FCB FINANCIAL HOLDINGS, INC. - FORM 10-Q - August 4, 2017

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EX-32.2 - EXHIBIT 32.2 - FCB FINANCIAL HOLDINGS, INC.fcb6302017ex322.htm
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EX-31.2 - EXHIBIT 31.2 - FCB FINANCIAL HOLDINGS, INC.fcb6302017ex312.htm
EX-31.1 - EXHIBIT 31.1 - FCB FINANCIAL HOLDINGS, INC.fcb6302017ex311.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 June 30, 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 August 1, 2017, the registrant had 43,335,655 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)
 
 
June 30, 2017
 
December 31, 2016
Assets:
 
 
 
 
Cash and due from banks
 
$
62,578

 
$
52,903

Interest-earning deposits in other banks
 
37,424

 
30,973

Investment securities:
 
 
 
 
Available for sale securities, at fair value
 
2,046,488

 
1,876,434

Federal Home Loan Bank and other bank stock, at cost
 
68,372

 
51,656

Total investment securities
 
2,114,860

 
1,928,090

Loans held for sale
 
24,145

 
20,220

Loans:
 
 
 
 
New loans
 
6,900,380

 
6,259,406

Acquired loans
 
351,021

 
375,488

Allowance for loan losses
 
(41,334
)
 
(37,897
)
Loans, net
 
7,210,067

 
6,596,997

Premises and equipment, net
 
36,111

 
36,652

Other real estate owned
 
18,540

 
19,228

Goodwill
 
81,204

 
81,204

Core deposit intangible
 
4,179

 
4,691

Deferred tax assets, net
 
50,612

 
61,391

Bank-owned life insurance
 
198,250

 
198,438

Other assets
 
63,422

 
59,347

Total assets
 
$
9,901,392

 
$
9,090,134

Liabilities and Stockholders’ Equity
 
 
 
 
Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Transaction accounts:
 
 
 
 
Noninterest-bearing
 
$
1,135,922

 
$
905,905

Interest-bearing
 
4,489,554

 
4,183,972

Total transaction accounts
 
5,625,476

 
5,089,877

Time deposits
 
2,069,714

 
2,215,794

Total deposits
 
7,695,190

 
7,305,671

Borrowings (including FHLB advances of $944,000 and $592,250, respectively)
 
1,019,494

 
751,103

Other liabilities
 
69,430

 
50,919

Total liabilities
 
8,784,114

 
8,107,693

Commitments and contingencies (Note 12)
 

 

Stockholders’ Equity:
 
 
 
 
Class A common stock, par value $0.001 per share; 100 million shares authorized; 45,902,907; 43,663,586 issued and 43,208,418; 40,969,097 outstanding
 
46

 
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
 
916,360

 
875,314

Retained earnings
 
262,521

 
188,451

Accumulated other comprehensive income (loss)
 
15,724

 
(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
 
1,117,278

 
982,441

Total liabilities and stockholders’ equity
 
$
9,901,392

 
$
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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
71,516

 
$
62,642

 
$
138,105

 
$
123,930

Interest and dividends on investment securities
 
18,921

 
14,470

 
37,482

 
28,844

Other interest income
 
136

 
96

 
208

 
162

Total interest income
 
90,573

 
77,208

 
175,795

 
152,936

Interest expense:
 
 
 
 
 
 
 
 
Interest on deposits
 
15,625

 
10,340

 
29,143

 
19,633

Interest on borrowings
 
3,061

 
1,938

 
5,095

 
3,931

Total interest expense
 
18,686

 
12,278

 
34,238

 
23,564

Net interest income
 
71,887

 
64,930

 
141,557

 
129,372

Provision for loan losses
 
2,115

 
1,976

 
3,758

 
3,416

Net interest income after provision for loan losses
 
69,772

 
62,954

 
137,799

 
125,956

Noninterest income:
 
 
 
 
 
 
 
 
Service charges and fees
 
902

 
842

 
1,817

 
1,648

Loan and other fees
 
3,048

 
2,248

 
5,543

 
4,262

Bank-owned life insurance income
 
1,414

 
1,286

 
2,828

 
2,571

Income from resolution of acquired assets
 
320

 
478

 
1,082

 
1,158

Gain (loss) on sales of other real estate owned
 
(23
)
 
2,102

 
22

 
1,992

Gain (loss) on investment securities
 
255

 
324

 
1,032

 
270

Other noninterest income
 
2,957

 
942

 
6,536

 
1,755

Total noninterest income
 
8,873

 
8,222

 
18,860

 
13,656

Noninterest expense:
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
21,486

 
19,614

 
41,983

 
38,259

Occupancy and equipment expenses
 
3,336

 
3,034

 
6,733

 
6,606

Loan and other real estate related expenses
 
1,188

 
2,235

 
2,415

 
4,055

Professional services
 
1,508

 
1,105

 
2,860

 
2,442

Data processing and network
 
3,090

 
2,796

 
6,055

 
5,659

Regulatory assessments and insurance
 
2,184

 
1,840

 
4,361

 
3,957

Amortization of intangibles
 
256

 
297

 
512

 
676

Marketing and promotions
 
947

 
1,108

 
2,293

 
2,165

Other operating expenses
 
1,257

 
1,946

 
3,124

 
3,456

Total noninterest expense
 
35,252

 
33,975

 
70,336

 
67,275

Income before income tax expense
 
43,393

 
37,201

 
86,323

 
72,337

Income tax expense
 
8,312

 
13,697

 
12,253

 
26,381

Net income
 
$
35,081

 
$
23,504

 
$
74,070

 
$
45,956

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.82

 
$
0.58

 
$
1.76

 
$
1.13

Diluted
 
$
0.76

 
$
0.55

 
$
1.62

 
$
1.07

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
42,659,101

 
40,646,498

 
42,197,420

 
40,672,682

Diluted
 
46,042,552

 
42,997,811

 
45,856,494

 
42,935,862

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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
35,081

 
$
23,504

 
$
74,070

 
$
45,956

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized net holding gains (losses) on investment securities available for sale, net of taxes of $(5,781), $(8,360), $(12,500), and $(9,389) respectively
 
9,331

 
13,297

 
20,117

 
14,938

Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $215, $153, $247, and $428, respectively
 
(348
)
 
(241
)
 
(398
)
 
(679
)
Total other comprehensive income (loss)
 
8,983

 
13,056

 
19,719

 
14,259

Total comprehensive income
 
$
44,064

 
$
36,560

 
$
93,789

 
$
60,215

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
 
—

 
—

 
—

 
—

 
—

 
45,956

 
—

 
—

 
45,956

Exchange of B shares to A shares
 
834,862

 
(834,862
)
 
1

 
(1
)
 
—

 
—

 
—

 
—

 
—

Stock-based compensation and warrant expense
 
—

 
—

 
—

 
—

 
2,238

 
—

 
—

 
—

 
2,238

Treasury stock purchases
 
(617,550
)
 
—

 
—

 
—

 
—

 
—

 
(20,264
)
 
—

 
(20,264
)
Stock issued in connection with equity awards and warrants
 
295,010

 
—

 
—

 
—

 
4,889

 
—

 
—

 
—

 
4,889

Other
 
—

 
—

 
—

 
—

 
(15
)
 
—

 
—

 
—

 
(15
)
Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
14,259

 
14,259

Balance as of June 30, 2016
 
37,638,893

 
2,899,020

 
$
40

 
$
3

 
$
857,721

 
$
134,491

 
$
(73,899
)
 
$
4,816

 
$
923,172

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

 
197,950

 
$
44

 
$
—

 
$
875,314

 
$
188,451

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

Net income
 
—

 
—

 
—

 
—

 
—

 
74,070

 
—

 
—

 
74,070

Exchange of B shares to A shares
 
197,950

 
(197,950
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation and warrant expense
 
—

 
—

 
—

 
—

 
3,756

 
—

 
—

 
—

 
3,756

Treasury stock purchases
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock issued in connection with equity awards and warrants
 
2,041,371

 
—

 
2

 
—

 
37,320

 
—

 
—

 
—

 
37,322

Other
 
—

 
—

 
—

 
—

 
(30
)
 
—

 
—

 
—

 
(30
)
Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
19,719

 
19,719

Balance as of June 30, 2017
 
43,208,418

 
—

 
$
46

 
$
—

 
$
916,360

 
$
262,521

 
$
(77,373
)
 
$
15,724

 
$
1,117,278

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)
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
74,070

 
$
45,956

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Provision for loan losses
 
3,758

 
3,416

Amortization of intangible assets
 
512

 
676

Depreciation and amortization of premises and equipment
 
1,766

 
1,713

Amortization of discount on loans
 
(363
)
 
(506
)
Net amortization (accretion) of premium (discount) on investment securities
 
972

 
744

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

 
(37
)
Net amortization (accretion) on FHLB advances and other borrowings
 
(753
)
 
(1,306
)
Impairment of other real estate owned
 
383

 
886

(Gain) loss on investment securities
 
(1,032
)
 
(270
)
(Gain) loss on sale of loans
 
(2,026
)
 
(816
)
(Gain) loss on sale of other real estate owned
 
(22
)
 
(1,992
)
(Gain) loss on sale of premises and equipment
 
(1
)
 
44

Deferred tax expense
 
—

 
—

Stock-based compensation
 
3,756

 
2,238

Increase in cash surrender value of BOLI
 
(2,828
)
 
(2,571
)
Net change in operating assets and liabilities:
 
 
 
 
Net change in loans held for sale
 
(2,865
)
 
(2,033
)
Net change in other assets
 
(813
)
 
8,811

Net change in other liabilities
 
14,513

 
5,532

Net cash provided by (used in) operating activities
 
89,027

 
60,485

Cash Flows From Investing Activities:
 
 
 
 
Purchase of investment securities available for sale
 
(416,404
)
 
(222,112
)
Sales of investment securities available for sale
 
70,496

 
174,766

Paydown and maturities of investment securities available for sale
 
207,148

 
32,665

Purchase of FHLB and other bank stock
 
(80,536
)
 
(52,477
)
Sales of FHLB and other bank stock
 
63,820

 
60,397

Net change in loans
 
(776,805
)
 
(677,978
)
Purchase of loans
 
—

 
(192,195
)
Proceeds from sale of loans
 
159,912

 
57,261

Proceeds from sale of other real estate owned
 
1,721

 
21,778

Purchase of premises and equipment
 
(1,238
)
 
(2,744
)
Proceeds from the sale of premises and equipment
 
14

 
2

Proceeds from life insurance
 
3,016

 
—

Net cash provided by (used in) investing activities
 
(768,856
)
 
(800,637
)
Cash Flows From Financing Activities:
 
 
 
 
Net change in deposits
 
389,519

 
1,037,065

Net change in FHLB advances
 
351,750

 
(215,250
)
Net change in repurchase agreements
 
(82,606
)
 
(9,868
)
Repurchase of stock
 
—

 
(20,264
)
Exercise of stock options
 
37,322

 
4,889

Other financing costs
 
(30
)
 
(15
)
Net cash provided by (used in) financing activities
 
695,955

 
796,557

Net Change in Cash and Cash Equivalents
 
16,126

 
56,405

Cash and Cash Equivalents at Beginning of Period
 
83,876

 
102,460

Cash and Cash Equivalents at End of Period
 
$
100,002

 
$
158,865

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Interest paid
 
$
34,044

 
$
23,057

Income taxes paid
 
525

 
28,642

Supplemental disclosure of noncash investing and financing activities:
 
 
 
 
Transfer of loans to other real estate owned
 
$
1,394

 
$
10,622

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 June 30, 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 $6.7 million and $15.9 million for the three and six months ended June 30, 2017, respectively, of tax benefit in the consolidated statements of income during 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 May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Accounting Standards Codification. Under ASU No. 2014-09, revenue should be recognized to depict the transfer of 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. In applying the guidance, an entity should 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when the entity satisfies a performance obligation. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU No. 2015-14 delaying the effective date of ASU No. 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Because this guidance does not apply to revenue associated with financial instruments, including loans or securities, the new guidance is not expected to have a material impact on the components of income most closely associated with financial instruments, including securities gains/losses and interest income. The Company is currently evaluating this guidance to determine the impact on components of noninterest income. Although management has not completed its evaluation of the impact of adoption of this ASU on noninterest income, management does not expect the amount or timing of the recognition of such revenue to be materially impacted and does not expect adoption to have a material impact on the Company's consolidated financial position, results of operations or cash flows. The Company does not plan to early adopt this guidance and has not yet identified which transition method will be applied upon adoption.


8

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.
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 ASU 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.
In May 2017, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting." This ASU provides clarity when applying the guidance in Topic 718, specifically relating to a modification of a share-based payment award. Entities should treat changes as modifications unless the fair value, vesting conditions, and classification of the modified awards are unchanged from the conditions immediately before the change. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. 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.

9

NOTE 2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale are as follows:
 
 
Amortized
Cost
 
Unrealized
 
Fair
Value
June 30, 2017
 
Gains
 
Losses
 
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
 
$
14,470

 
$
70

 
$
196

 
$
14,344

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
587,676

 
3,296

 
5,632

 
585,340

State and municipal obligations
 
27,693

 
134

 
767

 
27,060

Asset-backed securities
 
624,245

 
3,228

 
111

 
627,362

Corporate bonds and other debt securities
 
623,692

 
22,990

 
2,368

 
644,314

Preferred stock and other equity securities
 
143,244

 
5,061

 
237

 
148,068

Total available for sale
 
$
2,021,020

 
$
34,779

 
$
9,311

 
$
2,046,488

 
 
 
 
 
 
 
 
 
 
 
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") and the Federal Reserve Bank of Atlanta ("FRB"). The Company also pledges securities to collateralize public deposits, repurchase agreements and interest rate swaps. The carrying value of all pledged securities totaled $743.3 million and $594.0 million at June 30, 2017 and December 31, 2016, respectively.
The amortized cost and estimated fair value of securities available for sale, by contractual maturity, are as follows:
June 30, 2017
 
Amortized
Cost
 
Fair
Value
 
 
(Dollars in thousands)
Available for sale:
 
 
 
 
Due in one year or less
 
$
—

 
$
—

Due after one year through five years
 
221,802

 
225,410

Due after five years through ten years
 
101,885

 
101,952

Due after ten years
 
327,698

 
344,012

U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and asset-backed securities
 
1,226,391

 
1,227,046

Preferred stock and other equity securities
 
143,244

 
148,068

Total available for sale
 
$
2,021,020

 
$
2,046,488


10

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

The following tables present the estimated fair values and gross unrealized losses on investment securities available for sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position as of the periods presented:
 
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 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
 
$
9,959

 
$
196

 
$
—

 
$
—

 
$
9,959

 
$
196

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
299,960

 
5,247

 
10,195

 
385

 
310,155

 
5,632

State and municipal obligations
 
24,883

 
767

 
—

 
—

 
24,883

 
767

Asset-backed securities
 
60,493

 
111

 
—

 
—

 
60,493

 
111

Corporate bonds and other debt securities
 
94,178

 
1,445

 
28,705

 
923

 
122,883

 
2,368

Preferred stock and other equity securities
 
40,909

 
237

 
—

 
—

 
40,909

 
237

Total available for sale
 
$
530,382

 
$
8,003

 
$
38,900

 
$
1,308

 
$
569,282

 
$
9,311


 
 
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 June 30, 2017, the Company’s security portfolio consisted of 372 securities, of which 121 securities were in an unrealized loss position. A total of 99 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 June 30, 2017. The following describes the basis under which the Company has evaluated OTTI:

11

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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(Dollars in thousands)
Gross realized gains
 
$
369

 
$
321

 
$
694

 
$
1,209

Gross realized losses
 
(1,206
)
 
(54
)
 
(1,206
)
 
(996
)
Net realized gains (losses)
 
$
(837
)
 
$
267

 
$
(512
)
 
$
213

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:
June 30, 2017
 
ASC
310-30
Loans
 
Non-ASC
310-30
Loans
 
New
Loans (1)
 
Total
 
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
120,781

 
$
38,043

 
$
1,811,977

 
$
1,970,801

Owner-occupied commercial real estate
 
—

 
18,266

 
856,050

 
874,316

1-4 single family residential
 
28,792

 
62,485

 
2,133,883

 
2,225,160

Construction, land and development
 
15,060

 
5,890

 
706,866

 
727,816

Home equity loans and lines of credit
 
—

 
40,809

 
47,686

 
88,495

Total real estate loans
 
$
164,633

 
$
165,493

 
$
5,556,462

 
$
5,886,588

Other loans:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
13,612

 
$
5,499

 
$
1,339,591

 
$
1,358,702

Consumer
 
1,478

 
306

 
4,327

 
6,111

Total other loans
 
15,090

 
5,805

 
1,343,918

 
1,364,813

Total loans held in portfolio
 
$
179,723

 
$
171,298

 
$
6,900,380

 
$
7,251,401

Allowance for loan losses
 
 
 
 
 
 
 
(41,334
)
Loans held in portfolio, net
 
 
 
 
 
 
 
$
7,210,067


12

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 $(71) thousand and $3.2 million of net deferred fees, costs, and premium and discount as of June 30, 2017 and December 31, 2016, respectively.
At June 30, 2017 and December 31, 2016, the unpaid principal balance of ASC 310-30 loans were $209.1 million and $231.5 million, respectively. At June 30, 2017 and December 31, 2016, the Company had pledged loans as collateral for FHLB advances of $3.25 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 June 30, 2017 totaled $3.0 million. The Company held $316.9 million and $433.0 million of syndicated national loans as of June 30, 2017 and December 31, 2016.
No loans were purchased during the three and six months ended June 30, 2017 or the three months ended June 30, 2016. The Company purchased approximately $189.2 million of loans from third parties during the six months ended June 30, 2016.
During the three and six months ended June 30, 2017, the Company sold approximately $55.1 million and $192.5 million, respectively, in loans to third parties. During the three and six months ended June 30, 2016, the Company sold approximately $25.6 million and $61.8 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 $(9.6) million and $(19.7) million between non-accretable and accretable discount during the six months ended June 30, 2017 and 2016, respectively.
Changes in accretable discount for ASC 310-30 loans for the six months ended June 30, 2017 and 2016, were as follows:
 
 
Six Months Ended June 30,
 
 
2017
 
2016
 
 
(Dollars in thousands)
Balance at January 1,
 
$
60,990

 
$
144,152

Accretion
 
(2,853
)
 
(29,374
)
Reclassifications from (to) non-accretable difference
 
(9,647
)
 
(19,706
)
Balance at June 30,
 
$
48,490

 
$
95,072


13

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.
The following tables present information related to the ALL for the periods presented:
 
 
Commercial
Real Estate
 
Owner-
Occupied
Commercial
Real Estate
 
1-4 Single
Family
Residential
 
Construction,
Land and
Development
 
Home
Equity
Loans and
Lines of
Credit
 
Commercial
and
Industrial
 
Consumer
 
Total
 
 
(Dollars in thousands)
Balance at April 1, 2017
 
$
9,964

 
$
2,711

 
$
7,913

 
$
4,918

 
$
726

 
$
12,953

 
$
246

 
$
39,431

Provision (credit) for ASC 310-30 loans
 
770

 
—

 
29

 
(77
)
 
—

 
(1,127
)
 
(2
)
 
(407
)
Provision (credit) for non-ASC 310-30 loans
 
(13
)
 
4

 
59

 
(6
)
 
175

 
(4
)
 
—

 
215

Provision (credit) for New loans
 
1,443

 
571

 
843

 
(79
)
 
(17
)
 
(461
)
 
7

 
2,307

Total provision
 
2,200

 
575

 
931

 
(162
)
 
158

 
(1,592
)
 
5

 
2,115

Charge-offs for ASC 310-30 loans
 
(9
)
 
—

 
(35
)
 
(43
)
 
—

 
(15
)
 
—

 
(102
)
Charge-offs for non-ASC 310-30 loans
 
—

 
—

 
(60
)
 
—

 
—

 
—

 
—

 
(60
)
Charge-offs for New loans
 
—

 
—

 
—

 
—

 
—

 
(50
)
 
—

 
(50
)
Total charge-offs
 
(9
)
 
—

 
(95
)
 
(43
)
 
—

 
(65
)
 
—

 
(212
)
Recoveries for ASC 310-30 loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Recoveries for non-ASC 310-30 loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Recoveries for New loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total recoveries
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Ending ALL balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASC 310-30 loans
 
1,678


—

 
25


185


—


168


160

 
2,216

Non-ASC 310-30 loans
 
331

 
65

 
242

 
38

 
451

 
366

 
6

 
1,499

New loans
 
10,146

 
3,221

 
8,482

 
4,490

 
433

 
10,762

 
85

 
37,619

Balance at June 30, 2017
 
$
12,155

 
$
3,286

 
$
8,749

 
$
4,713

 
$
884

 
$
11,296

 
$
251

 
$
41,334

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

14

 
 
Commercial
Real Estate
 
Owner-
Occupied
Commercial
Real Estate
 
1-4 Single
Family
Residential
 
Construction,
Land and
Development
 
Home
Equity
Loans and
Lines of
Credit
 
Commercial
and
Industrial
 
Consumer
 
Total
 
 
(Dollars in thousands)
Balance at April 1, 2016
 
$
9,454

 
$
2,281

 
$
7,309

 
$
3,415

 
$
499

 
$
8,580

 
$
457

 
$
31,995

Provision (credit) for ASC 310-30 loans
 
5

 
—

 
—

 
1

 
—

 
(20
)
 
(16
)
 
(30
)
Provision (credit) for non-ASC 310-30 loans
 
(98
)
 
(64
)
 
(26
)
 
1

 
(6
)
 
(2
)
 
—

 
(195
)
Provision (credit) for New loans
 
736

 
35

 
125

 
287

 
122

 
908

 
(12
)
 
2,201

Total provision
 
643

 
(29
)
 
99

 
289

 
116

 
886

 
(28
)
 
1,976

Charge-offs for ASC 310-30 loans
 
(352
)
 
—

 
—

 
(3
)
 
—

 
(1
)
 
(2
)
 
(358
)
Charge-offs for non-ASC 310-30 loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Charge-offs for New loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total charge-offs
 
(352
)
 
—

 
—

 
(3
)
 
—

 
(1
)
 
(2
)
 
(358
)
Recoveries for ASC 310-30 loans
 
—

 
—

 
31

 
62

 
—

 
—

 
—

 
93

Recoveries for non-ASC 310-30 loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Recoveries for New loans
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total recoveries
 
—

 
—

 
31

 
62

 
—

 
—

 
—

 
93

Ending ALL balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASC 310-30 loans
 
2,114

 
—

 
58

 
348

 
—

 
366

 
384

 
3,270

Non-ASC 310-30 loans
 
935