FCB FINANCIAL HOLDINGS, INC. - FORM 10-Q

FCB FINANCIAL HOLDINGS, INC. - FORM 10-Q - August 7, 2015

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EX-32.1 - EX-32.1 - FCB FINANCIAL HOLDINGS, INC.	d944070dex321.htm
EX-31.2 - EX-31.2 - FCB FINANCIAL HOLDINGS, INC.	d944070dex312.htm
EX-32.2 - EX-32.2 - FCB FINANCIAL HOLDINGS, INC.	d944070dex322.htm
EX-31.1 - EX-31.1 - FCB FINANCIAL HOLDINGS, INC.	d944070dex311.htm

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

¨	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):

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.

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

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

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

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

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			Additional Paid in Capital			Retained Earnings (Deficit)		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity

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

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

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.

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.

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	Amortized Cost		Gains		Losses		Fair Value
	(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	Amortized Cost		Gains		Losses		Fair Value
	(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.

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

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.

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.

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.

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


	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.

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


	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.

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.

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


	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

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


	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	$	—	$	—	$	—	$	—	$	—


	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	$	—	$	—	$	—	$	—


	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

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.

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.

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


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.

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

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.

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 33¹⁄₃% 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.

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.

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 prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities.

Interest Rate Deri

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company