UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March~~June 3130, 2018

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transitions period from ______________ to ______________



Commission File Number 001-15955


CoBiz Financial Inc.
(Exact name of registrant as specified in its charter)

COLORADO			84-0826324
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

1401 Lawrence St., Ste. 1200
Denver, CO			80202
(Address of principal executive offices)			(Zip Code)

(303) 312-3400
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑	No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑	No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐	Accelerated filer	☑
Non-accelerated filer		☐	Smaller reporting company	☐
(do not check if a smaller reporting company)			Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐	No ☑

There were 42,~~366~~399,~~023~~225 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding at ~~April 23~~July 20, 2018.

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Table of Contents

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION	Page
Item 1.	Condensed Consolidated Financial Statements (unaudited)	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4041
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5759
Item 4.	Controls and Procedures	5860
	PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 1A	Risk Factors	61
Item 6.	Exhibits	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
	SIGNATURES	59
Item 6.	Exhibits	67
	SIGNATURES	67

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Table of Contents

Part I. Financial Information

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that describe CoBiz Financial’s future plans, strategies and expectations, including without limitation, discussions regarding our financial objectives for loan and deposit growth, noninterest income growth and limiting noninterest expense growth. All forward-looking statements are based on assumptions and involve risks and uncertainties, many of which are beyond our control and which may cause our actual results, performance or achievements to differ materially from the results, performance or achievements contemplated by the forward-looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "would," "should," "could" or "may." Forward-looking statements speak only at the date they are made.

We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following are acronyms, abbreviations and definitions of terms used in this report:


GLOSSARY OF ACRONYMS, ABBREVIATIONS AND ENTITIES
ABB	Arizona Business Bank	FHLMC	Federal Home Loan Mortgage Corporation
ALCO	Asset/Liability Management Committee	FNMA	Federal National Mortgage Association
ALLL	Allowance for Loan and Lease Losses	FOMC	Federal Open Market Committee
AOCI	Accumulated Other Comprehensive Income	FRB	Federal Reserve Board
ASC	Accounting Standards Codification	GAAP	Generally Accepted Accounting Principles
ASU	Accounting Standards Update	GNMA	Government National Mortgage Association
AUM	Assets Under Management	ICS	Insured Cash Sweep Service
Bank	CoBiz Bank	MBS	Residential Mortgage-Backed Securities
BOLI	Bank-Owned Life Insurance	NAICS	North American Industry Classification System
CBB	Colorado Business Bank	NII	Net Interest Income
CCB	Capital Conservation Buffer	NIM	Net Interest Margin
CDARS	Certificate Deposit Account Registry Service	NM	Not Meaningful
CDs	Certificate of Deposit	OCI	Other Comprehensive Income
CECL	Current Expected Credit Loss under ASU 2016-13	OREO	Other Real Estate Owned
CFO	Chief Financial Officer	OTTI	Other-Than-Temporary Impairment
CoBiz	CoBiz Financial Inc.	Parent or Holding Company	CoBiz Financial Inc.
CoBiz Insurance	CoBiz Insurance Inc.	P&C	Property and Casualty Insurance
CoBiz Wealth	CoBiz Wealth LLC	Sarbanes-Oxley Act	Sarbanes-Oxley Act of 2002
Company	CoBiz Financial Inc.	SBA	Small Business Administration
Customer Repurchase Agreements	Securities sold under agreements to repurchase	SBIC	Small Business Investment Company
EPS	Earnings Per Share	SEC	Securities and Exchange Commission
FASB	Financial Accounting Standards Board	TCJA	Tax Cuts and Jobs Act
FDIC	Federal Deposit Insurance Corporation	TPS	Trust Preferred Securities
Federal Reserve	Board of Governors of the Federal Reserve System	VIE	Variable Interest Entity
FHLB	Federal Home Loan Bank

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Table of Contents

Item 1. Condensed Consolidated Financial Statements (unaudited)

CoBiz Financial Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

At ~~March~~June 3130, 2018 and December 31, 2017

	March 31,		December 31,
	June 30,		December 31,
(in thousands, except share amounts)	2018		2017
Assets
Cash and due from banks	$	5366,~~866~~600	$	78,735
Interest-bearing deposits and federal funds sold		1318,~~814~~258		1,445
Total cash and cash equivalents		6784,~~680~~858		80,180
Investment securities available for sale (cost of $183,178 and $164,012, respectively)		184,389		166,753
Investment securities available for sale (cost of $240,751 and $164,012, respectively)		241,108		166,753
Investment securities held to maturity (fair value of $381,947 and $360,071, respectively)		386,908		362,544
Investment securities held to maturity (fair value of $383,534 and $360,071, respectively)		388,917		362,544
Other investments		1016,~~954~~623		10,119
Total investments		~~582~~646,~~251~~648		539,416
Loans - net of allowance for loan losses of $36,796 and $37,941, respectively		3,047,646		3,107,622
Loans - net of allowance for loan losses of $35,834 and $37,941, respectively		3,030,420		3,107,622
Intangible assets - net of amortization of $7,760 and $7,704, respectively		671		726
Intangible assets - net of amortization of $7,809 and $7,704, respectively		621		726
Bank-owned life insurance		55,~~031~~387		55,040
Premises and equipment - net of depreciation of $38,176 and $37,459, respectively		10,110		10,827
Premises and equipment - net of depreciation of $38,831 and $37,459, respectively		9,604		10,827
Accrued interest receivable		1314,~~506~~087		14,150
Deferred income taxes, net		1213,~~870~~672		13,114
Other real estate owned - net of valuation allowance of $8,666 and $8,666, respectively		4,979		5,079
Other		2021,~~763~~599		20,118
TOTAL ASSETS	$	3,~~815~~881,~~507~~875	$	3,846,272
Liabilities
Deposits
Noninterest-bearing demand	$	1,450,~~789~~894	$	1,473,650
Interest-bearing demand		~~736~~712,~~929~~061		737,934
Money market		~~866~~864,~~108~~190		875,936
Savings		2221,~~976~~218		21,453
Certificates of deposits		~~102~~96,~~964~~178		116,247
Total deposits		3,~~179~~144,~~766~~541		3,225,220
Securities sold under agreements to repurchase		4238,~~268~~994		52,959
Other short-term borrowings		97190,~~818~~000		77,640
Accrued interest and other liabilities		2530,~~715~~831		29,808
Subordinated notes payable - net of unamortized discount and issuance costs of $783 and $805, respectively		59,217		59,195
Subordinated notes payable - net of unamortized discount and issuance costs of $761 and $805, respectively		59,239		59,195
Junior subordinated debentures		72,166		72,166
TOTAL LIABILITIES		3,~~476~~535,~~950~~771		3,516,988
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued and outstanding		-		-
Common stock, $.01 par value; 100,000,000 shares authorized; 42,366,023 and 42,217,318 issued and outstanding, respectively		420		418
Common stock, $.01 par value; 100,000,000 shares authorized; 42,389,975 and 42,217,318 issued and outstanding, respectively		420		418
Additional paid-in capital		~~203~~204,~~055~~342		202,111
Retained earnings		~~136~~144,~~912~~039		126,896
Accumulated other comprehensive loss, net of income tax of $(564) and $(85), respectively		(1,830)		(141)
Accumulated other comprehensive loss, net of income tax of $(874) and $(85), respectively		(2,697)		(141)
TOTAL SHAREHOLDERS' EQUITY		~~338~~346,~~557~~104		329,284
TOTAL LIABILITIES AND EQUITY	$	3,~~815~~881,~~507~~875	$	3,846,272

See Notes to Condensed Consolidated Financial Statements

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CoBiz Financial Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

For the three and six months ended ~~March~~June 3130, 2018 and 2017

	Three months ended				Six months ended
	March 31,
	June 30,				June 30,
(in thousands, except per share amounts)	2018		2017		2018		2017
INTEREST INCOME:
Interest and fees on loans	$	3334,~~773~~612	$	2931,~~391~~405	$	68,385	$	60,796
Interest and dividends on investment securities:
Taxable securities		34,~~521~~046		3,~~198~~601		7,567		6,799
Nontaxable securities		~~244~~245		~~288~~93		489		381
Dividends on securities		~~160~~204		~~148~~253		364		401
Interest on federal funds sold and other		7970		5654		149		110
Total interest income		3739,~~777~~177		3335,~~081~~406		76,954		68,487
INTEREST EXPENSE:
Interest on deposits		~~987~~1,423		~~987~~955		2,410		1,942
Interest on short-term borrowings and securities sold under agreements to repurchase		~~347~~752		~~184~~602		1,099		786
Interest on subordinated debentures and notes payable		1,~~834~~853		1,~~832~~844		3,687		3,676
Total interest expense		34,~~168~~028		3,~~003~~401		7,196		6,404
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		3435,~~609~~149		3032,~~078~~005		69,758		62,083
Provision for loan losses		(~~325~~901)		~~607~~673		(1,226)		1,280
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3436,~~934~~050		2931,~~471~~332		70,984		60,803
NONINTEREST INCOME:
Service charges		1,~~655~~577		1,~~745~~714		3,232		3,459
Investment advisory income		1,~~655~~678		1,~~531~~500		3,333		3,031
Insurance income		3,~~459~~138		3,~~122~~427		6,597		6,549
Other income		21,~~192~~816		1,~~930~~670		4,008		3,600
Total noninterest income		8,~~961~~209		8,~~328~~311		17,170		16,639
NONINTEREST EXPENSE:
Salaries and employee benefits		1920,~~747~~761		1918,~~120~~335		40,508		37,455
Occupancy expenses, premises and equipment		3,~~711~~651		3,~~605~~685		7,362		7,290
Amortization of intangibles		5649		150		105		300
FDIC and other assessments		~~424~~267		~~250~~349		691		599
Other real estate owned and loan workout costs		7150		8993		121		182
Net gain on securities, other assets and other real estate owned		(120)		(345)
Net (gain) loss on securities, other assets and other real estate owned		(4)		32		(124)		(313)
Other expense		45,~~681~~580		4,~~245~~011		10,261		8,256
Total noninterest expense		2830,~~570~~354		2726,~~114~~655		58,924		53,769
INCOME BEFORE INCOME TAXES		1513,~~325~~905		1012,~~685~~988		29,230		23,673
Provision for income taxes		2,~~344~~511		23,~~071~~499		4,855		5,570
NET INCOME	$	1211,~~981~~394	$	89,~~614~~489	$	24,375	$	18,103
EARNINGS PER COMMON SHARE:
Basic	$	0.3127	$	0.2123	$	0.58	$	0.43
Diluted	$	0.3127	$	0.2023	$	0.58	$	0.43

See Notes to Condensed Consolidated Financial Statements

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CoBiz Financial Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)

For the three and six months ended ~~March~~June 3130, 2018 and 2017

	Three months ended				Six months ended
	March 31,
	June 30,				June 30,
(in thousands)	2018		2017		2018		2017
Net income	$	1211,~~981~~394	$	89,~~614~~489	$	24,375	$	18,103
Other comprehensive income (loss) items:
Available for sale securities:
Net unrealized gain (loss)		(~~1,530~~850)		1,~~820~~180		(2,380)		3,000
Reclassification to operations		-(4)		3-		(4)		3
		(1,530)		1,823
		(854)		1,180		(2,384)		3,003
Held to maturity securities:
Reclassification to operations		(~~308~~288)		(~~454~~390)		(596)		(844)
		(308)		(454)
		(288)		(390)		(596)		(844)
Cash flow hedges:
Net unrealized loss		(616)		(72)
Net unrealized gain (loss)		(278)		168		(894)		96
Reclassification to operations		~~257~~271		~~109~~122		528		231
		(359)		37
		(7)		290		(366)		327
Total other comprehensive income (loss) items	$	(21,~~197~~149)	$	1,~~406~~080	$	(3,346)	$	2,486
Income tax provision:
Available for sale debt securities:
Net unrealized gain (loss)	$	(~~375~~208)	$	~~688~~446	$	(583)	$	1,134
Reclassification to operations		-(1)		1-		(1)		1
		(375)		689
		(209)		446		(584)		1,135
Held to maturity securities:
Reclassification to operations		(7570)		(~~173~~146)		(145)		(319)
		(75)		(173)
		(70)		(146)		(145)		(319)
Cash flow hedges:
Net unrealized loss		(151)		(27)
Net unrealized gain (loss)		(68)		63		(219)		36
Reclassification to operations		6365		4245		128		87
		(88)		15
		(3)		108		(91)		123
Total income tax provision (benefit)	$	(~~538~~282)	$	~~531~~408	$	(820)	$	939
Other comprehensive income (loss), net of tax		(~~1,659~~867)		~~875~~672		(2,526)		1,547
Comprehensive income	$	1110,~~322~~527	$	910,~~489~~161	$	21,849	$	19,650

See Notes to Condensed Consolidated Financial Statements

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CoBiz Financial Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

For the ~~three~~six months ended ~~March~~June 3130, 2018 and 2017

	Three months ended
	Six months ended
	March 31,
	June 30,
(in thousands)	2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1224,~~981~~375	$	818,~~614~~103
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		~~884~~1,408		12,~~473~~872
Provision for loan losses		(~~325~~1,226)		~~607~~1,280
Stock-based compensation		~~767~~1,681		~~985~~1,840
Deferred income taxes		~~787~~262		~~2,104~~409
Bank-owned life insurance		(~~398~~753)		(~~349~~659)
Net gain on securities, other assets and other real estate owned		-(124)		(~~345~~313)
Other operating activities, net		(~~377~~748)		40(211)
Changes in operating assets and liabilities:
Other assets		32,~~021~~851		12,~~358~~271
Other liabilities		(~~5,188~~854)		(62,~~199~~293)
Net cash provided by operating activities		1226,~~152~~872		823,~~288~~299
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of other investments		(612,~~718~~012)		(412,~~440~~876)
Proceeds from other investments		5,~~961~~960		29,~~296~~401
Purchase of investment securities available for sale		(2489,~~970~~280)		(5370,~~336~~300)
Purchase of investment securities held to maturity		(4161,~~079~~370)		(41,319)
Maturity, call and principal payments on investment securities available for sale		512,~~745~~455		1724,500
Maturity, call and principal payments on investment securities held to maturity		1633,~~035~~587		1632,~~920~~497
Net proceeds from sale of loans, OREO and repossessed assets		100		-
Loan originations and repayments, net		5977,~~233~~512		(52125,~~738~~400)
Purchase of premises and equipment		(211)		(1,~~046~~927)
Other investing activities, net		47		~~657~~635
Net cash provided by (used in) investing activities		14,143		(115,506)
Net cash used in investing activities		(33,212)		(184,789)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, money market and savings accounts		(3260,~~171~~610)		3054,~~303~~800
Net decrease in certificates of deposits		(1320,~~283~~069)		(911,~~985~~944)
Net increase in short-term borrowings		20112,~~178~~360		4875,770
Net increase (decrease) in securities sold under agreements to repurchase		(1013,~~691~~965)		3241,~~186~~564
Proceeds from issuance of common stock		~~380~~769		~~608~~948
Taxes paid in net settlement of restricted stock		(~~886~~907)		(1,~~105~~113)
Dividends paid on common stock		(26,~~322~~560)		(24,~~078~~166)
Net cash provided by (used in) financing activities		(38,795)		98,699
Net cash provided by financing activities		11,018		155,859
NET DECREASE IN CASH AND CASH EQUIVALENTS		(12,500)		(8,519)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		4,678		(5,631)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		80,180		96,050
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6784,~~680~~858	$	8790,~~531~~419

See Notes to Condensed Consolidated Financial Statements

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CoBiz Financial Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Nature of Operations and Significant Accounting Policies

The accompanying unaudited Condensed Consolidated Financial Statements of CoBiz Financial Inc. and its wholly-owned subsidiaries: CoBiz Bank; CoBiz Insurance, Inc.; and CoBiz IM, Inc.; all collectively referred to as the “Company”, “CoBiz”, “we”, “us”, or “our” conform to GAAP in the United States of America for interim financial information and prevailing practices within the banking industry. The operations of the Company are comprised predominantly of the Bank, which operates in its Colorado market areas under the name Colorado Business Bank and in its Arizona market areas under the name Arizona Business Bank.

Organization — The Bank is a commercial banking institution with seven locations in the Denver metropolitan area; one in Boulder; one near Vail; one in Colorado Springs; one in Fort Collins; and four in the Phoenix metropolitan area. As a state chartered bank, deposits are insured by the Bank Insurance Fund of the FDIC and the Bank is subject to supervision, regulation and examination by the Federal Reserve, Colorado Division of Banking and the FDIC. Pursuant to such regulations, the Bank is subject to special restrictions, supervisory requirements and potential enforcement actions. CoBiz Insurance, Inc. provides commercial and personal P&C insurance brokerage, risk management consulting services to small and medium-sized businesses and individuals and provides employee benefits consulting, insurance brokerage and related administrative support to employers. CoBiz IM provides wealth planning and investment management to institutions and individuals through its SEC-registered investment advisor subsidiary, CoBiz Wealth, LLC.

On June 18, 2018, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with BOK Financial Corporation, an Oklahoma corporation ("BOK"), and BOKF Merger Corporation Number Sixteen ("Merger Sub"), an Oklahoma corporation and direct wholly-owned subsidiary of BOK. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, CoBiz will merge with and into Merger Sub (the "Merger"), with Merger Sub as the surviving corporation in the Merger. The Merger Agreement was approved by the Board of Directors of each of CoBiz and BOK. Closing of the transaction, which is expected to occur in the fourth quarter of 2018, is contingent upon shareholder approval and receipt of necessary regulatory approvals, along with the satisfaction of other customary closing conditions.

Subject to the terms and conditions of the Merger Agreement, CoBiz shareholders will have the right to receive upon the effectiveness of the Merger (i) 0.17 shares of BOK common stock, and (ii) $5.70 in cash, for each share of CoBiz common stock.

The following is a summary of certain of the Company’s significant accounting and reporting policies.

Basis of Presentation — The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and, where applicable, prevailing practices within the financial services industry. The December 31, 2017 Condensed Consolidated balance sheet has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

In the opinion of management, all adjustments (consisting only of normally recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended ~~March~~June 3130, 2018 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018. In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

These Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with, and are qualified in their entirety by, the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

The Condensed Consolidated Financial Statements include entities in which the Parent has a controlling financial interest. These entities include: the Bank; CoBiz Insurance, Inc.; and CoBiz IM. Intercompany balances and transactions are eliminated in consolidation. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a VIE.

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~~The~~These ~~voting~~Condensed ~~interest~~Consolidated ~~model~~Financial isStatements ~~used~~and ~~when~~notes ~~the~~thereto ~~equity~~should ~~investment~~be isread ~~sufficient~~in toconjunction ~~absorb~~with, ~~the expected losses~~ and ~~the~~are ~~equity~~qualified ~~investment~~in ~~has~~their ~~all~~entirety ~~of the characteristics of a controlling financial interest. Under the voting interest model~~by, the party with the controlling voting interest consolidates the legal entity. The VIE model is used when any of the following conditions exist: the equity investment at risk is not sufficient to finance the entityCompany’s ~~activities~~Annual ~~without~~Report ~~additional~~on ~~subordinated~~Form ~~financial~~10-K ~~support;~~for the ~~holders~~year ofended the equity investment do not have a controlling voting interest; or the holders of the equity investment are not obligated to absorb the expected losses or residual returns of the legal entity. An enterprise is considered to have a controlling financial interest of a VIE if it has both the power to direct the activities that most significantly impact economic performance and the obligation to absorb lossesDecember 31, ~~or receive benefits~~ 2017, ~~that~~as ~~are~~filed ~~significant~~with to the ~~VIE~~SEC. An enterprise that has a controlling financial interest is considered the primary beneficiary and must consolidate the VIE. The Company was not the primary beneficiary of a VIE at March 31, 2018 or December 31, 2017.

The voting interest model is used when the equity investment is sufficient to absorb the expected losses and the equity investment has all of the characteristics of a controlling financial interest. Under the voting interest model, the party with the controlling voting interest consolidates the legal entity. The VIE model is used when any of the following conditions exist: the equity investment at risk is not sufficient to finance the entity’s activities without additional subordinated financial support; the holders of the equity investment do not have a controlling voting interest; or the holders of the equity investment are not obligated to absorb the expected losses or residual returns of the legal entity. An enterprise is considered to have a controlling financial interest of a VIE if it has both the power to direct the activities that most significantly impact economic performance and the obligation to absorb losses, or receive benefits, that are significant to the VIE. An enterprise that has a controlling financial interest is considered the primary beneficiary and must consolidate the VIE. The Company was not the primary beneficiary of a VIE at June 30, 2018 or December 31, 2017.

Certain reclassifications have been made to prior years’ Condensed Consolidated Financial Statements and related notes to conform to the current year presentation.

Cash and Cash Equivalents — The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include amounts that the Company is required to maintain at the Federal Reserve Bank of Kansas City to meet certain regulatory reserve balance requirements. The following table shows supplemental disclosures of certain cash and noncash items:

	Three months ended
	Six months ended
	March 31,
	June 30,
(in thousands)	2018		2017
Cash paid during the period for:
Interest	$	27,~~550~~275	$	26,~~210~~489
Income taxes		-1,397		12,~~339~~750

Investments — The Company classifies its investment securities as held to maturity, available for sale or trading, according to management’s intent. ~~Investment~~Investments in ~~security~~debt ~~transactions~~securities are recorded on a trade date basis. At ~~March~~June 3130, 2018 and December 31, 2017, the Company had no trading securities.

Available for sale securities consist of bonds, notes and debentures (including corporate debt and TPS) not classified as held to maturity securities and are reported at fair value as determined by quoted market prices. Unrealized holding gains and losses, net of tax, are reported as a net amount in AOCI until realized.

Investment securities held to maturity consist of residential MBS, bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity and are reported at cost, adjusted for amortization or accretion of premiums and discounts.

Premiums and discounts, adjusted for prepayments as applicable, are recognized in interest income. Other than temporary declines in the fair value of individual investment securities held to maturity and available for sale are charged against earnings. Gains and losses on disposal of investment securities are determined using the specific-identification method.

OTTI on debt securities is separated between the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between a security’s amortized cost basis and the discounted present value of expected future cash flows. The amount due to all other factors is recognized in OCI.

Bank Stocks — FHLB, Federal Reserve and other correspondent bank stocks are accounted for under the cost method.

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~~delinquent,~~ OTTI ~~excluding~~on ~~loans~~debt ~~that~~securities ~~are~~is ~~cash-secured. The~~separated ~~accrual~~between ofthe ~~interest~~amount ~~income~~that is ~~generally~~credit ~~discontinued~~related ~~when~~(credit aloss ~~loan~~component) ~~becomes~~and 90the ~~days~~amount ~~past~~ due as to ~~principal~~all ~~and~~other ~~interest~~factors. The ~~When~~credit aloss ~~loan~~component is ~~designated~~recognized asin ~~nonaccrual,~~earnings ~~the~~and ~~current period’s accrued interest receivable~~ is ~~charged against current earnings while any portions relating to prior periods are charged against~~ the ~~ALLL.~~difference ~~Interest~~between ~~payments~~a ~~received~~security’s onamortized ~~nonaccrual~~cost ~~loans~~basis ~~are~~and ~~generally applied to~~ the ~~principal~~discounted ~~balance~~present value of ~~the~~expected ~~loan. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and~~ future ~~payments~~cash ~~are reasonably assured and there has been demonstrated performance in accordance with contractual terms~~flows. The ~~Company~~amount ~~may~~due ~~elect~~ to ~~continue~~all ~~the~~other ~~accrual~~factors ~~of interest when the loan~~ is recognized in ~~the process of collection and the realizable value of collateral is sufficient to cover the principal balance and accrued interest~~OCI.

~~Loans Held~~Bank ~~for~~Stocks ~~Sale~~ — ~~Loans~~FHLB, ~~held~~Federal ~~for~~Reserve ~~sale include loans the Company has demonstrated its ability~~ and ~~intent~~other tocorrespondent ~~sell. Loans~~bank ~~held~~stocks ~~for sale~~ are ~~primarily~~accounted ~~nonperforming loans. Loans held~~ for ~~sale~~under ~~are carried at~~ the ~~lower of~~ cost ~~or fair value and are evaluated on a loan-by-loan basis~~method.

Loans Held for Investment— Loans that the Company has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the ALLL, deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. Interest is accrued and credited to income daily based on the principal balance outstanding. Loans that are 30 days or more past due based on payments received and applied to the loan are considered delinquent, excluding loans that are cash-secured. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal and interest. When a loan is designated as nonaccrual, the current period’s accrued interest receivable is charged against current earnings while any portions relating to prior periods are charged against the ALLL. Interest payments received on nonaccrual loans are generally applied to the principal balance of the loan. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured and there has been demonstrated performance in accordance with contractual terms. The Company may elect to continue the accrual of interest when the loan is in the process of collection and the realizable value of collateral is sufficient to cover the principal balance and accrued interest.

Impaired Loans — Impaired loans, with the exception of groups of smaller-balance homogenous loans that are collectively evaluated for impairment, are defined as loans for which, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays of less than 90 days and monthly payment shortfalls of less than 10% of the contractual payment on a consumer loan generally are not classified as impaired if the Company ultimately expects to recover its full investment. The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Loans that are deemed to be impaired are evaluated in accordance with ASC Topic 310-10-35, Receivables – Subsequent Measurement (ASC 310) and ASC Topic 450-20, Loss Contingencies (ASC 450).

Included in impaired loans are troubled debt restructurings. A troubled debt restructuring is a formal restructure of a loan where the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including but not limited to reduction in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date. Troubled debt restructurings are evaluated in accordance with ASC Topic 310-40, Troubled Debt Restructurings by Creditors. Interest payments on impaired loans are typically applied to principal unless collectability of principal is reasonably assured. Loans that have been modified in a formal restructuring are typically returned to accrual status when there has been a sustained period of performance (generally six months) under the modified terms, the borrower has shown the ability and willingness to repay and the Company expects to collect all amounts due under the modified terms.

Loan Origination Fees and Costs — Loan fees and certain costs of originating loans are deferred and the net amount is amortized over the contractual life of the related loans in accordance with ASC Topic 310-20, Nonrefundable Fees and Other Costs.

Allowance for Loan and Lease Losses — The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged against earnings. Loan losses are charged against the ~~ALLL when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.~~

The ALLL is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

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ALLL when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.

Allowance for Credit Losses — The allowance for credit losses is established as losses are estimated to have occurred through a provision for credit losses charged to earnings. The allowance for credit losses represents management’s recognition of a separate reserve for off-balance sheet loan commitments and letters of credit. While the ALLL is recorded as a contra-asset to the loan portfolio on the Condensed Consolidated Balance Sheets, the allowance for credit losses is recorded under the caption “Accrued interest and other liabilities”. Although the allowances are presented separately on the balance sheets, any losses incurred from credit losses would be reported as a charge-off in the ALLL, as any loss would be recorded after the off-balance sheet commitment had been funded.

BOLI – The Bank has invested in BOLI policies to fund certain future employee benefit costs. The policies are recorded at net realizable value. Changes in the amount that could be realized, including death benefits in excess of the carrying amount, are recorded in the Condensed Consolidated Statements of Income as “Other income”.

Derivative Instruments — Derivative financial instruments are accounted for at fair value. The Company utilizes interest rate swaps to hedge a portion of its exposure to interest rate changes. These instruments are accounted for as cash flow hedges, as defined by ASC Topic 815, Derivatives and Hedging (ASC 815). The Company also uses interest rate swaps to hedge against adverse changes in fair value on fixed-rate loans. These instruments are accounted for as fair value hedges in accordance with ASC 815. The net cash flows from the cash flow and fair value hedges are classified in operating activities within the Condensed Consolidated Statements of Cash Flows with the hedged items. The Company also offers an interest-rate hedge program that includes various derivative products, including swaps, to customers of the Bank. The fair value amounts recognized for derivative instruments and the fair value amounts recognized for the right to reclaim or obligation to return cash collateral are not offset when represented under a master netting arrangement. The Company also uses foreign currency forward contracts (FX forwards) giving it the right to sell underlying currencies at specified future dates and predetermined prices in order to mitigate foreign exchange risk associated with long positions. FX forwards are carried at fair value with changes in value recognized in current earnings as the contracts are not designated as hedging instruments.

Fair Value Measurements — The Company measures financial assets, financial liabilities, nonfinancial assets and nonfinancial liabilities pursuant to ASC Topic 820, Fair Value Measurement and Disclosures (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

2. Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-9 (ASU 2014-09), Revenue from Contracts with Customers. The core principle of ASU 2014-09 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. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 to fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08 which clarified the revenue recognition implementation guidance on principal versus agent considerations and is effective during the same period as ASU 2014-09. In April 2016, the FASB issued ASU 2016-10 which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation and is effective during the same period as ASU 2014-09. In May 2016, the FASB issued ASU 2016-12 which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU 2016-12 is effective during the same period as ASU 2014-09. Effective January 2018, the Company adopted the aforementioned ASUs

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collectability, noncash consideration, presentation of sales tax and transition. ASU 2016-12 is effective during the same period as ASU 2014-09. Effective January 2018, the Company adopted the aforementioned ASUs using the modified retrospective method. In evaluating the effects of these ASUs on its financial statements and disclosures, the Company has determined the following:

The primary revenue lines subject to these ASUs are deposit service charges, investment advisory income and insurance income, which represented 16% of total operating revenue in 2017.

The adoption of these ASUs did not have a material impact on the Company’s financial statements. However, the Company has expanded disclosures on the nature, amount and timing of revenue from the impacted revenue lines. See Note 12 for additional information.

Effective January 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The main objective of ASU 2016-01 is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments in ASU 2016-01 include the following: 1) Require 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; 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) 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. For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01, through application of a cumulative effect adjustment to retained earnings, did not have a material impact on the consolidated financial statements. See Note 10 for fair value measurement disclosures.

Effective January 2018, the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), regarding how certain cash receipts and cash payments are presented and classified in the statements of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company implemented ASU 2016-15 during the quarter ended March 31, 2018 with application of the retrospective method and cumulative earnings approach for equity method investments. The adoption of ASU 2016-15 did not have a material impact on the consolidated financial statements.

Effective January 2018, the Company adopted ASU 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 clarifies when changes to the terms and conditions of share-based payment awards must be treated as modifications. Specifically, the new guidance permits companies to make certain changes to awards without accounting for them as modifications. The adoption of ASU 2017-09 did not have a material impact on the consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from AOCI (ASU 2018-02). ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects of the application of the TCJA. ASU 2018-02 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company early adopted and applied the provisions of ASU 2018-02 during the quarter ended March 31, 2018. The reclassification from AOCI to retained earnings did not have a material effect on the Company’s financial statements or disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease arrangements. For public business entities, this ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is currently evaluating the effects of ASU 2016-02 on its financial statements and disclosures by reviewing all existing lease arrangements. Preliminarily, the Company expects

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after December 15, 2018. The Company is currently evaluating the effects of ASU 2016-02 on its financial statements and disclosures by reviewing all existing lease arrangements. Preliminarily, the Company expects the primary impact of ASU 2016-02 will relate to its office locations, which are designated as operating leases. The Company has future operating lease obligations for its locations of $3027.47 million that are being evaluated as potential lease assets and liabilities, as defined in ASU 2016-02. The Company has formed a lease implementation team which includes members of accounting, facilities and operations to review lease contracts and the requirements of ASU 2016-02. The implementation team has evaluated third party software solutions to assist with the implementation of ASU 2016-02.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The objective of ASU 2016-13 is to provide financial statement users with decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 includes provisions that require financial assets measured at amortized cost (such as loans and held to maturity (HTM) debt securities) to be presented at the net amount expected to be collected. This will be accomplished through recognition of an estimate of all current expected credit losses. The estimate will include forecasted information for the timeframe that an entity is able to develop reasonable and supportable forecasts. This is a change from the current practice of recognizing incurred losses based on the probable initial recognition threshold under current GAAP. In addition, credit losses on available for sale (AFS) debt securities will be recorded through an allowance for credit losses rather than as a write-down. Under ASU 2016-13, an entity will be able to record reversals of credit losses in current period income when the estimate of credit losses declines, whereas current GAAP prohibits reflecting those improvements in current period earnings.

ASU 2016-13 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted for fiscal years, including interim periods, beginning after December 15, 2018. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. The Company is currently evaluating the effects of ASU 2016-13 on its financial statements and disclosures. While the effects cannot yet be quantified, the Company expects ASU 2016-13 to add complexity and costs to its current credit loss evaluation process. In planning for the implementation of ASU 2016-13, the Company has formed a CECL implementation team that includes the CFO, Chief Credit Officer and members of credit, accounting, finance, and information technology. The team meets on a weekly basis and is currently evaluating data requirements and loss methodologies. In the first quarter of 2018, the implementation team finalized its recommendation onof a third-party software solution. The ~~and~~Company iscontinues ~~currently~~to ~~negotiating~~evaluate athe ~~contract~~effects of ASU 2016-13 on its financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) (ASU 2017-08). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 requires premiums on purchased callable debt securities that have explicit, noncontingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. ASU 2017-08 will be applied through a cumulative effect adjustment through equity (modified-retrospective approach). The Company is currently evaluating the effects of ASU 2017-08 on its financial statements and disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. ASU 2017-12 requires the modified-retrospective approach for adoption. The Company is currently evaluating the effects of ASU 2017-12 on its financial statements and disclosures ~~and is considering early adoption in 2018~~.

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3. Earnings per Common Share and Dividends Declared per Common Share

Earnings per common share is calculated based on the two-class method prescribed in ASC 260, Earnings per Share. The two-class method is an allocation of undistributed earnings to common stock and securities that participate in dividends with common stock. The Company’s restricted stock awards are considered participating securities since the recipients receive non-forfeitable dividends on unvested awards. The impact of participating securities is included in basic earnings per common share for the three and six months ended ~~March~~June 3130, 2018 and 2017. Income allocated to common shares and weighted average shares outstanding used in the calculation of basic and diluted earnings per common share are as follows:

	Three months ended				Six months ended
	March 31,
	June 30,				June 30,
(in thousands, except share and per share amounts)	2018		2017		2018		2017
Net income available to common shareholders	$	1211,~~981~~394	$	89,~~614~~489	$	24,375	$	18,103
Dividends and undistributed earnings allocated to participating securities		(~~113~~95)		(9394)		(208)		(187)
Earnings allocated to common shares (1)	$	1211,~~868~~299	$	89,~~521~~395	$	24,167	$	17,916
Weighted average common shares - issued		42,~~267~~378,~~374~~688		41,~~606~~749,~~755~~192		42,323,339		41,678,367
Average unvested restricted share awards		(~~368~~357,~~040~~246)		(~~445~~412,~~315~~229)		(363,035)		(428,681)
Weighted average common shares outstanding - basic		4142,~~899~~021,~~334~~442		41,~~161~~336,~~440~~963		41,960,304		41,249,686
Dilutive potential common shares		6360,~~448~~933		~~423~~375,~~147~~774		62,540		399,330
Weighted average common shares outstanding - diluted		4142,~~962~~082,~~782~~375		41,~~584~~712,~~587~~737		42,022,844		41,649,016
Weighted average antidilutive securities outstanding (2)		2410,~~661~~833		1030,~~544~~028		10,833		20,340
Earnings per common share:
Basic	$	0.3127	$	0.2123	$	0.58	$	0.43
Diluted	$	0.3127	$	0.2023	$	0.58	$	0.43
Dividends declared per share	$	0.~~055~~100	$	0.050	$	0.155	$	0.100

(1)

Earnings allocated to common shareholders for basic earnings per common share under the two-class method may differ from earnings allocated for diluted earnings per common share when use of the treasury method results in greater dilution than the two-class method.

(2)

Antidilutive shares excluded from the diluted earnings per common share computation.

(3)

4. Investments

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

	At March 31, 2018								At December 31, 2017
	At June 30, 2018								At December 31, 2017
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair
(in thousands)	cost		gains		losses		value		cost		gains		losses		value
Available for sale securities (AFS):
Trust preferred securities	$	20,~~343~~035	$	1,~~886~~638	$	~~459~~475	$	21,~~770~~198	$	20,318	$	1,870	$	205	$	21,983
Corporate debt securities		~~159~~217,~~590~~475		1,~~362~~446		12,~~601~~271		~~159~~216,~~351~~650		140,445		1,153		103		141,495
Municipal securities		3,~~245~~241		2624		35		3,~~268~~260		3,249		41		15		3,275
Total AFS	$	~~183~~240,~~178~~751	$	3,~~274~~108	$	2,~~063~~751	$	~~184~~241,~~389~~108	$	164,012	$	3,064	$	323	$	166,753
Held to maturity securities (HTM):
Mortgage-backed securities	$	~~342~~344,~~581~~675	$	89125	$	67,~~486~~381	$	~~336~~337,~~184~~419	$	318,128	$	118	$	3,262	$	314,984
Trust preferred securities		10,~~746~~773		1,~~499~~507		-		12,~~245~~280		10,721		783		18		11,486
Municipal securities		33,~~581~~469		44433		~~107~~67		33,~~518~~835		33,695		73		167		33,601
Total HTM	$	~~386~~388,~~908~~917	$	12,~~632~~065	$	67,~~593~~448	$	~~381~~383,~~947~~534	$	362,544	$	974	$	3,447	$	360,071

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The amortized cost and estimated fair value of investments in debt securities at ~~March~~June 3130, 2018, by contractual maturity are shown below. Expected maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

Available for sale

Held to maturity

Amortized

Fair

Amortized

Fair

(in thousands)

cost

value

cost

value

Due in one year or less

38,106

38,~~102~~083

1,~~705~~691

1,~~699~~688

Due after one year through five years

~~132~~158,~~397~~235

~~131~~156,~~690~~927

23,~~482~~389

23,~~440~~557

Due after five years through ten years

2148,~~458~~490

2148,~~626~~656

Due after ten years

2625,~~217~~920

27,~~971~~442

19,~~140~~162

20,~~624~~870

Mortgage-backed securities

~~342~~344,~~581~~675

~~336~~337,~~184~~419

~~183~~240,~~178~~751

~~184~~241,~~389~~108

~~386~~388,~~908~~917

~~381~~383,~~947~~534

The Company uses investment securities to collateralize public and governmental deposits. Investment securities with an approximate fair value of $~~166~~156.9 million and $164.4 million were pledged to secure these deposits of $~~126~~116.49 million and $116.5 million at ~~March~~June 3130, 2018 and December 31, 2017, respectively.

Changes in interest rates and market liquidity may cause adverse fluctuations in the market price of securities resulting in temporary unrealized losses. In reviewing the realizable value of its securities in a loss position, the Company considered the following factors: (1) the length of time and extent to which the market had been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) investment downgrades by rating agencies; and (4) whether it is more likely than not that the Company will have to sell the security before a recovery in value. When it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the security, and the fair value of the investment security is less than its amortized cost, an other-than-temporary impairment is recognized in earnings.

For debt securities that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, an OTTI is recognized. OTTI is separated into the amount that is credit-related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between a security’s amortized cost basis and the discounted present value of expected future cash flows. The amount due to all other factors is recognized in other comprehensive income. The Company did not have any credit impaired securities at ~~March~~June 3130, 2018 and December 31, 2017.

There were ~~211~~218 and 181 securities in the tables below at ~~March~~June 3130, 2018 and December 31, 2017, respectively, in an unrealized loss position.

March 31, 2018

June 30, 2018

Less than 12 months

12 months or greater

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(in thousands)

value

loss

value

loss

value

loss

AFS

Trust preferred securities

~~697~~-

46-

67,~~768~~449

~~413~~475

7,~~465~~449

~~459~~475

Corporate debt securities

~~116~~153,~~742~~058

12,~~591~~262

~~970~~971

109

~~117~~154,~~712~~029

12,~~601~~271

Municipal securities

~~794~~793

Total AFS

~~118~~153,~~233~~851

12,~~640~~267

78,~~738~~420

~~423~~484

~~125~~162,~~971~~271

2,~~063~~751

HTM

Mortgage-backed securities

~~209~~195,~~653~~392

34,~~755~~305

~~107~~117,~~050~~651

23,~~731~~076

~~316~~313,~~703~~043

67,~~486~~381

Municipal securities

2111,~~856~~998

~~103~~65

~~680~~679

2212,~~536~~677

~~107~~67

Total HTM

~~231~~207,~~509~~390

34,~~858~~370

~~107~~118,~~730~~330

23,~~735~~078

~~339~~325,~~239~~720

67,~~593~~448

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	December 31, 2017
	Less than 12 months				12 months or greater				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	value		loss		value		loss		value		loss
AFS
Trust preferred securities	$	700	$	43	$	7,020	$	162	$	7,720	$	205
Corporate debt securities		40,068		94		1,216		9		41,284		103
Municipal securities		1,252		15		-		-		1,252		15
Total AFS	$	42,020	$	152	$	8,236	$	171	$	50,256	$	323

HTM
Mortgage-backed securities	$	182,974	$	1,457	$	104,464	$	1,805	$	287,438	$	3,262
Trust preferred securities		-		-		864		18		864		18
Municipal securities		20,445		163		684		4		21,129		167
Total HTM	$	203,419	$	1,620	$	106,012	$	1,827	$	309,431	$	3,447

Other investments at ~~March~~June 3130, 2018 and December 31, 2017, consisted of the following:

	March 31,		December 31,
	June 30,		December 31,
(in thousands)	2018		2017
Bank stocks — at cost	$	814,~~780~~447	$	7,945
Investment in statutory trusts — equity method		2,~~174~~176		2,174
Total	$	1016,~~954~~623	$	10,119

Bank stocks consist primarily of stock in the FHLB, which is part of the Federal Home Loan Bank System. The purpose of the FHLB investment relates to maintenance of a borrowing base with the FHLB. FHLB stock holdings are largely dependent upon the Company’s liquidity position. To the extent the need for wholesale funding increases or decreases, the Company may purchase additional or sell excess FHLB stock, respectively. The Company evaluates impairment in these investments based on the ultimate recoverability of the par value. At ~~March~~June 3130, 2018, the Company did not consider these investments to be other-than-temporarily impaired.

5. Loans

The following disclosure reports the Company’s loan portfolio segments and classes. Segments are groupings of similar loans at a level which the Company has adopted systematic methods of documentation for determining its ALLL. Classes are a disaggregation of the portfolio segments. The Company’s loan portfolio segments are:

Commercial loans – Commercial loans consist of loans to small and medium-sized businesses in a wide variety of industries. The Bank’s areas of emphasis in commercial lending include, but are not limited to, loans to wholesalers, manufacturers, municipalities, construction and business services companies. Commercial loans are generally collateralized by inventory, accounts receivable, equipment, real estate and other commercial assets, and may be supported by other credit enhancements such as personal guarantees. Risk arises primarily due to a difference between expected and actual cash flows of the borrowers. However, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrowers’ ability to collect amounts due from its customers.

Real estate - mortgage loans – Real estate mortgage loans include various types of loans for which the Company holds real property as collateral. Commercial real estate lending activity is typically restricted to owner-occupied properties or to investor properties that are owned by customers with a current banking relationship. The primary risks of real estate mortgage loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral and significant increases in interest rates, which may make the real estate mortgage loan unprofitable.

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Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Construction and land loans – The Company originates loans to finance construction projects including one- to four-family residences, multifamily residences, commercial office, senior housing, and industrial projects. Residential construction loans are due upon the sale of the completed project and are generally collateralized by first liens on the real estate and have floating interest rates. Construction loans are considered to have higher risks due to construction completion and timing risk, and the ultimate repayment being sensitive to interest rate changes, governmental regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans. Adverse economic conditions may negatively impact the real estate market which could affect the borrowers’ ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. The Company also originates loans for the acquisition and future development of land for residential building projects, as well as finished lots prepared to enter the construction phase. The primary risks include the borrower’s inability to pay and the inability of the Company to recover its investment due to a decline in the fair value of the underlying collateral.

Consumer loans – The Company provides a broad range of consumer loans to customers, including personal lines of credit, home equity loans, mortgage loans and automobile loans. Repayment of these loans is dependent on the borrowers’ ability to pay and the fair value of the underlying collateral.

Other loans – Other loans include lending products, such as taxable and tax exempt leasing, not defined as commercial, real estate, acquisition and development, construction, or consumer loans.

The loan portfolio segments at ~~March~~June 3130, 2018 and December 31, 2017 were as follows:

(in thousands)	At ~~March~~June 3130, 2018		At December 31, 2017
Commercial	$	1,~~236~~222,~~721~~036	$	1,250,356
Real estate - mortgage		1,~~248~~234,~~908~~414		1,250,423
Construction & land		~~230~~244,~~719~~444		266,081
Consumer		~~272~~273,~~702~~900		282,101
Other		9793,~~628~~267		98,916
Loans held for investment		3,~~086~~068,~~678~~061		3,147,877
Allowance for loan losses		(3635,~~796~~834)		(37,941)
Unearned net loan fees		(21,~~236~~807)		(2,314)
Total net loans	$	3,~~047~~030,~~646~~420	$	3,107,622

The Company routinely acquires participating interests in loans originated by other banks which are subsequently included in the loan portfolio.

At ~~March~~June 3130, 2018 and December 31, 2017, overdraft demand deposits totaling $0.4 million and $0.2 million, respectively, were reclassified from deposits to loans.

The Company maintains a loan review program independent of the lending function that is designed to reduce and control risk in lending. It includes the continuous monitoring of lending activities with respect to underwriting and processing new loans, preventing insider abuse and timely follow-up and corrective action for loans showing signs of deterioration in quality. The Company also has a systematic process to evaluate individual loans and pools of loans within our loan portfolio. The Company maintains a loan grading system whereby each loan is assigned a grade between 1 and 8, with 1 representing the highest quality credit, 7 representing a nonaccrual loan where collection or liquidation in full is highly questionable and improbable, and 8 representing a loss that has been or will be charged-off. Grades are assigned based upon the degree of risk associated with repayment of a loan in the normal course of business pursuant to the original terms. Loans that are graded 5 or lower are categorized as non-classified credits while loans graded 6 and higher are categorized as classified credits. Loan grade changes are evaluated on a monthly basis. Loans above a certain dollar amount that are adversely graded are reported to the Special Assets Group Manager and the Chief Credit Officer along with current financial information, a collateral analysis and an action plan.

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The loan portfolio showing total non-classified and classified balances by loan class at ~~March~~June 3130, 2018 and December 31, 2017 is summarized below:

	At March 31, 2018
	At June 30, 2018
(in thousands)	Non-classified		Classified		Total
Commercial
Manufacturing	$	6972,~~211~~323	$	76,~~368~~509	$	7678,~~579~~832
Finance and insurance		4853,~~509~~978		~~1,670~~117		5054,~~179~~095
Healthcare		~~164~~158,~~842~~643		21,~~389~~766		~~167~~160,~~231~~409
Real estate services		~~121~~115,~~183~~451		62,~~095~~507		~~127~~117,~~278~~958
Construction		6272,~~499~~111		3,~~218~~702		6575,~~717~~813
Public administration		~~255~~249,~~454~~606		534		~~255~~250,~~988~~140
Other		~~448~~447,~~978~~490		4437,~~771~~299		~~493~~484,~~749~~789
		1,170,676		66,045		1,236,721
		1,169,602		52,434		1,222,036
Real estate - mortgage
Residential & commercial owner-occupied		~~477~~508,~~346~~871		1116,~~137~~467		~~488~~525,~~483~~338
Residential & commercial investor		~~759~~706,~~847~~067		~~578~~3,009		~~760~~709,~~425~~076
		1,237,193		11,715		1,248,908
		1,214,938		19,476		1,234,414
Construction & land		~~230~~239,~~719~~632		-4,812		~~230~~244,~~719~~444
Consumer		~~267~~270,~~866~~200		43,~~836~~700		~~272~~273,~~702~~900
Other		9691,~~288~~961		1,~~340~~306		9793,~~628~~267
Total loans held for investment	$	32,~~002~~986,~~742~~333	$	8381,~~936~~728	$	3,~~086~~068,~~678~~061
Unearned net loan fees						(21,~~236~~807)
Net loans held for investment					$	3,~~084~~066,~~442~~254


	At December 31, 2017
(in thousands)	Non-classified		Classified		Total
Commercial
Manufacturing	$	82,275	$	2,912	$	85,187
Finance and insurance		40,796		1,722		42,518
Healthcare		161,162		2,623		163,785
Real estate services		124,861		3,986		128,847
Construction		67,232		758		67,990
Public administration		239,230		847		240,077
Other		468,562		53,390		521,952
		1,184,118		66,238		1,250,356
Real estate - mortgage
Residential & commercial owner-occupied		481,061		3,574		484,635
Residential & commercial investor		765,210		578		765,788
		1,246,271		4,152		1,250,423

Construction & land		266,081		-		266,081

Consumer		279,191		2,910		282,101
Other		97,542		1,374		98,916
Total loans held for investment	$	3,073,203	$	74,674	$	3,147,877
Unearned net loan fees						(2,314)
Net loans held for investment					$	3,145,563

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Transactions in the ALLL by segment for the three and six months ended ~~March~~June 3130, 2018 and 2017 are summarized below:

	Three months ended March 31,
	Three months ended June 30,				Six months ended June 30,
(in thousands)	2018		2017		2018		2017
Allowance for loan losses, beginning of period
Commercial	$	16,~~837~~523	$	15,~~398~~900	$	16,837	$	15,398
Real estate - mortgage		12,~~690~~892		11,~~475~~797		12,690		11,475
Construction & land		43,~~034~~250		12,~~997~~277		4,034		1,997
Consumer		2,~~617~~597		2,~~803~~448		2,617		2,803
Other		~~826~~842		~~945~~916		826		945
Unallocated		~~937~~692		~~675~~873		937		675
Total		3736,~~941~~796		3334,~~293~~211		37,941		33,293
Provision
Commercial	$	~~523~~(1,212)	$	~~414~~(22)	$	(689)	$	392
Real estate - mortgage		~~199~~40		~~317~~848		239		1,165
Construction & land		~~(801)~~366		(14507)		(435)		(521)
Consumer		~~(17)~~85		~~(279)~~116		68		(163)
Other		16(28)		~~(29)~~105		(12)		76
Unallocated		(~~245~~152)		~~198~~133		(397)		331
Total		(~~325~~901)		~~607~~673		(1,226)		1,280
Charge-offs
Commercial	$	(~~1,106~~255)	$	(26196)	$	(1,361)	$	(222)
Consumer		(949)		(806)		(58)		(86)
Total		(1,115)		(106)
Other		(29)		-		(29)		-
Recoveries
Total		(333)		(202)		(1,448)		(308)
Commercial	$	269	$	114
Recoveries
Real estate - mortgage		3		5
Commercial	$	163	$	67	$	432	$	181
Construction & land		17		294
Real estate - mortgage		8		159		11		164
Consumer		6		4
Construction & land		84		714		101		1,008
Total		295		417
Consumer		14		3		20		7
Allowance for loan losses, end of period
Other		3		-		3		-
Commercial	$	16,523	$	15,900
Total		272		943		567		1,360
Real estate - mortgage		12,892		11,797
Allowance for loan losses, end of period
Construction & land		3,250		2,277
Commercial	$	15,219	$	15,749	$	15,219	$	15,749
Consumer		2,597		2,448
Real estate - mortgage		12,940		12,804		12,940		12,804
Other		842		916
Construction & land		3,700		2,484		3,700		2,484
Unallocated		692		873
Consumer		2,647		2,561		2,647		2,561
Total	$	36,796	$	34,211
Other		788		1,021		788		1,021
Unallocated		540		1,006		540		1,006
Total	$	35,834	$	35,625	$	35,834	$	35,625

The Company estimates the ALLL in accordance with ASC 310 for purposes of evaluating loan impairment on a loan-by-loan basis and ASC 450 for purposes of collectively evaluating loan impairment by grouping loans with common risk characteristics (i.e. risk classification, past-due status, type of loan, and collateral). The ALLL is comprised of the following components:

· Specific Reserves – The Company continuously evaluates its reserve for loan losses to maintain an adequate level to absorb loan losses incurred in the loan portfolio. Reserves on loans identified as impaired, including troubled debt restructurings, are based on discounted expected cash flows using the loan’s initial effective interest rate, the observable market value of the loan or the fair value of the collateral for certain collateral-dependent loans. The fair value of the collateral is determined in accordance with ASC 820. Loans are considered to be impaired in accordance with the provisions of ASC 310 when it is probable that all amounts due in accordance with the contractual terms will not be collected. Factors contributing to the determination of specific reserves include the financial condition of the borrower, changes in the value of pledged collateral and general economic conditions. ~~Troubled debt restructurings meet the definition of an impaired loan under ASC 310 and therefore, troubled debt restructurings are subject to impairment evaluation on a loan-by-loan basis.~~

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Troubled debt restructurings meet the definition of an impaired loan under ASC 310 and therefore, troubled debt restructurings are subject to impairment evaluation on a loan-by-loan basis.

For collateral dependent loans that have been specifically identified as impaired, the Company measures fair value based on third-party appraisals, adjusted for estimated costs to sell the property. Upon impairment, the Company will obtain a new appraisal if one had not been previously obtained in the last 12 months. For credits over $2.0 million, the Company typically engages an additional third-party appraiser to review the appraisal. For credits under $2.0 million, the Company’s internal appraisal department reviews the appraisal. All appraisals are reviewed for adherence to regulations and mathematical accuracy and reasonableness based on recent sales transactions that may have occurred subsequent to or at the time of the appraisal. Based on this analysis, the appraised value may be adjusted downward if there is evidence that the appraised value may not be indicative of fair value. Each appraisal is updated on an annual basis, either through a new appraisal or through the Company’s comprehensive internal review process.

Values are reviewed and monitored internally and fair value is re-assessed at least quarterly or more frequently when events or circumstances occur that indicate a change in fair value.

General Reserves – General reserves are considered part of the allocated portion of the ALLL. The Company uses a comprehensive loan grading process for our loan portfolios. Based on this process, a loss factor is assigned to each pool of graded loans. A combination of loss experience and external loss data is used in determining the appropriate loss factor. This estimate represents the probable incurred losses within the portfolio. In evaluating the adequacy of the ALLL, management considers historical losses (Migration), as well as other factors including changes in:

Lending policies and procedures

National and local economic and business conditions and developments

Nature and volume of portfolio

Trends of the volume and severity of past-due and classified loans

Trends in the volume of nonaccrual loans, troubled debt restructurings, and other loan modifications

Credit concentrations

Troubled debt restructurings have a direct impact on the ALLL to the extent a loss has been recognized in relation to the loan modified. This is consistent with the Company’s consideration of Migration in determining general reserves.

The aforementioned factors enable management to recognize environmental conditions contributing to incurred losses in the portfolio, which have not yet manifested in Migration. Management believes Migration history adequately captures a substantial percentage of probable incurred losses within the portfolio.

In addition to the allocated reserve for graded loans, a portion of the ALLL is determined by segmenting the portfolio into product groupings with similar risk characteristics. Part of the segmentation involves assigning increased reserve factors to those lending activities deemed higher-risk, such as leverage-financings, unsecured loans, certain loans lacking personal guarantees, senior housing, speculative residential construction and multifamily loans.

Unallocated Reserves – The unallocated reserve, which is judgmentally determined, is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans. The unallocated reserve consists of a missed grade component that is intended to capture the inherent risk that certain loans may be assigned an incorrect loan grade.

In assessing the reasonableness of management’s assumptions, consideration is given to select peer ratios, industry standards and directional consistency of the ALLL. Ratio analysis highlights divergent trends in the relationship of the ALLL to nonaccrual loans, to total loans and to historical charge-offs. Although these comparisons can be helpful as a supplement to assess reasonableness of management assumptions, they are not, by themselves, sufficient basis for determining the adequacy of the ALLL. While management ~~utilizes its best judgment and information available, the ultimate adequacy of the ALLL is dependent upon a~~

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utilizes its best judgment and information available, the ultimate adequacy of the ALLL is dependent upon a variety of factors beyond the Company’s control, including the performance of the loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The following table summarizes loans held for investment and the ALLL on the basis of the impairment method:

	At March 31, 2018								At December 31, 2017
	At June 30, 2018								At December 31, 2017
	Individually evaluated for impairment				Collectively evaluated for impairment				Individually evaluated for impairment				Collectively evaluated for impairment
(in thousands)	Loansheld forinvestment		Allowancefor loanlosses		Loansheld forinvestment		Allowancefor loanlosses		Loansheld forinvestment		Allowancefor loanlosses		Loansheld forinvestment		Allowancefor loanlosses
Commercial	$	5246,~~839~~102	$	54,~~546~~838	$	1,~~184~~176,~~337~~678	$	10,~~977~~381	$	56,566	$	5,862	$	1,194,005	$	10,975
Real estate - mortgage		4,~~354~~041		~~395~~382		1,~~243~~229,~~577~~509		12,~~497~~558		1,331		109		1,248,166		12,581
Construction & land		1,~~044~~019		7471		~~227~~241,~~854~~634		3,~~176~~629		1,071		91		263,330		3,943
Consumer		~~1,339~~231		~~129~~109		~~271~~273,~~444~~755		2,~~468~~538		1,366		148		280,783		2,469
Other		2422		2422		9793,~~630~~263		~~818~~766		-		-		98,945		826
Unallocated		-		-		-		~~692~~540		-		-		-		937
Total	$	5951,~~600~~415	$	65,~~168~~422	$	3,~~024~~014,~~842~~839	$	30,~~628~~412	$	60,334	$	6,210	$	3,085,229	$	31,731

Information on impaired loans at ~~March~~June 3130, 2018 and December 31, 2017 is reported in the following tables:

At March 31, 2018

At June 30, 2018

Recorded

investment

Unpaid

investment

with a

with no

principal

in impaired

(in thousands)

balance

loans

allowance

Commercial

Manufacturing

43,~~365~~991

1,~~161~~132

Finance and insurance

~~472~~210

~~472~~117

1614

~~456~~103

1614

Healthcare

~~602~~652

~~438~~490

~~164~~162

~~216~~98

Real estate services

54,~~035~~992

~~270~~262

Construction

12,~~593~~324

12,~~516~~119

77205

~~117~~98

Other

4134,~~973~~252

4034,~~772~~026

3932,~~632~~269

1,~~140~~757

3,~~766~~234

54,040

52,839

51,002

1,837

5,546

46,421

46,102

43,875

2,227

4,838

Real estate - mortgage

Residential & commercial owner-occupied

3,~~605~~295

42,~~531~~962

~~(926)~~333

~~383~~370

Residential & commercial investor

~~749~~746

~~171~~169

~~578~~577

4,354

4,702

(348)

395

4,041

3,131

910

382

Construction & land

1,~~044~~019

7471

Consumer

~~1,339~~231

~~189~~167

~~1,150~~64

~~129~~109

Other

2422

Total

6051,~~801~~734

5951,~~600~~415

5648,~~961~~214

23,~~639~~201

65,~~168~~422

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	At December 31, 2017
					Recorded		Recorded
			Recorded		investment		investment
	Unpaid		investment		with a		with no
	principal		in impaired		related		related		Related
(in thousands)	balance		loans		allowance		allowance		allowance
Commercial
Manufacturing	$	3,302	$	3,302	$	3,302	$	-	$	238
Finance and insurance		473		473		17		456		17
Healthcare		718		718		459		259		207
Real estate services		7,982		7,982		7,982		-		544
Construction		1,689		1,457		977		480		71
Public administration		313		313		313		-		27
Other		42,660		42,321		41,030		1,291		4,758
		57,137		56,566		54,080		2,486		5,862
Real estate - mortgage
Residential & commercial owner-occupied		1,159		1,159		1,102		57		94
Residential & commercial investor		172		172		172		-		15
		1,331		1,331		1,274		57		109

Construction & land		1,071		1,071		1,071		-		91
Consumer		1,366		1,366		212		1,154		148
Total	$	60,905	$	60,334	$	56,637	$	3,697	$	6,210

	Three months ended March 31,
	Impaired loans
	2018				2017
	Three months ended June 30,								Six months ended June 30,
(in thousands)	Average recorded		Interest income		Average recorded		Interest income
	2018				2017				2018				2017
Commercial
(in thousands)	Average recorded		Interest income		Average recorded		Interest income		Average recorded		Interest income		Average recorded		Interest income
Manufacturing	$	3,834	$	63	$	2,046	$	29
Commercial
Finance and insurance		473		7		59		-
Manufacturing	$	5,052	$	84	$	2,028	$	30	$	4,469	$	171	$	2,037	$	59
Healthcare		660		16		246		6
Finance and insurance		295		6		513		10		354		13		286		10
Real estate services		6,509		20		6,244		50
Healthcare		627		10		550		8		657		20		398		14
Construction		1,525		26		1,586		20
Real estate services		5,014		-		5,717		52		6,003		-		5,981		102
Public administration		313		1		-		-
Construction		1,959		37		1,663		20		1,791		72		1,625		40
Other		41,547		719		9,603		179
Public administration		-		-		-		-		104		-		-		-
		54,861		852		19,784		284
Other		36,526		548		19,665		223		38,457		1,069		14,635		402
Real estate - mortgage
		49,473		685		30,136		343		51,835		1,345		24,962		627
Residential & commercial owner-occupied		2,382		68		1,328		9
Real estate - mortgage
Residential & commercial investor		460		9		2,400		20
Residential & commercial owner-occupied		3,450		65		1,223		9		2,686		131		1,275		18
		2,842		77		3,728		29
Residential & commercial investor		747		10		2,332		20		555		19		2,366		40
Construction & land		1,057		9		1,893		16
		4,197		75		3,555		29		3,241		150		3,641		58
Consumer		1,215		10		238		1
Construction & land		1,032		8		1,850		15		1,045		17		1,871		31
Other		150		2		-		-
Consumer		719		4		253		1		887		7		246		2
Total	$	60,125	$	950	$	25,643	$	330
Other		90		-		-		-		107		1		-		-
Total	$	55,511	$	772	$	35,794	$	388	$	57,115	$	1,520	$	30,720	$	718

Interest income recognized on impaired loans presented in the table above primarily represents interest earned on troubled debt restructurings that meet the definition of an impaired loan and are subject to disclosure. Interest income that would have been recorded if nonaccrual loans performed in accordance with their contractual terms was immaterial in the periods presented.

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The table below summarizes transactions related to troubled debt restructurings during the ~~three~~six months ended ~~March~~June 3130, 2018.

(in thousands)	Performing		Nonperforming		Total
Beginning balance at December 31, 2017	$	52,817	$	3,682	$	56,499
New restructurings		46,~~459~~893		~~164~~173		47,~~623~~066
Change in accrual status		(11,~~750~~934)		11,~~750~~934		-
Net paydowns		(413,~~126~~102)		(~~337~~877)		(413,~~463~~979)
Charge-offs		-		(~~999~~1,091)		(~~999~~1,091)
Ending balance at March 31, 2018	$	41,400	$	14,260	$	55,660
Ending balance at June 30, 2018	$	34,674	$	13,821	$	48,495

The ~~table~~tables below provides information regarding troubled debt restructurings that occurred during the three and six months ended ~~March~~June 3130, 2018 and 2017. Pre-modification outstanding recorded investment reflects the Company’s recorded investment immediately before the modification. Post-modification outstanding recorded investment represents the Company’s recorded investment at the end of the reporting period. The ~~table~~tables below ~~does~~do not include loans restructured and paid off during the periods presented.

	Three months ended March 31, 2018						Three months ended March 31, 2017
	Three months ended June 30, 2018						Three months ended June 30, 2017
			Pre-modification		Post-modification				Pre-modification		Post-modification
			outstanding		outstanding				outstanding		outstanding
	Number of		recorded		recorded		Number of		recorded		recorded
($ in thousands)	contracts		investment		investment		contracts		investment		investment
Commercial
Manufacturing		2	$	~~720~~610	$	~~699~~210		-	$	-	$	-
Healthcare		-		-		-		2		329		193
Finance and insurance		-		-		-		1		456		456
Construction		2		946		714		-		-		-
Healthcare		2		225		200		1		167		90
Other		3		558		555		3		1,357		1,353
Construction		1		600		600		-		-		-
		7	$	2,224	$	1,968		5	$	1,686	$	1,546
Other		3		1,450		1,424		8		4,031		3,427
Real estate - mortgage
Total commercial		8		2,885		2,434		10		4,654		3,973
Residential & commercial owner-occupied		2		2,109		2,078		-		-		-
Consumer		1		10		10		-		-		-
Residential & commercial investor		1		578		578		-		-		-
Total		9	$	2,895	$	2,444		10	$	4,654	$	3,973
Total		10	$	4,911	$	4,624		5	$	1,686	$	1,546

Troubled debt restructurings during the three months ended March 31, 2018 and 2017 resulted primarily from the extension of repayment terms and interest rate concessions. The Company had no charge-offs in conjunction with loans restructured during the three months ended March 31, 2018 and 2017.


	Six months ended June 30, 2018						Six months ended June 30, 2017
			Pre-modification		Post-modification				Pre-modification		Post-modification
			outstanding		outstanding				outstanding		outstanding
	Number of		recorded		recorded		Number of		recorded		recorded
($ in thousands)	contracts		investment		investment		contracts		investment		investment
Commercial
Manufacturing		3	$	460	$	439		-	$	-	$	-
Finance and insurance		-		-		-		1		456		456
Healthcare		2		225		200		3		465		362
Construction		3		1,546		1,455		-		-		-
Other		6		1,883		1,869		9		11,978		11,439
Total commercial		14		4,114		3,963		13		12,899		12,257
Real estate - mortgage
Residential and commercial owner-occupied		2		2,109		2,048		-		-		-
Residential & commercial investor		1		578		578		-		-		-
Total real estate - mortgage		3		2,687		2,626		-		-		-
Consumer		1		10		10		1		83		79
Total		18	$	6,811	$	6,599		14	$	12,982	$	12,336

AtTroubled ~~March~~debt restructurings during the three and six months ended June 3130, 2018 and ~~December 31,~~ 2017, ~~there~~resulted ~~were~~primarily ~~$2.3~~from ~~million~~the extension of repayment terms and $4interest rate concessions.0 The ~~million~~Company had no charge-offs in ~~outstanding~~conjunction ~~commitments~~with onloans restructured ~~loans~~during the three and six months ended June 30, 2018 ~~respectively~~and 2017.

~~There~~At ~~were~~June 30, 2018 noand ~~loans restructured within the past 12 months that had a payment default during the three months ended March~~December 31, 2017~~. The~~, ~~table~~there ~~below~~were ~~presents~~$2.7 ~~troubled~~million ~~loans~~and ~~restructured~~$4.0 ~~within~~million ~~the~~in ~~past~~outstanding 12commitments ~~months~~on ~~that~~restructured ~~had a payment default during the three months ended March 31~~loans, ~~2018~~ respectively.

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The ~~Company’s~~table ~~nonaccrual~~below presents troubled loans byrestructured ~~class~~within atthe ~~March 31, 2018~~past ~~and~~12 ~~December 31, 2017~~months ~~are~~that ~~reported~~had ina ~~the~~payment ~~following~~default ~~table:~~during six months ended June 30, 2018 and 2017.

(in thousands)	At March 31, 2018			At December 31, 2017
	Six months ended June 30,
Commercial
	2018					2017
Manufacturing	$	1,846		$	-
Troubled debt restructurings that subsequently defaulted($ in thousands)	Number of contracts		Recorded investment			Number of contracts	Recorded investment
Finance and insurance		472			473
Commercial
Healthcare		602			718
Finance and insurance	1		$	1,366		-	$	-
Construction	-	~~240~~		-	~~681~~	1		48
Other	2	~~13,244~~		10,557	~~4,313~~	-		-
Total commercial		16,404			6,185
Total	3		$	11,923		1	$	48
Real estate-mortgage
Residential & commercial owner-occupied		518			57
Total real estate - mortgage		518			57
Consumer		1,254			1,275
Other		24			-
Total nonaccrual loans	$	18,200		$	7,517

The ~~tables below summarize the aging of the~~ Company’s ~~loan~~nonaccrual ~~portfolio~~loans by class at ~~March~~June 3130, 2018 and December 31, 2017. are reported in the following table:

	At March 31, 2018
(in thousands)	At June 30, 2018		At December 31, 2017
	30 - 59		60 - 89										90 days or more
Commercial
	Days		Days		90+ Days		Total						past due and
Manufacturing	$	1,846	$	-
(in thousands)	past due		past due		past due		past due		Current		Total loans		accruing
Finance and insurance		117		473
Commercial
Healthcare		452		718
Manufacturing	$	406	$	479	$	1,366	$	2,251	$	74,328	$	76,579	$	-
Construction		205		681
Finance and insurance		3,962		-		456		4,418		45,761		50,179		-
Other		13,618		4,313
Healthcare		199		10		113		322		166,909		167,231		-
Total commercial		16,238		6,185
Real estate services		60		-		-		60		127,218		127,278		-
Real estate-mortgage
Construction		251		600		-		851		64,866		65,717		-
Residential & commercial owner-occupied		333		57
Public administration		-		-		-		-		255,988		255,988		-
Total real estate - mortgage		333		57
Other		9,362		11,000		1,117		21,479		472,270		493,749		-
Consumer		148		1,275
		14,240		12,089		3,052		29,381		1,207,340		1,236,721		-
Other		22		-
Real estate - mortgage
Total nonaccrual loans	$	16,741	$	7,517
Residential & commercial owner-occupied		1,374		-		-		1,374		487,109		488,483		-
Residential & commercial investor		629		-		-		629		759,796		760,425		-
		2,003		-		-		2,003		1,246,905		1,248,908		-
Construction & land		-		-		-		-		230,719		230,719		-
Consumer		-		10		1,123		1,133		271,569		272,702		-
Other		-		-		-		-		97,628		97,628		-
Total loans held for investment	$	16,243	$	12,099	$	4,175	$	32,517	$	3,054,161	$	3,086,678	$	-
Unearned net loan fees												(2,236)
Net loans held for investment											$	3,084,442

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The tables below summarize the aging of the Company’s loan portfolio at June 30, 2018 and December 31, 2017.


	At June 30, 2018
	30 - 59		60 - 89										90 days or more
	Days		Days		90+ Days		Total						past due and
(in thousands)	past due		past due		past due		past due		Current		Total loans		accruing
Commercial
Manufacturing	$	-	$	-	$	1,846	$	1,846	$	76,986	$	78,832	$	-
Finance and insurance		-		4,000		-		4,000		50,095		54,095		-
Healthcare		4		-		-		4		160,405		160,409		-
Real estate services		-		-		-		-		117,958		117,958		-
Construction		1,001		-		75		1,076		74,737		75,813		-
Public administration		-		-		-		-		250,140		250,140		-
Other		2,216		626		11,503		14,345		470,444		484,789		-
		3,221		4,626		13,424		21,271		1,200,765		1,222,036		-
Real estate - mortgage
Residential & commercial owner-occupied		-		2,048		295		2,343		522,995		525,338		-
Residential & commercial investor		-		577		-		577		708,499		709,076		-
		-		2,625		295		2,920		1,231,494		1,234,414		-

Construction & land		202		-		-		202		244,242		244,444		-

Consumer		1,488		-		24		1,512		272,388		273,900		-
Other		-		-		-		-		93,267		93,267		-
Total loans held for investment	$	4,911	$	7,251	$	13,743	$	25,905	$	3,042,156	$	3,068,061	$	-
Unearned net loan fees												(1,807)
Net loans held for investment											$	3,066,254

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	At December 31, 2017
													Recorded
													investment
													in loans
	30 - 59		60 - 89										90 days or more
	Days		Days		90+ Days		Total						past due and
(in thousands)	past due		past due		past due		past due		Current		Total loans		accruing
Commercial
Manufacturing	$	-	$	-	$	-	$	-	$	85,187	$	85,187	$	-
Finance and insurance		-		456		213		669		41,849		42,518		213
Healthcare		370		-		113		483		163,302		163,785		-
Real estate services		1,503		-		135		1,638		127,209		128,847		135
Construction		721		600		681		2,002		65,988		67,990		-
Public administration		-		-		-		-		240,077		240,077		-
Other		3,463		459		2,302		6,224		515,728		521,952		-
		6,057		1,515		3,444		11,016		1,239,340		1,250,356		348
Real estate - mortgage
Residential & commercial owner-occupied		426		689		-		1,115		483,520		484,635		-
Residential & commercial investor		875		299		-		1,174		764,614		765,788		-
		1,301		988		-		2,289		1,248,134		1,250,423		-

Construction & land		730		-		-		730		265,351		266,081		-

Consumer		1,423		15		1,107		2,545		279,556		282,101		-
Other		-		2		-		2		98,914		98,916		-
Total loans held for investment	$	9,511	$	2,520	$	4,551	$	16,582	$	3,131,295	$	3,147,877	$	348
Unearned net loan fees												(2,314)
Net loans held for investment											$	3,145,563

6. Accumulated Other Comprehensive Income

The following table provides information on reclassifications out of AOCI.

	Three months ended				Six months ended
	March 31,
	June 30,				June 30,
AOCI component (in thousands)	2018		2017		~~Line item in Condensed Consolidated Statements of Income~~2018		2017		Line item in Condensed Consolidated Statements of Income
Available for sale securities:
Realized loss	$	-	$	(3)	Net (gain) loss on securities, other assets and OREO
Realized gain (loss)	$	4	$	-	$	4	$	(3)	Net (gain) loss on securities, other assets and OREO
Taxes		-(1)		1-	~~Provision for income taxes~~	(1)		1	Provision for income taxes
Subtotal		-3		~~(2)~~-		3		(2)
Held to maturity securities:
Amortization of net unrealized gain on HTM securities		~~308~~288		~~454~~390	~~Interest on taxable / nontaxable securities~~	596		844	Interest on taxable / nontaxable securities
Taxes		(7570)		(~~173~~146)	~~Provision for income taxes~~	(145)		(319)	Provision for income taxes
Subtotal		~~233~~218		~~281~~244		451		525
Cash flow hedges:
Loans		(16126)		~~249~~217	~~Interest and fees on loans~~	(142)		466	Interest and fees on loans
Debt		(~~241~~145)		(~~358~~339)	~~Interest on subordinated debentures and notes payable~~	(386)		(697)	Interest on subordinated debentures and notes payable
Realized loss		(~~257~~271)		(~~109~~122)		(528)		(231)
Taxes		6365		4245	~~Provision for income taxes~~	128		87	Provision for income taxes
Subtotal		(~~194~~206)		(6777)		(400)		(144)
Total reclassifications out of AOCI	$	3915	$	~~212~~167	$	54	$	379

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The following table provides the beginning and ending balances of AOCI and changes during the ~~three~~six months ended ~~March~~June 3130, 2018.

Accumulated other comprehensive income (in thousands)	AFS		HTM		Cash flow hedges		Total
Balance at December 31, 2017	$	1,700	$	2,125	$	(3,966)	$	(141)
Other comprehensive income loss items		(1,155)		-		(465)		(1,620)
Other comprehensive loss, net of tax		(1,800)		(451)		(275)		(2,526)
Reclassification to earnings		-		(233)		194		(39)
Reclassification to retained earnings		369		448		(847)		(30)
Other comprehensive income (loss), net of tax		(786)		215		(1,118)		(1,689)
Balance at June 30, 2018	$	269	$	2,122	$	(5,088)	$	(2,697)
Balance at March 31, 2018	$	914	$	2,340	$	(5,084)	$	(1,830)

7. Derivatives

ASC 815 contains the authoritative guidance on accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. As required by ASC 815, the Company records all derivatives on the consolidated balance sheets at fair value.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and unknown cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable-rate loan assets and variable-rate borrowings. The Company also enters into derivative financial instruments to protect against adverse changes in fair value on fixed-rate loans.

The Company’s objective in using derivatives is to minimize the impact of interest rate fluctuations on the Company’s NII. To accomplish this objective, the Company uses interest rate swaps as part of its cash flow hedging strategy. The Company also offers an interest rate hedge program that includes various derivative products, including swaps, to assist its customers in managing their interest rate risk profile. In order to eliminate the interest rate risk associated with offering these products, the Company enters into derivative contracts with third parties to offset the customer contracts. These customer accommodation interest rate swap contracts are not designated as hedging instruments.

The Company has also expanded its product offering by adding international banking products, which exposes the Company to foreign exchange risk. The Company utilizes foreign exchange forward contracts to manage the risk associated with fluctuation in foreign exchange rates.

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. Also, the Company has agreements with certain of its derivative counterparties that contain a provision where if the Bank fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

At ~~March~~June 3130, 2018, the fair value of derivatives in a net liability position, ~~including~~excluding accrued interest ~~but~~and ~~excluding~~ any adjustment for nonperformance risk, related to these agreements was $32.8 million. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $62.48 million against its obligations under these agreements. At ~~March~~June 3130, 2018, the Company was not in default under any of its debt or capitalization covenants.

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The table below presents the fair value of the Company’s derivative financial instruments as well as the classification within the Condensed Consolidated Balance Sheets.

	Asset derivatives					Liability derivatives
		Fair value at					Fair value at
	Balance sheet	~~March~~June 3130,		December 31,		Balance sheet	~~March~~June 3130,		December 31,
(in thousands)	classification	2018		2017		classification	2018		2017
Derivatives designated as hedging instruments under ASC 815:
Cash flow hedge - interest rate swap	Other assets	$	~~453~~569	$	113	Accrued interest and other liabilities	$	7,~~318~~410	$	6,732
Fair value hedge - interest rate swap	Other assets	$	12,~~649~~114	$	628	Accrued interest and other liabilities	$	~~186~~45	$	633
Derivatives not designated as hedging instruments under ASC 815:
Interest rate swap	Other assets	$	34,~~255~~196	$	2,081	Accrued interest and other liabilities	$	34,~~276~~195	$	2,176
Foreign exchange forward contracts	Other assets	$	4052	$	28	Accrued interest and other liabilities	$	3312	$	44

The tables below include information about financial instruments that are eligible for offset.

At March 31, 2018

At June 30, 2018

Assets

Gross amounts not offset

Gross

Financial

Net

(in thousands)

amounts

amounts offset

Net amounts

Instruments

Collateral

Amount

Derivatives designated as hedges(1)

2,~~102~~683

(12,~~709~~099)

~~393~~584

Derivatives not designated as hedges(1)

34,~~295~~248

(2,~~775~~963)

~~520~~1,285

Total

56,~~397~~931

(45,~~484~~062)

~~913~~1,869

At March 31, 2018

At June 30, 2018

Liabilities

Gross amounts not offset

Gross

Financial

Net

(in thousands)

amounts

amounts offset

Net amounts

Instruments

Collateral

Amount

Derivatives designated as hedges(2)

(7,~~504~~455)

15,~~709~~010

52,~~795~~445

Derivatives not designated as hedges(2)

(34,~~309~~207)

~~2,775~~52

~~638~~348

~~104~~(3,807)

Securities sold under agreements to repurchase(3)

(4238,~~268~~994)

4238,~~268~~994

Total

(5350,~~081~~656)

45,~~484~~062

4841,~~701~~787

~~104~~(3,807)

At December 31, 2017

Assets

Gross amounts not offset

Three months ended March 31,

Troubled debt restructurings that subsequently defaulted($ in thousands)

Number of contracts

Recorded investment

Commercial

Finance and insurance

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