FCB FINANCIAL HOLDINGS, INC. - FORM 10-Q - May 5, 2017

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EX-32.2 - EXHIBIT 32.2 - FCB FINANCIAL HOLDINGS, INC.fcb3312017ex322.htm
EX-32.1 - EXHIBIT 32.1 - FCB FINANCIAL HOLDINGS, INC.fcb3312017ex321.htm
EX-31.2 - EXHIBIT 31.2 - FCB FINANCIAL HOLDINGS, INC.fcb3312017ex312.htm
EX-31.1 - EXHIBIT 31.1 - FCB FINANCIAL HOLDINGS, INC.fcb3312017ex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-36586
  
FCB FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter) 
 
Delaware
 
001-36586
 
27-0775699
(State or other jurisdiction
of incorporation)
 
(Commission
file number)
 
(IRS Employer
Identification Number)
2500 Weston Road, Suite 300
Weston, Florida 33331
(Address of principal executive offices)
(954) 984-3313
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  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).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
¨
 
Smaller reporting company
¨
 
 
 
 
 
 
 
Non-accelerated filer (Do not check if a smaller reporting company)
¨
 
Smaller reporting 
company
¨
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    ¨  Yes    ý  No
As of May 1, 2017, the registrant had 42,615,061 shares of Class A Common Stock outstanding.

1

FCB FINANCIAL HOLDINGS, INC.
FORM 10-Q
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1

PART I. FINANCIAL INFORMATION
FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share data)
 
 
March 31, 2017
 
December 31, 2016
Assets:
 
 
 
 
Cash and due from banks
 
$
70,908

 
$
52,903

Interest-earning deposits in other banks
 
62,929

 
30,973

Investment securities:
 
 
 
 
Available for sale securities, at fair value
 
1,976,252

 
1,876,434

Federal Home Loan Bank and other bank stock, at cost
 
55,652

 
51,656

Total investment securities
 
2,031,904

 
1,928,090

Loans held for sale
 
21,251

 
20,220

Loans:
 
 
 
 
New loans
 
6,552,214

 
6,259,406

Acquired loans
 
366,156

 
375,488

Allowance for loan losses
 
(39,431
)
 
(37,897
)
Loans, net
 
6,878,939

 
6,596,997

Premises and equipment, net
 
36,278

 
36,652

Other real estate owned
 
18,761

 
19,228

Goodwill
 
81,204

 
81,204

Core deposit intangible
 
4,435

 
4,691

Deferred tax assets, net
 
56,178

 
61,391

Bank-owned life insurance
 
198,089

 
198,438

Other assets
 
72,346

 
59,347

Total assets
 
$
9,533,222

 
$
9,090,134

Liabilities and Stockholders’ Equity
 
 
 
 
Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Transaction accounts:
 
 
 
 
Noninterest-bearing
 
$
1,069,745

 
$
905,905

Interest-bearing
 
4,571,833

 
4,183,972

Total transaction accounts
 
5,641,578

 
5,089,877

Time deposits
 
2,032,793

 
2,215,794

Total deposits
 
7,674,371

 
7,305,671

Borrowings (including FHLB advances of $644,700 and $592,250, respectively)
 
739,519

 
751,103

Other liabilities
 
64,085

 
50,919

Total liabilities
 
8,477,975

 
8,107,693

Commitments and contingencies (Note 12)
 

 

Stockholders’ Equity:
 
 
 
 
Class A common stock, par value $0.001 per share; 100 million shares authorized; 45,126,551; 43,663,586 issued and 42,432,062; 40,969,097 outstanding
 
45

 
44

Class B common stock, par value $0.001 per share; 50 million shares authorized; 192,132; 380,606 issued and 0; 197,950 outstanding
 
—

 
—

Additional paid-in capital
 
898,394

 
875,314

Retained earnings
 
227,440

 
188,451

Accumulated other comprehensive income (loss)
 
6,741

 
(3,995
)
Treasury stock, at cost; 2,694,489; 2,694,489 Class A and 192,132; 192,132 Class B common shares
 
(77,373
)
 
(77,373
)
Total stockholders’ equity
 
1,055,247

 
982,441

Total liabilities and stockholders’ equity
 
$
9,533,222

 
$
9,090,134

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

2

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except share and per share data)
 
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Interest income:
 
 
 
 
Interest and fees on loans
 
$
66,589

 
$
61,288

Interest and dividends on investment securities
 
18,561

 
14,374

Other interest income
 
72

 
66

Total interest income
 
85,222

 
75,728

Interest expense:
 
 
 
 
Interest on deposits
 
13,518

 
9,293

Interest on borrowings
 
2,034

 
1,993

Total interest expense
 
15,552

 
11,286

Net interest income
 
69,670

 
64,442

Provision for loan losses
 
1,643

 
1,440

Net interest income after provision for loan losses
 
68,027

 
63,002

Noninterest income:
 
 
 
 
Service charges and fees
 
915

 
806

Loan and other fees
 
2,495

 
2,014

Bank-owned life insurance income
 
1,414

 
1,285

Income from resolution of acquired assets
 
762

 
680

Gain (loss) on sales of other real estate owned
 
45

 
(110
)
Gain (loss) on investment securities
 
777

 
(54
)
Other noninterest income
 
3,579

 
813

Total noninterest income
 
9,987

 
5,434

Noninterest expense:
 
 
 
 
Salaries and employee benefits
 
20,497

 
18,645

Occupancy and equipment expenses
 
3,397

 
3,572

Loan and other real estate related expenses
 
1,227

 
1,820

Professional services
 
1,352

 
1,337

Data processing and network
 
2,965

 
2,863

Regulatory assessments and insurance
 
2,177

 
2,117

Amortization of intangibles
 
256

 
379

Marketing and promotions
 
1,346

 
1,057

Other operating expenses
 
1,867

 
1,510

Total noninterest expense
 
35,084

 
33,300

Income before income tax expense
 
42,930

 
35,136

Income tax expense
 
3,941

 
12,684

Net income
 
$
38,989

 
$
22,452

Earnings per share:
 
 
 
 
Basic
 
$
0.93

 
$
0.55

Diluted
 
$
0.86

 
$
0.52

Weighted average shares outstanding:
 
 
 
 
Basic
 
41,730,610

 
40,698,866

Diluted
 
45,573,216

 
42,840,157

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

3

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
 
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Net income
 
$
38,989

 
$
22,452

Other comprehensive income (loss):
 
 
 
 
Unrealized net holding gains (losses) on investment securities available for sale, net of taxes of $(6,719), $(1,029), respectively
 
10,786

 
1,641

Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $32, $275, respectively
 
(50
)
 
(438
)
Total other comprehensive income (loss)
 
10,736

 
1,203

Total comprehensive income
 
$
49,725

 
$
23,655

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


4

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except for share data)
 
 
 
Common Stock
Shares Outstanding
 
Common Stock
Issued
 
Additional
Paid in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
 
Class A
 
Class B
 
Class A
 
Class B
 
Balance as of January 1, 2016
 
37,126,571

 
3,733,882

 
$
39

 
$
4

 
$
850,609

 
$
88,535

 
$
(53,635
)
 
$
(9,443
)
 
$
876,109

Net income
 
—

 
—

 
—

 
—

 
—

 
22,452

 
—

 
—

 
22,452

Exchange of B shares to A shares
 
210,629

 
(210,629
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation and warrant expense
 
—

 
—

 
—

 
—

 
1,038

 
—

 
—

 
—

 
1,038

Treasury stock purchases
 
(421,564
)
 
—

 
—

 
—

 
—

 
—

 
(13,582
)
 
—

 
(13,582
)
Exercise of stock options
 
156,898

 
 
 
 
 
 
 
2,093

 
 
 
 
 
 
 
2,093

Other
 
—

 
—

 
—

 
—

 
(14
)
 
—

 
—

 
—

 
(14
)
Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,203

 
1,203

Balance as of March 31, 2016
 
37,072,534

 
3,523,253

 
$
39

 
$
4

 
$
853,726

 
$
110,987

 
$
(67,217
)
 
$
(8,240
)
 
$
889,299

Balance as of January 1, 2017
 
40,969,097

 
197,950

 
$
44

 
$
—

 
$
875,314

 
$
188,451

 
$
(77,373
)
 
$
(3,995
)
 
$
982,441

Net income
 
—

 
—

 
—

 
—

 
—

 
38,989

 
—

 
—

 
38,989

Exchange of B shares to A shares
 
197,950

 
(197,950
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation and warrant expense
 
—

 
—

 
—

 
—

 
1,431

 
—

 
—

 
—

 
1,431

Treasury stock purchases
 
—

 
—

 
—

 
—

 
 
 
—

 
—

 
 
 
—

Exercise of stock options and warrants
 
1,181,422

 
—

 
1

 
—

 
21,664

 
—

 
—

 
—

 
21,665

Restricted stock awards (RSAs)
 
83,593

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other
 
—

 
—

 
—

 
—

 
(15
)
 
—

 
—

 
—

 
(15
)
Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
10,736

 
10,736

Balance as of March 31, 2017
 
42,432,062

 
—

 
$
45

 
$
—

 
$
898,394

 
$
227,440

 
$
(77,373
)
 
$
6,741

 
$
1,055,247

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


5

FCB FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
38,989

 
$
22,452

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Provision for loan losses
 
1,643

 
1,440

Amortization of intangible assets
 
256

 
379

Depreciation and amortization of premises and equipment
 
880

 
906

Amortization of discount on loans
 
(194
)
 
(207
)
Net amortization (accretion) of premium (discount) on investment securities
 
437

 
387

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

 
(23
)
Net amortization (accretion) on FHLB advances and other borrowings
 
(526
)
 
(653
)
Impairment of other real estate owned
 
184

 
90

(Gain) loss on investment securities
 
(777
)
 
54

(Gain) loss on sale of loans
 
(796
)
 
(386
)
(Gain) loss on sale of other real estate owned
 
(45
)
 
110

(Gain) loss on sale of premises and equipment
 
(1
)
 
35

Deferred tax expense
 
—

 
—

Stock-based compensation
 
1,431

 
1,038

Increase in cash surrender value of BOLI
 
(1,414
)
 
(1,285
)
Net change in operating assets and liabilities:
 
 
 
 
Net change in loans held for sale
 
(588
)
 
2,000

Net change in other assets
 
(5,723
)
 
(13,804
)
Net change in other liabilities
 
10,630

 
12,180

Net cash provided by (used in) operating activities
 
44,386

 
24,713

Cash Flows From Investing Activities:
 
 
 
 
Purchase of investment securities available for sale
 
(173,138
)
 
(110,410
)
Sales of investment securities available for sale
 
17,728

 
117,243

Paydown and maturities of investment securities available for sale
 
67,141

 
17,617

Purchase of FHLB and other bank stock
 
(32,318
)
 
(32,612
)
Sales of FHLB and other bank stock
 
28,322

 
32,768

Net change in loans
 
(404,462
)
 
(294,372
)
Purchase of loans
 
—

 
(192,195
)
Proceeds from sale of loans
 
120,536

 
30,378

Proceeds from sale of other real estate owned
 
1,216

 
2,963

Purchase of premises and equipment
 
(519
)
 
(673
)
Proceeds from the sale of premises and equipment
 
14

 
—

Proceeds from life insurance
 
1,763

 
—

Net cash provided by (used in) investing activities
 
(373,717
)
 
(429,293
)
Cash Flows From Financing Activities:
 
 
 
 
Net change in deposits
 
368,700

 
471,764

Net change in FHLB advances
 
52,450

 
(31,650
)
Net change in repurchase agreements
 
(63,508
)
 
(418
)
Repurchase of stock
 
—

 
(13,582
)
Exercise of stock options
 
21,665

 
2,093

Other financing costs
 
(15
)
 
(14
)
Net cash provided by (used in) financing activities
 
379,292

 
428,193

Net Change in Cash and Cash Equivalents
 
49,961

 
23,613

Cash and Cash Equivalents at Beginning of Period
 
83,876

 
102,460

Cash and Cash Equivalents at End of Period
 
$
133,837

 
$
126,073

Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Interest paid
 
$
15,675

 
$
10,770

Income taxes paid
 
—

 
4,053

Supplemental disclosure of noncash investing and financing activities:
 
 
 
 
Transfer of loans to other real estate owned
 
$
888

 
$
7,345

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

6

FCB FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with the audited consolidated financial statements and the notes thereto for FCB Financial Holdings, Inc. (the “Company”) previously filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation, have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
Nature of Operations
The Company is a national bank holding company with one wholly-owned national bank subsidiary, Florida Community Bank, N.A. (“Florida Community Bank” or the “Bank”), headquartered in Weston, Florida, offering a comprehensive range of traditional banking products and services to individual and corporate customers through 46 banking centers located in Florida at March 31, 2017.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s subsidiaries, which consist of a group of real estate holding companies. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The Company’s financial reporting and accounting policies conform to U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates subject to significant change include the allowance for loan losses, valuation of and accounting for acquired loans, the carrying value of OREO, the fair value of financial instruments, the valuation of goodwill and other intangible assets, acquisition-related fair value computations, stock-based compensation and deferred taxes.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU eliminates equity treatment for tax benefits or deficiencies that result from differences between the compensation cost recognized for GAAP purposes and the related tax deduction at settlement or expiration with such changes recognized in income tax expense and excludes excess tax benefits and tax deficiencies from the calculation of assumed proceeds for earnings per share purposes since such amounts are recognized in the income statement. In addition, this ASU simplifies the statements of cash flows by eliminating the bifurcation of excess tax benefits from operating activities to financing activities. The Company recognized approximately $9.2 million of tax benefit in the consolidated statements of income during the first quarter of 2017 as a result of the adoption of this guidance that previously would have been recorded in additional paid in capital. The requirement to recognize excess tax benefits and tax deficiencies in the income statement was applied prospectively. This ASU became effective for the first quarter ended March 31, 2017.

7

In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments” which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four-stop decision sequence. This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting” which eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. This update requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern. The guidance is intended to incorporate into GAAP a requirement that management perform a going concern evaluation similar to the auditor’s evaluation required by standards issued by the Public Company Accounting Oversight Board (“PCAOB”) and American Institute of Certified Public Accountants (“AICPA”). This ASU became effective for the first quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this ASU modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019 including any interim periods within that reporting period where goodwill impairment tests are performed. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.

In Februry 2017, the FASB issued ASU No. 2017-05, "Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) : Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets." The FASB is issuing this ASU to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. The amendments in this ASU will require all entities to account for the derecognition of a business or nonprofit activity in accordance with Topic 810. The amendments also eliminate several accounting differences between transactions involving assets and transactions involving businesses. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.

8

In March 2017, the FASB issued ASU No. 2017-08, "Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." This ASU shortens the amortization period for certain purchased callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations or cash flows.
NOTE 2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:
 
 
Amortized
Cost
 
Unrealized
 
Fair
Value
March 31, 2017
 
Gains
 
Losses
 
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
 
$
14,501

 
$
64

 
$
307

 
$
14,258

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
588,594

 
2,119

 
9,024

 
581,689

State and municipal obligations
 
27,925

 
142

 
636

 
27,431

Asset-backed securities
 
600,473

 
4,317

 
151

 
604,639

Corporate bonds and other debt securities
 
590,607

 
14,856

 
3,510

 
601,953

Preferred stock and other equity securities
 
143,233

 
3,535

 
486

 
146,282

Total available for sale
 
$
1,965,333

 
$
25,033

 
$
14,114

 
$
1,976,252

 
 
 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Unrealized
 
Fair
Value
December 31, 2016
 
Gains
 
Losses
 
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
 
$
16,512

 
$
76

 
$
274

 
$
16,314

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
566,377

 
1,760

 
9,691

 
558,446

State and municipal obligations
 
28,109

 
148

 
578

 
27,679

Asset-backed securities
 
574,521

 
3,852

 
550

 
577,823

Corporate bonds and other debt securities
 
560,191

 
4,490

 
5,387

 
559,294

Preferred stock and other equity securities
 
137,228

 
814

 
1,164

 
136,878

Total available for sale
 
$
1,882,938

 
$
11,140

 
$
17,644

 
$
1,876,434

As part of the Company’s liquidity management strategy, the Company pledges loans and securities to secure borrowings from the Federal Home Loan Bank of Atlanta ("FHLB'). The Company also pledges securities to collateralize public deposits, repurchase agreements and interest rate swaps. The carrying value of all pledged securities totaled $699.5 million and $594.0 million at March 31, 2017 and December 31, 2016, respectively.

9

The amortized cost and estimated fair value of securities available for sale, by contractual maturity, are as follows:
March 31, 2017
 
Amortized
Cost
 
Fair
Value
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
Due in one year or less
 
$
—

 
$
—

Due after one year through five years
 
189,174

 
190,668

Due after five years through ten years
 
101,430

 
100,391

Due after ten years
 
327,928

 
338,325

U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and asset-backed securities
 
1,203,568

 
1,200,586

Preferred stock and other equity securities
 
143,233

 
146,282

Total available for sale
 
$
1,965,333

 
$
1,976,252

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

The following tables present the estimated fair values and gross unrealized losses on investment securities available for sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position as of the periods presented:
 
 
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2017
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
 
$
9,885

 
$
307

 
$
—

 
$
—

 
$
9,885

 
$
307

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
380,105

 
8,619

 
10,785

 
405

 
390,890

 
9,024

State and municipal obligations
 
25,247

 
636

 
—

 
—

 
25,247

 
636

Asset-backed securities
 
40,359

 
151

 
—

 
—

 
40,359

 
151

Corporate bonds and other debt securities
 
167,164

 
2,131

 
68,903

 
1,379

 
236,067

 
3,510

Preferred stock and other equity securities
 
46,659

 
486

 
—

 
—

 
46,659

 
486

Total available for sale
 
$
669,419

 
$
12,330

 
$
79,688

 
$
1,784

 
$
749,107

 
$
14,114



10

 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2016
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
 
$
11,577

 
$
274

 
$
—

 
$
—

 
$
11,577

 
$
274

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
372,145

 
9,261

 
11,781

 
430

 
383,926

 
9,691

State and municipal obligations
 
25,490

 
578

 
—

 
—

 
25,490

 
578

Asset-backed securities
 
11,309

 
21

 
34,855

 
529

 
46,164

 
550

Corporate bonds and other debt securities
 
179,925

 
3,042

 
77,934

 
2,345

 
257,859

 
5,387

Preferred stock and other equity securities
 
49,996

 
1,144

 
5,123

 
20

 
55,119

 
1,164

Total available for sale
 
$
650,442

 
$
14,320

 
$
129,693

 
$
3,324

 
$
780,135

 
$
17,644


At March 31, 2017, the Company’s security portfolio consisted of 372 securities, of which 146 securities were in an unrealized loss position. A total of 115 were in an unrealized loss position for less than 12 months. The unrealized losses for these securities resulted primarily from changes in interest rates and spreads.
The Company monitors its investment securities for other-than-temporary-impairment ("OTTI"). Impairment is evaluated on an individual security basis considering numerous factors, and their relative significance. The Company has evaluated the nature of unrealized losses in the investment securities portfolio to determine if OTTI exists. The unrealized losses relate to changes in market interest rates and market conditions that do not represent credit-related impairments. Furthermore, the Company does not intend to sell nor is it more likely than not that it will be required to sell these investments before the recovery of their amortized cost basis. Management has completed an assessment of each security in an unrealized loss position for credit impairment and has determined that no individual security was other-than-temporarily impaired at March 31, 2017. The following describes the basis under which the Company has evaluated OTTI:
U.S. Government Agencies and Sponsored Enterprises Obligations and Agency Mortgage-Backed Securities (“MBS”):
The unrealized losses associated with U.S. Government agencies and sponsored enterprises obligations and agency MBS are primarily driven by changes in interest rates. These securities have either an explicit or implicit U.S. government guarantee.
Asset-Backed Securities and Corporate Bonds & Other Debt Securities:
Securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase, without relying on a bond issuer’s guarantee in making the investment decision. These investments are investment grade and will continue to be monitored as part of the Company’s ongoing impairment analysis, but are expected to perform in accordance with their terms.
Preferred Stock and Other Equity Securities:
The unrealized losses associated with preferred stock and other equity securities in large U.S. financial institutions are primarily driven by changes in interest rates and spreads. These securities were generally underwritten in accordance with the Company’s investment standards prior to the decision to purchase.
Gross realized gains and losses on the sale of securities available for sale are shown below. The cost of securities sold is based on the specific identification method.
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
(Dollars in thousands)
Gross realized gains
 
$
325

 
$
888

Gross realized losses
 
—

 
(942
)
Net realized gains (losses)
 
$
325

 
$
(54
)

11

NOTE 3. LOANS, NET
The Company’s loan portfolio consists of New and Acquired loans. The Company classifies originated loans and purchased loans not acquired through business combinations as New loans. The Company classifies loans acquired through business combinations as Acquired loans. All acquired loans not specifically excluded under ASC 310-30 are accounted for under ASC 310-30. The remaining portfolio of acquired loans excluded under ASC 310-30 are accounted for under ASC 310-20 and are classified as Non-ASC 310-30 loans.
The following tables summarize the Company’s loans by portfolio and segment as of the periods presented, net of deferred fees, costs, premiums and discounts:
March 31, 2017
 
ASC
310-30
Loans
 
Non-ASC
310-30
Loans
 
New
Loans (1)
 
Total
 
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
129,317

 
$
38,352

 
$
1,703,790

 
$
1,871,459

Owner-occupied commercial real estate
 
—

 
18,465

 
790,062

 
808,527

1-4 single family residential
 
30,115

 
64,669

 
2,084,966

 
2,179,750

Construction, land and development
 
15,912

 
5,890

 
627,894

 
649,696

Home equity loans and lines of credit
 
—

 
41,835

 
50,815

 
92,650

Total real estate loans
 
$
175,344

 
$
169,211

 
$
5,257,527

 
$
5,602,082

Other loans:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
14,234

 
$
5,487

 
$
1,290,456

 
$
1,310,177

Consumer
 
1,554

 
326

 
4,231

 
6,111

Total other loans
 
15,788

 
5,813

 
1,294,687

 
1,316,288

Total loans held in portfolio
 
$
191,132

 
$
175,024

 
$
6,552,214

 
$
6,918,370

Allowance for loan losses
 
 
 
 
 
 
 
(39,431
)
Loans held in portfolio, net
 
 
 
 
 
 
 
$
6,878,939

December 31, 2016
 
ASC
310-30
Loans
 
Non-ASC
310-30
Loans
 
New
Loans (1)
 
Total
 
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
130,628

 
$
38,786

 
$
1,438,427

 
$
1,607,841

Owner-occupied commercial real estate
 
—

 
18,477

 
769,814

 
788,291

1-4 single family residential
 
31,476

 
66,854

 
2,012,856

 
2,111,186

Construction, land and development
 
17,657

 
6,338

 
651,253

 
675,248

Home equity loans and lines of credit
 
—

 
42,295

 
49,819

 
92,114

Total real estate loans
 
$
179,761

 
$
172,750

 
$
4,922,169

 
$
5,274,680

Other loans:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
15,147

 
$
5,815

 
$
1,332,869

 
$
1,353,831

Consumer
 
1,681

 
334

 
4,368

 
6,383

Total other loans
 
16,828

 
6,149

 
1,337,237

 
1,360,214

Total loans held in portfolio
 
$
196,589

 
$
178,899

 
$
6,259,406

 
$
6,634,894

Allowance for loan losses
 
 
 
 
 
 
 
(37,897
)
Loans held in portfolio, net
 
 
 
 
 
 
 
$
6,596,997

(1)
Balance includes $1.7 million and $3.2 million of net deferred fees, costs, and premium and discount as of March 31, 2017 and December 31, 2016, respectively.

12

At March 31, 2017 and December 31, 2016, the unpaid principal balance of ASC 310-30 loans were $219.7 million and $231.5 million, respectively. At March 31, 2017 and December 31, 2016, the Company had pledged loans as collateral for FHLB advances of $3.27 billion and $3.20 billion, respectively. The recorded investments of consumer mortgage loans secured by 1-4 family residential real estate properties for which formal foreclosure proceedings are in process as of March 31, 2017 totaled $3.6 million. The Company held $330.6 million and $433.0 million of syndicated national loans as of March 31, 2017 and December 31, 2016.
The Company purchased no loans from third parties during the three months ended March 31, 2017 as compared to $189.2 million purchased during the same period in 2016.
During the three months ended March 31, 2017 and 2016, the Company sold approximately $137.4 million and $36.2 million, respectively, in loans to third parties.
The accretable discount on ASC 310-30 loans represents the amount by which the undiscounted expected cash flows on such loans exceed their carrying value. The change in expected cash flows for certain ASC 310-30 loan pools resulted in the reclassification of $(5.3) million and $(9.9) million between non-accretable and accretable discount during the three months ended March 31, 2017 and 2016, respectively.
Changes in accretable discount for ASC 310-30 loans for the three months ended March 31, 2017 and 2016, were as follows:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
(Dollars in thousands)
Balance at January 1,
 
$
60,990

 
$
144,152

Accretion
 
(3,832
)
 
(15,680
)
Reclassifications from (to) non-accretable difference
 
(5,267
)
 
(9,888
)
Balance at March 31,
 
$
51,891

 
$
118,584

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

13

 
 
Commercial
Real Estate
 
Owner-
Occupied
Commercial
Real Estate
 
1-4 Single
Family
Residential
 
Construction,
Land and
Development
 
Home
Equity
Loans and
Lines of
Credit
 
Commercial
and
Industrial
 
Consumer
 
Total
 
 
(Dollars in thousands)
Balance at January 1, 2017
 
$
10,123

 
$
2,597

 
$
7,379

 
$
4,677

 
$
648

 
$
12,245

 
$
228

 
$
37,897

Provision (credit) for ASC 310-30 loans
 
(1,352
)
 
—

 
2

 
66

 
—

 
1,047

 
(82
)
 
(319
)
Provision (credit) for non-ASC 310-30 loans
 
(32
)
 
—

 
(58
)
 
(3
)
 
40

 
(6
)
 
(29
)
 
(88
)
Provision (credit) for New loans
 
1,342

 
114

 
590

 
178

 
45

 
(219
)
 
—

 
2,050

Total provision
 
(42
)
 
114

 
534

 
241

 
85

 
822

 
(111
)
 
1,643

Charge-offs for ASC 310-30 loans
 
—

 
—

 
—

 
—

 
—

 
(14
)
 
—

 
(14
)
Charge-offs for non-ASC 310-30 loans
 
—

 
—

 
—

 
—

 
(7
)
 
—

 
—

 
(7
)
Charge-offs for New loans
 
(131
)
 
—

 
—

 
—

 
—

 
(100
)
 
—

 
(231
)
Total charge-offs
 
(131
)
 
—

 
—

 
—

 
(7
)
 
(114
)
 
—

 
(252
)
Recoveries for ASC 310-30 loans
 
14

 
—

 
—

 
—

 
—

 
—

 
100

 
114

Recoveries for non-ASC 310-30 loans
 
—

 
—

 
—

 
—

 
—

 
—

 
29

 
29

Recoveries for New loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total recoveries
 
14

 
—

 
—

 
—

 
—

 
—

 
129

 
143

Ending ALL balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASC 310-30 loans
 
917

 
—

 
31

 
305

 
—

 
1,310

 
162

 
2,725

Non-ASC 310-30 loans
 
344

 
61

 
243

 
44

 
276

 
370

 
6

 
1,344

New loans
 
8,703

 
2,650

 
7,639

 
4,569

 
450

 
11,273

 
78

 
35,362

Balance at March 31, 2017
 
$
9,964

 
$
2,711

 
$
7,913

 
$
4,918

 
$
726

 
$
12,953

 
$
246

 
$
39,431

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
Real Estate
 
Owner-
Occupied
Commercial
Real Estate
 
1-4 Single
Family
Residential
 
Construction,
Land and
Development
 
Home
Equity
Loans and
Lines of
Credit
 
Commercial
and
Industrial
 
Consumer
 
Total
 
 
(Dollars in thousands)
Balance at January 1, 2016
 
$
8,450

 
$
2,243

 
$
6,425

 
$
3,404

 
$
483

 
$
7,665

 
$
456

 
$
29,126

Provision (credit) for ASC 310-30 loans
 
(198
)
 
—

 
1

 
(10
)
 
—

 
(2
)
 
(4
)
 
(213
)
Provision (credit) for non-ASC 310-30 loans
 
(855
)
 
(58
)
 
(24
)
 
—

 
23

 
(3
)
 
6

 
(911
)
Provision (credit) for New loans
 
492

 
97

 
907

 
51

 
28

 
984

 
5

 
2,564

Total provision
 
(561
)
 
39

 
884

 
41

 
51

 
979

 
7

 
1,440

Charge-offs for ASC 310-30 loans
 
—

 
—

 
—

 
(30
)
 
—

 
(75
)
 
—

 
(105
)
Charge-offs for non-ASC 310-30 loans
 
—

 
(1
)
 
—

 
—

 
(35
)
 
—

 
(6
)
 
(42
)
Charge-offs for New loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total charge-offs
 
—

 
(1
)
 
—

 
(30
)
 
(35
)
 
(75
)
 
(6
)
 
(147
)
Recoveries for ASC 310-30 loans
 
761

 
—

 
—

 
—

 
—

 
11

 
—

 
772

Recoveries for non-ASC 310-30 loans
 
804

 
—

 
—

 
—

 
—

 
—

 
—

 
804

Recoveries for New loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total recoveries
 
1,565

 
—

 
—

 
—

 
—

 
11

 
—

 
1,576

Ending ALL balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASC 310-30 loans
 
2,461

 
—

 
27

 
288

 
—

 
387

 
402

 
3,565

Non-ASC 310-30 loans
 
1,033

 
404

 
308

 
36

 
279

 
57

 
4

 
2,121

New loans
 
5,960

 
1,877

 
6,974

 
3,091

 
220

 
8,136

 
51

 
26,309

Balance at March 31, 2016
 
$
9,454

 
$
2,281

 
$
7,309

 
$
3,415

 
$
499

 
$
8,580

 
$
457

 
$
31,995


14

Credit Quality Indicators
In evaluating credit risk, the Company looks at multiple factors; however, management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and consumer loans. Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for Non-ASC 310-30 and New commercial, construction, land and development and commercial real estate loans. Internal risk ratings are updated on a continuous basis.
The following tables present an aging analysis of the recorded investment for delinquent loans by portfolio and segment (excluding loans accounted for under ASC 310-30):
 
 
Accruing
 
 
 
 
March 31, 2017
 
30 to 59
Days Past
Due
 
60 to 89
Days Past
Due
 
90 Days
or More
Past Due
 
Non-
Accrual
 
Total
 
 
(Dollars in thousands)
New loans:
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Owner-occupied commercial real estate
 
—

 
—

 
—

 
—

 
—

1-4 single family residential
 
5,530

 
—

 
—

 
1,137

 
6,667

Construction, land and development
 
—

 
—

 
—

 
—

 
—

Home equity loans and lines of credit
 
—

 
—

 
—

 
129

 
129

Total real estate loans
 
5,530

 
—

 
—

 
1,266

 
6,796

Other loans:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
—

 
—

 
—

 
50

 
50

Consumer
 
—

 
—

 
—

 
—

 
—

Total other loans
 
—

 
—

 
—

 
50

 
50

Total new loans
 
$
5,530

 
$
—

 
$