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EX-31.2 - EX-31.2 - Green Bancorp, Inc.gnbc-20160331ex3127f5d9d.htm
EX-32.1 - EX-32.1 - Green Bancorp, Inc.gnbc-20160331ex32173113e.htm
EX-32.2 - EX-32.2 - Green Bancorp, Inc.gnbc-20160331ex322478723.htm

N

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

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

For the quarterly period ended March 31, 2016

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: 001-36580


Green Bancorp, Inc.

(Exact name of registrant as specified in its charter)


 

 

TEXAS

(State or other jurisdiction of incorporation or organization)

42-1631980

(I.R.S. Employer Identification No.)

 

4000 Greenbriar

Houston, Texas 77098

(Address of principal executive offices, including zip code)

(713) 275 - 8220

(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. Yes  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No

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

Large accelerated filer      

 

Accelerated filer                        

 

 

 

Non-accelerated filer        

(Do not check if a smaller reporting company)

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  No

 

As of May 12, 2016, there were 36,610,464 outstanding shares of the registrant’s Common Stock, par value $0.01 per share.

 

 

 


 

 

 

GREEN BANCORP, INC. AND SUBSIDIARY

INDEX TO FORM 10-Q

   

 

 

 

Special Cautionary Notice Regarding Forward-Looking Statements 

3

PART I—FINANCIAL INFORMATION 

 

Item 1. 

Interim Condensed Consolidated Financial Statements

5

 

Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 (Unaudited)

5

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015 (Unaudited)

6

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (Unaudited)

7

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2016 and 2015 (Unaudited)

8

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (Unaudited)

9

 

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

10

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

56

Item 4. 

Controls and Procedures

56

PART II—OTHER INFORMATION 

 

Item 1. 

Legal Proceedings

57

Item 1A. 

Risk Factors

57

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3. 

Defaults upon Senior Securities

57

Item 4. 

Mine Safety Disclosures

57

Item 5. 

Other Information

57

Item 6. 

Exhibits

58

Signatures 

59

 

 

 

2


 

Special Cautionary Notice Regarding Forward-Looking Statements

Statements and financial discussion and analysis contained in this quarterly report on Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on various facts and derived utilizing numerous important assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:

·

risks related to the concentration of our business within our geographic areas of operation in Texas, including risks associated with downturns in the energy, technology and real estate sectors within these areas;

·

risks related to our energy reserve exposure and energy related service industry exposure of our total funded loans and the decline in oil prices;

·

our ability to execute on our growth strategy, including through the identification of acquisition candidates that will be accretive to our financial condition and results of operation;

·

risks related to the integration of any acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions;

·

our ability to comply with various governmental and regulatory requirements applicable to financial institutions;

·

market conditions and economic trends nationally, regionally and in our target markets, particularly in Texas and the geographic areas in which we operate;

·

our ability to attract and retain successful bankers that meet our expectations in terms of customer relationships and profitability;

·

risks related to our strategic focus on lending to small to medium-sized businesses;

·

risks associated with our commercial and industrial loan portfolio, including the risk for deterioration in value of the general business assets that generally secure such loans;

·

potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;

·

the sufficiency of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;

·

risks related to our concentration of loans to a limited number of borrowers and in a limited geographic area;

·

our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy, operations or to meet increased minimum regulatory capital levels;

·

changes in market interest rates that affect the pricing of our loans and deposits and our net interest income;

·

accounting estimates and risk management processes that rely on analytical and forecasting models;

·

our ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting;

·

the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

·

potential fluctuations in the market value and liquidity of the securities we hold for sale;

·

loss of our executive officers or other key employees could impair our relationship with our customers and adversely affect our business;

·

potential impairment on the goodwill we may record in connection with business acquisitions;

·

risks associated with system failures or failures to prevent breaches of our network security;

·

a failure in or breach of operational or security systems of the Company’s infrastructure, or those of its third-party vendors and other service providers, including as a result of cyber attacks;

3


 

·

our ability to keep pace with technological change or difficulties when implementing new technologies;

·

risks associated with data processing system failures and errors;

·

risks associated with fraudulent and negligent acts by our customers, employees or vendors;

·

the institution and outcome of litigation and other legal proceeding against us or to which we become subject;

·

our new lines of business or new products and services may subject us to additional risks;

·

legal and regulatory proceedings could adversely affect our business, financial condition, and results of operation;

·

we are subject to claims and litigation pertaining to intellectual property from time to time;

·

we could experience claims and litigation pertaining to fiduciary responsibility;

·

the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, such as the Dodd-Frank Act;

·

governmental monetary and fiscal policies, including the policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

·

the failure of the Company’s enterprise risk management framework to identify or address risks adequately;

·

our ability to comply with supervisory actions by federal banking agencies;

·

many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth;

·

financial institutions, such as the Bank, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti‑money laundering statutes and regulations;

·

substantial regulatory limitations on changes of control of bank holding companies;

·

changes in the scope and cost of Federal Deposit Insurance Corporation (the “FDIC”) insurance and other coverages;

·

systemic risks associated with the soundness of other financial institutions;

·

acts of terrorism, an outbreak of hostilities or other international or domestic calamities, weather or other acts of God and other matters beyond the Company’s control; and

·

other risks and uncertainties listed from time to time in the Company’s reports and documents filed with the Securities and Exchange Commission (the “SEC”).

Other factors not identified above, including those described in our Annual Report on Form 10-K for year ended December 31, 2015 under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and those described in the definitive joint proxy statement/prospectus on Form S-4 (Registration No. 333-205495) filed by the Company on August 10, 2015 may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

 

 

 

4


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2016

 

2015

 

 

 

 

 

 

 

ASSETS

 

 

   

 

 

   

Cash and due from banks

    

$

22,614

    

$

15,915

Fed funds sold

 

 

1,207

 

 

1,304

Interest bearing deposits in financial institutions

 

 

147,600

 

 

107,687

Total cash and cash equivalents

 

 

171,421

 

 

124,906

 

 

 

 

 

 

 

Available-for-sale securities, at fair value

 

 

262,816

 

 

276,021

Held-to-maturity securities, at amortized cost (fair value of $40,095 and $41,996, respectively)

 

 

40,022

 

 

42,130

Investment in Patriot Bancshares Capital Trusts I and II

 

 

666

 

 

666

Federal Reserve Bank stock

 

 

10,926

 

 

7,207

Federal Home Loan Bank of Dallas stock

 

 

13,152

 

 

13,113

Total securities and other investments

 

 

327,582

 

 

339,137

 

 

 

 

 

 

 

Loans held for sale

 

 

 -

 

 

384

Loans held for investment

 

 

3,168,183

 

 

3,130,669

Allowance for loan losses

 

 

(39,714)

 

 

(32,947)

Loans, net

 

 

3,128,469

 

 

3,098,106

 

 

 

 

 

 

 

Premises and equipment, net

 

 

27,252

 

 

27,736

Goodwill

 

 

85,291

 

 

85,291

Core deposit intangibles, net of accumulated amortization

 

 

11,160

 

 

11,562

Accrued interest receivable

 

 

8,483

 

 

7,768

Deferred tax asset, net

 

 

21,665

 

 

19,510

Real estate acquired by foreclosure

 

 

9,230

 

 

12,122

Bank owned life insurance

 

 

33,683

 

 

33,452

Other assets

 

 

25,173

 

 

26,567

TOTAL ASSETS

 

$

3,849,409

 

$

3,786,157

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

592,690

 

$

643,354

Interest-bearing transaction and savings

 

 

1,069,931

 

 

1,104,630

Certificates and other time deposits

 

 

1,394,398

 

 

1,352,764

Total deposits

 

 

3,057,019

 

 

3,100,748

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

 

3,544

 

 

3,073

Other borrowed funds

 

 

328,968

 

 

223,265

Subordinated debentures

 

 

13,292

 

 

13,187

Accrued interest payable

 

 

1,997

 

 

1,870

Other liabilities

 

 

13,679

 

 

14,612

Total liabilities

 

 

3,418,499

 

 

3,356,755

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding

 

 

 -

 

 

 -

Common stock, $0.01 par value, 90,000,000 shares authorized; 36,788,464 shares issued at both March 31, 2016 and December 31, 2015; 36,610,464 and 36,788,464 shares outstanding at March 31, 2016 and December 31, 2015, respectively

 

 

368

 

 

368

Capital surplus

 

 

378,845

 

 

378,518

Retained earnings

 

 

51,938

 

 

50,099

Accumulated other comprehensive income, net

 

 

1,012

 

 

417

Less treasury stock, at cost, 178,000 shares

 

 

(1,253)

 

 

 -

Total shareholders’ equity

 

 

430,910

 

 

429,402

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

3,849,409

 

$

3,786,157

 

See notes to interim condensed consolidated financial statements.

5


 

 

GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

2015

 

 

 

 

 

 

 

INTEREST INCOME:

 

 

   

 

 

   

Loans, including fees

    

$

37,345

    

$

21,659

Securities

 

 

1,081

 

 

878

Other investments

 

 

173

 

 

110

Federal funds sold

 

 

1

 

 

 -

Deposits in financial institutions

 

 

124

 

 

55

Total interest income

 

 

38,724

 

 

22,702

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

Transaction and savings deposits

 

 

1,150

 

 

682

Certificates and other time deposits

 

 

2,763

 

 

1,474

Subordinated debentures

 

 

237

 

 

 -

Other borrowed funds

 

 

346

 

 

30

Total interest expense

 

 

4,496

 

 

2,186

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

34,228

 

 

20,516

PROVISION FOR LOAN LOSSES

 

 

16,000

 

 

1,505

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

18,228

 

 

19,011

 

 

 

 

 

 

 

NONINTEREST INCOME:

 

 

 

 

 

 

Customer service fees

 

 

1,404

 

 

863

Loan fees

 

 

699

 

 

371

Gain on sale of held-for-sale loans, net

 

 

41

 

 

75

Gain on sale of guaranteed portion of loans, net

 

 

1,138

 

 

645

Other

 

 

873

 

 

131

Total noninterest income

 

 

4,155

 

 

2,085

 

 

 

 

 

 

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

Salaries and employee benefits

 

 

11,979

 

 

8,757

Occupancy

 

 

2,030

 

 

1,460

Professional and regulatory fees

 

 

1,922

 

 

1,467

Data processing

 

 

970

 

 

644

Software license and maintenance

 

 

476

 

 

362

Marketing

 

 

298

 

 

148

Loan related

 

 

243

 

 

109

Real estate acquired by foreclosure, net

 

 

300

 

 

13

Other

 

 

1,269

 

 

796

Total noninterest expense

 

 

19,487

 

 

13,756

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

2,896

 

 

7,340

PROVISION FOR INCOME TAXES

 

 

1,057

 

 

2,691

NET INCOME

 

$

1,839

 

$

4,649

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.18

Diluted

 

$

0.05

 

$

0.18

 

See notes to interim condensed consolidated financial statements.

 

6


 

GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

2015

 

 

 

 

 

 

 

NET INCOME

    

$

1,839

    

$

4,649

OTHER COMPREHENSIVE INCOME, BEFORE TAX:

 

 

 

 

 

 

Change in unrealized gain on securities available-for-sale

 

 

595

 

 

746

Total other comprehensive income before tax

 

 

595

 

 

746

 

 

 

 

 

 

 

DEFERRED TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME

 

 

208

 

 

261

OTHER COMPREHENSIVE INCOME, NET OF TAX

 

 

387

 

 

485

COMPREHENSIVE INCOME

 

$

2,226

 

$

5,134

 

See notes to interim condensed consolidated financial statements.

 

 

7


 

GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Capital

 

Retained

 

Accumulated
Other
Comprehensive

 

Treasury

 

 

 

 

    

Shares

    

Amount

    

Surplus

    

Earnings

 

Income (Loss)

 

Stock

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — January 1, 2015

    

26,176

 

$

262

 

$

252,421

 

$

34,660

 

$

1,062

 

$

 -

 

$

288,405

Net income

 

 -

 

 

 -

 

 

 -

 

 

4,649

 

 

 -

 

 

 -

 

 

4,649

Net change in unrealized gains and losses on available-for-sale securities, net of taxes of $261 and reclassification adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

485

 

 

 -

 

 

485

Issuance of common stock in connection with exercise of stock options

 

 -

 

 

 -

 

 

2

 

 

 -

 

 

 -

 

 

 -

 

 

2

Stock-based compensation expense

 

 -

 

 

 -

 

 

229

 

 

 -

 

 

 -

 

 

 -

 

 

229

BALANCE — March 31, 2015

 

26,176

 

$

262

 

$

252,652

 

$

39,309

 

$

1,547

 

$

 -

 

$

293,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — January 1, 2016

 

36,788

 

$

368

 

$

378,518

 

$

50,099

 

$

417

 

$

 -

 

$

429,402

Net income

 

 -

 

 

 -

 

 

 -

 

 

1,839

 

 

 -

 

 

 -

 

 

1,839

Net change in unrealized gains and losses on available-for-sale securities, net of taxes of $208 and reclassification adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

595

 

 

 -

 

 

595

Purchase of treasury stock

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,253)

 

 

(1,253)

Stock-based compensation expense

 

 -

 

 

 -

 

 

327

 

 

 -

 

 

 -

 

 

 -

 

 

327

BALANCE — March 31, 2016

 

36,788

 

$

368

 

$

378,845

 

$

51,938

 

$

1,012

 

$

(1,253)

 

$

430,910

 

See notes to interim condensed consolidated financial statements.

 

 

 

8


 

GREEN BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

   

 

 

 

Net income

    

$

1,839

    

$

4,649

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

 

 

 

 

 

 

Amortization and accretion of premiums and discounts on securities, net

 

 

209

 

 

270

Accretion of loan discounts, net

 

 

(2,546)

 

 

(713)

Amortization of deposit premiums

 

 

(1,092)

 

 

(241)

Amortization of core deposit intangibles

 

 

402

 

 

148

Accretion of borrowing valuation allowance

 

 

66

 

 

(6)

Provision for loan losses

 

 

16,000

 

 

1,505

Depreciation

 

 

641

 

 

426

Net loss (gain) on sale of real estate acquired by foreclosure

 

 

54

 

 

 -

Net gain on sale of mortgage loans held-for-sale

 

 

(41)

 

 

(75)

Net gain on sale of guaranteed portion of loans

 

 

(1,138)

 

 

(645)

Originations of loans held-for-sale

 

 

(1,094)

 

 

(3,251)

Proceeds from sales of and principal collected on loans held-for-sale

 

 

1,519

 

 

2,960

Stock-based compensation expense

 

 

305

 

 

121

Deferred tax benefit

 

 

(2,475)

 

 

 -

Increase in accrued interest receivable and other assets, net

 

 

448

 

 

1,371

Increase in accrued interest payable and other liabilities, net

 

 

(784)

 

 

(3,009)

Net cash provided by operating activities

 

 

12,313

 

 

3,510

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from the maturities or calls and paydowns of available-for-sale securities

 

 

13,931

 

 

11,042

Purchases of available-for-sale securities

 

 

 -

 

 

(2,976)

Proceeds from the maturities or calls and paydowns of held-to-maturity securities

 

 

2,088

 

 

2,653

Proceeds from sales of guaranteed portion of loans

 

 

12,644

 

 

7,099

Proceeds from sales of real estate acquired by foreclosure

 

 

3,258

 

 

 -

Purchases of Federal Home Loan Bank of Dallas stock, net of redemptions

 

 

(39)

 

 

1,378

Purchases of Federal Reserve Bank stock

 

 

(3,719)

 

 

(13)

Net increase in loans held for investment

 

 

(56,127)

 

 

(16,996)

Investment in construction of premises and purchases of other fixed assets

 

 

(157)

 

 

(43)

Net cash (used in) provided by investing activities

 

 

(28,121)

 

 

2,144

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase in deposit accounts

 

 

(42,637)

 

 

86,379

Net increase in securities sold under agreements to repurchase

 

 

471

 

 

8,407

Net proceeds of other short-term borrowed funds

 

 

121,000

 

 

(257)

Repayment of other long-term borrowed funds

 

 

(15,258)

 

 

(40,000)

Proceeds from issuance of common stock due to exercise of stock options

 

 

 -

 

 

2

Purchase of treasury stock

 

 

(1,253)

 

 

 -

Net cash provided by financing activities

 

 

62,323

 

 

54,531

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

$

46,515

 

$

60,185

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of period

 

 

124,906

 

 

68,923

End of period

 

$

171,421

 

$

129,108

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

Interest paid

 

$

4,304

 

$

2,222

Income taxes paid

 

$

500

 

$

 -

Noncash investing and financing activities - acquisition of real estate through foreclosure of collateral

 

$

420

 

$

 -

 

 

 

See notes to interim condensed consolidated financial statements.

 

 

9


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

1. BASIS OF PRESENTATION

The interim condensed consolidated financial statements include the accounts of Green Bancorp, Inc. (“Green Bancorp”), together with Green Bank, N.A., its subsidiary bank, (the “Company”).  All intercompany transactions and balances have been eliminated. 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information.  In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are of a normal recurring nature.  These financial statements and the accompanying notes should be read in conjunction with the financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other period. 

Organization—Green Bancorp is a Texas corporation that was incorporated on October 20, 2004. In 2006 Green Bancorp entered into an agreement and plan of merger with Redstone Bank, National Association (“Redstone Bank”), a national banking association located in Houston, Texas, for the purpose of acquiring all of the issued and outstanding stock of Redstone Bank. The acquisition was completed on December 31, 2006, and Green Bancorp became a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

Green Bank, N.A. (the “Bank”) is a national banking association, which was chartered under the laws of the United States of America as a national bank on February 17, 1999, as Redstone Bank. On September 14, 2007, the name was changed to Green Bank, N.A. The Bank provides commercial and consumer banking services in the greater Houston and Dallas metropolitan areas.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of available-for-sale securities, acquired assets and liabilities, goodwill, and fair value of financial instruments.

2. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period.

Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares.

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

The following table illustrates the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended  March 31,

 

 

2016

 

2015

 

 

Amount

 

Per
Share
Amount

 

Amount

 

Per
Share
Amount

 

 

(Amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

   

$

1,839

   

 

 

   

$

4,649

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

36,706

 

$

0.05

 

 

26,176

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Add incremental shares for:

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities - options

 

 

3

 

 

 

 

 

183

 

 

 

Total

 

 

36,709

 

$

0.05

 

 

26,359

 

$

0.18

 

 

The following table described the Company’s share repurchase activities for the three months ended March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased

 

Average Price Paid per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Program

 

Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs(1)

 

 

 

 

 

 

 

 

 

 

 

January 1 - January 31, 2016

 

 -

 

$

 -

 

 -

 

$

15,000,000

February 1 - February 29, 2016

 

178,000

 

 

7.04

 

178,000

 

 

13,746,730

March 1 - March 31,  2016

 

 -

 

 

 -

 

 -

 

 

13,746,730

Total

 

178,000

 

$

7.04

 

178,000

 

 

 

(1)

On April 30, 2015, the Company announced the Board of Directors approved a stock repurchase program under which it authorized the Company to repurchase, in the aggregate, up to $15.0 million of the Company’s outstanding common stock.  The repurchase program remains in place, but may be limited or terminated at any time without prior notice.  Under the authorized stock repurchase agreement, the Company could repurchase shares in open-market purchases or through privately negotiated transactions as permitted under Rule 10b-18 promulgated under the Exchange Act.  As of March 31, 2016, the Company had repurchased an aggregate of $1.3 million of the Company’s outstanding common stock under this program at an average price of $7.04 per share.  From February 2, 2016 through February 29, 2016, the Company made several repurchases under the program at an average price of $7.04 per share.

 

 

 

 

3. RECENT ACCOUNTING STANDARDS

Accounting Standards Updates (“ASU”)

FASB ASU No. 2015-01 — “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 was effective for the Company on January 1, 2016 and did not have a significant impact on the Company’s financial statements.

FASB ASU No. 2015-02 — “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

reevaluation under the revised consolidation model. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) Eliminate the presumption that a general partner should consolidate a limited partnership, (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2A-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 was effective for the Company on January 1, 2016 and did not have a significant impact on the Company’s financial statements.

FASB ASU No. 2015-03Interest – Imputation of Interest (Subtopic 835-30)Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for the Company beginning January 1, 2017. ASU 2015-03 is not expected to have a significant impact on the Company’s financial statements.

FASB ASU No. 2015-05Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 provides a basis for evaluating whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, then the arrangement should be accounted for as a service contract. ASU 2015-05 was effective for the Company on January 1, 2016 and did not have a significant impact on the Company’s financial statements.

FASB ASU No. 2015-14“Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” In August 2015, the FASB issued ASU 2015-14, which defers the effective date of the previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) until the interim and annual reporting periods beginning after December 15, 2017. Earlier application is permitted for interim and annual reporting periods beginning after December 15, 2016. In May 2014, the FASB issued ASU 2014-09 that supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and most industry-specific guidance throughout the Industry Topics of the Codification.  Additionally ASU 2014-09 supersedes some cost guidance included in Revenue Recognition—Construction-Type and Production-Type Contracts (Subtopic 605-35).  In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement.  The core principal of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The adoption of ASU 2014-09 becomes effective for the Company beginning after January 1, 2018, with retrospective application to each prior reporting period presented.  The Company is currently evaluating the requirements of ASU 2014-09, but it is not expected to have a significant impact on the Company’s financial statements.

FASB ASU No. 2015-15 — “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.”  In August 2015, the FASB issued ASU 2015-15 that adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015, Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 did not have a material impact on the Company’s financial statements.

 

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

FASB ASU No. 2015-16 — “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer must record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Additionally, the entity is required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 was effective for the Company on January 1, 2016 and did not have a significant impact on the Company’s financial statements.

 

FASB ASU No. 2015-17 — “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” In November 2015, the FASB issued ASU 2015-17, as part of its simplification initiative. The ASU requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for all entities. The adoption of the provisions of ASU 2015-17 upon issuance did not have a material impact on the Company’s financial statements.

 

FASB ASU No. 2016-01 — “Financial Instruments─Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (v) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update affect all entities that hold financial assets or owe financial liabilities. ASU 2016-01 is effective for the Company beginning January 1, 2018, and is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU No. 2016-02 — “Leases (Topic 842).” In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 to supersede nearly all existing lease guidance under GAAP. The guidance would requires a lessee to record a right-to-use asset and liability representing the obligation to make lease payments for long-term leases. ASU 2016-02 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and must be adopted using a modified retrospective approach. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.

 

FASB ASU No. 2016-09  “Compensation - Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. This ASU covers accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 will be effective for the Company as of January 1, 2017. The Company is currently evaluating the potential impact of ASU 2016-09 on the Company’s financial statements.

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

4. ACQUISITIONS

 

Acquisitions are an integral part of the Company’s growth strategy. All acquisitions were accounted for using the acquisition method of accounting. Accordingly, the assets and liabilities of the acquired entities were recorded at their fair values at the acquisition date. The excess of the purchase price over the estimated fair value of the net assets for tax-free acquisitions is recorded as goodwill, none of which is deductible for tax purposes. The excess of the purchase price over the estimated fair value of the net assets for taxable acquisitions was recorded as goodwill, and is deductible for tax purposes. The identified core deposit intangibles for each acquisition are being amortized using an accelerated basis over an estimated life of six to nineteen years. The results of operations for each acquisition have been included in the Company’s consolidated financial results beginning on the respective acquisition date.

 

The measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of (1) twelve months from the date of the acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. The Company is currently in the process of finalizing fair values for certain acquired assets and assumed liabilities and therefore the following estimates for the Patriot acquisition are preliminary.

 

Patriot Bancshares, Inc. - On October 1, 2015, the Company completed the merger of Patriot with and into the Company and the merger of Patriot’s wholly-owned subsidiary, Patriot Bank, with and into the Bank.  Patriot, headquartered in Houston, TX, operated six locations in Houston, two in Dallas and one in Fannin County, Texas.  As of September 30, 2015, Patriot, on a consolidated basis, reported total assets of $1.4 billion, total loans of $1.1 billion, total deposits of $1.1 billion and total shareholders’ equity of $125.2 million.

 

Under the terms of the merger agreement, we issued 10.4 million shares of the Company’s common stock, with a total fair value of $123.7 million based on the closing price on October 1, 2015 of $11.85 per share, for all outstanding shares of Patriot common stock, including the converted Series D and Series F preferred stock.  In addition, Patriot’s $27.3 million Series B and Series C preferred stock were redeemed in connection with the closing.  Consistent with the Company’s strategy, the primary reasons for the Patriot acquisition were to enhance market share in Houston and Dallas, and improve profitability through cost savings and revenue synergies.

 

In connection with the merger, we recognized $55.2 million of goodwill, $8.3 million of core deposit intangibles, and $7.3 million in net deferred tax assets as of March 31, 2016.  These loans and deferred tax asset balances do not include subsequent fair value adjustments that are still being finalized.  None of the goodwill recognized is expected to be deductible for income tax purposes

5. CASH AND CASH EQUIVALENTS

The Bank, as a correspondent of the Federal Reserve Bank, is required to maintain average reserve balances.  Total cash and cash equivalents include restricted amounts of $60.5 million and $70.0 million at March 31, 2016 and December 31, 2015, respectively, as a result of this requirement.

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

6. SECURITIES

The amortized cost and fair value of securities as of the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of the U.S. Treasury and other U.S. government agencies or sponsored enterprises

    

$

85,008

 

$

49

 

$

(1)

 

$

85,056

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

122,999

 

 

1,629

 

 

(15)

 

 

124,613

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

49,226

 

 

42

 

 

(161)

 

 

49,107

Corporate debt securities

 

 

3,790

 

 

4

 

 

 -

 

 

3,794

Obligations of municipal subdivisions

 

 

236

 

 

10

 

 

 -

 

 

246

Total

 

$

261,259

 

$

1,734

 

$

(177)

 

$

262,816

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

$

14,350

 

$

314

 

$

(64)

 

$

14,600

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

25,672

 

 

58

 

 

(235)

 

 

25,495

Total

 

$

40,022

 

$

372

 

$

(299)

 

$

40,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of the U.S. Treasury and other U.S. government agencies or sponsored enterprises

    

$

90,032

    

$

3

    

$

(85)

    

$

89,950

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

 

129,752

 

 

1,137

 

 

(184)

 

 

130,705

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

51,569

 

 

74

 

 

(314)

 

 

51,329

Corporate debt securities

 

 

3,790

 

 

4

 

 

(1)

 

 

3,793

Obligations of municipal subdivisions

 

 

236

 

 

8

 

 

 -

 

 

244

Total

 

$

275,379

 

$

1,226

 

$

(584)

 

$

276,021

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities issued by U.S. government agencies or sponsored enterprises

 

$

15,002

 

$

320

 

$

(143)

 

$

15,179

Collateralized mortgage obligations issued by U.S. government agencies or sponsored enterprises

 

 

27,128

 

 

54

 

 

(365)

 

 

26,817

Total

 

$

42,130

 

$

374

 

$

(508)

 

$

41,996

 

15


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Expected maturities of securities will differ from contractual maturities because the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The following table sets forth, as of the date indicated, contractual maturities of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Available-for-sale

 

Held-to-maturity

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

    

$

72,020

    

$

72,039

    

$

 -

    

$

 -

Due after one year through five years

 

 

16,778

 

 

16,811

 

 

 -

 

 

 -

Due after five years through ten years

 

 

236

 

 

246

 

 

 -

 

 

 -

 

 

 

89,034

 

 

89,096

 

 

 -