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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-36586

 

 

FCB FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-36586   27-0775699

(State or other jurisdiction of

incorporation)

 

(Commission

file number)

 

(IRS Employer

Identification Number)

2500 Weston Road, Suite 300

Weston, Florida 33331

(Address of principal executive offices)

(954) 984-3313

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  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).    x  Yes    ¨  No

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

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

As of July 31, 2015, the registrant had 37,457,737 shares of Class A Common Stock and 4,129,662 shares of Class B Non-voting Common Stock outstanding.

 

 

 


Table of Contents

FCB FINANCIAL HOLDINGS, INC.

FORM 10-Q

INDEX

 

PART I.   FINANCIAL INFORMATION   
  Item 1.   Consolidated Financial Statements (Unaudited)   
      Consolidated Balance Sheets      3   
      Consolidated Statements of Income      4   
      Consolidated Statements of Comprehensive Income      5   
      Consolidated Statements of Changes in Stockholders’ Equity      6   
      Consolidated Statements of Cash Flows      7   
      Notes to Consolidated Financial Statements      8   
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      39   
  Item 3.   Quantitative and Qualitative Disclosures About Market Risk      69   
  Item 4.   Controls and Procedures      69   
PART II.   OTHER INFORMATION   
  Item 1.   Legal Proceedings      70   
  Item 1A.   Risk Factors      70   
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      70   
  Item 3.   Default Upon Senior Securities      70   
  Item 4.   Mine Safety Disclosures      70   
  Item 5.   Other Information      70   
  Item 6.   Exhibits      70   
    Signatures      71   

 

2


Table of Contents

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share and per share data)

 

     June 30,
2015
    December 31,
2014
 

Assets:

    

Cash and due from banks

   $ 32,161      $ 25,397   

Interest-earning deposits in other banks

     109,125        81,688   

Investment securities:

    

Available for sale securities, at fair value

     1,430,149        1,359,098   

Federal Home Loan Bank and other bank stock, at cost

     70,505        66,891   
  

 

 

   

 

 

 

Total investment securities

     1,500,654        1,425,989   
  

 

 

   

 

 

 

Loans held for sale

     4,782        707   

Loans:

    

New loans

     3,807,547        3,103,417   

Acquired loans ($0 and $273,366 covered by FDIC loss share, respectively)

     720,175        826,173   

Allowance for loan losses

     (27,046     (22,880
  

 

 

   

 

 

 

Loans, net

     4,500,676        3,906,710   
  

 

 

   

 

 

 

FDIC loss share indemnification asset

     —          63,168   

Due from FDIC

     —          1,735   

Premises and equipment, net

     37,641        38,962   

Other real estate owned ($0 and $25,130 of foreclosed property covered by FDIC loss share, respectively)

     42,654        74,527   

Goodwill and other intangible assets

     87,884        88,615   

Deferred tax assets, net (including valuation allowance of $9,126 and $9,151, respectively)

     76,720        47,441   

Bank-owned life insurance

     140,830        139,829   

Other assets

     74,071        62,860   
  

 

 

   

 

 

 

Total assets

   $ 6,607,198      $ 5,957,628   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits:

    

Transaction accounts:

    

Noninterest-bearing

   $ 621,845      $ 593,025   

Interest-bearing

     2,586,491        2,308,657   
  

 

 

   

 

 

 

Total transaction accounts

     3,208,336        2,901,682   

Time deposits

     1,257,751        1,076,853   
  

 

 

   

 

 

 

Total deposits

     4,466,087        3,978,535   

Borrowings (including FHLB advances of $1,093,100 and $983,686, respectively)

     1,232,893        1,067,981   

Other liabilities

     50,739        59,459   
  

 

 

   

 

 

 

Total liabilities

     5,749,719        5,105,975   
  

 

 

   

 

 

 

Commitments and contingencies (Note 12)

    

Stockholders’ Equity:

    

Class A common stock, par value $0.001 per share; 100 million shares authorized; 37,806,869, 35,396,962 issued and 36,849,557, 34,469,650 outstanding

     37        36   

Class B common stock, par value $0.001 per share; 50 million shares authorized; 4,765,774, 7,132,180 issued and 4,573,642, 6,940,048 outstanding

     6        7   

Additional paid-in capital

     839,265        834,538   

Retained earnings

     37,646        35,144   

Accumulated other comprehensive income (loss)

     78        679   

Treasury stock, at cost; 957,312, 927,312 Class A and 192,132, 192,132 Class B common shares

     (19,553     (18,751
  

 

 

   

 

 

 

Total stockholders’ equity

     857,479        851,653   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 6,607,198      $ 5,957,628   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

3


Table of Contents

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except share and per share data)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2015      2014     2015     2014  

Interest income:

         

Interest and fees on loans

   $ 44,202       $ 37,833      $ 87,508      $ 72,685   

Interest and dividends on investment securities

     13,169         10,566        25,279        20,564   

Other interest income

     40         53        73        121   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total interest income

     57,411         48,452        112,860        93,370   
  

 

 

    

 

 

   

 

 

   

 

 

 

Interest expense:

         

Interest on deposits

     5,991         5,833        11,576        11,142   

Interest on borrowings

     1,246         1,466        2,226        2,730   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total interest expense

     7,237         7,299        13,802        13,872   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income

     50,174         41,153        99,058        79,498   

Provision for loan losses

     2,470         3,236        3,819        4,326   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     47,704         37,917        95,239        75,172   
  

 

 

    

 

 

   

 

 

   

 

 

 

Noninterest income:

         

Service charges and fees

     778         707        1,535        1,445   

Loan and other fees

     1,906         2,569        4,403        3,285   

Bank-owned life insurance income

     1,097         1,038        2,194        1,856   

FDIC loss share indemnification loss

     —           (5,247     (65,529     (10,239

Income from resolution of acquired assets

     2,898         1,692        6,270        2,729   

Gain (loss) on sales of other real estate owned

     5,605         (359     7,170        72   

Gain (loss) on investment securities

     761         4,448        1,768        6,943   

Other noninterest income

     1,107         1,842        2,252        3,147   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total noninterest income

     14,152         6,690        (39,937     9,238   
  

 

 

    

 

 

   

 

 

   

 

 

 

Noninterest expense:

         

Salaries and employee benefits

     17,856         13,411        34,431        29,831   

Occupancy and equipment expenses

     3,806         3,777        7,083        7,210   

Loan and other real estate related expenses

     1,425         3,338        3,501        7,099   

Professional services

     1,189         1,352        2,595        3,184   

Data processing and network

     2,801         2,357        5,519        5,567   

Regulatory assessments and insurance

     2,092         1,920        4,211        3,694   

Amortization of intangibles

     407         443        831        859   

Other operating expenses

     2,471         4,146        4,526        7,766   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total noninterest expense

     32,047         30,744        62,697        65,210   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

     29,809         13,863        (7,395     19,200   

Income tax expense (benefit)

     10,433         4,697        (9,897     6,506   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 19,376       $ 9,166      $ 2,502      $ 12,694   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

         

Basic

   $ 0.47       $ 0.26      $ 0.06      $ 0.35   

Diluted

   $ 0.45       $ 0.26      $ 0.06      $ 0.35   

Weighted average shares outstanding:

         

Basic

     41,428,588         35,892,154        41,425,240        35,892,154   

Diluted

     43,106,131         35,896,207        42,752,814        35,896,257   

The accompanying notes are an integral part of these consolidated financial statements

 

4


Table of Contents

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     2015     2014  

Net income (loss)

   $ 19,376      $ 9,166      $ 2,502      $ 12,694   

Other comprehensive income (loss):

        

Unrealized net holding gains (losses) on investment securities available for sale, net of taxes of $6,121, $(4,894), $(501) and $(7,606), respectively

     (9,747     7,791        799        12,109   

Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $456, $1,148, $879, and $1,480, respectively

     (727     (1,830     (1,400     (2,357
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (10,474     5,961        (601     9,752   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 8,902      $ 15,127      $ 1,901      $ 22,446   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

5


Table of Contents

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except for share data)

 

    Common Stock
Shares Outstanding
    Common Stock
Issued
    Additional
Paid in

Capital
    Retained
Earnings

(Deficit)
    Treasury
Stock
    Accumulated
Other
Comprehensive

Income (Loss)
    Total
Stockholders’

Equity
 
    Class A     Class B     Class A     Class B            

Balance as of January 1, 2014

    28,065,002        7,827,152      $ 29      $ 8      $ 723,631      $ 12,772      $ (18,751   $ (1,575   $ 716,114   

Net income (loss)

    —          —          —          —          —          12,694        —          —          12,694   

Exchange of B shares to A shares

    68,499        (68,499     —          —          —          —          —          —          —     

Stock-based compensation

    —          —          —          —          888        —          —          —          888   

Other comprehensive income (loss)

    —          —          —          —          —          —          —          9,752        9,752   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of June 30, 2014

    28,133,501        7,758,653      $ 29      $ 8      $ 724,519      $ 25,466      $ (18,751   $ 8,177      $ 739,448   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2015

    34,469,650        6,940,048      $ 36      $ 7      $ 834,538      $ 35,144      $ (18,751   $ 679      $ 851,653   

Net income (loss)

    —          —          —          —          —          2,502        —          —          2,502   

Exchange of B shares to A shares

    2,366,406        (2,366,406     1        (1     —          —          —          —          —     

Stock-based compensation, RSU and warrant expense

    —          —          —          —          3,874        —          —          —          3,874   

Treasury stock purchase

    (30,000               (802       (802

Exercise of stock options

    43,501              873              873   

Other

    —          —          —          —          (20     —          —          —          (20

Other comprehensive income (loss)

    —          —          —          —          —          —          —          (601     (601
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of June 30, 2015

    36,849,557        4,573,642      $ 37      $ 6      $ 839,265      $ 37,646      $ (19,553   $ 78      $ 857,479   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

6


Table of Contents

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended June 30,  
     2015     2014  

Cash flows from operating activities:

    

Net income (loss)

   $ 2,502      $ 12,694   

Adjustments to reconcile net income to net cash provided by (used in) operating activities

    

Provision for loan losses

     3,819        4,326   

Amortization of intangible assets

     831        859   

Depreciation and amortization of premises and equipment

     1,940        1,871   

Amortization of discount on loans

     (1,833     (1,629

Net amortization (accretion) of premium (discount) on investment securities

     1,094        1,113   

Net amortization (accretion) of premium (discount) on time deposits

     (258     (837

Net amortization (accretion) on FHLB advances and other borrowings

     (1,292     (554

Impairment of other real estate owned

     173        732   

FDIC loss share indemnification loss

     65,529        10,239   

(Gain) loss on investment securities

     (1,768     (6,943

(Gain) loss on sale of loans

     —          (562

(Gain) loss on sale of other real estate owned

     (7,170     (72

(Gain) loss on sale of premises and equipment

     112        18   

Deferred tax expense

     (30,386     —     

Stock-based compensation and warrant expense

     3,442        888   

Increase in cash surrender value of BOLI

     (2,194     (1,856

Net change in operating assets and liabilities:

    

Net change in loans held for sale

     (4,075     (1,492

Collection from FDIC on loss share indemnification asset

     —          5,597   

Settlement of FDIC loss share agreement

     (14,815     —     

Net change in other assets

     (3,021     (8,669

Net change in other liabilities

     (5,741     6,971   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     6,889        22,694   
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Purchase of investment securities available for sale

     (462,125     (840,453

Sales of investment securities available for sale

     318,927        515,359   

Paydown and maturities of investment securities held to maturity

     —          372   

Paydown and maturities of investment securities available for sale

     76,680        87,104   

Purchase of FHLB and other bank stock

     (36,852     (39,785

Sales of FHLB and other bank stock

     33,238        19,644   

Net cash paid in acquisition

     —          (14,073

Net change in loans

     (369,060     (419,417

Purchase of loans

     (241,727     (72,504

Proceeds from sale of loans

     —          23,329   

Purchase of bank-owned life insurance

     —          (40,000

Proceeds from sale of other real estate owned

     53,705        20,988   

Purchase of premises and equipment

     (731     (443

Proceeds from life insurance

     1,193        —     
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (626,752     (759,879
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Net change in deposits

     487,810        301,594   

Net change in FHLB advances and other borrowings

     109,414        328,485   

Net change in repurchase agreements

     56,790        (1,166

Repurchase of stock

     (802     —     

Exercise of stock options

     873        —     

Other financing costs

     (21     (335
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     654,064        628,578   
  

 

 

   

 

 

 

Net Change in Cash and Cash Equivalents

     34,201        (108,607

Cash and Cash Equivalents at Beginning of Period

     107,085        239,217   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 141,286      $ 130,610   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information:

    

Interest paid

   $ 13,768      $ 13,191   

Income taxes paid

     4,786        5,816   

Supplemental disclosure of noncash investing and financing activities:

    

Transfer of loans to other real estate owned

   $ 14,835      $ 12,869   

Fair value of assets acquired

     —          957,324   

Goodwill recorded

     —          47,355   

Liabilities assumed

     —          962,194   

Securities purchased not settled

     5,020        41,601   

Securities sold not settled

     430        —     

The accompanying notes are an integral part of these consolidated financial statements

 

7


Table of Contents

FCB FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with the audited consolidated financial statements and the notes thereto for FCB Financial Holdings, Inc. (the “Company”) previously filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

Nature of Operations

FCB Financial Holdings, Inc., formerly known as Bond Street Holdings, Inc., is a national bank holding company with one wholly-owned national bank subsidiary, Florida Community Bank, N.A. (“Florida Community Bank” or the “Bank”), headquartered in Weston, Florida, offering a comprehensive range of traditional banking products and services to individual and corporate customers through 48 banking centers located in Florida at June 30, 2015.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s subsidiaries, which consist of a group of real estate holding companies. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The Company’s financial reporting and accounting policies conform to U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates subject to significant change include the allowance for loan losses, valuation of and accounting for loans covered by loss sharing arrangements with the Federal Deposit Insurance Corporation (“FDIC”) and the related loss share receivable, valuation of and accounting for acquired loans, the carrying value of OREO, the fair value of financial instruments, the valuation of goodwill and other intangible assets, contingent consideration liabilities, acquisition-related fair value computations, stock-based compensation and deferred taxes.

Reclassifications

In certain instances, amounts reported in prior periods consolidated financial statements have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported net income or total stockholders’ equity.

For the 2014 Consolidated Statements of Cash Flows, the Company reclassified $41.6 million to investing activities from operating activities related to the settlement of investment securities and $14.7 million to operating activities from investing activities related to accretion income on acquired loans. In addition, the Company reclassified cash collections of $5.6 million from the FDIC on loss share indemnification assets from investing activities to operating activities.

 

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Recently Adopted Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” to provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists thereby reducing diversity in practice. The amendments in this update became effective for the first quarter ended March 31, 2015. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards affecting public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B).

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidated Analysis (ASC 810, Consolidation)” which amends the consolidation requirements of ASC 810 by reducing the number of consolidation models. The guidance places more emphasis on risk of loss when determining a controlling financial interest; reduces the frequency of the application of related-party guidance when determining a controlling financial interest and changes the consolidation requirements of limited partnerships. For public entities, this guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, including emerging growth companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. A reporting entity may apply the amendments in this ASU using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations and cash flows but does not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (ASC 225-20, Extraordinary and Unusual Items)” which eliminates the concept of extraordinary items. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for all entities. Under the ASU, extraordinary items will no longer be segregated from the results of ordinary operations and presented separately on the consolidated financial statements. The amendments may be applied prospectively or retrospectively to all prior periods. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

 

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NOTE 2. INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:

 

     Amortized
Cost
     Unrealized      Fair
Value
 

June 30, 2015

      Gains      Losses     
     (Dollars in thousands)  

Available for sale:

           

U.S. Government agencies and sponsored enterprises obligations

   $ 5,306       $ 98       $ —         $ 5,404   

U.S. Government agencies and sponsored enterprises mortgage-backed securities

     375,061         3,743         522         378,282   

State and municipal obligations

     2,040         190         —           2,230   

Asset-backed securities

     456,912         2,438         1,612         457,738   

Corporate bonds and other debt securities

     419,553         2,786         5,078         417,261   

Preferred stock and other equity securities

     171,150         343         2,259         169,234   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 1,430,022       $   9,598       $ 9,471       $ 1,430,149   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Amortized
Cost
     Unrealized      Fair
Value
 

December 31, 2014

      Gains      Losses     
     (Dollars in thousands)  

Available for sale:

           

U.S. Government agencies and sponsored enterprises obligations

   $ 6,078       $ 18       $ —         $ 6,096   

U.S. Government agencies and sponsored enterprises mortgage-backed securities

     497,384         5,172         904         501,652   

State and municipal obligations

     2,039         238         —           2,277   

Asset-backed securities

     482,969         1,424         6,192         478,201   

Corporate bonds and other debt securities

     256,155         3,024         496         258,683   

Preferred stock and other equity securities

     113,367         261         1,439         112,189   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 1,357,992       $ 10,137       $ 9,031       $ 1,359,098   
  

 

 

    

 

 

    

 

 

    

 

 

 

As part of the Company’s liquidity management strategy, the Company pledges loans and securities to secure borrowings from the FHLB. The Company also pledges securities to collateralize public deposits. The carrying value of all pledged securities totaled $761.8 million and $685.3 million at June 30, 2015 and December 31, 2014, respectively.

 

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The amortized cost and estimated fair value of securities available for sale, by contractual maturity, are as follows:

 

June 30, 2015

   Amortized
Cost
     Fair
Value
 
     (Dollars in thousands)  

Available for sale:

     

Due in one year or less

   $ —         $ —     

Due after one year through five years

     81,627         81,677   

Due after five years through ten years

     73,077         72,375   

Due after ten years

     266,889         265,439   

U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and asset-backed securities

     837,279         841,424   

Preferred stock and other equity securities

     171,150         169,234   
  

 

 

    

 

 

 

Total available for sale

   $ 1,430,022       $ 1,430,149   
  

 

 

    

 

 

 

For purposes of the maturity table, U.S Government agencies and sponsored enterprises obligations, agency mortgage-backed securities and asset-backed securities, the principal of which are repaid periodically, are presented as a single amount. The expected lives of these securities will differ from contractual maturities because borrowers may have the right to prepay the underlying loans with or without prepayment penalties.

The following tables present the estimated fair values and gross unrealized losses on investment securities available for sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position as of the periods presented:

 

     Less than 12 Months      12 Months or More      Total  

June 30, 2015

   Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 
     (Dollars in thousands)  

Available for sale:

                 

U.S. Government agencies and sponsored enterprises obligations

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. Government agencies and sponsored enterprises mortgage-backed securities

     37,102         292         14,510         230         51,612         522   

State and municipal obligations

     —           —           —           —           —           —     

Asset-backed securities

     106,790         396         87,596         1,216         194,386         1,612   

Corporate bonds and other debt securities

     269,281         5,078         —           —           269,281         5,078   

Preferred stock and other equity securities

     126,072         2,044         9,788         215         135,860         2,259   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 539,245       $ 7,810       $ 111,894       $ 1,661       $ 651,139       $ 9,471   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than 12 Months      12 Months or More      Total  

December 31, 2014

   Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 
     (Dollars in thousands)  

Available for sale:

                 

U.S. Government agencies and sponsored enterprises obligations

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. Government agencies and sponsored enterprises mortgage-backed securities

     71,539         330         43,090         574         114,629         904   

State and municipal obligations

     —           —           —           —           —           —     

Asset-backed securities

     337,123         5,143         31,898         1,049         369,021         6,192   

Corporate bonds and other debt securities

     78,487         496         —           —           78,487         496   

Preferred stock and other equity securities

     53,064         737         10,606         702         63,670         1,439   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 540,213       $ 6,706       $   85,594       $ 2,325       $ 625,807       $ 9,031   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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At June 30, 2015, the Company’s security portfolio consisted of 287 securities, of which 118 securities were in an unrealized loss position. A total of 92 were in an unrealized loss position for less than 12 months. The unrealized losses for these securities resulted primarily from changes in interest rates. All securities available for sale at June 30, 2015 and December 31, 2014 were investment grade based on ratings from recognized rating agencies.

The Company monitors its investment securities for other-than-temporary impairment (“OTTI”). Impairment is evaluated on an individual security basis considering numerous factors, with the relative significance varying by situation. The Company has evaluated the nature of unrealized losses in the investment securities portfolio to determine if OTTI exists. The unrealized losses relate to changes in market interest rates and specific market conditions that do not represent credit-related impairments. Furthermore, the Company does not intend to sell nor is it more likely than not that it will be required to sell these investments before the recovery of their amortized cost basis. Management has completed an assessment of each security in an unrealized loss position for credit impairment, including securities with existing characteristics that are covered under the Volcker Rule, and has determined that no individual security was other-than-temporarily impaired at June 30, 2015. The following describes the basis under which the Company has evaluated OTTI:

U.S. Government Agencies and Sponsored Enterprises Obligations and Agency Mortgage-Backed Securities (“MBS”):

The unrealized losses associated with U.S. Government agencies and sponsored enterprises obligations and agency MBS are primarily driven by changes in interest rates. These securities have either an explicit or implicit U.S. government guarantee.

Corporate Bonds and Asset Backed Securities:

Securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase, without relying on a bond issuer’s guarantee in making the investment decision. These investments are investment grade and will continue to be monitored as part of the Company’s ongoing impairment analysis, but are expected to perform in accordance with their terms.

Preferred Stock and Other Equity Investments:

The unrealized losses associated with preferred stock and other equity investments in large U.S. financial institutions are primarily driven by changes in interest rates. These securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase. These investments are investment grade and will continue to be monitored as part of the Company’s ongoing impairment analysis, but are expected to perform in accordance with their terms.

Gross realized gains and losses on the sale of securities available for sale are shown below. The cost of securities sold is based on the specific identification method.

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  
     (Dollars in thousands)  

Gross realized gains

   $ 849       $ 5,203       $ 1,961       $ 7,897   

Gross realized losses

     (844      (824      (913      (1,012
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses)

   $ 5       $ 4,379       $ 1,048       $ 6,885   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 3. LOANS, NET

The Company’s loan portfolio consists of new and acquired loans. The Company classifies originated loans and purchased loans not acquired through business combinations as New loans. The Company classifies loans acquired through business combinations as acquired loans. The acquired loan portfolio is segmented into “Covered Loans”, loans subject to loss sharing with the FDIC, and “Non-Covered Loans”, acquired loans without loss share reimbursement. Additionally, the New loan portfolio is classified as “Non-Covered Loans”. A portion of the acquired loan portfolio, both Covered and Non-Covered Loans, exhibited evidence of deterioration in credit quality since origination, and are accounted for under ASC 310-30. The remaining portfolio of acquired loans consists of loans that were not considered ASC 310-30 loans at acquisition and are classified as Non-ASC 310-30 loans.

 

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Table of Contents

On March 4, 2015, the Bank entered into an agreement with the FDIC to terminate all loss sharing agreements which were entered into in 2010 and 2011 in conjunction with the Bank’s acquisition of substantially all of the assets (“covered assets”) and assumption of substantially all of the liabilities of six failed banks in FDIC-assisted acquisitions. Under the early termination, all rights and obligations of the Bank and the FDIC under the loss share agreements, including the clawback provisions, have been eliminated.

The following tables summarize the Company’s loans by portfolio segment as of the periods presented, net of deferred fees, costs, and premium and discount:

 

     Covered Loans      Non-Covered Loans         

June 30, 2015

   ASC
310-30
Loans
     Non-ASC
310-30
Loans
     ASC
310-30
Loans
     Non-ASC
310-30
Loans
     New
Loans (1)
     Total  
     (Dollars in thousands)  

Real estate loans:

                 

Commercial real estate

   $ —         $ —         $ 286,337       $ 62,473       $ 942,424       $ 1,291,234   

Owner-occupied commercial real estate

     —           —           —           19,860         400,438         420,298   

1-4 single family residential

     —           —           76,849         86,754         1,248,625         1,412,228   

Construction, land and development

     —           —           55,453         8,610         349,659         413,722   

Home equity loans and lines of credit

     —           —           —           52,971         22,798         75,769   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ —         $ —         $ 418,639       $ 230,668       $ 2,963,944       $ 3,613,251   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

   $ —         $ —         $ 58,045       $ 9,654       $ 837,270       $ 904,969   

Consumer

     —           —           2,524         645         6,333         9,502   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           60,569         10,299         843,603         914,471   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans held in portfolio

   $ —         $ —         $ 479,208       $ 240,967       $ 3,807,547       $ 4,527,722   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan losses

                    (27,046
                 

 

 

 

Loans held in portfolio, net

                  $ 4,500,676   
                 

 

 

 
     Covered Loans      Non-Covered Loans         

December 31, 2014

   ASC
310-30
Loans
     Non-ASC
310-30
Loans
     ASC
310-30
Loans
     Non-ASC
310-30
Loans
     New
Loans (1)
     Total  
     (Dollars in thousands)  

Real estate loans:

                 

Commercial real estate

   $ 155,050       $ 6,202       $ 181,885       $ 63,944       $ 853,074       $ 1,260,155   

Owner-occupied commercial real estate

     —           2,411         —           12,431         281,703         296,545   

1-4 single family residential

     34,297         7,286         52,011         94,993         922,657         1,111,244   

Construction, land and development

     19,903         —           46,797         9,729         232,601         309,030   

Home equity loans and lines of credit

     —           10,785         —           43,919         11,826         66,530   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 209,250       $ 26,684       $ 280,693       $ 225,016       $ 2,301,861       $ 3,043,504   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

   $ 32,531       $ 4,308       $ 34,967       $ 9,240       $ 795,000       $ 876,046   

Consumer

     557         36         2,246         645         6,556         10,040   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     33,088         4,344         37,213         9,885         801,556         886,086   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans held in portfolio

   $ 242,338       $ 31,028       $ 317,906       $ 234,901       $ 3,103,417       $ 3,929,590   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan losses

                    (22,880
                 

 

 

 

Loans held in portfolio, net

                  $ 3,906,710   
                 

 

 

 

 

(1) Balance includes $(5.6) million and $3.6 million of deferred fees, costs, and premium and discount as of June 30, 2015 and December 31, 2014, respectively.

 

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Table of Contents

At June 30, 2015 and December 31, 2014, the unpaid principal balances (“UPB”) of ASC 310-30 loans were $620.0 million and $725.9 million, respectively. At June 30, 2015 and December 31, 2014, the Company had pledged loans as collateral for FHLB advances of $1.83 billion and $1.63 billion, respectively. The recorded investments of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process as of June 30, 2015 totaled $10.3 million. The Company held $438.5 million and $445.6 million of syndicated national loans as of June 30, 2015 and December 31, 2014, respectively.

During the three and six months ended June 30, 2015, the Company purchased approximately $144.0 million and $233.6 million, respectively, in residential mortgage loans from third parties. During the three and six months ended June 30, 2014, the Company purchased approximately $71.2 million in residential mortgage loans from third parties.

During the three and six months ended June 30, 2015, the Company sold approximately $11.6 million and $19.5 million, respectively, in loans to third parties. During the three and six months ended June 30, 2014, the Company sold approximately $26.2 million and $28.9 million, respectively, in loans to third parties.

The accretable discount on ASC 310-30 loan pools represents the amount by which the undiscounted expected cash flows on such pools exceed its carrying value. The increase in expected cash flows for certain ASC 310-30 loan pools resulted in the reclassification of $9.8 million and $13.0 million in non-accretable difference to accretable discount during the six months ended June 30, 2015 and 2014, respectively.

Changes in accretable discount for ASC 310-30 loans for the six months ended June 30, 2015 and 2014 were as follows:

 

     Six Months Ended
June 30,
 
     2015      2014  
     (Dollars in thousands)  

Balance at January 1,

   $ 156,197       $ 148,501   

Additions to accretable discount from GFB acquisition

     —           40,444   

Accretion

     (23,667      (31,231

Reclassifications from non-accretable difference

     9,760         13,030   
  

 

 

    

 

 

 

Balance at June 30,

   $ 142,290       $ 170,744   
  

 

 

    

 

 

 

NOTE 4. ALLOWANCE FOR LOAN LOSSES

The Company’s accounting method for loans and the corresponding allowance for loan losses (“ALL”) differs depending on whether the loans are New or Acquired. The Company assesses and monitors credit risk and portfolio performance using distinct methodologies for Acquired loans, both ASC 310-30 Loans and Non-ASC 310-30 Loans, and New loans. Within each of these portfolios, the Company further disaggregates the portfolios into the following segments: Commercial real estate, Owner-occupied commercial real estate, 1-4 single family residential, Construction, land and development, Home equity loans and lines of credit, Commercial and industrial and Consumer. The ALL reflects management’s estimate of probable credit losses inherent in each of the segments.

 

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Table of Contents

Changes in the ALL by loan class and portfolio segment for the three and six months ended June 30, 2015 and 2014 are as follows:

 

    Commercial
Real Estate
    Owner-
Occupied
Commercial
Real

Estate
    1- 4 Single
Family
Residential
    Construction,
Land and

Development
    Home
Equity
Loans and
Lines of
Credit
    Commercial
and

Industrial
    Consumer     Total  
    (Dollars in thousands)  

Balance at April 1, 2015

  $ 9,296      $ 1,252      $ 5,213      $ 2,312      $ 398      $ 5,705      $ 337      $ 24,513   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision (credit) for ASC 310-30 loans

    (784     —          (63     (178     —          143        115        (767

Provision for non-ASC 310-30 loans

    848        (7     (7     (12     143        (11     (1     953   

Provision for New loans

    383        303        755        633        22        183        5        2,284   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision

    447        296        685        443        165        315        119        2,470   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs for ASC 310-30 loans

    (109     —          (121     —          —          (45     —          (275

Charge-offs for non-ASC 310-30 loans

    —          —          (63     —          —          —          —          (63

Charge-offs for New loans

    —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total charge-offs

    (109     —          (184     —          —          (45     —          (338
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recoveries for ASC 310-30 loans

    18        —          30        269        —          82        —          399   

Recoveries for non-ASC 310-30 loans

    —          —          —          —          —          —          —          —     

Recoveries for New loans

    —          —          —          —          —          2        —          2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recoveries

    18        —          30        269        —          84        —          401   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALL balance

               

ASC 310-30 loans

    2,585        —          270        793        —          1,133        387        5,168   

Non-ASC 310-30 loans

    1,375        54        335        56        432        41        6        2,299   

New loans

    5,692        1,494        5,139        2,175        131        4,885        63        19,579   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

  $ 9,652      $ 1,548      $ 5,744      $ 3,024      $ 563      $ 6,059      $ 456      $ 27,046   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Commercial
Real Estate
    Owner-
Occupied
Commercial
Real

Estate
    1- 4 Single
Family
Residential
    Construction,
Land and

Development
    Home
Equity
Loans and
Lines of
Credit
    Commercial
and

Industrial
    Consumer     Total  
    (Dollars in thousands)  

Balance at April 1, 2014

  $ 5,088      $ 435      $ 1,587      $ 1,900      $ 151      $ 5,977      $ 356      $ 15,494   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision (credit) for ASC 310-30 loans

    191        —          212        (31     —          (539     (34     (201

Provision for non-ASC 310-30 loans

    2        2        (45     —          89        16        32        96   

Provision for New loans

    982        369        702        499        (65     849        5        3,341   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision

    1,175        371        869        468        24        326        3        3,236   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs for ASC 310-30 loans

    —          —          (30     (444     —          (32     (4     (510

Charge-offs for non-ASC 310-30 loans

    —          —          —          —          (62     —          (29     (91

Charge-offs for New loans

    —          —          —          —          —          (348     —          (348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total charge-offs

    —          —          (30     (444     (62     (380     (33     (949
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recoveries for ASC 310-30 loans

    91        —          —          11        —          1        —          103   

Recoveries for non-ASC 310-30 loans

    —          —          —          —          —          —          —          —     

Recoveries for New loans

    —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recoveries

    91        —          —          11        —          1        —          103   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALL balance

               

ASC 310-30 loans

    2,883        —          207        660        —          1,359        298        5,407   

Non-ASC 310-30 loans

    8        7        7        —          32        6        3        63   

New loans

    3,463        799        2,212        1,275        81        4,559        25        12,414   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

  $ 6,354      $ 806      $ 2,426      $ 1,935      $ 113      $ 5,924      $ 326      $ 17,884   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents
    Commercial
Real Estate
    Owner-
Occupied
Commercial
Real Estate
    1- 4 Single
Family
Residential
    Construction,
Land and

Development
    Home
Equity
Loans and
Lines of
Credit
    Commercial
and

Industrial
    Consumer     Total  
    (Dollars in thousands)  

Balance at January 1, 2015

  $ 8,206      $ 1,020      $ 4,740      $ 2,456      $ 355      $ 5,745      $ 358      $ 22,880   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision (credit) for ASC 310-30 loans

    (865     —          1        (198     —          119        157        (786

Provision (credit) for non-ASC 310-30 loans

    880        (4     49        (19     147        (8     —          1,045   

Provision (credit) for New loans

    1,236        532        1,138        452        61        140        1        3,560   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision

    1,251        528        1,188        235        208        251        158        3,819   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs for ASC 310-30 loans

    (205     —          (207     (56     —          (75     (60     (603

Charge-offs for non-ASC 310-30 loans

    —          —          (128     —          —          —          —          (128

Charge-offs for New loans

    —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total charge-offs

    (205     —          (335     (56     —          (75     (60     (731
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recoveries for ASC 310-30 loans

    400        —          151        389        —          131        —          1,071   

Recoveries for non-ASC 310-30 loans

    —          —          —          —          —          —          —          —     

Recoveries for New loans

    —          —          —          —          —          7        —          7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recoveries

    400        —          151        389        —          138        —          1,078   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALL balance

               

ASC 310-30 loans

    2,585        —          270        793        —          1,133        387        5,168   

Non-ASC 310-30 loans

    1,375        54        335        56        432        41        6        2,299   

New loans

    5,692        1,494        5,139        2,175        131        4,885        63        19,579   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

  $ 9,652      $ 1,548      $ 5,744      $ 3,024      $ 563      $ 6,059      $ 456      $ 27,046   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Commercial
Real Estate
    Owner-
Occupied
Commercial
Real Estate
    1- 4 Single
Family
Residential
    Construction,
Land and

Development
    Home
Equity
Loans and
Lines of
Credit
    Commercial
and

Industrial
    Consumer     Total  
    (Dollars in thousands)  

Balance at January 1, 2014

  $ 4,458      $ 376      $ 1,443      $ 1,819      $ 265      $ 6,198      $ 174      $ 14,733   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision (credit) for ASC 310-30 loans

    191        —          152        133        —          (871     232        (163

Provision (credit) for non-ASC 310-30 loans

    3        2        (45     —          (4     24        32        12   

Provision (credit) for New loans

    1,685        428        906        441        (45     1,054        8        4,477   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision

    1,879        430        1,013        574        (49     207        272        4,326   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs for ASC 310-30 loans

    (74     —          (30     (1,245     —          (110     (91     (1,550

Charge-offs for non-ASC 310-30 loans

    —          —          —          —          (103     (24     (29     (156

Charge-offs for New loans

    —          —          —          —          —          (348     —          (348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total charge-offs

    (74     —          (30     (1,245     (103     (482     (120     (2,054
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recoveries for ASC 310-30 loans

    91        —          —          787        —          1        —          879   

Recoveries for non-ASC 310-30 loans

    —          —          —          —          —          —          —          —     

Recoveries for New loans

    —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recoveries

    91        —          —          787        —          1        —          879   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALL balance

               

ASC 310-30 loans

    2,883        —          207        660        —          1,359        298        5,407   

Non-ASC 310-30 loans

    8        7        7        —          32        6        3        63   

New loans

    3,463        799        2,212        1,275        81        4,559        25        12,414   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

  $ 6,354      $ 806      $ 2,426      $ 1,935      $ 113      $ 5,924      $ 326      $ 17,884   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit Quality Indicators

In evaluating credit risk, the Company looks at multiple factors; however, management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and consumer loans. Delinquency statistics are updated at least monthly.

 

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Table of Contents

The following tables present an aging analysis of the recorded investment for delinquent loans by portfolio and segment (excluding loans accounted for under ASC 310-30):

 

     Accruing                

June 30, 2015

   30 to 59
Days Past
Due
     60 to 89
Days Past
Due
     90 Days
or More
Past Due
     Non-
Accrual
     Total  
     (Dollars in thousands)  

New loans:

              

Real estate loans:

              

Commercial real estate

   $ —         $ —         $ —         $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —           —     

1-4 single family residential

     —           —           —           —           —     

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

              

Commercial and industrial

     —           —           —           14         14   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           14         14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total new loans

   $ —         $ —         $ —         $ 14       $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

Real estate loans:

              

Commercial real estate

   $ —         $ —         $ —         $ 4,865       $ 4,865   

Owner-occupied commercial real estate

     —           —           —           5         5   

1-4 single family residential

     —           —           —           1,649         1,649   

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     153         288         —           2,806         3,247   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     153         288         —           9,325         9,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

              

Commercial and industrial

     —           —           —           736         736   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           736         736   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 153       $ 288       $ —         $ 10,061       $ 10,502   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents
     Accruing                

December 31, 2014

   30 to 59
Days Past
Due
     60 to 89
Days Past
Due
     90 Days
or More
Past Due
     Non-
Accrual
     Total  
     (Dollars in thousands)  

New loans:

              

Real estate loans:

              

Commercial real estate

   $ —         $ —         $ —         $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —           —     

1-4 single family residential

     6,206         727         —           116         7,049   

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     6,206         727         —           116         7,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

              

Commercial and industrial

     —           —           —           —           —     

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total new loans

   $ 6,206       $ 727       $ —         $ 116       $ 7,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired Loans:

              

Real estate loans:

              

Commercial real estate

   $ —         $ —         $ —         $ 4,866       $ 4,866   

Owner-occupied commercial real estate

     —           —           —           211         211   

1-4 single family residential

     1,877         86         —           1,766         3,729   

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     384         456         —           3,005         3,845   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     2,261         542         —           9,848         12,651   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

              

Commercial and industrial

     —           192         —           1,222         1,414   

Consumer

     14         —           —           —           14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     14         192         —           1,222         1,428   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 2,275       $ 734       $ —         $ 11,070       $ 14,079   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Internal risk ratings are considered the most meaningful indicator of credit quality for Non-ASC 310-30 and New commercial, construction, land and development and commercial real estate loans. Internal risk ratings are updated on a continuous basis. Loans exhibiting potential credit weaknesses that deserve management’s close attention and that if left uncorrected may result in deterioration of the repayment capacity of the borrower are categorized as special mention. Loans with well-defined credit weaknesses including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highly questionable or improbable will be assigned an internal risk rating of doubtful.

 

18


Table of Contents

The following table summarizes the Company’s Non-ASC 310-30 and New loans by key indicators of credit quality. Loans accounted for under ASC 310-30 are excluded from the following analysis because their related allowance is determined by loan pool performance:

 

June 30, 2015

   Pass      Special
Mention
     Substandard      Doubtful  
     (Dollars in thousands)  

New loans:

           

Commercial real estate

   $ 942,394       $ —         $ 30       $ —     

Owner-occupied commercial real estate

     400,438         —           —           —     

Construction, land and development

     349,659         —           —           —     

Commercial and industrial

     837,256         —           14         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total new loans

   $ 2,529,747       $ —         $ 44       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Commercial real estate

   $ 57,126       $ 102       $ 5,245       $ —     

Owner-occupied commercial real estate

     19,662         96         102         —     

Construction, land and development

     8,610         —           —           —     

Commercial and industrial

     6,886         1,718         1,050         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 92,284       $ 1,916       $ 6,397       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

   Pass      Special
Mention
     Substandard      Doubtful  
     (Dollars in thousands)  

New loans:

           

Commercial real estate

   $ 853,044       $ —         $ 30       $ —     

Owner-occupied commercial real estate

     281,703         —           —           —     

Construction, land and development

     232,601         —           —           —     

Commercial and industrial

     795,000         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total new loans

   $ 2,162,348       $ —         $ 30       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Commercial real estate

   $ 65,173       $ 107       $ 4,866       $ —     

Owner-occupied commercial real estate

     13,822         421         599         —     

Construction, land and development

     9,729         —           —           —     

Commercial and industrial

     9,184         2,147         2,217         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 97,908       $ 2,675       $ 7,682       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Internal risk ratings are a key factor in identifying loans to be individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the ALL.

 

19


Table of Contents

The following table shows the Company’s investment in loans disaggregated based on the method of evaluating impairment:

 

     Loans - Recorded Investment      Allowance for Credit Loss  

June 30, 2015

   Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment
     ASC 310-
30 Loans
     Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment
     ASC 310-
30 Loans
 
     (Dollars in thousands)  

New loans:

                 

Real estate loans:

                 

Commercial real estate

   $ —         $ 942,424       $ —         $ —         $ 5,692       $ —     

Owner-occupied commercial real estate

     —           400,438         —           —           1,494         —     

1-4 single family residential

     —           1,248,625         —           —           5,139         —     

Construction, land and development

     —           349,659         —           —           2,175         —     

Home equity loans and lines of credit

     —           22,798         —           —           131         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ —         $ 2,963,944       $ —         $ —         $ 14,631       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

                 

Commercial and industrial

   $ —         $ 837,270       $ —         $ —         $ 4,885       $ —     

Consumer

     —           6,333         —           —           63         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ 843,603       $ —         $ —         $ 4,948       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

                 

Real estate loans:

                 

Commercial real estate

   $ 4,755       $ 57,718       $ 286,337       $ 1,028       $ 347       $ 2,585   

Owner-occupied commercial real estate

     —           19,860         —           —           54         —     

1-4 single family residential

     —           86,754         76,849         —           335         270   

Construction, land and development

     —           8,610         55,453         —           56         793   

Home equity loans and lines of credit

     955         52,016         —           177         255         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 5,710       $ 224,958       $ 418,639       $ 1,205       $ 1,047       $ 3,648   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

                 

Commercial and industrial

   $ 552       $ 9,102       $ 58,045       $ —         $ 41       $ 1,133   

Consumer

     —           645         2,524         —           6         387   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ 552       $ 9,747       $ 60,569       $ —         $ 47       $ 1,520   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Loans - Recorded Investment      Allowance for Credit Loss  

December 31, 2014

   Individually
Evaluated
for
Impairment
     Collectively
Evaluated
for
Impairment
     ASC 310-
30 Loans
     Individually
Evaluated
for
Impairment
     Collectively
Evaluated for
Impairment
     ASC 310-
30 Loans
 
     (Dollars in thousands)  

New loans:

                 

Real estate loans:

                 

Commercial real estate

   $ —         $ 853,074       $ —         $ —         $ 4,456       $ —     

Owner-occupied commercial real estate

     —           281,703         —           —           962         —     

1-4 single family residential

     —           922,657         —           —           4,001         —     

Construction, land and development

     —           232,601         —           —           1,723         —     

Home equity loans and lines of credit

     —           11,826         —           —           70         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ —         $ 2,301,861       $ —         $ —         $ 11,212       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

                 

Commercial and industrial

   $ —         $ 795,000       $ —         $ —         $ 4,738       $ —     

Consumer

     —           6,556         —           —           62         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ 801,556       $ —         $ —         $ 4,800       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired Loans:

                 

Real estate loans:

                 

Commercial real estate

   $ 4,754       $ 65,392       $ 336,935       $ 174       $ 321       $ 3,255   

Owner-occupied commercial real estate

     —           14,842         —           —           58         —     

1-4 single family residential

     —           102,279         86,308         —           414         325   

Construction, land and development

     —           9,729         66,700         —           75         658   

Home equity loans and lines of credit

     —           54,704         —           —           285         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 4,754       $ 246,946       $ 489,943       $ 174       $ 1,153       $ 4,238   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

                 

Commercial and industrial

   $ —         $ 13,548       $ 67,498       $ —         $ 49       $ 958   

Consumer

     —           681         2,803         —           6         290   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ 14,229       $ 70,301       $ —         $ 55       $ 1,248   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following tables set forth certain information regarding the Company’s impaired loans (excluding loans accounted for under ASC 310-30) that were evaluated for specific reserves:

 

     Impaired Loans - With Allowance      Impaired Loans - With no
Allowance
 

June 30, 2015

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
 
     (Dollars in thousands)  

New loans:

              

Real estate loans:

              

Commercial real estate

   $ —         $ —         $ —         $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —           —     

1-4 single family residential

     —           —           —           —           —     

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

              

Commercial and industrial

   $ —         $ —         $ —         $ —         $ —     

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

Real estate loans:

              

Commercial real estate

   $ 4,755       $ 5,051       $ 1,028       $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —           —     

1-4 single family residential

     —           —           —           —           —     

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     426         494         177         529         548   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 5,181       $ 5,545       $ 1,205       $ 529       $ 548   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

              

Commercial and industrial

   $ —         $ —         $ —         $ 552       $ 748   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ —         $ —         $ 552       $ 748   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Impaired Loans - With Allowance      Impaired Loans - With no
Allowance
 

December 31, 2014

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
 
     (Dollars in thousands)  

New loans:

              

Real estate loans:

              

Commercial real estate

   $ —         $ —         $ —         $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —           —     

1-4 single family residential

     —           —           —           —           —     

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

              

Commercial and industrial

   $ —         $ —         $ —         $ —         $ —     

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

Real estate loans:

              

Commercial real estate

   $ 354       $ 354       $ 174       $ 4,400       $ 4,595   

Owner-occupied commercial real estate

     —           —           —           —           —     

1-4 single family residential

     —           —           —           —           —     

Construction, land and development

     —           —           —           —           —     

Home equity loans and lines of credit

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 354       $ 354       $ 174       $ 4,400       $ 4,595   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

              

Commercial and industrial

   $ —         $ —         $ —         $ —         $ —     

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Three Months Ended June 30,  
     2015      2014  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

Impaired loans with no related allowance:

           

Real estate loans:

           

Commercial real estate

   $ —         $ —         $ 4,705       $ —     

Owner-occupied commercial real estate

     —           —           —           —     

1-4 single family residential

     —           —           —           —     

Construction, land and development

     —           —           —           —     

Home equity loans and lines of credit

     529         —           184         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 529       $ —         $ 4,889       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

   $ 556       $ —         $ —         $ —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ 556       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with an allowance:

           

Real estate loans:

           

Commercial real estate

   $ 4,825       $ —         $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —     

1-4 single family residential

     —           —           —           —     

Construction, land and development

     —           —           —           —     

Home equity loans and lines of credit

     438         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 5,263       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

   $ —         $ —         $ —         $ —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Six Months Ended June 30,  
     2015      2014  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

Impaired loans with no related allowance:

           

Real estate loans:

           

Commercial real estate

   $ —         $ —         $ 4,718       $ —     

Owner-occupied commercial real estate

     —           —           —           —     

1-4 single family residential

     —           —           —           —     

Construction, land and development

     —           —           —           —     

Home equity loans and lines of credit

     529         —           184         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 529       $ —         $ 4,902       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

   $ 540       $ —         $ —         $ —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ 540       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with an allowance:

           

Real estate loans:

           

Commercial real estate

   $ 4,899       $ —         $ —         $ —     

Owner-occupied commercial real estate

     —           —           —           —     

1-4 single family residential

     —           —           —           —     

Construction, land and development

     —           —           —           —     

Home equity loans and lines of credit

     442         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

   $ 5,341       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

   $ —         $ —         $ —         $ —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 5. COVERED ASSETS AND LOSS SHARING AGREEMENTS

On March 4, 2015, the Bank entered into an agreement with the FDIC to terminate all loss sharing agreements which were entered into in 2010 and 2011 in conjunction with the Bank’s acquisition of substantially all of the assets (“covered assets”) and assumption of substantially all of the liabilities of six failed banks in FDIC-assisted acquisitions. Under the early termination, all rights and obligations of the Bank and the FDIC under the loss share agreements, including the clawback provisions, have been eliminated.

The Bank paid the FDIC $14.8 million as consideration for the early termination to settle its obligation under the FDIC Clawback Liability. The early termination was recorded in the Bank’s financial statements by removing the FDIC Indemnification Asset receivable, the FDIC Clawback liability and recording a one-time, pre-tax loss on termination of $65.5 million.

 

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Table of Contents

The following table summarizes the carrying value of assets covered by the loss sharing agreements:

 

     June 30,
2015
     December 31,
2014
 
     (Dollars in thousands)  

Loans, excluding allowance for loan losses

   $ —         $ 273,366   

OREO

     —           25,130   
  

 

 

    

 

 

 

Total Covered Assets

   $ —         $ 298,496   
  

 

 

    

 

 

 

Subsequent to acquisition, when a provision for loan loss is required for a loan that is covered under a loss sharing agreement, the Company records an increase in the loss share indemnification asset and an increase to noninterest income in the consolidated statements of income based on the applicable loss sharing ratio. Increases in the loss share indemnification asset of $1.2 million were included in noninterest income for the six months ended June 30, 2014, related to the provision for loan losses on Covered Loans, including both ASC 310-30 and Non-ASC 310-30 loans.

Changes in the loss share indemnification asset for the periods presented were as follows:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  
     (Dollars in thousands)  

Balance at beginning of period

   $ —         $ 80,605       $ 63,168       $ 87,229   

Termination of FDIC loss sharing agreements

     —           —           (63,168      —     

Reimbursable expenses

     —           1,427         —           3,153   

Amortization

     —           (5,406      —           (11,405

Income resulting from impairment and charge-off of covered assets, net

     —           456         —           1,206   

Expense resulting from recoupment and disposition of covered assets, net

     —           (1,260      —           (2,423

FDIC claims submissions

     —           (969      —           (2,907
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ —         $ 74,853       $ —         $ 74,853   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes the changes in the clawback liability, included in Other Liabilities, for the periods presented:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  
     (Dollars in thousands)  

Balance at beginning of period

   $ —         $ 12,060       $ 13,846       $ 11,753   

Termination of FDIC loss sharing agreements

     —           —           (13,846      —     

Amortization impact

     —           181         —           357   

Remeasurement impact

     —           284         —           415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ —         $ 12,525       $ —         $ 12,525   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 6. DERIVATIVES

The Company is a party to interest rate derivatives that are not designated as hedging instruments. These derivatives are interest rate swaps that the Company enters into with customers to allow customers to convert variable rate loans to fixed rates. At the same time the interest rate swap is entered into with the customer, an offsetting interest rate swap is entered into with another financial institution. The changes in the fair value of the swaps offset each other, except for any differences in the credit risk of the counterparties, which is determined by considering the risk rating, probability of default and loss of given default of each counterparty. The Company recorded $1.1 million and $1.8 million of customer swap fees in noninterest income in the accompanying consolidated statements of income for the three months ended June 30, 2015 and 2014, respectively and $2.8 million and $2.2 million for the six months ended June 30, 2015 and 2014, respectively.

 

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Table of Contents

No derivative positions held by the Company as of June 30, 2015 were designated as hedging instruments under ASC 815-10. As of June 30, 2015, the Company has not recorded any credit adjustments related to the credit risk of the counterparties. There was no change in the fair value of derivative assets and derivative liabilities attributable to credit risk included in “Noninterest Expense” on the statements of income for the three or six months ended June 30, 2015 or 2014.

The following tables summarize the Company’s derivatives outstanding included in Other Assets and Other Liabilities in the accompanying consolidated balance sheets:

 

June 30, 2015

   Derivative Assets      Derivative Liabilities  
     Notional      Fair Value      Notional      Fair Value  
     (Dollars in thousands)  

Derivatives not designated as hedging instruments under ASC 815-10

           

Interest rate contracts - pay floating, receive fixed

   $ 562,618       $ 15,387       $ 27,338       $ 125   

Interest rate contracts - pay fixed, receive floating

     —           —           589,956         15,262   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives

   $ 562,618       $ 15,387       $ 617,294       $ 15,387   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2014

   Derivative Assets      Derivative Liabilities  
     Notional      Fair Value      Notional      Fair Value  
     (Dollars in thousands)  

Derivatives not designated as hedging instruments under ASC 815-10

           

Interest rate contracts - pay floating, receive fixed

   $ 464,890       $ 14,328       $ 8,298       $ 39   

Interest rate contracts - pay fixed, receive floating

     —           —           473,188         14,289   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives

   $ 464,890       $ 14,328       $ 481,486       $ 14,328   
  

 

 

    

 

 

    

 

 

    

 

 

 

The derivative transactions entered into with a financial institution are subject to an enforceable master netting arrangement. The following table summarizes the gross and net fair values of the Company’s derivatives outstanding with this counterparty included in Other Liabilities in the accompanying consolidated balance sheets:

 

June 30, 2015

   Gross
amounts

of
recognized
liabilities
     Gross
amounts
offset in the
consolidated
balance
sheets
     Net amounts
in the
consolidated
balance
sheets
 
     (Dollars in thousands)  

Offsetting derivative liabilities

        

Counterparty A - Interest rate contracts

   $ 15,387       $ (125    $ 15,262   
  

 

 

    

 

 

    

 

 

 

Total

   $ 15,387       $ (125    $ 15,262   
  

 

 

    

 

 

    

 

 

 

 

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December 31, 2014

   Gross
amounts

of
recognized

liabilities
     Gross
amounts

offset in the
consolidated
balance
sheets
     Net amounts
in the
consolidated
balance
sheets
 
     (Dollars in thousands)  

Offsetting derivative liabilities

        

Counterparty A - Interest rate contracts

   $ 14,328       $ (39    $ 14,289   
  

 

 

    

 

 

    

 

 

 

Total

   $ 14,328       $ (39    $ 14,289   
  

 

 

    

 

 

    

 

 

 

At June 30, 2015, the Company has pledged investment securities available for sale with a carrying amount of $23.4 million as collateral for the interest rate swaps in a liability position. The amount of collateral required to be posted by the Company varies based on the settlement value of outstanding swaps.

As of June 30, 2015 and December 31, 2014, substantially all of the floating rate terms within the interest rate swaps held by the Company were indexed to 1-month LIBOR.

The fair value of the derivative assets and liabilities are included in a table in Note 13 “Fair Value Measurements,” in the line items “Derivative assets” and “Derivative liabilities.”

NOTE 7. DEPOSITS

The following table sets forth the Company’s deposits by category:

 

     June 30,
2015
     December 31,
2014
 
     (Dollars in thousands)  

Noninterest-bearing demand deposits

   $ 621,845       $ 593,025   

Interest-bearing demand deposits

     288,990         122,380   

Interest-bearing NOW accounts

     414,795         374,399   

Savings and money market accounts

     1,882,706         1,811,878   

Time deposits

     1,257,751         1,076,853   
  

 

 

    

 

 

 

Total deposits

   $ 4,466,087       $ 3,978,535   
  

 

 

    

 

 

 

Time deposits $100,000 and greater

   $ 833,827       $ 689,439   

Time deposits greater than $250,000

     289,424         226,895   

The aggregate amount of overdraft demand deposits reclassified to loans was $836 thousand at June 30, 2015. The aggregate amount of maturities for time deposits for each of the five years as of June 30, 2015 totaled $799.2 million, $265.3 million, $152.9 million, $34.6 million and $5.6 million, respectively. The Company holds brokered deposits through an insured deposit sweep program of $384.5 million and $338.2 million at June 30, 2015 and December 31, 2014, respectively.

 

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NOTE 8. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in AOCI for the periods indicated are summarized as follows:

 

     Three Months Ended June 30,  
     2015     2014  
     Before
Tax
    Tax
Effect
    Net
of Tax
    Before
Tax
    Tax
Effect
    Net
of Tax
 
     (Dollars in thousands)  

Balance at beginning of period

   $ 17,178      $ (6,626   $ 10,552      $ 3,606      $ (1,390   $ 2,216   

Unrealized gain (loss) on investment securities available for sale:

            

Net unrealized holdings gain (loss) arising during the period

     (15,868     6,121        (9,747     12,685        (4,894     7,791   

Amounts reclassified to (gain) loss on investment securities

     (1,183     456        (727     (2,978     1,148        (1,830
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 127      $ (49   $ 78      $ 13,313      $ (5,136   $ 8,177   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30,  
     2015     2014  
     Before
Tax
    Tax
Effect
    Net
of Tax
    Before
Tax
    Tax
Effect
    Net
of Tax
 
     (Dollars in thousands)  

Balance at beginning of period

   $ 1,106      $ (427   $ 679      $ (2,565   $ 990      $ (1,575

Unrealized gain (loss) on investment securities available for sale:

            

Net unrealized holdings gain (loss) arising during the period

     1,300        (501     799        19,715        (7,606     12,109   

Amounts reclassified to (gain) loss on investment securities

     (2,279     879        (1,400     (3,837     1,480        (2,357
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 127      $ (49   $ 78      $ 13,313      $ (5,136   $ 8,177   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 9. BASIC AND DILUTED EARNINGS PER SHARE

Basic EPS is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflect the effect of common stock equivalents, including stock options and unvested shares, calculated using the treasury stock method. Common stock equivalents are excluded from the computation of diluted EPS in periods in which the effect is anti-dilutive.

The following table presents the computation of basic and diluted EPS:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015      2014      2015      2014  
     (Dollars in thousands, except share and per share data)  

Net income (loss) available to common stockholders

   $ 19,376       $ 9,166       $ 2,502       $ 12,694   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares - basic

     41,428,588         35,892,154         41,425,240         35,892,154   

Effect of dilutive securities:

           

Employee stock-based compensation awards

     1,677,543         4,053         1,327,574         4,103   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares - diluted

     43,106,131         35,896,207         42,752,814         35,896,257   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings (loss) per share

   $ 0.47       $ 0.26       $ 0.06       $ 0.35   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings (loss) per share

   $ 0.45       $ 0.26       $ 0.06       $ 0.35   
  

 

 

    

 

 

    

 

 

    

 

 

 

Anti-dilutive warrants, stock options and RSUs

     560,704         9,424,582         1,715,989         9,386,102   

 

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NOTE 10. INCOME TAXES

The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates.

The effective tax rates for the three months ended June 30, 2015 and 2014, were 35.0% and 33.9% respectively. The increase in the effective tax rate for the second quarter of 2015 was primarily due to higher levels of pre-tax income, which is subject to the marginal tax rate and changes in permanent tax differences. The tax rate differs from the statutory rate due to the impact of tax benefits related to bank-owned life insurance, dividends received deductions, and certain stock-based compensation awards.

The effective tax rates for the six months ended June 30, 2015 and 2014, were 133.8% and 33.9% respectively. The increase in the effective tax rate for the six months ended June 30, 2015 reflects a net tax benefit due to the loss associated with the early termination of the FDIC loss share agreements and a deferred tax asset benefit associated with a revaluation of net unrealized built-in losses related to the Company’s acquisition of Great Florida Bank on January 31, 2014.

NOTE 11. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS

2009 Option Plan

On February 5, 2014, the Company granted 90,000 stock options from the 2009 Option Plan to directors that vest at a rate of 25% per calendar quarter in 2014. The options have an exercise price of $19.75, the estimated fair value of the Company’s stock on the date of grant and an aggregate fair value of $479 thousand. The options granted to directors expire 10 years from grant date.

On April 29, 2014, the Company granted 150,000 stock options with a three year vesting period from the 2009 Option Plan to employees with a weighted average exercise price of $19.75, the estimated fair value of the Company’s stock on the date of grant, and an aggregate fair value of $890 thousand. The options granted to employees expire 10 years from grant date.

Option grant activities for the periods indicated are summarized as follows:

 

     2009 Option Plan  
     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  
     (Dollars in thousands)  

Outstanding at beginning of period

     4,102,667         3,539,334         4,135,250         3,688,500   

Granted

     —           150,000         —           240,000   

Exercised

     (10,168      —           (36,835      —     

Forfeited

     (17,415      —           (23,331      (14,166

Expired

     (501      (3,334      (501      (228,334
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at end of period

     4,074,583         3,686,000         4,074,583         3,686,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2015, there were no shares available for award from the 2009 Option Plan and total vested and exercisable shares of 3,323,868 were outstanding.

The total unrecognized compensation cost of $3.7 million related to the 2009 Option Plan for share awards outstanding at June 30, 2015 will be recognized over a weighted average remaining period of 2.16 years.

 

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2013 Stock Incentive Plan

For the three months ended June 30, 2015, no awards were granted by the Company from the 2013 Plan. During the six months ended June 30, 2015, the Company granted 129,000 stock options from the 2013 Plan to directors that vest at a rate of 25% per calendar quarter in 2015 and 110,500 stock options to employees that vest at a rate of 33 13% on the first, second and third year anniversaries of the grant date (“Three Year Vesting Period”). The options have a weighted average exercise price of $25.47, based on the fair value of the Company’s stock on the date of grant and an aggregate fair value of $1.8 million. The options granted to directors and employees expire 10 years from grant date.

For the three or six months ended June 30, 2014, no awards were granted by the Company from the 2013 Stock Incentive Plan (“2013 Plan”).

Option grant activities for the periods indicated are summarized as follows:

 

     2013 Option Plan  
     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  
     (Dollars in thousands)  

Outstanding at beginning of period

     2,403,334         2,173,000         2,170,500         2,173,000   

Granted

     —           —           239,500         —     

Exercised

     —           —           (6,666      —     

Forfeited

     (13,334      (2,500      (13,334      (2,500

Expired

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding at end of period

     2,390,000         2,170,500         2,390,000         2,170,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2015, based on the number of stock options outstanding, there were 103,334 shares available for award from the 2013 Plan and total vested and exercisable shares of 749,062.

The total unrecognized compensation cost of $2.6 million related to the 2013 Equity Incentive Plan for share awards outstanding at June 30, 2015 will be recognized over a weighted average remaining period of 1.70 years.

Executive Incentive Awards

During the six months ended June 30, 2015, the Compensation Committee of the Board of Directors of the Company approved executive incentive awards. The Executive Incentive Plan grants cash phantom units (“CPUs”), the value of which is determined by the Company’s common share price at the end of the award period. The Company recognized compensation expense based on the estimated value of the award at grant date.

NOTE 12. COMMITMENTS AND CONTINGENCIES

The Company issues off-balance sheet financial instruments in connection with its lending activities and to meet the financing needs of its customers. These financial instruments include commitments to fund loans and lines of credit as well as commercial and standby letters of credit. These commitments expose the Company to varying degrees of credit and market risk which are essentially the same as extending loans to customers. The Company follows the same credit policies in making commitments as it does for instruments recorded on the Company’s consolidated balance sheet. Collateral is obtained based on management’s assessment of the customer’s credit risk.

The Company’s exposure to credit loss is represented by the contractual amount of commitments. As of June 30, 2015 and December 31, 2014 the Company’s reserve for unfunded commitments totaled $1.5 million and $1.2 million, respectively.

 

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Fees collected on off-balance sheet financial instruments represent the fair value of those commitments and are deferred and amortized over their term, which is typically one year or less. Amounts funded under non-cancelable commitments in effect at the date of acquisition are Covered Assets under the loss-sharing agreements, if applicable and if certain conditions are met.

Financial Instruments Commitments

Unfunded commitments are as follows:

 

     June 30,
2015
     December 31,
2014
 
     (Dollars in thousands)  

Commitments to fund loans

   $ 428,736       $ 351,369   

Unused lines of credit

     251,792         199,880   

Commercial and standby letters of credit

     14,158         10,223   
  

 

 

    

 

 

 

Total

   $ 694,686       $ 561,472   
  

 

 

    

 

 

 

Commitments to fund loans:

Commitments to fund loans are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. To accommodate the financial needs of customers, the Company makes commitments under various terms to lend funds to consumers and businesses. Commitments to fund loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements.

The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral required in connection with a commitment to fund is based on management’s credit evaluation of the counterparty.

Unused lines of credit:

Unfunded commitments under lines of credit include commercial, commercial real estate, home equity and consumer lines of credit to existing customers. Some of these commitments may mature without being fully funded.

Commercial and standby letters of credit:

Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Letters of credit are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments if deemed necessary.

Other Commitments and Contingencies

Legal Proceedings

The Company, from time to time, is involved as plaintiff or defendant in various legal actions arising in the normal course of business. While the ultimate outcome of any such proceedings cannot be predicted with certainty, it is the opinion of management, based upon advice of legal counsel, that no proceedings exist, either individually or in the aggregate, which, if determined adversely to the Company, would have a material effect on the Company’s consolidated balance sheet, results of operations or cash flows.

A bank-owned asset in Miami-Dade County was foreclosed in 2012, and later discovered to have been illegally infilled over protected wetlands by the prior owner. The Bank had been working with Miami-Dade County environmental agencies to address the situation, along with Bank environmental attorneys specializing in this area. The subject property was sold during Q1 2015 to a third party purchaser and the Bank has no further legal liability for the asset.

 

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The SEC is investigating the valuation and accounting treatment by Great Florida Bank (“GFB”), prior to the Great Florida Acquisition by the Company, of an office building acquired by GFB in 2009 and the use of appraisals with respect to such valuation. The Bank is cooperating with the investigation. On the date of acquisition by the Bank, based on the Company’s plans and intended use of the acquired office building, the asset was classified as OREO and recorded at fair value, less estimated selling costs. The fair value of the office building was based on a third party real estate appraisal at the date of acquisition. The Company does not believe that the results of the SEC investigation relating to GFB are likely to have a material adverse effect on the financial condition or results of operations of the Company. The subject property was sold during Q2 2015 to a third party purchaser.

NOTE 13. FAIR VALUE MEASUREMENTS

When determining the fair value measurements for assets and liabilities and the related fair value hierarchy, the Company considers the principal or most advantageous market in which it would transact and the assumptions that market participants would use when pricing the asset or liability (observable inputs). When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. It is the Company’s policy to maximize the use of observable inputs, minimize the use of unobservable inputs, and use unobservable inputs to measure fair value to the extent that observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity, resulting in diminished observability of both actual trades and assumptions that would otherwise be available to value these instruments, or the value of the underlying collateral is not market observable. Although third party price indications may be available for an asset or liability, limited trading activity would make it difficult to support the observability of these quotations.

Financial Instruments Carried at Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis, as well as the general classification of each instrument under the valuation hierarchy.

Investment Securities—Investment securities available for sale are carried at fair value on a recurring basis. When available, fair value is based on quoted prices for the identical security in an active market and as such, would be classified as Level 1. If quoted market prices are not available, fair values are estimated using quoted prices of securities with similar characteristics, discounted cash flows or matrix pricing models. Investment securities available for sale for which Level 1 valuations are not available are classified as Level 2, and include U.S. Government agencies and sponsored enterprises debt obligations and agency mortgage-backed securities; state and municipal obligations; asset-backed securities; and corporate debt and other securities. Pricing of these securities is generally spread driven.

Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayme