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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

 

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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

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities and collateralized mortgage obligations

 

 

172,225

 

 

173,720

 

 

40,022

 

 

40,095

Total

 

$

261,259

 

$

262,816

 

$

40,022

 

$

40,095

There were no sales of securities during the three months ended March 31, 2016 or 2015.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under FASB ASC 320, Investments—Debt and Equity Securities.

In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the other-than-temporary impairment recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

As of March 31, 2016, the Company does not intend to sell any debt securities classified as held-to-maturity and management believes that the Company more likely than not will not be required to sell any debt securities that are in a loss position before their anticipated recovery, at which time the Company will receive full value for the securities. Furthermore, as of March 31, 2016, management does not have the intent to sell any of its securities classified as available-for-sale that are in a loss position and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2016, management believes any impairment in the Company’s securities is temporary and no impairment loss has been realized in the Company’s consolidated statements of income.

Declines in the fair value of individual securities below their cost that are other-than-temporary would result in writedowns, as a realized loss, to their fair value. In evaluating other-than-temporary impairment losses, management considers several factors including the severity and the duration that the fair value has been less than cost, the credit quality of the issuer, and whether it is more likely than not that the Company will be required to sell the security before a recovery in value. The Company has not realized any losses due to other-than-temporary impairment of securities as of March 31, 2016.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Securities with unrealized losses segregated by length of continuous unrealized loss position as of the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Less than 12 Months

 

12 Months or More

 

 

Amortized Cost

 

Gross Unrealized Losses

 

Fair Value

 

Amortized Cost

 

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

    

$

50,007

  

$

(1)

  

$

50,006

  

$

 -

    

$

 -

    

$

 -

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

 

 

4,689

 

 

(15)

 

 

4,674

 

 

 -

 

 

 -

 

 

 -

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

 

 

38,673

 

 

(161)

 

 

38,512

 

 

 -

 

 

 -

 

 

 -

Corporate debt securities

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

Total

 

$

93,369

 

$

(177)

 

$

93,192

 

$

 -

 

$

 -

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 -

 

$

 -

 

$

 -

 

$

3,744

 

$

(64)

 

$

3,680

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

 

 

9,688

 

 

(32)

 

 

9,656

 

 

8,843

 

 

(203)

 

 

8,640

Total

 

$

9,688

 

$

(32)

 

$

9,656

 

$

12,587

 

$

(267)

 

$

12,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Less than 12 Months

 

12 Months or More

 

 

Amortized Cost

 

Gross Unrealized Losses

 

Fair Value

 

Amortized Cost

 

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

    

$

85,028

    

$

(85)

    

$

84,943

    

$

 -

    

$

 -

    

$

 -

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

 

 

48,830

 

 

(184)

 

 

48,646

 

 

 -

 

 

 -

 

 

 -

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

 

 

33,299

 

 

(314)

 

 

32,985

 

 

 -

 

 

 -

 

 

 -

Corporate debt securities

 

 

2,009

 

 

(1)

 

 

2,008

 

 

 -

 

 

 -

 

 

 -

Total

 

$

169,166

 

$

(584)

 

$

168,582

 

$

 -

 

$

 -

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

3,220

 

$

(48)

 

$

3,172

 

$

2,571

 

$

(95)

 

$

2,476

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

 

 

9,945

 

 

(73)

 

 

9,872

 

 

12,871

 

 

(292)

 

 

12,579

Total

 

$

13,165

 

$

(121)

 

$

13,044

 

$

15,442

 

$

(387)

 

$

15,055

The average loss on securities in an unrealized loss position was 0.41% and 0.55% of the amortized cost basis at March 31, 2016 and December 31, 2015, respectively. There were six securities in an unrealized loss position of greater than 12 months at both March 31, 2016 and December 31, 2015.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

The Company did not own securities of any one issuer (other than the U.S. government and its agencies or sponsored enterprises) for which the aggregate adjusted cost exceeds 10% of the consolidated shareholders’ equity at March 31, 2016 or December 31, 2015.

Securities with an amortized cost of $14.2 million and $14.9 million and fair value of $14.3 million and $15.0 million were pledged and available to be sold under repurchase agreements at March 31, 2016 and December 31, 2015, respectively. Securities with an amortized cost of $106.6 million and $97.3 million and fair value of $106.6 million and $97.1 million were pledged to various Federal Reserve Districts related to deposits of bankruptcy trustees at March 31, 2016 and December 31, 2015, respectively. Securities with an amortization cost and fair value of $2.0 million and $2.2 million at March 31, 2016 and December 31, 2015, respectively, were pledged to collateralize public deposits.  In addition, securities with an amortized cost of $2.6 million and $2.8 million and fair value of $2.7 million and $2.9 million were pledged as collateral for the Company’s derivative instruments at March 31, 2016 and December 31, 2015, respectively.

7. LOANS

The loan portfolio classified by type and class as of the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

Originated

    

Acquired

    

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

847,538

 

$

283,172

 

$

1,130,710

Real estate:

 

 

 

 

 

 

 

 

 

Owner occupied commercial real estate

 

 

205,050

 

 

162,457

 

 

367,507

Commercial real estate

 

 

636,539

 

 

383,860

 

 

1,020,399

Construction, land & land development

 

 

252,642

 

 

103,565

 

 

356,207

Residential mortgage

 

 

123,941

 

 

156,295

 

 

280,236

Consumer and other

 

 

9,838

 

 

3,286

 

 

13,124

Total loans held for investment

 

$

2,075,548

 

$

1,092,635

 

$

3,168,183

 

 

 

 

 

 

 

 

 

 

Total loans held for sale

 

$

 -

 

$

 -

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Originated

 

 

Acquired

 

 

Total

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

850,048

 

$

356,404

 

$

1,206,452

Real estate:

 

 

 

 

 

 

 

 

 

Owner occupied commercial real estate

 

 

188,908

 

 

164,981

 

 

353,889

Commercial real estate

 

 

521,887

 

 

382,228

 

 

904,115

Construction, land & land development

 

 

242,611

 

 

116,202

 

 

358,813

Residential mortgage

 

 

120,260

 

 

173,223

 

 

293,483

Consumer and other

 

 

9,843

 

 

4,074

 

 

13,917

Total loans held for investment

 

$

1,933,557

 

$

1,197,112

 

$

3,130,669

 

 

 

 

 

 

 

 

 

 

Total loans held for sale

 

$

384

 

$

 -

 

$

384

The loan portfolio is comprised of three types, commercial and industrial loans, real estate loans and consumer and other loans. The real estate loans are further segregated into owner occupied commercial real estate, commercial real estate, which includes multi-family loans, construction, land and land development, which includes both commercial construction and loans for the construction of residential properties and residential mortgage, which includes first and second liens and home equity lines.  Consumer and other loans includes various types of loans to consumers and overdrafts.  Loans are further separated between loans originated by the Company and loans acquired.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Included in the loans held for investment balance was $18.3 million and $19.8 million of net deferred loan origination fees and unamortized premium and discount at March 31, 2016 and December 31, 2015, respectively. Also included in loans at both March 31, 2016 and December 31, 2015 was $13.4 million in non-accretable discount on acquired credit impaired loans. Accrued interest receivable on loans was $7.8 million and $7.3 million at March 31, 2016 and December 31, 2015, respectively. Consumer and other loans include overdrafts of $56 thousand and $560 thousand as of March 31, 2016 and December 31, 2015, respectively.

The loan portfolio consists of various types of loans made principally to borrowers located in the Houston and Dallas metropolitan areas. Although the portfolio is diversified and generally secured by various types of collateral, a substantial portion of its debtors’ ability to honor their obligations is dependent on local economic conditions. The risks created by this geographic concentration and our exposure to energy related borrowers have been considered by management in the determination of the adequacy of the allowance for loan losses. 

Reserved-based energy loans outstanding represented approximately 3.5% and 4.2% of total funded loans as of March 31, 2016 and December 31, 2015, respectively.  Energy related service industry loans represented approximately 5.3% and 5.2% of total funded loans as of March 31, 2016 and December 31, 2015, respectively.  As of March 31, 2016, $41.4 million of reserved-based energy loans and $766 thousand of energy related service industry loans were impaired.  Management believes the allowance for loan losses is appropriate to cover estimated losses on loans at each balance sheet date.

Most of the Company’s activities are with customers located within the Texas cities of Houston, Dallas, Honey Grove, Austin and their respective surrounding areas.  Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in the Houston and Dallas MSA’s.  The Company does not have any significant concentration to any one industry or customer. As of March 31, 2016 and December 31, 2015, there were no concentrations of loans related to any single industry in excess of 10% of total loans.

Loan maturities and rate sensitivity of the loans held for investment, as of the date indicated, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Due in
One Year
or Less

 

Due After
One Year
Through
Five Years

 

Due After
Five Years

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

    

$

436,154

 

$

630,935

 

$

63,621

    

$

1,130,710

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 Owner occupied commercial real estate

 

 

19,420

 

 

194,902

 

 

153,185

 

 

367,507

 Commercial real estate

 

 

53,435

 

 

780,939

 

 

186,025

 

 

1,020,399

 Construction, land & land development

 

 

122,512

 

 

156,712

 

 

76,983

 

 

356,207

 Residential mortgage

 

 

19,752

 

 

68,554

 

 

191,930

 

 

280,236

Consumer and Other

 

 

9,030

 

 

3,017

 

 

1,077

 

 

13,124

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans held for investment

 

$

660,303

 

$

1,835,059

 

$

672,821

 

$

3,168,183

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate

 

$

78,341

 

$

486,314

 

$

125,183

 

$

689,838

Floating rate

 

 

581,962

 

 

1,348,745

 

 

547,638

 

 

2,478,345

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans held for investment

 

$

660,303

 

$

1,835,059

 

$

672,821

 

$

3,168,183

In the ordinary course of business, the Company has granted loans to certain directors, officers and their affiliates. In the opinion of management, all transactions entered into between the Bank and such related parties have been and are in the ordinary course of business, made on the same terms and conditions as similar transactions with unaffiliated persons.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

An analysis of activity with respect to these related-party loans for the periods ended March 31, 2016 and December 31, 2015 was as follows:

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Beginning balance

 

$

9,741

 

$

 -

Additions (at Acquisition)

 

 

 -

 

 

10,003

Advances

 

 

75

 

 

 -

Repayments

 

 

(2,228)

 

 

(262)

Ending Balance

 

$

7,588

 

$

9,741

 

Acquired Loans — The outstanding principal balance and recorded investment in the total acquired loans from all completed acquisitions, as of the dates set forth, was as follows:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Credit impaired acquired loans:

 

 

 

 

 

 

Outstanding principal balance

 

$

56,985

 

$

60,554

Recorded investment

 

 

42,652

 

 

46,174

Discount, net

 

$

14,333

 

$

14,380

 

 

 

 

 

 

 

Other acquired loans:

 

 

 

 

 

 

Outstanding principal balance

 

 

1,058,575

 

 

1,162,068

Deferred fees, net

 

 

(54)

 

 

(162)

Recorded investment

 

 

1,049,983

 

 

1,150,938

Discount, net

 

$

8,538

 

$

10,968

 

 

 

 

 

 

 

Total acquired loans:

 

 

 

 

 

 

Outstanding principal balance

 

 

1,115,560

 

 

1,222,622

Deferred fees, net

 

 

(54)

 

 

(162)

Recorded investment

 

 

1,092,635

 

 

1,197,112

Discount, net

 

$

22,871

 

$

25,348

Changes in the accretable yield for credit impaired acquired loans for the periods indicated, were as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended  March 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Balance at beginning of period

 

$

966

 

$

685

Additions (at acquisition)

 

 

 -

 

 

 -

Reclassifications from (to) nonaccretable discount

 

 

 -

 

 

480

Accretion

 

 

 -

 

 

(63)

Balance at period end

 

$

966

 

$

1,102

Purchased credit impaired loans are evaluated on an ongoing basis after acquisition.  Reclassifications from nonaccretable discount to accretable yield are recorded based on the current estimates of the timing and amount of expected future cash flows.

20


 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Nonaccrual and Past Due Loans — When management doubts a borrower’s ability to meet payment obligations, which typically occurs when principal or interest payments are more than 90 days past due, the loans are placed on nonaccrual status.

The age analysis of loans, segregated by class, as of the dates set forth was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Loans Past Due and Still Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

   

30 - 89 Days
Past Due

   

90 Days
or More
Past Due

   

Total

   

Nonaccrual

   

Purchased
Credit
Impaired

   

Current

   

Total
Loans

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans

 

 

                

 

 

                

 

 

                

 

 

                

 

 

                

 

 

                

 

 

                

Commercial & industrial

 

$

9,397

 

$

624

 

$

10,021

 

$

44,291

 

$

 -

 

$

793,226

 

$

847,538

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied commercial real estate

 

 

3,320

 

 

 -

 

 

3,320

 

 

792

 

 

 -

 

 

200,938

 

 

205,050

Commercial real estate

 

 

4,006

 

 

 -

 

 

4,006

 

 

 -

 

 

 -

 

 

632,533

 

 

636,539

Construction, land & land development

 

 

1,687

 

 

 -

 

 

1,687

 

 

458

 

 

 -

 

 

250,497

 

 

252,642

Residential mortgage

 

 

820

 

 

 -

 

 

820

 

 

743

 

 

 -

 

 

122,378

 

 

123,941

Consumer and other

 

 

495

 

 

 -

 

 

495

 

 

 -

 

 

 -

 

 

9,343

 

 

9,838

Total originated loans

 

$

19,725

 

$

624

 

$

20,349

 

$

46,284

 

$

 -

 

$

2,008,915

 

$

2,075,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

2,499

 

$

9,745

 

$

12,244

 

$

478

 

$

10,791

 

$

259,659

 

$

283,172

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied commercial real estate

 

 

807

 

 

 -

 

 

807

 

 

739

 

 

6,981

 

 

153,930

 

 

162,457

Commercial real estate

 

 

6,370

 

 

1,026

 

 

7,396

 

 

1,555

 

 

12,175

 

 

362,734

 

 

383,860

Construction, land & land development

 

 

1,023

 

 

498

 

 

1,521

 

 

 -

 

 

8,633

 

 

93,411

 

 

103,565

Residential mortgage

 

 

6,937

 

 

254

 

 

7,191

 

 

1,478

 

 

4,072

 

 

143,554

 

 

156,295

Consumer and other

 

 

39

 

 

 -

 

 

39

 

 

 -

 

 

 -

 

 

3,247

 

 

3,286

Total acquired loans

 

$

17,675

 

$

11,523

 

$

29,198

 

$

4,250

 

$

42,652

 

$

1,016,535

 

$

1,092,635

Total loans held for investment

 

$

37,400

 

$

12,147

 

$

49,547

 

$

50,534

 

$

42,652

 

$

3,025,450

 

$

3,168,183

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Loans Past Due and Still Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

   

30 - 89 Days
Past Due

   

90 Days
or More
Past Due

   

Total

   

Nonaccrual

   

Purchased Credit Impaired

   

Current

   

Total
Loans

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans

 

 

                

 

 

                

 

 

                

 

 

                

 

 

                

 

 

                

 

 

                

Commercial & industrial

 

$

2,064

 

$

25

 

$

2,089

 

$

34,205

 

$

 -

 

$

813,754

 

$

850,048

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied commercial real estate

 

 

9,158

 

 

 -

 

 

9,158

 

 

829

 

 

 -

 

 

178,921

 

 

188,908

Commercial real estate

 

 

1,108

 

 

 -

 

 

1,108

 

 

 -

 

 

 -

 

 

520,779

 

 

521,887

Construction, land & land development

 

 

181

 

 

 -

 

 

181

 

 

472

 

 

 -

 

 

241,958

 

 

242,611

Residential mortgage

 

 

890

 

 

 -

 

 

890

 

 

197

 

 

 -

 

 

119,173

 

 

120,260

Consumer and other

 

 

593

 

 

20

 

 

613

 

 

 -

 

 

 -

 

 

9,230

 

 

9,843

Total originated loans

 

$

13,994

 

$

45

 

$

14,039

 

$

35,703

 

$

 -

 

$

1,883,815

 

$

1,933,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

10,908

 

$

 -

 

$

10,908

 

$

420

 

$

13,905

 

$

331,171

 

$

356,404

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied commercial real estate

 

 

741

 

 

 -

 

 

741

 

 

 -

 

 

7,149

 

 

157,091

 

 

164,981

Commercial real estate

 

 

 

 

 

 -

 

 

 -

 

 

1,590

 

 

12,288

 

 

368,350

 

 

382,228

Construction, land & land development

 

 

111

 

 

 -

 

 

111

 

 

 -

 

 

8,681

 

 

107,410

 

 

116,202

Residential mortgage

 

 

4,065

 

 

6

 

 

4,071

 

 

1,292

 

 

4,151

 

 

163,709

 

 

173,223

Consumer and other

 

 

52

 

 

1

 

 

53

 

 

 -

 

 

 -

 

 

4,021

 

 

4,074

Total acquired loans

 

$

15,877

 

$

7

 

$

15,884

 

$

3,302

 

$

46,174

 

$

1,131,752

 

$

1,197,112

Total loans held for investment

 

$

29,871

 

$

52

 

$

29,923

 

$

39,005

 

$

46,174

 

$

3,015,567

 

$

3,130,669

Impaired Loans — The following is a summary of information related to impaired, nonaccrual and restructured loans as of the dates set forth:

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Nonaccrual loans

 

$

49,264

 

$

37,541

Accruing loans past due 90 days or more

 

 

12,147

 

 

52

Restructured loans - nonaccrual

 

 

1,270

 

 

1,464

Restructured loans - accruing

 

 

5,616

 

 

5,988

Total nonperforming loans

 

$

68,297

 

$

45,045

Based on an analysis of impaired loans at March 31, 2016 and December 31, 2015, an allowance of $13.5 million and $14.8 million, respectively, was allocated to impaired loans. The average recorded investment in impaired loans for the three months ended March 31, 2016 and for the year ended December 31, 2015, was $49.5 million and $16.7 million, respectively. There was approximately $90 thousand and $53 thousand in interest recognized on impaired loans, for the three months ended March 31, 2016 and 2015, respectively.  Interest recognized includes interest accrued on restructured loans that are performing based on their restructured terms and interest collected on paid nonaccrual loans.

22


 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Impaired loans of $50.5 million and $39.0 million at March 31, 2016 and December 31, 2015 respectively, have been categorized by management as nonaccrual loans.  The increase was due primarily to energy-related migration to nonperforming and down grade of loans acquired through the Patriot acquisition.  Interest foregone on nonaccrual loans for the three months ended March 31, 2016 and 2015 was approximately $890 thousand and $164 thousand, respectively.

The following tables present, for the periods indicated, the average recorded investment in impaired loans and the approximate amount of interest recognized on impaired loans.  Interest recognized includes interest accrued on restructured loans that have performed based on their restructured terms and interest collected on nonaccrual loans that were paid in full during the period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2016

 

March 31, 2015

 

 

Average Recorded Investment

 

Interest Income Recognized

 

Average Recorded Investment

 

Interest Income Recognized

 

 

(Dollars in thousands)

 

    

 

 

    

 

 

  

 

 

    

 

 

Commercial & industrial

 

$

38,929

 

$

7

 

$

3,222

 

$

4

Owner occupied commercial real estate

 

 

1,243

 

 

 -

 

 

1,035

 

 

 -

Commercial real estate

 

 

6,905

 

 

81

 

 

2,486

 

 

31

Construction, land & land development

 

 

462

 

 

 -

 

 

795

 

 

15

Residential mortgage

 

 

1,787

 

 

 -

 

 

1,380

 

 

 -

Consumer and other

 

 

139

 

 

2

 

 

214

 

 

3

Total

 

$

49,465

 

$

90

 

$

9,132

 

$

53

 

The following table presents additional information regarding impaired loans that were individually evaluated for impairment as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

Recorded Investment

    

Unpaid Principal Balance

    

Related Allowance

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

3,097

 

$

3,106

 

$

 -

Owner occupied commercial real estate

 

 

1,352

 

 

1,356

 

 

 -

Commercial real estate

 

 

6,848

 

 

6,865

 

 

 -

Construction, land & land development

 

 

259

 

 

259

 

 

 -

Residential mortgage

 

 

1,997

 

 

1,987

 

 

 -

Consumer and other

 

 

168

 

 

168

 

 

 -

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

            

 

 

            

 

 

            

Commercial & industrial

 

$

41,829

 

$

41,875

 

$

13,188

Owner occupied commercial real estate

 

 

177

 

 

181

 

 

181

Construction, land & land development

 

 

199

 

 

199

 

 

86

Residential mortgage

 

 

225

 

 

223

 

 

30

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

44,926

 

$

44,981

 

$

13,188

Real estate

 

 

11,057

 

 

11,070

 

 

297

Consumer and other

 

 

168

 

 

168

 

 

 -

Total

 

$

56,151

 

$

56,219

 

$

13,485

 

 

23


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

    

Recorded Investment

    

Unpaid Principal Balance

    

Related Allowance

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

2,612

 

$

2,613

 

$

 -

Owner occupied commercial real estate

 

 

829

 

 

834

 

 

 -

Commercial real estate

 

 

6,946

 

 

6,963

 

 

 -

Construction, land & land development

 

 

268

 

 

268

 

 

 -

Residential mortgage

 

 

1,423

 

 

1,418

 

 

 -

Consumer and other

 

 

174

 

 

174

 

 

 -

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

32,471

 

$

32,510

 

$

14,733

Construction, land & land development

 

 

204

 

 

204

 

 

92

Residential mortgage

 

 

66

 

 

67

 

 

15

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

Commercial & Industrial

 

$

35,083

 

$

35,123

 

$

14,733

Real Estate

 

 

9,736

 

 

9,754

 

 

107

Consumer and other

 

 

174

 

 

174

 

 

 -

Total

 

$

44,993

 

$

45,051

 

$

14,840

Credit Quality — Internally assigned risk grades for loans are defined as follows:

Grade 1 (Highest Quality — No Apparent Risk) — This category includes loans to borrowers of unquestioned credit standing which are secured by readily marketable collateral of undisputed value, with appropriate margin. It also includes loans to borrowing entities with: excellent capitalization, liquidity and earnings levels; quality management; positive financial trends; and favorable industry conditions.

Grade 2 (Good Quality — Minimal Risk) — This category includes loans to investment grade entities with: good liquidity and financial condition; nominal term debt; strong debt service capability; solid management; and quality financial information. These loans are usually secured with current assets, but may be unsecured. Alternative financing from other lenders is generally available to these borrowers.

Grade 3 (Satisfactory Quality — Acceptable Risk — Tier One) — This category includes loans to entities maintaining fair liquidity and acceptable financial conditions. The level of term debt is moderate, with adequate debt service capability. Earnings may be volatile, but borrowers in this category generally do not show a loss within the last three years. Primary debt service must be supported by identified secondary repayment sources or by guarantors with adequate and proven responsibility and capacity.

Grade 4 (Satisfactory Quality — Acceptable Risk — Tier Two) — This category includes loans to borrowers maintaining acceptable financial conditions; however, borrowers may exhibit certain characteristics of leverage or asset dependency that reflect a greater level of risk than Tier One credits. This category may also include borrowers exhibiting explainable interim losses within the previous three years and/or industry characteristics that warrant frequent monitoring.

Grade 5 (Monitored Loans) — This category includes loans with trends or characteristics which, if continued, could result in impaired repayment ability. The borrower may exhibit a low degree of liquidity and relatively high leverage, erratic earnings history (including the possibility of a reported loss in the past four years), significant term debt and a nominal cushion for debt service capacity. Loans in this category may also include financing to start-up borrowers backed by experienced management and significant capital investment or established companies in distressed industry conditions.

24


 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Grade 6 (Other Assets Especially Mentioned) — This category includes loans which have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or a weakening of the Company’s credit position at some future date. Grade 6 loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Grade 7 (Substandard — Accruing) — This category includes loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, or loans with identified weaknesses but where there is sufficient collateral value and/or cash flow coverage. This category includes loans that: (1) may require a secondary source of repayment (liquidation of collateral or repayment by a guarantor); (2) lack current financial information or appraisals; and/or (3) have collateral deficiencies such that the Company would be in an unsecured position with an obligor not deserving unsecured credit. This category may also include borrowers with operating losses in recent periods.

Grade 8 (Substandard — Nonaccrual) — This category includes loans with the same basic characteristics as Grade 7 loans and also meet the Company’s criteria for nonaccrual status, but do not warrant a Grade 9 or Grade 10 classification.

Grade 9 (Doubtful/Exposure) — This category includes loans with all the Grade 7 or 8 characteristics but with weaknesses that make collection (or liquidation) highly questionable and improbable.

Grade 10 (Loss) — This category includes loans which are considered uncollectible, or of such little value that they should no longer be carried as an asset of the Company.

The credit risk profile of loans aggregated by class and internally assigned risk grades as of the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Commercial &
Industrial

 

Owner
Occupied
Commercial
Real Estate

 

Commercial

Real Estate

 

Construction &
Land
Development

 

Residential

Mortgage

 

Other
Consumer

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grade 1

   

$

5,535

 

$

-

 

$

81

 

$

 -

 

$

266

 

$

939

   

$

6,821

Grade 2

 

 

3,890

 

 

-

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

3,890

Grade 3

 

 

195,094

 

 

17,808

 

 

23,376

 

 

2,254

 

 

62,380

 

 

1,807

 

 

302,719

Grade 4

 

 

620,190

 

 

305,946

 

 

899,348

 

 

319,181

 

 

207,297

 

 

9,920

 

 

2,361,882

Grade 5

 

 

114,031

 

 

2,518

 

 

25,298

 

 

17,356

 

 

1,412

 

 

298

 

 

160,913

Grade 6

 

 

39,140

 

 

16,138

 

 

35,189

 

 

7,460

 

 

1,733

 

 

114

 

 

99,774

Grade 7

 

 

97,269

 

 

16,587

 

 

23,377

 

 

865

 

 

855

 

 

45

 

 

138,998

Grade 8

 

 

33,379

 

 

1,529

 

 

1,555

 

 

458

 

 

2,221

 

 

1

 

 

39,143

Grade 9

 

 

11,391

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

11,391

 

 

 

1,119,919

 

 

360,526

 

 

1,008,224

 

 

347,574

 

 

276,164

 

 

13,124

 

 

3,125,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired

 

 

10,791

 

 

6,981

 

 

12,175

 

 

8,633

 

 

4,072

 

 

 -

 

 

42,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

1,130,710

 

$

367,507

 

$

1,020,399

 

$

356,207

 

$

280,236

 

$

13,124

 

$

3,168,183

 

 

25


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Commercial &
Industrial

 

Owner
Occupied
Commercial
Real Estate

 

Commercial

Real Estate

 

Construction &
Land
Development

 

Residential

Mortgage

 

Other
Consumer

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grade 1

   

$

6,464

   

$

 -

   

$

84

   

$

 -

   

$

268

   

$

926

   

$

7,742

Grade 2

 

 

6,348

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

6,348

Grade 3

 

 

189,370

 

 

17,996

 

 

27,851

 

 

4,973

 

 

63,118

 

 

622

 

 

303,930

Grade 4

 

 

798,335

 

 

304,827

 

 

770,241

 

 

328,296

 

 

221,463

 

 

11,695

 

 

2,434,857

Grade 5

 

 

48,083

 

 

4,696

 

 

49,275

 

 

15,103

 

 

1,222

 

 

499

 

 

118,878

Grade 6

 

 

46,068

 

 

16,114

 

 

20,246

 

 

1,288

 

 

1,109

 

 

116

 

 

84,941

Grade 7

 

 

63,254

 

 

2,278

 

 

22,540

 

 

 -

 

 

663

 

 

59

 

 

88,794

Grade 8

 

 

27,276

 

 

829

 

 

1,590

 

 

472

 

 

1,489

 

 

 -

 

 

31,656

Grade 9

 

 

7,349

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

7,349

 

 

 

1,192,547

 

 

346,740

 

 

891,827

 

 

350,132

 

 

289,332

 

 

13,917

 

 

3,084,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired

 

 

13,905

 

 

7,149

 

 

12,288

 

 

8,681

 

 

4,151

 

 

 -

 

 

46,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

1,206,452

 

$

353,889

 

$

904,115

 

$

358,813

 

$

293,483

 

$

13,917

 

$

3,130,669

 

Troubled Debt Restructurings — The restructuring of a loan is considered a troubled debt restructuring if both the borrower is experiencing financial difficulties and the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

Troubled debt restructurings identified during the periods indicated were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2016

 

March 31, 2015

 

 

Number of Contracts

 

Pre-Modification
Outstanding
Recorded
Investment

 

Recorded Investment as of
March 31, 2016

 

Number of
Contracts

 

Pre-Modification
Outstanding
Recorded
Investment

 

Recorded Investment as of
March 31, 2015

 

 

(Dollars in thousands)

 

    

 

    

 

 

    

 

 

  

 

    

 

 

    

 

 

Commercial & industrial

 

 -

 

$

 -

 

$

 -

 

 1

 

$

739

 

$

689

Total

 

 -

 

$

 -

 

$

 -

 

 1

 

$

739

 

$

689

The modifications primarily related to extending the maturity date of the loans, which includes loans modified post-bankruptcy. The Company did not forgive any principal or interest on the restructured loans. For the three months ended March 31, 2016, the Company did not add new troubled debt restructurings.  For the three months ended March 31, 2015, the Company added $739 thousand in new troubled debt restructurings of which $689 thousand was still outstanding on March 31, 2015.  The decrease in outstanding balance was due to payments totaling $50 thousand during the three months ended March 31, 2015. Restructured loans are individually evaluated for impairment. 

 

26


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

8. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses for the periods indicated, and the balance of loans receivable by the method of impairment evaluation for those periods were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial &
Industrial

 

Owner
Occupied
Commercial
Real Estate

 

Commercial

Real Estate

 

Construction &
Land
Development

 

Residential

Mortgage

 

Consumer and Other

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

For the Three Months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2016

 

$

23,130

 

$

1,679

 

$

4,691

 

$

2,345

 

$

816

 

$

286

 

$

32,947

Charge-offs

 

 

(9,880)

 

 

 -

 

 

 -

 

 

 -

 

 

(6)

 

 

(20)

 

 

(9,906)

Recoveries

 

 

582

 

 

 -

 

 

 -

 

 

26

 

 

57

 

 

8

 

 

673

Provision

 

 

10,899

 

 

596

 

 

2,533

 

 

497

 

 

1,371

 

 

104

 

 

16,000

Balance - March 31, 2016

 

$

24,731

 

$

2,275

 

$

7,224

 

$

2,868

 

$

2,238

 

$

378

 

$

39,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

11,580

 

$

2,083

 

$

7,200

 

$

2,779

 

$

2,207

 

$

378

 

$

26,227

Individually evaluated for impairment

 

 

13,141

 

 

177

 

 

 -

 

 

86

 

 

31

 

 

 -

 

 

13,435

Purchased credit impaired

 

 

10

 

 

15

 

 

24

 

 

3

 

 

 -

 

 

 -

 

 

52

Total allowance for loan losses

 

$

24,731

 

$

2,275

 

$

7,224

 

$

2,868

 

$

2,238

 

$

378

 

$

39,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

1,074,993

 

$

358,997

 

$

1,001,376

 

$

347,116

 

$

273,942

 

$

12,956

 

$

3,069,380

Individually evaluated for impairment

 

 

44,926

 

 

1,529

 

 

6,848

 

 

458

 

 

2,222

 

 

168

 

 

56,151

Purchased credit impaired

 

 

10,791

 

 

6,981

 

 

12,175

 

 

8,633

 

 

4,072

 

 

 -

 

 

42,652

Total loans evaluated for impairment

 

$

1,130,710

 

$

367,507

 

$

1,020,399

 

$

356,207

 

$

280,236

 

$

13,124

 

$

3,168,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial &
Industrial

 

Owner
Occupied
Commercial
Real Estate

 

Commercial

Real Estate

 

Construction &
Land
Development

 

Residential

Mortgage

 

Consumer and Other

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

For the Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2015

 

$

8,145

 

$

974

 

$

2,942

 

$

2,633

 

$

645

 

$

266

 

$

15,605

Charge-offs

 

 

(2,647)

 

 

 -

 

 

 -

 

 

 -

 

 

(63)

 

 

(146)

 

 

(2,856)

Recoveries

 

 

2,185

 

 

 -

 

 

77

 

 

5

 

 

36

 

 

31

 

 

2,334

Provision

 

 

15,447

 

 

705

 

 

1,672

 

 

(293)

 

 

198

 

 

135

 

 

17,864

Balance - December 31, 2015

 

$

23,130

 

$

1,679

 

$

4,691

 

$

2,345

 

$

816

 

$

286

 

$

32,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

8,352

 

$

1,677

 

$

4,537

 

$

2,245

 

$

801

 

$

286

 

$

17,898

Individually evaluated for impairment

 

 

14,733

 

 

 -

 

 

 -

 

 

92

 

 

15

 

 

 -

 

 

14,840

Purchased credit impaired

 

 

45

 

 

2

 

 

154

 

 

8

 

 

 -

 

 

 -

 

 

209

Total allowance for loan losses

 

$

23,130

 

$

1,679

 

$

4,691

 

$

2,345

 

$

816

 

$

286

 

$

32,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

1,157,464

 

$

345,911

 

$

884,881

 

$

349,660

 

$

287,843

 

$

13,743

 

$

3,039,502

Individually evaluated for impairment

 

 

35,083

 

 

829

 

 

6,946

 

 

472

 

 

1,489

 

 

174

 

 

44,993

Purchased credit impaired

 

 

13,905

 

 

7,149

 

 

12,288

 

 

8,681

 

 

4,151

 

 

 -

 

 

46,174

Total loans evaluated for impairment

 

$

1,206,452

 

$

353,889

 

$

904,115

 

$

358,813

 

$

293,483

 

$

13,917

 

$

3,130,669

 

 

 

 

 

 

 

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial &
Industrial

 

Owner
Occupied
Commercial
Real Estate

 

Commercial
Real Estate

 

Construction &
Land
Development

 

Residential
Mortgage

 

Consumer and Other

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2015

   

$

8,145

 

$

974

 

$

2,942

 

$

2,633

 

$

645

 

$

266

 

$

15,605

Charge-offs

 

 

(77)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(105)

 

 

(182)

Recoveries

 

 

597

 

 

 -

 

 

1

 

 

 -

 

 

12

 

 

4

 

 

614

Provision

 

 

(25)

 

 

334

 

 

923

 

 

(164)

 

 

398

 

 

39

 

 

1,505

Balance - March 31, 2015

 

$

8,640

 

$

1,308

 

$

3,866

 

$

2,469

 

$

1,055

 

$

204

 

$

17,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

7,625

 

$

1,305

 

$

3,712

 

$

2,458

 

$

883

 

$

204

 

$

16,187

Individually evaluated for impairment

 

 

261

 

 

 -

 

 

 -

 

 

 -

 

 

172

 

 

 -

 

 

433

Purchased credit impaired

 

 

754

 

 

3

 

 

154

 

 

11

 

 

 -

 

 

 -

 

 

922

Total allowance for loan losses

 

$

8,640

 

$

1,308

 

$

3,866

 

$

2,469

 

$

1,055

 

$

204

 

$

17,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

738,682

 

$

164,512

 

$

359,379

 

$

270,638

 

$

245,011

 

$

9,919

 

$

1,788,141

Individually evaluated for impairment

 

 

3,643

 

 

1,029

 

 

547

 

 

2,430

 

 

1,491

 

 

152

 

 

9,292

Purchased credit impaired

 

 

2,055

 

 

1,063

 

 

7,145

 

 

57

 

 

3,089

 

 

 -

 

 

13,409

Total loans evaluated for impairment

 

$

744,380

 

$

166,604

 

$

367,071

 

$

273,125

 

$

249,591

 

$

10,071

 

$

1,810,842

 

 

9. PREMISES AND EQUIPMENT

Premises and equipment as of the dates indicated are summarized as follows:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2016

 

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Land

    

$

7,660

    

$

7,660

Buildings and improvements

 

 

23,930

 

 

23,834

Furniture, fixtures and equipment

 

 

10,251

 

 

10,190

 

 

 

41,841

 

 

41,684

Less accumulated depreciation

 

 

(14,589)

 

 

(13,948)

Total

 

$

27,252

 

$

27,736

Depreciation of premises and equipment totaled $641 thousand and $426 thousand for the three months ended March 31, 2016 and 2015, respectively.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

10. GOODWILL AND CORE DEPOSIT INTANGIBLES

The Company reviews its goodwill for impairment annually, or more frequently, if indicators of impairment exist. At March 31, 2016 and December 31, 2015, management determined that goodwill, as reflected in the Company’s financial statements, was not impaired.  The most recent goodwill impairment test was as of December 31, 2015.  Subsequent to year end, management has determined that no triggering events have occurred that would result in impairment.

Changes in the carrying amount of goodwill and core deposit intangibles for the periods set forth were as follows:

 

 

 

 

 

 

 

 

 

Goodwill

 

Core Deposit Intangibles

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Balance - December 31, 2014

 

$

30,129

  

$

4,148

Add - acquisition of Patriot

 

 

55,162

 

 

8,261

Less - amortization

 

 

 -

 

 

(847)

Balance - December 31, 2015

 

$

85,291

 

$

11,562

Less amortization

 

 

 -

 

 

(402)

Balance - March 31, 2016

 

$

85,291

 

$

11,160

The Company initially records the total premium paid on acquisitions as goodwill.  After finalizing the valuation, core deposit intangibles are identified and reclassified from goodwill to core deposit intangibles on the balance sheet.  This reclassification has no effect on total assets, liabilities, shareholders’ equity, net income or cash flows.  The measurement period for the Company to determine the fair value of acquired identifiable assets and assumed liabilities will be at the end of the earlier of (1) twelve months from the date of acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the date of acquisition. The Company may record subsequent adjustments to goodwill for amounts undeterminable at acquisition date, such as deferred taxes and real estate valuations, and therefore the goodwill amounts reflected in the table above may change accordingly.  As such, the Patriot acquisition completed during 2015 may be subject to adjustment.

Core deposit intangibles are amortized on an accelerated basis over their estimated lives, which the Company believes is approximately six to nineteen years. The estimated future amortization expense for the core deposit intangibles remaining as of the date indicated is as follows:

 

 

 

 

 

    

March 31, 2016

 

 

(Dollars in thousands)

 

 

 

 

2016

 

$

1,185

2017

 

 

1,472

2018

 

 

1,196

2019

 

 

1,080

2020

 

 

992

Thereafter

 

 

5,235

Total

 

$

11,160

 

 

 

 

 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

11. DEPOSITS

Included in certificates and other time deposits are individual amounts of $100,000 or more including brokered certificates of deposit, if any. The remaining maturities of these deposits as of the dates indicated are as follows:

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Three months or less

 

$

166,389

 

$

191,133

Over three through six months

 

 

169,851

 

 

163,633

Over six through twelve months

 

 

330,450

 

 

209,954

Over one through two years

 

 

209,182

 

 

243,614

Over two through three years

 

 

85,885

 

 

94,238

Over three through four years

 

 

74,818

 

 

45,055

Over four through five years

 

 

12,407

 

 

39,956

Over five years

 

 

 -

 

 

 -

Total

 

$

1,048,982

 

$

987,583

Interest expense for certificates of deposit and other time deposits of $100,000 or more was approximately $2.8 million and $1.3 million for the three months ended March 31, 2016 and 2015, respectively.

The Company had $141.8 million and $93.6 million in brokered time deposits, at March 31, 2016 and December 31, 2015, respectively.

There are no major concentrations of deposits with any one depositor.

12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS

Other borrowed funds as of the dates indicated were as follows:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

$

328,968

 

$

223,265

Repurchase agreements

 

 

3,544

 

 

3,073

Total

 

$

332,512

 

$

226,338

Federal Home Loan Bank Advances — The Company has an available borrowing arrangement with the Federal Home Loan Bank (the “FHLB”), which allows the Company to borrow on a collateralized basis. At March 31, 2016 and December 31, 2015, total unused borrowing capacity of $609.1 million and $355.1 million, respectively, was available under this arrangement. At March 31, 2016, $329.0 million was outstanding with an average interest rate of 0.49% and all of the Company’s FHLB advances will mature within seven years. At December 31, 2015, $223.3 million was outstanding with an average interest rate of 0.46% and all of the Company’s FHLB advances will mature within eight years. These borrowings are collateralized by a blanket lien on certain loans. The total borrowing capacity increased due to loan portfolio growth. The Company utilizes these borrowings to meet liquidity needs and to fund certain fixed rate loans in its loan portfolio.

Federal Reserve Bank — The Company has an available borrower in custody arrangement with the Federal Reserve Bank of Dallas (the “Dallas Fed”), which allows the Company to borrow, on a collateralized basis. Certain commercial and consumer loans are pledged under this arrangement. The Company maintains this borrowing arrangement to meet liquidity needs pursuant to its contingency funding plan. At March 31, 2016 and December 31, 2015, $244.3 million and $243.9 million, respectively, were available under this arrangement and no borrowings were outstanding.  The available capacity increased due to changes in collateral margins for Dallas Fed discount window lending.

30


 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Securities Sold Under Agreements to Repurchase — Securities sold under agreements to repurchase represent the purchase of interests in securities by banking customers. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. Repurchase agreements with banking customers are settled on the following business day. All securities sold under agreements to repurchase are collateralized by pledged securities. The securities underlying the repurchase agreements are held in safekeeping by the Bank’s safekeeping agent.

Federal Funds Purchased — The Company has available federal funds lines of credit with its correspondent banks. As of March 31, 2016 and December 31, 2015, there were no federal funds purchased outstanding.

13. SUBORDINATED DEBENTURES

At March 31, 2016, the Company had outstanding $13.3 million in subordinated debentures net of $8.9 million purchase discount. On October 1. 2015, the Company acquired Patriot Bancshares, Inc., and assumed the obligations related to the subordinated debentures issued to Capital Trust I and Capital Trust II.

 

A summary of pertinent information related to the Company’s two issues of subordinated debentures outstanding at March 31, 2016 is set forth in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

Issuance Date

 

Trust Preferred Securities Outstanding

 

Interest Rate(1)

 

Subordinated Debt Owed to Trusts

 

Maturity Date(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Patriot Bancshares Capital Trust I

 

March 31, 2006

 

$

5,000

 

3 month LIBOR +1.85%, not to exceed 11.90%

 

$

5,155

 

April 7, 2036

Patriot Bancshares Capital Trust II

 

August 8, 2007

 

$

16,500

 

3 month LIBOR +1.80%, not to exceed 11.90%

 

$

17,011

 

September 15, 2037

 

(1)

The 3-month LIBOR in effect as of March 31, 2016 was 0.629%.

(2)

All debentures are callable five years from issuance date.

 

Each of the trusts is a capital trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s junior subordinated debentures. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are 100% owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of the Company’s present and future senior indebtedness. The Company has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by each trust, provided such trust has funds available for such obligations.

 

Under the provisions of each issue of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred securities and common securities will also be deferred.

14. INCOME TAXES

Income tax expense was $1.1 million and $2.7 million for the three months ended March 31, 2016 and 2015, respectively. The Company’s effective tax rate was 36.5% and 36.7% for the three months ended March 31, 2016 and 2015, respectively. 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

15. EMPLOYEE BENEFITS

Equity Incentive Plan — The 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) was approved by the Company’s Board of Directors and shareholders on July 28, 2014 and became effective immediately prior to the initial public offering on August 7, 2014.  A total of 1,273,838 shares of common stock were reserved for issuance under the 2014 Plan, which permits the grant of incentive stock options, within the meaning of Section 422 of the IRS Code, to the Company’s employees, and the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other forms of equity-based awards to the Company’s employees, directors, consultants and independent contractors.  The 2014 Plan is administered by the Compensation Committee of the Board of Directors, who may select which eligible participants receive awards, the types of awards to be granted, the purchase price, if any, to be paid for shares covered by the awards and the vesting, forfeiture, cancellation and other terms and conditions of the awards.

Stock Options. At March 31, 2016 and December 31, 2015, there were 164,000 and 173,500 time based options outstanding under the 2014 Plan, respectively.  The Company has three additional stock options plans, all of which are frozen to further issuance.

The Green Bancorp, Inc. 2010 Stock Option Plan (the “2010 Option Plan”), which was approved by the Company’s Board of Directors on June 30, 2010, permitted the grant of up to 2,239,906 options. The non-qualified stock options granted were in the form of time-based options and performance options and may have been granted to a director, officer or employee of the Company. Time-based options under the 2010 Option Plan vest over a period of four years and expire on the tenth anniversary of the date of the grant. Performance options under the 2010 Option Plan vest upon the occurrence of a liquidity event, with the vested amounts determined based on the achievement of specified performance and market metrics.  The 2010 Option Plan was frozen to further issuance upon approval of the 2014 Omnibus Plan.  At March 31, 2016, there were 380,902 time based options, 1,223,234 performance options and 379,529 super-performance options outstanding under the 2010 Option Plan.  At December 31, 2015, there were 381,071 time based options, 1,223,234 performance options and 379,529 super-performance options outstanding under the 2010 Option Plan.

The Green Bancorp, Inc. 2006 Stock Option Plan (the “2006 Option Plan”), which was approved by the shareholders of the Company on June 21, 2006, permitted the grant of up to 450,000 options. The options granted may have been in the form of nonqualified stock options, which may have been granted to a director, officer or employee of the Company, or incentive stock options, which may have been granted only to officers of the Company. Awards under the 2006 Option Plan vest over a four-year period, which began on the first anniversary of the grant date, and must be exercised within 10 years from the grant date. The 2006 Option Plan was frozen to further issuance upon approval of the 2010 Option Plan. At both March 31, 2016 and December 31, 2015, there were 292,757 options outstanding under the 2006 Option Plan.

In addition to the 2006 Option Plan, the Company’s Board of Directors adopted the Redstone Bank 2004 Stock Option Plan (the “Redstone Option Plan”) and froze the plan to further issuance, following the Company’s acquisition of Redstone Bank. At the time of adoption, all options to acquire stock of Redstone Bank were converted to options to acquire stock of the Company and adjusted in terms of number and exercise price based on the terms of the merger agreement. All options issued under the Redstone Option Plan are fully vested as a result of the 2006 change of control event. At both March 31, 2016 and December 31, 2015, there were 234,573 options outstanding under the Redstone Option Plan.

Restricted Stock Units. In connection with the initial public offering, 275,000 restricted stock units were granted under the 2014 Plan.  At March 31, 2016 and December 31, 2015, there were 280,000 and 292,500 restricted stock units outstanding under the 2014 Plan, respectively.  Total restricted stock units compensation expense was $212 thousand and $206 thousand for the three months ended March 31, 2016 and 2015, respectively.

Stock Appreciation Rights Plan — On May 18, 2007, the Company’s Board of Directors adopted the Green Bancorp Stock Appreciation Rights Plan (the “SAR Plan”). The SAR Plan provided for the issuance of up to 200,000 units to plan participants at an exercise price of no less than the fair market value of the common stock of the Company at the time of grant. Units are redeemable by SAR Plan participants under certain circumstances whereby the participant will be paid the excess, if any, of the market value of the Company’s common stock at the time of exercise over the exercise price. The SAR Plan provides for a 10-year maximum term for units issued, vesting and exercisability limitations and accelerated vesting and deemed exercise in the event of a change of control. The SAR Plan was frozen to further issuance upon approval of the 2014 Omnibus Plan.  As of March 31, 2016 and December 31, 2015, there were 93,000 and 103,000 units outstanding under the SAR Plan, respectively.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Prior to the initial public offering, the Company elected to account for the accrued SAR Plan liability under the intrinsic-value method as allowed for non-public companies by FASB ASC 718, Compensation — Stock Compensation.  During the quarter ended September 30, 2014, the Company began to account for the accrued SAR Plan liability utilizing the fair value method.  For the three months ended March 31, 2016 and 2015, a $22 thousand and $108 thousand reversal of stock based compensation expense to reflect the fair value of the SARs was recorded, respectively.

Benefit Plan — The Company sponsors a 401(k) plan (the “401k Plan”), which is a defined contribution plan available to substantially all employees. Participants in the 401k Plan may make salary deferral contributions up to the amount allowed by law. The Company makes safe harbor matching contributions to the 401k Plan equal to 100% of the participant’s elective contribution for the plan year up to a maximum of 6% of the participant’s salary. The Company contributions are fully vested at the date of contribution. The total of Company contributions for the three months ended March 31, 2016 and 2015, were $326 thousand and $243 thousand, respectively.

16. OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES

The following table summarizes the Company’s contractual obligations and other commitments to make future payments as of the date indicated (other than securities sold under agreements to repurchase).  The Company’s future cash payments associated with its contractual obligations pursuant to its certificates and other time deposits, FHLB advances, subordinated debentures, and operating leases, as of the date indicated are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

1 year or less

    

More than
1 year but less
than 3 years

    

3 years or more
but less
than 5 years

    

5 years or more

    

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates and other time deposits

 

$

865,849

 

$

404,159

 

$

124,390

 

$

 -

 

$

1,394,398

Federal Home Loan Bank advances

 

 

217,069

 

 

112,487

 

 

94

 

 

508

 

 

330,158

Subordinated debentures

 

 

541

 

 

541

 

 

1,624

 

 

30,894

 

 

33,600

Operating leases

 

 

1,857

 

 

3,365

 

 

1,919

 

 

3,841

 

 

10,982

Total

 

$

1,085,316

 

$

520,552

 

$

128,027

 

$

35,243

 

$

1,769,138

 

Payments for the FHLB advances includes interest of $1.3 million that will be paid in future years.  Payments for subordinated debentures includes interest of $11.4 million that will be paid in future years.  The future interest payments were calculated using the current rate in effect at March 31, 2016.  Payments related to leases are based on actual payments specified in underlying contracts.

Leases — The Company’s noncancelable future operating lease commitments as of the date indicated is as follows:

 

 

 

 

 

 

    

March 31, 2016

 

 

(Dollars in thousands)

 

 

 

 

2016

 

$

1,857

2017

 

 

1,946

2018

 

 

1,419

2019

 

 

1,120

2020

 

 

799

Thereafter

 

 

3,841

Total

 

$

10,982

The Company leases certain office facilities and equipment under operating leases. Rent expense under all noncancelable operating lease obligations, net of income from noncancelable subleases aggregated, was approximately $502 thousand and $392 thousand for the three months ended March 31, 2016 and 2015, respectively. 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

Litigation — The Company from time to time is involved in routine litigation arising from the normal course of business. Management does not believe that there are any pending or threatened proceedings against the Company which, upon resolution, would have a material effect on the consolidated financial statements.

Financial Instruments with Off-Balance Sheet Risk — In the normal course of business, the Company is a party to various financial instruments with off-balance sheet risk to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual or notional amount of these instruments. The Company uses the same credit policies in making these commitments and conditional obligations as it does for on-balance sheet instruments.

The following is a summary of the various financial instruments outstanding as of the date set forth:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

1 year or less

    

More than
1 year but less
than 3 years

    

3 years or more
but less
than 5 years

    

5 years or more

    

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to extend credit

 

$

302,404

 

$

286,469

 

$

89,161

 

$

69,909

 

$

747,943

Standby and commercial letters of credit

 

 

16,618

 

 

1,569

 

 

63

 

 

800

 

 

19,050

Total

 

$

319,022

 

$

288,038

 

$

89,224

 

$

70,709

 

$

766,993

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the customer.

Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, the Company has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The credit risk to the Company in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers.

17. DERIVATIVE FINANCIAL INSTRUMENTS

In order to accommodate the borrowing needs of certain commercial customers, the Company entered into interest rate swap or cap agreements with those customers. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on our results of operations. The fair value amounts are included in other assets and other liabilities.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

The following is a summary of the interest rate swaps outstanding as of the dates set forth:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

Notional Amount

    

Fixed Rate

    

Floating Rate

    

Maturity

    

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-hedging derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Customer interest rate swap:

 

 

 

 

 

 

 

 

 

 

 

 

receive fixed/pay floating

 

$

137,251

 

3.99% - 5.99%

 

LIBOR 1 month +

2.5% - 4.50%

 

Wtd. Avg.

3.2 years

 

$

3,152

 

 

 

 

 

 

 

 

 

 

 

 

 

Correspondent interest rate swap:

 

 

 

 

 

 

 

 

 

 

 

 

pay fixed/receive floating

 

$

137,251

 

3.99% - 5.99%

 

LIBOR 1 month +

2.5% - 4.50%

 

Wtd. Avg.

3.2 years

 

$

(3,321)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

    

Notional
Amount

    

Fixed Rate

    

Floating Rate

    

Maturity

    

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-hedging derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Customer interest rate swap:

 

 

 

 

 

 

 

 

 

 

 

 

receive fixed/pay floating

 

$

115,459

 

3.99% - 5.99%

 

LIBOR 1 month +

2.5% - 4.50%

 

Wtd. Avg.

3.1 years

 

$

1,528

 

 

 

 

 

 

 

 

 

 

 

 

 

Correspondent interest rate swap:

 

 

 

 

 

 

 

 

 

 

 

 

pay fixed/receive floating

 

$

115,459

 

3.99% - 5.99%

 

LIBOR 1 month +

2.5% - 4.50%

 

Wtd. Avg.

3.1 years

 

$

(1,612)

 

The estimated fair values of non-hedging derivative instruments are reflected within Company’s consolidated balance sheet; customer interest rate swaps are included in other assets and correspondent interest rate swaps are included in other liabilities. The notional amounts and estimated fair values of the non-hedging derivative instruments by classification as the dates set forth were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

 

    

Notional
Amount

    

Fair Value

 

Notional
Amount

    

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial customer counterparty:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

137,251

 

$

3,152

 

$

115,459

 

$

1,528

Financial institution counterparty:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

 

16,848

 

 

7

 

 

16,929

 

 

25

Total included in other assets

 

$

154,099

 

$

3,159

 

$

132,388

 

$

1,553

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Financial institution counterparty:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

137,251

 

$

(3,321)

 

$

115,459

 

$

(1,612)

Commercial customer counterparty:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

 

16,848

 

 

(7)

 

 

16,929

 

 

(25)

Total included in other liabilities

 

$

154,099

 

$

(3,328)

 

$

132,388

 

$

(1,637)

The strike rate for the outstanding caps was 6.00% at both March 31, 2016 and December 31, 2015.

 

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

 

 

 

 18. REGULATORY MATTERS

Capital Requirements — The Company is subject to various regulatory capital requirements administered by federal banking agencies. Any institution that fails to meet its minimum capital requirements is subject to actions by regulators that could have a direct material effect on its financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines based on the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amount and classification under the regulatory framework for prompt corrective action are also subject to qualitative judgments by the regulators.

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules, among other things, (i) introduce a new capital measure called "Common Equity Tier 1" ("CET1"), (ii) specify that Tier 1 capital consist of CET1 and "Additional Tier 1 Capital" instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments as compared to existing regulations. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions to be fully phased in on January 1, 2019. 

Beginning on January 1, 2016, the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019.  The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.

Financial institutions are categorized as “well capitalized” or “adequately capitalized”, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of “adequately capitalized” as of March 31, 2016, and December 31, 2015. Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be “well capitalized”. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any such changes could result in reducing one or more capital ratios below “well-capitalized” status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on condition and results of operations.

To meet the capital adequacy requirements, the Company and the Bank must maintain minimum capital amounts and ratios as defined in the regulations. Management believes, as of March 31, 2016 and December 31, 2015, that the Company and the Bank met all capital adequacy requirements to which they are subject.

The most recent notification from the regulatory banking agencies categorized Green Bank as “well capitalized” under the regulatory capital framework for prompt corrective action and there have been no events since that notification that management believes have changed the Bank’s category.

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

The Company’s consolidated capital ratios and the Bank’s capital ratios as of the dates set forth are presented in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Actual

 

For Capital
Adequacy Purposes

 

To be Categorized as “Well
Capitalized” under Prompt
Corrective Action Provisions

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

390,301

 

10.8

%

 

$

288,893

 

8.0

%

 

 

N/A

 

N/A

 

Tier 1 capital (to risk weighted assets)

 

 

350,316

 

9.7

 

 

 

216,700

 

6.0

 

 

 

N/A

 

N/A

 

Common equity tier 1 capital

 

 

337,690

 

9.4

 

 

 

162,502

 

4.5

 

 

 

N/A

 

N/A

 

Tier I capital (to average assets)

 

 

350,316

 

9.5

 

 

 

147,047

 

4.0

 

 

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Bank(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

383,777

 

10.6

%

 

$

288,861

 

8.0

%

 

$

361,076

 

10.0

%

Tier 1 capital (to risk weighted assets)

 

 

343,792

 

9.5

 

 

 

216,646

 

6.0

 

 

 

288,861

 

8.0

 

Common equity tier 1 capital

 

 

343,792

 

9.5

 

 

 

162,484

 

4.5

 

 

 

234,700

 

6.5

 

Tier I capital (to average assets)

 

 

343,792

 

9.4

 

 

 

146,768

 

4.0

 

 

 

183,460

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Actual

 

For Capital
Adequacy Purposes

 

To be Categorized as “Well
Capitalized” under Prompt
Corrective Action Provisions

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

384,737

 

10.9

%

 

$

282,733

 

8.0

%

 

 

N/A

 

N/A

 

Tier 1 capital (to risk weighted assets)

 

 

351,482

 

10.0

 

 

 

212,050

 

6.0

 

 

 

N/A

 

N/A

 

Common equity tier 1 capital

 

 

338,961

 

9.6

 

 

 

159,037

 

4.5

 

 

 

N/A

 

N/A

 

Tier I capital (to average assets)

 

 

351,482

 

9.6

 

 

 

146,765

 

4.0

 

 

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Bank(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

376,453

 

10.7

%

 

$

282,725

 

8.0

%

 

$

353,406

 

10.0

%

Tier 1 capital (to risk weighted assets)

 

 

343,199

 

9.7

 

 

 

212,044

 

6.0

 

 

 

282,725

 

8.0

 

Common equity tier 1 capital

 

 

343,199

 

9.7

 

 

 

159,033

 

4.5

 

 

 

229,714

 

6.5

 

Tier I capital (to average assets)

 

 

343,199

 

9.4

 

 

 

146,689

 

4.0

 

 

 

183,361

 

5.0

 


(1)

The Federal Reserve may require the Company to maintain capital ratios above the required minimums.

(2)

The FDIC or the Office of the Comptroller of the Currency (the “OCC”) may require the Bank to maintain capital ratios above the required minimums.

Dividend Restrictions — Dividends paid by the Bank are subject to certain restrictions imposed by regulatory agencies.    No dividends were paid for the periods ended March 31, 2016 and December 31, 2015.

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GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820 applies to reported balances that are required or permitted to be measured at fair value under an existing accounting pronouncement. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability and establishes a fair value hierarchy. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows:

Level 1 — Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 1 assets and liabilities include debt and equity securities that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 — Inputs other than those quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 2 assets and liabilities include available-for-sale securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Available-for-sale securities are valued using observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, prepayment speeds, credit information, and the bond’s terms and conditions, among other things. Derivative valuations utilize certain Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The significance of the impact of these credit valuation adjustments on the overall valuation of derivative positions are not significant to the overall valuation and result in all derivative valuations being classified in Level 2 of the fair value hierarchy.

Level 3 — Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. This category includes certain interest-only strip securities where independent pricing information was not able to be obtained for a significant portion of the underlying assets and loans held for sale.

The tables below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of the dates set forth aggregated by the level in the fair value hierarchy within which those measurements fall.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

(Dollars in thousands)

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

75,047

 

$

187,769

 

$

 -

 

$

262,816

Customer interest rate swaps

 

 

 -

 

 

3,152

 

 

 -

 

 

3,152

Correspondent interest rate caps

 

 

 -

 

 

7

 

 

 -

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Correspondent interest rate swaps

 

$

 -

 

$

3,321

 

$

 -

 

$

3,321

Customer interest rate caps

 

 

 -

 

 

7

 

 

 -

 

 

7

 

 

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Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

(Dollars in thousands)

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

74,974

 

$

201,047

 

$

 -

 

$

276,021

Customer interest rate swaps

 

 

 -

 

 

1,528

 

 

 -

 

 

1,528

Correspondent interest rate caps

 

 

 -

 

 

25

 

 

 -

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Correspondent interest rate swaps

 

$

 -

 

$

1,612

 

$

 -

 

$

1,612

Customer interest rate caps

 

 

 -

 

 

25

 

 

 -

 

 

25

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets measured on a nonrecurring basis include impaired loans, real estate acquired by foreclosure and other repossessed assets.

A loan is defined as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, according to the contractual terms of the loan agreement.  The allowance for loan losses related to impaired loans is determined based on the difference between the carrying value of the impaired loan and its fair value.  The fair value of impaired loans is determined based on the fair value of the collateral if repayment is expected solely from the collateral.  Fair value of the loan’s collateral is determined by appraisals and third party estimates for real estate collateral and by appraisals or independent valuations for non-real estate collateral such as inventory, accounts receivable, equipment or other business assets.  The fair value of real estate acquired by foreclosure is measured using appraisals and third party estimates.  These values may be adjusted based on current information available to management, therefore the values are considered Level 3 inputs within the fair value hierarchy.

The following tables present the assets that were subject to fair value adjustments during the periods indicated, which were still on the balance sheet at the end of the reporting periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

 

 

    

Level 3

    

Total

    

Losses for the
Three Months Ended  March 31, 2016

 

 

(Dollars in thousands)

 

 

 

 

Assets Measured on a Nonrecurring Basis:

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

38,482

 

$

38,482

 

$

3,704

Other real estate owned

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

 

    

Level 3

    

Total

    

Losses for the

Three Months Ended 

March 31, 2015

 

 

(Dollars in thousands)

 

 

 

 

Assets Measured on a Nonrecurring Basis:

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

2,467

 

$

2,467

 

$

323

Other real estate owned

 

 

 -

 

 

 -

 

 

 -

39


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

The following methods and assumptions were used to estimate the fair value of cash and of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments — The carrying amount of these short term investments is a reasonable estimate of fair value.

Securities — Securities are valued based on quoted prices in an active market when available. These securities are classified in Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows or Level 2 of the valuation hierarchy.

Loans Held for Sale — The fair value of consumer residential mortgages held-for-sale is based on commitments from investors or prevailing market prices.

Loans Held for Investment — The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Real Estate Acquired by Foreclosure — Real estate acquired by foreclosure is adjusted to fair value less estimated costs to sell at the time of foreclosure. Subsequently, these assets are carried at the lower of carrying value or fair value less estimated costs to sell. Fair value is generally based upon market prices or appraised values of the property, and accordingly, the Company classifies real estate acquired by foreclosure as Level 3.

Deposit Liabilities — The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Other Borrowed Funds — The carrying amount of securities sold under agreements to repurchase is a reasonable estimate of fair value because these borrowings reprice at market rates generally daily. The fair value of long term FHLB advances is estimated using the rates currently offered for advances of similar remaining maturities.

Subordinated debentures—The fair value of the subordinated debentures was calculated using the quoted market prices, if available. If quoted market prices are not available, fair value is estimated using quoted market prices for similar subordinated debentures. Subordinated debentures fair value measurements utilize Level 2 inputs.

Off-Balance Sheet Financial Instruments — The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. These amounts were not significant at the reporting dates. The fair value of interest rate swaps is derived from pricing models based on past, present and projected future market conditions, quoted market prices of instruments with similar characteristics or discounted cash flows, classified in Level 2 of the fair value hierarchy.

40


 

Table of Contents

GREEN BANCORP, INC. AND SUBSIDIARY

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016

(Unaudited)

The estimated fair values of the Company’s financial instruments as of the dates indicated are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

Carrying Value

 

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short term investments

 

$

171,421

 

$

171,421

 

$

 -

 

$

 -

 

$

171,421

Available-for-sale securities

 

 

262,816

 

 

75,047

 

 

187,769

 

 

 -

 

 

262,816

Held-to-maturity securities

 

 

40,022

 

 

 -

 

 

40,095

 

 

 -

 

 

40,095

Other securities

 

 

24,078

 

 

24,078

 

 

 -

 

 

 -

 

 

24,078

Loans held for sale

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Loans held for investment

 

 

3,168,183

 

 

 -

 

 

 -

 

 

3,195,387

 

 

3,195,387

Real estate acquired by foreclosure

 

 

9,230

 

 

 -

 

 

 -

 

 

9,230

 

 

9,230

Total

 

$

3,675,750

 

$

270,546

 

$

227,864

 

$

3,204,617

 

$

3,703,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

3,057,019

 

$

 -

 

$

3,066,745

 

$

 -

 

$

3,066,745

Securities sold under agreements to repurchase

 

 

3,544

 

 

 -

 

 

3,544

 

 

 -

 

 

3,544

Other borrowed funds

 

 

328,968

 

 

 -

 

 

328,077

 

 

 -

 

 

328,077

Subordinated debentures

 

 

13,292

 

 

 

 

 

13,292

 

 

 

 

 

13,292

Total

 

$

3,402,823

 

$

 -

 

$

3,411,658

 

$

 -

 

$

3,411,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

    

Carrying Value

 

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and short term investments

 

$

124,906

 

$

124,906

 

$

 -

 

$

 -

 

$

124,906

Available-for-sale securities

 

 

276,021

 

 

74,974

 

 

201,047

 

 

 -

 

 

276,021

Held-to-maturity securities

 

 

42,130

 

 

 -

 

 

41,996

 

 

 -

 

 

41,996

Other securities

 

 

20,320

 

 

20,320

 

 

 -

 

 

 -

 

 

20,320

Loans held for sale

 

 

384

 

 

384

 

 

 -

 

 

 -

 

 

384

Loans held for investment

 

 

3,130,669

 

 

 -

 

 

 -

 

 

3,147,615

 

 

3,147,615

Real estate acquired by foreclosure

 

 

12,122

 

 

 -

 

 

 -

 

 

12,122

 

 

12,122

Total

 

$

3,606,552

 

$

220,584

 

$

243,043

 

$

3,159,737

 

$

3,623,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

3,100,748

 

$

 -

 

$

3,100,748

 

$

 -

 

$

3,100,748

Securities sold under agreements to repurchase

 

 

3,073

 

 

 -

 

 

3,073

 

 

 -

 

 

3,073

Other borrowed funds

 

 

223,265

 

 

 -

 

 

221,104

 

 

 -

 

 

221,104

Subordinated debentures

 

 

13,187

 

 

 -

 

 

13,187

 

 

 -

 

 

13,187

Total

 

$

3,340,273

 

$

 -

 

$

3,338,112

 

$

 -

 

$

3,338,112

 

 

 

 

 

 

 

 

******

 

41


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s interim consolidated financial statements and the accompanying notes included elsewhere in this report and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for year ended December 31, 2015.

Except where the context otherwise requires or where otherwise indicated, in this Quarterly Report on Form 10-Q the terms “Company,” “we,” “us,” “our,” “our company” and “our business” refer to Green Bancorp, Inc. and our subsidiaries, including our banking subsidiary; Green Bank, N.A., a national banking association, and the term “Bank” refers to Green Bank, N.A. In this Quarterly Report on Form 10-Q, we refer to the Houston—Sugar Land—Baytown and Dallas—Fort Worth—Arlington metropolitan statistical areas as the Houston and Dallas MSAs.

Overview

We are a Texas focused bank holding company headquartered in Houston, Texas. Our wholly owned subsidiary, Green Bank, N.A., a nationally chartered commercial bank, provides commercial and private banking services primarily to Texas based customers through twenty-two full service branches in the Houston and Dallas MSAs and other markets. The Houston and Dallas MSAs are our target markets, and we believe their growing economies and attractive demographics, together with our scalable platform, provide us with opportunities for long‑term and sustainable growth. Our emphasis is on continuing to expand our existing business by executing on our proven business model as well as pursuing select strategic acquisitions and attracting additional talented portfolio bankers.

We generate the majority of our revenues from interest income on loans, customer service and loan fees and income from investment in securities. The revenues are partially offset by interest expense paid on deposits and other borrowings and noninterest expenses such as administrative and occupancy expenses. Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is our largest source of revenue. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread, (4) our net interest margin and (5) our provision for loan losses. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Total assets were $3.8 billion as of March 31, 2016, an increase of $63.3 million or 1.7% compared with December 31, 2015. Total deposits were $3.1 billion as of March 31, 2016, a decrease of $43.7 million or 1.4% compared with December 31, 2015. Total loans held for investment were $3.2 billion as of March 31, 2016, an increase of $37.5 million or 1.2% compared with December 31, 2015. At March 31, 2016 and December 31, 2015, we had $50.5 million and $39.0 million, respectively, in non-accrual loans and our allowance for loan losses was $39.7 million and $32.9 million, respectively. Shareholders’ equity was $430.9 million and $429.4 million at March 31, 2016 and December 31, 2015, respectively. The increases are primarily due to execution of our organic growth strategy.

Critical Accounting Policies

Our significant accounting policies are integral to understanding the results reported. Our accounting policies are described in detail in Note 1 to the consolidated financial statements included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2015. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity:

Allowance for loan losses—The allowance for loan losses is maintained at a level that management estimates to be appropriate to absorb probable credit losses in the portfolio as of the balance sheet date.  This estimate involves numerous assumptions and judgments.  Management utilizes a calculation methodology that includes both quantitative and qualitative factors and applies judgment when establishing the factors utilized in the methodology and in assessing the overall adequacy of the calculated results.

42


 

The allowance for loan losses is a valuation allowance for losses incurred on loans. All losses are charged to the allowance when the loss actually occurs or when a determination is made that a loss is probable. Recoveries are credited to the allowance at the time of recovery. Our allowance for loan losses consists of two components, a general component based upon probable but unidentified losses inherent in the portfolio and a specific component on individual loans that are considered impaired.

The general component of the allowance for loan losses related to probable but unidentified losses inherent in the portfolio is based on our actual historical loss experience and various qualitative factors.  The qualitative factors include lending policies and procedures, loan volume and terms, experience, depth and ability of lending management, volume and severity of past due loans and monitored loans, quality of loan review system, concentrations, value of collateral underlying collateral dependent loans,  economic conditions and other factors. The other factors considered may include the actual historical loss experience at the total portfolio level, a comparison of the allowance ratios to peer data, an analysis of the allowance by risk rating and other factors.

To arrive at the general component of the allowance, loans are first separated into originated and acquired groups and then further separated by loan type for each group. On a quarterly basis, the trends in various metrics related to each of the factors described above are reviewed to determine the appropriate level of change to be applied to each factor for the period.  The factors described above are calculated for the applicable loan groups and for each loan type within the applicable group and then applied to the loan balance by type to calculate the general reserve. The actual loss factor is based on our actual three year loss history as a percentage of loans by type.  A minimum actual loss factor equal to the average three year loss history for the total loan portfolio is included as a qualitative factor.  The specific component of the allowance for loan losses is calculated based on a review of individual loans considered impaired. The analysis of impaired losses may be based on the present value of expected future cash flows discounted at the effective loan rate, an observable market price or the fair value of the underlying collateral on collateral dependent loans. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral. The amount ultimately realized may differ from the carrying value of these assets because of economic, operating, or other conditions beyond our control.

Throughout the year, management estimates the probable level of losses to determine whether the allowance for loan losses is adequate to absorb inherent losses in the existing portfolio. Based on these estimates, an amount is charged to the provision for loan losses and credited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb inherent losses.  If economic conditions or borrower behavior deviate substantially from the assumptions utilized in the allowance calculation, increases in the allowance may be required.

Estimates of loan losses involve an exercise of judgment. While it is reasonably possible that in the near term we may sustain losses which are substantial relative to the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated balance sheets is adequate to absorb probable losses that exist in the current loan portfolio.

Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. We maintain the allowance at an amount that management believes is sufficient to provide for estimated losses inherent in our loan portfolio at each balance sheet date, and fluctuations in the provision for loan losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on our allowance, and therefore our financial position, liquidity or results of operations.

Accounting for Acquired Loans and the Allowance for Acquired Loan Losses—Acquisitions are accounted for using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity were recorded at their fair values at the acquisition date. No allowance for credit losses related to the acquired loans is recorded on the acquisition date, as the fair value of the acquired loans incorporates assumptions regarding credit risk. These fair value estimates associated with acquired loans, and based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.  The excess of cash flows expected at acquisition over the estimated fair value is considered the accretable discount and is recognized in interest income over the remaining life of the loan using the interest method.

Acquired loans with evidence of credit deterioration and the probability that all contractually required payments will not be collected as of the date of acquisition are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-30. The difference between contractually required payments at acquisition and the cash flows expected to be collected is considered the non-accretable discount. The non-accretable discount represents the future credit losses expected to be incurred over the life of the loan. Subsequent increases in the expected cash flows will result in a recovery of any previously recorded allowance for loan losses and a reclassification from non-accretable discount to accretable discount.

43


 

At period-end after acquisition, the fair-valued acquired loans from each acquisition are reassessed to determine whether an addition to the allowance for credit losses is appropriate due to further credit quality deterioration. For further discussion of the methodology used in the determination of the allowance for credit losses for acquired loans, see “Financial Condition – Allowance for Loan Losses” section below.  

Business combinations—The Company applies the acquisition method of accounting for business combinations in accordance with ASC 805, Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes all of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. The excess of the purchase price over the estimated fair value of the net assets, including identifiable intangible 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, including identifiable intangible assets, for taxable acquisitions was also recorded as goodwill, and is deductible for tax purposes. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred. The results of operations for each acquisition have been included in the Company’s consolidated financial results beginning on the respective acquisition date.

Determining the fair value of assets acquired and liabilities assumed is considered a critical accounting estimate because the allocation of the fair value to the assets acquired and liabilities assumed requires significant management judgment and the use of subjective measurements. Variability in the market and changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and may have a material impact on our financial position, liquidity or results of operations.

Goodwill—Goodwill has an indefinite useful life and is subject to an annual impairment test and more frequently if a triggering event occurs indicating that it is more likely than not that the fair value of the Company, which is our only reporting unit, is below the carrying value of its equity. We completed our annual impairment analysis of goodwill as of December 31, 2015, and based on this analysis, we do not believe any of our goodwill is impaired as of such date because the fair value of our equity substantially exceeded our carrying value. The goodwill impairment test involves a two-step process. Under the first step, the estimation of fair value of the reporting unit is compared with its carrying value including goodwill. If step one indicates a potential impairment, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the implied fair value of goodwill is less than its carrying value. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. As part of our impairment analysis, we use a variety of methodologies in determining the fair value of the reporting unit, including cash flow analyses that are consistent with the assumptions management believes hypothetical marketplace participants would use.

Fair Value of Financial InstrumentsThe Company determines the fair market values of financial instruments based on the fair value hierarchy established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value. Level 1 inputs include quoted market prices, where available. If such quoted market prices are not available, Level 2 inputs are used. These inputs are based upon internally developed models that primarily use observable market-based parameters. Level 3 inputs are unobservable inputs which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Emerging Growth Company—Pursuant to the Jumpstart Our Business Startups Act, an emerging growth company can elect to opt in to any new or revised accounting standards that may be issued by the FASB or the SEC otherwise applicable to non-emerging growth companies. We have elected to opt in to such standards, which election is irrevocable.

We will likely take advantage of some of the reduced regulatory and reporting requirements that are available to us so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

44


 

Recent Acquisitions

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 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 goodwill, core deposit intangible and deferred tax asset balances do not include subsequent fair value adjustments that are still being finalized. 

 

See “Note 4 – Acquisitions” for further information.

Results of Operations

Net income available to common shareholders was $1.8 million for the three months ended March 31, 2016 compared with $4.6 million for the three months ended March 31, 2015, a decrease in net income of $2.8 million or 60.4%.  Earnings per common share on a diluted basis was $0.05 for the three months ended March 31, 2016 compared with $0.18 for the same period in 2015, a decrease of $0.13 or 72.2%.  The decrease in net income was principally due to increases in provision for loan losses and noninterest expense offset by increased interest income resulting from growth in loans compared to the same period in 2015. We experienced returns on average common equity of 1.68% and 6.46%, returns on average assets of 0.20% and 0.85% and efficiency ratios of 50.8% and 60.9% for the three months ended March 31, 2016 and 2015, respectively.  The efficiency ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income.  The decrease in the efficiency ratio was primarily due to increased net interest income.

Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.”

Net interest income before the provision for loan losses for the three months ended March 31, 2016 was $34.2 million compared with $20.5 million for the three months ended March 31, 2015, an increase of $13.7 million or 66.8%.  The increase was primarily due to a 75.1% increase in average loan volume largely driven by the Patriot acquisition, as well as the marketing activity of our portfolio bankers within our target markets. Interest income was $38.7 million for the three months ended March 31, 2016, an increase of $16.0 million or 70.6% compared with the three months ended March 31, 2015. Interest income on loans was $37.3 million for the three months ended March 31, 2016, an increase of $15.7 million or 72.4% compared with the three months ended March 31, 2015 primarily due to the increase in average loans outstanding somewhat offset by the decrease in average loan yield. Interest income on securities was $1.1 million for the three months ended March 31, 2016, an increase of $203 thousand compared with the three months ended March 31, 2015 primarily due to a 32.6% increase in average securities volume, somewhat offset by a 12 basis point decrease in the average yield on the securities portfolio. Average interest-bearing liabilities increased $1.2 billion for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 and average rate on interest-bearing liabilities increased from 0.60% to 0.67% for the same time period resulting in an overall increase in interest expense of $2.3 million. During the three months ended March 31, 2016, average noninterest-bearing deposits increased $173.7 million from $430.5 million during the three months ended March 31, 2015 to $604.3 million for the three months ended March 31, 2016. Total cost of funds, including noninterest-bearing deposits increased 8 basis points to 0.55% for the three months ended March 31, 2016 compared to 0.46% for the same period in 2015.

45


 

Net interest margin, defined as net interest income divided by average interest-earning assets, for the three months ended March 31, 2016 was 3.87%, a decrease of 6 basis points compared with 3.93% for the same period in 2015.

The following tables present, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. All average balances are daily average balances. Any nonaccruing loans have been included in the table as loans carrying a zero yield.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

2016

 

 

2015

 

 

 

Average Outstanding Balance

 

Interest Earned/ Interest Paid

 

Average Yield/ Rate

 

 

Average Outstanding Balance

 

Interest Earned/ Interest Paid

 

Average Yield/ Rate

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Earning Assets:

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Loans

 

$

3,124,711

 

$

37,345

 

4.81

% 

 

$

1,784,400

 

$

21,659

 

4.92

% 

Securities

 

 

312,861

 

 

1,081

 

1.39

 

 

 

235,946

 

 

878

 

1.51

 

Other investments

 

 

22,498

 

 

173

 

3.09

 

 

 

10,435

 

 

110

 

4.28

 

Federal funds sold

 

 

2,507

 

 

1

 

0.16

 

 

 

639

 

 

 -

 

 -

 

Interest earning deposits in financial institutions

 

 

94,902

 

 

124

 

0.53

 

 

 

86,536

 

 

55

 

0.26

 

Total interest-earning assets

 

 

3,557,479

 

 

38,724

 

4.38

% 

 

 

2,117,956

 

 

22,702

 

4.35

% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(33,080)

 

 

 

 

 

 

 

 

(15,784)

 

 

 

 

 

 

Noninterest-earning assets

 

 

245,025

 

 

 

 

 

 

 

 

105,697

 

 

 

 

 

 

Total assets

 

$

3,769,424

 

 

 

 

 

 

 

$

2,207,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction and savings deposits

 

$

1,066,999

 

$

1,150

 

0.43

% 

 

$

788,020

 

$

682

 

0.35

% 

Certificates and other time deposits

 

 

1,342,562

 

 

2,763

 

0.83

 

 

 

639,300

 

 

1,474

 

0.94

 

Securities sold under agreements to repurchase

 

 

4,121

 

 

2

 

0.20

 

 

 

15,194

 

 

6

 

0.16

 

Other borrowed funds

 

 

280,838

 

 

344

 

0.49

 

 

 

35,540

 

 

24

 

0.27

 

Subordinated debentures

 

 

13,244

 

 

237

 

7.20

 

 

 

 -

 

 

 -

 

 -

 

Total interest-bearing liabilities

 

 

2,707,764

 

 

4,496

 

0.67

% 

 

 

1,478,054

 

 

2,186

 

0.60

% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

604,261

 

 

 

 

 

 

 

 

430,542

 

 

 

 

 

 

Other liabilities

 

 

16,654

 

 

 

 

 

 

 

 

7,599

 

 

 

 

 

 

Total liabilities

 

 

3,328,679

 

 

 

 

 

 

 

 

1,916,195

 

 

 

 

 

 

Shareholders’ equity

 

 

440,745

 

 

 

 

 

 

 

 

291,674

 

 

 

 

 

 

Total liabilities and  shareholders’ equity

 

$

3,769,424

 

 

 

 

 

 

 

$

2,207,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest rate spread 

 

 

 

 

 

 

 

3.71

% 

 

 

 

 

 

 

 

3.75

% 

Net interest income and margin(1)

 

 

 

 

$

34,228

 

3.87

% 

 

 

 

 

$

20,516

 

3.93

% 


(1)The net interest margin is equal to net interest income divided by average interest‑earning assets.

 

46


 

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated to rate.

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31,

 

 

2016 vs. 2015

 

 

Increase (Decrease)
Due to Change in

 

 

 

 

 

Volume

 

Rate

 

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Interest-Earning assets:

    

 

 

    

 

 

    

 

 

Loans, including fees

 

$

16,404

 

$

(718)

 

$

15,686

Securities

 

 

289

 

 

(86)

 

 

203

Other investments

 

 

128

 

 

(65)

 

 

63

Federal funds sold

 

 

 -

 

 

1

 

 

1

Interest-earning deposits in financial institutions

 

 

5

 

 

64

 

 

69

Total increase (decrease) in interest income

 

 

16,826

 

 

(804)

 

 

16,022

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

Interest-bearing transaction and savings deposits

 

$

243

 

$

225

 

$

468

Certificates and other time deposits

 

 

1,635

 

 

(346)

 

 

1,289

Securities sold under agreements to repurchase

 

 

(4)

 

 

 -

 

 

(4)

Other borrowings

 

 

167

 

 

153

 

 

320

Subordinated debentures

 

 

 -

 

 

237

 

 

237

Total increase (decrease) in interest expense

 

 

2,041

 

 

269

 

 

2,310

Increase (decrease) in net interest income

 

$

14,785

 

$

(1,073)

 

$

13,712

Provision for loan losses

Our provision for loan losses are charged to income in order to bring our total allowance for loan losses to a level deemed appropriate by management based on the factors discussed under “—Critical Accounting Policies—Allowance for loan losses.” The allowance for loan losses at March 31, 2016 was $39.7 million, representing 1.25% of total loans as of such date.

We recorded $16.0 million in provision for loan losses for the three months ended March 31, 2016 compared with $1.5 million in provision for the same period in 2015. The first quarter provision reflects the addition of $8.0 million in specific reserves and an increase in general reserves of $8.0 million driven by the increase in the Company’s historical loss factor, increases in classified loans, loan growth, and economic factors and an increase in the Company’s historical loss general reserve factor.  Net charge-offs for the three months ended March 31, 2016 were $9.2 million compared with net recoveries of $432 thousand for the three months ended March 31, 2015. This increase reflected an increase in gross charge-offs to $9.9 million, primarily due to the charge off of an energy production loan,  from $182 thousand for the three months ended March 31, 2016 and 2015, respectively, and an increase in recoveries to $673 thousand from $614 thousand for the three months ended March 31, 2016 and 2015, respectively.

Noninterest Income

Our primary sources of recurring noninterest income are customer service fees, loan fees, gains on the sale of loans and available for sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield.

For the three months ended March 31, 2016, noninterest income totaled $4.2 million, an increase of $2.1 million or 99.3% compared with the three months ended March 31, 2015. This increase was primarily due to a $541 thousand increase in customer service fees, a $493 thousand increase in gain on sale of guaranteed portion of loans, a $323 thousand increase in swap income, a $328 thousand increase in loan fees, and a $177 thousand increase in bank owned life insurance income mainly due to the Patriot acquisition.

47


 

The following table presents, for the periods indicated, the major categories of noninterest income:

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Customer service fees

 

$

1,404

 

$

863

Loan fees

 

 

699

 

 

371

Gain on sale of guaranteed portion of loans

 

 

1,138

 

 

645

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

 

 

41

 

 

75

Other

 

 

873

 

 

131

Total noninterest income

 

$

4,155

 

$

2,085

Noninterest Expense

For the three months ended March 31, 2016, noninterest expense totaled $19.5 million, an increase of $5.7 million or 41.7% compared with the three months ended March 31, 2015. The increase was primarily due to increases related to ongoing acquired Patriot operations.  

The following table presents, for the periods indicated, the major categories of noninterest expense:

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31,

 

    

2016

    

2015

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Salaries and employee benefits (1)

 

$

11,979

 

$

8,757

Non-staff expenses:

 

 

 

 

 

 

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

(1)

Total salaries and employee benefits include stock based compensation of $306 thousand and $121 million for the three months ended March 31, 2016 and 2015, respectively.

Efficiency Ratio.  The efficiency ratio is a supplemental financial measure utilized in our internal evaluation of our performance. Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources. Our efficiency ratio was 50.8% for the three months ended March 31, 2016, compared with 60.9% for the three months ended March 31, 2015. The decrease was primarily due to increased net interest income and noninterest income, offset by an increase in noninterest expense primarily due to the Patriot acquisition. 

Income Taxes

Income tax expense decreased $1.6 million, or 60.7% to $1.1 million for the three months ended March 31, 2016, compared with $2.7 million for the same period in 2015. The decrease was primarily attributable to lower pre-tax earnings for the three months ended March 31, 2016 compared with the same period in 2015.  The effective income tax rate for the three months ended March 31, 2016 and 2015 was 36.5% and 36.7%, respectively.

48


 

Financial Condition

Loan Portfolio

At March 31, 2016, total loans held for investment were $3.2 billion, an increase of $37.5 million or 1.2% compared with December 31, 2015. This increase was primarily due to continued opportunities for our portfolio bankers to generate new loans and expand existing relationships within our target markets.

The following table summarizes our loan portfolio by type of loan as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Amount

 

Percent

 

 

Amount

 

Percent

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

$

1,130,710

 

35.7

 

$

1,206,452

 

38.5

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 Owner occupied commercial real estate

 

 

367,507

 

11.6

 

 

 

353,889

 

11.3

 

 Commercial real estate

 

 

1,020,399

 

32.2

 

 

 

904,115

 

28.9

 

 Construction, land & land development

 

 

356,207

 

11.2

 

 

 

358,813

 

11.5

 

 Residential mortgage

 

 

280,236

 

8.9

 

 

 

293,483

 

9.4

 

Consumer and Other

 

 

13,124

 

0.4

 

 

 

13,917

 

0.4

 

Total loans held for investment

 

$

3,168,183

 

100.0

 

$

3,130,669

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans held for sale

 

$

 -

 

 -

 

$

384

 

100.0

Nonperforming Loans

Nonperforming loans include loans on nonaccrual status, accruing loans 90 or more days past due and restructured loans. Impaired loans do not include purchased loans that were identified upon acquisition as having experienced credit deterioration since origination (“purchased credit impaired loans” or “PCI loans”). We had $68.3 million in nonperforming loans at March 31, 2016, compared with $45.0 million at December 31, 2015. The ratio of nonperforming loans to total loans was 2.16% at March 31, 2016 compared with 1.44% at December 31, 2015.

We generally place a loan on nonaccrual status and cease accruing interest when a loan displays problems that may jeopardize full and timely collection of principal and/or interest, evidenced by one or more of the following: (i) full payment of principal and interest becomes questionable; (ii) the loan becomes 90 days past due as to principal or interest; (iii) the loan is graded as doubtful; (iv) the borrower files bankruptcy and does not reaffirm its indebtedness to us; or (v) foreclosure proceedings are initiated against collateral property. An exception to this is if the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan.

The following table presents information regarding nonperforming loans at the dates indicated:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2016

 

2015

 

    

(Dollars in thousands)

 

 

 

 

 

 

 

Nonaccrual loans

    

$

49,264

    

$

37,541

Accruing loans 90 or more days past due

 

 

12,147

 

 

52

Restructured loansnonaccrual

 

 

1,270

 

 

1,464

Restructured loansaccrual

 

 

5,616

 

 

5,988

Total nonperforming loans

 

$

68,297

 

$

45,045

Allowance for loan losses

Our allowance for loan losses is established through charges to income in the form of the provision in order to bring our allowance for loan losses to a level deemed appropriate by management based on the factors discussed under “—Critical Accounting Policies—Allowance for loan losses.” The allowance for loan losses at March 31, 2016 was $39.7 million, representing 1.25% of total

49


 

loans, compared with $32.9 million, or 1.05% of total loans, at December 31, 2015. Loans acquired were recorded at fair value based on a discounted cash flow valuation methodology.

The following table presents, as of and for the periods indicated, an analysis of the allowance for loan losses and other related data:

 

 

 

 

 

 

 

 

 

 

As of and for the Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Average loans outstanding (1)

    

$

3,124,522

    

$

1,783,456

  

Total loans outstanding at end of period (1)

 

 

3,168,183

 

 

1,810,842

 

Allowance for loan losses at beginning of period

 

 

32,947

 

 

15,605

 

Provision for loan losses

 

 

16,000

 

 

1,505

 

Charge-offs:

 

 

 

 

 

 

 

Commercial and industrial

 

 

(9,880)

 

 

(77)

 

Residential mortgage

 

 

(6)

 

 

 -

 

Consumer and Other

 

 

(20)

 

 

(105)

 

Total charge-offs

 

 

(9,906)

 

 

(182)

 

Recoveries:

 

 

 

 

 

 

 

Commercial and industrial

 

 

582

 

 

597

 

Commercial real estate

 

 

 -

 

 

1

 

Construction, land & land development

 

 

26

 

 

 -

 

Residential mortgage

 

 

57

 

 

12

 

Consumer and Other

 

 

8

 

 

4

 

Total recoveries

 

 

673

 

 

614

 

Net recoveries (charge-offs)

 

 

(9,233)

 

 

432

 

Allowance for loan losses at end of period

 

$

39,714

 

$

17,542

 

 

 

 

 

 

 

 

 

Ratio of allowance to end of period loans

 

 

1.25

 

0.97

Ratio of net recoveries (charge-offs) to average loans

 

 

(0.30)

 

0.02


(1)

Excluding loans held for sale

Please see “—Critical Accounting Policies—Allowance for loan losses” for additional discussion of our allowance policy.

In connection with our review of the loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include:

·

for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;

·

for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;

·

for one-to-four family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of collateral; and

·

for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan-to-value ratio.

50


 

Acquired loans are recorded at fair value as of the date of acquisition. Determining the fair value of the acquired loans involves estimating the amount and timing of future expected cash flows and discounting those cash flows at a market rate of interest. Acquired loans with evidence of credit deterioration and the probability that all contractually required payments will not be collected as of the date of acquisition are accounted for in accordance with ASC 310-30, and the difference between contractually required payments at acquisition and the cash flows expected to be collected is considered the non-accretable discount. The non-accretable discount represents the future credit losses expected to be incurred over the life of the loan. No corresponding allowance for loan losses is recorded for these loans at acquisition.

We believe that the allowance for loan losses at March 31, 2016 was adequate to cover probable losses in the loan portfolio as of such date. There can be no assurance, however, that we will not sustain losses in future periods, which could be substantial in relation to the size of the allowance at March 31, 2016.

Securities

We use our securities portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk, to meet pledging requirements and to meet regulatory capital requirements. At March 31, 2016, the carrying amount of investment securities totaled $302.8 million, a decrease of $15.3 million or 4.8% compared with $318.2 million at December 31, 2015. At March 31, 2016, securities represented 7.9% of total assets compared with 8.4% at December 31, 2015.

The following table summarizes the amortized cost and fair value by classification of securities as of the dates shown:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

 

 -

 

 

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 

 

 

51


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

    

$

    

$

(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 

 

 

 

 

(1)

 

 

3,793 

Obligations of municipal subdivisions

 

 

236 

 

 

 

 

 -

 

 

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 

Certain investment securities are valued at less than their historical cost. Management evaluates securities for other than temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In determining OTTI, management considers many factors, including the severity and the duration of time that the fair value has been less than cost, the credit quality of the issuer and whether it is more likely than not that we will be required to sell the security before a recovery in value. The assessment of whether an other than temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. Securities within the available for sale portfolio may be used as part of our asset and liability management strategy and may be sold in response to changes in interest rate risk, prepayment risk or other factors.

Management does not intend to sell any debt securities classified as held to maturity and it is more likely than not that we will not be required to sell any such debt securities before their anticipated recovery of cost, if a loss currently exists, at which time we expect to receive full value for the securities. Furthermore, as of March 31, 2016, management does not have the intent to sell any of the securities classified as available for sale and believes that it is more likely than not that we will not be required to sell any such securities before a recovery of cost, if a loss currently exists. As of March 31, 2016, management believes any impairment in our securities is temporary and no impairment loss has been realized in our consolidated statement of income. We recorded no other than temporary impairment charges in the first three months of 2016 or the 2015 fiscal year.

Deposits

Total deposits at March 31, 2016 were $3.1 billion, a decrease of $43.7 million or 1.4% compared with December 31, 2015. Noninterest bearing deposits at March 31, 2016 were $592.7 million compared with $643.4 million at December 31, 2015, a decrease of $50.7 million or 7.9%. Interest bearing deposits at March 31, 2016 were $2.5 billion an increase of $7.0 million or 0.3% compared with December 31, 2015.

52


 

The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

 

 

Average
Balance

 

Average
Rate

 

 

Average
Balance

 

Average
Rate

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction deposits

    

$

173,154

    

0.11

    

$

135,727

    

0.11

Money market and savings deposits

 

 

893,845

 

0.50

 

 

 

652,293

 

0.40

 

Certificates and other time deposits

 

 

1,342,562

 

0.83

 

 

 

639,300

 

0.94

 

Total interest-bearing deposits

 

$

2,409,561

 

0.65

 

 

$

1,427,320

 

0.61

 

Noninterest-bearing deposits

 

 

604,261

 

 -

 

 

 

430,542

 

 -

 

Total deposits

 

$

3,013,822

 

0.52

 

$

1,857,862

 

0.47

 

Other Borrowed Funds

The following table presents our borrowings at the dates indicated. There were no borrowings outstanding under our arrangement with the Dallas Fed and there were no federal funds purchased outstanding at the dates indicated.

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2016

 

2015

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Federal Home Loan Bank advances

    

$

328,968

    

$

223,265

Repurchase agreements

 

 

3,544

 

 

3,073

Total

 

$

332,512

 

$

226,338

FHLB advances—We have an available borrowing arrangement with the FHLB, which allows the Company to borrow on a collateralized basis. At March 31, 2016 and December 31, 2015, total unused borrowing capacity of $609.1 million and $355.1 million, respectively, was available under this arrangement. At March 31, 2016, $329.0 million was outstanding with an average interest rate of 0.49% and will mature within seven years. At December 31, 2015, $223.3 million was outstanding with an average interest rate of 0.46% and will mature within eight years. These borrowings are collateralized by a blanket lien on certain loans. The increase in total borrowing capacity is due to loan portfolio growth. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio.

Securities Sold Under Agreements to Repurchase—Securities sold under agreements to repurchase represent the purchase of interests in securities by banking customers. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We do not account for any of our repurchase agreements as sales for accounting purposes in our financial statements. Repurchase agreements with banking customers are settled on the following business day. All securities sold under agreements to repurchase are collateralized by pledged securities. The securities underlying the repurchase agreements are held in safekeeping by the Bank’s safekeeping agent.

Dallas Fed—We have an available borrower in custody arrangement with the Dallas Fed, which allows us to borrow on a collateralized basis. Certain commercial and consumer loans are pledged under this arrangement. We maintain this borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. At March 31, 2016 and December 31, 2015, $244.3 million and $243.9 million, respectively, were available under this arrangement and no borrowings were outstanding.

Federal Funds Purchased—We have available federal funds lines of credit with our correspondent banks. As of March 31, 2016 and December 31, 2015, there were no federal funds purchased outstanding.

Subordinated Debentures

At March 31, 2016, the Company had outstanding $13.3 million in subordinated debentures net of $8.9 million purchase discount, respectively. On October 1, 2015, the Company acquired Patriot Bancshares, Inc., and assumed the obligations related to the subordinated debentures issued to Patriot Bancshares Capital Trust I and Capital Trust II.

 

53


 

A summary of pertinent information related to the Company’s issues of subordinated debentures outstanding at March 31, 2016 is set forth in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

Issuance Date

 

Trust Preferred Securities Outstanding

 

Interest Rate(1)

 

Subordinated Debt Owed to Trusts

 

Maturity Date(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Patriot Bancshares Capital Trust I

 

March 31, 2006

 

$

5,000

 

3 month LIBOR +1.85%, not to exceed 11.90%

 

$

5,155

 

April 7, 2036

Patriot Bancshares Capital Trust II

 

August 8, 2007

 

$

16,500

 

3 month LIBOR +1.80%, not to exceed 11.90%

 

$

17,011

 

September 15, 2037

(1)

The 3-month LIBOR in effect as of March 31, 2016 was 0.629%.

(2)

All debentures are callable five years from issuance date.

 

Each of the trusts is a capital trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s junior subordinated debentures. The preferred trust securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated debentures. The debentures, which are the only assets of each trust, are subordinate and junior in right of payment to all of the Company’s present and future senior indebtedness. The Company has fully and unconditionally guaranteed each trust’s obligations under the trust securities issued by such trust to the extent not paid or made by each trust, provided such trust has funds available for such obligations.

 

Under the provisions of each issue of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred securities and common securities will also be deferred.

Liquidity and Capital Resources

Liquidity

Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. During the three months ended March 31, 2016 and the 2015 fiscal year, our liquidity needs have primarily been met by core deposits, security and loan maturities, amortizing investment and loan portfolios and advances from the FHLB. Although access to purchased funds from correspondent banks and the Dallas Fed are available and have been utilized on occasion to take advantage of investment opportunities, we do not generally rely on these external funding sources. We expect capital resources and liquidity will be sufficient for at least the next twelve months.

As of March 31, 2016, we had outstanding $747.9 million in commitments to extend credit and $19.0 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.

As of March 31, 2016, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.

As of March 31, 2016, we had cash and cash equivalents of $171.4 million, an increase of $46.5 million compared with $124.9 million as of December 31, 2015.

54


 

Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of March 31, 2016 (other than securities sold under repurchase agreements), which consist of our future cash payments associated with our contractual obligations pursuant to our certificates and other time deposits, Federal Home Loan Bank advances, subordinated debentures, and noncancelable future operating leases. Payments for the Federal Home Loan Bank advances includes interest of $1.3 million that will be paid in future years.  Payments for subordinated debentures includes interest of $11.4 million that will be paid in future years.  The future interest payments were calculated using the current rate in effect at March 31, 2016.  Payments related to leases are based on actual payments specified in underlying contracts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

1 year or less

    

More than
1 year but less
than 3 years

    

3 years or more
but less
than 5 years

    

5 years or more

    

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates and other time deposits

 

$

865,849

 

$

404,159

 

$

124,390

 

$

 -

 

$

1,394,398

Federal Home Loan Bank advances

 

 

217,069

 

 

112,487

 

 

94

 

 

508

 

 

330,158

Subordinated debentures

 

 

541

 

 

541

 

 

1,624

 

 

30,894

 

 

33,600

Operating leases

 

 

1,857

 

 

3,365

 

 

1,919

 

 

3,841

 

 

10,982

Total

 

$

1,085,316

 

$

520,552

 

$

128,027

 

$

35,243

 

$

1,769,138

Off Balance Sheet Items

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of March 31, 2016 are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

1 year or less

    

More than
1 year but less
than 3 years

    

3 years or more
but less
than 5 years

    

5 years or more

    

Total

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to extend credit

 

$

302,404

 

$

286,469

 

$

89,161

 

$

69,909

 

$

747,943

Standby and commercial letters of credit

 

 

16,618

 

 

1,569

 

 

63

 

 

800

 

 

19,050

Total

 

$

319,022

 

$

288,038

 

$

89,224

 

$

70,709

 

$

766,993

 

Capital Resources

Total shareholders’ equity was $430.9 million at March 31, 2016, an increase of $1.5 million or 0.4% compared with $429.4 million at December 31, 2015. The increase was the result of retained earnings of $1.8 million for the three month period ended March 31, 2016, an increase in the value of available for sale securities recognized in other accumulated comprehensive earnings and an increase due to stock compensation expense which was offset by Company’s treasury stock purchases of $1.5 million.

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III Capital Rules. The Basel III Capital Rules, among other things, (i) introduce CET1, a new capital measure, (ii) specify that Tier 1 capital consist of CET1 and "Additional Tier 1 Capital" instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments as compared to existing regulations. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions to be fully phased in on January 1, 2019.

55


 

The following table provides a comparison of the Company’s and the Bank’s leverage and risk weighted capital ratios as of March 31, 2016 and December 31, 2015 to the minimum and well capitalized regulatory standards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Actual

 

For Capital
Adequacy Purposes

 

To be Categorized as “Well
Capitalized” under Prompt
Corrective Action Provisions

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

390,301

 

10.8

%

 

$

288,893

 

8.0

%

 

 

N/A

 

N/A

 

Tier 1 capital (to risk weighted assets)

 

 

350,316

 

9.7

 

 

 

216,700

 

6.0

 

 

 

N/A

 

N/A

 

Common equity tier 1 capital

 

 

337,690

 

9.4

 

 

 

162,502

 

4.5

 

 

 

N/A

 

N/A

 

Tier I capital (to average assets)

 

 

350,316

 

9.5

 

 

 

147,047

 

4.0

 

 

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Bank(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

383,777

 

10.6

%

 

$

288,861

 

8.0

%

 

$

361,076

 

10.0

%

Tier 1 capital (to risk weighted assets)

 

 

343,792

 

9.5

 

 

 

216,646

 

6.0

 

 

 

288,861

 

8.0

 

Common equity tier 1 capital

 

 

343,792

 

9.5

 

 

 

162,484

 

4.5

 

 

 

234,700

 

6.5

 

Tier I capital (to average assets)

 

 

343,792

 

9.4

 

 

 

146,768

 

4.0

 

 

 

183,460

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Actual

 

For Capital
Adequacy Purposes

 

To be Categorized as “Well
Capitalized” under Prompt
Corrective Action Provisions

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

384,737

 

10.9

%

 

$

282,733

 

8.0

%

 

 

N/A

 

N/A

 

Tier 1 capital (to risk weighted assets)

 

 

351,482

 

10.0

 

 

 

212,050

 

6.0

 

 

 

N/A

 

N/A

 

Common equity tier 1 capital

 

 

338,961

 

9.6

 

 

 

159,037

 

4.5

 

 

 

N/A

 

N/A

 

Tier I capital (to average assets)

 

 

351,482

 

9.6

 

 

 

146,765

 

4.0

 

 

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Bank(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

$

376,453

 

10.7

%

 

$

282,725

 

8.0

%

 

$

353,406

 

10.0

%

Tier 1 capital (to risk weighted assets)

 

 

343,199

 

9.7

 

 

 

212,044

 

6.0

 

 

 

282,725

 

8.0

 

Common equity tier 1 capital

 

 

343,199

 

9.7

 

 

 

159,033

 

4.5

 

 

 

229,714

 

6.5

 

Tier I capital (to average assets)

 

 

343,199

 

9.4

 

 

 

146,689

 

4.0

 

 

 

183,361

 

5.0

 

 


(1)

The Federal Reserve may require the Company to maintain capital ratios above the required minimums.

(2)

The FDIC or the OCC may require the Bank to maintain capital ratios above the required minimums.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company manages market risk, which for the Company is primarily interest rate risk, through its Asset Liability Committee, which is composed of certain members of its board of directors in accordance with asset liability and funds management policies approved by the Company’s board of directors.

The Company uses an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net income and the balance sheet, respectively.  See the Company’s Annual Report on Form 10-K for year ended December 31, 2015 “Management Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Interest Rate Sensitivity and Market Risk”.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures — As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief

56


 

Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures.  Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.

Changes in internal control over financial reporting — There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

 

The Company and the Bank are from time to time subject to claims and litigation arising in the ordinary course of business.  At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial condition or cash flows.  However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved.  In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

Item 1A. Risk Factors.

There have no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2015 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) None.

(c) See “Note 2 – Earnings per Common Share” in Part I Item 1 in this quarterly report on Form 10-Q.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

57


 

Item 6. Exhibits.

 

 

 

Exhibit
Number

Description of Exhibit

31.1*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

31.2*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

32.1**

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*

Interactive Financial Data


*      Filed with this Quarterly Report on Form 10-Q

**    Furnished with this Quarterly Report on Form 10-Q

 

58


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Green Bancorp, Inc.
(Registrant)

 

 

 

 

Date: May 13, 2016

/s/ Manuel J. Mehos

 

Manuel J. Mehos

 

Chairman and Chief Executive Officer

 

 

Date: May 13, 2016

/s/ John P. Durie

 

John P. Durie

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

59