of U.S. Government Entities
$
8,372

 
$
137

 
$
(44
)
 
$
8,465

Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
616,152

 
239

 
(21,510
)
 
594,881

Private mortgage-backed securities and collateralized mortgage obligations
80,618

 
918

 
(404
)
 
81,132

Collateralized loan obligations
226,549

 
98

 
(504
)
 
226,143

Obligations of state and political subdivisions
44,491

 
339

 
(545
)
 
44,285

Totals
$
976,182

 
$
1,731


$
(23,007
)

$
954,906

 
 
 
 
 
 
 
 
Debt securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
$
324,410

 
$
0

 
$
(11,551
)
 
$
312,859

Private mortgage-backed securities and collateralized mortgage obligations
22,127

 
241

 
(96
)
 
22,272

Collateralized loan obligations
35,600

 
57

 
(1
)
 
35,656

Totals
$
382,137


$
298


$
(11,648
)

$
370,787

 

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December 31, 2017
 
Gross
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Debt securities available for sale
 

 
 

 
 

 
 

U.S. Treasury securities and obligations of U.S. Government Entities
$
9,475

 
$
274

 
$
(5
)
 
$
9,744

Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
560,396

 
1,163

 
(8,034
)
 
553,525

Private mortgage-backed securities and collateralized mortgage obligations
75,152

 
1,154

 
(285
)
 
76,021

Collateralized loan obligations
263,579

 
798

 
(68
)
 
264,309

Obligations of state and political subdivisions
45,118

 
813

 
(70
)
 
45,861

Totals
$
953,720

 
$
4,202

 
$
(8,462
)
 
$
949,460

 
 
 
 
 
 
 
 
Debt securities held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
$
353,541

 
$
802

 
$
(4,159
)
 
$
350,184

Private mortgage-backed securities and collateralized mortgage obligations
22,799

 
714

 
(53
)
 
23,460

Collateralized loan obligations
40,523

 
303

 
0

 
40,826

Totals
$
416,863

 
$
1,819

 
$
(4,212
)
 
$
414,470

(1) December 31, 2017 balances in the tables above reflect certain reclassifications between categories.  

There were no sales of securities during the three and six month periods ended June 30, 2018. Proceeds from sales of securities during the three and six month periods ended June 30, 2017 were $3.8 million with gross gains of $21,000 and no gross losses. Included in “Securities (losses)/gains, net” for the three and six month periods ended June 30, 2018, is $0.1 million and $0.2 million, respectively, decline in the value of an investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities.
 
At June 30, 2018, debt securities with a fair value of $172.7 million were pledged as collateral for United States Treasury deposits, other public deposits and trust deposits, and debt securities with a fair value of $200.1 million were pledged as collateral for repurchase agreements.
 
The amortized cost and fair value of debt securities available for sale and held to maturity at June 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
 

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Held to Maturity
 
Available for Sale
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Due in less than one year
$
0

 
$
0

 
$
15,119

 
$
15,110

Due after one year through five years
3,600

 
3,599

 
64,674

 
64,761

Due after five years through ten years
29,000

 
29,053

 
183,806

 
183,290

Due after ten years
3,000

 
3,004

 
15,813

 
15,732

 
35,600

 
35,656

 
279,412

 
278,893

Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
324,410

 
312,859

 
616,152

 
594,881

Private mortgage-backed securities and collateralized mortgage obligations
22,127

 
22,272

 
80,618

 
81,132

   Totals
$
382,137

 
$
370,787

 
$
976,182

 
$
954,906

 
The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flows analyses, using observable market data where available. The tables below indicate the amount of debt securities with unrealized losses and the period of time for which these losses were outstanding at June 30, 2018 and December 31, 2017, respectively.
 
 
June 30, 2018
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In thousands)
U.S. Treasury securities and obligations of U.S. Government Entities
$
3,417

 
$
(44
)
 
$
0

 
$
0

 
$
3,417

 
$
(44
)
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
420,280

 
(12,087
)
 
468,753

 
(20,976
)
 
889,033

 
(33,063
)
Private mortgage-backed securities and collateralized mortgage obligations
25,971

 
(210
)
 
18,468

 
(291
)
 
44,439

 
(501
)
Collateralized loan obligations
138,769

 
(502
)
 
0

 
0

 
138,769

 
(502
)
Obligations of state and political subdivisions
9,896

 
(94
)
 
20,330

 
(451
)
 
30,226

 
(545
)
   Totals
$
598,333

 
$
(12,937
)
 
$
507,551

 
$
(21,718
)
 
$
1,105,884

 
$
(34,655
)

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December 31, 2017
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In thousands)
U.S. Treasury securities and obligations of U.S. Government Entities
$
1,107

 
$
(5
)
 
$
0

 
$
0

 
$
1,107

 
$
(5
)
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
304,723

 
(2,047
)
 
413,725

 
(10,146
)
 
718,448

 
(12,193
)
Private mortgage-backed securities and collateralized mortgage obligations
0

 
0

 
20,744

 
(338
)
 
20,744

 
(338
)
Collateralized loan obligations
14,933

 
(68
)
 
0

 
0

 
14,933

 
(68
)
Obligations of state and political subdivisions
5,414

 
(14
)
 
5,864

 
(56
)
 
11,278

 
(70
)
   Totals
$
326,177

 
$
(2,134
)
 
$
440,333

 
$
(10,540
)
 
$
766,510

 
$
(12,674
)
 
The two tables above include debt securities held to maturity that were transferred from available for sale into held to maturity during 2014. Those securities had unrealized losses of $3.1 million at the date of transfer, and at June 30, 2018, the unamortized balance was $0.9 million. The fair value of those securities in an unrealized loss position for less than twelve months at June 30, 2018 and December 31, 2017 was $57.7 million and $22.9 million, respectively, with unrealized losses of $1.2 million and $0.2 million, respectively. The fair value of those securities in an unrealized loss position for 12 months or more at June 30, 2018 and December 31, 2017 is $13.1 million and $15.3 million, respectively, with unrealized losses of $0.7 million and $0.4 million, respectively.
 
At June 30, 2018, the Company had $33.1 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations of government sponsored entities having a fair value of $889 million that were attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The contractual cash flows for these debt securities are guaranteed by U.S. government-sponsored entities. Based on our assessment of these mitigating factors, management believes that the unrealized losses on these holdings are a function of changes in investment spreads and interest movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.
 
At June 30, 2018, $0.5 million of the unrealized losses pertained to private label debt securities secured by seasoned collateral with a fair value of $44.4 million. Management attributes the loss to a combination of factors, including relative changes in interest rates since the time of purchase. The collateral underlying these mortgage investments are 30- and 15-year fixed and 10/1 adjustable rate mortgage loans with low loan to values, improving subordination, and historically have had minimal foreclosures and losses. Based on its assessment of these factors, management believes that the unrealized losses on these holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.

At June 30, 2018, collateralized loan obligations with a fair value of $138.7 million had unrealized losses of $0.5 million. Management expects to recover the entire amortized cost basis of these securities.

At June 30, 2018, obligations of state and political subdivisions with a fair value of $30.2 million had unrealized losses of $0.5 million. Management expects to recover the entire amortized cost basis of these securities.
 
As of June 30, 2018, the Company does not intend to sell debt securities that are in an unrealized loss position and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis. Therefore, management does not consider any investment to be other-than-temporarily impaired at June 30, 2018.
 
Included in other assets is Federal Home Loan Bank and Federal Reserve Bank stock which has a par value of $35 million and $32.5 million as of June 30, 2018 and December 31, 2017, respectively. At June 30, 2018, the Company had not identified events or changes in circumstances which may have a significant adverse effect on the fair value of these investments. Also included in other assets is a $6.2 million investment in a mutual fund carried at fair value.
 
The Company holds 11,330 shares of Visa Class B stock which, following resolution of pending litigation, will be converted to Visa Class A shares. Under the current conversion ratio that became effective June 28, 2018, the Company expects to receive

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1.6298 shares of Class A stock for each share of Class B stock, for a total of 18,465 shares of Visa Class A stock. Our ownership of these shares is related to prior ownership in Visa’s network while Visa operated as a cooperative. The shares are recorded on our financial records at zero basis.

Note E – Loans
 
Information pertaining to portfolio loans, purchased credit impaired (“PCI”) loans, and purchased unimpaired loans (“PUL”) is as follows:
 
 
June 30, 2018
 
Portfolio Loans
 
PCI Loans
 
PULs
 
Total
 
(In thousands)
Construction and land development
$
250,314

 
$
126

 
$
108,630

 
$
359,070

Commercial real estate
1,297,051

 
10,878

 
393,366

 
1,701,295

Residential real estate
941,728

 
1,417

 
160,800

 
1,103,945

Commercial and financial
548,758

 
794

 
69,318

 
618,870

Consumer
183,718

 
0

 
7,118

 
190,836

   Totals 1
$
3,221,569

 
$
13,215

 
$
739,232

 
$
3,974,016

 
 
December 31, 2017
 
Portfolio Loans
 
PCI Loans
 
PULs
 
Total
 
(In thousands)
Construction and land development
$
215,315

 
$
1,121

 
$
126,689

 
$
343,125

Commercial real estate
1,170,618

 
9,776

 
459,598

 
1,639,992

Residential real estate
845,420

 
5,626

 
187,764

 
1,038,810

Commercial and financial
512,430

 
894

 
92,690

 
606,014

Consumer
178,826

 
0

 
10,610

 
189,436

   Totals 1
$
2,922,609

 
$
17,417

 
$
877,351

 
$
3,817,377

 
(1) Net loan balances as of June 30, 2018 and December 31, 2017 include deferred costs of $15.0 million and $12.9 million for each period, respectively.
 

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The following tables present the contractual delinquency of the recorded investment by class of loans as of:
 
 
June 30, 2018
 
Current
 
Accruing
30-59 Days
Past Due
 
Accruing
60-89 Days
Past Due
 
Accruing
Greater
Than
90 Days
 
Nonaccrual
 
Total
Financing
Receivables
 
(In thousands)
Portfolio Loans
 

 
 

 
 

 
 

 
 

 
 

Construction and land development
$
250,053

 
$
44

 
$
0

 
$
0

 
$
217

 
$
250,314

Commercial real estate
1,286,765

 
788

 
0

 
0

 
9,498

 
1,297,051

Residential real estate
930,666

 
2,296

 
0

 
0

 
8,766

 
941,728

Commerical and financial
543,301

 
4,544

 
0

 
0

 
913

 
548,758

Consumer
183,410

 
144

 
0

 
0

 
164

 
183,718

 Totals
3,194,195

 
7,816

 
0

 
0

 
19,558

 
3,221,569

 
 
 
 
 
 
 
 
 
 
 
 
Purchased Unimpaired Loans
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
108,017

 
613

 
0

 
0

 
0

 
108,630

Commercial real estate
390,619

 
2,339

 
0

 
0

 
408

 
393,366

Residential real estate
155,520

 
1,274

 
109

 
0

 
3,897

 
160,800

Commerical and financial
67,366

 
1,459

 
0

 
493

 
0

 
69,318

Consumer
7,098

 
20

 
0

 
0

 
0

 
7,118

 Totals
728,620

 
5,705

 
109

 
493

 
4,305

 
739,232

 
 
 
 
 
 
 
 
 
 
 
 
Purchased Credit Impaired Loans
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
126

 
0

 
0

 
0

 
0

 
126

Commercial real estate
9,451

 
0

 
0

 
0

 
1,427

 
10,878

Residential real estate
570

 
0

 
0

 
0

 
847

 
1,417

Commerical and financial
749

 
0

 
0

 
0

 
45

 
794

Consumer
0

 
0

 
0

 
0

 
0

 
0

 Totals
10,896

 
0

 
0

 
0

 
2,319

 
13,215

 
 
 
 
 
 
 
 
 
 
 
 
   Totals
$
3,933,711

 
$
13,521

 
$
109

 
$
493

 
$
26,182

 
$
3,974,016

 

17
Table of Contents


 
December 31, 2017
 
Current
 
Accruing
30-59 Days
Past Due
 
Accruing
60-89 Days
Past Due
 
Accruing
Greater
Than
90 Days
 
Nonaccrual
 
Total
Financing
Receivables
 
(In thousands)
Portfolio Loans
 

 
 

 
 

 
 

 
 

 
 

Construction and land development
$
215,077

 
$
0

 
$
0

 
$
0

 
$
238

 
$
215,315

Commercial real estate
1,165,738

 
2,605

 
585

 
0

 
1,690

 
1,170,618

Residential real estate
836,117

 
812

 
75

 
0

 
8,416

 
845,420

Commercial and financial
507,501

 
2,776

 
26

 
0

 
2,127

 
512,430

Consumer
178,676

 
52

 
0

 
0

 
98

 
178,826

 Totals
2,903,109

 
6,245

 
686

 
0

 
12,569

 
2,922,609

 
 
 
 
 
 
 
 
 
 
 
 
Purchased Unimpaired Loans
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
126,655

 
34

 
0

 
0

 
0

 
126,689

Commercial real estate
457,899

 
979

 
0

 
0

 
720

 
459,598

Residential real estate
186,549

 
128

 
87

 
0

 
1,000

 
187,764

Commercial and financial
92,315

 
54

 
0

 
0

 
321

 
92,690

Consumer
10,610

 
0

 
0

 
0

 
0

 
10,610

 Totals
874,028

 
1,195

 
87

 
0

 
2,041

 
877,351

 
 
 
 
 
 
 
 
 
 
 
 
Purchased Credit Impaired Loans
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
1,121

 
0

 
0

 
0

 
0

 
1,121

Commercial real estate
9,352

 
0

 
0

 
0

 
424

 
9,776

Residential real estate
544

 
642

 
0

 
0

 
4,440

 
5,626

Commercial and financial
844

 
0

 
0

 
0

 
50

 
894

Consumer
0

 
0

 
0

 
0

 
0

 
0

 Totals
11,861

 
642

 
0

 
0

 
4,914

 
17,417

 
 
 
 
 
 
 
 
 
 
 
 
   Totals
$
3,788,998

 
$
8,082

 
$
773

 
$
0

 
$
19,524

 
$
3,817,377

 
The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans.  Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,” “Substandard,” and “Doubtful” and these loans are monitored on an ongoing basis.  Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  Loans classified as Substandard may require a specific allowance. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.  The principal on loans classified as Doubtful is generally charged off.  Risk ratings are updated any time the situation warrants.
 









18
Table of Contents


Loans that are not problem or potential problem loans are considered to be pass-rated loans and risk grades are recalculated at least annually by the loan relationship manager.  The following tables present the risk category of loans by class of loans based on the most recent analysis performed as of June 30, 2018 and December 31, 2017:
 
 
June 30, 2018
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Construction and land development
$
351,792

 
$
6,456

 
$
822

 
$
0

 
$
359,070

Commercial real estate
1,647,630

 
19,716

 
33,949

 
0

 
1,701,295

Residential real estate
1,077,202

 
2,341

 
24,402

 
0

 
1,103,945

Commercial and financial
612,333

 
214

 
6,223

 
100

 
618,870

Consumer
188,894

 
1,338

 
604

 
0

 
190,836

   Totals
$
3,877,851

 
$
30,065

 
$
66,000

 
$
100

 
$
3,974,016

 
 
December 31, 2017
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Construction and land development
$
328,127

 
$
10,414

 
$
4,584

 
$
0

 
$
343,125

Commercial real estate
1,586,932

 
29,273

 
23,787

 
0

 
1,639,992

Residential real estate
1,023,925

 
4,621

 
10,203

 
61

 
1,038,810

Commercial and financial
593,689

 
3,237

 
8,838

 
250

 
606,014

Consumer
189,354

 
0

 
82

 
0

 
189,436

   Totals
$
3,722,027

 
$
47,545

 
$
47,494

 
$
311

 
$
3,817,377

 
PCI Loans
 
PCI loans are accounted for pursuant to ASC Topic 310-30. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference.
 
The table below summarizes the changes in accretable yield on PCI loans for the periods ended:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Beginning balance
$
3,552

 
$
3,510

 
$
3,699

 
$
3,807

Additions
0

 
0

 
0

 
0

Deletions
0

 
(10
)
 
(43
)
 
(10
)
Accretion
(262
)
 
(451
)
 
(705
)
 
(816
)
Reclassification from non-accretable difference
(101
)
 
216

 
238

 
284

Ending balance
$
3,189

 
$
3,265

 
$
3,189

 
$
3,265

 
Troubled Debt Restructured Loans
 
The Company’s Troubled Debt Restructuring (“TDR”) concessions granted generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the

19
Table of Contents


terms of the restructuring agreements. Most loans prior to modification were classified as impaired and the allowance for loan losses is determined in accordance with Company policy.
 
The following table presents loans that were modified during the six months ended:
 
 
Number
of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
Specific
Reserve
Recorded
 
Valuation
Allowance
Recorded
 
(In thousands)
June 30, 2018
 

 
 

 
 

 
 

 
 

Commercial and financial
1

 
$
98

 
$
0

 
$
0

 
$
0

  Totals
1

 
$
98

 
$
0

 
$
0

 
$
0

June 30, 2017
 
 
 
 
 
 
 
 
 
Construction and land development
1

 
$
52

 
$
46

 
$
6

 
$
6

Residential real estate
1
 
15

 
15

 
0
 
0
Totals
2

 
$
67

 
$
61

 
$
6

 
$
6

 
During the three and six months ended June 30, 2018, there was one payment default on a loan of $0.1 million that had been modified to a TDR within the previous twelve months, compared to none during the three and six months ended June 30, 2017. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific a allowance for loan loss is assigned in accordance with the Company’s policy.
 
Impaired Loans
 
Loans are considered impaired if they are 90 days or more past due, in nonaccrual status, or are TDRs. As of June 30, 2018 and December 31, 2017, the Company’s recorded investment in impaired loans, excluding PCI loans, the unpaid principal balance and related valuation allowance was as follows:
 

20
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June 30, 2018
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Valuation
Allowance
 
(In thousands)
Impaired Loans with No Related Allowance Recorded:
 

 
 

 
 

Construction and land development
$
204

 
$
484

 
$
0

Commercial real estate
2,549

 
3,764

 
0

Residential real estate
13,847

 
18,352

 
0

Commercial and financial
0

 
0

 
0

Consumer
172

 
211

 
0

Impaired Loans with an Allowance Recorded:
 
 
 
 
 
Construction and land development
224

 
238

 
24

Commercial real estate
13,116

 
13,144

 
525

Residential real estate
6,820

 
7,014

 
933

Commercial and financial
933

 
927

 
550

Consumer
267

 
273

 
41

Total Impaired Loans
 
 
 
 
 
Construction and land development
428

 
722

 
24

Commercial real estate
15,665

 
16,908

 
525

Residential real estate
20,667

 
25,366

 
933

Commercial and financial
933

 
927

 
550

Consumer
439

 
484

 
41

       Totals
$
38,132

 
$
44,407

 
$
2,073

 
 
December 31, 2017
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Valuation
Allowance
 
(In thousands)
Impaired Loans with No Related Allowance Recorded:
 

 
 

 
 

Construction and land development
$
223

 
$
510

 
$
0

Commercial real estate
3,475

 
4,873

 
0

Residential real estate
10,272

 
15,063

 
0

Commercial and financial
19

 
29

 
0

Consumer
105

 
180

 
0

Impaired Loans with an Allowance Recorded:
 
 
 
 
 
Construction and land development
251

 
264

 
23

Commercial real estate
4,780

 
4,780

 
195

Residential real estate
8,448

 
8,651

 
1,091

Commercial and financial
2,436

 
883

 
1,050

Consumer
282

 
286

 
43

Total Impaired Loans
 
 
 
 
 
Construction and land development
474

 
774

 
23

Commercial real estate
8,255

 
9,653

 
195

Residential real estate
18,720

 
23,714

 
1,091

Commercial and financial
2,455

 
912

 
1,050

Consumer
387

 
466

 
43

       Totals
$
30,291

 
$
35,519

 
$
2,402


21
Table of Contents


 
Impaired loans also include TDRs where concessions have been granted to borrowers who have experienced financial difficulty. At June 30, 2018 and at December 31, 2017, accruing TDRs totaled $14.2 million and $15.6 million, respectively.
 
Average impaired loans for the three months ended June 30, 2018 and 2017 were $34.4 million and $32.8 million, respectively. Average impaired loans for the six months ended June 30, 2018 and 2017 were $32.2 million and $31.7 million, respectively. The impaired loans were measured for impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. The valuation allowance is included in the allowance for loan losses.
 
Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful, at which time payments received are recorded as reductions in principal. For the three months ended June 30, 2018 and 2017, the Company recorded interest income on impaired loans of $0.6 million and $0.4 million, respectively. For the six months ended June 30, 2018, and 2017, the Company recorded interest income on impaired loans of $0.9 million and