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Section 1: 10-Q (QUARTERLY REPORT ON FORM 10-Q FOR JUNE 30, 2018)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934

For the Quarterly Period Ended June 30, 2018

Commission File Number 0-18082

GREAT SOUTHERN BANCORP, INC.
          
(Exact name of registrant as specified in its charter)

Maryland
 
43-1524856
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
1451 E. Battlefield, Springfield, Missouri
 
65804
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(417) 887-4400
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes /X/     No /  /
 
Indicate by check mark whether the registrant has submitted electronically 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/X/   No /  /
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer /  /
Accelerated filer /X/
Non-accelerated filer /  /
(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 /X/
 
The number of shares outstanding of each of the registrant's classes of common stock: 14,142,448 shares of common stock, par value $.01, outstanding at July 31, 2018.

 
1

 
 
 
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

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

   
JUNE 30,
   
DECEMBER 31,
 
   
2018
   
2017
 
   
(Unaudited)
       
             
ASSETS
           
Cash
 
$
107,554
   
$
115,600
 
Interest-bearing deposits in other financial institutions
   
172,931
     
126,653
 
Cash and cash equivalents
   
280,485
     
242,253
 
Available-for-sale securities
   
169,971
     
179,179
 
Held-to-maturity securities (fair value $0  – June 2018; $131 - December 2017)
   
     
130
 
Mortgage loans held for sale
   
5,087
     
8,203
 
Loans receivable, net of allowance for loan losses of $37,556 – June 2018; $36,492 -   December 2017
   
3,859,801
     
3,726,302
 
Interest receivable
   
12,449
     
12,338
 
Prepaid expenses and other assets
   
40,937
     
47,122
 
Other real estate owned and repossessions, net
   
18,266
     
22,002
 
Premises and equipment, net
   
139,386
     
138,018
 
Goodwill and other intangible assets
   
10,025
     
10,850
 
Investment in Federal Home Loan Bank stock
   
15,678
     
11,182
 
Current and deferred income taxes
   
16,778
     
16,942
 
          Total Assets
 
$
4,568,863
   
$
4,414,521
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Deposits
 
$
3,597,057
   
$
3,597,144
 
Federal Home Loan Bank advances
   
259,000
     
127,500
 
Securities sold under reverse repurchase agreements with customers
   
95,543
     
80,531
 
Short-term borrowings
   
1,360
     
16,604
 
Subordinated debentures issued to capital trusts
   
25,774
     
25,774
 
Subordinated notes
   
73,766
     
73,688
 
Accrued interest payable
   
3,394
     
2,904
 
Advances from borrowers for taxes and insurance
   
7,957
     
5,319
 
Accounts payable and accrued expenses
   
14,741
     
13,395
 
          Total Liabilities
   
4,078,592
     
3,942,859
 
Stockholders' Equity:
               
Capital stock
               
Serial preferred stock – $.01 par value; authorized 1,000,000 shares; issued
and outstanding June 2018 and December 2017 - -0- shares
   
     
 
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding June 2018  –14,133,823 shares;
December 2017 - 14,087,533 shares
   
141
     
141
 
Additional paid-in capital
   
29,134
     
28,203
 
Retained earnings
   
461,784
     
442,077
 
Accumulated other comprehensive income (loss)
   
(788
)
   
1,241
 
          Total Stockholders' Equity
   
490,271
     
471,662
 
          Total Liabilities and Stockholders' Equity
 
$
4,568,863
   
$
4,414,521
 

See Notes to Consolidated Financial Statements
 
2

 

 

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
   
THREE MONTHS ENDED
JUNE 30,
 
   
2018
   
2017
 
   
(Unaudited)
 
             
INTEREST INCOME
           
Loans
 
$
48,219
   
$
43,166
 
Investment securities and other
   
1,724
     
1,578
 
TOTAL INTEREST INCOME
   
49,943
     
44,744
 
                 
INTEREST EXPENSE
               
Deposits
   
6,123
     
5,004
 
Federal Home Loan Bank advances
   
1,166
     
244
 
Short-term borrowings and repurchase agreements
   
180
     
318
 
Subordinated debentures issued to capital trusts
   
238
     
252
 
Subordinated notes
   
1,024
     
1,025
 
TOTAL INTEREST EXPENSE
   
8,731
     
6,843
 
NET INTEREST INCOME
   
41,212
     
37,901
 
Provision for Loan Losses
   
1,950
     
1,950
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
   
39,262
     
35,951
 
                 
NON-INTEREST INCOME
               
Commissions
   
312
     
306
 
Service charges and ATM fees
   
5,488
     
5,394
 
Net realized gains on sales of loans
   
559
     
752
 
Late charges and fees on loans
   
385
     
608
 
Gain (loss) on derivative interest rate products
   
11
     
(20
)
Gain on termination of loss sharing agreements
   
     
7,704
 
Amortization of income/(expense) related to business acquisitions
   
     
4
 
Other income
   
704
     
1,052
 
TOTAL NON-INTEREST INCOME
   
7,459
     
15,800
 
                 
NON-INTEREST EXPENSE
               
Salaries and employee benefits
   
14,947
     
14,498
 
Net occupancy and equipment expense
   
6,298
     
6,025
 
Postage
   
834
     
874
 
Insurance
   
650
     
747
 
Advertising
   
632
     
656
 
Office supplies and printing
   
301
     
233
 
Telephone
   
792
     
789
 
Legal, audit and other professional fees
   
689
     
1,061
 
Expense on other real estate owned and repossessions
   
2,737
     
677
 
Partnership tax credit investment amortization
   
91
     
217
 
Acquired deposit intangible asset amortization
   
412
     
412
 
Other operating expenses
   
1,532
     
2,182
 
TOTAL NON-INTEREST EXPENSE
   
29,915
     
28,371
 
                 
Income Before Income Taxes
   
16,806
     
23,380
 
Provision for Income Taxes
   
2,967
     
7,204
 
Net Income
 
$
13,839
   
$
16,176
 
                 
Basic Earnings Per Share
 
$
0.98
   
$
1.15
 
Diluted Earnings Per Share
 
$
0.97
   
$
1.14
 
Dividends Declared Per Share
 
$
0.28
   
$
0.24
 

See Notes to Consolidated Financial Statements
 
3

 
 

 
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
 
   
SIX MONTHS ENDED
JUNE 30,
 
   
2018
   
2017
 
   
(Unaudited)
 
             
INTEREST INCOME
           
Loans
 
$
93,384
   
$
86,910
 
Investment securities and other
   
3,442
     
3,247
 
TOTAL INTEREST INCOME
   
96,826
     
90,157
 
                 
INTEREST EXPENSE
               
Deposits
   
11,706
     
9,969
 
Federal Home Loan Bank advances
   
1,772
     
499
 
Short-term borrowings and repurchase agreements
   
208
     
544
 
Subordinated debentures issued to capital trusts
   
440
     
493
 
Subordinated notes
   
2,049
     
2,050
 
TOTAL INTEREST EXPENSE
   
16,175
     
13,555
 
NET INTEREST INCOME
   
80,651
     
76,602
 
Provision for Loan Losses
   
3,900
     
4,200
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
   
76,751
     
72,402
 
                 
NON-INTEREST INCOME
               
Commissions
   
560
     
572
 
Service charges and ATM fees
   
10,732
     
10,662
 
Net realized gains on sales of loans
   
1,021
     
1,624
 
Late charges and fees on loans
   
774
     
1,486
 
Gain (loss) on derivative interest rate products
   
48
     
(13
)
Gain on termination of loss sharing agreements
   
     
7,704
 
Amortization of income/(expense) related to business acquisitions
   
     
(485
)
Other income
   
1,259
     
1,946
 
TOTAL NON-INTEREST INCOME
   
14,394
     
23,496
 
                 
NON-INTEREST EXPENSE
               
Salaries and employee benefits
   
29,570
     
29,831
 
Net occupancy and equipment expense
   
12,683
     
12,341
 
Postage
   
1,700
     
1,807
 
Insurance
   
1,321
     
1,545
 
Advertising
   
1,303
     
1,069
 
Office supplies and printing
   
534
     
930
 
Telephone
   
1,511
     
1,599
 
Legal, audit and other professional fees
   
1,498
     
1,381
 
Expense on other real estate owned and repossessions
   
3,878
     
1,251
 
Partnership tax credit investment amortization
   
393
     
495
 
Acquired deposit intangible asset amortization
   
825
     
825
 
Other operating expenses
   
3,012
     
3,867
 
TOTAL NON-INTEREST EXPENSE
   
58,228
     
56,941
 
                 
Income Before Income Taxes
   
32,917
     
38,957
 
Provision for Income Taxes
   
5,612
     
11,262
 
Net Income
 
$
27,305
   
$
27,695
 
                 
Basic Earnings Per Share
 
$
1.93
   
$
1.98
 
Diluted Earnings Per Share
 
$
1.91
   
$
1.95
 
Dividends Declared Per Share
 
$
0.56
   
$
0.46
 

See Notes to Consolidated Financial Statements
 
4

 
 

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

   
THREE MONTHS ENDED
JUNE 30,
 
   
2018
   
2017
 
   
(Unaudited)
 
             
Net Income
 
$
13,839
   
$
16,176
 
                 
Unrealized appreciation (depreciation) on available-for-sale securities,
   net of taxes (credit) of $(121) and $(31), for 2018 and 2017, respectively
   
(420
)
   
(54
)
                 
Change in fair value of cash flow hedge, net of taxes of $0 and $26,
   for 2018 and 2017, respectively
   
     
46
 
                 
Comprehensive Income
 
$
13,419
   
$
16,168
 

   
SIX MONTHS ENDED
JUNE 30,
 
   
2018
   
2017
 
   
(Unaudited)
 
             
Net Income
 
$
27,305
   
$
27,695
 
                 
Unrealized appreciation (depreciation) on available-for-sale securities, net
   of taxes (credit) of $(662) and $207, for 2018 and 2017, respectively
   
(2,301
)
   
363
 
                 
Change in fair value of cash flow hedge, net of taxes of $0
   and $55, for 2018 and 2017, respectively
   
     
97
 
                 
Comprehensive Income
 
$
25,004
   
$
28,155
 

See Notes to Consolidated Financial Statements

 
 
 

 

5

 

 

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

   
SIX MONTHS ENDED JUNE 30,
 
   
2018
   
2017
 
   
(Unaudited)
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
 
$
27,305
   
$
27,695
 
Proceeds from sales of loans held for sale
   
49,629
     
55,619
 
Originations of loans held for sale
   
(45,218
)
   
(61,984
)
Items not requiring (providing) cash:
               
Depreciation
   
4,569
     
4,632
 
Amortization
   
1,296
     
1,396
 
Compensation expense for stock option grants
   
357
     
273
 
Provision for loan losses
   
3,900
     
4,200
 
Net gains on loan sales
   
(1,021
)
   
(1,624
)
Net losses on sale of premises and equipment
   
94
     
144
 
Net (gains) losses on sale/write-down of other real estate owned
   
2,184
     
(602
) 
Gain realized on termination of loss sharing agreements
   
     
(7,704
)
Accretion of deferred income, premiums, discounts and other
   
(1,287
)
   
(972
)
(Gain) loss on derivative interest rate products
   
(48
)
   
13
 
Deferred income taxes
   
(6,544
)
   
(4,183
)
Changes in:
               
Interest receivable
   
(111
)
   
1,057
 
Prepaid expenses and other assets
   
6,084
     
(1,441
)
Accrued expenses and other liabilities
   
1,857
     
1,172
 
Income taxes refundable/payable
   
7,370
     
4,184
 
Net cash provided by operating activities
   
50,416
     
21,875
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Net change in loans
   
(101,884
)
   
105,431
 
Purchase of loans
   
(42,179
)
   
(117,799
)
Cash received from FDIC loss sharing reimbursements
   
     
16,245
 
Purchase of premises and equipment
   
(6,054
)
   
(2,699
)
Proceeds from sale of premises and equipment
   
23
     
474
 
Proceeds from sale of other real estate owned and repossessions
   
8,856
     
15,956
 
Capitalized costs on other real estate owned
   
(143
)
   
(117
)
Proceeds from maturities and calls of held-to-maturity securities
   
130
     
117
 
Proceeds from maturities and calls of available-for-sale securities
   
2,031
     
6,345
 
Principal reductions on mortgage-backed securities
   
10,530
     
12,450
 
Purchase of available-for-sale securities
   
(6,689
)
   
 
Redemption (purchase) of Federal Home Loan Bank stock
   
(4,496
)
   
192
 
Net cash provided by (used in) investing activities
   
(139,875
)
   
36,595
 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase (decrease) in certificates of deposit
   
13,616
     
(99,487
)
Net decrease in checking and savings deposits
   
(13,655
)
   
(4,992
)
Proceeds from Federal Home Loan Bank advances
   
1,454,500
     
 
Repayments of Federal Home Loan Bank advances
   
(1,323,000
)
   
(31,435
)
Net increase (decrease) in short-term borrowings
   
(232
)
   
11,334
 
Advances from borrowers for taxes and insurance
   
2,638
     
3,235
 
Dividends paid
   
(7,332
)
   
(6,155
)
Stock options exercised
   
1,156
     
1,766
 
Net cash provided by (used in) financing activities
   
127,691
     
(125,734
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
38,232
     
(67,264
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
242,253
     
279,769
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
280,485
   
$
212,505
 

See Notes to Consolidated Financial Statements
 
 
6


 

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

NOTE 1: BASIS OF PRESENTATION

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

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

NOTE 2: NATURE OF OPERATIONS AND OPERATING SEGMENTS

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

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


NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date, which deferred the effective date of ASU 2014-09.  In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs--Contracts with Customers (Subtopic 340-40). The guidance in this Update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. These Updates were effective beginning January 1, 2018.  Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We have determined that certain components of our non-interest income contain revenue streams which are included in the scope of these updates, such as deposit-related fees, service charges, debit card interchange fees and other charges
 
7

 
 
 
 
and fees, and revenue from the sale of other real estate owned; however the adoption of these updates did not materially impact the Company's consolidated statements of income. We adopted the guidance using the modified retrospective adoption method, and no cumulative effect adjustment to opening retained earnings was required as a result of the adoption.

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

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

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

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326).  The Update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. This Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the
 
8

 
 
 
 
contractual right to receive cash.  For public companies, the update is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will be permitted beginning after December 15, 2018. An entity will apply the amendments in this update on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company has formed a cross functional committee to oversee the system, data, reporting and other considerations for the purposes of meeting the requirements of this standard.  We have assessed our data and system needs and are in the process of uploading the necessary historical loan data to the software that will be used in meeting certain requirements of this standard.  The Company is evaluating the impact of adopting the new guidance, including the implementation of new data systems to capture the information needed to comply with the new standard.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment, or the overall impact of the new guidance on the Company's consolidated financial statements.

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

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

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

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

In May 2017, the FASB issued ASU 2017-09, Compensation --Stock Compensation (Topic 718): Scope of Modification Accounting. The amendment provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 7l8. The amendments clarify that modification accounting only applies to an entity if the fair value, vesting conditions, or classification of the award changes as a result of changes in the terms or conditions of a share-based payment award. The
 
9

 
 
 
 
ASU should be applied prospectively to awards modified on or after the adoption date.  The guidance was effective for the Company on January 1, 2018.  The adoption of the ASU did not impact the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to improve the financial reporting of hedging relationships by better aligning an entity's risk management activity with the economic objectives in undertaking those activities. In addition, the amendments in this update simplify the application of hedge accounting for preparers of financial statements, as well as improve the understandability of an entity's risk management activities being conveyed to financial statement users. The new guidance becomes effective for periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the new guidance and timing of adoption to determine the impact this standard may have on its financial statements.

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

NOTE 4: EARNINGS PER SHARE

   
Three Months Ended June 30,
 
   
2018
   
2017
 
   
(In Thousands, Except Per Share Data)
 
             
Basic:
           
Average shares outstanding
   
14,125
     
14,027
 
Net income
 
$
13,839
   
$
16,176
 
Per share amount
 
$
0.98
   
$
1.15
 
                 
Diluted:
               
Average shares outstanding
   
14,125
     
14,027
 
Net effect of dilutive stock options – based on the treasury
               
stock method using average market price
   
153
     
179
 
Diluted shares
   
14,278
     
14,206
 
Net income
 
$
13,839
   
$
16,176
 
Per share amount
 
$
0.97
   
$
1.14
 

   
Six Months Ended June 30,
 
   
2018
   
2017
 
   
(In Thousands, Except Per Share Data)
 
             
Basic:
           
Average shares outstanding
   
14,113
     
14,010
 
Net income
 
$
27,305
   
$
27,695
 
Per share amount
 
$
1.93
   
$
1.98
 
                 
Diluted:
               
Average shares outstanding
   
14,113
     
14,010
 
Net effect of dilutive stock options – based on the treasury
               
stock method using average market price
   
153
     
179
 
Diluted shares
   
14,266
     
14,189
 
Net income available to common stockholders
 
$
27,305
   
$
27,695
 
Per share amount
 
$
1.91
   
$
1.95
 
 
10

 

 
Options outstanding at June 30, 2018 and 2017, to purchase 161,400 and 114,800 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three and six month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three and six months ended June 30, 2018 and 2017, respectively.


NOTE 5: INVESTMENT SECURITIES

   
June 30, 2018
 
         
Gross
   
Gross
         
Tax
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
   
Equivalent
 
   
Cost
   
Gains
   
Losses
   
Value
   
Yield
 
   
(In Thousands)
 
                               
AVAILABLE-FOR-SALE SECURITIES:
                             
Mortgage-backed securities
 
$
119,078
   
$
708
   
$
3,421
   
$
116,365
     
2.37
%
States and political subdivisions
   
51,907
     
1,707
     
8
     
53,606
     
4.81
 
   
$
170,985
   
$
2,415
   
$
3,429
   
$
169,971
     
3.11
%

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

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

   
Amortized
   
Fair
 
   
Cost
   
Value
 
   
(In Thousands)
 
             
One year or less
 
$
   
$
 
After one through five years
   
831
     
905
 
After five through ten years
   
9,554
     
9,746
 
After ten years
   
41,522
     
42,955
 
Securities not due on a single maturity date
   
119,078
     
116,365
 
                 
   
$
170,985
   
$
169,971
 

 
 
11


 

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2018 and December 31, 2017, was approximately $87.0 million and $89.7 million, respectively, which is approximately 51.2% and 50.0% of the Company's available-for-sale and held-to-maturity investment portfolio, respectively.

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

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

   
June 30, 2018
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
Description of Securities
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
   
(In Thousands)
 
                                     
Mortgage-backed securities
 
$
22,840
   
$
(694
)
 
$
61,887
   
$
(2,727
)
 
$
84,727
   
$
(3,421
)
State and political
                                               
subdivisions
   
2,281
     
(8
)
   
     
     
2,281
     
(8
)
   
$
25,121
   
$
(702
)
 
$
61,887
   
$
(2,727
)
 
$
87,008
   
$
(3,429
)

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


There were no sales of available-for-sale securities during the three and six months ended June 30, 2018 and 2017, respectively.  Gains and losses on sales of securities are determined on the specific-identification method.
 
Other-than-temporary Impairment.  Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

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

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  The Company considers the length of time a security has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of the security, the type of security and other factors.  If certain criteria are met, the Company performs additional review and evaluation using observable market values or various inputs in economic models to determine if an
 
12

 
 
 
 
unrealized loss is other-than-temporary.  The Company uses quoted market prices for marketable equity securities and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock exchange.  For non-agency collateralized mortgage obligations, to determine if the unrealized loss is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss.  The Company also evaluates any current credit enhancement underlying these securities to determine the impact on cash flows.  If the Company determines that a given security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

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

Credit Losses Recognized on Investments.  During the three and six months ended June 30, 2018 and 2017, respectively, there were nodebt securities that experienced fair value deterioration due to credit losses, or due to other market factors, that are not otherwise other-than-temporarily impaired.

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


NOTE 6: LOANS AND ALLOWANCE FOR LOAN LOSSES

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

   
June 30,
   
December 31,
 
   
2018
   
2017
 
   
(In Thousands)
 
             
One- to four-family residential construction
 
$
31,770
   
$
20,793
 
Subdivision construction
   
15,913
     
18,062
 
Land development
   
46,643
     
43,971
 
Commercial construction
   
1,258,564
     
1,068,352
 
Owner occupied one- to four-family residential
   
228,211
     
190,515
 
Non-owner occupied one- to four-family residential
   
112,416
     
119,468
 
Commercial real estate
   
1,307,966
     
1,235,329
 
Other residential
   
785,202
     
745,645
 
Commercial business
   
347,312
     
353,351
 
Industrial revenue bonds
   
20,021
     
21,859
 
Consumer auto
   
298,977
     
357,142
 
Consumer other
   
60,052
     
63,368
 
Home equity lines of credit
   
114,742
     
115,439
 
Loans acquired and accounted for under ASC 310-30, net of discounts
   
184,136
     
209,669
 
     
4,811,925
     
4,562,963
 
Undisbursed portion of loans in process
   
(907,906
)
   
(793,669
)
Allowance for loan losses
   
(37,556
)
   
(36,492
)
Deferred loan fees and gains, net
   
(6,662
)
   
(6,500
)
   
$
3,859,801
   
$
3,726,302
 
                 
Weighted average interest rate
   
4.96
%
   
4.74
%
 
 
 
13

 

 

Classes of loans by aging were as follows:

   
June 30, 2018
 
                                       
Total Loans
 
                                 
Total
   
> 90 Days
 
   
30-59 Days
   
60-89 Days
   
Over
   
Total
         
Loans
   
Past Due and
 
   
Past Due
   
Past Due
   
90 Days
   
Past Due
   
Current
   
Receivable
   
Still Accruing
 
   
(In Thousands)
 
                                           
One- to four-family
                                         
residential construction
 
$
   
$
   
$
   
$
   
$
31,770
   
$
31,770
   
$
 
Subdivision construction
   
     
     
91
     
91
     
15,822
     
15,913
     
 
Land development
   
594
     
     
     
594
     
46,049
     
46,643
     
 
Commercial construction
   
     
     
     
     
1,258,564
     
1,258,564
     
 
Owner occupied one- to
                                                       
four-family residential
   
100
     
267
     
848
     
1,215
     
226,996
     
228,211
     
 
Non-owner occupied one-
                                                       
to four-family residential
   
359
     
479
     
1,743
     
2,581
     
109,835
     
112,416
     
 
Commercial real estate
   
6,267
     
412
     
352
     
7,031
     
1,300,935
     
1,307,966
     
 
Other residential
   
     
     
     
     
785,202
     
785,202
     
 
Commercial business
   
40
     
201
     
2,852
     
3,093
     
344,219
     
347,312
     
 
Industrial revenue bonds
   
     
     
     
     
20,021
     
20,021
     
 
Consumer auto
   
2,876
     
437
     
1,482
     
4,795
     
294,182
     
298,977
     
 
Consumer other
   
570
     
62
     
441
     
1,073
     
58,979
     
60,052
     
 
Home equity lines of credit
   
154
     
166
     
316
     
636
     
114,106
     
114,742
     
 
Loans acquired and
                                                       
accounted for under
                                                       
ASC 310-30, net of
                                                       
discounts
   
868
     
1,067
     
6,876
     
8,811
     
175,325
     
184,136
     
 
     
11,828
     
3,091
     
15,001
     
29,920
     
4,782,005
     
4,811,925
     
 
Less loans acquired and
     accounted for under
                                                       
ASC 310-30, net
   
868
     
1,067
     
6,876
     
8,811
     
175,325
     
184,136
     
 
                                                         
Total
 
$
10,960
   
$
2,024
   
$
8,125
   
$
21,109
   
$
4,606,680
   
$
4,627,789
   
$
 
 
 
14

 

 

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


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

   
June 30,
   
December 31,
 
   
2018
   
2017
 
   
(In Thousands)
 
             
One- to four-family residential construction
 
$
   
$
 
Subdivision construction
   
91
     
98
 
Land development
   
     
 
Commercial construction
   
     
 
Owner occupied one- to four-family residential
   
848
     
904
 
Non-owner occupied one- to four-family residential
   
1,743
     
1,758
 
Commercial real estate
   
352
     
1,226
 
Other residential
   
     
1,877
 
Commercial business
   
2,852
     
2,063
 
Industrial revenue bonds
   
     
 
Consumer auto
   
1,482
     
2,272
 
Consumer other
   
441
     
557
 
Home equity lines of credit
   
316
     
404
 
                 
Total
 
$
8,125
   
$
11,159
 
 
15

 

 

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

   
One- to Four-
                                     
   
Family
                                     
   
Residential and
   
Other
   
Commercial
   
Commercial
   
Commercial
             
   
Construction
   
Residential
   
Real Estate
   
Construction
   
Business
   
Consumer
   
Total
 
   
(In Thousands)
 
                                           
Allowance for loan losses
                                         
Balance April 1, 2018
 
$
2,602
   
$
3,212
   
$
18,062
   
$
2,188
   
$
3,695
   
$
6,551
   
$
36,310
 
Provision (benefit)
    charged to expense
   
63
     
364
     
1,297
     
109
     
(454
)
   
571
     
1,950
 
Losses charged off
   
(27
)
   
(75
)
   
     
(46
)
   
(472
)
   
(2,112
)
   
(2,732
)
Recoveries
   
89
     
344
     
115
     
144
     
222
     
1,114
     
2,028
 
Balance June 30, 2018
 
$
2,727
   
$
3,845
   
$
19,474
   
$
2,395
   
$
2,991
   
$
6,124
   
$
37,556
 
                                                         
Balance January 1, 2018
 
$
2,108
   
$
2,839
   
$
18,639
   
$
1,767
   
$
3,581
   
$
7,558
   
$
36,492
 
Provision (benefit)
    charged to expense
   
487
     
969
     
811
     
471
     
28
     
1,134
     
3,900
 
Losses charged off
   
(41
)
   
(331
)
   
(102
)
   
(83
)
   
(881
)
   
(4,934
)
   
(6,372
)
Recoveries
   
173
     
368
     
126
     
240
     
263
     
2,366
     
3,536
 
Balance June 30, 2018
 
$
2,727
   
$
3,845
   
$
19,474
   
$
2,395
   
$
2,991
   
$
6,124
   
$
37,556
 
                                                         
Ending balance:
                                                       
Individually evaluated for
                                                       
impairment
 
$
737
   
$
   
$
220
   
$
   
$
1,422
   
$
641
   
$
3,020
 
Collectively evaluated for
                                                       
impairment
 
$
1,953
   
$
3,817
   
$
18,988
   
$
2,322
   
$
1,545
   
$
5,443
   
$
34,068
 
Loans acquired and
                                                       
accounted for under
                                                       
ASC 310-30
 
$
37
   
$
28
   
$
266
   
$
73
   
$
24
   
$
40
   
$
468
 
                                                         
Loans
                                                       
Individually evaluated for
                                                       
impairment
 
$
6,740
   
$
1,015
   
$
8,313
   
$
15
   
$
3,350
   
$
3,330
   
$
22,763
 
Collectively evaluated for
                                                       
impairment
 
$
381,570
   
$
784,187
   
$
1,299,653
   
$
1,305,192
   
$
363,983
   
$
470,441
   
$
4,605,026
 
Loans acquired and
                                                       
accounted for under
                                                       
ASC 310-30
 
$
103,903
   
$
13,193
   
$
36,857
   
$
3,404
   
$
4,444
   
$
22,335
   
$
184,136
 
 
 
16

 

 

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

   
One- to Four-
                                     
   
Family
                                     
   
Residential and
   
Other
   
Commercial
   
Commercial
   
Commercial
             
   
Construction
   
Residential
   
Real Estate
   
Construction
   
Business
   
Consumer
   
Total
 
   
(In Thousands)
 
                                           
Allowance for loan losses
                                         
Balance April 1, 2017
 
$
2,857
   
$
3,790
   
$
15,487
   
$
2,497
   
$
4,671
   
$
7,691
   
$
36,993
 
Provision (benefit) charged
    to expense
   
(427
)
   
(147
)
   
1,246
     
(724
)
   
(661
)
   
2,663
     
1,950
 
Losses charged off
   
(41
)
   
(2
)
   
(1,291
)
   
(92
)
   
     
(2,565
)
   
(3,991
)
Recoveries
   
24
     
14
     
     
30
     
355
     
1,158
     
1,581
 
Balance June 30, 2017
 
$
2,413
   
$
3,655
   
$
15,442
   
$
1,711
   
$
4,365
   
$
8,947
   
$
36,533
 
                                                         
Balance January 1, 2017
 
$
2,322
   
$
5,486
   
$
15,938
   
$
2,284
   
$
3,015
   
$
8,355
   
$
37,400
 
Provision (benefit) charged
    to expense
   
122
     
(1,898
)
   
770
     
(223
)
   
1,224
     
4,205
     
4,200
 
Losses charged off
   
(76
)
   
(2
)
   
(1,292
)
   
(387
)
   
(275
)
   
(5,968
)
   
(8,000
)
Recoveries
   
45
     
69
     
26
     
37
     
401
     
2,355
     
2,933
 
Balance June 30, 2017
 
$
2,413
   
$
3,655
   
$
15,442
   
$
1,711
   
$
4,365
   
$
8,947
   
$
36,533
 

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

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


The portfolio segments used in the preceding three tables correspond to the loan classes used in all other tables in Note 6 as follows:
·
The one- to four-family residential and construction segment includes the one- to four-family residential construction, subdivision construction, owner occupied one- to four-family residential and non-owner occupied one- to four-family residential classes
·
The other residential segment corresponds to the other residential class
 
17

 
 
 
·
The commercial real estate segment includes the commercial real estate and industrial revenue bonds classes
·
The commercial construction segment includes the land development and commercial construction classes
·
The commercial business segment corresponds to the commercial business class
·
The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes

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

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

   
June 30, 2018
 
         
Unpaid
       
   
Recorded
   
Principal
   
Specific
 
   
Balance
   
Balance
   
Allowance
 
                   
One- to four-family residential
  construction
 
$
   
$
   
$
 
Subdivision construction
   
335
     
357
     
110
 
Land development
   
15
     
18
     
 
Commercial construction
   
     
     
 
Owner occupied one- to four-family residential
   
3,261
     
3,579
     
284
 
Non-owner occupied one- to four-family residential
   
3,144
     
3,465
     
343
 
Commercial real estate
   
8,313
     
8,468
     
220
 
Other residential
   
1,015
     
1,015
     
 
Commercial business
   
3,350
     
4,754
     
1,422
 
Industrial revenue bonds
   
     
     
 
Consumer auto
   
2,033
     
2,228
     
369
 
Consumer other
   
784
     
1,007
     
118
 
Home equity lines of credit
   
513
     
553
     
154
 
                         
Total
 
$
22,763
   
$
25,444
   
$
3,020
 
 
 
 
 
 
18

 

 


   
Three Months Ended
   
Six Months Ended
 
   
June 30, 2018
   
June 30, 2018
 
   
Average
         
Average
       
   
Investment
   
Interest
   
Investment
   
Interest
 
   
in Impaired
   
Income
   
in Impaired
   
Income
 
   
Loans
   
Recognized