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 March 31, 2018

 

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, former address and formal fiscal year, 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, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer ☒

Non-accelerated filer ☐

 

(Do not check if a smaller reporting company)

Smaller reporting company ☐

 

Emerging growth company ☐

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 9,733,830 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of April 30, 2018.

 

 

 


 

Table of Contents

TERRITORIAL BANCORP INC.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

PART I 

 

 

 

ITEM 1. 

FINANCIAL STATEMENTS

1

ITEM 2. 

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

27

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

37

ITEM 4. 

CONTROLS AND PROCEDURES

38

 

 

 

PART II 

 

ITEM 1. 

LEGAL PROCEEDINGS

39

ITEM 1A. 

RISK FACTORS

39

ITEM 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

39

ITEM 3. 

DEFAULTS UPON SENIOR SECURITIES

39

ITEM 4. 

MINE SAFETY DISCLOSURES

39

ITEM 5. 

OTHER INFORMATION

39

ITEM 6. 

EXHIBITS

39

 

 

 

SIGNATURES 

41

 

 

 


 

Table of Contents

PART I

 

ITEM 1.     FINANCIAL STATEMENTS

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,112

 

$

32,089

 

Investment securities available for sale

 

 

2,733

 

 

2,851

 

Investment securities held to maturity, at amortized cost (fair value of $402,659 and $406,663 at March 31, 2018 and December 31, 2017, respectively)

 

 

409,285

 

 

404,792

 

Loans held for sale

 

 

 —

 

 

403

 

Loans receivable, net

 

 

1,505,058

 

 

1,488,971

 

Federal Home Loan Bank stock, at cost

 

 

6,325

 

 

6,541

 

Federal Reserve Bank stock, at cost

 

 

3,106

 

 

3,103

 

Accrued interest receivable

 

 

5,183

 

 

5,142

 

Premises and equipment, net

 

 

5,588

 

 

5,721

 

Bank-owned life insurance

 

 

44,416

 

 

44,201

 

Income taxes receivable

 

 

13

 

 

1,571

 

Deferred income tax assets, net

 

 

4,993

 

 

4,609

 

Prepaid expenses and other assets

 

 

3,889

 

 

3,852

 

Total assets

 

$

2,055,701

 

$

2,003,846

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits

 

$

1,665,172

 

$

1,597,295

 

Advances from the Federal Home Loan Bank

 

 

98,000

 

 

107,200

 

Securities sold under agreements to repurchase

 

 

30,000

 

 

30,000

 

Accounts payable and accrued expenses

 

 

24,645

 

 

26,390

 

Income taxes payable

 

 

1,617

 

 

1,483

 

Advance payments by borrowers for taxes and insurance

 

 

3,895

 

 

6,624

 

  Total liabilities

 

 

1,823,329

 

 

1,768,992

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; authorized 50,000,000 shares, no shares issued or outstanding

 

 

 —

 

 

 —

 

Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 9,733,830 and 9,915,058 shares at March 31, 2018 and December 31, 2017, respectively

 

 

97

 

 

99

 

Additional paid-in capital

 

 

67,557

 

 

73,050

 

Unearned ESOP shares

 

 

(5,260)

 

 

(5,383)

 

Retained earnings

 

 

176,856

 

 

172,782

 

Accumulated other comprehensive loss

 

 

(6,878)

 

 

(5,694)

 

  Total stockholders’ equity

 

 

232,372

 

 

234,854

 

  Total liabilities and stockholders’ equity

 

$

2,055,701

 

$

2,003,846

 

 

 

 

 

 

 

 

 

 

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

 

 

 

March 31,

 

 

 

2018

 

2017

 

Interest income:

 

 

 

 

 

 

 

Loans

 

$

14,907

 

$

13,513

 

Investment securities

 

 

3,129

 

 

3,081

 

Other investments

 

 

198

 

 

187

 

Total interest income

 

 

18,234

 

 

16,781

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

Deposits

 

 

2,451

 

 

1,651

 

Advances from the Federal Home Loan Bank

 

 

419

 

 

254

 

Securities sold under agreements to repurchase

 

 

125

 

 

216

 

Total interest expense

 

 

2,995

 

 

2,121

 

 

 

 

 

 

 

 

 

Net interest income

 

 

15,239

 

 

14,660

 

Provision for loan losses

 

 

 9

 

 

71

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

15,230

 

 

14,589

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

Service fees on loan and deposit accounts

 

 

415

 

 

556

 

Income on bank-owned life insurance

 

 

215

 

 

226

 

Gain on sale of investment securities

 

 

 —

 

 

95

 

Gain on sale of loans

 

 

43

 

 

63

 

Other

 

 

69

 

 

82

 

Total noninterest income

 

 

742

 

 

1,022

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,647

 

 

5,083

 

Occupancy

 

 

1,516

 

 

1,449

 

Equipment

 

 

942

 

 

866

 

Federal deposit insurance premiums

 

 

153

 

 

148

 

Other general and administrative expenses

 

 

1,135

 

 

1,161

 

Total noninterest expense

 

 

9,393

 

 

8,707

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

6,579

 

 

6,904

 

Income taxes

 

 

1,759

 

 

2,583

 

Net income

 

$

4,820

 

$

4,321

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.52

 

$

0.47

 

Diluted earnings per share

 

$

0.51

 

$

0.46

 

Cash dividends declared per common share

 

$

0.20

 

$

0.20

 

Basic weighted-average shares outstanding

 

 

9,284,496

 

 

9,215,142

 

Diluted weighted-average shares outstanding

 

 

9,484,177

 

 

9,445,989

 

 

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

 

 

 

March 31,

 

 

 

2018

 

2017

 

Net income

 

$

4,820

 

$

4,321

 

 

 

 

 

 

 

 

 

Change in unrealized loss on securities

 

 

(49)

 

 

 2

 

Other comprehensive income (loss), net of tax

 

 

(49)

 

 

 2

 

Comprehensive income

 

$

4,771

 

$

4,323

 

 

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, 2016

 

$

98

 

$

71,914

 

$

(5,872)

 

$

168,962

 

$

(5,316)

 

$

229,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

4,321

 

 

 —

 

 

4,321

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 2

 

Cash dividends paid ($0.20 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,842)

 

 

 —

 

 

(1,842)

 

Share-based compensation

 

 

 —

 

 

(38)

 

 

 —

 

 

 —

 

 

 —

 

 

(38)

 

Allocation of 12,233 ESOP shares

 

 

 —

 

 

273

 

 

122

 

 

 —

 

 

 —

 

 

395

 

Repurchase of 28,702 shares of company common stock

 

 

(1)

 

 

(954)

 

 

 —

 

 

 —

 

 

 —

 

 

(955)

 

Exercise of 54,976 options for common stock

 

 

 1

 

 

954

 

 

 —

 

 

 —

 

 

 —

 

 

955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2017

 

$

98

 

$

72,149

 

$

(5,750)

 

$

171,441

 

$

(5,314)

 

$

232,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

$

99

 

$

73,050

 

$

(5,383)

 

$

172,782

 

$

(5,694)

 

$

234,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

4,820

 

 

 —

 

 

4,820

 

Other comprehensive loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(49)

 

 

(49)

 

Reclassification of deferred taxes

 

 

 —

 

 

 —

 

 

 —

 

 

1,135

 

 

(1,135)

 

 

 —

 

Cash dividends paid ($0.20 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,881)

 

 

 —

 

 

(1,881)

 

Share-based compensation

 

 

 —

 

 

67

 

 

 —

 

 

 —

 

 

 —

 

 

67

 

Allocation of 12,233 ESOP shares

 

 

 —

 

 

253

 

 

123

 

 

 —

 

 

 —

 

 

376

 

Repurchase of 199,236 shares of company common stock

 

 

(2)

 

 

(6,125)

 

 

 —

 

 

 —

 

 

 —

 

 

(6,127)

 

Exercise of 18,008 options for common stock

 

 

 —

 

 

312

 

 

 —

 

 

 —

 

 

 —

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2018

 

$

97

 

$

67,557

 

$

(5,260)

 

$

176,856

 

$

(6,878)

 

$

232,372

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

4,820

 

$

4,321

 

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

 

 

 

 

 

 

 

Provision for loan losses

 

 

 9

 

 

71

 

Depreciation and amortization

 

 

314

 

 

243

 

Deferred income tax expense (benefit)

 

 

(367)

 

 

367

 

Amortization of fees, discounts, and premiums

 

 

(136)

 

 

(129)

 

Origination of loans held for sale

 

 

(4,129)

 

 

(8,098)

 

Proceeds from sales of loans held for sale

 

 

4,575

 

 

8,011

 

Gain on sale of loans, net

 

 

(43)

 

 

(63)

 

Net gain on sale of real estate owned

 

 

(4)

 

 

 —

 

Gain on sale of investment securities held to maturity

 

 

 —

 

 

(95)

 

ESOP expense

 

 

376

 

 

395

 

Share-based compensation expense

 

 

67

 

 

(38)

 

Increase in accrued interest receivable

 

 

(41)

 

 

(34)

 

Net increase in bank-owned life insurance

 

 

(215)

 

 

(226)

 

Net increase in prepaid expenses and other assets

 

 

(37)

 

 

(304)

 

Net increase (decrease) in accounts payable and accrued expenses

 

 

(1,769)

 

 

161

 

Net decrease in advance payments by borrowers for taxes and insurance

 

 

(2,729)

 

 

(2,188)

 

Net decrease in income taxes receivable

 

 

1,558

 

 

122

 

Net increase in income taxes payable

 

 

134

 

 

1,712

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

 

2,383

 

 

4,228

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of investment securities held to maturity

 

 

(14,983)

 

 

 —

 

Principal repayments on investment securities held to maturity

 

 

10,495

 

 

14,162

 

Principal repayments on investment securities available for sale

 

 

49

 

 

 —

 

Proceeds from sale of investment securities held to maturity

 

 

 —

 

 

1,589

 

Loan originations, net of principal repayments on loans receivable

 

 

(16,008)

 

 

(31,158)

 

Purchases of Federal Home Loan Bank stock

 

 

(252)

 

 

(68)

 

Proceeds from redemption of Federal Home Loan Bank stock

 

 

468

 

 

 —

 

Purchases of Federal Reserve Bank stock

 

 

(3)

 

 

(8)

 

Proceeds from sale of real estate owned

 

 

50

 

 

 —

 

Purchases of premises and equipment

 

 

(181)

 

 

(759)

 

 

 

 

 

 

 

 

 

Net cash from investing activities

 

 

(20,365)

 

 

(16,242)

 

 

(Continued)

 

5


 

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net increase in deposits

 

$

67,877

 

$

55,706

 

Proceeds from advances from the Federal Home Loan Bank

 

 

2,500

 

 

 —

 

Repayments of advances from the Federal Home Loan Bank

 

 

(11,700)

 

 

 —

 

Repurchases of common stock

 

 

(5,815)

 

 

 —

 

Cash dividends paid

 

 

(1,857)

 

 

(1,842)

 

 

 

 

 

 

 

 

 

Net cash from financing activities

 

 

51,005

 

 

53,864

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

33,023

 

 

41,850

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

 

32,089

 

 

61,273

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

$

65,112

 

$

103,123

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest on deposits and borrowings

 

$

2,590

 

$

2,003

 

Income taxes

 

 

434

 

 

429

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

Company stock acquired through stock swap and net settlement transactions

 

$

312

 

$

955

 

Loans transferred to real estate owned

 

 

46

 

 

 —

 

Dividends declared, not yet paid

 

 

24

 

 

 —

 

 

See accompanying notes to consolidated financial statements.

 

6


 

Table of Contents

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, 2017.  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, 2017 was $11.0 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 Company reviewed all revenue sources to determine if the sources are in scope for this guidance.  Net interest income from financial assets and liabilities are explicitly excluded from the scope of the amendment.  The Company’s overall assessment of key in-scope revenue sources include service charges on deposit accounts, rental income from safe deposit boxes and commissions on insurance and annuity sales.  Based on the Company’s analysis of these revenue sources, including the amount of revenue, the timing of services rendered and timing of payment for these services, there is no material change in the timing of revenue recognition under the amendment.  The Company adopted this amendment on January 1, 2018, using the modified retrospective approach.  Since there was no material impact on the timing of revenue recognition, no adjustment to beginning retained earnings was deemed necessary.  See Note 14, Revenue Recognition, for further information.

 

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 of financial instruments measured at amortized cost on the balance sheet, and (d) a requirement to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.   The Company adopted this amendment as of January 1, 2018, and there was no material effect on its consolidated financial statements.

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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 has several lease agreements for branch locations and equipment that will require recognition on the consolidated balance sheets upon adoption of the amendment.  The Company will continue to evaluate 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 amendment changes the threshold for recognizing losses from a “probable” to an “expected” model.  The new model is referred to as the current expected credit loss model and applies to loans, leases, held-to-maturity investments, loan commitments and financial guarantees.  The amendment requires the measurement of all expected credit losses for financial assets as of the reporting date (including historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures that will help financial statement users understand the estimates and judgments used in estimating credit losses and evaluating the credit quality of an organization’s portfolio.  The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company will apply the amendment’s provisions as a cumulative-effect adjustment to retained earnings at the beginning of the first period the amendment is effective. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements by gathering the information that is necessary to make the calculations required by the amendment.  This may result in increased credit losses on financial instruments recorded in the consolidated financial statements.

 

In March 2017, the FASB amended the Compensation – Retirement Benefits topic of the FASB ASC.  The amendment requires the service cost component of net benefit cost to be reported in the same line item as other compensation costs arising from employee services.  It also requires the other components of net benefit cost to be reported in the income statement separately from the service cost component.  The Company adopted this amendment on January 1, 2018, and there was no material effect on its consolidated financial statements.

 

In February 2018, the FASB amended the Income Statement – Reporting Comprehensive Income topic of the FASB ASC.  Prior to the adoption of the amendment, deferred taxes previously included in accumulated other comprehensive income were not allowed to be adjusted for changes in tax rates.  This amendment allows the reclassification of the tax effects resulting from the change in the federal corporate tax rate in the Tax Cuts and Jobs Act, which was passed in December 2017, from accumulated other comprehensive income to retained earnings.  The amendment is effective for fiscal years beginning after December 15, 2018, with early adoption permitted in any period for which financial statements have not yet been issued.  The Company adopted this amendment during the first quarter of 2018 with the reclassification of $1.1 million of deferred taxes from accumulated other comprehensive income to retained earnings.

 

 

(4)      Cash and Cash Equivalents

 

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

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands)

 

2018

 

2017

 

Cash and due from banks

 

$

8,779

 

$

9,114

 

Interest-earning deposits in other banks

 

 

56,333

 

 

22,975

 

  Cash and cash equivalents

 

$

65,112

 

$

32,089

 

 

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

 

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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

 

March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

2,821

 

$

 —

 

$

(88)

 

$

2,733

 

Total

 

$

2,821

 

$

 —

 

$

(88)

 

$

2,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

409,026

 

$

2,935

 

$

(10,083)

 

$

401,878

 

Trust preferred securities

 

 

259

 

 

522

 

 

 —

 

 

781

 

Total

 

$

409,285

 

$

3,457

 

$

(10,083)

 

$

402,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

2,870

 

$

 —

 

$

(19)

 

$

2,851

 

Total

 

$

2,870

 

$

 —

 

$

(19)

 

$

2,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

404,365

 

$

6,056

 

$

(4,603)

 

$

405,818

 

Trust preferred securities

 

 

427

 

 

418

 

 

 —

 

 

845

 

Total

 

$

404,792

 

$

6,474

 

$

(4,603)

 

$

406,663

 

 

The amortized cost and estimated fair value of investment securities by maturity date at March 31, 2018 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

 

Available-for-sale:

 

 

 

 

 

 

 

Due within 5 years

 

$

 —

 

$

 —

 

Due after 5 years through 10 years

 

 

 —

 

 

 —

 

Due after 10 years

 

 

2,821

 

 

2,733

 

Total

 

$

2,821

 

$

2,733

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

Due within 5 years

 

$

 8

 

$

 8

 

Due after 5 years through 10 years

 

 

79

 

 

80

 

Due after 10 years

 

 

409,198

 

 

402,571

 

Total

 

$

409,285

 

$

402,659

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands)

 

2018

 

2017

 

Proceeds from sales

 

$

 —

 

$

1,589

 

Gross gains

 

 

 —

 

 

95

 

Gross losses

 

 

 —

 

 

 —

 

 

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.

 

Investment securities with amortized costs of $324.1 million and $287.2 million at March 31, 2018 and December 31, 2017, respectively, were pledged to secure deposits made by state and local governments, 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 March 31, 2018 and December 31, 2017.  The Company does not intend to sell held-to-maturity and available-for-sale 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

2,733

 

$

88

 

$

 —

 

$

 —

 

 1

 

$