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Section 1: 10-Q (10-Q)

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Table of Contents

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

FORM 10-Q
___________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 2018
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____

Commission file number: 001-35913
___________

TRISTATE CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
___________
Pennsylvania
 
20-4929029
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
One Oxford Centre
301 Grant Street, Suite 2700
Pittsburgh, Pennsylvania 15219
(Address of principal executive offices)
(Zip Code)
 
(412) 304-0304
(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.    ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý 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
ý
Non-accelerated filer
¨
 
Smaller reporting company
¨
  (Do not check if a smaller reporting company)
Emerging growth company
ý

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.    ý

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

As of July 31, 2018, there were 28,949,383 shares of the registrant’s common stock, no par value, outstanding.



Table of Contents

TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30,
2018
December 31,
2017
 
 
 
ASSETS
 
 
 
 
 
Cash
$
382

$
380

Interest-earning deposits with other institutions
157,717

140,975

Federal funds sold
6,268

14,798

Cash and cash equivalents
164,367

156,153

Debt securities available-for-sale, at fair value (cost: $187,430 and $138,147, respectively)
186,467

138,850

Debt securities held-to-maturity, at cost (fair value: $77,283 and $60,141, respectively)
77,098

59,275

Equity securities, at fair value (cost: $9,040 and $8,910, respectively)
8,630

8,635

Federal Home Loan Bank stock
16,479

13,792

Total investment securities
288,674

220,552

Loans held-for-investment
4,552,928

4,184,244

Allowance for loan losses
(15,321
)
(14,417
)
Loans held-for-investment, net
4,537,607

4,169,827

Accrued interest receivable
16,187

13,519

Investment management fees receivable, net
7,835

7,720

Goodwill
41,659

38,724

Intangible assets, net of accumulated amortization of $7,424 and $6,461, respectively
27,208

26,634

Office properties and equipment, net of accumulated depreciation of $11,609 and $10,844, respectively
4,875

4,885

Bank owned life insurance
67,451

66,593

Prepaid expenses and other assets
78,073

73,290

Total assets
$
5,233,936

$
4,777,897

 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Liabilities:
 
 
Deposits
$
4,441,202

$
3,987,611

Borrowings, net
264,814

335,913

Accrued interest payable on deposits and borrowings
2,433

2,499

Deferred tax liability, net
4,691

4,152

Acquisition earn out liability
3,138


Other accrued expenses and other liabilities
63,764

58,651

Total liabilities
4,780,042

4,388,826

 
 
 
Shareholders’ Equity:
 
 
Preferred stock, no par value; Shares authorized - 150,000;
Series A shares issued and outstanding -
40,250 and 0, respectively
38,432


Common stock, no par value; Shares authorized - 45,000,000;
Shares issued -
30,796,284 and 30,342,471, respectively;
Shares outstanding -
28,947,883 and 28,591,101, respectively
291,608

289,507

Additional paid-in capital
13,038

10,290

Retained earnings
135,937

111,732

Accumulated other comprehensive income, net
1,045

1,246

Treasury stock (1,848,401 and 1,751,370 shares, respectively)
(26,166
)
(23,704
)
Total shareholders’ equity
453,894

389,071

Total liabilities and shareholders’ equity
$
5,233,936

$
4,777,897


See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in thousands, except per share data)
2018
2017
 
2018
2017
 
 
 
 
 
 
Interest income:
 
 
 
 
 
Loans
$
44,614

$
30,242

 
$
83,641

$
57,261

Investments
2,300

1,535

 
4,084

3,005

Interest-earning deposits
870

338

 
1,475

586

Total interest income
47,784

32,115

 
89,200

60,852

 
 
 
 
 
 
Interest expense:
 
 
 
 
 
Deposits
16,696

8,496

 
30,097

15,209

Borrowings
2,297

1,586

 
4,050

2,694

Total interest expense
18,993

10,082

 
34,147

17,903

Net interest income
28,791

22,033

 
55,053

42,949

Provision for loan losses
415

516

 
610

759

Net interest income after provision for loan losses
28,376

21,517

 
54,443

42,190

Non-interest income:
 
 
 
 
 
Investment management fees
9,686

9,130

 
18,594

18,470

Service charges on deposits
140

97

 
274

191

Net gain on the sale and call of debt securities
1

241

 
6

239

Swap fees
1,937

1,218

 
3,185

2,317

Commitment and other loan fees
331

409

 
663

817

Other income
407

617

 
869

1,087

Total non-interest income
12,502

11,712

 
23,591

23,121

Non-interest expense:
 
 
 
 
 
Compensation and employee benefits
15,742

14,222

 
31,210

28,115

Premises and occupancy costs
1,264

1,240

 
2,554

2,506

Professional fees
1,554

823

 
2,649

1,674

FDIC insurance expense
1,134

1,000

 
2,280

1,953

General insurance expense
242

259

 
489

560

State capital shares tax
484

398

 
911

750

Travel and entertainment expense
1,006

747

 
1,652

1,362

Intangible amortization expense
502

462

 
963

925

Other operating expenses
3,390

2,633

 
6,460

5,097

Total non-interest expense
25,318

21,784

 
49,168

42,942

Income before tax
15,560

11,445

 
28,866

22,369

Income tax expense
968

3,024

 
3,873

6,456

Net income
$
14,592

$
8,421

 
$
24,993

$
15,913

Preferred stock dividends on Series A
762


 
762


Net income available to common shareholders
$
13,830

$
8,421

 
$
24,231

$
15,913

 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic
$
0.50

$
0.31

 
$
0.88

$
0.58

Diluted
$
0.48

$
0.29

 
$
0.84

$
0.55


See accompanying notes to unaudited condensed consolidated financial statements.


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TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in thousands)
2018
2017
 
2018
2017
 
 
 
 
 
 
Net income
$
14,592

$
8,421

 
$
24,993

$
15,913

 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) on investment securities, net of tax expense (benefit) of $(174), $394, $(396) and $509
(567
)
707

 
(1,325
)
890

 
 
 
 
 
 
Reclassification adjustment for gains included in net income on investment securities, net of tax expense of $0, $(86), $(1) and $(85)
(1
)
(155
)
 
(5
)
(154
)
 
 
 
 
 
 
Unrealized holding gains (losses) on derivatives, net of tax expense (benefit) of $79, $(87), $299 and $(56)
261

(155
)
 
983

(100
)
 
 
 
 
 
 
Reclassification adjustment for gains included in net income on derivatives, net of tax expense of $(89), $(29), $(126) and $(44)
(293
)
(52
)
 
(414
)
(79
)
 
 
 
 
 
 
Other comprehensive income (loss)
(600
)
345

 
(761
)
557

 
 
 
 
 
 
Total comprehensive income
$
13,992

$
8,766

 
$
24,232

$
16,470


See accompanying notes to unaudited condensed consolidated financial statements.


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TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands)
Preferred Stock
(Series A)
Common
Stock
Additional
Paid-in-Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net
Treasury Stock
Total Shareholders' Equity
Balance, December 31, 2016
$

$
285,480

$
6,782

$
73,744

$
830

$
(15,029
)
$
351,807

Net income



15,913



15,913

Other comprehensive income




557


557

Exercise of stock options

2,456

(1,504
)



952

Purchase of treasury stock





(4,120
)
(4,120
)
Stock-based compensation


2,530




2,530

Balance, June 30, 2017
$

$
287,936

$
7,808

$
89,657

$
1,387

$
(19,149
)
$
367,639

 
 
 
 
 
 
 
 
Balance, December 31, 2017
$

$
289,507

$
10,290

$
111,732

$
1,246

$
(23,704
)
$
389,071

Impact of adoption of ASU 2014-09 (see Note 1)



534



534

Reclassification for equity securities under ASU 2016-01 (see Note 1)



(286
)
286



Reclassification for certain income tax effects under ASU 2018-02 (see Note 1)



(274
)
274



Net income



24,993



24,993

Other comprehensive loss




(761
)

(761
)
Issuance of preferred stock (net of offering costs of $1,818)
38,432






38,432

Preferred stock dividend



(762
)


(762
)
Exercise of stock options

2,101

(1,194
)



907

Purchase of treasury stock





(2,462
)
(2,462
)
Stock-based compensation


3,942




3,942

Balance, June 30, 2018
$
38,432

$
291,608

$
13,038

$
135,937

$
1,045

$
(26,166
)
$
453,894


See accompanying notes to unaudited condensed consolidated financial statements.


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TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30,
(Dollars in thousands)
2018
2017
Cash flows from operating activities:
 
 
Net income
$
24,993

$
15,913

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and intangible amortization expense
1,729

1,681

Amortization of deferred financing costs
101

101

Provision for loan losses
610

759

Net gain on the sale of loans
(19
)
(17
)
Stock-based compensation expense
3,942

2,530

Net gain on the sale or call of debt securities available-for-sale
(3
)
(239
)
Net gain on the call of debt securities held-to-maturity
(3
)

Unrealized loss from equity securities
36


Net amortization of premiums and discounts on debt securities
431

442

Decrease (increase) in investment management fees receivable, net
(115
)
331

Increase in accrued interest receivable
(2,668
)
(993
)
Increase (decrease) in accrued interest payable
(66
)
52

Bank owned life insurance income
(858
)
(899
)
Increase in income taxes payable

9

Decrease in prepaid income taxes
9,424

35

Deferred tax provision
763

536

Decrease in accounts payable and other accrued expenses
(6,061
)
(8,533
)
Other, net
174

(2,819
)
Net cash provided by operating activities
32,410

8,889

Cash flows from investing activities:
 
 
Purchase of debt securities available-for-sale
(61,489
)
(7,701
)
Purchase of debt securities held-to-maturity
(19,878
)
(7,467
)
Purchase of equity securities
(130
)
(144
)
Proceeds from the sale of debt securities available-for-sale
2,037


Principal repayments and maturities of debt securities available-for-sale
9,837

41,844

Principal repayments and maturities of debt securities held-to-maturity
2,000


Investment in low income housing and historic tax credits
(1,930
)
(856
)
Investment in small business investment companies

(235
)
Net purchase of Federal Home Loan Bank stock
(2,687
)
(8,510
)
Net increase in loans
(371,714
)
(380,661
)
Proceeds from loan sales
3,342

6,867

Proceeds from the sale of other real estate owned

307

Additions to office properties and equipment
(755
)
(533
)
Acquisition
(1,335
)

Net cash used in investing activities
(442,702
)
(357,089
)
Cash flows from financing activities:
 
 
Net increase in deposit accounts
453,591

243,089

Net increase (decrease) in Federal Home Loan Bank advances
(65,000
)
120,000

Net increase (decrease) in line of credit advances
(6,200
)
4,000

Net proceeds from issuance of preferred stock
38,432


Net proceeds from exercise of stock options
907

952

Purchase of treasury stock
(2,462
)
(4,120
)
Dividends paid on preferred stock (1)
(762
)

Net cash provided by financing activities
418,506

363,921

Net change in cash and cash equivalents during the period
8,214

15,721

Cash and cash equivalents at beginning of the period
156,153

103,994

Cash and cash equivalents at end of the period
$
164,367

$
119,715


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Six Months Ended June 30,
(Dollars in thousands)
2018
2017
 
 
 
Supplemental disclosure of cash flow information:
 
 
Cash paid (received) during the period for:
 
 
Interest expense
$
34,112

$
17,750

Income taxes
$
(6,314
)
$
5,876

Other non-cash activity:
 
 
Contingent consideration
$
3,138

$

(1) 
The cash dividend payment was made to the Company’s transfer agent on June 29, 2018, and subsequently paid to preferred shareholders on July 2, 2018.

See accompanying notes to unaudited condensed consolidated financial statements.

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TRISTATE CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
[1] BASIS OF INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATION
TriState Capital Holdings, Inc. (“we,” “us,” “our,” the “holding company,” or the “Company”) is a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. The Company has three wholly owned subsidiaries: TriState Capital Bank (the “Bank”), a Pennsylvania-chartered state bank; Chartwell Investment Partners, LLC (“Chartwell”), a registered investment advisor; and Chartwell TSC Securities Corp. (“CTSC Securities”), a registered broker/dealer.

The Bank was established to serve the commercial banking needs of middle-market businesses and private banking needs of high-net-worth individuals. Chartwell provides investment management services primarily to institutional investors, mutual funds and individual investors. CTSC Securities supports marketing efforts for the proprietary investment products provided by Chartwell, including shares of mutual funds advised and/or administered by Chartwell.

The Company and the Bank are subject to regulatory examination by the Federal Deposit Insurance Corporation (“FDIC”), the Pennsylvania Department of Banking and Securities, and the Federal Reserve. Chartwell is a registered investment advisor regulated by the Securities and Exchange Commission (“SEC”). CTSC Securities is regulated by the SEC and Financial Industry Regulatory Authority (“FINRA”).

The Bank conducts business through its main office located in Pittsburgh, Pennsylvania, as well as its four additional representative offices in Cleveland, Ohio; Philadelphia, Pennsylvania; Edison, New Jersey; and New York, New York. Chartwell conducts business through its office located in Berwyn, Pennsylvania, and CTSC Securities conducts business through its office located in Pittsburgh, Pennsylvania.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of related revenue and expense during the reporting period. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than those anticipated in the estimates, which could materially affect the financial results of our operations and financial condition.

The material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses, valuation of goodwill and other intangible assets and its evaluation for impairment, and deferred income taxes and its related recoverability, which are discussed later in this section.

CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the Bank, Chartwell and CTSC Securities, after elimination of inter-company accounts and transactions. The accounts of the Bank, in turn, include its wholly owned subsidiary, Meadowood Asset Management, LLC (established in 2011 to hold and manage the foreclosed properties for the Bank), after elimination of inter-company accounts and transactions. The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for a full year presentation. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) and disclosures, considered necessary for the fair presentation of the accompanying consolidated financial statements, have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2018.

CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company has defined cash and cash equivalents as cash, interest-earning deposits with other institutions, federal funds sold, and short-term investments that have an original maturity of 90 days or less.

INVESTMENT SECURITIES
The Company’s investments are classified as either: (1) held-to-maturity – debt securities that the Company intends to hold until maturity and are reported at amortized cost; (2) trading securities – debt securities bought and held principally for the purpose of selling them in the near term and reported at fair value, with unrealized gains and losses included in non-interest income; (3) available-for-sale – debt securities not classified as either held-to-maturity or trading securities and reported at fair value, with unrealized gains

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and losses reported as a component of accumulated other comprehensive income (loss), on an after-tax basis; or (4) equity securities which are reported at fair value, with unrealized gains and losses included in non-interest income.

The cost of securities sold is determined on a specific identification basis. Amortization of premiums and accretion of discounts are recorded as interest income on investments over the estimated life of the security utilizing the level yield method. We evaluate impaired investment securities quarterly to determine if impairments are temporary or other-than-temporary. For impaired debt and equity securities, management first determines whether it intends to sell or if it is more-likely than not that it will be required to sell the impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. If the Company intends to sell a security with a fair value below amortized cost or if it is more-likely than not that it will be required to sell such a security before recovery, an other-than-temporary impairment (“OTTI”) charge is recorded through current period earnings for the full decline in fair value below amortized cost. For debt securities that the Company does not intend to sell or it is more likely than not that it will not be required to sell before recovery, an OTTI charge is recorded through current period earnings for the amount of the valuation decline below amortized cost that is attributable to credit losses. The remaining difference between the security’s fair value and amortized cost (that is, the decline in fair value not attributable to credit losses) is recognized in other comprehensive income (loss), in the consolidated statements of comprehensive income and the shareholders’ equity section of the consolidated statements of financial condition, on an after-tax basis. For equity securities an OTTI charge is recorded through current period earnings for the full decline in fair value below cost.

FEDERAL HOME LOAN BANK STOCK
The Company is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). Member institutions are required to invest in FHLB stock. The stock is carried at cost, which approximates its liquidation value, and it is evaluated for impairment based on the ultimate recoverability of the par value. The following matters are considered by management when evaluating the FHLB stock for impairment: the ability of the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; the impact of legislative and regulatory changes on the institution and its customer base; and the Company’s intent and ability to hold its FHLB stock for the foreseeable future. Management believes the Company’s holdings in the FHLB stock were recoverable at par value, as of June 30, 2018 and December 31, 2017. Cash and stock dividends are reported as interest income on investments, in the consolidated statements of income.

LOANS
Loans and leases held-for-investment are stated at unpaid principal balances, net of deferred loan fees and costs. Loans held-for-sale are stated at the lower of cost or fair value. Interest income on loans is accrued at the contractual rate on the principal amount outstanding and includes the amortization of deferred loan fees and costs. Deferred loan fees and costs are amortized to interest income over the estimated life of the loan, taking into consideration scheduled payments and prepayments.

The Company considers a loan to be a Troubled Debt Restructuring (“TDR”) when there is a concession made to a financially troubled borrower without adequate consideration provided to the Company. Once a loan is deemed to be a TDR, the Company considers whether the loan should be placed on non-accrual status. In assessing accrual status, the Company considers the likelihood that repayment and performance according to the original contractual terms will be achieved, as well as the borrower’s historical payment performance. A loan is designated and reported as a TDR until such loan is either paid-off or sold, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement.

The recognition of interest income on a loan is discontinued when, in management’s opinion, it is probable the borrower is unable to meet payments as they become due or when the loan becomes 90 days past due, whichever occurs first. All accrued and unpaid interest on such loans is reversed. Such interest ultimately collected is applied to reduce principal if there is doubt about the collectability of principal. If a borrower brings a loan current for which accrued interest has been reversed, then the recognition of interest income on the loan is resumed, once the loan has been current for a period of six consecutive months or greater.

The Company is a party to financial instruments with off-balance sheet risk (commitments to extend credit) in the normal course of business to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses (i.e. demand loans) and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the unfunded commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis using the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Company upon extension of a commitment, is based on management’s credit evaluation of the borrower.


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OTHER REAL ESTATE OWNED
Real estate owned, other than bank premises, is recorded at fair value less estimated selling costs. Fair value is determined based on an independent appraisal. Expenses related to holding the property are charged against earnings when incurred. Depreciation is not recorded on other real estate owned (“OREO”) properties.

ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through provisions for loan losses that are recorded in the consolidated statements of income. Loans are charged off against the allowance for loan losses when management believes that the principal is uncollectible. If, at a later time, amounts are recovered with respect to loans previously charged off, the recovered amount is credited to the allowance for loan losses.

In management’s judgment, the allowance was appropriate to cover probable losses inherent in the loan portfolio as of June 30, 2018 and December 31, 2017. Management’s judgment takes into consideration general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. Although management believes it has used the best information available to it in making such determinations, and that the present allowance for loan losses is adequate, future adjustments to the allowance may be necessary, and net income may be adversely affected if circumstances differ substantially from the assumptions used in determining the level of the allowance. In addition, as an integral part of their periodic examination, certain regulatory agencies review the adequacy of the Bank’s allowance for loan losses and may direct the Bank to make additions to the allowance based on their judgments about information available to them at the time of their examination.

The two components of the allowance for loan losses represent estimates of general reserves based upon Accounting Standards Codification (“ASC”) Topic 450, Contingencies; and specific reserves based upon ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as commercial loans, consumer lines of credit and residential mortgages that are not individually evaluated for impairment. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment.

In management’s opinion, a loan is impaired, based upon current information and events, when it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest, or if a loan is designated as a TDR. Management performs individual assessments of impaired loans to determine the existence of loss exposure based upon a discounted cash flows method or where a loan is collateral dependent, based upon the fair value of the collateral less estimated selling costs.

In estimating probable loan loss of general reserves management considers numerous factors, including historical charge-offs and subsequent recoveries. Management also considers, but is not limited to, qualitative factors that influence our credit quality, such as delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, the results of internal loan reviews, etc. Finally, management considers the impact of changes in current local and regional economic conditions in the markets that we serve.

Management bases the computation of the allowance for loan losses of general reserves on two factors: the primary factor and the secondary factor. The primary factor is based on the inherent risk identified by management within each of the Company’s three loan portfolios based on the historical loss experience of each loan portfolio and the loss emergence period. Management has developed a methodology that is applied to each of the three primary loan portfolios: private banking, commercial and industrial, and commercial real estate. As the loan loss history, mix, and risk ratings of each loan portfolio change, the primary factor adjusts accordingly. The allowance for loan losses related to the primary factor is based on our estimates as to probable losses for each loan portfolio. The secondary factor is intended to capture risks related to events and circumstances that management believes have an impact on the performance of the loan portfolio. Although this factor is more subjective in nature, the methodology focuses on internal and external trends in pre-specified categories (risk factors) and applies a quantitative percentage that drives the secondary factor. There are nine risk factors and each risk factor is assigned a reserve level based on management’s judgment as to the probable impact of each risk factor on each loan portfolio and is monitored on a quarterly basis. As the trend in any risk factor changes, a corresponding change occurs in the reserve associated with each respective risk factor, such that the secondary factor remains current to changes in each loan portfolio.

The Company also maintains a reserve for losses on unfunded commitments. This reserve is reflected as a component of other liabilities and, in management’s judgment, is sufficient to cover probable losses inherent in the commitments. Management tracks the level and trends in unused commitments and takes into consideration the same factors as those considered for purposes of the allowance for loan losses on outstanding loans.

INVESTMENT MANAGEMENT FEES
The Company recognizes investment management fee revenue when the advisory services are performed. Fees are based on assets under management and are calculated pursuant to individual client contracts. Investment management fees are generally received

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on a quarterly basis. Certain incremental costs incurred to acquire some of our investment management contracts are deferred and amortized to non-interest expense over the estimated life of the contract.

Investment management fees receivable represent amounts due for contractual investment management services provided to the Company’s clients, primarily institutional investors, mutual funds and individual investors. Management performs credit evaluations of its customers’ financial condition when it is deemed to be necessary, and does not require collateral. The Company provides an allowance for uncollectible accounts based on specifically identified receivables. Bad debt expense is recorded to other non-interest expense on the consolidated statements of income and the allowance for uncollectible accounts is recorded to investment management fees receivable, net on the consolidated statements of financial position. Investment management fees receivable are considered delinquent when payment is not received within contractual terms and are charged off against the allowance for uncollectible accounts when management determines that recovery is unlikely and the Company ceases its collection efforts. There was no bad debt expense recorded for the six months ended June 30, 2018, and no allowance for uncollectible accounts as of June 30, 2018. There was $150,000 bad debt expense associated with a single relationship recorded for the six months ended June 30, 2017, and there was no allowance for uncollectible accounts as of December 31, 2017.

BUSINESS COMBINATIONS
The Company accounts for business combinations using the acquisition method of accounting. Under this method of accounting, the acquired company’s net assets are recorded at fair value as of the date of acquisition, and the results of operations of the acquired company are combined with our results from that date forward. Acquisition costs are expensed when incurred. The difference between the purchase price and the fair value of the net assets acquired (including identified intangibles) is recorded as goodwill. The change in the initial estimate of any contingent earn out amounts is reflected in the consolidated statements of income.

GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized and is subject to at least annual assessments for impairment by applying a fair value based test. The Company reviews goodwill annually and again at any quarter-end if a material event occurs during the quarter that may affect goodwill. If goodwill testing is required, an assessment of qualitative factors can be completed before performing the two step goodwill impairment test. If an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then the two step goodwill impairment test is not required. Goodwill is evaluated for potential impairment by determining if the fair value has fallen below carrying value.

Other intangible assets represent purchased assets that may lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. The Company has determined that certain of its acquired mutual fund client relationships meet the criteria to be considered indefinite-lived assets because the Company expects both the renewal of these contracts and the cash flows generated by these assets to continue indefinitely. Accordingly, the Company does not amortize these intangible assets, but instead reviews these assets annually or more frequently whenever events or circumstances occur indicating that the recorded indefinite-lived assets may be impaired. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company would assess whether the carrying value of these assets exceeds its fair value, an impairment loss would be recorded in an amount equal to any such excess and these assets would be reclassified to finite-lived. Other intangible assets that the Company has determined to have finite lives, such as trade name, client lists and non-compete agreements are amortized over their estimated useful lives. These finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from four to twenty-five years. Finite-lived intangibles are evaluated for impairment on an annual basis or more frequently whenever events or circumstances occur indicating that the carrying amount may not be recoverable.

OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets, except for leasehold improvements which are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Estimated useful lives are dependent upon the nature and condition of the asset and range from three to ten years. Repairs and maintenance are charged to expense as incurred, while improvements that extend the useful life are capitalized and depreciated to non-interest expense over the estimated remaining life of the asset. When the Bank receives an allowance for improvements to be made to one of its leased offices, we record the allowance as a deferred liability and recognize it as a reduction to rent expense over the life of the related lease.

BANK OWNED LIFE INSURANCE
Bank owned life insurance (“BOLI”) policies on certain officers and employees are recorded at net cash surrender value on the consolidated statements of financial condition. Upon termination of the BOLI policy the Company receives the cash surrender value. BOLI benefits are payable to the Company upon death of the insured. Changes in net cash surrender value are recognized as non-interest income in the consolidated statements of income.


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DEPOSITS
Deposits are stated at principal outstanding. Interest on deposits is accrued and charged to interest expense daily and is paid or credited in accordance with the terms of the respective accounts.

BORROWINGS
The Company records FHLB advances, line of credit borrowings and subordinated notes payable at their principal amount net of debt issuance costs. Interest expense is recognized based on the coupon rate of the obligations. Costs associated with the acquisition of subordinated notes payable are amortized to interest expense over the expected term of the borrowing.

EARNINGS PER COMMON SHARE
Earnings per common share (“EPS”) is computed using the two-class method, where net income is reduced by dividends declared on our preferred stock to derive net income available to common shareholders. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, excluding non-vested restricted stock. Diluted EPS reflects the potential dilution upon the exercise of stock options and the vesting of restricted stock awards granted utilizing the treasury stock method.

INCOME TAXES
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities with regard to a change in tax rates is recognized in income in the period that includes the enactment date. Management assesses all available evidence to determine the amount of deferred tax assets that are more-likely-than-not to be realized. The available evidence used in connection with the assessments includes taxable income in prior periods, projected taxable income, potential tax planning strategies and projected reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo significant change. Changes to the evidence used in the assessments could have a material adverse effect on the Company’s results of operations in the period in which they occur. The Company considers uncertain tax positions that it has taken or expects to take on a tax return. Any interest and penalties related to unrecognized tax benefits would be recognized in income tax expense in the consolidated statements of income.

DERIVATIVES AND HEDGING ACTIVITIES
All derivatives are evaluated at inception as to whether or not they are hedging or non-hedging activities, and appropriate documentation is maintained to support the final determination. All derivatives are recognized as either assets or liabilities on the consolidated statements of financial condition and measured at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item. For derivatives designated as cash flow hedges, changes in fair value of the effective portion of the cash flow hedges are reported in accumulated other comprehensive income (loss). When the cash flows associated with the hedged item are realized, the gain or loss included in accumulated other comprehensive income (loss) is recognized in the consolidated statements of income. The Company also has interest rate derivative positions that are not designated as hedging instruments. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.

FAIR VALUE MEASUREMENT
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in a principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date, using assumptions market participants would use when pricing an asset or liability. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Fair value measurement and disclosure guidance provides a three-level hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs such as quoted prices for similar assets and liabilities in active markets, quoted prices for similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.


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Fair value must be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances, on a non-recurring basis.

STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation awards based on estimated fair values of share-based awards made to employees and directors.

Compensation cost for all share-based payments is based on the estimated grant-date fair value. The value of the portion of the award that is ultimately expected to vest is included in stock-based compensation expense in the consolidated statements of income and recorded as a component of additional paid-in capital, for equity-based awards. Compensation expense for all awards is recognized on a straight-line basis over the requisite service period for the entire grant.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains and the non-credit component of unrealized losses on the Company’s debt securities available-for-sale are included in accumulated other comprehensive income (loss), net of applicable income taxes. Also included in accumulated other comprehensive income (loss) is the remaining unamortized balance of the unrealized holding gains (non-credit losses), net of applicable income taxes, that existed on the transfer date for debt securities reclassified into the held-to-maturity category from the available-for-sale category.

Unrealized holding gains (losses) on the effective portion of the Company’s cash flow hedge derivatives are included in accumulated other comprehensive income (loss), net of applicable income taxes, which will be reclassified to interest expense as interest payments are made on the Company’s debt.

Income tax effects in accumulated other comprehensive income are released as investments are sold or matured and liabilities are extinguished.

TREASURY STOCK
The repurchase of the Company’s common stock is recorded at cost. At the time of reissuance, the treasury stock account is reduced using the average cost method. Gains and losses on the reissuance of common stock are recorded in additional paid-in capital, to the extent additional paid-in capital from any previous net gains on treasury share transactions exists. Any net deficiency is charged to retained earnings.

RECENT ACCOUNTING DEVELOPMENTS
In June 2018, the FASB issued Accounting Standard Update (“ASU”) 2018-07, “Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” which more closely aligns the accounting for employee and nonemployee share-based payments. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the impact this standard will have on our results of operations and financial position.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" to address a narrow-scope financial reporting issue that arose as a consequence of the change in the tax law. The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The changes could be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company early adopted this standard on January 1, 2018, and elected to reclassify the effect of the change in the U.S. federal corporate income tax rate from accumulated other comprehensive income to retained earnings of $274,000, which is reflected in the Consolidated Statements of Changes in Shareholders' Equity in the period of adoption.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which changes the recognition and presentation requirements of hedge accounting, including: eliminating the requirement to separately measure and report hedge ineffectiveness; and presenting all items that affect earnings in the same income statement line item as the hedged item. The standard also provides new alternatives for: applying hedge accounting to additional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. This standard is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact this standard will have on our results of operations and financial position.

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In March 2017, the FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” which shortens the premium amortization period for purchased non-contingently callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income recognition with the expectations incorporated in the market pricing on the underlying securities. This standard is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact this standard will have on our results of operations and financial position.

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The changes are effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2019. All entities may early adopt the standard for goodwill impairment tests with measurement dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on our results of operations and financial position.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. The changes are effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019. Management created a formal working group to govern the implementation of this standard consisting of key stakeholders from finance, risk and credit. We are currently in the process of designing current expected credit loss estimation methodologies and systems, and collecting data to be able to comply with this standard. The Company is currently evaluating the impact this standard will have on our results of operations, financial position and related disclosure.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which, among other things, requires lessees to recognize most leases on-balance sheet. This will increase their reported assets and liabilities - in some cases very significantly. Lessor accounting remains substantially similar to current U.S. GAAP. ASU 2016-02 supersedes Topic 840, Leases. This standard is effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact this standard will have on our results of operations and financial position.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. This standard is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The Company was impacted by two main provisions of this standard as follows. (1) This standard requires a public entity to use the exit price notion to measure fair value of financial instruments for disclosure purposes. Accordingly, the Company refined the calculation used to determine the disclosed fair value of loans held-for-investment as part of adopting this standard. The refined calculation did not have a significant impact on our fair value disclosures. (2) This standard requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. This standard requires a cumulative effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in accumulated other comprehensive income. The Company adopted this standard on January 1, 2018, which resulted in a cumulative effect adjustment from accumulated other comprehensive income to retained earnings of $286,000, which is reflected in the Consolidated Statements of Changes in Shareholders' Equity in the period of adoption.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This standard implements a common approach that clarifies the principles for recognizing revenue. The core principle of this update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard establishes a five-step model that entities must follow to recognize revenue. This update is effective for annual periods and interim periods in fiscal years beginning after December 15, 2017, for public business entities. A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. The Company completed its assessment of revenue streams and associated incremental costs of contracts affected by the standard. The Company’s adoption of this standard did not change the method in which we recognize revenue. This standard requires that certain incremental costs incurred to acquire some of our investment management contracts to be capitalized and deferred over the estimated life of the contract. The adoption of this standard altered the timing, measurement and recognition of these costs in the income statement; however, the impact is not material. The Company adopted this standard on January 1, 2018, utilizing the modified retrospective approach with a cumulative effect adjustment to retained earnings of $534,000.

The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, derivatives and investment securities as these activities are subject to other GAAP discussed elsewhere

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within our disclosures. Descriptions of our other revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our consolidated statements of income as components of non-interest income are as follows:

Investment management fees - this represents monthly fees due from investment management customers as consideration for managing the customers' assets. Revenue is recognized when our performance obligation is completed each month.

Service charges on deposits - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

Commitment and other loan fees - this represents letters of credit fees and unused loan commitment fees. Revenue is recognized upon the issuance or renewal of a letter of credit and monthly for unused commitment fees.

Other non-interest income primarily includes items such as income on swap fees, BOLI, gains on sale of loans, and other miscellaneous items, which are not subject to the requirements of ASC Topic 606 or no modification was required under this standard.

RECLASSIFICATION
Certain items previously reported have been reclassified to conform with the current year’s reporting presentation and are considered immaterial.

[2] BUSINESS COMBINATION

On April 6, 2018, TriState Capital Holdings, Inc. through its wholly owned subsidiary, Chartwell Investment Partners, LLC, completed the acquisition of investment management contracts, select personnel and related assets from Columbia Partners, L.L.C. Investment Management (the "Columbia acquisition"), totaling approximately $1.07 billion in assets under management. Under the terms of the agreement with Columbia Partners, L.L.C. Investment Management (“Columbia”) investment management contracts were acquired for a purchase price consisting of $1.3 million paid in cash at closing based on a multiple of run-rate revenue plus an earn out. The earn out, which is limited to $3.8 million under the terms of the agreement, will be calculated based on a multiple of run-rate revenue at December 31, 2018. The earn out was estimated, at closing, to be approximately $3.1 million. Any change to the earn out calculation from the estimated $3.1 million recorded at closing will be recorded in the statement of income in the period in which it is deemed probable to occur. The foregoing summary of the agreement and the transactions contemplated by it does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the agreement.

The following table summarizes total consideration at closing and assets acquired for the Columbia acquisition on April 6, 2018:
(Dollars in thousands)
Columbia Acquisition
Consideration paid:
 
Cash
$
1,334

Estimated earn out, at closing
3,138

Fair value of total consideration
$
4,472

 
 
Intangible assets acquired
$
1,537

Goodwill
2,935

Total net assets purchased
$
4,472


In connection with the Columbia acquisition, total acquisition-related transaction costs incurred by TriState Capital were not significant. Since the acquisition, the Columbia acquired operations contributed revenues of $516,000 and approximate earnings of $24,000 which were included in the consolidated statement of income for the six months ended June 30, 2018.


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Goodwill is not amortized for book purposes, but is deductible for tax purposes. The following table shows the amount of other intangible assets acquired through the Columbia acquisition on April 6, 2018, by class and estimated useful life.
(Dollars in thousands)
Gross Amount
Weighted Average Estimated Useful Life
(months)
Client Relationships:
 
 
Sub-advisory client list
$
115

132
Separate managed accounts client list
1,365

108
Non-compete agreements
57

48
Total finite-lived intangibles
$
1,537

108

The following table presents unaudited pro forma financial information which combines the historical consolidated statements of income of the Company and the Columbia contracts acquired to give effect to the acquisition as if it had occurred on January 1, 2017, for the periods indicated.
 
Pro Forma
 
Six Months Ended June 30,
(Dollars in thousands, except per share data)
2018
2017
Total revenue
$
79,244

$
67,229

Net income available to common shareholders
$
24,314

$
16,124

 
 
 
Earnings per common share:
 
 
Basic
$
0.88

$
0.58

Diluted
$
0.84

$
0.56


Total revenue is defined as net interest income and non-interest income, excluding gains and losses on the sale and call of debt securities. Pro forma adjustments include intangible amortization expense and income tax expense.

[3] INVESTMENT SECURITIES

Debt securities available-for-sale and held-to-maturity were comprised of the following:
 
June 30, 2018
(Dollars in thousands)
Amortized
Cost
Gross Unrealized
Appreciation
Gross Unrealized
Depreciation
Estimated
Fair Value
Debt securities available-for-sale:
 
 
 
 
Corporate bonds
$
99,737

$
13

$
1,136

$
98,614

Trust preferred securities
17,903

514


18,417

Non-agency collateralized loan obligations
626


4

622

Agency collateralized mortgage obligations
36,742

60

4

36,798

Agency mortgage-backed securities
21,942

102

427

21,617

Agency debentures
10,480

5

86

10,399

Total debt securities available-for-sale
187,430

694

1,657

186,467

Debt securities held-to-maturity:
 
 
 
 
Corporate bonds
32,186

360

33

32,513

Agency debentures
21,870

10

40

21,840

Municipal bonds
23,042

11

123

22,930

Total debt securities held-to-maturity
77,098

381

196

77,283

Total debt securities
$
264,528

$
1,075

$
1,853

$
263,750



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December 31, 2017
(Dollars in thousands)
Amortized
Cost
Gross Unrealized
Appreciation
Gross Unrealized
Depreciation
Estimated
Fair Value
Debt securities available-for-sale:
 
 
 
 
Corporate bonds
$
61,616

$
216

$
143

$
61,689

Trust preferred securities
17,840

741


18,581

Non-agency collateralized loan obligations
811


6

805

Agency collateralized mortgage obligations
38,873

25

76

38,822

Agency mortgage-backed securities
19,007

96

150

18,953

Total debt securities available-for-sale
138,147

1,078

375

138,850

Debt securities held-to-maturity:
 
 
 
 
Corporate bonds
32,189

785

33

32,941

Agency debentures
1,984

3


1,987

Municipal bonds
25,102

122

11

25,213

Total debt securities held-to-maturity
59,275

910

44

60,141

Total debt securities
$
197,422

$
1,988

$
419

$
198,991


Interest income on investment securities was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in thousands)
2018
2017
 
2018
2017
Taxable interest income
$
1,901

$
1,206

 
$
3,314

$
2,384

Non-taxable interest income
105

113

 
216

226

Dividend income
294

216

 
554

395

Total interest income on investment securities
$
2,300

$
1,535

 
$
4,084

$
3,005


As of June 30, 2018, the contractual maturities of the debt securities were:
 
June 30, 2018
 
Available-for-Sale
 
Held-to-Maturity
(Dollars in thousands)
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Due in one year or less
$
20,211

$
20,158

 
$
6,230

$
6,253

Due from one to five years
58,347

58,049

 
31,938

31,912

Due from five to ten years
31,174

30,613

 
38,930

39,118

Due after ten years
77,698

77,647

 


Total debt securities
$
187,430

$
186,467

 
$
77,098

$
77,283


The $77.6 million fair value of debt securities available-for-sale with a contractual maturity due after ten years as of June 30, 2018, included $53.7 million, or 69.1%, that are floating-rate securities. The $38.9 million amortized cost of debt securities held-to-maturity with a contractual maturity due from five to ten years as of June 30, 2018, included $20.8 million that have call provisions in one to five years that would either mature, if called, or become floating-rate securities after the call date.

Prepayments may shorten the contractual lives of the collateralized mortgage obligations, mortgage-backed securities and collateralized loan obligations.


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Proceeds from the sale and call of debt securities available-for-sale and held-to-maturity and related realized gains and losses were:
 
Available-for-Sale
 
Held-to-Maturity
 
Available-for-Sale
 
Held-to-Maturity
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in thousands)
2018
2017
 
2018
2017
 
2018
2017
 
2018
2017
Proceeds from sales
$

$

 
$

$

 
$
2,037

$

 
$

$

Proceeds from calls
4,081

16,675

 
105


 
4,081

21,675

 
1,000


Total proceeds
$
4,081

$
16,675

 
$
105

$

 
$
6,118

$
21,675


$
1,000

$

 
 
 
 
 
 
 
 
 
 
 
 
Gross realized gains
$
4

$
241

 
$

$

 
$
6

$
241

 
$
3

$

Gross realized losses
3


 


 
3

2

 


Net realized gains (losses)
$
1

$
241

 
$

$

 
$
3

$
239

 
$
3

$


Debt securities available-for-sale of $3.7 million, as of June 30, 2018, were held in safekeeping at the FHLB and were included in the calculation of borrowing capacity.

The following tables show the fair value and gross unrealized losses on temporarily impaired debt securities available-for-sale and held-to-maturity and equity securities, by investment category and length of time that the individual securities have been in a continuous unrealized loss position as of June 30, 2018 and December 31, 2017, respectively:
 
June 30, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
(Dollars in thousands)
Fair value
Unrealized losses
 
Fair value
Unrealized losses
 
Fair value
Unrealized losses
Debt securities available-for-sale:
 
 
 
 
 
 
 
 
Corporate bonds
$
86,824

$
1,136

 
$

$

 
$
86,824

$
1,136

Non-agency collateralized loan obligations


 
622

4

 
622

4

Agency collateralized mortgage obligations
1,731

1

 
3,928

3

 
5,659

4

Agency mortgage-backed securities
5,551

93

 
8,026

334

 
13,577

427

Agency debentures
7,300

86

 


 
7,300

86

Total debt securities available-for-sale
101,406

1,316

 
12,576

341

 
113,982

1,657

Debt securities held-to-maturity:
 
 
 
 
 
 
 
 
Corporate bonds
5,404

33

 


 
5,404

33

Agency debentures
10,841

40

 


 
10,841

40

Municipal bonds
15,091

123

 


 
15,091

123

Total debt securities held-to-maturity
31,336

196

 


 
31,336

196

Equity securities


 
8,630

410

 
8,630

410

Total temporarily impaired securities (1)
$
132,742

$
1,512

 
$
21,206

$
751

 
$
153,948

$
2,263

(1) 
The number of investment positions with unrealized losses totaled 63 for available-for-sale securities, 25 for held-to-maturity securities and 2 for equity securities.


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Table of Contents

 
December 31, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
(Dollars in thousands)
Fair value
Unrealized losses
 
Fair value
Unrealized losses
 
Fair value
Unrealized losses
Debt securities available-for-sale:
 
 
 
 
 
 
 
 
Corporate bonds
$
29,995

$
143

 
$

$

 
$
29,995

$
143

Non-agency collateralized loan obligations


 
805

6

 
805

6

Agency collateralized mortgage obligations
1,593

1

 
32,816

75

 
34,409

76

Agency mortgage-backed securities
2,960

10

 
9,437

140

 
12,397

150

Total debt securities available-for-sale
34,548

154

 
43,058

221

 
77,606

375

Debt securities held-to-maturity:
 
 
 
 
 
 
 
 
Corporate bonds
2,406

33

 


 
2,406

33

Municipal bonds
6,051

11

 


 
6,051

11

Total debt securities held-to-maturity
8,457

44

 


 
8,457

44

Equity securities


 
8,635

275

 
8,635

275

Total temporarily impaired securities (1)
$
43,005

$
198

 
$
51,693

$
496

 
$
94,698

$
694

(1) 
The number of investment positions with unrealized losses totaled 28 for available-for-sale securities, 8 for held-to-maturity securities and 2 for equity securities.

The change in the fair values of our municipal bonds, agency debentures, agency collateralized mortgage obligation and agency mortgage-backed securities are primarily the result of interest rate fluctuations. To assess for credit impairment, management evaluates the underlying issuer’s financial performance and the related credit rating information through a review of publicly available financial statements and other publicly available information. This most recent review did not identify any issues related to the ultimate repayment of principal and interest on these securities. In addition, the Company has the ability and intent to hold debt securities in an unrealized loss position until recovery of their amortized cost. Based on this, the Company considers all of the unrealized losses to be temporary.

There were no debt securities classified as trading outstanding as of June 30, 2018 and December 31, 2017.

Equity securities consists of mutual funds investing in short-duration, corporate bonds. There were $8.6 million and $8.6 million in equity securities outstanding as of June 30, 2018 and December 31, 2017, respectively.

There was $16.5 million and $13.8 million in FHLB stock outstanding as of June 30, 2018 and December 31, 2017, respectively.

[4] LOANS

The Company generates loans through the private banking and middle-market banking channels. The private banking channel primarily includes loans made to high-net-worth individuals, trusts and businesses that are typically secured by cash, marketable securities or cash value life insurance. The middle-market banking channel consists of our commercial and industrial (“C&I”) and commercial real estate (“CRE”) loan portfolios that serve middle-market businesses and real estate developers in our primary markets.

Loans held-for-investment were comprised of the following:
 
June 30, 2018
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Loans held-for-investment, before deferred fees and costs
$
2,483,285

$
741,445

$
1,326,318

$
4,551,048

Deferred loan costs (fees)
4,877

456

(3,453
)
1,880

Loans held-for-investment, net of deferred fees and costs
2,488,162

741,901

1,322,865

4,552,928

Allowance for loan losses
(1,557
)
(8,786
)
(4,978
)
(15,321
)
Loans held-for-investment, net
$
2,486,605

$
733,115

$
1,317,887

$
4,537,607



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Table of Contents

 
December 31, 2017
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Loans held-for-investment, before deferred fees and costs
$
2,261,625

$
667,028

$
1,254,184

$
4,182,837

Deferred loan costs (fees)
4,112

656

(3,361
)
1,407

Loans held-for-investment, net of deferred fees and costs
2,265,737

667,684

1,250,823

4,184,244

Allowance for loan losses
(1,577
)
(8,043
)
(4,797
)
(14,417
)
Loans held-for-investment, net
$
2,264,160

$
659,641

$
1,246,026

$
4,169,827


The Company’s customers have unused loan commitments based on the availability of eligible collateral or other terms and conditions under the loan agreement. Often these commitments are not fully utilized and therefore the total amount does not necessarily represent future cash requirements. The amount of unfunded commitments, including standby letters of credit, as of June 30, 2018 and December 31, 2017, was $2.96 billion and $2.37 billion, respectively. The interest rate for each commitment is based on the prevailing market conditions at the time of funding. The reserve for losses on unfunded commitments was $504,000 and $504,000 as of June 30, 2018 and December 31, 2017, respectively, which includes reserves for probable losses on unfunded loan commitments, including standby letters of credit and also risk participations.

The total unfunded commitments above included loans in the process of origination totaling approximately $72.5 million and $53.3 million as of June 30, 2018 and December 31, 2017, respectively, which extend over varying periods of time.

The Company issues standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. The Company would be required to perform under the standby letters of credit when drawn upon by the guaranteed party in the case of non-performance by the Company’s customer. Collateral may be obtained based on management’s credit assessment of the customer. The amount of unfunded commitments related to standby letters of credit as of June 30, 2018 and December 31, 2017, included in the total unfunded commitments above, was $66.8 million and $74.8 million, respectively. Should the Company be obligated to perform under the standby letters of credit the Company will seek repayment from the customer for amounts paid. During the six months ended June 30, 2018 and 2017, there were draws on standby letters of credit totaling $5.7 million and $191,000, respectively, which were repaid by the borrower. Most of these commitments are expected to expire without being drawn upon and the total amount does not necessarily represent future cash requirements. The potential liability for losses on standby letters of credit was included in the reserve for losses on unfunded commitments.

The Company has entered into risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution counterparties should the customers fail to perform on their interest rate derivative contracts. The potential liability for outstanding obligations was included in the reserve for losses on unfunded commitments.

[5] ALLOWANCE FOR LOAN LOSSES

Our allowance for loan losses represents our estimate of probable loan losses inherent in the loan portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions recorded in the consolidated statements of income and recoveries of losses previously incurred. Reductions to the allowance occur as loans are charged off or when the credit history of any of the three loan portfolios improves. Management evaluates the adequacy of the allowance quarterly, and in doing so relies on various factors including, but not limited to, assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying collateral coverage and current economic conditions. This evaluation is subjective and requires material estimates that may change over time. In addition, management evaluates the overall methodology for the allowance for loan losses on an annual basis. The calculation of the allowance for loan losses takes into consideration the inherent risk identified within each of the Company’s three primary loan portfolios: private banking, commercial and industrial, and commercial real estate. In addition, management takes into account the historical loss experience of each loan portfolio, to ensure that the allowance for loan losses is sufficient to cover probable losses inherent in such loan portfolios. Refer to Note 1, Summary of Significant Accounting Policies, for more details on the Company’s allowance for loan losses policy.

The following discusses key characteristics and risks within each primary loan portfolio:

Private Banking Loans
Our private banking lending activities are conducted on a national basis. This loan portfolio primarily includes loans made to high-net-worth individuals, trusts and businesses that are typically secured by cash, marketable securities or cash value life insurance.

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Table of Contents

This portfolio also has some loans that are secured by residential real estate or other financial assets, lines of credit and unsecured loans. The primary sources of repayment for these loans are the income and/or assets of the borrower.

The underlying collateral is the most important indicator of risk for this loan portfolio. The overall lower risk profile of this portfolio is driven by loans secured by cash, marketable securities or cash value life insurance, which were 95.7% and 94.6% of total private banking loans as of June 30, 2018 and December 31, 2017, respectively.

Middle-Market Banking: Commercial and Industrial Loans
This loan portfolio primarily includes loans made to service companies or manufacturers generally for the purposes of financing production, operating capacity, accounts receivable, inventory, equipment, acquisitions and recapitalizations. Cash flow from the borrower’s operations is the primary source of repayment for these loans.

The borrower’s industry and local and regional economic conditions are important indicators of risk for this loan portfolio. Collateral for these types of loans at times does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. C&I loans collateralized by marketable securities are treated the same as private banking loans for purposes of the allowance for loan loss calculation.

Middle-Market Banking: Commercial Real Estate Loans
This loan portfolio includes loans secured by commercial purpose real estate, including both owner-occupied properties and investment properties for various purposes including office, industrial, multifamily, retail, hospitality, healthcare and self-storage. The primary source of repayment for commercial real estate loans secured by owner-occupied properties is cash flow from the borrower’s operations. Individual project cash flows, global cash flows and liquidity from the developer, or the sale of the property are the primary sources of repayment for commercial real estate loans secured by investment properties. Also included are commercial construction loans to finance the construction or renovation of structures as well as to finance the acquisition and development of raw land for various purposes. The increased level of risk for these loans is generally confined to the construction period. If there are problems the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal.

The underlying purpose and collateral of the loans are important indicators of risk for this loan portfolio. Additional risks exist and are dependent on several factors such as the condition of the local and regional economies, whether or not the project is owner-occupied, the type of project, and the experience and resources of the developer.

On a monthly basis, management monitors various credit quality indicators for the loan portfolio, including delinquency, non-performing status, changes in risk ratings, changes in the underlying performance of the borrowers and other relevant factors. On a daily basis, the Company monitors the collateral of loans secured by cash, marketable securities or cash value life insurance within the private banking portfolio, which further reduces the risk profile of that portfolio. Refer to Note 1, Summary of Significant Accounting Policies, for the Company’s policy for determining past due status of loans.

Loan risk ratings are assigned based upon the creditworthiness of the borrower and the quality of the collateral for loans secured by marketable securities. Loan risk ratings are reviewed on an ongoing basis according to internal policies. Loans within the pass rating are believed to have a lower risk of loss than loans that are risk rated as special mention, substandard and doubtful, which are believed to have an increasing risk of loss. Our internal risk ratings are consistent with regulatory guidance. Management also monitors the loan portfolio through a formal periodic review process. All non-pass rated loans are reviewed monthly and higher risk-rated loans within the pass category are reviewed three times a year.

The Company’s risk ratings are consistent with regulatory guidance and are as follows:

Pass – The loan is currently performing in accordance with its contractual terms.

Special Mention – A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in our credit position at some future date. Economic and market conditions, beyond the customer’s control, may in the future necessitate this classification.

Substandard – A substandard loan is not adequately protected by the net worth and/or paying capacity of the obligor or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – A doubtful loan has all the weaknesses inherent in a loan categorized as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

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Table of Contents


The following tables present the recorded investment in loans by credit quality indicator:
 
June 30, 2018
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Pass
$
2,487,864

$
714,039

$
1,321,015

$
4,522,918

Special mention

22,506

1,850

24,356

Substandard
298

5,356


5,654

Loans held-for-investment
$
2,488,162

$
741,901

$
1,322,865

$
4,552,928


 
December 31, 2017
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Pass
$
2,265,369

$
639,987

$
1,248,972

$
4,154,328

Special mention

24,882

1,851

26,733

Substandard
368

2,815


3,183

Loans held-for-investment
$
2,265,737

$
667,684

$
1,250,823

$
4,184,244



Changes in the allowance for loan losses were as follows for the three months ended June 30, 2018 and 2017:
 
Three Months Ended June 30, 2018
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Balance, beginning of period
$
1,556

$
8,466

$
4,796

$
14,818

Provision for loan losses
1

232

182

415

Charge-offs




Recoveries

88


88

Balance, end of period
$
1,557

$
8,786

$
4,978

$
15,321


 
Three Months Ended June 30, 2017
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Balance, beginning of period
$
1,421

$
10,436

$
4,328

$
16,185

Provision for loan losses
27

198

291

516

Charge-offs

(1,000
)

(1,000
)
Recoveries

267


267

Balance, end of period
$
1,448

$
9,901

$
4,619

$
15,968


Changes in the allowance for loan losses were as follows for the six months ended June 30, 2018 and 2017:
 
Six Months Ended June 30, 2018
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Balance, beginning of period
$
1,577

$
8,043

$
4,797

$
14,417

Provision (credit) for loan losses
(20
)
449

181

610

Charge-offs




Recoveries

294


294

Balance, end of period
$
1,557

$
8,786

$
4,978

$
15,321



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Table of Contents

 
Six Months Ended June 30, 2017
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Balance, beginning of period
$
1,424

$
12,326

$
5,012

$
18,762

Provision (credit) for loan losses
24

1,128

(393
)
759

Charge-offs

(3,889
)

(3,889
)
Recoveries

336


336

Balance, end of period
$
1,448

$
9,901

$
4,619

$
15,968


The following tables present the age analysis of past due loans segregated by class of loan:
 
June 30, 2018
(Dollars in thousands)
30-59 Days Past Due
60-89 Days Past Due
Loans Past Due 90 Days or More
Total Past Due
Current
Total
Private banking
$
280

$
90

$

$
370

$
2,487,792

$
2,488,162

Commercial and industrial


2,139

2,139

739,762

741,901

Commercial real estate




1,322,865

1,322,865

Loans held-for-investment
$
280

$
90

$
2,139

$
2,509

$
4,550,419

$
4,552,928


 
December 31, 2017
(Dollars in thousands)
30-59 Days Past Due
60-89 Days Past Due
Loans Past Due 90 Days or More
Total Past Due
Current
Total
Private banking
$
1,266

$

$

$
1,266

$
2,264,471

$
2,265,737

Commercial and industrial




667,684

667,684

Commercial real estate
1,849



1,849

1,248,974

1,250,823

Loans held-for-investment
$
3,115

$

$

$
3,115

$
4,181,129

$
4,184,244


Non-Performing and Impaired Loans

Management monitors the delinquency status of the loan portfolio on a monthly basis. Loans are considered non-performing when interest and principal were 90 days or more past due or management has determined that it is probable the borrower is unable to meet payments as they become due. The risk of loss is generally highest for non-performing loans.

Management determines loans to be impaired when, based upon current information and events, it is probable that the loan will not be repaid according to the original contractual terms of the loan agreement, including both principal and interest, or if a loan is designated as a TDR. Refer to Note 1, Summary of Significant Accounting Policies, for the Company’s policy on evaluating loans for impairment and interest income.


24

Table of Contents

The following tables present the Company’s investment in loans considered to be impaired and related information on those impaired loans:
 
As of and for the Six Months Ended June 30, 2018
(Dollars in thousands)
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
With a related allowance recorded:
 
 
 
 
 
Private banking
$
298

$
477

$
298

$
328

$

Commercial and industrial
2,139

2,485

2,139

2,139


Commercial real estate





Total with a related allowance recorded
2,437

2,962

2,437

2,467


Without a related allowance recorded:
 
 
 
 
 
Private banking





Commercial and industrial
3,217

5,072


3,321

112

Commercial real estate





Total without a related allowance recorded
3,217

5,072


3,321

112

Total:
 
 
 
 
 
Private banking
298

477

298

328


Commercial and industrial
5,356

7,557

2,139

5,460

112

Commercial real estate





Total
$
5,654

$
8,034

$
2,437

$
5,788

$
112


 
As of and for the Twelve Months Ended December 31, 2017
(Dollars in thousands)
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
With a related allowance recorded:
 
 
 
 
 
Private banking
$
368

$
541

$
368

$
438

$

Commercial and industrial
2,815

3,135

2,139

3,067


Commercial real estate





Total with a related allowance recorded
3,183

3,676

2,507

3,505


Without a related allowance recorded:
 
 
 
 
 
Private banking





Commercial and industrial
3,371

5,330


4,224

146

Commercial real estate





Total without a related allowance recorded
3,371

5,330


4,224

146

Total:
 
 
 
 
 
Private banking
368

541

368

438


Commercial and industrial
6,186

8,465

2,139

7,291

146

Commercial real estate





Total
$
6,554

$
9,006

$
2,507

$
7,729

$
146


Impaired loans as of June 30, 2018 and December 31, 2017, were $5.7 million and $6.6 million, respectively. There was no interest income recognized on impaired loans that were also on non-accrual status for the six months ended June 30, 2018, and the twelve months ended December 31, 2017. As of June 30, 2018 and December 31, 2017, there were no loans 90 days or more past due and still accruing interest income.

Impaired loans were evaluated using a discounted cash flow method or based on the fair value of the collateral less estimated selling costs. Based on those evaluations there were specific reserves totaling $2.4 million and $2.5 million as of June 30, 2018 and December 31, 2017.


25

Table of Contents

The following tables present the allowance for loan losses and recorded investment in loans by class:
 
June 30, 2018
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Allowance for loan losses:
 
 
 
 
Individually evaluated for impairment
$
298

$
2,139

$

$
2,437

Collectively evaluated for impairment
1,259

6,647

4,978

12,884

Total allowance for loan losses
$
1,557

$
8,786

$
4,978

$
15,321

Loans held-for-investment:
 
 
 
 
Individually evaluated for impairment
$
298

$
5,356

$

$
5,654

Collectively evaluated for impairment
2,487,864

736,545

1,322,865

4,547,274

Loans held-for-investment
$
2,488,162

$
741,901

$
1,322,865

$
4,552,928


 
December 31, 2017
(Dollars in thousands)
Private
Banking
Commercial
and
Industrial
Commercial
Real Estate
Total
Allowance for loan losses:
 
 
 
 
Individually evaluated for impairment
$
368

$
2,139

$

$
2,507

Collectively evaluated for impairment
1,209

5,904

4,797

11,910

Total allowance for loan losses
$
1,577

$
8,043

$
4,797

$
14,417

Loans held-for-investment:
 
 
 
 
Individually evaluated for impairment
$
368

$
6,186

$

$
6,554

Collectively evaluated for impairment
2,265,369

661,498

1,250,823

4,177,690

Loans held-for-investment
$
2,265,737

$
667,684

$
1,250,823

$
4,184,244


Troubled Debt Restructuring

The following table provides additional information on the Company’s loans designated as troubled debt restructurings:
(Dollars in thousands)
June 30,
2018
December 31,
2017
Aggregate recorded investment of impaired loans with terms modified through a troubled debt restructuring:
 
 
Performing loans accruing interest
$
3,217

$
3,371

Non-accrual loans
2,437

3,183

Total troubled debt restructurings
$
5,654

$
6,554


There were unused commitments of $706,000 and $708,000 on loans designated as troubled debt restructurings as of June 30, 2018 and December 31, 2017, respectively.

The modifications made to restructured loans typically consist of an extension of the payment terms or the deferral of principal payments. There was a loan totaling $186,000 modified as a TDR within twelve months of the corresponding balance sheet date with a payment default during the six months ended June 30, 2018, and no loans modified as a TDR within twelve months of the corresponding balance sheet date with a payment default during the six months ended June 30, 2017.

There were no loans newly designated as TDRs during six months ended June 30, 2018 and 2017.

Other Real Estate Owned

As of June 30, 2018 and December 31, 2017, the balance of the other real estate owned portfolio was $3.6 million and $3.6 million, respectively. There were no residential mortgage loans in the process of foreclosure as of June 30, 2018.


26

Table of Contents

[6] DEPOSITS

As of June 30, 2018 and December 31, 2017, deposits were comprised of the following:
 
Interest Rate
Range
 
Weighted Average
Interest Rate
 
Balance
(Dollars in thousands)
June 30,
2018
 
June 30,
2018
December 31,
2017
 
June 30,
2018
December 31,
2017
Demand and savings accounts:
 
 
 
 
 
 
 
Noninterest-bearing checking accounts
 
 
$
247,705

$
248,092

Interest-bearing checking accounts
0.05 to 2.49%
 
1.95%
1.42%
 
612,501

455,341

Money market deposit accounts
0.10 to 2.90%
 
1.82%
1.37%
 
2,494,927

2,289,789

Total demand and savings accounts
 
 
 
 
 
3,355,133

2,993,222

Certificates of deposit
1.10 to 3.22%
 
2.10%
1.40%
 
1,086,069

994,389

Total deposits
 
 
 
 
 
$
4,441,202

$
3,987,611

Weighted average rate on interest-bearing accounts
 
 
1.91%
1.38%
 
 
 

As of June 30, 2018 and December 31, 2017, the Bank had total brokered deposits of $496.6 million and $1.07 billion, respectively. Reciprocal deposits through Certificate of Deposit Account Registry Service® (“CDARS®”) and Insured Cash Sweep® (“ICS®”) totaled $655.8 million and $627.5 million as of June 30, 2018 and December 31, 2017, respectively. As of December 31, 2017, these reciprocal deposits were included in the total brokered deposits above, however were considered non-brokered as of June 30, 2018, resulting from recent legislation.

As of June 30, 2018 and December 31, 2017, certificates of deposit with balances of $100,000 or more, excluding brokered deposits, totaled $472.4 million and $440.2 million, respectively. As of June 30, 2018 and December 31, 2017, certificates of deposit with balances of $250,000 or more, excluding brokered deposits, totaled $173.1 million and $191.4 million.

The contractual maturity of certificates of deposit was as follows:
(Dollars in thousands)
June 30,
2018
December 31,
2017
12 months or less
$
849,394

$
874,733

12 months to 24 months
159,786

96,766

24 months to 36 months
76,889

22,890

Total
$
1,086,069

$
994,389


Interest expense on deposits was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in thousands)
2018
2017