Attached files
file | filename |
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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)
The accompanying notes are an integral part of these consolidated financial statements
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 |
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 | $ | — | $ |