Edgar Filing: TRICO BANCSHARES /

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

for the quarterly period ended: September 30, 2018

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

for the transition period from to .

Commission File Number: 000-10661

TriCo Bancshares

(Exact Name of Registrant as Specified in Its Charter)

CALIFORNIA

94-2792841

(State or Other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification Number)

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices) (Zip Code)

(530) 898-0300

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: 30,417,818 shares outstanding as of November 6, 2018

TriCo Bancshares

FORM 10-Q

TABLE OF CONTENTS


	Page
PART I – FINANCIAL INFORMATION		2

Item 1 – Financial Statements (Unaudited)		2

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		38

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		55

Item 4 – Controls and Procedures		55

PART II – OTHER INFORMATION		56

Item 1 – Legal Proceedings		56

Item 1A – Risk Factors		56

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 6 – Exhibits		57

Signatures		58

Exhibits

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)


	At September 30, 2018			At December 31, 2017
Assets:
Cash and due from banks	$	109,363		$	105,968
Cash at Federal Reserve and other banks		117,180			99,460

Cash and cash equivalents		226,543			205,428
Investment securities:
Marketable equity securities		2,846			2,938
Available for sale debt securities		1,055,960			727,945
Held to maturity debt securities		459,897			514,844
Restricted equity securities		17,250			16,956
Loans held for sale		3,824			4,616
Loans		4,027,436			3,015,165
Allowance for loan losses		(31,603	)		(30,323	)

Total loans, net		3,995,833			2,984,842
Foreclosed assets, net		1,832			3,226
Premises and equipment, net		89,290			57,742
Cash value of life insurance		116,596			97,783
Accrued interest receivable		19,592			13,772
Goodwill		220,972			64,311
Other intangible assets, net		30,711			5,174
Mortgage servicing rights		7,122			6,687
Other assets		70,597			55,051

Total assets	$	6,318,865		$	4,761,315

Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand	$	1,710,505		$	1,368,218
Interest-bearing		3,382,612			2,640,913

Total deposits		5,093,117			4,009,131
Accrued interest payable		1,729			930
Other liabilities		82,077			66,422
Other borrowings		282,831			122,166
Junior subordinated debt		56,996			56,858

Total liabilities		5,516,750			4,255,507

Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at September 30, 2018 and December 31, 2017		—			—
Common stock, no par value: 50,000,000 shares authorized; issued and outstanding:
30,417,818 at September 30, 2018
22,955,963 at December 31, 2017		541,519			255,836
Retained earnings		287,555			255,200
Accumulated other comprehensive loss, net of tax		(26,959	)		(5,228	)

Total shareholders’ equity		802,115			505,808

Total liabilities and shareholders’ equity	$	6,318,865		$	4,761,315

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Interest and dividend income:
Loans, including fees	$	53,102	$	37,268	$	130,455	$	108,600
Investments:
Taxable securities		9,189		7,011		23,949		20,617
Tax exempt securities		1,189		1,041		3,272		3,124
Dividends		459		301		1,093		1,020
Interest bearing cash at Federal Reserve and other banks		615		292		1,384		1,080

Total interest and dividend income		64,554		45,913		160,153		134,441

Interest expense:
Deposits		2,072		1,028		4,402		2,896
Other borrowings		1,178		149		2,106		164
Junior subordinated debt		815		652		2,301		1,870

Total interest expense		4,065		1,829		8,809		4,930

Net interest income		60,489		44,084		151,344		129,511
Provision for (benefit from) loan losses		2,651		765		1,777		(1,588	)

Net interest income after provision for (benefit from) loan losses		57,838		43,319		149,567		131,099

Noninterest income:
Service charges and fees		9,743		9,475		28,327		27,861
Commissions on sale of non-deposit investment products		728		672		2,414		1,984
Increase in cash value of life insurance		732		732		1,996		2,043
Gain on sale of loans		539		606		1,831		2,293
Gain on sale of investment securities		207		961		207		961
Other		237		484		1,875		2,401

Total noninterest income		12,186		12,930		36,650		37,543

Noninterest expense:
Salaries and related benefits		25,823		20,933		68,928		62,320
Other		21,555		16,289		54,482		46,628

Total noninterest expense		47,378		37,222		123,410		108,948

Income before income taxes		22,646		19,027		62,807		59,694
Provision for income taxes		6,476		7,130		17,698		22,129

Net income	$	16,170	$	11,897	$	45,109	$	37,565

Earnings per share:
Basic	$	0.54	$	0.52	$	1.78	$	1.64
Diluted	$	0.53	$	0.51	$	1.76	$	1.62

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands; unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Net income	$	16,170		$	11,897		$	45,109		$	37,565
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities arising during the period, after reclassifications		(5,917	)		(166	)		(20,941	)		3,137
Change in minimum pension liability, after reclassifications		81			55			241			164

Other comprehensive income (loss)		(5,836	)		(111	)		(20,700	)		3,301

Comprehensive income	$	10,334		$	11,786		$	24,409		$	40,866

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data; unaudited)


										Accumulated
	Shares of									Other
	Common			Common			Retained			Comprehensive
	Stock			Stock			Earnings			Income (loss)			Total
Balance at December 31, 2016		22,867,802		$	252,820		$	232,440		$	(7,913	)	$	477,347
Net income								37,565						37,565
Other comprehensive income											3,301			3,301
Stock option vesting					211									211
Service condition RSU vesting					657									657
Market plus service condition RSU vesting					316									316
Stock options exercised		133,850			2,418									2,418
Service condition RSUs released		28,397												—
Market plus service condition RSUs released		18,805												—
Repurchase of common stock		(107,390	)		(1,191	)		(2,663	)					(3,854	)
Dividends paid ($ 0.49 per share)								(11,228	)					(11,228	)

Balance at September 30, 2017		22,941,464		$	255,231		$	256,114		$	(4,612	)	$	506,733

Balance at December 31, 2017		22,955,963		$	255,836		$	255,200		$	(5,228	)	$	505,808
Net income								45,109						45,109
Adoption ASU 2016-01								(62	)		62			—
Adoption ASU 2018-02								1,093			(1,093	)		—
Other comprehensive loss											(20,700	)		(20,700	)
Stock option vesting					75									75
Service condition RSU vesting					745									745
Market plus service condition RSU vesting					274									274
Service condition RSUs released		32,516												—
Market plus service condition RSUs released		25,512												—
Stock options exercised		27,400			475									475
Issuance of common stock		7,405,277			284,437									284,437
Repurchase of common stock		(28,850	)		(323	)		(801	)					(1,124	)
Dividends paid ($ 0.51 per share)								(12,984	)					(12,984	)

Balance at September 30, 2018		30,417,818		$	541,519		$	287,555		$	(26,959	)	$	802,115

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


	For the nine months ended September 30,
	2018			2017
Operating activities:
Net income	$	45,109		$	37,565
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization		4,914			5,089
Amortization of intangible assets		2,068			1,050
Provision for (benefit from) loan losses		1,777			(1,588	)
Amortization of investment securities premium, net		1,953			2,431
Gain on sale of investment securities		(207	)		(961	)
Originations of loans for resale		(63,912	)		(83,907	)
Proceeds from sale of loans originated for resale		66,138			85,846
Gain on sale of loans		(1,831	)		(2,293	)
Change in market value of mortgage servicing rights		(38)			795
Provision for losses on foreclosed assets		89			162
Gain on sale of foreclosed assets		(390)			(308	)
Loss on disposal of fixed assets		206			61
Gain on sale of premises held for sale		—			(3	)
Increase in cash value of life insurance		(1,996)			(2,043	)
Life insurance proceeds in excess of cash value		—			(108	)
Loss on marketable equity securities		92			—
Equity compensation vesting expense		1,094			1,184
Change in:
Reserve for unfunded commitments		(864)			270
Interest receivable		(5,820)			(629	)
Interest payable		799			49
Other assets and liabilities, net		10,724			3,155

Net cash from operating activities		59,905			45,817

Investing activities:
Cash acquired in acquisition, net of consideration paid		30,613			—
Proceeds from maturities of securities available for sale		54,510			20,889
Proceeds from maturities of securities held to maturity		54,203			64,969
Proceeds from sale of available for sale securities		293,279			25,757
Purchases of securities available for sale		(370,843)			(195,465	)
Net redemption of restricted equity securities		7,429			—
Loan origination and principal collections, net		(178,596	)		(174,914	)
Proceeds from sale of foreclosed assets		2,206			1,787
Proceeds from sale of premises held for sale		—			3,338
Proceeds from sale of premises and equipment		62			—
Purchases of premises and equipment		(5,736	)		(10,874	)
Life insurance proceeds		—			649

Net cash from investing activities		(112,873	)		(263,864	)

Financing activities:
Net change in deposits		92,051			31,896
Net change in other borrowings		(4,335)			81,237
Repurchase of common stock		(834)			(1,629	)
Dividends paid		(12,984)			(11,228	)
Exercise of stock options		185			193

Net cash from financing activities		74,083			100,469

Net change in cash and cash equivalents		21,115			(117,578	)

Cash and cash equivalents at beginning of year		205,428			305,612

Cash and cash equivalents at end of year	$	226,543		$	188,034

Supplemental disclosure of noncash activities:
Unrealized (loss) gain on securities available for sale	$	(29,704	)	$	5,411
Loans transferred to foreclosed assets	$	511		$	726
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	$	1,124		$	3,854
Supplemental disclosure of cash flow activity:
Cash paid for interest expense	$	8,010		$	4,881
Cash paid for income taxes	$	11,625		$	15,450
Assets acquired in acquisition plus goodwill recognized, net	$	1,456,505		$	—
Liabilities assumed in acquisition	$	1,172,068		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 29 California counties. The Bank operates from 69 traditional branches, 9 in-store branches and 2 loan production offices. The Company has five capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including two organized by the Company and three acquired with the acquisition of North Valley Bancorp.

The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation. For financial reporting purposes, the Company’s investments in the Capital Trusts of $1,741,000 are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheet.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulatinos of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidtated financial statements and notes thereto included in the Company’s Annua Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”).

Significant Group Concentration of Credit Risk

The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout northern and central California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into one business segment that it denotes as community banking.

Geographical Descriptions

For the purpose of describing the geographical location of the Company’s loans, the Company has defined northern California as that area of California north of, and including, Stockton; central California as that area of the state south of Stockton, to and including, Bakersfield; and southern California as that area of the state south of Bakersfield.

Business Combinations

The Company accounts for acquisitions of businesses using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their estimated fair values at the date of acquisition. Management utilizes various valuation techniques including discounted cash flow analyses to determine these fair values. Any excess of the purchase price over amounts allocated to the acquired assets, including identifiable intangible assets, and liabilities assumed is recorded as goodwill.

Cash and Cash Equivalents

Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents.

Revenue Recognition

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

Most of our revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as our loans and investment securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2018 and December 31, 2017, the Company did not have any significant contract balances. The Company has evaluated the nature of its revenue streams and determined that further disaggregation of revenue into more granular categories beyond what is presented in the Note 15 was not necessary.

Accounting Standards Adopted in 2018

FASB Accounting Standards Update (ASU) No. 2014- 09, Revenue from Contracts with Customers (Topic 606): ASU 2014-09 is intended to clarify the principles for recognizing revenue, and to develop common revenue standards and disclosure requirements that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosures; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required with regard to contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods therein, with early adoption permitted for reporting periods beginning after December 15, 2016. ASU 2014-09 does not apply to revenue associated with financial instruments such as loans and investments, which are accounted for under other provisions of GAAP. The Company adopted ASU 2014-09 on January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on January 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with (1) above, the Company recorded a reclassification of cumulative unrealized losses of its marketable equity securities from accumulated other comprehensive income (loss) to retained earnings as of January 1, 2018. Additionally, the Company recognized changes in the fair value of its marketable equity securities in the condensed consolidated statements of net income for the three and nine months ended September 30, 2018. In accordance with (5) above, the Company measured the fair value of its loan portfolio as of September 30, 2018 using an exit price notion (see Note 18 Fair Value Measurement).

FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU No. 2017-01, Business Combinations - Clarifying the Definition of a Business (Topic 805). ASU 2017-01 clarifies the definition and provides a more robust framework to use in determining when a set of assets and activities constitutes a business. ASU 2017-01 is intended to provide guidance when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715). ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. ASU 2017-07 was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award’s fair value, (ii) the award’s vesting conditions and (iii) the award’s classification as an equity or liability instrument. ASU 2017-09 was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). ASU 2018-02 allows, but does not require, entities to reclassify certain income tax effects in accumulated other comprehensive income (AOCI) to retained earnings that resulted from the Tax Cuts and Jobs Act (Tax Act) that was enacted on December 22, 2017. The Tax Act included a reduction to the Federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification would be the difference between the income tax effects in

AOCI calculated using the historical Federal corporate income tax rate of 35 percent and the income tax effects in AOCI calculated using the newly enacted 21 percent Federal corporate income tax rate. The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-02 on January 1, 2018, and elected to reclassify certain income tax effects in AOCI to retained earnings. This change in accounting principle was accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $1,093,000 increase to retained earnings and a corresponding decrease to AOCI on January 1, 2018.

Accounting Standards Pending Adoption

FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-2, among other things, requires lessees to recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. ASU 2016-02 will be effective for the Company on January 1, 2019, utilizing the modified retrospective transition approach. FASB has issued incremental guidance to the new leasing standard through ASU No. 2018-10 and 2018-11. Based on current leases, subject to change, the Company estimates that the adoption of this standard will result in an increase in assets of approximately $30 million to recognize the present value of the lease obligations with a corresponding increase in liabilities of approximately $30 million. This amount is subject to change as the Company continues to evaluate the provisions of ASU No. 2016-02, 2018-10 and 2018-11. The Company does not expect this to have a material impact on the Company’s results of operations or cash flows.

FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). ASU 2016-13 is the final guidance on the new current expected credit loss (‘‘CECL’’) model. ASU 2016-13, among other things, requires the incurred loss impairment methodology in current GAAP be replaced with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate future credit loss estimates. As CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (‘‘HTM’’) debt securities. ASU 2016-13 amends the accounting for credit losses on available-for-sale securities (‘‘AFS’’), whereby credit losses will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Lastly, ASU 2016-13 requires enhanced disclosures on the significant estimates and judgments used to estimate credit losses, as well as on the credit quality and underwriting standards of an organization’s portfolio. These disclosures require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. ASU 2016-13 allows for a modified retrospective approach with a cumulative effect adjustment to the balance sheet upon adoption (charge to retained earnings instead of the income statement). ASU 2016-13 will be effective for the Company on January 1, 2020, and early adoption is permitted. While the Company is currently evaluating the provisions of ASU 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements, it has taken steps to prepare for the implementation when it becomes effective, such as forming an internal task force, gathering pertinent data, consulting with outside professionals, and evaluating its current IT systems. Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the first reporting period in which the new standard is effective, but cannot yet estimate the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s financial position, results of operations or cash flows.

FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350): ASU 2017-04 eliminates step two of the goodwill impairment test (the hypothetical purchase price allocation used to determine the implied fair value of goodwill) when step one (determining if the carrying value of a reporting unit exceeds its fair value) is failed. Instead, entities simply will compare the fair value of a reporting unit to its carrying amount and record goodwill impairment for the amount by which the reporting unit’s carrying amount exceeds its fair value. ASU 2017-04 will be effective for the Company on January 1, 2020 and is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Topic 310). ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. ASU 2017-08 does not change the accounting for callable debt securities held at a discount. ASU 2017-08 will be effective for the Company on January 1, 2019, and is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

Note 2 - Business Combinations

Merger with FNB Bancorp

On July 6, 2018, the Company completed the acquisition of FNB Bancorp (“FNBB”) for an aggregate transaction value of $291,132,000. FNBB was merged into the Company, and the Company issued 7,405,277 shares of common stock to the former shareholders of FNBB. FNBB’s subsidiary, First National Bank of Northern California, merged into the Bank on the same day. The Company also paid $6.7 million to settle and retire all FNBB stock options outstanding as of the acquisition date. Upon the consummation of the merger, the Company added 12 branches within San Mateo, San Francisco, and Santa Clara counties.

In accordance with accounting for business combinations, the Company recorded $156,661,000 of goodwill and $27,605,000 of core deposit intangibles on the acquisition date. The core deposit intangibles will be amortized over the weighted average remaining life of 6.2 years with no significant residual value. For tax purposes, purchase prices accounting adjustments including goodwill are all non-taxable and /or non-deductible. Acquisition related costs of $4,150,000 and $5,227,000 are included in the income statement for the three and nine months ended September 30, 2018. During the nine months ended September 30, 2017, there were no acquisition costs incurred.

The acquisition was consistent with the Company’s strategy to expand into the Bay Area market. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region. Goodwill arising from the acquisition consisted largely of the estimated cost savings resulting from the combined operations.

The following table summarizes the consideration paid for FNBB and the amounts of assets acquired and liabilities assumed that were recorded at the acquisition date (in thousands).


	FNB Bancorp July 6, 2018
Fair value of consideration transferred:
Fair value of shares issued	$	284,437
Cash consideration		6,695

Total fair value of consideration transferred		291,132

Assets acquired:
Cash and cash equivalents		37,308
Securities available for sale		335,667
Restricted equity securities		7,723
Loans		834,683
Premises and equipment		30,522
Cash value of life insurance		16,817
Core deposit intangible		27,605
Other assets		16,214

Total assets acquired		1,306,539

Liabilities assumed:
Deposits		991,935
Other liabilities		15,133
Short-term borrowings - Federal Home Loan Bank		165,000

Total liabilities assumed		1,172,068

Total net assets acquired		134,471

Goodwill recognized	$	156,661

The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered impaired (PNCI loans) as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans (PCI loans), which have shown evidence of credit deterioration since origination. The gross contractual amounts receivable and fair value for PNCI loans as of the acquisition date was $866,189,000 and $833,381,000, respectively. The gross contractual amounts receivable and fair value for PCI loans as of the acquisition date was $1,683,000 and $1,302,000, respectively.

The accompanying condensed consolidated financial statements include the accounts of FNB Bancorp since July 6, 2018. The table below presents the unaudited pro forma information as if the acquisition of FNB Bancorp had occurred on January 1, 2017 after giving effect to certain acquisition accounting adjustments. The pro forma information for the three and nine months ended September 30, 2018 and 2017 includes acquisition adjustments for the amortization/accretion on loans, core deposit intangibles, and related income tax effects. The pro forma financial information also includes one-time costs associated with the acquisition but does not include expected costs savings synergies that we expect to achieve. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.


	Three months ended						Nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	( in thousands, except per share data)
Summarized proforma income statement data:
Net interest income	$	61,259		$	57,329		$	178,434		$	168,363
Provision for (benefit from) loan losses		2,651			765			1,374			(1,728	)
Noninterest income		12,288			13,902			38,517			40,537
Noninterest expense		(40,850	)		(45,983	)		(135,048	)		(135,218	)

Income before taxes		30,046			24,483			80,529			75,410
Income taxes		8,384			9,055			22,996			27,436
Net income	$	21,662		$	15,428		$	57,533		$	47,974

Basic earnings per share	$	0.72		$	0.51		$	1.76		$	1.58
Diluted earnings per share	$	0.71		$	0.50		$	1.74		$	1.56

It is impracticable to separately provide information regarding the revenue and earnings of FNB Bancorp included in the Company’s consolidated income statement from the July 6, 2018 acquisition date to September 30, 2018 because the operations of FNB Bancorp were substantially comingled with the operations of the Company as of the system conversion date of July 22, 2018.

Note 3 - Investment Securities

The amortized cost and estimated fair values of investments in debt securities are summarized in the following tables:


	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	666,021		163		(27,308	)	$	638,876
Obligations of states and political subdivisions		129,072		107		(5,759	)		123,420
Corporate bonds		4,368		65		(2	)		4,431
Asset backed securities		289,550		181		(498	)		289,233

Total debt securities available for sale	$	1,089,011	$	516	$	(33,567	)	$	1,055,960

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	445,309	$	88	$	(13,361	)	$	432,036
Obligations of states and political subdivisions		14,588		58		(395	)		14,251

Total debt securities held to maturity	$	459,897	$	146	$	(13,756	)	$	446,287


	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	609,695	$	695	$	(5,601	)	$	604,789
Obligations of states and political subdivisions		121,597		1,888		(329	)		123,156

Total debt securities available for sale	$	731,292	$	2,583	$	(5,930	)	$	727,945

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	500,271	$	5,101	$	(1,889	)	$	503,483
Obligations of states and political subdivisions		14,573		146		(37	)		14,682

Total debt securities held to maturity	$	514,844	$	5,247	$	(1,926	)	$	518,165

Proceeds from sales of available for sale debt securities of $293,279,000 and $25,757,000 were received during the three months ended September 30, 2018 and 2017, respectively. Gross realized gains during the three months ended September 30, 2018 and 2017 were $207,000 and $961,000, respectively. There were no sales of investment securities during the first six months of 2018 or 2017. Investment securities with an aggregate carrying value of $548,123,000 and $285,596,000 at September 30, 2018 and December 31, 2017, respectively, were pledged as collateral for specific borrowings, lines of credit and local agency deposits.

The amortized cost and estimated fair value of debt securities at September 30, 2018 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At September 30, 2018, obligations of U.S. government corporations and agencies with a cost basis totaling $1,111,330,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At September 30, 2018, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 6.1 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.


Debt Securities	Available for Sale				Held to Maturity
(In thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year	$	2,435	$	2,434	$	—	$	—
Due after one year through five years		12,486		12,501		1,231		1,240
Due after five years through ten years		17,764		17,740		25,955		25,210
Due after ten years		1,056,326		1,023,285		432,711		419,837

Totals	$	1,089,011	$	1,055,960	$	459,897	$	446,287

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:


	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2018						(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	323,972	$	(10,839	)	$	311,035	$	(16,469	)	$	635,007	$	(27,308	)
Obligations of states and political subdivisions		85,668		(3,659	)		18,323		(2,100	)		103,991		(5,759	)
Corporate bonds		1,969		(2	)		—		—			1,969		(2	)
Asset backed securities		79,943		(498	)		—		—			79,943		(498	)

Total debt securities available for sale	$	491,552	$	(14,998	)	$	329,358	$	(18,569	)	$	820,910	$	(33,567	)

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	307,432	$	(7,693	)	$	109,312	$	(5,668	)	$	416,744	$	(13,361	)
Obligations of states and political subdivisions		8,971		(230	)		3,076		(165	)		12,047		(395	)

Total debt securities held to maturity	$	316,403	$	(7,923	)	$	112,388	$	(5,833	)	$	428,791	$	(13,756	)


	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2017						(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	284,367	$	(2,176	)	$	166,338	$	(3,425	)	$	450,705	$	(5,601	)
Obligations of states and political subdivisions		4,904		(35	)		17,085		(294	)		21,989		(329	)

Total securities available for sale	$	289,271	$	(2,211	)	$	183,423	$	(3,719	)	$	472,694	$	(5,930	)

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	93,017	$	(567	)	$	95,367	$	(1,322	)	$	188,384	$	(1,889	)
Obligations of states and political subdivisions		1,488		(7	)		2,637		(30	)		4,125		(37	)

Total debt securities held to maturity	$	94,505	$	(574	)	$	98,004	$	(1,352	)	$	192,509	$	(1,926	)

Obligations of U.S. government agencies: Unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At September, 2018, 171 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of (3.7%) from the Company’s amortized cost basis.

Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At September 30, 2018, 132 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of (5.0%) from the Company’s amortized cost basis.

Corporate bonds: The unrealized losses on investments in corporate bonds were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At September 30, 2018, one corporate bond had unrealized losses with aggregate depreciation of (0.1%) from the Company’s amortized cost basis.

Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors in these types of securities. At the time of purchase, each of these securities were rated AA or AAA and through September 30, 2018 have not experienced any deterioration in credit rating. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At September 30, 2018, 6asset backed securities had unrealized losses with aggregate depreciation of (0.6%) from the Company’s amortized cost basis.

Marketable equity securities: All unrealized losses recognized during the reporting period were for equity securities still held at September 30, 2018.

Note 4 – Loans

A summary of loan balances follows (in thousands):


	September 30, 2018
	Originated			PNCI			PCI			Total
Mortgage loans on real estate:
Residential 1-4 family	$	340,515		$	182,201		$	1,698		$	524,414
Commercial		1,863,604			736,299			7,885			2,607,788

Total mortgage loans on real estate		2,204,119			918,500			9,583			3,132,202
Consumer:
Home equity lines of credit		284,956			44,881			1,299			331,136
Home equity loans		35,556			4,690			447			40,693
Other		26,294			23,120			42			49,456

Total consumer loans		346,806			72,691			1,788			421,285
Commercial		234,741			52,479			2,427			289,647
Construction:
Residential		81,533			33,041			—			114,574
Commercial		63,508			6,220			—			69,728

Total construction		145,041			39,261			—			184,302

Total loans, net of deferred loan fees and discounts	$	2,930,707		$	1,082,931		$	13,798		$	4,027,436

Total principal balance of loans owed, net of charge-offs	$	2,940,897		$	1,120,654		$	21,007		$	4,082,558
Unamortized net deferred loan fees		(10,190	)		—			—			(10,190	)
Discounts to principal balance of loans owed, net of charge-offs		—			(37,723	)		(7,209	)		(44,932	)

Total loans, net of unamortized deferred loan fees and discounts	$	2,930,707		$	1,082,931		$	13,798		$	4,027,436

Allowance for loan losses	$	(30,927	)	$	(566	)	$	(110	)	$	(31,603	)


	December 31, 2017
	Originated			PNCI			PCI			Total
Mortgage loans on real estate:
Residential 1-4 family	$	320,522		$	63,519		$	1,385		$	385,426
Commercial		1,690,510			215,823			8,563			1,914,896

Total mortgage loan on real estate		2,011,032			279,342			9,948			2,300,322
Consumer:
Home equity lines of credit		269,942			16,248			2,498			288,688
Home equity loans		39,848			2,698			485			43,031
Other		22,859			2,251			45			25,155

Total consumer loans		332,649			21,197			3,028			356,874
Commercial		209,437			8,391			2,584			220,412
Construction:
Residential		67,920			10			—			67,930
Commercial		69,364			263			—			69,627

Total construction		137,284			273			—			137,557

Total loans, net of deferred loan fees and discounts	$	2,690,402		$	309,203		$	15,560		$	3,015,165

Total principal balance of loans owed, net of charge-offs	$	2,699,053		$	316,238		$	23,181		$	3,038,472
Unamortized net deferred loan fees		(8,651	)		—			—			(8,651	)
Discounts to principal balance of loans owed, net of charge-offs		—			(7,035	)		(7,621	)		(14,656	)

Total loans, net of unamortized deferred loan fees and discounts	$	2,690,402		$	309,203		$	15,560		$	3,015,165

Allowance for loan losses	$	(29,122	)	$	(929	)	$	(272	)	$	(30,323	)

The following is a summary of the change in accretable yield for PCI loans during the periods indicated (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Change in accretable yield:
Balance at beginning of period	$	3,996		$	7,956		$	4,262		$	10,348
Accretion to interest income		(253	)		(594	)		(769	)		(2,554	)
Reclassification (to) from nonaccretable difference		(47	)		(2,893	)		203			(3,325	)

Balance at end of period	$	3,696		$	4,469		$	3,696		$	4,469

Note 5 - Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, and ending balance of loans, net of unearned fees for the periods indicated.


	Allowance for Loan Losses – Three Months Ended September 30, 2018
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	1,991	$	(25	)	$	—	$	434		$	2,400
Commercial		11,607		—			15		1,257			12,879

Total mortgage loans on real estate		13,598		(25	)		15		1,691			15,279
Consumer:
Home equity lines of credit		5,048		(172	)		151		194			5,221
Home equity loans		1,532		(23	)		139		(55	)		1,593
Other		557		(229	)		63		309			700

Total consumer loans		7,137		(424	)		353		448			7,514
Commercial		6,378		(693	)		202		337			6,224
Construction:
Residential		1,434		—			—		192			1,626
Commercial		977		—			—		(17	)		960

Total construction		2,411		—			—		175			2,586

Total	$	29,524	$	(1,142	)	$	570	$	2,651		$	31,603


	Allowance for Loan Losses – Nine Months Ended September 30, 2018
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,317	$	(77	)	$	—	$	160		$	2,400
Commercial		11,441		(15	)		51		1,402			12,879

Total mortgage loans on real estate		13,758		(92	)		51		1,562			15,279
Consumer:
Home equity lines of credit		5,800		(276	)		677		(980	)		5,221
Home equity loans		1,841		(23	)		176		(401	)		1,593
Other		586		(597	)		208		503			700

Total consumer loans		8,227		(896	)		1,061		(878	)		7,514
Commercial		6,512		(952	)		331		333			6,224
Construction:
Residential		1,184		—			—		442			1,626
Commercial		642		—			—		318			960

Total construction		1,826		—			—		760			2,586

Total	$	30,323	$	(1,940	)	$	1,443	$	1,777		$	31,603


	Allowance for Loan Losses – As of September 30, 2018
(in thousands)	Individually evaluated for impairment		Loans pooled for evaluation		Loans acquired with deteriorated credit quality		Total allowance for loan losses
Mortgage loans on real estate:
Residential 1-4 family	$	57	$	2,313	$	30	$	2,400
Commercial		268		12,552		59		12,879

Total mortgage loans on real estate		325		14,865		89		15,279
Consumer:
Home equity lines of credit		168		5,046		7		5,221
Home equity loans		175		1,418		—		1,593
Other		103		597		—		700

Total consumer loans		446		7,061		7		7,514
Commercial		1,857		4,353		14		6,224
Construction:
Residential		—		1,626		—		1,626
Commercial		—		960		—		960

Total construction		—		2,586		—		2,586

Total	$	2,628	$	28,865	$	110	$	31,603


	Loans, Net of Unearned fees – As of September 30, 2018
(in thousands)	Individually evaluated for impairment		Loans pooled for evaluation		Loans acquired with deteriorated credit quality		Total loans, net of unearned fees
Mortgage loans on real estate:
Residential 1-4 family	$	4,781	$	517,935	$	1,698	$	524,414
Commercial		13,244		2,586,659		7,885		2,607,788

Total mortgage loans on real estate		18,025		3,104,594		9,583		3,132,202
Consumer:
Home equity lines of credit		2,188		327,649		1,299		331,136
Home equity loans		2,406		37,840		447		40,693
Other		243		49,171		42		49,456

Total consumer loans		4,837		414,660		1,788		421,285
Commercial		4,632		282,588		2,427		289,647
Construction:
Residential		—		114,574		—		114,574
Commercial		—		69,728		—		69,728

Total construction		—		184,302		—		184,302

Total	$	27,494	$	3,986,144	$	13,798	$	4,027,436


	Allowance for Loan Losses – Year Ended December 31, 2017
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,748	$	(60	)	$	—	$	(371	)	$	2,317
Commercial		11,517		(186	)		397		(287	)		11,441

Total mortgage loans on real estate		14,265		(246	)		397		(658	)		13,758
Consumer:
Home equity lines of credit		7,044		(98	)		698		(1,844	)		5,800
Home equity loans		2,644		(332	)		242		(713	)		1,841
Other		622		(1,186	)		375		775			586

Total consumer loans		10,310		(1,616	)		1,315		(1,782	)		8,227
Commercial		5,831		(1,444	)		428		1,697			6,512
Construction:
Residential		1,417		(1,104	)		—		871			1,184
Commercial		680		—			1		(39	)		642

Total construction		2,097		(1,104	)		1		832			1,826

Total	$	32,503	$	(4,410	)	$	2,141	$	89		$	30,323


	Allowance for Loan Losses – As of December 31, 2017
(in thousands)	Individually evaluated for impairment		Loans pooled for evaluation		Loans acquired with deteriorated credit quality		Total allowance for loan losses
Mortgage loans on real estate:
Residential 1-4 family	$	230	$	1,932	$	155	$	2,317
Commercial		30		11,351		60		11,441

Total mortgage loans on real estate		260		13,283		215		13,758
Consumer:
Home equity lines of credit		427		5,356		17		5,800
Home equity loans		107		1,734		—		1,841
Other		57		529		—		586

Total consumer loans		591		7,619		17		8,227
Commercial		1,848		4,624		40		6,512
Construction:
Residential		—		1,184		—		1,184
Commercial		—		642		—		642

Total construction		—		1,826		—		1,826

Total	$	2,699	$	27,352	$	272	$	30,323


	Loans, Net of Unearned fees – As of December 31, 2017
(in thousands)	Individually evaluated for impairment		Loans pooled for evaluation		Loans acquired with deteriorated credit quality		Total loans, net of unearned fees
Mortgage loans on real estate:
Residential 1-4 family	$	5,298	$	378,743	$	1,385	$	385,426
Commercial		13,911		1,892,422		8,563		1,914,896

Total mortgage loans on real estate		19,209		2,271,165		9,948		2,300,322
Consumer:
Home equity lines of credit		2,688		283,502		2,498		288,688
Home equity loans		1,470		41,076		485		43,031
Other		257		24,853		45		25,155

Total consumer loans		4,415		349,431		3,028		356,874
Commercial		4,470		213,358		2,584		220,412
Construction:
Residential		140		67,790		—		67,930
Commercial		—		69,627		—		69,627

Total construction		140		137,417		—		137,557

Total	$	28,234	$	2,971,371	$	15,560	$	3,015,165


	Allowance for Loan Losses – Three Months Ended September 30, 2017
(in thousands)	Beginning Balance		Charge- offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,495	$	(60	)	$	—	$	(217	)	$	2,218
Commercial		10,119		(20	)		238		1,033			11,370

Total mortgage loans on real estate		12,614		(80	)		238		816			13,588
Consumer:
Home equity lines of credit		6,156		(14	)		189		(610	)		5,721
Home equity loans		2,354		(94	)		121		(390	)		1,991
Other		645		(349	)		91		203			590

Total consumer loans		9,155		(457	)		401		(797	)		8,302
Commercial		4,729		(291	)		61		303			4,802
Construction:
Residential		1,179		(33	)		—		284			1,430
Commercial		466		—			—		159			625

Total construction		1,645		(33	)		—		443			2,055

Total	$	28,143	$	(861	)	$	700	$	765		$	28,747


	Allowance for Loan Losses – Nine Months Ended September 30, 2017
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,748	$	(60	)	$		$	(470	)	$	2,218
Commercial		11,517		(170	)		365		(342	)		11,370

Total mortgage loans on real estate		14,265		(230	)		365		(812	)		13,588
Consumer:
Home equity lines of credit		7,044		(98	)		487		(1,712	)		5,721
Home equity loans		2,644		(331	)		146		(468	)		1,991
Other		622		(831	)		300		499			590

Total consumer loans		10,310		(1,260	)		933		(1,681	)		8,302
Commercial		5,831		(1,188	)		315		(156	)		4,802
Construction:
Residential		1,417		(1,104	)		—		1,117			1,430
Commercial		680		—			1		(56	)		625

Total construction		2,097		(1,104	)		1		1,061			2,055

Total	$	32,503	$	(3,782	)	$	1,614	$	(1,588	)	$	28,747


	Allowance for Loan Losses – As of September 30, 2017
(in thousands)	Individually evaluated for impairment		Loans pooled for evaluation		Loans acquired with deteriorated credit quality		Total allowance for loan losses
Mortgage loans on real estate:
Residential 1-4 family	$	240	$	1,978	$	—	$	2,218
Commercial		73		11,022		275		11,370

Total mortgage loans on real estate		313		13,000		275		13,588
Consumer:
Home equity lines of credit		363		5,346		12		5,721
Home equity loans		111		1,880		—		1,991
Other		77		513		—		590

Total consumer loans		551		7,739		12		8,302
Commercial		1,276		3,526		—		4,802
Construction:
Residential		—		1,430		—		1,430
Commercial		—		625		—		625

Total construction		—		2,055		—		2,055

Total	$	2,140	$	26,320	$	287	$	28,747


	Loans, Net of Unearned fees – As of September 30, 2017
(in thousands)	Individually evaluated for impairment		Loans pooled for evaluation		Loans acquired with deteriorated credit quality		Total Loans
Mortgage loans on real estate:
Residential 1-4 family	$	5,027	$	384,640	$	1,405	$	391,072
Commercial		19,788		1,775,843		8,171		1,803,802

Total mortgage loans on real estate		24,815		2,160,483		9,576		2,194,874
Consumer:
Home equity lines of credit		2,219		284,335		2,952		289,506
Home equity loans		1,842		42,454		737		45,033
Other		267		26,470		44		26,781

Total consumer loans		4,328		353,259		3,733		361,320
Commercial		2,938		221,846		2,695		227,479
Construction:
Residential		144		74,976		—		75,120
Commercial		—		72,820		—		72,820

Total construction		144		147,796		—		147,940

Total	$	32,225	$	2,883,384	$	16,004	$	2,931,613

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio.

The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:

•

Pass – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

•

Special Mention – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

•

Substandard – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program.

•

Doubtful – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

•

Loss – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

The following tables present ending loan balances by loan category and risk grade for the periods indicated:


	Credit Quality Indicators Originated Loans – As of September 30, 2018
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total Originated Loans
Mortgage loans on real estate:
Residential 1-4 family	$	334,902	$	1,690	$	3,923	$	—	$	340,515
Commercial		1,821,995		28,747		12,862		—		1,863,604

Total mortgage loans on real estate		2,156,897		30,437		16,785		—		2,204,119
Consumer:
Home equity lines of credit		281,480		1,747		1,729		—		284,956
Home equity loans		32,242		1,006		2,308		—		35,556
Other		25,885		334		75		—		26,294

Total consumer loans		339,607		3,087		4,112		—		346,806
Commercial		220,328		9,942		4,471		—		234,741
Construction:
Residential		81,235		32		266		—		81,533
Commercial		62,660		848		—		—		63,508

Total construction		143,895		880		266		—		145,041

Total loans	$	2,860,727	$	44,346	$	25,634	$	—	$	2,930,707


	Credit Quality Indicators PNCI Loans – As of September 30, 2018
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total PNCI Loans
Mortgage loans on real estate:
Residential 1-4 family	$	179,634	$	880	$	1,687	$	—	$	182,201
Commercial		729,261		3,478		3,560		—		736,299

Total mortgage loans on real estate		908,895		4,358		5,247		—		918,500
Consumer:
Home equity lines of credit		43,406		826		649		—		44,881
Home equity loans		4,471		116		103		—		4,690
Other		23,083		32		5		—		23,120

Total consumer loans		70,960		974		757		—		72,691
Commercial		51,633		734		112		—		52,479
Construction:
Residential		33,041		—		—		—		33,041
Commercial		6,220		—		—		—		6,220

Total construction		39,261		—		—		—		39,261

Total loans	$	1,070,749	$	6,066	$	6,116	$	—	$	1,082,931


	Credit Quality Indicators Originated Loans – As of December 31, 2017
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total Originated Loans
Mortgage loans on real estate:
Residential 1-4 family	$	315,120	$	2,234	$	3,168	$	—	$	320,522
Commercial		1,649,333		18,434		22,743		—		1,690,510

Total mortgage loans on real estate		1,964,453		20,668		25,911		—		2,011,032
Consumer:
Home equity lines of credit		265,345		2,558		2,039		—		269,942
Home equity loans		37,428		800		1,620		—		39,848
Other		22,432		272		155		—		22,859

Total consumer loans		325,205		3,630		3,814		—		332,649
Commercial		195,208		9,492		4,737		—		209,437
Construction:
Residential		67,813		—		107		—		67,920
Commercial		64,492		4,872		—		—		69,364

Total construction		132,305		4,872		107		—		137,284

Total loans	$	2,617,171	$	38,662	$	34,569	$	—	$	2,690,402


	Credit Quality Indicators PNCI Loans – As of December 31, 2017
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total PNCI Loans
Mortgage loans on real estate:
Residential 1-4 family	$	61,411	$	218	$	1,890	$	—	$	63,519
Commercial		203,751		11,513		559		—		215,823

Total mortgage loans on real estate		265,162		11,731		2,449		—		279,342
Consumer:
Home equity lines of credit		14,866		450		932		—		16,248
Home equity loans		2,433		188		77		—		2,698
Other		2,207		38		6		—		2,251

Total consumer loans		19,506		676		1,015		—		21,197
Commercial		8,390		1		—		—		8,391
Construction:
Residential		10		—		—		—		10
Commercial		263		—		—		—		263

Total construction		273		—		—		—		273

Total	$	293,331	$	12,408	$	3,464	$	—	$	309,203

Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal property, are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value. Typically, payment performance will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate, non-payment is likely due to loss of employment. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of the two.

Problem consumer loans are generally identified by payment history and current performance of the borrower (delinquency). The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to encourage repayment, suggest modifications if appropriate, and, when continued scheduled payments become unrealistic, initiate repossession or foreclosure through appropriate channels.

Commercial real estate loans generally fall into two categories, owner-occupied and non-owner occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the business conditions of the related business. This may be driven by, among other things, industry changes, geographic business changes, changes in the individual fortunes of the business owner, and general economic conditions and changes in business cycles. These same risks apply to commercial loans whether secured by equipment or other personal property or unsecured. Losses on loans secured by owner occupied real estate, equipment, or other personal property generally are dictated by the value of underlying collateral at the time of default and liquidation of the collateral. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven by more general economic conditions, underlying collateral generally has devalued more and results in larger losses due to default. Loans secured by non-owner occupied real estate are primarily susceptible to risks associated with swings in occupancy or vacancy and related shifts in lease rates, rental rates or room rates. Most often these shifts are a result of changes in general economic or market conditions or overbuilding and resultant over-supply. Losses are dependent on value of underlying collateral at the time of default. Values are generally driven by these same factors and influenced by interest rates and required rates of return as well as changes in occupancy costs.

Construction loans, whether owner occupied or non-owner occupied commercial real estate loans or residential development loans, are not only susceptible to the related risks described above but the added risks of construction itself including cost over-runs, mismanagement of the project, or lack of demand or market changes experienced at time of completion. Again, losses are primarily related to underlying collateral value and changes therein as described above.

Problem commercial loans are generally identified by periodic review of financial information which may include financial statements, tax returns, rent rolls and payment history of the borrower (delinquency). Based on this information the Bank may decide to take any of several courses of action including demand for repayment, additional collateral or guarantors, and, when repayment becomes unlikely through borrower’s income and cash flow, repossession or foreclosure of the underlying collateral.

Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations or revaluations are obtained at initiation of the credit and periodically, but not less than every twelve months depending on collateral type, once repayment is questionable and the loan has been classified.

Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss, using a recent valuation as appropriate to the underlying collateral less estimated costs of sale, and charge the loan down to the estimated net realizable amount. Depending on the length of time until ultimate collection, the Bank may revalue the underlying collateral and take additional charge-offs as warranted. Revaluations may occur as often as every 3-12 months depending on the underlying collateral and volatility of values. Final charge-offs or recoveries are taken when collateral is liquidated and actual loss is known. Unpaid balances on loans after or during collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment liens on borrower’s other assets.

The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:


	Analysis of Originated Past Due Loans - As of September 30, 2018												³ 90 Days and Still Accruing
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		³ 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	275	$	749	$	738	$	1,762	$	338,753	$	340,515	$	—
Commercial		499		150		117		766		1,862,838		1,863,604		—

Total mortgage loans on real estate		774		899		855		2,528		2,201,591		2,204,119		—
Consumer:
Home equity lines of credit		1,450		97		112		1,659		283,297		284,956		—
Home equity loans		527		293		411		1,231		34,325		35,556		—
Other		262		24		—		286		26,008		26,294		—

Total consumer loans		2,239		414		523		3,176		343,630		346,806		—
Commercial		1,010		134		1,309		2,453		232,288		234,741		—
Construction:
Residential		488		—		—		488		81,045		81,533		—
Commercial		—		—		—		—		63,508		63,508		—

Total construction		488		—		—		488		144,553		145,041		—

Total originated loans	$	4,511	$	1,447	$	2,687	$	8,645	$	2,922,062	$	2,930,707	$	—

The following table shows the ending balance of current and past due PNCI loans by loan category as of the date indicated:


	Analysis of PNCI Past Due Loans - As of September 30, 2018												³ 90 Days and Still Accruing
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		³ 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$		$	397	$	163	$	560	$	181,641	$	182,201	$	—
Commercial		992		18		949		1,959		734,340		736,299		949

Total mortgage loans on real estate		992		415		1,112		2,519		915,981		918,500		949
Consumer:
Home equity lines of credit		613		192		227		1,032		43,849		44,881		99
Home equity loans		262		—		16		278		4,412		4,690		—
Other		242		—		—		242		22,878		23,120		—

Total consumer loans		1,117		192		243		1,552		71,139		72,691		99
Commercial		30		472		—		502		51,977		52,479		—
Construction:
Residential		—		—		—		—		33,041		33,041		—
Commercial		—		—		—		—		6,220		6,220		—

Total construction		—		—		—		—		39,261		39,261		—

Total PNCI loans	$	2,139	$	1,079	$	1,355	$	4,573	$	1,078,358	$	1,082,931	$	1,048

The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:


	Analysis of Originated Past Due Loans - As of December 31, 2017												³ 90 Days and Still Accruing
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		³ 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	1,740	$	510	$	243	$	2,493	$	318,029	$	320,522	$	—
Commercial		158		987		—		1,145		1,689,365		1,690,510		—

Total mortgage loans on real estate		1,898		1,497		243		3,638		2,007,394		2,011,032		—
Consumer:
Home equity lines of credit		528		48		372		948		268,994		269,942		—
Home equity loans		511		107		373		991		38,857		39,848		—
Other		56		36		3		95		22,764		22,859		—

Total consumer loans		1,095		191		748		2,034		330,615		332,649		—
Commercial		956		738		1,527		3,221		206,216		209,437		—
Construction:
Residential		34		—		—		34		67,886		67,920		—
Commercial		—		—		—		—		69,364		69,364		—

Total construction		34		—		—		34		137,250		137,284		—

Total loans	$	3,983	$	2,426	$	2,518	$	8,927	$	2,681,475	$	2,690,402	$	—

The following table shows the ending balance of current and past due PNCI loans by loan category as of the date indicated:


	Analysis of PNCI Past Due Loans - As of December 31, 2017												> 90 Days and Still Accruing
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	1,495	$	90	$	109	$	1,694	$	61,825	$	63,519	$	81
Commercial		70		—		—		70		215,753		215,823		—

Total mortgage loans on real estate		1,565		90		109		1,764		277,578		279,342		81
Consumer:
Home equity lines of credit		298		228		330		856		15,392		16,248		200
Home equity loans		30		—		—		30		2,668		2,698		—
Other		6		26		—		32		2,219		2,251		—

Total consumer loans		334		254		330		918		20,279		21,197		200
Commercial		—		—		—		—		8,391		8,391		—
Construction:
Residential		—		—		—		—		10		10		—
Commercial		—		—		—		—		263		263		—

Total construction		—		—		—		—		273		273		—

Total loans	$	1,899	$	344	$	439	$	2,682	$	306,521	$	309,203	$	281

Interest income on originated nonaccrual loans that would have been recognized during the three months ended September 30, 2018 and 2017, if all such loans had been current in accordance with their original terms, totaled $338,000 and $244,000, respectively. Interest income actually recognized on these originated loans during the three months ended September 30, 2018 and 2017 was $59,000 and $33,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the three months ended September 30, 2018 and 2017, if all such loans had been current in accordance with their original terms, totaled $39,000 and $90,000, respectively. Interest income actually recognized on these PNCI loans during the three months ended September 30, 2018 and 2017 was $12,000 and $2,000.

Interest income on originated nonaccrual loans that would have been recognized during the nine months ended September 30, 2018 and 2017, if all such loans had been current in accordance with their original terms, totaled $964,000 and $617,000, respectively. Interest income actually recognized on these originated loans during the nine months ended September 30, 2018 and 2017 was $133,000 and $49,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the nine months ended September 30, 2018 and 2017, if all such loans had been current in accordance with their original terms, totaled $93,000 and $188,000. Interest income actually recognized on these PNCI loans during the nine months ended September 30, 2018 and 2017 was $23,000 and $14,000.

The following table shows the ending balance of nonaccrual originated and PNCI loans by loan category as of the date indicated:


	Non Accrual Loans
	As of September 30, 2018						As of December 31, 2017
(in thousands)	Originated		PNCI		Total		Originated		PNCI		Total
Mortgage loans on real estate:
Residential 1-4 family	$	2,813	$	1,219	$	4,032	$	1,725	$	1,012	$	2,737
Commercial		7,876		305		8,181		8,144		—		8,144

Total mortgage loans on real estate		10,689		1,524		12,213		9,869		1,012		10,881
Consumer:
Home equity lines of credit		725		568		1,293		811		402		1,213
Home equity loans		1,933		50		1,983		1,106		44		1,150
Other		3		5		8		7		5		12

Total consumer loans		2,661		623		3,284		1,924		451		2,375
Commercial		3,737		—		3,737		3,669		—		3,669
Construction:
Residential		—		—		—		—		—		—
Commercial		—		—		—		—		—		—

Total construction		—		—		—		—		—		—

Total non accrual loans	$	17,087	$	2,147	$	19,234	$	15,462	$	1,463	$	16,925

Impaired originated loans are those where management has concluded that it is probable that the borrower will be unable to pay all amounts due in accordance with the original contractual terms of the loan agreement. The following tables show the recorded investment (financial statement balance), unpaid principal balance, average recorded investment, and interest income recognized for impaired Originated and PNCI loans, segregated by those with no related allowance recorded and those with an allowance recorded for the periods indicated. The average recorded investment and interest income recognized for the three month periods ended September 30, 2018 and 2017 has not been separately presented as the amounts are not considered significant for disclosure.


	Impaired Originated Loans – As of, or for the Nine Months Ended, September 30, 2018
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	4,185	$	3,251	$	311	$	3,562	$	57	$	3,883	$	67
Commercial		12,553		9,619		2,370		11,989		268		11,549		208

Total mortgage loans on real estate		16,738		12,870		2,681		15,551		325		15,432		275
Consumer:
Home equity lines of credit		1,444		1,346		59		1,405		19		1,410		32
Home equity loans		2,554		1,960		157		2,117		30		1,753		24
Other		3		—		3		3		3		3		—

Total consumer loans		4,001		3,306		219		3,525		52		3,166		56
Commercial		4,868		2,135		2,497		4,632		1,857		4,626		78
Construction:
Residential		—		—		—		—		—		68		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		68		—

Total	$	25,607	$	18,311	$	5,397	$	23,708	$	2,234	$	23,292	$	409


	Impaired PNCI Loans – As of, or for the Nine Months Ended, September 30, 2018
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	1,302	$	1,219	$	—	$	1,219	$	—	$	1,275	$	—
Commercial		1,255		1,255		—		1,255		—		627		58

Total mortgage loans on real estate		2,557		2,474		—		2,474		—		1,902		58
Consumer:
Home equity lines of credit		852		625		158		783		149		909		13
Home equity loans		296		50		239		289		145		287		9
Other		240		—		240		240		100		257		7

Total consumer loans		1,388		675		637		1,312		394		1,453		29
Commercial		—		—		—		—		—		—		—
Construction:
Residential		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		—		—

Total	$	3,945	$	3,149	$	637	$	3,786	$	394	$	3,355	$	87


	Impaired Originated Loans – As of, or for the Twelve Months Ended, December 31, 2017
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	4,023	$	2,058	$	1,881	$	3,939	$	230	$	3,501	$	143
Commercial		14,186		13,101		810		13,911		30		13,851		645

Total mortgage loans on real estate		18,209		15,159		2,691		17,850		260		17,352		788
Consumer:
Home equity lines of credit		1,581		1,093		401		1,494		111		1,702		47
Home equity loans		1,627		1,107		198		1,305		10		1,193		24
Other		52		4		3		7		3		20		—

Total consumer loans		3,260		2,204		602		2,806		124		2,915		71
Commercial		4,566		575		3,895		4,470		1,848		4,283		184
Construction:
Residential		140		140		—		140		—		76		9
Commercial		—		—		—		—		—		—		—

Total construction		140		140		—		140		—		76		9

Total	$	26,175	$	18,078	$	7,188	$	25,266	$	2,232	$	24,626	$	1,052


	Impaired PNCI Loans – As of, or for the Twelve Months Ended, December 31, 2017
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	1,404	$	1,359	$	—	$	1,359	$	—	$	1,041	$	24
Commercial		—		—		—		—		—		979		—

Total mortgage loans on real estate		1,404		1,359		—		1,359		—		2,020		24
Consumer:
Home equity lines of credit		1,216		591		603		1,194		316		1,240		48
Home equity loa

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