Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - FCB FINANCIAL HOLDINGS, INC. | fcb3312018ex322.htm |
| EX-32.1 - EXHIBIT 32.1 - FCB FINANCIAL HOLDINGS, INC. | fcb3312018ex321.htm |
| EX-31.2 - EXHIBIT 31.2 - FCB FINANCIAL HOLDINGS, INC. | fcb3312018ex312.htm |
| EX-31.1 - EXHIBIT 31.1 - FCB FINANCIAL HOLDINGS, INC. | fcb3312018ex311.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, 2018
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) | ¨ | 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, 2018, the registrant had 46,754,715 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)
2
(Dollars in thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements
March 31, 2018 | December 31, 2017 | |||||||
Assets: | ||||||||
Cash and due from banks | $ | 63,640 | $ | 60,787 | ||||
Interest-earning deposits in other banks | 85,385 | 55,134 | ||||||
Investment securities: | ||||||||
Available for sale debt securities, at fair value | 2,180,570 | 2,030,696 | ||||||
Preferred stock and other equity securities, at fair value | 88,476 | 90,107 | ||||||
Federal Home Loan Bank and other bank stock, at cost | 58,184 | 56,881 | ||||||
Total investment securities | 2,327,230 | 2,177,684 | ||||||
Loans held for sale | 4,167 | 12,736 | ||||||
Loans: | ||||||||
New loans | 7,976,251 | 7,661,385 | ||||||
Acquired loans | 728,141 | 316,399 | ||||||
Allowance for loan losses | (49,213 | ) | (47,145 | ) | ||||
Loans, net | 8,655,179 | 7,930,639 | ||||||
Premises and equipment, net | 39,424 | 36,144 | ||||||
Other real estate owned | 14,072 | 14,906 | ||||||
Goodwill | 139,784 | 81,204 | ||||||
Core deposit intangible | 7,954 | 3,668 | ||||||
Deferred tax assets, net | 34,933 | 27,043 | ||||||
Bank-owned life insurance | 212,925 | 201,069 | ||||||
Other assets | 77,420 | 76,065 | ||||||
Total assets | $ | 11,662,113 | $ | 10,677,079 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Transaction accounts: | ||||||||
Noninterest-bearing | $ | 1,478,837 | $ | 1,236,685 | ||||
Interest-bearing | 4,770,265 | 4,830,525 | ||||||
Total transaction accounts | 6,249,102 | 6,067,210 | ||||||
Time deposits | 3,237,174 | 2,606,717 | ||||||
Total deposits | 9,486,276 | 8,673,927 | ||||||
Borrowings (including FHLB advances of $657,000 and $670,000, respectively) | 753,921 | 749,113 | ||||||
Other liabilities | 117,774 | 74,867 | ||||||
Total liabilities | 10,357,971 | 9,497,907 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Stockholders’ Equity: | ||||||||
Class A common stock, par value $0.001 per share; 100 million shares authorized; 49,348,492; 47,065,593 issued and 46,620,627; 44,371,104 outstanding | 49 | 47 | ||||||
Class B common stock, par value $0.001 per share; 50 million shares authorized; 192,132; 192,132 issued and 0; 0 outstanding | — | — | ||||||
Additional paid-in capital | 1,034,687 | 933,960 | ||||||
Retained earnings | 353,019 | 313,645 | ||||||
Accumulated other comprehensive income (loss) | (6,240 | ) | 8,893 | |||||
Treasury stock, at cost; 2,727,865; 2,694,489 Class A and 192,132; 192,132 Class B common shares | (77,373 | ) | (77,373 | ) | ||||
Total stockholders’ equity | 1,304,142 | 1,179,172 | ||||||
Total liabilities and stockholders’ equity | $ | 11,662,113 | $ | 10,677,079 | ||||
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, | ||||||||
2018 | 2017 | |||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 87,466 | $ | 66,589 | ||||
Interest and dividends on investment securities | 20,854 | 18,561 | ||||||
Other interest income | 237 | 72 | ||||||
Total interest income | 108,557 | 85,222 | ||||||
Interest expense: | ||||||||
Interest on deposits | 23,649 | 13,518 | ||||||
Interest on borrowings | 2,725 | 2,034 | ||||||
Total interest expense | 26,374 | 15,552 | ||||||
Net interest income | 82,183 | 69,670 | ||||||
Provision for loan losses | 2,076 | 1,643 | ||||||
Net interest income after provision for loan losses | 80,107 | 68,027 | ||||||
Noninterest income: | ||||||||
Service charges and fees | 1,054 | 915 | ||||||
Loan and other fees | 4,900 | 2,495 | ||||||
Bank-owned life insurance income | 1,367 | 1,414 | ||||||
Income from resolution of acquired assets | 74 | 762 | ||||||
Gain on sales of other real estate owned | 105 | 45 | ||||||
Gain (loss) on investment securities | (1,404 | ) | 777 | |||||
Other noninterest income | 1,127 | 3,579 | ||||||
Total noninterest income | 7,223 | 9,987 | ||||||
Noninterest expense: | ||||||||
Salaries and employee benefits | 21,945 | 20,497 | ||||||
Occupancy and equipment expenses | 3,558 | 3,397 | ||||||
Loan and other real estate related expenses | 1,111 | 1,227 | ||||||
Professional services | 2,265 | 1,352 | ||||||
Data processing and network | 3,566 | 2,965 | ||||||
Regulatory assessments and insurance | 2,497 | 2,177 | ||||||
Amortization of intangibles | 294 | 256 | ||||||
Marketing and promotions | 1,757 | 1,346 | ||||||
Other operating expenses | 2,168 | 1,867 | ||||||
Total noninterest expense | 39,161 | 35,084 | ||||||
Income before income tax expense | 48,169 | 42,930 | ||||||
Income tax expense | 8,070 | 3,941 | ||||||
Net income | $ | 40,099 | $ | 38,989 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.89 | $ | 0.93 | ||||
Diluted | $ | 0.84 | $ | 0.86 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 45,239,988 | 41,730,610 | ||||||
Diluted | 47,579,309 | 45,573,216 | ||||||
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, | ||||||||
2018 | 2017 | |||||||
Net income | $ | 40,099 | $ | 38,989 | ||||
Other comprehensive income (loss): | ||||||||
Unrealized gains (losses) on available for sale debt securities: | ||||||||
Net unrealized holding gains (losses) on available for sale debt securities, net of taxes of $4,801 and $(6,719) respectively | (14,441 | ) | 10,786 | |||||
Reclassification adjustment for realized (gains) losses on available for sale debt securities included in net income, net of taxes of $101 and $32, respectively | (304 | ) | (50 | ) | ||||
Cumulative adjustment from adoption of new accounting standards | 725 | — | ||||||
Net change in unrealized gains (losses) on available for sale debt securities | (14,020 | ) | 10,736 | |||||
Unrealized gains (losses) on derivative instruments: | ||||||||
Net unrealized holding gains (losses) on derivative instruments, net of taxes of $370 and $0, respectively | (1,113 | ) | — | |||||
Reclassification adjustments of net (gains) losses recognized in income | — | — | ||||||
Net change in unrealized gains (losses) on derivative instruments | (1,113 | ) | — | |||||
Net change in accumulated other comprehensive income (loss) | (15,133 | ) | 10,736 | |||||
Total comprehensive income (loss) | $ | 24,966 | $ | 49,725 | ||||
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, 2017 | 40,969,097 | 188,474 | $ | 44 | $ | — | $ | 875,314 | $ | 188,451 | $ | (77,373 | ) | $ | (3,995 | ) | $ | 982,441 | ||||||||||||||||
Net income | — | — | — | — | — | 38,989 | — | — | 38,989 | |||||||||||||||||||||||||
Exchange of B shares to A shares | 188,474 | (188,474 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation and warrant expense | — | — | — | — | 1,431 | — | — | — | 1,431 | |||||||||||||||||||||||||
Stock issued in connection with equity awards and warrants | 1,265,015 | — | 1 | — | 21,664 | — | — | — | 21,665 | |||||||||||||||||||||||||
Other | — | — | — | — | (15 | ) | — | — | — | (15 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | — | 10,736 | 10,736 | |||||||||||||||||||||||||
Balance as of March 31, 2017 | 42,422,586 | — | $ | 45 | $ | — | $ | 898,394 | $ | 227,440 | $ | (77,373 | ) | $ | 6,741 | $ | 1,055,247 | |||||||||||||||||
Balance as of January 1, 2018 | 44,371,104 | — | $ | 47 | $ | — | $ | 933,960 | $ | 313,645 | $ | (77,373 | ) | $ | 8,893 | $ | 1,179,172 | |||||||||||||||||
Net income | — | — | — | — | — | 40,099 | — | — | 40,099 | |||||||||||||||||||||||||
Cumulative adjustment from adoption of new accounting standards (1) | — | — | — | — | — | (725 | ) | — | 725 | — | ||||||||||||||||||||||||
Stock issued in connection with acquisition | 1,754,362 | — | 2 | — | 94,120 | — | — | — | 94,122 | |||||||||||||||||||||||||
Stock-based compensation and warrant expense | — | — | — | — | 1,871 | — | — | — | 1,871 | |||||||||||||||||||||||||
Stock issued in connection with equity awards and warrants | 569,184 | — | — | — | 7,084 | — | — | — | 7,084 | |||||||||||||||||||||||||
Shares surrendered for tax withholding obligations | (40,647 | ) | — | — | — | (2,066 | ) | — | — | — | (2,066 | ) | ||||||||||||||||||||||
Other | — | — | — | — | (282 | ) | — | — | — | (282 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | — | (15,858 | ) | (15,858 | ) | |||||||||||||||||||||||
Balance as of March 31, 2018 | 46,654,003 | — | $ | 49 | $ | — | $ | 1,034,687 | $ | 353,019 | $ | (77,373 | ) | $ | (6,240 | ) | $ | 1,304,142 | ||||||||||||||||
(1) Includes $1.0 million from adoption of ASU 2016-01 and $(1.7) million from adoption of ASU 2018-02. See Note 1 for additional information.
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, | ||||||||
2018 | 2017 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net income | $ | 40,099 | $ | 38,989 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Provision for loan losses | 2,076 | 1,643 | ||||||
Amortization of intangible assets | 294 | 256 | ||||||
Depreciation and amortization of premises and equipment | 913 | 880 | ||||||
Accretion of discount on loans | (297 | ) | (194 | ) | ||||
Net amortization (accretion) of premium (discount) on investment securities | 513 | 437 | ||||||
Net amortization (accretion) of premium (discount) on time deposits | (23 | ) | — | |||||
Net amortization (accretion) on FHLB advances and other borrowings | — | (526 | ) | |||||
Impairment of other real estate owned | 492 | 184 | ||||||
(Gain) loss on available for sale debt securities | (240 | ) | (777 | ) | ||||
(Gain) loss on sale of loans | (276 | ) | (796 | ) | ||||
(Gain) loss on sale of other real estate owned | (105 | ) | (45 | ) | ||||
(Gain) loss on sale of premises and equipment | — | (1 | ) | |||||
Unrealized (gain) loss on preferred stock and other equity securities | 1,644 | — | ||||||
Stock-based compensation | 1,871 | 1,431 | ||||||
Increase in cash surrender value of BOLI | (1,367 | ) | (1,414 | ) | ||||
Net change in operating assets and liabilities: | ||||||||
Net change in loans held for sale | (1,816 | ) | (588 | ) | ||||
Net change in other assets | 4,842 | (5,723 | ) | |||||
Net change in other liabilities | 479 | 10,630 | ||||||
Net cash provided by operating activities | 49,099 | 44,386 | ||||||
Cash Flows From Investing Activities: | ||||||||
Purchase of equity securities | (14 | ) | (6,005 | ) | ||||
Purchase of available for sale debt securities | (247,098 | ) | (167,133 | ) | ||||
Sales of available for sale debt securities | 35,366 | 17,728 | ||||||
Paydown and maturities of available for sale debt securities | 102,292 | 67,141 | ||||||
Purchase of FHLB and other bank stock | (22,895 | ) | (32,318 | ) | ||||
Sales of FHLB and other bank stock | 25,033 | 28,322 | ||||||
Cash received in acquisition | 16,699 | — | ||||||
Net change in loans | (306,721 | ) | (404,462 | ) | ||||
Purchase of loans | (1,071 | ) | — | |||||
Proceeds from sale of loans | 18,128 | 120,536 | ||||||
Proceeds from sale of other real estate owned | 460 | 1,216 | ||||||
Purchase of premises and equipment | (768 | ) | (519 | ) | ||||
Proceeds from the sale of premises and equipment | — | 14 | ||||||
Proceeds from life insurance | — | 1,763 | ||||||
Net cash used in investing activities | (380,589 | ) | (373,717 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Net change in deposits | 430,039 | 368,700 | ||||||
Net change in FHLB advances | (84,404 | ) | 52,450 | |||||
Net change in repurchase agreements | 15,823 | (63,508 | ) | |||||
Cash paid for withholding taxes on share based payments | (3,666 | ) | — | |||||
Exercise of stock options and warrants | 7,084 | 21,665 | ||||||
Other financing costs | (282 | ) | (15 | ) | ||||
Net cash provided by financing activities | 364,594 | 379,292 | ||||||
Net Change in Cash and Cash Equivalents | 33,104 | 49,961 | ||||||
Cash and Cash Equivalents at Beginning of Period | 115,921 | 83,876 | ||||||
Cash and Cash Equivalents at End of Period | $ | 149,025 | $ | 133,837 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Interest paid | $ | 26,030 | $ | 15,675 | ||||
Income taxes paid | 17 | — | ||||||
Supplemental disclosure of noncash investing and financing activities: | ||||||||
Transfer/adjustments of loans to other real estate owned | $ | (100 | ) | $ | 888 | |||
Transfers from loans held for sale to portfolio loans | 10,683 | — | ||||||
(Purchase) sale of investment securities settled in subsequent period, net | (25,023 | ) | 6,214 | |||||
See Note 2 regarding non-cash transactions included in the acquisition | ||||||||
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, 2017. 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 two wholly-owned subsidiaries: (i) Florida Community Bank, N.A., a national bank (“Florida Community Bank” or the “Bank”); and (ii) Floridian Custody Services, Inc. ("Custody Services"). Florida Community Bank, headquartered in Weston, Florida, offers a comprehensive range of traditional banking products and services to individual and corporate customers through 51 banking centers located in Florida as of March 31, 2018. Custody Services, headquartered in Davie, Florida, provides clearing and custodian services to deposit brokers and their clients.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, Custody Services, Florida Community 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 consolidated 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 May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which superseded 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. This guidance should be applied to all contracts with customers except those that are within the scope of other standards. This ASU became effective for the quarter ended March 31, 2018. The Company elected to adopt the new guidance under the modified retrospective approach. Since the Company's revenue is comprised primarily of net interest income from financial instruments that are within the scope of other standards, including loans and securities, the new guidance did not have a material impact upon adoption. In addition, the adoption of this guidance did not result in any material changes to the method of revenue recognition on the components of noninterest income. Accordingly, the adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
7
In May 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” The amendments in this ASU do not change the core principle of the guidance in Topic 606. Rather, the amendments in this ASU clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The amendments in this ASU affect the guidance in ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The amendments in this ASU do not change the core principle of the guidance in Topic 606. Rather, the amendments in this ASU clarify the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The amendments in this ASU affect the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” which:
• | Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. |
• | Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. |
• | Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. |
• | Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. |
• | Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. |
• | Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. |
• | Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. |
An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the ASU. This ASU became effective the for the quarter ended March 31, 2018. As of January 1, 2018, the Company had equity securities in a net pre-tax unrealized gain position of $1.6 million for which $1.0 million, the tax effected balance, was reclassified from other comprehensive income to beginning retained earnings at adoption.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of cash flows (Topic 230): Classification of certain cash receipts and cash payments." The objective of this guidance is to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." The objective of issuing this ASU is to improve the accounting for the income tax consequences of intra-entity
8
transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. As such, the Board decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this guidance eliminate the exception for an intra-entity transfer of an asset other than inventory. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)." The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In February 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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's 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. This ASU became effective for the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." This ASU improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The Company early adopted ASU 2017-12 during the quarter ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. ASU 2018-02 allows an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt ASU 2018-02 in any interim period for which the financial statements have not yet been issued. ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. As a result of the re-measurement of the Company's deferred tax assets following the enactment of the Tax Reform Act, accumulated other
9
comprehensive income included $1.7 million of stranded tax effects at December 31, 2017. The Company early adopted ASU 2018-02 during the quarter ended March 31, 2018 and made the election to reclassify the stranded tax effects from accumulated other comprehensive income to retained earnings at the beginning of the period of adoption.
Recently Issued Accounting Pronouncements
In January 2018, the FASB issued ASU No. 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842." This ASU provides an optional transition practical expedient to not evaluate under Topic 842, existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The amendments in this guidance affect the amendments in Update 2016-02, which are not yet effective but may be early adopted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02. An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance. Management does not intend to early adopt this guidance. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.
NOTE 2. BUSINESS ACQUISITIONS
On March 1, 2018, the Company acquired 100% of the outstanding common stock of Floridian Community Holdings, Inc., ("Floridian") the parent company of Floridian Community Bank and Floridian Custody Services, Inc. Under the terms of the acquisition, each share of Floridian common stock was converted into 0.4584 shares of FCB Class A common stock at the effective date. A total of 1,754,362 shares of FCB Class A common stock were issued to holders of Floridian common stock. Additionally, cash of $7 thousand was paid for fractional shares resulting from the application of the exchange ratio. The Floridian acquisition will (i) expand the Company's business within demographically attractive markets in southeast Florida; (ii) increase the Company's core deposit base, an important funding source; and (iii) provide the opportunity to sell the Company's broad array of products to Floridians' client base, among other benefits. The results of operations were included in the Company's results beginning on March 1, 2018, the date of acquisition. The fair value of the common shares issued as part of the consideration paid for Floridian was determined using the closing price of the Company's common shares on February 28, 2018. Floridian had total assets of $507.7 million, total liabilities of $472.2 million and operated 5 full-service branches in South Florida as of March 1, 2018. Goodwill of $58.6 million was recognized in the transaction which represents expected synergies and cost savings resulting from combining operations of the acquired institution with those of the Company. None of the goodwill recognized is expected to be deductible for income tax purposes.
The Company determined that the acquisition of Floridian constituted a business combination as defined by the ASC Topic 805, “Business Combinations”. The acquisition was not considered to be a significant business combination. The assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. Fair values were determined in accordance with the guidance provided in ASC Topic 820, “Fair Value Measurements”. In many cases the determination of the fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The Company will record any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined, however the measurement period will not extend beyond one year of the acquisition date. Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the acquisition. The Company may incur losses on the acquired loans that are materially different from losses the Company originally projected. The Company utilized the assistance of third-party advisors in the determination of fair values for loans, deposits, other real estate owned and deferred tax assets acquired.
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The following table presents a summary of the assets acquired and liabilities assumed in the Floridian acquisition recorded at fair value:
(Dollars in thousands) | |||
Consideration paid: | |||
Common stock issued | $ | 94,122 | |
Fair value of assets acquired: | |||
Cash and cash equivalents | 16,699 | ||
Investment securities | 38,772 | ||
Loans | 425,894 | ||
Other real estate owned | 113 | ||
Core deposit intangible | 4,580 | ||
Fixed assets | 3,425 | ||
Deferred tax asset, net | 5,043 | ||
Bank-owned life insurance | 10,489 | ||
Other assets | 2,678 | ||
Total identifiable assets acquired | 507,693 | ||
Fair value of liabilities assumed: | |||
Deposits | 382,333 | ||
FHLB advances and other borrowings | 73,389 | ||
Other liabilities | 16,429 | ||
Total liabilities assumed | 472,151 | ||
Fair value of net assets acquired | 35,542 | ||
Goodwill resulting from acquisition | $ | 58,580 | |
NOTE 3. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and approximate fair values of available for sale debt securities are as follows:
Amortized Cost | Unrealized | Fair Value | ||||||||||||||
March 31, 2018 | Gains | Losses | ||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Available for sale debt securities: | ||||||||||||||||
U.S. Government agencies and sponsored enterprises obligations | $ | 91,364 | $ | 30 | $ | 1,384 | $ | 90,010 | ||||||||
U.S. Government agencies and sponsored enterprises mortgage-backed securities | 611,868 | 187 | 15,619 | 596,436 | ||||||||||||
State and municipal obligations | 26,260 | 99 | 1,323 | 25,036 | ||||||||||||
Asset-backed securities | 670,439 | 1,388 | 218 | 671,609 | ||||||||||||
Corporate bonds and other debt securities | 787,471 | 15,625 | 5,617 | 797,479 | ||||||||||||
Total available for sale debt securities | $ | 2,187,402 | $ | 17,329 | $ | 24,161 | $ | 2,180,570 | ||||||||
Amortized Cost | Unrealized | Fair Value | ||||||||||||||
December 31, 2017 | Gains | Losses | ||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Available for sale debt securities: (1) | ||||||||||||||||
U.S. Government agencies and sponsored enterprises obligations | $ | 43,471 | $ | 38 | $ | 671 | $ | 42,838 | ||||||||
U.S. Government agencies and sponsored enterprises mortgage-backed securities | 600,310 | 1,716 | 6,789 | 595,237 | ||||||||||||
State and municipal obligations | 26,766 | 125 | 719 | 26,172 | ||||||||||||
Asset-backed securities | 608,340 | 2,306 | 100 | 610,546 | ||||||||||||
Corporate bonds and other debt securities | 738,994 | 18,222 | 1,313 | 755,903 | ||||||||||||
Total available for sale debt securities | $ | 2,017,881 | $ | 22,407 | $ | 9,592 | $ | 2,030,696 | ||||||||
(1) To allow for improved comparability, prior year presentation has been modified to remove preferred stock and other equity securities in connection with the adoption of ASU 2016-01.
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 $928.8 million and $834.9 million at March 31, 2018 and December 31, 2017, respectively.
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The amortized cost and estimated fair value of available for sale debt securities, by contractual maturity, are as follows:
March 31, 2018 | Amortized Cost | Fair Value | ||||||
(Dollars in thousands) | ||||||||
Available for sale debt securities: | ||||||||
Due in one year or less | $ | 57,851 | $ | 57,857 | ||||
Due after one year through five years | 303,216 | 303,061 | ||||||
Due after five years through ten years | 133,064 | 131,885 | ||||||
Due after ten years | 319,600 | 329,712 | ||||||
U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and asset-backed securities | 1,373,671 | 1,358,055 | ||||||
Total available for sale debt securities | $ | 2,187,402 | $ | 2,180,570 | ||||
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 available for sale debt securities, 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, 2018 | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Available for sale debt securities: | ||||||||||||||||||||||||
U.S. Government agencies and sponsored enterprises obligations | $ | 54,803 | $ | 945 | $ | 6,104 | $ | 439 | $ | 60,907 | $ | 1,384 | ||||||||||||
U.S. Government agencies and sponsored enterprises mortgage-backed securities | 396,538 | 7,581 | 167,087 | 8,038 | 563,625 | 15,619 | ||||||||||||||||||
State and municipal obligations | 186 | 7 | 22,707 | 1,316 | 22,893 | 1,323 | ||||||||||||||||||
Asset-backed securities | 115,856 | 218 | — | — | 115,856 | 218 | ||||||||||||||||||
Corporate bonds and other debt securities | 357,248 | 5,356 | 10,642 | 261 | 367,890 | 5,617 | ||||||||||||||||||
Total available for sale debt securities | $ | 924,631 | $ | 14,107 | $ | 206,540 | $ | 10,054 | $ | 1,131,171 | $ | 24,161 | ||||||||||||
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Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
December 31, 2017 | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Available for sale debt securities: (1) | ||||||||||||||||||||||||
U.S. Government agencies and sponsored enterprises obligations | $ | 31,518 | $ | 268 | $ | 7,157 | $ | 403 | $ | 38,675 | $ | 671 | ||||||||||||
U.S. Government agencies and sponsored enterprises mortgage-backed securities | 207,735 | 1,836 | 175,810 | 4,953 | 383,545 | 6,789 | ||||||||||||||||||
State and municipal obligations | 192 | 2 | 23,813 | 717 | 24,005 | 719 | ||||||||||||||||||
Asset-backed securities | 36,542 | 100 | — | — | 36,542 | 100 | ||||||||||||||||||
Corporate bonds and other debt securities | 186,052 | 1,240 | 10,842 | 73 | 196,894 | 1,313 | ||||||||||||||||||
Total available for sale debt securities | $ | 462,039 | $ | 3,446 | $ | 217,622 | $ | 6,146 | $ | 679,661 | $ | 9,592 | ||||||||||||
(1) To allow for improved comparability, prior year presentation has been modified to remove preferred stock and other equity securities in connection with the adoption of ASU 2016-01.
At March 31, 2018, the Company’s security portfolio consisted of 361 securities, of which 204 securities were in an unrealized loss position. A total of 139 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, 2018. 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 were investment grade as of March 31, 2018 and December 31, 2017 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.
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Gross realized gains and losses on the sale of available for sale debt securities are shown below. The cost of securities sold is based on the specific identification method.
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
(Dollars in thousands) | ||||||||
Gross realized gains | $ | 1 | $ | 325 | ||||
Gross realized losses | (6 | ) | — | |||||
Net realized gains (losses) | $ | (5 | ) | $ | 325 | |||
The Company adopted ASU 2016-01 as of January 1, 2018. This guidance requires investments in equity securities with readily determinable fair values to be measured at fair value, with changes in the fair value recognized as a component of noninterest income in the Company's Consolidated Statements of Income. The Company recognized $1.6 million of unrealized losses in noninterest income during the three months ended March 31, 2018 related to equity securities still held at the end of the period.
NOTE 4. 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. Loans acquired with deteriorated credit quality since origination are accounted for under ASC 310-30, unless specifically excluded from the scope of ASC 310-30. The remaining portfolio of Acquired loans and those loans excluded from the scope of 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, 2018 | ASC 310-30 Loans | Non-ASC 310-30 Loans | New Loans (1) | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real estate loans: | ||||||||||||||||
Commercial real estate | $ | 138,853 | $ | 111,294 | $ | 2,168,606 | $ | 2,418,753 | ||||||||
Owner-occupied commercial real estate | — | 82,534 | 1,074,076 | 1,156,610 | ||||||||||||
1-4 single family residential | 35,264 | 164,188 | 2,232,791 | 2,432,243 | ||||||||||||
Construction, land and development | 31,188 | 32,413 | 732,551 | 796,152 | ||||||||||||
Home equity loans and lines of credit | 202 | 42,435 | 61,856 | 104,493 | ||||||||||||
Total real estate loans | 205,507 | 432,864 | 6,269,880 | 6,908,251 | ||||||||||||
Other loans: | ||||||||||||||||
Commercial and industrial | 22,434 | 47,760 | 1,701,651 | 1,771,845 | ||||||||||||
Consumer | 1,373 | 18,203 | 4,720 | 24,296 | ||||||||||||
Total other loans | 23,807 | 65,963 | 1,706,371 | 1,796,141 | ||||||||||||
Total loans held in portfolio | $ | 229,314 | $ | 498,827 | $ | 7,976,251 | $ | 8,704,392 | ||||||||
Allowance for loan losses | (49,213 | ) | ||||||||||||||
Loans held in portfolio, net | $ | 8,655,179 | ||||||||||||||
December 31, 2017 | ASC 310-30 Loans | Non-ASC 310-30 Loans | New Loans (1) | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real estate loans: | ||||||||||||||||
Commercial real estate | $ | 104,335 | $ | 37,736 | $ | 2,103,788 | $ | 2,245,859 | ||||||||
Owner-occupied commercial real estate | — | 16,100 | 987,781 | 1,003,881 | ||||||||||||
1-4 single family residential | 27,513 | 57,695 | 2,185,362 | 2,270,570 | ||||||||||||
Construction, land and development | 13,167 | 5,889 | 684,462 | 703,518 | ||||||||||||
Home equity loans and lines of credit | — | 34,589 | 59,636 | 94,225 | ||||||||||||
Total real estate loans | 145,015 | 152,009 | 6,021,029 | 6,318,053 | ||||||||||||
Other loans: | ||||||||||||||||
Commercial and industrial | 12,631 | 5,062 | 1,634,372 | 1,652,065 | ||||||||||||
Consumer | 1,423 | 259 | 5,984 | 7,666 | ||||||||||||
Total other loans | 14,054 | 5,321 | 1,640,356 | 1,659,731 | ||||||||||||
Total loans held in portfolio | $ | 159,069 | $ | 157,330 | $ | 7,661,385 | $ | 7,977,784 | ||||||||
Allowance for loan losses | (47,145 | ) | ||||||||||||||
Loans held in portfolio, net | $ | 7,930,639 | ||||||||||||||
(1) | Balance includes $(7.3) million and $(6.6) million of net deferred fees, costs, and premium and discount as of March 31, 2018 and December 31, 2017, respectively. |
At March 31, 2018 and December 31, 2017, the unpaid principal balances of ASC 310-30 loans were $293.6 million and $183.9 million, respectively. At March 31, 2018 and December 31, 2017, the Company had pledged loans as collateral for FHLB advances of $3.38 billion and $3.36 billion, respectively. The recorded investment 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, 2018 totaled $2.6 million. The Company held $295.7 million and $289.1 million of syndicated national loans as of March 31, 2018 and December 31, 2017, respectively.
During the three months ended March 31, 2018, the Company purchased approximately $1.1 million of loans from third parties. During the three months ended March 31, 2017, the Company purchased no loans from third parties.
During the three months ended March 31, 2018 and 2017, the Company sold approximately $18.3 million and $120.2 million of portfolio loans to third parties, respectively.
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 $109 thousand and $(5.3) million between non-accretable and accretable discount during the three months ended March 31, 2018 and 2017, respectively.
Changes in accretable discount for ASC 310-30 loans for the three months ended March 31, 2018 and 2017, were as follows:
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
(Dollars in thousands) | ||||||||
Balance at January 1, | $ | 41,162 | $ | 60,990 | ||||
Additions to accretable discount from FLCB acquisition | 14,393 | — | ||||||
Accretion | (3,505 | ) | (3,832 | ) | ||||
Reclassifications from (to) non-accretable difference | 109 | (5,267 | ) | |||||
Balance at March 31, | $ | 52,159 | $ | 51,891 | ||||
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NOTE 5. 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. In response to Hurricane Irma, the Company recorded an unallocated provision expense of $1.5 million in prior year to reflect management's estimate of probable credit losses inherent in the loan portfolio related specifically to the storm.
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 January 1, 2018 | $ | 13,870 | $ | 3,365 | $ | 7,978 | $ | 4,345 | $ | 674 | $ | 15,141 | $ | 272 | $ | 47,145 | ||||||||||||||||
Provision (credit) for ASC 310-30 loans | 31 | — | 15 | (15 | ) | — | (31 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||
Provision (credit) for non-ASC 310-30 loans | (1 | ) | 3 | (12 | ) | — | (13 | ) | 44 | (3 | ) | 18 | ||||||||||||||||||||
Provision (credit) for New loans | 292 | 410 | (488 | ) | (55 | ) | (45 | ) | 1,979 | (33 | ) | 2,060 | ||||||||||||||||||||
Provision (credit) for Unallocated | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total provision | 322 | 413 | (485 | ) | (70 | ) | (58 | ) | 1,992 | (38 | ) | 2,076 | ||||||||||||||||||||
Charge-offs for ASC 310-30 loans | — | — | — | — | — | — | (7 | ) | (7 | ) | ||||||||||||||||||||||
Charge-offs for non-ASC 310-30 loans | — | — | — | — | — | (36 | ) | — | (36 | ) | ||||||||||||||||||||||
Charge-offs for New loans | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total charge-offs | — | — | — | — | — | (36 | ) | (7 | ) | (43 | ) | |||||||||||||||||||||
Recoveries for ASC 310-30 loans | — | — | — | 13 | — | 17 | — | 30 | ||||||||||||||||||||||||
Recoveries for non-ASC 310-30 loans | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Recoveries for New loans | 5 | — | — | — | — | — | — | 5 | ||||||||||||||||||||||||
Total recoveries | 5 | — | — | 13 | — | 17 | — | 35 | ||||||||||||||||||||||||
Ending ALL balance | ||||||||||||||||||||||||||||||||
ASC 310-30 loans | 1,479 | — | 40 | 143 | — | 112 | 136 | 1,910 | ||||||||||||||||||||||||
Non-ASC 310-30 loans | 337 | 58 | 172 | 36 | 186 | 321 | 3 | 1,113 | ||||||||||||||||||||||||
New loans | 12,381 | 3,720 | 7,281 | 4,109 | 430 | 16,681 | 88 | 44,690 | ||||||||||||||||||||||||
Unallocated | — | — | — | — | — | — | — | 1,500 | ||||||||||||||||||||||||
Balance at March 31, 2018 | $ | 14,197 | $ | 3,778 | $ | 7,493 | $ | 4,288 | $ | 616 | $ | 17,114 | $ | 227 | $ | 49,213 | ||||||||||||||||
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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 | ||||||||||||||||
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.
16
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, 2018 | 30 to 59 Days Past Due | 60 to 89 Days Past Due | 90 Days | |||||||||||||||||