Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 7, 2017)
  • 10-Q (Aug 8, 2017)
  • 10-Q (May 9, 2017)
  • 10-Q (Nov 9, 2016)
  • 10-Q (Aug 8, 2016)
  • 10-Q (May 9, 2016)

 
8-K

 
Other

Northrim BanCorp 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
FORM 10-Q
(Mark One)
þ    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016
o    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from_____to____
Commission File Number 000-33501
NORTHRIM BANCORP, INC.
(Exact name of registrant as specified in its charter)
Alaska
 
92-0175752
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
3111 C Street
Anchorage, Alaska 99503
(Address of principal executive offices)    (Zip Code) 

(907) 562-0062

(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 of this chapter) 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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:  
Large Accelerated Filer ¨  Accelerated Filer ý    Non-accelerated Filer ¨ Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      
¨ Yes  ý No
The number of shares of the issuer’s Common Stock, par value $1 per share, outstanding at August 8, 2016 was 6,882,482.






TABLE OF CONTENTS
 
 
 
Part  I
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Part II
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



1



PART I. FINANCIAL INFORMATION
These consolidated financial statements should be read in conjunction with the financial statements, accompanying notes and other relevant information included in Northrim BanCorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.
ITEM 1. FINANCIAL STATEMENTS

2


CONSOLIDATED FINANCIAL STATEMENTS
NORTHRIM BANCORP, INC.
Consolidated Balance Sheets
(Unaudited)
 
June 30,
2016
 
December 31,
2015
(In Thousands, Except Share Data)
 
ASSETS
 
 
 
Cash and due from banks

$30,095

 

$30,989

Interest bearing deposits in other banks
44,661

 
27,684

 
 
 
 
Investment securities available for sale, at fair value
290,601

 
291,113

Investment securities held to maturity, at amortized cost
901

 
903

Total portfolio investments
291,502

 
292,016

 
 
 
 
Investment in Federal Home Loan Bank stock
1,966

 
1,816

 
 
 
 
Loans held for sale
60,360

 
50,553

 
 
 
 
Loans
967,346

 
980,787

Allowance for loan losses
(18,385
)
 
(18,153
)
Net loans
948,961

 
962,634

Purchased receivables, net
13,596

 
13,326

Other real estate owned, net
2,558

 
3,053

Premises and equipment, net
38,671

 
40,217

Mortgage servicing rights, at fair value
2,602

 
1,654

Goodwill
22,334

 
22,334

Other intangible assets, net
1,372

 
1,442

Other assets
59,692

 
51,774

Total assets

$1,518,370

 

$1,499,492

LIABILITIES
 
 
 
Deposits:
 
 
 
Demand

$461,970

 

$430,191

Interest-bearing demand
183,885

 
209,291

Savings
231,246

 
227,969

Money market
241,334

 
236,675

Certificates of deposit less than $100,000
50,933

 
52,505

Certificates of deposit $100,000 and greater
86,320

 
84,161

Total deposits
1,255,688

 
1,240,792

Securities sold under repurchase agreements
26,049

 
31,420

Borrowings
4,362

 
2,120

Junior subordinated debentures
18,558

 
18,558

Other liabilities
29,748

 
29,388

Total liabilities
1,334,405

 
1,322,278

SHAREHOLDERS' EQUITY
 
 
 
Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding

 

Common stock, $1 par value, 10,000,000 shares authorized, 6,877,140 shares
issued and outstanding at June 30, 2016 and December 31, 2015
6,877

 
6,877

Additional paid-in capital
62,797

 
62,420

Retained earnings
113,238

 
108,150

Accumulated other comprehensive income (loss)
742

 
(412
)
Total Northrim BanCorp shareholders' equity
183,654

 
177,035

Noncontrolling interest
311

 
179

Total shareholders' equity
183,965

 
177,214

Total liabilities and shareholders' equity

$1,518,370

 

$1,499,492

See notes to consolidated financial statements

3



NORTHRIM BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended June 30,
Six Months Ended June 30,
(In Thousands, Except Per Share Data)
2016
 
2015
2016
 
2015
Interest Income
 
 
 
 
 
 
Interest and fees on loans and loans held for sale

$13,710

 

$14,135


$27,488

 

$27,602

Interest on investment securities available for sale
953

 
759

1,933

 
1,644

Interest on investment securities held to maturity
14

 
25

27

 
48

Interest on deposits in other banks
41

 
24

88

 
35

Total Interest Income
14,718

 
14,943

29,536

 
29,329

Interest Expense
 
 
 
 
 
 
Interest expense on deposits, borrowings and junior subordinated debentures
639

 
748

1,283

 
1,502

Net Interest Income
14,079

 
14,195

28,253

 
27,827

Provision for loan losses
200

 
376

903

 
702

Net Interest Income After Provision for Loan Losses
13,879

 
13,819

27,350

 
27,125

Other Operating Income
 
 
 
 
 
 
Mortgage banking income
8,510

 
7,859

14,206

 
15,165

Employee benefit plan income
936

 
931

1,900

 
1,708

Bankcard fees
675

 
669

1,308

 
1,258

Purchased receivable income
531

 
562

1,065

 
1,151

Service charges on deposit accounts
510

 
568

1,009

 
1,058

Gain (loss) on sale of securities, net
12

 
16

(11
)
 
130

Other income
690

 
958

1,492

 
1,628

Total Other Operating Income
11,864

 
11,563

20,969

 
22,098

Other Operating Expense
 
 
 
 
 
 
Salaries and other personnel expense
12,011

 
11,125

23,262

 
21,675

Occupancy expense
1,697

 
1,594

3,305

 
3,198

Data processing expense
1,146

 
1,104

2,230

 
2,200

Professional and outside services
785

 
791

1,492

 
1,542

Change in fair value, RML earn-out liability
687

 
587

817

 
2,089

Marketing expense
615

 
642

1,353

 
1,259

Loss on sale of premises and equipment
358

 
7

358

 
7

Insurance expense
263

 
345

578

 
669

OREO (income) expense, net rental income and gains on sale
127

 
(121
)
101

 
176

Intangible asset amortization expense
35

 
72

70

 
145

Other operating expense
1,645

 
1,607

3,174

 
3,254

Total Other Operating Expense
19,369

 
17,753

36,740

 
36,214

Income Before Provision for Income Taxes
6,374

 
7,629

11,579

 
13,009

Provision for income taxes
1,868

 
2,686

3,567

 
4,433

Net Income
4,506

 
4,943

8,012

 
8,576

Less: Net income attributable to the noncontrolling interest
156

 
162

286

 
234

Net Income Attributable to Northrim BanCorp, Inc.

$4,350

 

$4,781


$7,726

 

$8,342

Earnings Per Share, Basic

$0.63

 

$0.70


$1.12

 

$1.22

Earnings Per Share, Diluted

$0.63

 

$0.69


$1.11

 

$1.20

Weighted Average Shares Outstanding, Basic
6,877,140

 
6,854,338

6,877,140

 
6,854,264

Weighted Average Shares Outstanding, Diluted
6,968,891

 
6,941,671

6,966,905

 
6,938,879

See notes to consolidated financial statements

4



NORTHRIM BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
2010
 
Three Months Ended June 30,
Six Months Ended June 30,
(In Thousands)
2016
2015
2016
2015
Net income

$4,506


$4,943


$8,012


$8,576

Other comprehensive income (loss), net of tax:
 
 
 
 
   Securities available for sale:
 
 
 
 
         Unrealized gains (losses) arising during the period

$466


($152
)

$1,792


$736

         Reclassification of net (gains) losses included in net income (net of tax
 
 
 
 
          (benefit) expense of $5 and $7 for the second quarter of 2016 and 2015,
 
 
 
 
          respectively and ($5) and $53 for the six months ended June 30, 2016
 
 
 
 
          and 2015, respectively)
(7
)
(9
)
6

(77
)
         Income tax expense (benefit) related to unrealized gains and losses
(174
)
58

(644
)
(263
)
Other comprehensive income (loss), net of tax
285

(103
)
1,154

396

Comprehensive income
4,791

4,840

9,166

8,972

  Less: comprehensive income attributable to the noncontrolling interest
156

162

286

234

      Comprehensive income attributable to Northrim BanCorp, Inc.

$4,635


$4,678


$8,880


$8,738

 
See notes to consolidated financial statements


5



NORTHRIM BANCORP, INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
 Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Non-controlling Interest
 
 Total
 
Number of Shares
 
Par Value
 
 
 
 
 
(In Thousands)
 
 
 
 
 
 
Balance as of January 1, 2015
6,854

 

$6,854

 

$61,729

 

$95,493

 

$247

 

$118

 

$164,441

Cash dividend declared

 

 

 
(5,126
)
 

 

 
(5,126
)
Stock-based compensation expense

 

 
608

 

 

 

 
608

Exercise of stock options
23

 
23

 
27

 

 

 

 
50

Excess tax benefits from stock based payment arrangements

 

 
56

 

 

 

 
56

Distributions to noncontrolling interest

 

 

 

 

 
(490
)
 
(490
)
Other comprehensive loss, net of tax

 

 

 

 
(659
)
 

 
(659
)
Net income attributable to the noncontrolling interest

 

 

 

 

 
551

 
551

Net income attributable to Northrim BanCorp, Inc.

 

 

 
17,783

 

 

 
17,783

Twelve Months Ended December 31, 2015
6,877

 

$6,877

 

$62,420

 

$108,150

 

($412
)
 

$179

 

$177,214

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividend declared






(2,638
)





(2,638
)
Stock-based compensation expense




377








377

Distributions to noncontrolling interest










(154
)

(154
)
Other comprehensive income, net of tax








1,154




1,154

Net income attributable to the noncontrolling interest










286


286

Net income attributable to Northrim BanCorp, Inc.






7,726






7,726

Six Months Ended June 30, 2016
6,877



$6,877



$62,797



$113,238



$742



$311



$183,965

 
See notes to consolidated financial statements

6



NORTHRIM BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(In Thousands)
2016
 
2015
Operating Activities:
 
 
 
Net income

$8,012

 

$8,576

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 

 
 

Loss (gain) on sale of securities, net
11

 
(130
)
Loss on sale of premises and equipment
358

 
7

Depreciation and amortization of premises and equipment
1,178

 
1,122

Amortization of software
84

 
90

Intangible asset amortization
70

 
145

Amortization of investment security premium, net of discount accretion
8

 
(119
)
Deferred tax liability
448

 
(685
)
Stock-based compensation
377

 
237

Excess tax benefits from share-based payment arrangements

 
1

Deferral of loan fees and costs, net
(292
)
 
(92
)
Provision for loan losses
903

 
702

Recovery from purchased receivables
(18
)
 
(72
)
Gain on sale of loans
(11,924
)
 
(13,686
)
Proceeds from the sale of loans held for sale
344,087

 
376,782

Origination of loans held for sale
(341,970
)
 
(392,823
)
Gain on sale of other real estate owned
(112
)
 
(136
)
Impairment on other real estate owned
130

 
268

Net changes in assets and liabilities:
 

 
 
Decrease (increase) in accrued interest receivable
62

 
(26
)
(Increase) decrease in other assets
(3,302
)
 
2,352

Decrease in other liabilities
(6,472
)
 
(8,731
)
Net Cash Provided by (Used in) Operating Activities
(8,362
)
 
(26,218
)
Investing Activities:
 

 
 

Investment in securities:
 

 
 
Purchases of investment securities available for sale
(31,985
)
 
(59,196
)
Purchases of FHLB stock
(151
)
 

Proceeds from sales/calls/maturities of securities available for sale
34,283

 
115,917

Proceeds from maturities of domestic certificates of deposit

 
3,500

Proceeds from redemption of FHLB stock
1

 
1,587

(Increase) decrease in purchased receivables, net
(252
)
 
1,278

Decrease (increase) in loans, net
13,063

 
(50,597
)
Proceeds from sale of other real estate owned
477

 
1,971

Elliott Cove divestiture, net of cash received

 
219

Sales of premises and equipment
1,379

 

Purchases of premises and equipment
(1,369
)
 
(3,428
)
Net Cash Provided by Investing Activities
15,446

 
11,251

Financing Activities:
 

 
 
Increase in deposits
14,896

 
58,970

Decrease in securities sold under repurchase agreements
(5,371
)
 
(1,948
)
Increase (decrease) in borrowings
2,242

 
(3,995
)
Distributions to noncontrolling interest
(154
)
 
(75
)
Cash dividends paid
(2,614
)
 
(2,470
)
Net Cash Provided by Financing Activities
8,999

 
50,482

Net Change in Cash and Cash Equivalents
16,083

 
35,515

Cash and Cash Equivalents at Beginning of Period
58,673

 
68,556

Cash and Cash Equivalents at End of Period

$74,756

 

$104,071


7



 
 
 
 
 
 
 
 
Supplemental Information:
 

 
 
Income taxes paid

$2,162

 

$4,011

Interest paid

$1,213

 

$1,556

Noncash commitments to invest in Low Income Housing Tax Credit Partnerships

$6,809

 

$55

Transfer of loans to other real estate owned

$—

 

$337

Cash dividends declared but not paid

$24

 

$22

 
See notes to consolidated financial statements

8



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements and corresponding footnotes have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The year-end Consolidated Balance Sheet data was derived from the Company's audited financial statements. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles ("GAAP") for complete financial statements. The Company owns a 100% interest in Residential Mortgage Holding Company, LLC ("RML"), the parent company of Residential Mortgage, LLC ("Residential Mortgage") and a 50.1% interest in Northrim Benefits Group, LLC ("NBG") and consolidates their balance sheets and income statements into its financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain immaterial reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders’ equity. The Company determined that it operates in two primary operating segments: Community Banking and Home Mortgage Lending. The Company has evaluated events and transactions through August 8, 2016 for potential recognition or disclosure. Operating results for the interim period ended June 30, 2016, are not necessarily indicative of the results anticipated for the year ending December 31, 2016. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

2. Significant Accounting Policies and Recent Accounting Pronouncements

The Company’s significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2017, and the Company will apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption and the amendments related to equity securities without readily determinable fair values (including disclosure requirements) will be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01. The Company does not believe that the adoption of this standard will have a material impact on the Company’s consolidated financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. ASU 2016-02 is effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2018, and must be applied prospectively. The Company is currently evaluating how the adoption of this standard will impact the Company’s consolidated financial position and results of operations.

9



In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Option in Debt Instruments (“ASU 2016-06”). ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. ASU 2016-06 is effective for the Company's financial statements for annual and interim periods beginning on or after December 15, 2016, and interim periods within those fiscal years. The Company does not believe that the adoption of this standard will have a material impact on the Company’s consolidated financial position or results of operations.
In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. ASU 2016-17 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2016, and must be applied prospectively. The Company does not believe that the adoption of this standard will have a material impact on the Company’s consolidated financial position or results of operations.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2016, and must be applied prospectively. The Company does not believe that the adoption of this standard will have a material impact on the Company’s consolidated financial position or results of operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”). ASU 2016-13 requires a financial asset (or a group of financial assets) that is measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset or assets to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination ("PCD assets") that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition. ASU 2016-13 requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The allowance for credit losses for purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination is determined in a similar manner to other available-for-sale debt securities; however, the initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded in credit loss expense. Interest income should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price. ASU 2016-13 is effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2019, and must be applied prospectively. The Company is currently evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial position and results of operations.


10



3. Cash and Cash Equivalents
The Company is required to maintain a $500,000 minimum average daily balance with the Federal Reserve Bank of San Francisco ("Federal Reserve Bank") for purposes of settling financial transactions and charges for Federal Reserve Bank services. The Company is also required to maintain cash balances or deposits with the Federal Reserve Bank sufficient to meet its statutory reserve requirements.
The Company is required to maintain a $500,000 balance with a correspondent bank for outsourced servicing of ATMs.

4. Investment Securities
The carrying values and estimated fair values of investment securities at the periods indicated are presented below:
(In Thousands)
Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value
June 30, 2016
 


 


 


 

Securities available for sale
 


 


 


 

U.S. Treasury and government sponsored entities

$234,388



$1,055



$7



$235,436

Municipal securities
9,290


68


17


9,341

U.S. Agency mortgage-backed securities
6






6

Corporate bonds
40,838


83


36


40,885

Preferred stock
4,922


55


44


4,933

Total securities available for sale

$289,444



$1,261



$104



$290,601

Securities held to maturity
 


 


 


 

Municipal securities

$901



$44



$—



$945

Total securities held to maturity

$901



$44



$—



$945

December 31, 2015
 


 


 


 

Securities available for sale
 


 


 


 

U.S. Treasury and government sponsored entities

$238,116



$150



$830



$237,436

Municipal securities
10,227


117


18


10,326

U.S. Agency mortgage-backed securities
818


1


10


809

Corporate bonds
39,049


57


88


39,018

Preferred stock
3,549


8


33


3,524

Total securities available for sale

$291,759



$333



$979



$291,113

Securities held to maturity
 


 


 


 

Municipal securities

$903



$56



$—



$959

Total securities held to maturity

$903



$56



$—



$959



11



Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015 were as follows:

 
Less Than 12 Months
More Than 12 Months
Total
(In Thousands)
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
June 30, 2016:
 
 
 
 
 
 
Securities Available for Sale
 
 
 
 
 
 
     U.S. Treasury and government sponsored entities

$12,422


$3


$489


$4


$12,911


$7

     Corporate Bonds
17,421

36



17,421

36

     Municipal Securities
1,209

4

1,480

13

2,689

17

     Preferred Stock
1,506

44



1,506

44

          Total

$32,558


$87


$1,969


$17


$34,527


$104

 
 
 
 
 
 
 
December 31, 2015:
 
 
 
 
 
 
Securities Available for Sale
 
 
 
 
 
 
     U.S. Treasury and government sponsored entities

$146,433


$829


$36


$1


$146,469


$830

     Corporate Bonds
19,874

88



19,874

88

     Municipal Securities
4,454

18



4,454

18

     Mortgage-backed Securities
637

9

100

1

737

10

     Preferred Stock
2,514

33



2,514

33

          Total

$173,912


$977


$136


$2


$174,048


$979


The unrealized losses on investments in government sponsored entities, corporate bonds, preferred stock, and municipal securities in both periods were caused by changes in interest rates. At June 30, 2016 and December 31, 2015, respectively, there were eight and thirty-nine available-for-sale securities with unrealized losses that have been in a loss position for less than twelve months. There were two and six securities as of June 30, 2016 and December 31, 2015 that have been in an unrealized loss position for more than twelve months.  The contractual terms of the investments in a loss position do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because it is more likely than not that the Company will hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

At June 30, 2016 and December 31, 2015, $55.5 million and $59.7 million in securities were pledged for deposits and borrowings.


12



The amortized cost and estimated fair values of debt securities at June 30, 2016, are distributed by contractual maturity as shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.  Although preferred stock has no stated maturity, it is aggregated in the calculation of weighted average yields presented below in the category of investments that mature in ten years or more.
(In  Thousands)
Amortized Cost

Fair Value

Weighted Average Yield
US Treasury and government sponsored entities
 

 

 
Within 1 year

$9,996



$10,015


0.84
%
1-5 years
224,392


225,421


1.14
%
Total

$234,388



$235,436


1.12
%
U.S. Agency mortgage-backed securities
 

 

 
1-5 years

$6



$6


1.47
%
Total

$6



$6


1.47
%
Corporate bonds
 

 

 
Within 1 year

$7,106



$7,117


1.44
%
1-5 years
33,732


33,768


1.39
%
Total

$40,838



$40,885


1.40
%
Preferred stock
 

 

 
Over 10 years

$4,922



$4,933


7.16
%
Total

$4,922



$4,933


7.16
%
Municipal securities
 

 

 
Within 1 year

$478



$479


0.93
%
1-5 years
7,679


7,780


2.91
%
5-10 years
2,034


2,027


4.12
%
Total

$10,191



$10,286


3.06
%

The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the six months ending June 30, 2016 and 2015, respectively, are as follows: 
(In Thousands)
Proceeds

Gross Gains

Gross Losses
2016
 

 

 
Available for sale securities

$5,785



$12



$23

2015
 

 

 
Available for sale securities

$2,621



$130



$—

    
A summary of interest income for the six months ending June 30, 2016 and 2015 on available for sale investment securities is as follows:
(In Thousands)
2016

2015
US Treasury and government sponsored entities

$1,336



$1,120

U.S. Agency mortgage-backed securities
4


13

Other
447


344

Total taxable interest income

$1,787



$1,477

Municipal securities

$146



$167

Total tax-exempt interest income

$146



$167

Total

$1,933



$1,644



13



5.  Loans and Credit Quality
The following table presents total portfolio loans by portfolio segment and class of financing receivable, based on our asset quality rating ("AQR") criteria:
(In Thousands)
Commercial

Real estate construction one-to-four family

Real estate construction other

Real estate term owner occupied

Real estate term non-owner occupied

Real estate term other

Consumer secured by 1st deeds of trust

Consumer other

Total
June 30, 2016
 

 

 

 

 

 

 

 

 
AQR Pass

$314,597



$34,811



$55,541



$135,670



$291,379



$38,793



$25,970



$27,036



$923,797

AQR Special Mention
3,109






1,256




285


152


6


4,808

AQR Substandard
19,648


3,972


1,912


16,338


221




909


61


43,061

Subtotal

$337,354



$38,783



$57,453



$153,264



$291,600



$39,078



$27,031



$27,103



$971,666

Less: Unearned origination fees, net of origination costs

 

 

(4,320
)
        Total loans
 

 

 

 

 

 

 

 


$967,346

December 31, 2015
 

 

 

 

 

 

 

 

 
AQR Pass

$313,689



$44,488



$74,931



$112,248



$313,710



$37,938



$26,015



$28,882



$951,901

AQR Special Mention
536










91


171


10


808

AQR Substandard
15,309






16,515


359




487


20


32,690

Subtotal

$329,534



$44,488



$74,931



$128,763



$314,069



$38,029



$26,673



$28,912



$985,399

Less: Unearned origination fees, net of origination costs

 

 

(4,612
)
        Total loans
 

 

 

 

 

 

 

 


$980,787

Loans are carried at their principal amount outstanding, net of charge-offs, unamortized fees and direct loan origination costs.  Loan balances are charged-off to the allowance for loan losses ("Allowance") when management believes that collection of principal is unlikely.  Interest income on loans is accrued and recognized on the principal amount outstanding except for loans in a nonaccrual status.  All classes of loans are placed on nonaccrual and considered impaired when management believes doubt exists as to the collectability of the interest or principal.  Cash payments received on nonaccrual loans are directly applied to the principal balance.  Generally, a loan may be returned to accrual status when the delinquent principal and interest is brought current in accordance with the terms of the loan agreement.  Additionally, certain ongoing performance criteria, which generally includes a performance period of six months, must be met in order for a loan to be returned to accrual status.  Loans are reported as past due when installment payments, interest payments, or maturity payments are past due based on contractual terms.
Nonaccrual loans: Nonaccrual loans net of government guarantees totaled $9.6 million and $2.1 million at June 30, 2016 and December 31, 2015, respectively. Nonaccrual loans at the periods indicated, by segment, are presented below:
(In  Thousands)
June 30, 2016

December 31, 2015
Commercial

$4,479



$3,013

Real estate construction one-to-four family
3,972



Real estate construction other
1,912



Real estate term owner occupied
34


38

Real estate term non-owner occupied
221


359

Consumer secured by 1st deeds of trust
552


256

Consumer other
14


20

Total nonaccrual loans

$11,184



$3,686

Government guarantees on nonaccrual loans
(1,600
)

(1,561
)
Net nonaccrual loans

$9,584



$2,125



14



Past Due Loans: Past due loans and nonaccrual loans at the periods indicated are presented below by segment:
(In Thousands)
30-59 Days
Past Due
Still
Accruing

60-89 Days
Past Due
Still
Accruing

Greater Than
90 Days
Still
Accruing

Total Past
Due
 
Nonaccrual

Current

Total
June 30, 2016
 

 

 

 
 
 

 

 
Commercial

$334

 

$137

 

$—

 

$471

 

$4,479

 

$332,404

 

$337,354

Real estate construction one-to-four family

 

 

 

 
3,972

 
34,811

 
38,783

Real estate construction other

 

 

 

 
1,912

 
55,541

 
57,453

Real estate term owner occupied
550

 

 

 
550

 
34

 
152,680

 
153,264

Real estate term non-owner occupied

 

 

 

 
221

 
291,379

 
291,600

Real estate term other

 

 

 

 

 
39,078

 
39,078

Consumer secured by 1st deed of trust
143

 

 

 
143

 
552

 
26,336

 
27,031

Consumer other

 

 
47

 
47

 
14

 
27,042

 
27,103

Subtotal

$1,027

 

$137

 

$47

 

$1,211

 

$11,184

 

$959,271

 

$971,666

 

 

 
 

 


(4,320
)
     Total
 


 


 


 

 
 


 



$967,346

December 31, 2015
 

 

 

 
 
 

 

 
Commercial

$242

 

$21

 

$—

 

$263

 

$3,013

 

$326,258

 

$329,534

Real estate construction one-to-four family

 

 

 

 

 
44,488

 
44,488

Real estate construction other

 

 

 

 

 
74,931

 
74,931

Real estate term owner occupied

 

 

 

 
38

 
128,725

 
128,763

Real estate term non-owner occupied

 

 

 

 
359

 
313,710

 
314,069

Real estate term other
289

 

 

 
289

 

 
37,740

 
38,029

Consumer secured by 1st deed of trust
568

 

 

 
568

 
256

 
25,849

 
26,673

Consumer other
30

 

 

 
30

 
20

 
28,862

 
28,912

Subtotal

$1,129

 

$21

 

$—

 

$1,150

 

$3,686

 

$980,563

 

$985,399

 

 

 
 

 


(4,612
)
     Total
 


 


 


 

 
 


 



$980,787


Impaired Loans: The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan’s collateral.  Nonperforming loans greater than $50,000 are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors.

15



At June 30, 2016 and December 31, 2015, the recorded investment in loans that are considered to be impaired was $44.4 million and $34.6 million, respectively.  The following table presents information about impaired loans by class as of the periods indicated:
(In Thousands)
Recorded Investment

Unpaid Principal Balance

Related Allowance
June 30, 2016
 

 

 
With no related allowance recorded
 

 

 
Commercial - AQR special mention

$151



$151



$—

Commercial - AQR substandard
19,427


20,107



Real estate construction other - AQR substandard
1,912


1,912



Real estate term owner occupied- AQR pass
257


257



Real estate term owner occupied- AQR substandard
16,259


16,259



Real estate term non-owner occupied- AQR pass
457


457



Real estate term non-owner occupied- AQR substandard
216


216



Real estate term other - AQR pass
662


662



Real estate term other - AQR special mention
77


77