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EX-32.2 - EXHIBIT 32.2 - FCB FINANCIAL HOLDINGS, INC.a2018q3ex322.htm
EX-32.1 - EXHIBIT 32.1 - FCB FINANCIAL HOLDINGS, INC.a2018q3ex321.htm
EX-31.2 - EXHIBIT 31.2 - FCB FINANCIAL HOLDINGS, INC.a2018q3ex312.htm
EX-31.1 - EXHIBIT 31.1 - FCB FINANCIAL HOLDINGS, INC.a2018q3ex311.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 September 30, 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 November 1, 2018, the registrant had 46,827,114 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)
 
 
September 30, 2018
 
December 31, 2017
Assets:
 
 
 
 
Cash and due from banks
 
$
76,633

 
$
60,787

Interest-earning deposits in other banks
 
123,876

 
55,134

Cash and cash equivalents
 
200,509

 
115,921

Investment securities:
 
 
 
 
Available for sale debt securities, at fair value
 
2,275,703

 
2,030,696

Preferred stock and other equity securities, at fair value
 
71,015

 
90,107

Federal Home Loan Bank and other bank stock, at cost
 
65,847

 
56,881

Total investment securities
 
2,412,565

 
2,177,684

Loans held for sale
 
980

 
12,736

Loans:
 
 
 
 
New loans
 
8,629,402

 
7,661,385

Acquired loans
 
687,406

 
316,399

Allowance for loan losses
 
(53,148
)
 
(47,145
)
Loans, net
 
9,263,660

 
7,930,639

Premises and equipment, net
 
42,645

 
36,144

Other real estate owned
 
10,534

 
14,906

Goodwill
 
139,529

 
81,204

Core deposit intangible
 
7,213

 
3,668

Deferred tax assets, net
 
40,743

 
27,043

Bank-owned life insurance
 
215,421

 
201,069

Other assets
 
99,557

 
76,065

Total assets
 
$
12,433,356

 
$
10,677,079

Liabilities and Stockholders’ Equity
 
 
 
 
Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Transaction accounts:
 
 
 
 
Noninterest-bearing
 
$
1,577,741

 
$
1,236,685

Interest-bearing
 
4,225,178

 
4,830,525

Total transaction accounts
 
5,802,919

 
6,067,210

Time deposits
 
4,353,196

 
2,606,717

Total deposits
 
10,156,115

 
8,673,927

Borrowings (including FHLB advances of $750,000 and $670,000, respectively)
 
825,558

 
749,113

Other liabilities
 
74,197

 
74,867

Total liabilities
 
11,055,870

 
9,497,907

Commitments and contingencies (Note 13)
 

 

Stockholders’ Equity:
 
 
 
 
Class A common stock, par value $0.001 per share; 100 million shares authorized; 49,537,170; 47,065,593 issued and 46,809,305; 44,371,104 outstanding
 
50

 
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
 
1,040,358

 
933,960

Retained earnings
 
439,233

 
313,645

Accumulated other comprehensive income (loss)
 
(24,782
)
 
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
 
1,377,486

 
1,179,172

Total liabilities and stockholders’ equity
 
$
12,433,356

 
$
10,677,079

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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
104,137

 
$
76,465

 
$
290,352

 
$
214,570

Interest and dividends on investment securities
 
24,425

 
20,215

 
68,722

 
57,697

Other interest income
 
448

 
136

 
1,052

 
344

Total interest income
 
129,010

 
96,816

 
360,126

 
272,611

Interest expense:
 
 
 
 
 
 
 
 
Interest on deposits
 
33,300

 
17,134

 
85,397

 
46,277

Interest on borrowings
 
3,072

 
3,901

 
9,089

 
8,996

Total interest expense
 
36,372

 
21,035

 
94,486

 
55,273

Net interest income
 
92,638

 
75,781

 
265,640

 
217,338

Provision for loan losses
 
2,220

 
2,871

 
5,801

 
6,629

Net interest income after provision for loan losses
 
90,418

 
72,910

 
259,839

 
210,709

Noninterest income:
 
 
 
 
 
 
 
 
Service charges and fees
 
1,266

 
941

 
3,503

 
2,758

Loan and other fees
 
5,043

 
2,831

 
13,261

 
8,374

Bank-owned life insurance income
 
1,439

 
1,422

 
4,228

 
4,250

Income from resolution of acquired assets
 
202

 
466

 
603

 
1,548

Gain (loss) on sales of other real estate owned
 
(70
)
 
(143
)
 
43

 
(121
)
Gain (loss) on investment securities
 
(184
)
 
690

 
(1,472
)
 
1,722

Other noninterest income
 
1,068

 
2,218

 
3,775

 
8,754

Total noninterest income
 
8,764

 
8,425

 
23,941

 
27,285

Noninterest expense:
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
23,023

 
20,860

 
68,700

 
62,843

Occupancy and equipment expenses
 
4,012

 
3,283

 
11,872

 
10,016

Loan and other real estate related expenses
 
545

 
837

 
2,950

 
3,252

Professional services
 
3,929

 
1,390

 
7,335

 
4,250

Data processing and network
 
3,911

 
3,397

 
11,494

 
9,452

Regulatory assessments and insurance
 
2,564

 
2,330

 
7,257

 
6,691

Amortization of intangibles
 
371

 
256

 
1,035

 
768

Marketing and promotions
 
1,768

 
1,130

 
4,930

 
3,423

Other operating expenses
 
2,205

 
1,756

 
6,842

 
4,880

Total noninterest expense
 
42,328

 
35,239

 
122,415

 
105,575

Income before income tax expense
 
56,854

 
46,096

 
161,365

 
132,419

Income tax expense
 
13,374

 
13,936

 
35,052

 
26,189

Net income
 
$
43,480

 
$
32,160

 
$
126,313

 
$
106,230

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.93

 
$
0.74

 
$
2.73

 
$
2.49

Diluted
 
$
0.89

 
$
0.70

 
$
2.61

 
$
2.31

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
46,693,707

 
43,333,947

 
46,213,176

 
42,580,426

Diluted
 
48,804,871

 
46,189,468

 
48,472,657

 
45,960,595

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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
43,480

 
$
32,160

 
$
126,313

 
$
106,230

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on available for sale debt securities:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on investment securities available for sale, net of taxes of $2,768, $369, $12,017, and $(12,131) respectively
 
(8,327
)
 
(598
)
 
(36,146
)
 
19,519

Reclassification adjustment for realized (gains) losses on investment securities available for sale included in net income, net of taxes of $(418), $540, $(144), and $787, respectively
 
1,259

 
(869
)
 
433

 
(1,267
)
Cumulative adjustment from adoption of new accounting standards (1)
 

 

 
725

 

Net change in unrealized gains (losses) on available for sale debt securities
 
(7,068
)
 
(1,467
)
 
(34,988
)
 
18,252

Unrealized gains (losses) on derivative instruments:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on derivative instruments, net of taxes of $(406), $0, $(437), and $0, respectively
 
1,220

 

 
1,313

 

Net change in unrealized gains (losses) on derivative instruments
 
1,220

 

 
1,313

 

Net change in accumulated other comprehensive income (loss)
 
(5,848
)
 
(1,467
)
 
(33,675
)
 
18,252

Total comprehensive income (loss)
 
$
37,632

 
$
30,693

 
$
92,638

 
$
124,482

(1) Includes adjustments from adoption of ASU 2016-01 and ASU 2018-02. See Note 1 for additional information.
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

 
197,950

 
$
44

 
$

 
$
875,314

 
$
188,451

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

Net income
 

 

 

 

 

 
106,230

 

 

 
106,230

Exchange of B shares to A shares
 
197,950

 
(197,950
)
 

 

 

 

 

 

 

Stock-based compensation and warrant expense
 

 

 

 

 
5,970

 

 

 

 
5,970

Stock issued in connection with equity awards and warrants
 
2,561,255

 

 
2

 

 
43,221

 

 

 

 
43,223

Other
 

 

 

 

 
(43
)
 

 

 

 
(43
)
Other comprehensive income (loss)
 

 

 

 

 

 

 

 
18,252

 
18,252

Balance as of September 30, 2017
 
43,728,302

 

 
$
46

 
$

 
$
924,462

 
$
294,681

 
$
(77,373
)
 
$
14,257

 
$
1,156,073

Balance as of January 1, 2018
 
44,371,104

 

 
$
47

 
$

 
$
933,960

 
$
313,645

 
$
(77,373
)
 
$
8,893

 
$
1,179,172

Net income
 

 

 

 

 

 
126,313

 

 

 
126,313

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
 

 

 

 

 
6,635

 

 

 

 
6,635

Stock issued in connection with equity awards and warrants
 
724,486

 

 
1

 

 
8,059

 

 

 

 
8,060

Shares surrendered for tax withholding obligations
 
(40,647
)
 

 

 

 
(2,066
)
 

 

 

 
(2,066
)
Other
 

 

 

 

 
(350
)
 

 

 

 
(350
)
Other comprehensive income (loss)
 

 

 

 

 

 

 

 
(34,400
)
 
(34,400
)
Balance as of September 30, 2018
 
46,809,305

 

 
$
50

 
$

 
$
1,040,358

 
$
439,233

 
$
(77,373
)
 
$
(24,782
)
 
$
1,377,486

(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)
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
126,313

 
$
106,230

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Provision for loan losses
 
5,801

 
6,629

Amortization of intangible assets
 
1,035

 
768

Depreciation and amortization of premises and equipment
 
2,811

 
2,674

Accretion of discount on loans
 
(2,051
)
 
(693
)
Net amortization (accretion) of premium (discount) on investment securities
 
1,802

 
1,547

Net amortization (accretion) of premium (discount) on time deposits
 
(207
)
 

Net amortization (accretion) on FHLB advances and other borrowings
 

 
(846
)
Impairment of other real estate owned
 
1,097

 
437

Impairment of fixed assets HFS
 
110

 

(Gain) loss on available for sale debt securities
 
355

 
(1,722
)
(Gain) loss on sale of loans
 
(660
)
 
(3,835
)
(Gain) loss on sale of other real estate owned
 
(43
)
 
121

(Gain) loss on sale of premises and equipment
 
13

 
(7
)
Unrealized (gain) loss on preferred stock and other equity securities
 
1,117

 

Stock-based compensation
 
6,635

 
5,970

Increase in cash surrender value of BOLI
 
(4,228
)
 
(4,250
)
Net change in operating assets and liabilities:
 
 
 
 
Net change in loans held for sale
 
1,641

 
8,353

Net change in other assets
 
(39
)
 
(10,164
)
Net change in other liabilities
 
7,017

 
25,094

Net cash provided by operating activities
 
148,519

 
136,306

Cash Flows From Investing Activities:
 
 
 
 
Purchase of equity securities
 
(42
)
 

Purchase of available for sale debt securities
 
(635,501
)
 
(656,982
)
Sale of equity securities
 
18,016

 

Sales of available for sale debt securities
 
77,705

 
113,862

Paydown and maturities of available for sale debt securities
 
259,925

 
336,303

Purchase of FHLB and other bank stock
 
(95,966
)
 
(121,995
)
Sales of FHLB and other bank stock
 
90,441

 
111,813

Cash received in acquisition
 
16,656

 

Net change in loans
 
(919,001
)
 
(1,094,190
)
Purchase of loans
 
(7,382
)
 
(2,782
)
Proceeds from sale of loans
 
26,015

 
234,518

Proceeds from sale of other real estate owned
 
3,686

 
2,871

Purchase of premises and equipment
 
(7,064
)
 
(1,790
)
Proceeds from the sale of premises and equipment
 
1,054

 
34

Proceeds from life insurance
 
365

 
3,016

Net cash used in investing activities
 
(1,171,093
)
 
(1,075,322
)
Cash Flows From Financing Activities:
 
 
 
 
Net change in deposits
 
1,100,062

 
800,422

Net change in FHLB advances
 
8,596

 
195,750

Net change in repurchase agreements
 
(5,540
)
 
(71,785
)
Cash paid for withholding taxes on share based payments
 
(3,666
)
 

Exercise of stock options and warrants
 
8,060

 
43,223

Other financing costs
 
(350
)
 
(43
)
Net cash provided by financing activities
 
1,107,162

 
967,567

Net Change in Cash and Cash Equivalents
 
84,588

 
28,551

Cash and Cash Equivalents at Beginning of Period
 
115,921

 
83,876

Cash and Cash Equivalents at End of Period
 
$
200,509

 
$
112,427

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Interest paid
 
$
92,427

 
$
55,177

Income taxes paid
 
24,159

 
6,122

Supplemental disclosure of noncash investing and financing activities:
 
 
 
 
Transfer/adjustments of loans to other real estate owned
 
$
266

 
$
1,800

Transfers from loans held for sale to portfolio loans
 
10,683

 

(Purchase) sale of investment securities settled in subsequent period, net
 
(63,756
)
 
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 September 30, 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 and 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 ASU 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 ASU 2016-02. An entity that early adopted Topic 842 should apply the amendments in this ASU 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.
In June 2018, the FASB issued ASU 2018-07, "Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The amendments of this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. 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.
In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements." The amendments of this ASU provide another transition method for the adoption of the new leases standard. Currently, entities are required to adopt the new leases standard using a modified retrospective transition method. The amendments of this ASU provide another transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Additionally, this ASU also provides lessors a practical expedient to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. The amendments related to separating components of a contract affect the amendments in ASU 2016-02, which are not yet effective but can be early adopted. For entities that have not adopted Topic 842 before the issuance of this ASU, the effective date and transition requirements for the amendments in this ASU related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. 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.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The amendments of this ASU modify the disclosure requirements about recurring or nonrecurring fair value measurements required under Topic 820, Fair Value Measurement, and require additional disclosures related to unrealized gains and losses included in other comprehensive income. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. 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.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is

10


a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. 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. The Company also paid cash of $7 thousand for fractional shares resulting from the application of the exchange ratio. In addition, the Company incurred a liability of $5.2 million related to Floridian's outstanding stock options that were settled in cash subsequent to the acquisition. 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 $506.8 million, total liabilities of $465.8 million and operated 5 full-service branches in South Florida as of March 1, 2018. Goodwill of $58.3 million was recognized in the transaction. 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 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 fair value 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 utilized the assistance of third-party advisors in the determination of fair value for loans, deposits, other real estate owned and deferred tax assets acquired. The Company may incur losses on the acquired loans that are materially different from losses the Company originally projected.
The Company recorded adjustments to the preliminary fair value estimates in the reporting period in which the adjustments were determined. During the nine months ended September 30, 2018, the Company recorded adjustments to the preliminary fair value estimates resulting in a decrease in assets acquired of $858 thousand, liabilities assumed of $1.1 million, and goodwill of $255 thousand. The adjustments were primarily related to a reduction in the estimated fair value of an assumed liability and other receivables. As of September 30, 2018, the Company has finalized its valuation of the Floridian acquisition.

11


The following table presents a summary of the assets acquired and liabilities assumed in the Floridian acquisition recorded at fair value:
 
Acquisition Date Fair Value
 
Measurement Period Adjustments
 
Adjusted Acquisition Date Fair Value
 
(Dollars in thousands)
Consideration transferred:
 
 
 
 
 
Common stock issued
$
94,122

 
$

 
$
94,122

Liability incurred related to settlement of outstanding stock options
5,198

 

 
5,198

Total consideration transferred
99,320

 

 
99,320

Fair value of assets acquired:
 
 
 
 
 
Cash and cash equivalents
16,699

 
(43
)
 
16,656

Investment securities
38,772

 

 
38,772

Loans
425,894

 

 
425,894

Other real estate owned
113

 
(2
)
 
111

Core deposit intangible
4,580

 

 
4,580

Fixed assets
3,425

 

 
3,425

Deferred tax asset, net
5,043

 
(239
)
 
4,804

Bank-owned life insurance
10,489

 

 
10,489

Other assets
2,678

 
(574
)
 
2,104

Total identifiable assets acquired
507,693

 
(858
)
 
506,835

Fair value of liabilities assumed:
 
 
 
 
 
Deposits
382,333

 

 
382,333

FHLB advances and other borrowings
73,389

 

 
73,389

Other liabilities
11,231

 
(1,113
)
 
10,118

Total liabilities assumed
466,953

 
(1,113
)
 
465,840

Fair value of net assets acquired
40,740

 
255

 
40,995

Goodwill resulting from acquisition
$
58,580

 
$
(255
)
 
$
58,325


On July 24, 2018, the Company announced the entry into a definitive merger agreement under which it will be acquired by Columbus, Georgia based Synovus Financial Corp. ("Synovus"). Under the terms of the merger agreement, the Company’s shareholders will receive a fixed ratio of 1.055 shares of Synovus common stock for each common share of the Company in an all-stock transaction. The merger agreement has been unanimously approved by both companies’ Boards of Directors and is subject to customary closing conditions, including approval by the shareholders of both companies and by state and federal bank regulators. The Company and Synovus filed notices and applications to obtain the necessary regulatory approvals on August 22, 2018. The Georgia Department of Banking and Finance approvals were received on September 25, 2018.

On October 9, 2018, an action captioned Stephen Bushansky v. FCB Financial Holdings, Inc. et al., Case 1:18-cv-62399-BB, was filed in the United States District Court, Southern District of Florida on behalf of a purported class of FCB’s stockholders against FCB and its current directors. This complaint alleges violations of Sections 14(a) and 20(a) of the Exchange Act. The action seeks, among other things, to enjoin the defendants from consummating the merger until additional information is disclosed to FCB’s stockholders in advance of the FCB special meeting or to rescind the merger or recover damages to the extent the merger is completed.

On October 11, 2018, an action captioned Paul Parshall v. FCB Financial Holdings, Inc. et al., Case 1:18-cv-01570-LPS, was filed in the United States District Court for the District of Delaware on behalf of a purported class of FCB’s stockholders against FCB, its current directors, Synovus and Merger Sub, alleging violations of Sections 14(a) and 20(a) of the Exchange Act. The action seeks, among other things, to cause defendants to disseminate adequate disclosures, to enjoin defendants from consummating the merger, and to rescind the merger or recover damages to the extent the merger is completed. The court has not acted on either of these complaints, and no relief has been granted as of this time.

12


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
September 30, 2018
 
Gains
 
Losses
 
 
 
(Dollars in thousands)
Available for sale debt securities:
 
 
 
 
 
 
 
 
U.S. Government agencies and sponsored enterprises obligations
 
$
86,941

 
$

 
$
2,709

 
$
84,232

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
627,668

 
9

 
23,519

 
604,158

State and municipal obligations
 
24,485

 
66

 
1,669

 
22,882

Asset-backed securities
 
780,250

 
330

 
2,258

 
778,322

Corporate bonds and other debt securities
 
791,130

 
7,609

 
12,630

 
786,109

Total available for sale debt securities
 
$
2,310,474

 
$
8,014

 
$
42,785

 
$
2,275,703

 
 
 
 
 
 
 
 
 
 
 
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 $950.4 million and $834.9 million at September 30, 2018 and December 31, 2017, respectively.
The amortized cost and estimated fair value of available for sale debt securities, by contractual maturity, are as follows:
September 30, 2018
 
Amortized
Cost
 
Fair
Value
 
 
(Dollars in thousands)
Available for sale debt securities:
 
 
 
 
Due in one year or less
 
$
57,430

 
$
57,475

Due after one year through five years
 
290,655

 
287,076

Due after five years through ten years
 
138,696

 
135,574

Due after ten years
 
328,834

 
328,866

U.S. Government agencies and sponsored enterprises obligations, mortgage-backed securities and asset-backed securities
 
1,494,859

 
1,466,712

Total available for sale debt securities
 
$
2,310,474

 
$
2,275,703

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.


13


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
September 30, 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
 
$
51,529

 
$
906

 
$
32,703

 
$
1,803

 
$
84,232

 
$
2,709

U.S. Government agencies and sponsored enterprises mortgage-backed securities
 
279,436

 
8,128

 
300,994

 
15,391

 
580,430

 
23,519

State and municipal obligations
 

 

 
20,772

 
1,669

 
20,772

 
1,669

Asset-backed securities
 
348,117

 
2,196

 
7,002

 
62

 
355,119

 
2,258

Corporate bonds and other debt securities
 
391,610

 
8,486

 
91,574

 
4,144

 
483,184

 
12,630

Total available for sale debt securities
 
$
1,070,692

 
$
19,716

 
$
453,045

 
$
23,069

 
$
1,523,737

 
$
42,785


 
 
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 September 30, 2018, the Company’s security portfolio consisted of 355 securities, of which 245 securities were in an unrealized loss position. A total of 137 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 September 30, 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.

14


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 September 30, 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.

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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(Dollars in thousands)
Gross realized gains
 
$
2

 
$
1,251

 
$
147

 
$
1,945

Gross realized losses
 
(1,248
)
 
(1,533
)
 
(1,254
)
 
(2,739
)
Net realized gains (losses)
 
$
(1,246
)
 
$
(282
)
 
$
(1,107
)
 
$
(794
)

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 $1.1 million of unrealized gain and $1.1 million of unrealized loss in noninterest income during the three and nine months ended September 30, 2018, respectively, 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 that did not show evidence of credit deterioration as New loans. The Company classifies loans acquired through business combinations and purchased loans acquired outside of a business combination that show evidence of credit deterioration 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.

15


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:
September 30, 2018
 
ASC
310-30
Loans
 
Non-ASC
310-30
Loans
 
New
Loans (1)
 
Total
 
 
(Dollars in thousands)
Real estate loans:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
133,778

 
$
104,364

 
$
2,528,748

 
$
2,766,890

Owner-occupied commercial real estate
 

 
81,408

 
1,134,793

 
1,216,201

1-4 single family residential
 
32,240

 
148,659

 
2,245,139

 
2,426,038

Construction, land and development
 
28,590

 
36,881

 
754,972

 
820,443

Home equity loans and lines of credit
 

 
40,131

 
59,729

 
99,860

Total real estate loans
 
194,608

 
411,443

 
6,723,381

 
7,329,432

Other loans:
 
 
 
 
 
 
 
 
Commercial and industrial
 
19,503

 
46,643

 
1,902,045

 
1,968,191

Consumer
 
1,259

 
13,950

 
3,976

 
19,185

Total other loans
 
20,762

 
60,593

 
1,906,021

 
1,987,376

Total loans held in portfolio
 
$
215,370

 
$
472,036

 
$
8,629,402

 
$
9,316,808

Allowance for loan losses
 
 
 
 
 
 
 
(53,148
)
Loans held in portfolio, net
 
 
 
 
 
 
 
$
9,263,660

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 $(9.2) million and $(6.6) million of net deferred fees, costs, and premium and discount as of September 30, 2018 and December 31, 2017, respectively.
At September 30, 2018 and December 31, 2017, the unpaid principal balances of ASC 310-30 loans were $274.3 million and $183.9 million, respectively. At September 30, 2018 and December 31, 2017, the Company had pledged loans as collateral for FHLB advances of $3.44 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 September 30, 2018 totaled $4.2 million. The Company held $288.5 million and $289.1 million of syndicated national loans as of September 30, 2018 and December 31, 2017, respectively.
During the three months ended September 30, 2018, the Company purchased no loans from third parties. During the nine months ended September 30, 2018, the Company purchased approximately $7.4 million of loans from third parties. During the three and nine months ended September 30, 2017, the Company purchased $2.8 million loans from third parties.

16


During the three and nine months ended September 30, 2018, the Company sold approximately $6.2 million and $26.0 million of held-to-maturity portfolio loans to third parties, respectively. During the three and nine months ended September 30, 2017, the Company sold approximately $73.4 million and $232.3 million of held-to-maturity 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 $3,417 thousand and $(2.7) million between non-accretable and accretable discount during the nine months ended September 30, 2018 and 2017, respectively.
Changes in accretable discount for ASC 310-30 loans for the nine months ended September 30, 2018 and 2017, were as follows:
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
 
(Dollars in thousands)
Balance at January 1,
 
$
41,162

 
$
60,990

Additions to accretable discount from FLCB acquisition
 
14,393

 

Accretion
 
(10,857
)
 
(13,965
)
Reclassifications from (to) non-accretable difference
 
3,417

 
(2,747
)
Balance at September 30,
 
$
48,115

 
$
44,278





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. During the second quarter 2018, the Company released an unallocated allowance for loan loss of $1.5 million, which was recorded in prior year in response to Hurricane Irma.

17


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 July 1, 2018
 
$
15,381

 
$
3,946

 
$
7,310

 
$
4,076

 
$
704

 
$
18,934

 
$
219

 
$
50,570

Provision (credit) for ASC 310-30 loans
 
(26
)
 
(3
)
 
14

 
(115
)
 

 
(66
)
 
(16
)
 
(212
)
Provision (credit) for non-ASC 310-30 loans
 
(8
)
 
(3
)
 
(35
)
 
71

 
2

 
129

 

 
156

Provision (credit) for New loans
 
560

 
(141
)
 
(333
)
 
1,228

 
(24
)
 
994

 
(8
)
 
2,276

Provision (credit) for Unallocated
 

 

 

 

 

 

 

 

Total provision
 
526

 
(147
)
 
(354
)
 
1,184

 
(22
)
 
1,057

 
(24
)
 
2,220

Charge-offs for ASC 310-30 loans
 
(1
)
 

 
(22
)
 

 

 

 
(4
)
 
(27
)
Charge-offs for non-ASC 310-30 loans
 
(118
)
 

 

 

 

 

 

 
(118
)
Charge-offs for New loans
 

 

 

 

 

 

 

 

Total charge-offs
 
(119
)
 

 
(22
)
 

 

 

 
(4
)
 
(145
)
Recoveries for ASC 310-30 loans
 
366

 
3

 
1

 
93

 

 
7

 

 
470

Recoveries for non-ASC 310-30 loans
 

 

 
23

 

 

 

 

 
23

Recoveries for New loans
 

 
9

 

 

 

 

 

 
9

Total recoveries
 
366

 
12

 
24

 
93

 

 
7

 

 
502

Ending ALL balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASC 310-30 loans
 
1,556

 

 
8

 
103

 

 
80

 
119

 
1,866

Non-ASC 310-30 loans
 
188

 
51

 
144

 
130

 
204

 
447

 
3

 
1,167

New loans
 
14,410

 
3,760

 
6,806

 
5,121

 
478

 
19,471

 
69

 
50,115

Unallocated