tbnk_Current folio_10Q

Table of Contents

 

 

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, 2016

 

or

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For transition period from               to               

 

Commission File Number  1-34403

 

TERRITORIAL BANCORP INC.

(Exact Name of Registrant as Specified in Charter)

 

Maryland

 

26-4674701

(State or Other Jurisdiction of Incorporation)

 

(I.R.S. Employer Identification No.)

 

 

1132 Bishop Street, Suite 2200, Honolulu, Hawaii

 

96813

(Address of Principal Executive Offices)

 

(Zip Code)

 

(808) 946-1400

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

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 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, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer ☐

 

Accelerated filer ☒

Non-accelerated filer ☐

 

Smaller reporting company ☐

 

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 of each of the issuer’s classes of common stock as of the latest practicable date: 9,764,169 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of October 31, 2016.

 

 

 


 

Table of Contents

TERRITORIAL BANCORP INC.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

PART I 

 

 

 

ITEM 1. 

FINANCIAL STATEMENTS

ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

28 

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

40 

ITEM 4. 

CONTROLS AND PROCEDURES

41 

 

 

 

PART II 

 

ITEM 1. 

LEGAL PROCEEDINGS

42 

ITEM 1A. 

RISK FACTORS

42 

ITEM 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

43 

ITEM 3. 

DEFAULTS UPON SENIOR SECURITIES

43 

ITEM 4. 

MINE SAFETY DISCLOSURES

43 

ITEM 5. 

OTHER INFORMATION

43 

ITEM 6. 

EXHIBITS

43 

 

 

 

SIGNATURES 

44 

 

 

 


 

Table of Contents

PART I

 

ITEM 1.     FINANCIAL STATEMENTS

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,503

 

$

65,919

 

Investment securities held to maturity, at amortized cost (fair value of $449,146 and $497,982 at September 30, 2016 and December 31, 2015, respectively)

 

 

432,142

 

 

493,059

 

Loans held for sale

 

 

2,048

 

 

2,139

 

Loans receivable, net

 

 

1,302,343

 

 

1,188,649

 

Federal Home Loan Bank stock, at cost

 

 

4,945

 

 

4,790

 

Federal Reserve Bank stock, at cost

 

 

3,081

 

 

3,022

 

Accrued interest receivable

 

 

4,752

 

 

4,684

 

Premises and equipment, net

 

 

4,207

 

 

4,903

 

Bank-owned life insurance

 

 

43,055

 

 

42,328

 

Current taxes receivable

 

 

737

 

 

 —

 

Deferred income tax assets, net

 

 

8,250

 

 

9,378

 

Prepaid expenses and other assets

 

 

2,586

 

 

2,270

 

Total assets

 

$

1,848,649

 

$

1,821,141

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits

 

$

1,464,479

 

$

1,445,103

 

Advances from the Federal Home Loan Bank

 

 

69,000

 

 

69,000

 

Securities sold under agreements to repurchase

 

 

55,000

 

 

55,000

 

Accounts payable and accrued expenses

 

 

26,805

 

 

25,178

 

Current taxes payable

 

 

1,651

 

 

2,095

 

Advance payments by borrowers for taxes and insurance

 

 

3,296

 

 

5,124

 

  Total liabilities

 

 

1,620,231

 

 

1,601,500

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, $.01 par value; authorized 50,000,000 shares, no shares issued or outstanding

 

 

 —

 

 

 —

 

Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 9,764,169 and 9,659,685 shares at September 30, 2016 and December 31, 2015, respectively

 

 

97

 

 

96

 

Additional paid-in capital

 

 

71,400

 

 

70,118

 

Unearned ESOP shares

 

 

(5,994)

 

 

(6,361)

 

Retained earnings

 

 

168,071

 

 

161,024

 

Accumulated other comprehensive loss

 

 

(5,156)

 

 

(5,236)

 

  Total stockholders’ equity

 

 

228,418

 

 

219,641

 

  Total liabilities and stockholders’ equity

 

$

1,848,649

 

$

1,821,141

 

 

See accompanying notes to consolidated financial statements.

1


 

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

13,052

 

$

11,809

 

$

38,060

 

$

33,761

 

Investment securities

 

 

3,496

 

 

4,098

 

 

11,121

 

 

12,895

 

Other investments

 

 

121

 

 

64

 

 

411

 

 

213

 

Total interest and dividend income

 

 

16,669

 

 

15,971

 

 

49,592

 

 

46,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,485

 

 

1,198

 

 

4,363

 

 

3,486

 

Advances from the Federal Home Loan Bank

 

 

259

 

 

211

 

 

772

 

 

438

 

Securities sold under agreements to repurchase

 

 

220

 

 

221

 

 

656

 

 

776

 

Total interest expense

 

 

1,964

 

 

1,630

 

 

5,791

 

 

4,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

14,705

 

 

14,341

 

 

43,801

 

 

42,169

 

Provision for loan losses

 

 

107

 

 

71

 

 

219

 

 

366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

14,598

 

 

14,270

 

 

43,582

 

 

41,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service fees on loan and deposit accounts

 

 

493

 

 

590

 

 

1,422

 

 

1,577

 

Income on bank-owned life insurance

 

 

240

 

 

259

 

 

727

 

 

770

 

Gain on sale of investment securities

 

 

60

 

 

 —

 

 

250

 

 

476

 

Gain on sale of loans

 

 

114

 

 

201

 

 

304

 

 

440

 

Other

 

 

96

 

 

138

 

 

320

 

 

419

 

Total noninterest income

 

 

1,003

 

 

1,188

 

 

3,023

 

 

3,682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,265

 

 

5,596

 

 

15,947

 

 

15,759

 

Occupancy

 

 

1,432

 

 

1,483

 

 

4,285

 

 

4,348

 

Equipment

 

 

865

 

 

1,025

 

 

2,683

 

 

2,923

 

Federal deposit insurance premiums

 

 

144

 

 

214

 

 

596

 

 

634

 

Other general and administrative expenses

 

 

939

 

 

1,048

 

 

3,181

 

 

3,449

 

Total noninterest expense

 

 

8,645

 

 

9,366

 

 

26,692

 

 

27,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

6,956

 

 

6,092

 

 

19,913

 

 

18,372

 

Income taxes

 

 

2,792

 

 

2,406

 

 

7,928

 

 

7,323

 

Net income

 

$

4,164

 

$

3,686

 

$

11,985

 

$

11,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.46

 

$

0.41

 

$

1.32

 

$

1.22

 

Diluted earnings per share

 

$

0.45

 

$

0.40

 

$

1.29

 

$

1.19

 

Cash dividends declared per common share

 

$

0.18

 

$

0.17

 

$

0.54

 

$

0.49

 

Basic weighted-average shares outstanding

 

 

9,102,837

 

 

9,085,725

 

 

9,065,892

 

 

9,086,481

 

Diluted weighted-average shares outstanding

 

 

9,325,506

 

 

9,301,500

 

 

9,280,260

 

 

9,250,835

 

 

See accompanying notes to consolidated financial statements.

2


 

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

    

2015

 

2016

 

2015

 

Net income

 

$

4,164

 

$

3,686

 

$

11,985

 

$

11,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unfunded pension liability

 

 

 —

 

 

 —

 

 

(21)

 

 

(64)

 

Change in unrealized loss on securities

 

 

4

 

 

8

 

 

10

 

 

24

 

Change in noncredit related loss on trust preferred securities

 

 

45

 

 

(7)

 

 

91

 

 

101

 

Other comprehensive income, net of tax

 

 

49

 

 

1

 

 

80

 

 

61

 

Comprehensive income

 

$

4,213

 

$

3,687

 

$

12,065

 

$

11,110

 

 

See accompanying notes to consolidated financial statements.

3


 

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

Unearned

 

 

 

 

Other

 

Total

 

 

 

Common

 

Paid-in

 

ESOP

 

Retained

 

Comprehensive

 

Stockholders’

 

 

 

Stock

 

Capital

 

Shares

 

Earnings

 

Income (Loss)

 

Equity

 

Balances at December 31, 2014

 

$

99

 

$

75,229

 

$

(6,851)

 

$

153,289

 

$

(5,388)

 

$

216,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

11,049

 

 

 —

 

 

11,049

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

61

 

 

61

 

Cash dividends declared ($0.49 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,553)

 

 

 —

 

 

(4,553)

 

Share-based compensation

 

 

1

 

 

2,416

 

 

 —

 

 

 —

 

 

 —

 

 

2,417

 

Allocation of 36,699 ESOP shares

 

 

 —

 

 

499

 

 

367

 

 

 —

 

 

 —

 

 

866

 

Repurchase of 334,976 shares of company common stock

 

 

(3)

 

 

(7,866)

 

 

 —

 

 

 —

 

 

 —

 

 

(7,869)

 

Exercise of 1,000 options for common stock

 

 

 —

 

 

17

 

 

 —

 

 

 —

 

 

 —

 

 

17

 

Balances at September 30, 2015

 

$

97

 

$

70,295

 

$

(6,484)

 

$

159,785

 

$

(5,327)

 

$

218,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2015

 

$

96

 

$

70,118

 

$

(6,361)

 

$

161,024

 

$

(5,236)

 

$

219,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

11,985

 

 

 —

 

 

11,985

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

80

 

 

80

 

Cash dividends declared ($0.54 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,938)

 

 

 —

 

 

(4,938)

 

Share-based compensation

 

 

1

 

 

1,778

 

 

 —

 

 

 —

 

 

 —

 

 

1,779

 

Allocation of 36,699 ESOP shares

 

 

 —

 

 

612

 

 

367

 

 

 —

 

 

 —

 

 

979

 

Repurchase of 100,758 shares of company common stock

 

 

(1)

 

 

(2,724)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,725)

 

Exercise of 93,100 options for common stock

 

 

1

 

 

1,616

 

 

 —

 

 

 —

 

 

 —

 

 

1,617

 

Balances at September 30, 2016

 

$

97

 

$

71,400

 

$

(5,994)

 

$

168,071

 

$

(5,156)

 

$

228,418

 

 

See accompanying notes to consolidated financial statements.

4


 

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

11,985

 

$

11,049

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

219

 

 

366

 

Depreciation and amortization

 

 

886

 

 

985

 

Deferred income tax expense (benefit)

 

 

1,041

 

 

(1,152)

 

Amortization of fees, discounts, and premiums

 

 

(604)

 

 

(374)

 

Origination of loans held for sale

 

 

(39,336)

 

 

(45,452)

 

Proceeds from sales of loans held for sale

 

 

38,844

 

 

46,459

 

Gain on sale of loans, net

 

 

(304)

 

 

(440)

 

Net gain on sale of real estate owned

 

 

 —

 

 

(12)

 

Gain on sale of investment securities held to maturity

 

 

(250)

 

 

(476)

 

Net loss on disposal of premises and equipment

 

 

 —

 

 

4

 

ESOP expense

 

 

979

 

 

866

 

Share-based compensation expense

 

 

1,779

 

 

2,417

 

Increase in accrued interest receivable

 

 

(66)

 

 

(306)

 

Net increase in bank-owned life insurance

 

 

(727)

 

 

(769)

 

Net increase in prepaid expenses and other assets

 

 

(316)

 

 

(573)

 

Net increase in accounts payable and accrued expenses

 

 

1,558

 

 

3,819

 

Net decrease in advance payments by borrowers for taxes and insurance

 

 

(1,828)

 

 

(822)

 

Net increase in income taxes receivable

 

 

(737)

 

 

(1,523)

 

Net increase (decrease) in income taxes payable

 

 

(444)

 

 

650

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

 

12,679

 

 

14,716

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of investment securities held to maturity

 

 

(2,523)

 

 

(10,300)

 

Principal repayments on investment securities held to maturity

 

 

60,077

 

 

69,966

 

Proceeds from sale of investment securities held to maturity

 

 

3,923

 

 

5,083

 

Loan originations, net of principal repayments on loans receivable

 

 

(112,498)

 

 

(194,900)

 

Purchases of Federal Home Loan Bank stock

 

 

(275)

 

 

(2,920)

 

Proceeds from redemption of Federal Home Loan Bank stock

 

 

120

 

 

9,564

 

Purchases of Federal Reserve Bank stock

 

 

(59)

 

 

(64)

 

Proceeds from sale of real estate owned

 

 

 —

 

 

204

 

Purchases of premises and equipment

 

 

(190)

 

 

(416)

 

 

 

 

 

 

 

 

 

Net cash from investing activities

 

 

(51,425)

 

 

(123,783)

 

 

(Continued)

 

5


 

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

2015

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net increase in deposits

 

$

19,376

 

$

53,318

 

Proceeds from advances from the Federal Home Loan Bank

 

 

3,000

 

 

115,000

 

Repayments of advances from the Federal Home Loan Bank

 

 

(3,000)

 

 

(66,000)

 

Proceeds from securities sold under agreements to repurchase

 

 

 —

 

 

30,000

 

Repayments of securities sold under agreements to repurchase

 

 

 —

 

 

(47,000)

 

Purchases of Fed Funds

 

 

10

 

 

10

 

Sales of Fed Funds

 

 

(10)

 

 

(10)

 

Proceeds from issuance of common stock

 

 

566

 

 

17

 

Repurchases of common stock

 

 

(1,674)

 

 

(7,309)

 

Cash dividends paid

 

 

(4,938)

 

 

(4,553)

 

 

 

 

 

 

 

 

 

Net cash from financing activities

 

 

13,330

 

 

73,473

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(25,416)

 

 

(35,594)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

 

65,919

 

 

75,060

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

$

40,503

 

$

39,466

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest on deposits and borrowings

 

$

5,770

 

$

4,780

 

Income taxes

 

 

8,068

 

 

8,932

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

Company stock acquired through swap and net settlement transactions

 

$

1,051

 

$

 —

 

Loans transferred to real estate owned

 

 

 —

 

 

192

 

 

See accompanying notes to consolidated financial statements.

 

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TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)      Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Territorial Bancorp Inc. (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  These interim condensed consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed as part of the Annual Report on Form 10-K for the year ended December 31, 2015.  In the opinion of management, all adjustments necessary for a fair presentation have been made and consist only of normal recurring adjustments.  Interim results of operations are not necessarily indicative of results to be expected for the year.

.

 

(2)      Organization

 

On July 10, 2009, Territorial Savings Bank completed a conversion from a mutual holding company to a stock holding company.  As part of the conversion, Territorial Mutual Holding Company and Territorial Savings Group, Inc., the former holding companies for Territorial Savings Bank, ceased to exist as separate legal entities, and Territorial Bancorp Inc. became the holding company for Territorial Savings Bank. Upon completion of the conversion and reorganization, a special “liquidation account” was established in an amount equal to the total equity of Territorial Mutual Holding Company as of December 31, 2008.  The liquidation account is to provide eligible account holders and supplemental eligible account holders who maintain their deposit accounts with Territorial Savings Bank after the conversion with a liquidation interest in the unlikely event of the complete liquidation of Territorial Savings Bank after the conversion.  The balance of the liquidation account at December 31, 2015 was $13.5 million.

 

On June 25, 2014, Territorial Savings Bank converted from a federal savings bank to a Hawaii state-chartered savings bank.  On July 10, 2014, Territorial Savings Bank became a member of the Federal Reserve System.

 

(3)      Recently Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) amended the Revenue Recognition topic of the FASB Accounting Standards Codification (ASC).  The amendment seeks to clarify the principles for recognizing revenue as well as to develop common revenue standards for U.S. generally accepted accounting principles and International Financial Reporting Standards.  The amendment is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted.  In August 2015, the FASB deferred the effective date of the amendment by one year.  However, entities may still choose to adopt the amendment as of the original effective date.  The Company does not expect the adoption of this amendment to have a material effect on its consolidated financial statements.

 

In April 2015, the FASB amended the Intangibles – Goodwill and Other topic of the FASB ASC.  The amendment adds guidance to help entities evaluate the accounting for fees paid in cloud computing arrangements.  The amendment is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  The Company adopted this amendment on January 1, 2016, and the adoption did not have a material effect on its consolidated financial statements.

 

In January 2016, the FASB amended the Financial Instruments – Overall topic of the FASB ASC.  The amendment addresses several aspects of recognition, measurement, presentation and disclosure of financial instruments.  Included are: (a) a requirement to measure equity investments at fair value, with changes in fair value recognized in net income, (b) a simplification of the impairment assessment of equity investments without readily determinable fair values, (c) the elimination of the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet, and (d) a requirement to use the exit

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price notion when measuring the fair value of financial instruments for disclosure purposes.   The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Company does not expect the adoption of this amendment to have a material effect on its consolidated financial statements.

 

In February 2016, the FASB amended the Leases topic of the FASB ASC.  The primary effects of the amendment will be to recognize lease assets and lease liabilities on the balance sheet and to disclose certain information about leasing arrangements.  The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements.

 

In March 2016, the FASB amended the Compensation – Stock Compensation topic of the FASB ASC.  The amendment seeks to simplify several areas of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification of transactions on the statement of cash flows.  The amendment is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods.  The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements.

 

In June 2016, the FASB amended various sections of the FASB ASC related to the accounting for credit losses on financial instruments.  The primary areas affecting the Company will be in the accounting for loans receivable and investments held to maturity.  The amendment changes the threshold for recognizing losses from “probable” to “expected” and may result in increases in the Company’s allowances for loan and investment losses.  The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements.

 

(4)      Cash and Cash Equivalents

 

The table below presents the balances of cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(Dollars in thousands)

 

2016

 

2015

 

Cash and due from banks

 

$

9,391

 

$

10,318

 

Interest-earning deposits in other banks

 

 

31,112

 

 

55,601

 

  Cash and cash equivalents

 

$

40,503

 

$

65,919

 

 

Interest-earning deposits in other banks consist primarily of deposits at the Federal Reserve Bank.

 

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(5)      Investment Securities

 

The amortized cost and fair values of investment securities are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

Gross Unrealized

 

Estimated

 

(Dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Fair Value

 

September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

431,076

 

$

17,228

 

$

(224)

 

$

448,080

 

Trust preferred securities

 

 

1,066

 

 

 —

 

 

 —

 

 

1,066

 

Total

 

$

432,142

 

$

17,228

 

$

(224)

 

$

449,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

492,143

 

$

11,092

 

$

(6,169)

 

$

497,066

 

Trust preferred securities

 

 

916

 

 

 —

 

 

 —

 

 

916

 

Total

 

$

493,059

 

$

11,092

 

$

(6,169)

 

$

497,982

 

 

The amortized cost and estimated fair value of investment securities at September 30, 2016 are shown below.  Incorporated in the maturity schedule are mortgage-backed and trust preferred securities, which are allocated using the contractual maturity as a basis.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

 

 

 

 

 

 

    

Amortized

    

Estimated

 

(Dollars in thousands)

 

Cost

 

Fair Value

 

Held-to-maturity:

 

 

 

 

 

 

 

Due within 5 years

 

$

25

 

$

27

 

Due after 5 years through 10 years

 

 

52

 

 

52

 

Due after 10 years

 

 

432,065

 

 

449,067

 

Total

 

$

432,142

 

$

449,146

 

 

Realized gains and losses and the proceeds from sales of securities held to maturity and trading are shown in the table below.  All sales of securities were U.S. government-sponsored mortgage-backed securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(Dollars in thousands)

 

2016

 

2015

 

2016

 

2015

 

Proceeds from sales

 

$

801

 

$

 —

 

$

3,923

 

$

5,083

 

Gross gains

 

 

60

 

 

 —

 

 

250

 

 

476

 

Gross losses

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

During the three months ended September 30, 2016, the Company received proceeds of $801,000 from the sale of $741,000 of held-to-maturity mortgage-backed securities, resulting in gross realized gains of $60,000.  The Company did not sell any held-to-maturity mortgage-backed securities during the three months ended September 30, 2015.  During the nine months ended September 30, 2016 and 2015, the Company received proceeds of $3.9 million and $5.0 million, respectively, from the sale of $3.7 million and $4.6 million, respectively, of held-to-maturity mortgage-backed securities, resulting in gross realized gains of $250,000 and $415,000, respectively.  The sale of these mortgage-backed securities, for which the Company had already collected a substantial portion of the outstanding purchased principal (at least 85%), is in accordance with the Investments – Debt and Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity.

 

During the nine months ended September 30, 2015, the Company received proceeds of $61,000 from the sale of one of the trust preferred securities the Company owned, PreTSL XXIV. The Company previously wrote off the entire book value of this security when it incurred an other-than-temporary impairment charge in prior years. The trust preferred security sold was classified in the held-to-maturity portfolio. Since the credit rating of this security was

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downgraded in accordance with the Investments – Dept and Equity Securities topic of the FASB ASC, the sale of this security does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity.

 

Investment securities with amortized costs of $224.7 million and $241.4 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and transaction clearing accounts.

 

Provided below is a summary of investment securities which were in an unrealized loss position at September 30, 2016 and December 31, 2015.  The Company does not intend to sell these securities until such time as the value recovers or the securities mature and it is not more likely than not that the Company will be required to sell the securities prior to recovery of value or the securities mature.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Than 12 Months

 

12 Months or Longer

 

Total

 

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

Number of

    

 

 

    

Unrealized

 

Description of securities

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

 —

 

$

 —

 

$

25,627

 

$

224

 

10

 

$

25,627

 

$

224

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

142,810

 

$

3,939

 

$

53,142

 

$

2,230

 

43

 

$</